May 29, 2017

Jobs Data Is Strong, but Not Too Strong, Easing Fed Fears

New jobs data on Friday offered hope for this elusive middle ground in the economy, as the Federal Reserve wrestles with when to ease its stimulus efforts without endangering the recovery and the markets.

The pace of job creation in June was sufficient to please investors and keep the central bank on course to slowly begin pulling back on its major bond-buying program this fall. But the job gains were muted enough to calm worries of an abrupt exit by the Fed, a fear that has weighed on the markets lately.

The employment report, which showed the economy added 195,000 jobs, was the first since the Fed chairman, Ben S. Bernanke, said in June that policy makers were ready to begin tapering the stimulus later this year if the labor market continued to improve. The jobless rate was unchanged, at 7.6 percent.

The timing of the Fed action is critical. The central bank’s program of buying $85 billion a month in Treasury securities and mortgage-backed bonds has not only kept long-term interest rates low for borrowers, including big companies as well as individual home buyers, it has also helped prop up Wall Street.

The possibility that the Fed might move more quickly than expected to dial back the program has prompted investors to sell both stocks and bonds in the last six weeks and has raised rates on mortgages and other loans.

Buoyed by the promise of moderate economic growth and a slow but steady tapering on the part of the Fed, traders pushed the stock market higher on Friday, with major indexes gaining about 1 percent.

The 195,000 jobs added in June was significantly above the 165,000 monthly pace analysts had been expecting. And the government sharply revised upward figures for job gains in April and May, increasing the average monthly gain in the first half of 2013 to 202,000 jobs.

But the picture painted by the data hardly reflected a booming economy.

The unemployment rate, which is based on a different survey from the one that tracks job creation, remained stuck at 7.6 percent, far higher than the historical pattern for this stage of a recovery. Other measures of joblessness actually rose, with the broadest one that includes workers forced to accept part-time positions jumping to 14.3 percent, from 13.8 percent.

“Beyond the headline numbers for job growth, it gets a little more mixed,” said Jan Hatzius, chief economist at Goldman Sachs. “There is still a lot of slack in the labor market.”

Although the economy has held up better than some analysts expected in the face of tax increases and automatic cuts in federal spending this year, overall growth in economic output has also been tepid. The economy grew at an annual rate of 1.8 percent in the first quarter, short of what’s needed to quickly lower the unemployment rate.

Still, the job figures for June were enough to prompt Mr. Hatzius and other leading economists on Wall Street to predict that the Fed could announce a shift in policy in September, rather than waiting until December.

“This was a solid report and it will be seen by the Fed as fully consistent with tapering in September,” said Dean Maki, chief United States economist at Barclays.

In addition, Mr. Maki noted, average hourly earnings rose 2.2 percent year-over-year, a pace that is near a high for this recovery. Before setting a firm date, Fed policy makers will be closely watching to see if the job market maintains momentum through July and August. “It’s not a done deal in September, just more likely,” Mr. Hatzius said.

That was benign enough for traders on Friday. The Standard Poor’s 500-stock index rose 16.48, or 1.02 percent, to 1,631.89, while the Dow Jones industrial average jumped 147.29, or 0.98 percent, to 15,135.84, and the Nasdaq gained 35.71, or 1.04 percent, to finish the day at 3,479.38.

In the bond market, interest rates moved higher, as investors dumped debt on anticipation of faster growth and quicker Fed action. The 10-year Treasury note fell 1 30/32, to 91 17/32, while its yield jumped to 2.74 percent, from 2.50 percent late Wednesday.

The Fed’s stance has bolstered long-term rates, but the central bank is expected to keep short-term rates low at least until 2015.

Article source: http://www.nytimes.com/2013/07/06/business/economy-adds-195000-jobs-as-unemployment-rate-remains-at-7-6.html?partner=rss&emc=rss

Bank of England Comments Send the Pound Lower

LONDON — Barely four days in the job, Mark J. Carney, the new Bank of England governor, is already having an impact on markets here.

The pound dropped about 1.3 percent against the dollar and also fell against other major currencies on Thursday after the central bank said that any expectations that interest rates would rise soon from their current record-low level were misguided.

