December 13, 2017

Consumer Confidence Slips From 6-Year High

Data reported on Friday suggested that a recent jump in interest rates, in anticipation of the Federal Reserve’s tapering its bond purchases as early as next month, was starting to weigh on households.

“People have been shocked by how much mortgage rates have risen in the past couple of months. The chatter about the Federal Reserve is also a big deal,” said Christopher Low, chief economist at FTN Financial in New York.

The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment slipped to 80.0 from July’s six-year high of 85.1. August’s reading was the lowest in four months.

The survey’s barometer of current economic conditions fell to 91.0 in August from 98.6 the month before. The gauge of consumer expectations slipped to 72.9 from 76.5 in July.

In a separate report, the Commerce Department said housing starts rose 5.9 percent, to a seasonally adjusted annual rate of 896,000 units. That was just below economists’ expectations for a 900,000-unit rate.

Permits to build homes rose 2.7 percent in July, to a 943,000-unit pace. Economists had expected them to rise to a 945,000-unit pace.

“I think we are looking at a situation where some air is coming out of the housing recovery given the higher mortgage rates,” said Michael Hanson, senior economist at Bank of America Merrill Lynch in New York.

Long-term interest rates have risen by more than a full percentage point over the last three months on the view that the Fed will soon start trimming the $85 billion in monthly bond purchases that it has been making to keep borrowing costs low and stimulate the economy.

That in turn has prompted a rise in mortgage rates, which threatens to sap some of the strength from a housing recovery that has been pushing prices higher for more than a year.

Economists expect the Fed to make an announcement on tapering next month.

Data this week for industrial production, residential construction and employment have missed market forecasts, which could lower expectations for a significant pickup in growth in the second half of the year.

The economy grew at a rate of only 1.4 percent in the first half of 2013, held back by tighter fiscal policy.

Aside from higher mortgage rates, the residential construction figures last month could reflect supply constraints. Builders have been complaining about a shortage of labor and materials.

Still, home building remains on a firmer footing and should again contribute to economic growth this year.

A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.

Though residential construction accounts for only about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting a year are created.

Economists expect average monthly housing starts for the whole of 2013 to top one million.

Article source: http://www.nytimes.com/2013/08/17/business/economy/consumer-confidence-in-august-slips-from-six-year-high.html?partner=rss&emc=rss

Mortgages: Loans For a Niche Market Are Interest-Only

A staple of the jumbo market, interest-only loans continue to be used by affluent borrowers to help them manage irregular cash flow, reap a tax benefit, or free up cash for investment elsewhere.

In particular, people in the financial services industry who derive most of their compensation from yearly bonuses commonly rely on interest-only loans to keep their mortgage payments manageable the rest of the year. “Then they take some of that bonus and pay down their mortgage each year,” said David Adamo, the chief executive of Luxury Mortgage in Stamford, Conn. “And their monthly payment then also goes down.”

Thus, interest-only loans have evolved into a financial tool, and no longer a means to affordability.

Freddie Mac stopped backing the loans in 2010 after suffering big losses; as a result, fewer lenders offer them. Those that do have strict qualifying standards. Lenders generally require that the borrower have at least 30 percent equity in a property, and a minimum FICO score of 720. Determination of ability to pay back the loan is based on the fully amortized payment, not the interest-only payment.

Additionally, “a lot of lenders will want to see assets to cover as many as 24 months’ worth of principal, taxes and insurance payments,” said Richard Pisnoy, a principal of Silver Fin Capital, a brokerage in Great Neck, N.Y.

Interest-only loans are primarily adjustable-rate products with an initial fixed period when only interest is due. Available in 5-, 7- or 10-year terms, they “are generally done for 10 years so there’s no payment shock in the near term,” said Tom Wind, the executive vice president for residential and consumer lending at EverBank, a national lender based in Jacksonville, Fla.

Interest rates are usually an eighth- to a half-percentage point higher than on fully amortized jumbo loans. After the fixed term is up, the mortgage re-amortizes, and both principal and interest are due.

