Intraday Economic News: First-Quarter Nonfarm Productivity Was Revised Up To 1.8%
First-quarter nonfarm productivity was revised up to a 1.8% quarter-over-quarter growth pace from the previously reported 1.6% rate. It is still weaker than the 2.9% rate seen the quarter before. It was about in line with the market expectation of 1.7%. Unit labor costs were up 0.7%, downwardly revised from a 1.0% pace. The data were close to expectations to have only a minor impact on markets today as investors worry about tomorrow's jobs release.
NEWYORK/WASHINGTON: Ratings agency Moody's warned on Thursday it would consider cutting the United States' coveted top-notch credit rating if the White House and Congress do not make progress by mid-July in talks to raise the U.S. debt limit.
Treasury Secretary Timothy Geithner , seeking to convince Congress to increase his borrowing authority and prevent a government default, went to Capitol Hill to press his case in a 45-minute meeting with first-term lawmakers.
"I am confident that two things are going to happen this summer," Geithner told reporters after the meeting. "One is that we are going to avoid a default crisis and we are going to reach agreement on a long-term fiscal plan."
The meeting occurred just hours after Moody's Investors warned that slow-moving deficit talks led by Vice President Joe Biden , hindered by entrenched positions on both sides, had increased the odds of a short-lived default by Washington.
Moody's warning increases pressure on President Barack Obama and House of Representatives Speaker John Boehner, the top Republican in the U.S. Congress, to strike a deal soon or risk upsetting global financial markets.
Geithner has predicted a financial catastrophe if Congress fails to increase the current $14.3 trillion borrowing cap by Aug. 2, when his department will exhaust the extraordinary cash management measures it has been using since reaching the debt limit on May 16.
Geithner said he had a "good meeting" with the first-term lawmakers, but some of the skeptical Republicans, who oppose increasing the debt limit without implementing deep spending cuts, were less pleased.
"It is frustrating when the secretary talks in circles and that is very unfortunate," said Representative Stephen Lee Fincher. "We are all big boys and girls. We need a framework put forward and we are not seeing that out of this administration, only seeing talk, talk and talk."
Representative Kristi Noem, a favorite of the fiscally conservative Tea Party movement, said the freshmen Republicans made it clear to Geithner that they would not "give this administration a blank check to spend even more."
"Secretary Geithner doesn't get it," said Noem, one of the "mama grizzlies" touted by ex-Alaska Governor Sarah Palin.
But a Treasury official characterized the talks with lawmakers as friendly and constructive.
POLITICAL GRANDSTANDING Saying the risk of "continuing stalemate" between the two sides had grown, Moody's urged progress on deficit reduction soon before politics takes over in the run-up to the November 2012 presidential election.
"We think this is an opportunity," Steven Hess, sovereign credit analyst for Moody's, told Reuters. "If this opportunity goes by without them realizing a serious long-term debt/deficit reduction program, then we think that until the presidential election, the chances of such an agreement are really much reduced."
Mary Miller, a top Treasury official, said the Moody's statement underscored the need for Congress to move quickly to make sure the United States could meet all its debt obligations while working to reach a long-term fiscal deal.
A U.S. default would roil global financial markets, but few investors are rattled just yet. Wall Street, in large part, expects the debt and deficit negotiations to go down to the wire, as did talks over tax cuts and the 2011 budget.
"We've been through this political grandstanding before," said Jim Kochan, chief fixed-income strategist at Wells Fargo Advantage Funds.
"We always go right down to the day on debt ceiling targets being raised. No congressman and no president wants to be responsible for Social Security payments not going out. This is a minimal risk. We've seen this so many times."
Obama has tasked Biden to lead negotiations with Republican and Democratic lawmakers to find a deficit-reduction deal that would be palatable to Congress and pave the way for the debt limit to be raised. Their talks are due to resume on June 9.
But Republicans refuse to consider tax increases as part of a deal, while Democrats are opposed to Republican proposals to scale back the popular government-run Medicare healthcare program for future retirees.
Republicans seized on the announcement by Moody's, which comes two months after Standard & Poor's revised down its credit outlook on the U.S. rating, as proof of the need to make some sharp spending cuts.
"This report makes clear that if we let this opportunity pass without real deficit reduction, America's financial standing will be at risk," said Boehner. "A credible agreement means the spending cuts must exceed the debt limit increase.