The statement, issued along with the bank’s monthly interest rate announcement, was itself a departure from previous practice and showed that Mr. Carney, who became governor on Monday, is already making his mark on procedures.

“The drop in the pound is byproduct of the comments, and the market reaction indicates just how eager it is for comments from the new regime,” Peter Dixon, an economist at Commerzbank, said.

The central bank decided to leave its main rate at 0.5 percent and also held its program of economic stimulus at £375 billion, or $570 billion. Recent data from the services and manufacturing industries had surprised some economists by showing faster rates of growth.

The bank said it decided to keep stimulus and the interest rate unchanged as “there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.”

“In the committee’s view, the implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy,” the bank said.

Mr. Carney, a Canadian who succeeded Mervyn A. King as governor, is expected to communicate more clearly than his predecessor which steps the central bank might take to spur growth. The former governor of Canada’s central bank has also said he is a supporter of U.S. Federal Reserve-like guidance for how long interest rates may remain unchanged to give greater certainty to borrowers.

Many economists expect that Mr. Carney voted in favor of more quantitative easing, the Bank of England’s bond-buying program, at the two-day rate-setting meeting that started on Wednesday. But they also expect that he was outvoted, just as Mr. King was last month, amid some timid signs that a recovery is taking shape. The central bank will release minutes of the current meeting next month.

After barely avoiding a triple-dip recession this year, the British economy showed signs of improvement in June. The services sector unexpectedly grew at its fastest pace in more than two years, according to data from Markit Economics and the Chartered Institute of Purchasing and Supply. The manufacturing and construction industry also improved last month.

The housing market also showed signs of continued improvement. Approvals for home loans granted by banks rose more than expected to the highest level since 2009 in May, according to figures provided by the Bank of England. The average price for a home continued to increase in June, led by London, according to Hometrack, a research concern.

“The data has been stunningly good,” David Tinsley, an economist at BNP Paribas in London, said before the announcement Thursday. But he also said that it was too early to say the worst was over for the British economy and that he expected the Bank of England to expand its stimulus program in the future. “The situation is probably still more fragile than it appears,” he said.

Economic growth is still expected to remain weak as long as troubles on the Continent, Britain’s largest export market, persist and austerity measures continue to be a drag on the recovery. George Osborne, the chancellor of the Exchequer and the architect of Britain’s austerity program, last month announced additional spending cuts, including more public sector job cuts.

Real disposable household income fell 1.7 percent in the first three months of this year, the biggest drop since 1987, according to the Office for National Statistics. Inflation continues to hover above the central bank’s 2 percent target at 2.7 percent just as many consumers had their salaries frozen.

In another sign that not all is well among British consumers, Nicole Farhi, the upmarket fashion label, filed for a form of bankruptcy protection on Wednesday, the latest British retailer to face serious trouble as demand dwindles.

Article source: http://www.nytimes.com/2013/07/05/business/global/bank-of-england-keeps-interest-rates-at-record-low.html?partner=rss&emc=rss

Fed Official Plays Down Fears of Quick Retreat on Stimulus

William C. Dudley, president of the Federal Reserve Bank of New York, said that the Fed planned to reduce the pace of its bond purchases because it had greater confidence in the durability of the economic recovery, but it has not changed its commitment to support growth nor the scope of its other efforts.

Any increase in short-term rates is “very likely to be a long way off,” Mr. Dudley said in a speech in New York Thursday morning.

Mr. Dudley’s speech is the first by a close adviser to the Fed’s chairman, Ben S. Bernanke, since Mr. Bernanke roiled markets last week with the news that the Fed expects it will start cutting back on its bond buying later this year. The Fed is buying $85 billion a month in Treasury securities and mortgage-backed securities.

A second official, Jerome H. Powell, a Fed governor, delivered a similar message in a separate speech Thursday, saying that he saw signs of “real strength” in the economy, but that investors were misinterpreting the likely policy consequences.

“Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” Mr. Powell said. “In particular, the reaction of the forward and futures markets for short-term rates appears out of keeping with my assessment of the committee’s intentions, given its forecasts.”

The remarks reflect the Fed’s frustration with the tightening of financial conditions since Mr. Bernanke spoke, a response that threatens to sap the strength of the nascent recovery, including critical progress in the outlook for job growth.

Markets appear to have interpreted last week’s remarks as indicating that the Fed is inclined to pull back more quickly than previously understood from all of its efforts to stimulate the economy — not just from the expansion of its bond portfolio but also the duration of its plans to hold short-term interest rates near zero.

Investors, wrote Jan Hatzius, chief economist at Goldman Sachs, “seem to believe that Fed officials must have become at least somewhat more willing to consider earlier hikes if they are sufficiently comfortable with the economic outlook to preannounce Q.E. tapering” – a reduction in monthly bond buying.

The economic impact of the market’s reaction has been swift and significant. Wells Fargo, the nation’s largest mortgage lender, has raised its standard interest rate on 30-year loans from 3.9 percent to 4.625 percent. Yields on junk bonds have jumped 2 percentage points in less than two months, according to Barclays. Governments are facing higher borrowing costs to fund infrastructure projects.

Perhaps most strikingly, market pricing had shifted to reflect an expectation that the Fed would begin to raise interest rates by the end of 2014, despite the fact that 15 of 19 Fed officials indicated last week that they did not expect an increase until 2015.

A number of Fed officials have said since then that markets misunderstood the message. Mr. Bernanke, they noted, went out of his way to say that the Fed was not changing its plans for short-term rates. Indeed, he suggested that effort might be extended. The Fed is simply eager to wind down its latest round of bond buying.

Mr. Dudley delivered a particularly strong version of that argument in his Thursday speech. Stock indexes — which had been up strongly in morning trading before the speech — added to their gains afterward, rising more than 1 percent. The yield on 10-year Treasury bonds fell slightly to 2.504 percent.

“Some commentators have interpreted the recent shift in the market-implied path of short-term interest rates as indicating that market participants now expect the first increases in the federal funds rate to come much earlier than previously thought,” he said. “Such an expectation would be quite out of sync with both F.O.M.C. statements and the expectations of most F.O.M.C. participants,” referring to the Federal Open Market Committee.

But investors are skeptical in part because the Fed has tied the duration of its efforts to its economic forecasts, which other forecasters consider overly optimistic.

The Fed’s message is that its basic commitment has not changed. It wants a certain level of growth and believes the economy is getting stronger and therefore it can afford to do less. Mr. Bernanke said repeatedly at his news conference last week that if the Fed’s forecast changes, it is prepared to extend its campaign.

Article source: http://www.nytimes.com/2013/06/28/business/economy/fed-has-not-changed-commitments-official-says.html?partner=rss&emc=rss

Hindsight: The Federal Reserve’s Framers Would Be Shocked

ONE hundred years ago today, President Woodrow Wilson went before Congress and demanded that it “act now” to create the Federal Reserve System. His proposal set off a fierce debate. One of the plan’s most strident critics, Representative Charles A. Lindbergh Sr., the father of the aviator, predicted that the Federal Reserve Act would establish “the most gigantic trust on earth,” and that the Fed would become an economic dictator or, as he put it, an “invisible government by the money power.”

Had the congressman witnessed Ben S. Bernanke’s news conference last week, he surely would have felt vindicated. Investors, traders and ordinary citizens listened with rapt attention as Mr. Bernanke, the Fed chairman, spoke of his timetable for scaling down stimulative bond purchases. “If things are worse, we will do more,” he said of the nation’s economy. “If things are better, we will do less.”

In 1913, few of the framers of the Fed anticipated that the institution would do anything of the sort. The preamble to the act specified three purposes: to furnish “an elastic currency,” to provide a market for commercial paper so that banks would have more liquidity, and to improve supervision of banks. Regulating the economy was not among them.

The framers saw that the banking system needed reform, but they were sorely divided about how to go about it. Wall Street wanted a strong central bank — preferably under private control. Populists like William Jennings Bryan, Wilson’s secretary of state, insisted that banks answer to the public. But many people from the farm belt, like Lindbergh, were opposed to any powerful financial agency.

