US economists more pessimistic, citing trade as major risk: survey

WASHINGTON - Economists have become more concerned about US growth prospects, citing trade friction as the major worry, but recession risks have receded slightly, according to a survey released Monday.

Nearly half of the panel surveyed by the National Association for Business Economics expect a recession before the end of next year, down from 60 percent in the prior survey.

The panel expects the world's largest economy to slow, with growth falling below 2 percent for the first time since 2016, the survey showed.

Recent data have shown the US labor market remains strong, but manufacturing is in recession while the larger services sector is slowing, giving rise to fears about the health of the US economy, especially amid President Donald Trump's grinding trade war with China and increasing tensions with Europe.

The NABE panel "turned decidedly more pessimistic about the outlook over the summer, with 80 percent of participants viewing risks to the outlook as tilted to the downside," said Gregory Daco, the group's survey chair and chief US economist at Oxford Economics.

"The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to US economic activity," he said in a statement on the findings in the quarterly survey.

Looking further out, 69 percent of the panel expects a recession by mid-2021.

The Federal Reserve has cut interest rates twice this year and many market analysts expect more stimulus to be announced later this month, but the NABE panel was less convinced.

Daco said over 40 percent anticipate at least one more rate cut this year, while three-quarters of respondents expect at least one rate cut by the end of 2020.

The median forecast by the panel is for growth of 2.3 percent this year, slowing to 1.8 percent next year after 85 percent of the panel cut their real GDP projections.

source: news.abs-cbn.com

U.S. durable goods data points to pickup in business spending

WASHINGTON - New orders for key U.S.-made capital goods rose less than expected in March, but a second straight monthly increase in shipments suggested business investment accelerated in the first quarter amid a recovering energy sector.

While other data on Thursday showed a bigger-than-expected increase in first-time applications for unemployment benefits last week, the trend remained consistent with tightening labor market conditions.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.2 percent last month after gaining 0.1 percent in February.

Shipments of these so-called core capital goods rose 0.4 percent after jumping 1.1 percent in February. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Economists had forecast core capital goods orders rising 0.5 percent last month. March's modest increase suggests a loss of momentum in the manufacturing sector after recent strong growth.

Manufacturing, which accounts for about 12 percent of the U.S. economy, is being underpinned by the energy sector revival.

Energy services firm Baker Hughes said last Friday that U.S. oil rigs totaled 688 in the week ending April 21, the most in two years. U.S. drillers have added oil rigs for 14 straight weeks and shale production in May was set for its biggest monthly increase in more than two years.

Business spending on equipment is expected to have accelerated from the fourth-quarter's annualized 1.9 percent growth pace and will likely be one of the few bright spots when the government publishes its advance first-quarter GDP estimate on Friday.

The Atlanta Federal Reserve is forecasting GDP increasing at a 0.5 percent rate in the first quarter, a sharp slowdown from the fourth-quarter's 2.1 percent pace. With the labor market near full employment, the anticipated slowdown in growth likely understates the health of the economy.

TIGHTENING JOBS MARKET

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits rose 14,000 to a seasonally adjusted 257,000 for the week ended April 22.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 112 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller.

Economists had forecast first-time applications for jobless benefits rising to 245,000 last week. Claims, however, tend to be volatile around this time of the year because of the different timings of spring and Easter holidays.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 500 to 242,250 last week, the lowest level since February.

U.S. financial markets were little moved by the data.

Manufacturing could get a lift from President Donald Trump's proposed tax plan, announced on Wednesday, that includes cutting the corporate income tax rate to 15 percent from 35 percent.

Last month, orders for machinery slipped 0.2 percent, but shipments increased 0.7 percent. Orders for primary metals rose in March as did shipments of these products. Electrical equipment, appliances and components orders and shipments also increased last month.

There were, however, declines in orders for fabricated metal products and computers and electronic products.

Last month, overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 0.7 percent after surging 2.3 percent in February. Civilian aircraft orders increased 7.0 percent.

Orders for motor vehicles and parts fell 0.8 percent, declining for a second straight month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

source: news.abs-cbn.com

China Q3 growth seen steadying but property, debt key risks

BEIJING - Fueled by government spending and a housing frenzy, China's economic growth likely steadied at 6.7 percent in the third quarter, but slumping private investment, surging debt and the risk of a property correction are keeping the government and global investors on edge.

Wednesday's data is expected to paint a picture of an economy that is slowly stabilizing but increasingly dependent on government spending and a housing boom for growth, as exports remain stubbornly weak.

Chinese leaders are trying to spur growth to create jobs, but are also facing pressure to push painful structural reforms such as cutting industrial overcapacity, raising the specter of more layoffs and debt defaults.

Government pledges to reduce debt are also fraught with risk, as less leverage almost always means slower economic activity in the short run, a prospect Beijing will be loath to accept as it spends ever more to hit official growth targets.