On a $700,000 loan with a fixed rate of 3.875 for the first 10 years, the monthly payment would be $2,260, as calculated by Mr. Pisnoy. After 10 years, based on the same rate, the payment would rise to $4,195. If over time the rate adjusted upward by as much as five percentage points (the usual cap), the payment could reach $6,700.

To avoid such a scenario, however, borrowers generally put money toward their principal balance ahead of time, or refinance out of the loan before a full payment is due.

Two lenders — Community National Bank and National Cooperative Bank — offer interest-only loans for co-ops in the New York market. Demand is weak, however, because so many co-ops take a dim view of such financing, said Jordan Roth, a senior branch manager of GFI Mortgage Bankers in Manhattan.

“We’re finding a number of co-ops that are becoming more conservative when it comes to the mortgage products they will allow their prospective buyers to use,” Mr. Roth said. “Very rarely do you find one that allows an interest-only mortgage in the current market.”

More lenders may yet decide to get out of the interest-only segment. Under rules issued by the Consumer Financial Protection Bureau, beginning next January, lenders will face greater legal exposure on interest-only loans that go into foreclosure.

But mortgage executives played down that risk, citing the high qualifying ratios for these loans. “These are very strong loans,” Mr. Wind said, “and that’s creating availability among smaller lenders as well as larger banks.”

Article source: http://www.nytimes.com/2013/03/24/realestate/loans-for-a-niche-market-are-interest-only.html?partner=rss&emc=rss

Off the Charts: Seen From Greece, Great Depression Data Looks Good

The Greeks can only wish they had it so good.

The Greek government this week released its estimate of economic output in the fourth quarter of last year, and also published its unemployment report.

For the year as a whole, the Greek economy, measured in 2005 euros, fell to 168.5 billion euros, down 6.4 percent from the previous year. That was a little better than the 7.1 percent decline in 2011. The last time the Greek economy was smaller than in 2012 was in 2001. The cumulative decline since 2007 was 20.1 percent.

In December, the unemployment rate was 26.4 percent, and that figure actually looked a little encouraging because it was lower than the 26.6 percent reported for November. Not since May 2008, when the rate fell half a percentage point to 7.3 percent, had there been a single month when the unemployment rate was reported to have fallen.

The accompanying charts compare the changes in gross domestic product and unemployment in the United States during the five years after 1929 with the changes in Greece during the five years after 2007.

There is reason to take all the numbers with a grain of salt. The American figures were estimated after the fact, by the government for G.D.P. and by the National Bureau of Economic Research for unemployment. For G.D.P., only annual changes were estimated.

The Hellenic Statistics Authority, Greece’s compiler of official numbers, has a history of deception — the country lied to get into the euro zone — and it now cannot apply seasonal adjustments to its quarterly G.D.P. estimates. As a result, the figures shown in the charts are calculated by adding up the four quarters of each year. But European officials now vouch for the quality of Greek figures.

Perhaps the most telling difference between the course of the two economies comes in government consumption spending — basically spending that is not for investment, as in building roads or bombers. In the United States, that spending was growing even under President Herbert Hoover and helped to cushion the economy’s fall. In Greece, required by Europe to follow a course of harsh austerity, that spending has fallen rapidly, even if it has not declined as rapidly as some Europeans want.

By the fifth year of the Depression, personal consumption spending had begun to recover in the United States. In Greece last year, it fell 9.1 percent, more than in any other year of the downturn.

Greece publishes monthly overall unemployment figures, but provides details only on a quarterly basis. The charts show the trends of joblessness by sex and age group through the third quarter of last year, the most recent available. Women are more likely to be unemployed in every age group shown, and older workers are far less likely to be jobless than younger ones. Even the groups that look good by comparison are doing poorly. Among men age 45 to 64, nearly one in six is out of work. Among men 30 to 44, the figure is one in five.