Senator Charles Schumer, a top Democrat, said a compromise that prevents a "catastrophic default on our obligations and significantly reduces the debt is within reach."
Treasury Secretary Timothy Geithner , seeking to convince Congress to increase his borrowing authority and prevent a government default, went to Capitol Hill to press his case in a 45-minute meeting with first-term lawmakers.
"I am confident that two things are going to happen this summer," Geithner told reporters after the meeting. "One is that we are going to avoid a default crisis and we are going to reach agreement on a long-term fiscal plan."
The meeting occurred just hours after Moody's Investors warned that slow-moving deficit talks led by Vice President Joe Biden , hindered by entrenched positions on both sides, had increased the odds of a short-lived default by Washington.
Moody's warning increases pressure on President Barack Obama and House of Representatives Speaker John Boehner, the top Republican in the U.S. Congress, to strike a deal soon or risk upsetting global financial markets.
Geithner has predicted a financial catastrophe if Congress fails to increase the current $14.3 trillion borrowing cap by Aug. 2, when his department will exhaust the extraordinary cash management measures it has been using since reaching the debt limit on May 16.
Geithner said he had a "good meeting" with the first-term lawmakers, but some of the skeptical Republicans, who oppose increasing the debt limit without implementing deep spending cuts, were less pleased.
"It is frustrating when the secretary talks in circles and that is very unfortunate," said Representative Stephen Lee Fincher. "We are all big boys and girls. We need a framework put forward and we are not seeing that out of this administration, only seeing talk, talk and talk."
Representative Kristi Noem, a favorite of the fiscally conservative Tea Party movement, said the freshmen Republicans made it clear to Geithner that they would not "give this administration a blank check to spend even more."
"Secretary Geithner doesn't get it," said Noem, one of the "mama grizzlies" touted by ex-Alaska Governor Sarah Palin.
But a Treasury official characterized the talks with lawmakers as friendly and constructive.
POLITICAL GRANDSTANDING Saying the risk of "continuing stalemate" between the two sides had grown, Moody's urged progress on deficit reduction soon before politics takes over in the run-up to the November 2012 presidential election.
"We think this is an opportunity," Steven Hess, sovereign credit analyst for Moody's, told Reuters. "If this opportunity goes by without them realizing a serious long-term debt/deficit reduction program, then we think that until the presidential election, the chances of such an agreement are really much reduced."
Mary Miller, a top Treasury official, said the Moody's statement underscored the need for Congress to move quickly to make sure the United States could meet all its debt obligations while working to reach a long-term fiscal deal.
A U.S. default would roil global financial markets, but few investors are rattled just yet. Wall Street, in large part, expects the debt and deficit negotiations to go down to the wire, as did talks over tax cuts and the 2011 budget.
"We've been through this political grandstanding before," said Jim Kochan, chief fixed-income strategist at Wells Fargo Advantage Funds.
"We always go right down to the day on debt ceiling targets being raised. No congressman and no president wants to be responsible for Social Security payments not going out. This is a minimal risk. We've seen this so many times."
Obama has tasked Biden to lead negotiations with Republican and Democratic lawmakers to find a deficit-reduction deal that would be palatable to Congress and pave the way for the debt limit to be raised. Their talks are due to resume on June 9.
But Republicans refuse to consider tax increases as part of a deal, while Democrats are opposed to Republican proposals to scale back the popular government-run Medicare healthcare program for future retirees.
Republicans seized on the announcement by Moody's, which comes two months after Standard & Poor's revised down its credit outlook on the U.S. rating, as proof of the need to make some sharp spending cuts.
"This report makes clear that if we let this opportunity pass without real deficit reduction, America's financial standing will be at risk," said Boehner. "A credible agreement means the spending cuts must exceed the debt limit increase.
Senator Charles Schumer, a top Democrat, said a compromise that prevents a "catastrophic default on our obligations and significantly reduces the debt is within reach."
Moody's may downgrade Bank of America, Citi, Wells Fargo
International Economic Highlights (May 26-June 1, 2011)
This article includes summaries of the major economic releases for the past week. Release information is broken up by region: U.S., Europe, and Asia-Pacific.
The last bullet point for each region highlights the upcoming economic reports. When there is a number in parentheses after the date, it is our forecast.
U.S.