Economists believe that the greatest near-term risk is a possible correction in the high-flying property market, which accounts for about 15 percent of gross domestic product (GDP). A wave of restrictions imposed on buyers in major cities in recent weeks has resulted in a sharp drop in sales.

"Downward pressure on growth could mount after recently announced property tightening measures. Short-term growth would also likely come under pressure as a reduction in credit growth spurs a fall in spending," analysts at Singapore's DBS Group said in a note.

"Of course, such a deleveraging push could put China's economy on a more sustainable long-term path by reducing the risk of a bad-debt crisis."

Premier Li Keqiang said last week that the economy performed better than expected in the third quarter due to a rebound in factory output, company profits and investment, while adding that debt risks are under control.

However, the forecast for the third-quarter by 58 economists polled by Reuters would still be near the weakest since the global crisis, despite an expected mild improvement in factory output and investment in September.

Analysts at DBS have penciled in growth of 6.5 percent - the poorest showing since the first quarter of 2009, when it slowed to 6.2 percent amid the global crisis.

The government is aiming for growth of between 6.5 percent and 7 percent this year. In 2015, the economy expanded 6.9 percent, its slowest rate in 25 years.

Despite a rocky start, the economy grew 6.7 percent in the first half as the government cranked up infrastructure spending and state banks extended a record amount of credit.

A surprisingly strong third-quarter reading would be a welcome boost for the gloomy global economy as well as financial and commodities markets.

But unexpectedly robust data could fan skepticism about the reliability of Chinese official data. Some market watchers believe current growth is much weaker than government readings suggest.

A weak outcome would raise the risk of more capital outflows and put more pressure on the yuan currency, which has slid to six-year lows. It could also reduce Beijing's appetite for tough reforms.

But analysts believe the central bank may not rush to ease policy, given the government is now leaning more on fiscal spending to generate growth.

source: www.abs-cbnnews.com

Global markets: Asia stocks weak, dollar shines as rate view unchanged

HONG KONG - Asian stocks held near three-week lows and the greenback consolidated recent gains on Thursday after minutes of the last US Federal Reserve policy meeting indicated a December rate increase was still on the cards.

Risk appetite waned, with MSCI's broadest index of Asia-Pacific shares outside Japan easing 0.2 percent, its lowest since Sept. 21. Early stock markets were mixed with Australia down 0.5 percent while New Zealand stocks up 0.4 percent.

"In our view, if you came into these minutes with a December hike pencilled in, there is no reason to change your stance," Omair Sharif, an economist at Societe Generale, wrote in a note.

Wall Street struggled to find fresh momentum after breaking conclusively below a 100-day moving average this week.

The Dow Jones industrial average closed up 0.09 percent, to 18,144.2. The S&P 500 gained 0.11 percent, to 2,139.17 and the Nasdaq Composite .IXIC slipped 0.15 percent, to 5,239.02 with corporate earnings firmly in focus. Volumes were light.

Chinese stocks and the Australian dollar will be firmly in focus with trade data due shortly. Economists will be watching the trade breakdowns carefully to see whether the yuan's recent weakness has had a beneficial impact.

The CBOE Volatility Index, the "fear gauge" of near-term investor anxiety held below 16, indicating broader market uncertainty.

Elsewhere, sterling treaded water after British Prime Minister Theresa May's offer to give UK lawmakers a say in plans to leave the European Union and the US dollar basked in the glow of a likely widening interest rate differential in its favor relative to other currencies.

Within Asia, the Thai baht will be in focus after falling to a eight-month low in the previous session on concerns about the health of 88-year-old King Bhumibol Adulyadej.

Oil prices struggled after falling 1 percent overnight after the Organization of Petroleum Exporting Countries reported its output hit an eight-year high in September, offsetting optimism over the group's pledge to restrict output.

US West Texas Intermediate crude slipped 0.62 percent to trade at $49.87 a barrel. Gold stabilized around the $1,250 per ounce level after falling sharply last week.

source: www.abs-cbnnews.com

Global markets: Dollar firms, US stocks steady before jobs data

NEW YORK - The US dollar gained on Thursday against a basket of currencies, hitting its highest level in more than two months and pressuring gold prices, as strong labor market data gave support to a possible US interest rate hike later this year.

The benchmark S&P 500 stock index ended barely higher while Treasury yields rose to three-week highs as investors positioned ahead of the closely watched US employment report due out on Friday.

In an encouraging sign for the labor market, data on Thursday showed the number of Americans filing for unemployment benefits unexpectedly fell last week to near a 43-year low.

Oil prices continued to climb, with US crude breaking through $50, spurred by an informal meeting among the world's biggest producers on output cuts and plunging US crude inventories.

The dollar rose to its highest against the yen in a month, and pinned sterling firmly to a three-decade low on worries about Britain's exit from the European Union. Against a basket of currencies, the greenback gained 0.6 percent.

Strong US jobs numbers could cement expectations of a Federal Reserve rate increase later this year and ripple through markets. Economists polled by Reuters forecast non-farm payrolls to increase by 175,000.