Rates for teenagers and people over 65 are not shown, since few of them are in the labor force. The picture is glum for those teenagers who do want jobs. The male unemployment rate is 52 percent, and the rate for women is 81.5 percent. Most of those over 65 who say they want to work do have jobs, but the proportion of such people in the labor force has been falling in recent years.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/03/16/business/economy/seen-from-greece-great-depression-data-looks-good.html?partner=rss&emc=rss

Cuts to Achieve Goal for Deficit, but Toll Is High

But lost in the talk of Washington’s dysfunction is this fact: on paper at least, President Obama and Congress have reduced projected deficits by nearly $4 trillion over a decade — the widely embraced goal for stabilizing the national debt.

The spending cuts that began to take effect Friday, known as sequestration and totaling about $1 trillion through 2023, come on top of $1.5 trillion in reductions that Mr. Obama and Congress committed to in 2011, mainly from the accord that averted the nation’s first debt default.

Nearly $700 billion more will come from tax increases on wealthy Americans, the product of the brawl in December over Bush-era tax cuts, and another $700 billion is expected to be saved in projected interest on the reduced debt.

If the latest cuts stick, the two parties will have achieved nearly the full amount of deficit reduction over the next decade that economists and market analysts have promoted. Yet the mix comes with substantial downsides.

It does not add up to the “grand bargain” that the two parties had been seeking, because it leaves virtually untouched the entitlement programs — Medicare, Medicaid and Social Security — that are responsible for projections of an unsustainably rising federal debt in coming decades.

“This is not a result that deals with our long-term debt problem,” said Vin Weber, a Republican former congressman. “The fact we’ve gotten to a $4 trillion deficit-reduction deal without tackling entitlements is almost a bad thing,” he added, if it lulls the public and the politicians into thinking the problem is solved.

The progress on deficit reduction over the past two years will also probably hamper job creation and the economic recovery. Private and government forecasters project that sequestration alone will cost about 700,000 jobs this year and will shave at least a half percentage point from economic growth. The Congressional Budget Office now forecasts a falling deficit but stubbornly high unemployment in coming years.

For Democrats, at least, the mix of spending cuts and tax increases in the package is another reason for disappointment. The deficit deals to date would yield $4 in spending cuts for every dollar of new revenue. Mr. Obama, as well as several bipartisan groups, including the commission led by Erskine B. Bowles and Alan K. Simpson, call for one dollar of tax increases for every $2 to $3 in spending cuts.

It remains unclear how long sequestration will last: it was designed to be onerous to force a compromise on an alternative. But Mr. Obama and Republicans indicated on Friday that the cuts would probably remain in place at least until the end of the fiscal year, Sept. 30.

Democrats, led by the president, express confidence that in coming months public pressure will force Republicans to relent on revenue, especially as cuts to the military begin to be felt. But Republican leaders have said they will stand firm against tax increases, suggesting that they have won at least a temporary victory on reducing the size of the government.

In his weekly address on Saturday, Mr. Obama said the Republicans had “decided that protecting special-interest tax breaks for the well off and well connected is more important than protecting our military and middle-class families from these cuts.”

“I still believe we can and must replace these cuts with a balanced approach — one that combines smart spending cuts with entitlement reform and changes to our tax code that make it more fair for families and businesses without raising anyone’s tax rates,” Mr. Obama said.

In the Republican response, Representative Cathy McMorris Rodgers of Washington State, said: “The problem here isn’t a lack of taxes. This year alone, the federal government will take in more revenue than ever before. Spending is the problem, which means cutting spending is the solution. It’s that simple.”

According to the nonpartisan Congressional Budget Office, total government spending is falling compared with the size of the economy but will rise again in the next decade. That growth will be driven by the entitlement programs as more baby boomers retire, not by discretionary spending.

And revenues, while reaching a high in dollar terms, remain below the average of the past 40 years as measured against gross domestic product.

Article source: http://www.nytimes.com/2013/03/03/us/politics/cuts-to-achieve-goal-for-deficit-but-toll-is-high.html?partner=rss&emc=rss

Claims for Jobless Benefits Rise

The number of Americans seeking unemployment benefits jumped 20,000 last week to a seasonally adjusted 362,000, though it remained at a level consistent with modest hiring.

The Labor Department said Thursday that the four-week average, a less volatile measure, rose 8,000 to 360,750, the highest in six weeks. A department spokesman said heavy snowstorms in the Northeast did not affect the total.