The backdrop to the legislation was that the United States, in the late 19th century, suffered frequent financial panics. In 1907, banks ran out of cash and the panic snowballed into a depression. The nation had no central reserve — no agency that, in a crisis, could allocate credit where needed. All it had was J.P. Morgan Sr., who arranged for a private loan syndicate. That was not enough, and, anyway, in the spring of 1913 Morgan died. Leading financiers, like Paul Warburg, a German immigrant who wanted to replicate the Reichsbank in his adopted home, thought the United States needed some coordinating agency. They thought that the system was too decentralized.

Many ordinary Americans disagreed. They thought banking was too centralized already, and that credit shortages were the fault of uncompetitive practices on Wall Street. Over the winter of 1912-13, Congress staged sensational hearings to unmask the “money trust” — a supposed conspiracy among the biggest banks. The hearings did not uncover evidence tying credit shortages to collusive behavior. They did establish that Wall Street tycoons were overly clubby with one another — especially in the distribution of securities — and not exactly beacons of free competition.

The Democrats, who won control of Congress in 1912, promised in their platform to free the country “from control or domination by what is known as the money trust.” What’s more, they specifically opposed the creation of a “central bank,” which the delegates saw as a stalking horse for the money trust.

THUS, supporters of the Federal Reserve legislation faced a delicate problem: how to fashion a centralizing agency and not run afoul of the strong popular sentiment against centralization.

Representative Carter Glass of Virginia, the chief sponsor of the Federal Reserve Act, embodied this dichotomy. Before 1913, his claim to fame was helping to draft a state constitution that had disenfranchised African-Americans. He was an ardent champion of states’ rights. Like most Southern Democrats, he wanted to restrain federal authority — in banking as well as in race relations. Laissez-faire Democrats since Jefferson and Jackson had opposed central banks, and Glass embraced that tradition. But he recognized a need for banking reform, and wanted a more elastic currency to avert money panics and moderate depressions.

His solution was to propose privately owned regional reserve banks that would be new centers of banking strength, away from Wall Street. Wilson horrified him by insisting that a Reserve Board sit atop the individual banks. To Glass, this federalist design looked too much like a central bank.

Then Wilson horrified Wall Street by insisting that Reserve Board members be named by the president, rather than by banks. “History and experience unmistakably show that governments are not good bankers,” hissed The New York Times, which typically toed the Wall Street line. The Washington Post accused Wilson of engineering “a colossal political machine.”

Facing Congress on June 23, Wilson touched a popular chord when he said banks should be “the instruments, not the masters, of business.” But he also said that “our banking laws must mobilize reserves.” This had been Warburg’s main goal — to pool banking reserves so they could be tapped as needed.

Historians still debate what the Fed’s framers intended because many details were left vague, and the Fed evolved over time. When the act was signed, in December 1913, few anticipated that the Federal Reserve Board would become so central to the economy, though it did have authority over interest rates. And Glass pledged that the new agency would be restrained by the requirements of the gold standard — which the nation eventually abandoned.

The current Fed would dismay the framers. Glass would be shocked at the power of Mr. Bernanke. Warburg might applaud the Fed’s efforts to temper a recession, while frowning on its printing of “fiat money.”

For some of the same reasons, “end the Fed” is a rallying cry among Tea Partyers, and among critics with a fondness for the gold standard. Representative Kevin Brady, a Texas Republican who is chairman of the Joint Economic Committee, has marked the Fed’s centennial by calling for a commission “to examine the United States monetary policy” and “evaluate alternative monetary regimes.”

The trenchant question is whether nostalgia for “originalism” is a useful guide to policy. Wilson knew well that the Second Bank of the United States — a 19th-century precursor to the Fed — had been left to die, at the insistence of President Andrew Jackson. But Wilson was trying to govern for the present, not to placate his party’s ghosts. Congress today should receive reform proposals in the same spirit.

Roger Lowenstein is writing a history of the Federal Reserve.