Traders were betting on a 64-percent chance the Fed will hike rates in December, up slightly from a day earlier, according to the CME FedWatch website.

"If you look at the economic data for the past month, pretty much across the board it's better and in some cases materially better than expectations," said Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina. "All of that would seem to push the Fed to move."

In the US equity market, the Dow Jones industrial average fell 12.53 points, or 0.07 percent, to 18,268.5, the S&P 500 gained 1.04 points, or 0.05 percent, to 2,160.77 and the Nasdaq Composite dropped 9.17 points, or 0.17 percent, to 5,306.85.

Gains in Apple, bolstered by optimism about the iPhone, countered a drag from Wal-Mart Stores, which tempered its profit expectations.

The pan-European STOXX index fell 0.4 percent. Shares of British budget airline easyJet tumbled after a weak profit report.

MSCI's gauge of stocks across the globe dipped 0.12 percent.

Europe's benchmark German bond yield edged briefly back above zero, reversing earlier falls, as a selloff in the British government bond market spilled over into the euro area.

Britain's 10-year gilt yield jumped nearly 10 basis points to a three-week high.

Benchmark 10-year US notes were last down 7/32 in price to yield 1.74 percent, up from nearly 1.72 percent late on Wednesday.

Oil rallied to fresh four-month highs.

Brent crude futures settled up 1.3 percent at $52.51 a barrel. US crude settled up 1.2 percent at $50.44 a barrel, eclipsing $50 for the first time since June.

"The fact that you've got crude look like it's willing to hold around that $50 level I think is a positive for the (stock) market," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. "That's maybe another confirmation giving a positive tone to future economic activity."

Spot gold dropped 1.1 percent and touched a four-month low, falling for an eighth straight session.

source: www.abs-cbnnews.com

US job openings hit record high; small businesses upbeat

WASHINGTON - U.S. job openings surged to a record high in April and small business confidence perked up in May, suggesting the economy was regaining speed after stumbling at the start of the year.

The economy's stronger tone was reinforced by other data on Tuesday showing a solid rise in wholesale inventories in April, in part as oil prices stabilized.

"This is more confirmation that the economy is indeed emerging from that soft patch in the first quarter and can still pick up even faster in the next few months," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

Job openings, a measure of labor demand, rose 5.2 percent to a seasonally adjusted 5.4 million in April, the highest level since the series began in December 2000, the Labor Department said in its monthly Job Openings and Labor Turnover Survey (JOLTS).

Hiring slipped to 5.0 million from 5.1 million in March. Economists say the lag in hiring suggests that employers cannot find qualified workers for the open positions.

The number of unemployed job seekers per open job, a measure of labor market slack, fell to 1.6 in April, the lowest since 2007 and down from 1.7 in March.

"On balance, we read the April JOLTS data as suggesting labor market momentum remains intact in the second quarter and labor market slack continues to diminish," said Jesse Hurwitz, an economist at Barclays in New York.

The JOLTS report is one of the indicators being closely watched by Federal Reserve policymakers as they contemplate raising interest rates this year. The U.S. central bank has kept the short-term lending rate near zero since December 2008.

Tightening labor market conditions were corroborated by a separate report from the National Federation of Independent Business that showed confidence among small businesses rising to a five-month high in May.

The share of businesses saying they could not fill open positions also increased to 29 percent last month, matching February's reading, which was the highest since April 2006.

REGAINING STEAM
The economy contracted at a 0.7 percent annual pace in the first quarter and growth got off to a slow start in the second quarter, in part because of the lingering effects of a strong dollar and spending cuts in the energy sector.

But a surge in job growth and automobile sales as well as gains in May factory activity suggest the economy is strengthening.

Prices for U.S. government debt fell, while U.S. stock indexes edged up. The dollar slipped against a basket of currencies.

In a third report, the Commerce Department said wholesale inventories increased 0.4 percent in April after rising 0.2 percent in March. Inventories are a key component of gross domestic product changes.

The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - rose 0.2 percent, prompting economists at Barclays to bump up their second-quarter growth estimate by one-tenth of a percentage point to a 2.9 percent annualized rate.

Sales at wholesalers surged 1.6 percent in April, the largest rise since March of last year. Sales had been weak since last August, in part due to the negative impact of lower oil prices on the value of petroleum goods sales.

That had led to an accumulation of inventory, leaving wholesalers with little appetite to buy more merchandise.

Petroleum sales jumped 4.9 percent in April.

At April's sales pace it would take 1.29 months to clear shelves, down from 1.30 months in March. An inventory-to-sales ratio that high usually means an unwanted inventory buildup, which would require businesses to liquidate stocks. That would weigh on manufacturing and economic growth.

Economists, however, caution against reading too much into the elevated inventory-to-sales ratio, given the role that oil prices have played in depressing the value of petroleum goods sales.