Applications for unemployment benefits, a proxy for layoffs, have trended downward recently. The four-week average has declined 7.5 percent since mid-November and fell to a five-year low three weeks ago.

Still, last week’s increase put applications back in the 360,000-to-390,000 range, where they have fluctuated since early last year.

At the same time, job growth has picked up. Employers added an average of 200,000 jobs a month from November through January. That was up from about 150,000 in the previous three months.

In January, the economy added 157,000 jobs, the government said this month. And revisions showed that employers added an average of 181,000 jobs a month last year, up from an earlier estimate of 153,000.

Still, the unemployment rate ticked up to 7.9 percent from 7.8 percent in December. Economists think the rate will slowly decline if hiring continues at last year’s monthly pace of 180,000. The rate fell 0.7 percentage point in 2012.

Separately, the Labor Department said Thursday that consumer prices in the United States were flat last month, the latest sign that inflation is in check.

The Consumer Price Index has risen 1.6 percent in the 12 months ending in January. That’s down from a 2.9 percent pace a year ago.

Excluding the volatile food and energy categories, core prices rose 0.3 percent in January, pushed up by higher costs for apparel, airfares and rents. Core prices have risen 1.9 percent in the past year, below the Federal Reserve’s inflation target.

Inflation slowed dramatically last year. Consumer prices rose only 1.7 percent in 2012, down from 3 percent in 2011. Low inflation leaves consumers with more money to spend, which benefits the economy.

In addition, the National Association of Realtors said Thursday that sales rose 0.4 percent in January compared with December, to a seasonally adjusted annual rate of 4.92 million.

That was the second-highest sales pace since November 2009, when a temporary home-buyer tax credit caused purchases to spike. The median price for a home sold in January was $173,600, an increase of 12.3 percent from a year ago.

Analysts say purchases would be higher if more homes were available. The supply of homes for sale dropped to nearly an eight-year low in January.

Article source: http://www.nytimes.com/2013/02/22/business/economy/claims-for-jobless-benefits-rise.html?partner=rss&emc=rss

Restored Payroll Tax Pinches Those With the Smallest Checks

Like millions of other Americans, they are feeling the bite from the sharp increase in payroll taxes that took effect at the beginning of January. There are growing signs that the broader economy is suffering, too.

Chain-store sales have weakened over the course of the month. And two surveys released last week suggested that consumer confidence was eroding, especially among lower-income Americans.

While these data points are preliminary — more detailed statistics on retail sales and other trends will not be available until later this month — at street level, the pain from the expiration of a two-percentage-point break in Social Security taxes in 2011 and 2012 is plain to see.

“You got to stretch what you got,” said Mr. Phillips, 51, a front-desk clerk and maintenance man for a nonprofit housing group who earned $22,000 last year. “That little $20 or $30 affects you, especially if you’re just making enough money to stay above water.” So he has taken to juggling bills, skipping a payment on one this month and another next month.

“I’m playing catch-up each month,” he said. “You go to the supermarket and you can’t spend what you used to.”

Jack Andrews has it slightly better than Mr. Phillips. He earns a bit more than $40,000 a year manufacturing ceramics in a local factory, but because his wife, Cindy, is disabled, he is the sole breadwinner. Something had to give now that he is earning about $800 less a year, or $66 a month, and it was the couple’s monthly night out.

“It’s just gotten out of reach,” Mr. Andrews said.

The tax break, which was pushed by the White House to stimulate spending in 2011 and extended in 2012, was always supposed to be temporary. But with pressure building in Washington to reduce the deficit and politicians fighting bitterly over whether to raise taxes on the very rich, the question of how the increase in Social Security taxes would affect the poorest workers did not seem to garner much debate on either side of the aisle.

“I don’t see any reason to consider supporting its extension,” said Timothy F. Geithner, the Treasury secretary, in testimony last year. Even Nancy Pelosi, a reliable liberal who leads the Democratic minority in the House of Representatives, was for letting it expire.