Article source: http://www.nytimes.com/2013/06/23/business/the-federal-reserves-framers-would-be-shocked.html?partner=rss&emc=rss

Nikkei Dives More Than 4 Percent

HONG KONG — The battered Japanese stock market lurched into bear market territory Thursday, after a tumble of 4.5 percent took the combined decline in the Nikkei 225 index since May 23 to more than 20 percent.

By early afternoon in Tokyo, the Nikkei 225 hovered around 12,680 points, about 20 percent below a high of nearly 16,000 reached in intraday trading three weeks earlier.

The drop on Thursday was one of many sharp declines seen in recent weeks, since a feverish six-month rally in Japanese stocks — incited by optimism over the government’s aggressive efforts to reinvigorate the listless economy — came to an abrupt end.

The Nikkei 225 soared more than 80 percent between mid-November and mid-May, but staged a sudden about-face with a 7.3 percent plunge on May 23.

Sentiment has been fragile and trading volatile ever since, as investors have taken stock of the challenges that face “Abenomics,” the economic policies of Prime Minister Shinzo Abe, and weighed the pros and cons of taking profits after the rally.

But factors beyond Japan also have come into the fray, and helped send markets lower around the world.

In China, which is a key engine of global growth, the flow of economic data in recent weeks has reinforced the picture of an economy that is struggling to regain momentum.

And in the United States, comments on May 22 by Ben S. Bernanke, the chairman of the U.S. Federal Reserve, that he and his colleagues might consider paring back their bond-buying programs “in the next few meetings” if the economy is showing signs of improvement have helped fan global nervousness. Investors and analysts, meanwhile, have struggled to assess the possible implications of even a small withdrawal of the bond buying that has supported markets in recent years.

The concerns about the “tapering” of U.S. stimulus measures have sent stocks lower around the world. In the United States, the Dow Jones industrial average and the S. P. 500 have sagged 3.2 percent and 4 percent, respectively, in the past three weeks. The DAX in Germany has fallen about 4.5 percent and the CAC 40 in France has dropped more than 6 percent.

Key markets in the Asia-Pacific region have tumbled even more.

The Straits Times index in Singapore and the Hang Seng in Hong Kong have both shed more than 10 percent since May 22, and in Australia, the S.P./ASX 200 has sagged more than 9 percent.

Article source: http://www.nytimes.com/2013/06/14/business/global/asian-stock-markets.html?partner=rss&emc=rss

China’s Export Growth Slows Amid Concern of Slowdown

HONG KONG — Chinese exports showed only modest growth in May, rising just 1 percent, officials said Saturday, an increase that was much lower than analysts’ expectations.

The 1 percent increase compared with a 14.7 percent rise in April, when the export figures were believed to have been artificially inflated. Before Saturday’s figure came out, analysts had been expecting Chinese exports to rise at least 7 percent in May.

The slowing of export growth comes as concern is rising about the slowing Chinese economy and tightening liquidity. The European Union, China’s biggest trading partner, remains mired in a stubborn economic downturn, while in the United States, China’s next-largest export market, the Federal Reserve has recently been sending signals it may start curtailing its stimulative monetary policies.

China’s May trade figures showed it had a trade surplus of $20.4 billion for the month, up from $19.3 billion, as imports declined 0.3 percent, the Customs Administration said. The drop in imports – however slight – was a possible sign of the weakness of the domestic economy.

The trade figures come as Chinese stocks last week saw their first weekly decline in six weeks amid signs of tightening liquidity within China. A clearer picture of the Chinese economy is expected to come Sunday, when the government releases data on retail sales, industrial output and inflation.

Economists had expected this month’s figures to show a slowdown as the government has begun a campaign to prevent companies from overstating their exports. Many businesses are believed to have done so in March and April as a way to bypass currency controls and bring more money into the country, so as to speculate on further appreciation of China’s renminbi.

The main evidence for such strategies lay in official statistics showing soaring exports to Hong Kong and to bonded export zones on the mainland itself, even as re-exports to the rest of the world from these places remained weak.