- The ADP private payrolls added only 38,000 new jobs in May, its lowest since September and less than one-fourth the 180,000 new jobs that the consensus expected. The goods producing sector lost 10,000 jobs, the first decline in seven months. The service sector gained 48,000 new jobs, much softer than expected though still its 17th straight gain. Although bad weather is partly to blame, the figure increases worries that the recent slowdown in the economy is turning into something more severe.
- The S&P/Case-Shiller March 20-City index fell 3.6% over last year, as expected. The 33.1% decline from its July 2006 peak is now less than the previous trough of 32.6% set in April 2009, to officially confirm a double dip in U.S. home prices. Twelve MSAs posted new index lows. On a year-over-year and month-to-month basis only Washington D.C. posting gains.
- The National Association of Realtors reported that its Pending Home Sales index fell 11.6% in April and is down 26.5% year over year. All four regions showed sharp declines, led by a 17.2% plunge in the South. The data suggest weakness in existing home sales in the next two months.
- The ISM manufacturing index fell almost seven points to 53.5 in May, though was not too surprising given the weak Chicago PMI release. It still remains at more than the 50-point benchmark rate. The employment index fell to 58.2 from 62.7 in April while new orders plunged more than 10 points to 51.0 in May. The weak reading adds to market concerns that the recovery is starting to falter.
- Chicago PMI fell more than 10 points to a two-year low of 56.5 in May, well below the 67 that the consensus expected and is the weakest reading since November 2009. New orders plunged to 53.5 from 66.3 in April. Employment fell to a still-high 60.8 in May from 63.7 the month before.
- U.S. construction spending rose 0.4% month over month in April but is still 9.3% below the April 2010 figure. It comes after March was sharply downwardly revised to a 0.4% gain from the 1.4% increase previously reported. Residential construction spending jumped 3.1% in April and is down 12% over last year. Nonresidential construction spending edged down 0.8% in April and remains down 8.0% over last year. Overall public sector spending was down 1.9% in April, which the 1.7% gain in private spending only partially offset.
- Real GDP growth in the first quarter was revised upward to a 1.8% annual rate from the 1.7% reported last month. The revision disappointed markets, which were looking for a much bigger upward revision to 2.2%. A sharp downward revision to consumer spending offset upward revisions to exports and residential and nonresidential construction. Inventories and imports were also revised upward. Corporate profits rose only 1.3% in the first quarter, less than expected. The GDP price index rise was unchanged at 1.9%. The report was a severe disappointment, but is old news. Still, it shows a bigger loss of momentum than expected and, especially given the slow start to the second quarter, suggests growth may remain even more sluggish than previously thought.
- In contrast to the 4.5-point increase to 74.3 seen in the University of Michigan sentiment survey, the Conference Board's U.S. consumer confidence index fell almost six points to 60.8 in May. It was the lowest reading in six months and much weaker than the slight increase to 67 that the consensus expected. The expectations index saw the largest drop, down to 75.3 from 83.2 in April. The present situation index edged down to 39.3 in May from 40.2 in April.
- Personal income rose 0.4% in April. Consumer spending was also up 0.4%, though in real terms spending rose a meager 0.1%. Disposable income rose only 0.3%, on higher April tax payments that helped narrow the April budget gap. The saving rate held at 4.9% in April.
- Initial claims for unemployment insurance benefits rose 10,000 in the week ended May 21, to 424,000, less than an expected drop to 400,000. The number of persons receiving benefits under the standard program fell 46,000 in the week ended May 14, to 3.69 million. The insured unemployment rate fell 0.1% to 2.9%. The number receiving Emergency Unemployment Compensation under the stimulus bill fell 57,119 to 3.41 million in the week ended May 7, down from 5.05 million a year earlier.
- Oil prices rose more than $4 to $103 per barrel (midday) earlier this week on a weaker dollar, though dipped to less than $101 per barrel (midday) after a string of sour data Wednesday weighed on prices.
- U.S. bond yields fell to a 2011 low of 2.98% on Wednesday (midday) as weak economic data and Europe's debt trouble boosted demand for the Treasury. Mortgage rates dropped by 11 basis points (bps) to 4.58%. Mortgage applications decreased by 4% during the week ended May 27 after it rose by 1.1% the previous week. The refi index increased by 5.7% from a 0.9% rise the prior week and is at its highest level since the week ending Dec. 10, 2010. The purchase index was stable this week, after a drop of 0.8% reported the week before.