Still, they expect an inventory drawdown in the quarters ahead, which is one of the reasons for less robust second-quarter GDP growth estimates. Inventories added a third of a percentage point to first-quarter GDP.

source: www.abs-cbnnews.com

Home Prices Are Expected to Peak in 2016, Then Do Pretty Much Nothing Through 2022

Are you still looking to buy a place before time runs out? Don’t want to miss out on the next big housing boom?

Well, it might already be too late, assuming you’re looking to turn a big profit, or any profit at all.

A new report from two bond strategists at Bank of America Merrill Lynch, whose merger was a direct result of the latest financial crisis, predicts little upside from current levels.

In fact, after a couple years of modest growth, home prices are basically expected to go nowhere for the foreseeable future.

Home Prices Are Nearly 10% Overvalued Today

The pair, Chris Flanagan and Gregory Fitter, contends that U.S. home prices are now 9.7% overvalued relative to household incomes, using the S&P/Case-Shiller Home Price Index as the measuring stick.

Simply put, incomes haven’t done a whole lot lately, but home prices (as we all know) have surged since the crisis abated.

In fact, even after chalking double-digit gains from 2012 to 2013, asking prices in many hot markets are still more than 10% above year-ago levels.

According to their math, home prices were about six percent below fair value at the end of 2011. So it looks as if we overshot the mark once more.

Unfortunately, after stellar gains like that it’s pretty difficult to keep the momentum going, even with limited supply and low mortgage rates available.

After all, affordability has its limits, and it’s finally being tested after a few silly good years.


Not Much to Look Forward to Now

While they noted that their outlook is “well out of consensus,” Flanagan and Fitter only see home prices rising another three percent annually each year for the next two years.

That would push home prices to a level that is around 12% above fair value as determined by household income, compared to six percent below fair value when home prices bottomed in late 2011.

Then from 2016 to 2022, their model forecasts modest declines followed by an eventual recovery resulting in flat net annualized home price gains over that period.

In other words, after this current seller’s market spits out a few more nominal gains, home prices are going to settle into a range and stay there. Of course, that’s not necessarily a bad thing.

In fact, the pair thinks it’s a “fantastic outcome” and just what policymakers had in mind when establishing new regulatory framework and lending laws.

Their research echoes that of Trulia’s Bubble Watch, which revealed that home prices were still about three percent undervalued, but expected to be just right by the end of the year, or early next year.

The takeaway here is that no one wants another housing bubble just years after the worst financial crisis in recent history.

So yes, it’s a bummer that home prices aren’t going to continue flying higher and higher, but it should mean a more sustainable market for years to come.

Of course, these are all just assumptions and predictions. Economists are often wrong (and typically never right), so taking their word for it is a bit of a stretch as well.

Additionally, I doubt any model predicted home prices would rise as much as they did during the last boom, so assuming they won’t deviate from “normal levels” this time around is also hard to swallow.

Lastly, remember that this is the national picture, and that home prices can and will vary tremendously from metro to metro.

I’m just curious what will happen after 2022…

source: thetruthaboutmortgage.com

What's behind the wave of market anxiety?

What has caused the sudden anxiety attack that overwhelmed financial markets after the New Year? We may find out the answer at 8.30 on Friday morning, Eastern Standard Time.

Almost all agree that the market turmoil has been linked to alarming events in several emerging economies - including Turkey, Thailand, Argentina and Ukraine - that has spilled over into concerns about more important economies, such as China, Russia, South Africa, Indonesia and Brazil.

But why has near-panic hit so many emerging markets at the same time?

There seem to be four broad explanations. Whether this current volatility marks the end of the straight-line ascent in asset prices that started in March 2009, or whether it is just another opportunity to "buy on dips," will largely depend on the relative importance of each of these factors.

Most headlines about the emerging market instability blamed China - especially a plunge in Chinese economic statistics released New Year's Day.

If China is really the main cause, investors can relax. Not because China's weakness and credit tightening is an illusion, but because virtually every business and investor in the world has been aware of the Chinese slowdown for more than a year now. And so has Beijing.

The Chinese authorities, having achieved the slowdown and credit tightening they were seeking, now have both the tools and the willingness to keep credit from tightening much further and growth from falling significantly below the recent pace of roughly 7 percent.

The second explanation of the turmoil has been the tightening of global credit conditions due to the U.S. Federal Reserve's December decision to "taper" its program of printing money and buying bonds. This is another threat that is more apparent than real.

Financial conditions have certainly deteriorated in many emerging economies. But to blame this on a global tightening of credit makes no sense. The Fed is still printing new money at a rate of $65 billion monthly, while the Bank of Japan is expanding its balance sheet by an average of $58 billion each month - with a strong possibility that even more aggressive monetary expansion will be announced in the next few weeks.

More important, it is now clear that short-term interest rates will remain near zero in the United States, Japan and Europe until well into 2015. As for long-term interest rates, far from rising on expectations of tighter monetary conditions from 2016 on, have fallen sharply since the end of last year. So it is impossible to blame this financial turmoil on tightening credit or fears of an increase in U.S., European or Japanese interest rates.