The higher rate applies to all earned income up to $113,700. For a household earning $100,000 a year, the two-percentage-point increase means an additional $2,000 a year in payroll deductions. Economists estimate that the payroll tax increase will reduce disposable income by about $120 billion and shave half a percentage point from economic growth in the first quarter — a significant blow given that the economy is expected to expand only 1 to 2 percent in the first half of 2013.

“If you wanted to design a policy to squeeze the spending of lower- and middle-income households, raising the payroll tax is the way to do it,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors. “It’s very regressive.”

Retailing analysts and economists say high-end earners will largely be spared.

“I wouldn’t expect it to have much of an effect on BMW consumption,” said Richard H. Thaler, a professor of behavioral science and economics at the University of Chicago’s Booth School of Business. “The people who will notice it the most are the ones making the least.”

In Medford, Ore., Darchelle Skipwith had to scrap her monthly budget and start over when the law changed.

She is buying less meat; driving less often to see her sister, who lives 12 miles away in Eagle Point; and putting less away in savings. In August, Ms. Skipwith, 42, hopes to get a raise of 50 cents an hour at her job stacking shelves at Walmart, which should help make up the difference.

For now, she has no choice but to change her daily routine.

“I added it up — it’s about $75 a month,” Ms. Skipwith said. “That’s not a lot for some people, but mine is the only paycheck. I don’t have extra money coming in.”

Article source: http://www.nytimes.com/2013/02/08/business/restored-payroll-tax-pinches-those-with-the-smallest-checks.html?partner=rss&emc=rss

Growth in Consumer Spending Slows

WASHINGTON — American consumers increased their spending in December at a slower pace, while their income grew by the largest amount in eight years, the Commerce Department said Thursday. Income surged because companies rushed to pay dividends and bonuses before tax increases.

The 0.2 percent rise in consumer spending last month was slightly slower than the 0.4 percent increase in November.

Income jumped 2.6 percent in December from November, the biggest gain since December 2004.

Economists expect consumer spending, which accounts for about 70 percent of economic activity, to slow this year. That’s because consumers are receiving less take-home pay starting this month.

Congress and the White House reached a deal on Jan. 1 to prevent income taxes from rising on all but the wealthiest Americans. But they allowed a temporary reduction in Social Security taxes to expire this year. That means a person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

The diminished pay could slow consumer spending and economic growth at a precarious moment.

The economy unexpectedly shrank in the October-December period at an annual rate of 0.1 percent, the government said Wednesday. The dip was a reminder of the economy’s vulnerability as automatic cuts in government spending loom.

Some analysts have estimated that the roughly $120 billion in higher Social Security taxes could subtract up to 0.7 percentage point from growth this year.

Separately, the Labor Department reported Thursday that the number of Americans seeking unemployment aid rose sharply last week but remained at a level consistent with moderate hiring.

Weekly applications for unemployment benefits leapt 38,000 to a seasonally adjusted 368,000, the government said. The increase comes after applications plummeted in the previous two weeks to five-year lows.

The volatility reflects the government’s difficulty adjusting the data to account for layoffs after the holiday shopping season. Job cuts typically increase in the second week in January as retailers dismiss temporary employees hired for the winter holidays. Layoffs then fall in the second half of the month.

The department attempts to adjust for such fluctuations but the January figures can still be volatile. The four-week average, a less volatile measure, ticked up to 352,000, just above a four-year low.

On Friday, the government is scheduled to issue its January jobs report. Analysts forecast that it will show employers added 155,000 jobs, the same as in December. The unemployment rate is expected to remain at 7.8 percent for the third straight month.

Article source: http://www.nytimes.com/2013/02/01/business/growth-in-consumer-spending-slows.html?partner=rss&emc=rss

I.M.F. Forecasts Modest Global Economic Growth

The fund cautioned, however, that growth was not expected to snap back to precrisis levels in the coming years. Over all, the fund expects global growth of 3.5 percent in 2013 and 4.1 percent in 2014, up from 3.2 percent in 2012. In the years just before the global downturn, annual economic growth was 4.5 to 5.5 percent.

“If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected,” the Washington-based fund said in its economic report. “However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks.”