Louis Kuijs, an economist in the Hong Kong office of the Royal Bank of Scotland, had estimated in May that more than half of the officially reported growth of 14.7 percent in April from a year earlier was actually the result of companies’ manipulating their statistics so as to place bets on the Chinese currency. The true rate of export growth in April, eliminating the effects of these strategies, was more like 5.7 percent.

The dramatic slowdown in export growth in May “in part reflects the impact of a clamp down by the government on firms dressing up financial inflows as exports,” Mr. Kuijs said in an e-mail on Saturday.

Chinese customs data compiled by CEIC Data in Hong Kong showed that the mainland’s exports to Hong Kong were only up 7.7 percent in May from a year earlier. In April, they had been up 57.2 percent from the same month last year, and in March they had been up 92.9 percent.

Changing expectations about China’s currency – fewer business people now expect further appreciation – may have also reduced the incentive for companies to overstate exports, Mr. Kuijs said.

Article source: http://www.nytimes.com/2013/06/09/business/global/chinas-export-growth-slows-amid-concern-of-slowdown.html?partner=rss&emc=rss

U.S. Households’ Finances Regain Lost Ground

Without adjusting for inflation, the net worth of American households is now higher than before the recession struck five and a half years ago, the Federal Reserve said on Thursday.

Household net worth jumped by just over $3 trillion, or 4.5 percent, to $70.3 trillion in the first quarter of 2013, surpassing the $68.1 trillion reached in 2007.

After adjustment for inflation, total net worth still stands below the peak reached in mid-2007, said Dean Maki, chief United States economist at Barclays.

The encouraging report from the Fed comes amid other signs that Americans are feeling slightly better about the economy.

In a New York Times/CBS News poll conducted May 31 to June 4, 39 percent of respondents said that the recent condition of the economy was very or fairly good, the highest share saying this not only since President Obama took office but also since the recession officially began in December 2007.

About a third of respondents said that the economy was getting better, similar to what the trend had been in the previous six months. (Another 24 percent said that it was getting worse and 42 percent said the economy was staying about the same.)

Nearly half of respondents — 46 percent — rated the job market in their areas as very good or fairly good, with a third saying that they thought their local job markets would improve over the next year.

The poll has a margin of sampling error of plus or minus three percentage points.

Despite newfound optimism in some quarters, the economy continues to send mixed signals. Even as consumer spending remains healthy and the housing market rebounds, the labor market has been much slower to recover and many Americans at middle and lower income levels remain worse off than before the downturn.

The latest report on jobs will come Friday morning, when the Labor Department reports employment data for May. Month-to-month numbers have been bumpy this year, with the economy adding a robust 332,000 jobs in February, then slowing to a pace of 138,000 new positions in March and 165,000 in April.

Economists are looking for the report to estimate that the economy created roughly 165,000 jobs in May, with the unemployment rate holding steady at 7.5 percent. On Thursday, the government reported that initial claims for unemployment benefits fell by 11,000, to 346,000, just under the four-week moving average of 352,500.

Trading on financial markets was volatile as investors readied positions ahead of the Labor Department report.

After spending much of the day in negative territory, the stock market staged a late-day rally. The Dow Jones industrial average rose 80.03 points to 15,040.62 and the Standard Poor’s 500-stock index inched up 13.66, to 1,622.56. The Nasdaq composite index increased by 22.58, to 3,424.05.

The bond market rose modestly, with the yield on 10-year Treasury bonds falling slightly to 2.08 percent.

In the currency markets, the dollar fell sharply against the yen and the euro on Thursday, and continued to fall Friday morning. Currency traders will be watching the jobs data on Friday for signs about the economy’s underlying strength and the Fed’s next move on monetary policy.

The lackluster gains in jobs and income for most Americans stand in contrast to the rally on Wall Street and increase in home prices so far this year.

In the first quarter of 2013, real estate holdings accounted for a $784 billion gain in household net worth, while the value of corporate shares and mutual funds increased by nearly $1.5 trillion, the Fed said.

The stock market gains primarily benefit a fairly narrow stratum of American society, Mr. Maki noted, with the top 20 percent of earners holding 80 percent of stocks.