If credit in the developed world is still abundant and interest rates falling, why is the tide of global capital flowing out of so many emerging economies? The answer may lie in two problems that are actually more worrying than either the Chinese slowdown or Fed tapering.

The biggest threat to emerging economies is flight of domestic capital - as savers and businesses inside these nations lose confidence in the safety of their savings, the integrity of their currencies or the stability of their political systems.

When domestic capital starts to flee, the outflow can quickly overwhelm apparently strong policy defences, such as foreign exchange reserves, monetary tightening or apparently healthy trade accounts. As this capital flight accelerates, more domestic savers lose confidence in their governments, leading to more capital flight and then even greater economic and political instability.

This vicious circle of financial panic leading to political instability can quickly degenerate into death spirals that end with revolutions and military coups. A pattern familiar from many EM politico-economic crises.

But before getting too apocalyptic, we should remember that such vicious circles can also reverse and turn into virtuous circles - often in response to quite small improvements in domestic policies and global economic conditions.

Which brings us to the last possible explanation of the recent scary market dynamics.

Perhaps the main reason for the sudden swing of the global financial pendulum from greed back to fear has been the deterioration in U.S. economic data that started with the shockingly weak U.S. payroll employment report of January 10.

Economists dismissed that report as an aberration, due to exceptionally cold weather. It was indeed inconsistent with most other data - such as last week's gross domestic product figures, which showed strong U.S. growth in the fourth quarter, despite the government shutdown. The private sector expanded at a boom-time rate of 5.1 percent.

But despite such conflicting evidence, many investors have chosen to follow the aberrantly weak payroll figures - though few people believe them to be accurate.

This should not be surprising, however. Financial markets are driven not just by what investors believe, but also by what investors think other investors believe.

As I have often pointed out in this column, the monthly U.S. employment figures have largely determined the direction of financial markets the world over since mid-2009. After the 2008 Lehman Brothers crisis, it seems that investors have simply not been prepared to believe in a global economic recovery unless they could see evidence of strong U.S. job growth.

It is therefore possible that decent U.S. employment figures are a key condition for financial confidence to be restored - not just on Wall Street, but also in Istanbul, Moscow and Sao Paulo.

The next U.S. employment figures are due out at 8.30 on Friday morning. So we will soon find out if this simplistic-sounding theory makes sense.

source: www.abs-cbnnews.com

Consumer Sentiment Slips as Mortgage Rates Rise, Economy Slows

NEW YORK -- U.S. consumer sentiment slid in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead, a survey released Friday showed.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 77.5 in September from 82.1 in August -- the lowest final reading since April.

The September figure was lower than the 78.0 economists had expected in a Reuters poll, but higher than a mid-month preliminary reading of 76.8.

Looming Congressional showdowns over a possible government shutdown and the need to raise the debt ceiling or else face the possibility of default have renewed worries about fiscal policy and legislative gridlock.

"While few consumers expected a federal shutdown, complaints about government policies have risen, and more importantly, prospects for job growth have diminished," survey director Richard Curtin said in a statement.

Other gauges also hit their lowest final reading since April: the gauge of consumer expectations, at 67.8, and the index of current conditions, at 92.6.


While the U.S. Federal Reserve decided this month not to pull back on its massive bond-buying program yet, analysts still see the Fed scaling back in coming months.

Those views, in turn, have helped push up long-term interest rates by more than a full percentage point since May, with 30-year mortgage rates recently hitting a year high of 4.80 percent.

Economists fear consumer sentiment could weaken further if higher interest rates start to slow momentum in a housing revival that has been one of the brightest spots in the overall U.S. recovery.

The one-year inflation expectation rose to 3.3 percent from 3.0 percent while the five-to-10-year inflation outlook edged up to 3.0 percent from 2.9 percent.

source: dailyfinance.com

Fed likely to reduce bond buying, pass policy milestone

WASHINGTON - The U.S. Federal Reserve is expected to begin its long retreat from ultra-easy monetary policy on Wednesday by announcing a small reduction in its bond buying, while stressing that interest rates will remain near zero for a long time to come.

Most economists expect the Fed to scale back its monthly purchases by a modest $10 billion, taking them to $75 billion and signaling the beginning of the end to an unprecedented episode of monetary expansion that has been felt worldwide.

The baby step would begin to provide a bookend of sorts to the central bank's response to the global financial crisis that reached fever pitch five years ago this week with the collapse of investment bank Lehman Brothers.

"It is an important milestone ... juxtaposed against five years ago, when the Fed began the huge expansion of its balance sheet," said Carl Tannenbaum, chief economist at Northern Trust in Chicago. "This is going to be the first step, potentially, in a very, very long walk."

The Fed will announce its decision in a statement following a two-day meeting at 2 p.m. (1800 GMT), and Fed Chairman Ben Bernanke will hold a news conference a half hour later. It is also set to release fresh quarterly economic and interest rate projections.