- The dollar dropped against most trading partners this week, on a slew of weaker than expected U.S. economic data. The euro rose to $1.443/€ on Wednesday (midday) from $1.441/€ the week before. The yen was ¥80.82/$, near the ¥82.72/$ seen last week.
- The Canadian economy accelerated at a very solid rate in the first quarter of 2011, with overall growth advancing from 3.1% year over year in the fourth quarter of 2010 to 3.9% year over year in the first quarter of 2011.
- Coming releases: Productivity (June 2; 2%). Jobless claims (June 2; 410,000). Factory orders (June 2; negative 1.2%). Nonfarm payrolls (June 3; 125,000). Unemployment rate (June 3; 8.9%). ISM-nonmfg (June 3; 55). Consumer credit (June 7; $8 billion). Trade balance (June 9; negative $50 billion). Jobless claims (June 9). Wholesale trade sales (June 9; 1%). Import prices (June 10; 0.2%). Treasury budget (June 10; negative $130 billion).
Europe
- The eurozone unemployment rate held at 9.9% in April for the third consecutive month. The number of jobless across the eurozone fell by 115,000 in April to stand at a 19-month low of 15.529 million. The French unemployment rate dropped slightly to 9.2% in first-quarter 2011 from 9.3% in fourth-quarter 2010.
- German retail sales increased 0.6% month over month in April after falling by 2.7% month over month in March. On an annual basis, retail sales bounced back to 3.6% in April 2011 from negative 3.6% in April 2010.
- The eurozone PMI for manufacturing activity dropped to a seven-month low of 54.6 in May from 58.0 in April, indicating that production is in danger of slowing in the near term.
- French consumer spending dropped 1.6% in April after falling 0.7% in March as higher energy costs reduced disposable income.
- The European Commission's economic sentiment index for the eurozone retreated to a seven-month low of 105.5 in May from 106.1 in April. In contrast, the GFK U.K. consumer confidence saw a sharp rebound in May, to a five-month high of negative 21 after trending down to negative 31 in April.
- The eurozone CPI edged back to 2.7% in May from the 30-month high of 2.8% seen in April. A key factor for the drop in inflation was a significant decline in oil prices from April peak levels.
- Coming releases: U.K. CIPS construction PMI (June 2). Italy/France/Germany PMI- Services (June 3). Germany factory orders (June 6). U.K. retail sales (June 6). EMU PPI (June 6). U.K. HBOS house prices (June 7). Switzerland CPI (June 7). Germany unemployment rate (June 8).
Japan And Other Asia-Pacific
- Japan's industrial production rose by 1% month over month in April after dropping 15.5% month over month in March. A 12.8% gain in general machinery makers, largely from firm demand for semiconductor equipment, led the growth. Industrial production in Korea dropped by 1.5% month over month in April.
- China's PMI dropped to 52 in May from 52.9 in April and is at the lowest level since August 2010 on the back of strong monetary policy tightening that appears to be slowing the manufacturing sector in China. A rate of more than 50 indicates an expansion in the manufacturing sector, whereas less than 50 indicates a contraction.
- India's GDP rose by 8.2% year over year in the fourth quarter of 2010 after an 8.9% year-over-year gain in the previous two quarters on slightly softer growth mining and manufacturing output. The fourth-quarter figures bring GDP growth for the whole fiscal year to 8.8%.
- Higher dairy, meat, and petroleum prices boosted New Zealand's terms of trade to its highest level in 37 years in the first quarter of 2011. Export prices gained 6.3%, and import prices rose 5.4%.
- Singapore's manufacturing output declined 9.5% year over year, reversing 26.3% year-over-year growth in March. On a monthly basis, industrial production recorded a decline of 16.3% compared with 25.8% growth for March.
- Singapore CPI increased by 4.5% in April 2011 because of higher cost of housing and food.
- Hong Kong's retail sales strengthened further in April to 27.7% year over year, accelerating from a rise of 26.2% recorded in March as robust consumer sentiment and the influx of tourist arrivals continued to prompt spending.
- Coming releases: Auto sales (June 2). Leading index (June 7). Trade balance (June 7). GDP (June 8), Consumer confidence (June 9), Tertiary industry index (June 9). Machinery orders (June 12). MoF business outlook survey (June 13).
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