“That group always accrues the bulk of the benefits from a rising stock market,” he said.

The Federal Reserve report also showed that Americans remained cautious, continuing to reduce debt levels and strengthen their personal balance sheets. Household borrowing sank at an annual rate of 0.6 percent in the first quarter, with mortgage debt declining by $53.2 billion.

The implosion of the housing sector, and the stock market tumble in 2008 and early 2009 took a huge toll on the net worth of American families. Between 2007 and 2008, household net worth dropped by nearly $13 trillion, a decline of nearly 20 percent.

While unemployment remains high by historical standards at 7.5 percent, the economy has shown signs of life lately. Consumer spending has held up this year, despite fears that an increase in payroll taxes and cutbacks in government spending might cool the economy.

The stock market has surged in 2013 in anticipation of better economic growth and expectations that the Federal Reserve will not pull back on its efforts to stimulate the economy until evidence is much stronger that jobs are more plentiful and living standards are improving. But stocks have wavered in recent days on worries that the central bank will not keep pumping as much money into the financial system.

Catherine Rampell contributed reporting.

Article source: http://www.nytimes.com/2013/06/07/business/economy/us-households-finances-regain-lost-ground.html?partner=rss&emc=rss

Shares Drop as Traders Try to Guess the Fed’s Next Move

The Federal Reserve guessing game threw the markets for another loop on Tuesday.

Comments from a Fed official raised expectations that the Fed could start easing off its support for the economy soon, sending the stock market sharply lower in the late afternoon. The market recovered in the last hour of trading to end with slight losses.

Snippets from a prepared speech by the official, Esther L. George, president of the Kansas City, Mo., branch of the Federal Reserve, were reported in the early afternoon. Ms. George pointed to “improving economic conditions” as well as evidence that financial markets were getting dependent on the Fed’s support. As a result, she said, “I support slowing the pace of asset purchases as an appropriate next step for monetary policy.”

“History suggests that waiting too long to acknowledge the economy’s progress and prepare markets for more normal policy settings carries no less risk than tightening too soon,” Ms. George was to say in the speech in Santa Fe, N.M. She did not give the speech because she was sick, but news outlets reported her comments, and the Kansas City Fed posted the speech online.

It was the latest volatile turn in stock trading as investors try to figure out when the Fed will make a move.

The Fed’s next step will be to pare down its bond-buying, but when that will happen is unknown. As a result, traders have been trying to outguess one another in anticipation of the decision, seizing on comments from bank officials and minutes from a recent meeting of policy makers to send stock and bond prices swinging sharply over the last two weeks.

The next big data point for investors is the Labor Department’s monthly employment survey, which is to be released on Friday. A weak report might be encouraging to stock investors since it would imply that the Fed would keep buying bonds to support the economy.

That was the stock market’s reaction on Monday, when traders interpreted an unexpected easing in American manufacturing last month as a sign that the Fed was not close to winding down its stimulus program.

“You’ve got to believe that people are getting ready for the end of the week,” said James W. Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

The Fed’s bond purchases have helped keep bond prices high and the yields they pay low. The Fed’s goal is to encourage borrowing and investing with low interest rates.

Many investors expect long-term interest rates to rise when the Fed scales back its bond-buying. If they climb high enough, more investors might be tempted to buy bonds instead of stocks. Trying to anticipate that outcome, many traders are pre-emptively selling stocks on the slightest signs that the Fed could be closer to slowing its stimulus.

The current yield of 2.15 percent on the benchmark 10-year Treasury note is low by historical standards. The yield rose from 2.13 percent on Monday, after the note fell 6/32, to 96 14/32, on Tuesday. It is nearly identical to the average dividend payment of 2.14 percent for stocks in the Standard Poor’s 500-share index.

The S. P. 500 fell 9.04 points to close at 1,631.38, a loss of 0.6 percent. It had lost as much as 16 points, or 1 percent, around 2:30 p.m. Other major market indexes also fell.