In slashing overnight rates to zero in late 2008, the Fed launched an extraordinarily bold campaign to shelter the U.S. economy. The effort included three rounds of bond purchases that more than tripled its balance sheet to around $3.6 trillion.

The actions, unthinkable to many within the Fed prior to the crisis, sparked intense criticism from those who feared the measures would create an asset bubble or fuel inflation.

But the central bank's show of force was credited with saving the U.S. and world economies from a much worse fate.

With the U.S. economy now on a somewhat steady, if tepid, recovery path and unemployment falling, policymakers have said the time was drawing near to begin ratcheting back their bond buying with an eye toward ending the program around mid-2014.

While U.S. government bond yields and mortgage rates have shot higher in anticipation of less Fed support, the central bank will still be expanding its balance sheet for many more months as it tries to wean the economy and financial markets from its ever-expanding stimulus.

YELLEN AND FORWARD GUIDANCE

Fed Chairman Ben Bernanke, in what is likely his penultimate news conference before stepping down in January, is expected to reinforce the central bank's commitment to keep overnight rates near zero for a long time to come as a way to temper any jitters the bond market may feel.

The forward guidance on rates is aimed at holding down longer-term borrowing costs, which encompass investors' views on the path of short-term rates.

That task may have gotten easier after former Treasury Secretary Lawrence Summers withdrew from the race to replace Bernanke when his term ends on Jan. 31, restoring current Fed Vice Chair Janet Yellen to the front-runner position.

Yellen, who would become the first woman ever to hold the job if nominated by President Barack Obama and confirmed by the U.S. Senate, could be expected to maintain the policy path set by the Bernanke-led Fed. Investors and economists were less certain on where Summers might lead the central bank.

"I think that probably does add to the credibility of the forward guidance in terms of the greater expectation of continuity in the basic philosophy and direction of policy," said David Stockton, a former senior Fed economist.

"If there had been as much uncertainty about the transition as there was a week ago, that credibility may have been less secure," said Stockton, who is now a senior fellow at the Peterson Institute for International Economics in Washington.

The Fed has said it will not begin raising rates at least until the unemployment rate hits 6.5 percent, provided inflation does not threaten to pierce 2.5 percent. The jobless rate stood at 7.3 percent in August.

But 10-year bond yields have risen more than a percentage point since Bernanke initially discussed scaling back the Fed's bond purchases, a signal that investors had brought forward their anticipated lift-off date for overnight rates.

Some analysts wonder if the Fed might try to hammer home the message that rates would stay lower for longer by reducing the unemployment threshold to 6.0 percent.

But it could prove hard for Bernanke to muster sufficient support from other members of the central bank's policy-setting committee for such a move.

"They will be hesitant to put in any more explicit forward guidance," said Dean Maki, chief U.S. economist at Barclays Capital in New York. "They really cannot credibly say a lot about 1-1/2 years from now."


source: www.abs-cbnnews.com

Euro zone economy falls deeper into recession

BERLIN/PARIS - The euro zone slipped deeper into recession in the last three months of 2012 after its largest economies, Germany and France, shrank markedly at the end of the year.

It marked the currency bloc's first full year in which no quarter produced growth, extending back to 1995.

Economic output in the 17-country region fell by 0.6 percent in the fourth quarter, the EU's statistics office Eurostat said on Thursday, following a 0.1 percent drop in output in the third quarter.

The drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4 percent drop in a Reuters poll of 61 economists.

For the year as a whole, gross domestic product (GDP) fell by 0.5 percent.

Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.

The big economies set the tone.

Germany contracted by 0.6 percent on the quarter, official data showed, marking its worst performance since the global financial crisis was raging in 2009.

France's 0.3 percent fall was also slightly worse than expectations.

Worryingly for Berlin, it was export performance - the motor of its economy - that did most of the damage although economists expect it to bounce back quickly.

"In the final quarter of 2012 exports of goods declined significantly more than imports of goods," the German Statistics Office said in a statement.

The euro hit a session low against the dollar after the weaker than forecast German reading and dropped again after the release of full euro zone figures.

Back revisions to the French figures showed its output fell by 0.1 percent in each of the first and second quarters of 2012, meaning the country has already experienced one bout of recession in the last twelve months.

While the European Central Bank's pledge to do whatever it takes to save the euro has taken the heat out of the bloc's debt crisis, even its stronger members are gripped by an economic malaise that could push debt-cutting drives off track.

French Prime Minister Jean-Marc Ayrault acknowledged for the first time on Wednesday that weak growth was putting his government's deficit goal for 2013 out of reach.

Economists say the euro zone may also shrink in the first quarter of 2013 although more resilient Germany is expected to rebound.

"The chances that the (German) economy will return to growth at the beginning of this year are very good. The early indicators are all pointing upwards," said Andrea Rees, chief German economist at UniCredit.

"The question is how strong the first quarter will be. We expect growth of 0.3 percent but it could be more."

Dutch GDP dropped 0.2 percent over the quarter, keeping it in recession, while the Austrian economy shrank at the same rate.

WEAK PERIPHERY

For the more embattled members of the currency bloc, matters are of course worse.

Italy suffered its sixth successive quarterly fall in GDP - this time by a sharp 0.9 percent - putting it into a longer slump than it suffered in 2008/2009.

Its recession has been deepened by austerity measures that outgoing Prime Minister Mario Monti introduced to stave off a debt crisis.

With an election due on Feb. 24/25, all sides in a three-way race between Monti's centrist bloc, Pier Luigi Bersani's centre-left coalition and Silvio Berlusconi's centre-right are pledging to cut taxes to try to kickstart economic growth.

Spain, the euro zone's fourth largest economy, released figures two weeks ago which showed it remained deep in recession after a 0.7 percent contraction in the fourth quarter.

Madrid is also pressing on with harsh austerity measures to cut its debt but may be given more time to meet its deficit targets by the European Commission if its economy worsens further.

There are signs that countries like Spain are starting to benefit from harsh internal devaluations - marked by wage falls and job losses aimed at making companies leaner and more productive.

The ECB predicts the euro zone will pick up later in the year although its currency, if it keeps strengthening, could quickly snuff out any of those hard-won competitive advantages for its high debt members.

More recent data for January have already suggested some upturn in the first months of 2013, in the bloc's stronger members at least, and if improvement comes it is likely to be seen in Germany first.

"The debt crisis has ebbed significantly and the global economy has turned up," said Joerg Kraemer at Commerzbank. "Therefore all the important early indicators for Germany are pointing upwards. I expect noticeable economic growth again in the first quarter."

source: abs-cbnnews.com

Confidence teetering in Eurozone, economists warn

It's been more than two decades since the Iron Curtain fell and Europeans embarked on an ambitious mission to build a powerful economic, political and social union in place of the Cold War divide. And for more than two decades, Germans have been footing most of the integration bill.


Compassion fatigue set in long ago among the continent's most prosperous people, and the mounting costs of keeping the Eurozone intact a decade after the common currency was introduced have all but exhausted Germans' generosity toward their needy neighbors.

In this summer of economic discontent that is rattling financial markets worldwide, commitment to the 17-nation Eurozone has been a hard sell for German politicians whose constituents see only more expense and uncertainty with the wobbly fiscal union. Investors, too, seem to have increasing doubts about the euro's future and European Union leaders' ability to forge a viable plan for managing collective finances.

All eyes are on the European Central Bank this week following the vow of its president, Mario Draghi, to do whatever is necessary to keep Spain and Italy in the Eurozone despite skyrocketing interest costs for servicing their massive debts. The bank is constrained by European Union treaty provisions from loaning money directly to governments, and Germany has staunchly opposed proposals for funneling bank funds to needy member states through mechanisms meant to provide strictly supervised bailouts, not to bankroll loans.

The ECB “is ready to do what it takes to preserve the euro. Believe me, it will be enough,” Draghi assured investors last week, bringing about a short-lived reprieve in the interest rates demanded by lenders for 10-year bonds to finance Spanish and Italian debt.

"After Draghi's comments, expectations are quite high that the central bank will take action Thursday. But at the end of the day, the ECB cannot solve this problem," said Keith Savard, senior managing economist at the Milken Institute in Santa Monica.

The ECB can fiddle with collateral requirements and the refinance rate for some short-term relief, but what is needed to restore confidence in the euro is coordinated fiscal strategy and collective guarantees that new loans will be repaid, Savard said. It will take years, he noted, to execute the necessary legislation and treaty revisions once agreement is reached, which appears far from imminent as Germany and other Northern European euro users resist exposing their own good credit to the dodgy finances of some of their neighbors.

Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace in Washington, sees some progress -- "glacial," he said -- toward stabilizing the euro since May, when Greeks voted out the political coalition committed to the euro. Greeks managed to seat a pro-euro government in a second election in June, but they have yet to adopt the belt-tightening measures needed to get vital bailout funds due in August.

"There is urgency -- you see this in the volatility of the markets. But is catastrophe imminent? I don't think so. People know the ECB is there and, when push comes to shove, that the ECB will intervene," said Dadush.

Despite the barriers to direct lending to governments by the central bank, Dadush said it has managed to buy up at least $246 billion in government bonds at below-market interest for heavily indebted euro countries.

"Rules are there to be broken once the politicians decide this is what needs to be done," he said.

German resistance may also be broken, if the crisis escalates and threatens to further damage the market for Germany's cars, technology and other exports, said Fabian Zuleeg, chief economist at the European Policy Center in Brussels.

He is critical, though, of the German government's failure to make a strong case to its citizens about the benefits of preserving the currency union and moving forward with deeper financial integration.

"It's not a very positive way of engaging your citizens when you are scaring them into a situation where you say they don't have a choice," Zuleeg said.