The Dow Jones industrial average lost 76.49 points to 15,177.54, a drop of 0.5 percent. It had been down as much as 153 points earlier in the day. The Dow had gained for the previous 20 Tuesdays in a row.

The Nasdaq composite fell 20.11 points to 3,445.26, down 0.6 percent. The price of crude oil slipped 14 cents, to $93.31 a barrel, and gold fell $14.60, to $1,397.10 an ounce.

Article source: http://www.nytimes.com/2013/06/05/business/daily-stock-market-activity.html?partner=rss&emc=rss

Economix Blog: Little Cause for Inflation Worries

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Periodically I am asked whether we should worry about inflation, given how much money the Federal Reserve has pumped into the economy. Based on the Bureau of Economic Analysis data released Friday morning, this answer is still emphatically no.

The personal consumption expenditures, or P.C.E., price index, which the Fed has said it prefers to other measures of inflation, fell from March to April by 0.25 percent. On a year-over-year basis, it was up by just 0.74 percent. Those figures are quite low by historical standards, and helped push consumer spending up. (Measured in nominal terms, consumer spending fell slightly in April. After adjusting for inflation, it rose.)

When looking at price changes, a lot of economists like to strip out food and energy, since costs in those spending categories can be volatile. Instead they focus on so-called “core inflation.” On a monthly basis, core inflation was flat. But year over year, this core index grew just 1.05 percent, which is the lowest pace since the government started keeping track more than five decades ago.

Source: Bureau of Economic Analysis, via Haver Analytics. The core P.C.E. price index refers to the price index change for personal consumption expenditures, excluding food and energy. Source: Bureau of Economic Analysis, via Haver Analytics. The core P.C.E. price index refers to the price index change for personal consumption expenditures, excluding food and energy.

Low inflation may be one reason that consumers have proven so resilient in recent months (in addition to the lift they’re getting from rising home prices). A measure of consumer sentiment released Friday by the University of Michigan surged in May, and is at its highest level since July 2007.

Article source: http://economix.blogs.nytimes.com/2013/05/31/little-cause-for-inflation-worries/?partner=rss&emc=rss

Business Hiring Slipped to 7-Month Low in April

Businesses added 119,000 employees to payrolls last month, according to the ADP National Employment Report released on Wednesday, short of economists’ expectations for 150,000 jobs and the smallest gain since last September.

The slowdown in hiring was caused primarily by a combination of increased payroll taxes at the start of the year and the $85 billion in government spending cuts that took effect across the board in March, said Mark Zandi, chief economist at Moody’s Analytics, which jointly developed the hiring report with ADP, a payroll processor.

“They are starting to bite and starting to weaken growth,” Mr. Zandi said. “It’s affecting all industries and almost all company sizes.”

The Federal Reserve also expressed its concern about economic growth on Wednesday and said it would continue to pursue its stimulus campaign, although it was ready to increase or decrease its efforts depending on the economy’s performance.

After accelerating in the first quarter, recent data suggested that overall economic growth cooled heading into the second quarter.

Two separate reports on manufacturing also showed employment slowed in April. Analysts said there was some risk that the federal April employment report on Friday could be disappointing.

Markit, a financial data firm, said its final Manufacturing Purchasing Managers Index slipped to 52.1 from 54.6 in March. It was the lowest reading since October.

That was echoed by a separate report from the Institute for Supply Management that showed the sector expanded only modestly, with its index coming in at 50.7, down from 51.3. Readings above 50 indicate expansion.

Regional reports also showed a slowdown in factory activity in April in some areas while some, including the Midwest, fell into contraction.

Another report showed construction spending fell 1.7 percent to an annual rate of $856.72 billion, the lowest since August, according to the Commerce Department. The drop could cause the first-quarter economic growth estimate to be trimmed from a first reading of 2.5 percent.

Economists expect Friday’s employment report from the Labor Department to show that overall nonfarm payrolls increased by 145,000, an improvement over the paltry 88,000 seen in March. Private payrolls are expected to have risen by 160,000.

Article source: http://www.nytimes.com/2013/05/02/business/economy/business-hiring-slipped-to-7-month-low-in-april.html?partner=rss&emc=rss