All three economists interviewed Tuesday observed that Washington could help stabilize the euro if it were to buy the bonds of struggling states, demonstrating confidence in the currency that would inspire China, Japan, Brazil and other big economies to do likewise. They also agree there is virtually no chance that will happen, given the United States' own debt issues and a presidential election underway.

U.S. Treasury Secretary Timothy F. Geithner in effect confirmed Tuesday that the euro crisis would be left to the Europeans to resolve.

"This is completely within their financial ability to solve," Geithner said at a Los Angeles World Affairs Council event, although he acknowledged that the politics of the problem may be a more difficult sell.

source: latimes.com

Democrats urge Obama to be more aggressive on jobs

Many want the president to stand up to Republicans and push for bigger, more ambitious programs to boost the economy.


As he sets out on a three-day bus tour of the Midwest focused on the economy, President Obama is coming under growing pressure from fellow Democrats to put forward a more aggressive strategy to create jobs than the one he has been touting for months.


Obama has offered a jobs package crafted to win Republican support in a divided Congress. But he faces two distinct problems: Republicans say they won't vote for several pieces of the plan. And Democrats contend the program, even if enacted in full, would fall short of what's needed to boost job growth or revive Obama's political prospects.

White House advisors said the president's economic team was working on a new approach to jump-start the sluggish economy.

"You'll see more ideas," said Jason Furman, deputy director of the president's National Economic Council. "People here are constantly thinking about new ideas and the president is constantly talking about new ideas."

But Furman and other White House aides have declined to reveal a timetable, and many voters are clearly impatient. Polls show Obama receives poor grades for his handling of an economy that may be slipping back into recession. On Sunday, Gallup reported Obama's overall approval rating had fallen to 39% in its daily tracking, the worst in his presidency.

Obama's jobs agenda, which he plans to tout on his Midwestern tour, calls for $30 billion to rebuild roads, bridges and ports; improvements to the patent system to spur innovation; trade deals with a trio of countries to boost exports; a $40-billion extension of unemployment insurance benefits; and renewal of the current one-year reduction of the payroll tax at a cost of up to $120 billion.

A range of economists and Democratic critics call those ideas inadequate.

Asked about Obama's support for free-trade deals with South Korea, Colombia and Panama, Dean Baker, co-director of the Center for Economic and Policy Research, a center-left think tank, said, "I would think they would be embarrassed to mention it."

"These are small countries, and we already have a lot of trade with them," he added.

Obama's policies "are just not big enough to make much of a difference," said Robert Reich, who was Labor secretary under President Clinton.

Alternative ideas have been floating up from Democratic think tanks, elected officials and strategists: Peter R. Orszag, Obama's former budget director, advocates tripling the size of the payroll tax break — essentially wiping out the payroll tax entirely — and keeping the rate low as long as unemployment remains high.

Others are pressing Obama to take advantage of low interest rates and borrow money to underwrite a far larger public works program. Such a plan would spur enough long-term economic growth to pay off the extra debt, supporters argue.

Mark Zandi, an economist who has advised the Obama administration, suggests making it easier for homeowners to refinance mortgages at today's extremely low rates. The idea would be to eliminate charges that currently make it too costly for some people to refinance. He also advises changing immigration policies so that foreign students with advanced degrees find it easier to stay in the U.S.

Still, "There's no magic bullet here," Zandi said.

White House aides counter that large-scale, costly ideas stand little chance of getting through the Republican-controlled House.

But it's no sure bet that Congress will go along with smaller-scale ideas either. Republican leadership aides said the GOP was supportive of the trade deals and a patent overhaul, although both have stalled several times this year. Obama's call for renewing the payroll tax cut has drawn fire from some Republicans, who argue it would worsen the deficit, and the GOP has also opposed his plan to extend unemployment insurance.

Pollster Stanley B. Greenberg, who polled for Clinton's White House, said voters had little patience for political leaders who limited policy proposals to what the opposition would support. White House officials can "get trapped in 'what can get through Congress' and the constraints of that debate," Greenberg said, recalling similar arguments in the Clinton years. "Voters want you to break out of that" and answer the question, "What are you battling for?" he said.

The complaints about Obama come not only from long-standing critics, but from some who have been supportive in the past.

One Democratic congressman who has defended Obama to fellow liberals said he told White House officials at a recent meeting that they seemed to have Stockholm syndrome — embracing the Republican view that deficit reduction should be a major national priority, in the manner of hostages who come to sympathize with their captors.

Obama "sat in the room with Republicans so long talking about deficit reduction that he seems to be parroting the same lines," said the congressman, speaking on the condition of anonymity to discuss private meetings.

Peter Buttenwieser, a major Democratic fundraiser who is supporting Obama's reelection bid, said the president needed to treat the economy with a sense of urgency that has been lacking.

"He should go after the problem with everything he's got," Buttenwieser said in an interview. "He should travel the country and go where people are not employed and let the country know he cares about this in the pit of his stomach. … I don't think we've seen nearly enough. We've seen virtually nothing."


Source: latimes.com