The fund issued a routine update to the projections it makes in its twice-yearly World Economic Outlook report. This time, it whittled down many of the forecasts for 2013 that it had made in October, knocking 0.1 percentage point from its United States growth forecast, 0.3 percentage point from the euro area and 0.4 percentage point from the newly industrialized Asian economies, like Singapore and South Korea.

Still, the International Monetary Fund noted that financial stresses and the risk of a major policy shock in Europe and the United States had decreased. “Optimism is in the air,” said Olivier Blanchard, the fund’s chief economist, at a news conference. “Some cautious optimism may indeed be justified,” he added. “We may have avoided the cliffs, but we still face high mountains.”

The fund said it downgraded its estimate of European growth from October despite “progress in national adjustment and a strengthened European Union-wide policy response to the euro area crisis.” It said that there might be “delays” as lower sovereign bond yields and reduced financial stress eventually translated into improved private sector borrowing conditions. It added that uncertainty about the ultimate resolution of the long-simmering European debt crisis remained high.

Mr. Blanchard said that policy challenges “clearly” remained highest in certain European countries struggling with large debt burdens and slow-growing economies. He said business competitiveness and exports had improved recently, but high interest rates, pressure for budget cuts and uncertainty continued to depress growth.

Slow growth in advanced economies, including the United States, Germany and Japan, will continue to weigh on growth in emerging economies, the fund said.

Mr. Blanchard noted that financial markets had become considerably more sanguine over the last year. The European Central Bank started a major new bond-buying program and the United States avoided the worst of the so-called fiscal cliff package of tax increases and budget cuts. He said that could be a sign that the financial markets were experiencing some kind of “bubble” but also said that investors could be “seeing things which are truly good.” Ultimately, with less financial stress, the real economy should pick up, thus explaining the market optimism, he said.

In terms of policy advice, Mr. Blanchard said that his “main message” would be that “financial market optimism should not lead to policy complacency.”

For Washington, the “priority is to avoid excessive fiscal consolidation in the short term, promptly raise the debt ceiling and agree on a credible medium-term consolidation plan,” the fund’s economists said. Christine Lagarde, the fund’s managing director, and other officials have repeatedly warned politicians in Washington not to embark on too stringent an austerity program, for the good of the world economy as well as the United States.

At the news conference, Thomas Helbling of the fund’s research division said that the United States faced a “long-term” fiscal problem, with much of the policy challenge resting in bringing down health care spending over time. He said that the challenge seemed “doable.”

This month, the fund’s sister institution, the World Bank, released a rosier economic analysis. It foresees global growth of just 2.4 percent in 2013. But it said that emerging economies could worry less about downside risks from advanced economies and start focusing on domestic economic issues, like labor market or regulatory reforms.

Article source: http://www.nytimes.com/2013/01/24/business/economy/imf-forecast-global-economic-growth-modest-at-best.html?partner=rss&emc=rss

I.M.F. Forecast: Global Economic Growth Modest at Best

WASHINGTON — The International Monetary Fund said on Wednesday that it continued to expect a modest upturn in global growth in 2013, with fewer risks of major policy mistakes and lower levels of financial stress.

The fund cautioned, however, that growth is hardly expected to snap back to pre-crisis levels in the coming years. Over all, the fund sees global growth of 3.5 percent in 2013 and 4.1 percent in 2014, up from 3.2 percent in 2012. In the years just before the global downturn, annual economic growth ranged between 4.5 and 5.5 percent.

“If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected,” the Washington-based fund said in its economic report. “However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks.”

The fund issued a routine update to the projections it makes in its twice-yearly World Economic Outlook report. This time, it whittled down many of the forecasts for 2013 that it had made in October, knocking 0.1 percentage point from its United States growth forecast, 0.3 percentage point from the euro area and 0.4 percentage point from the newly industrialized Asian economies, like Singapore and South Korea.

Still, it noted that financial stresses and the risk of a major policy shock in Europe and the United States have decreased. “Optimism is in the air,” said Olivier Blanchard, the fund’s chief economist, at a press conference on Wednesday. “Some cautious optimism may indeed be justified,” he added. “We may have avoided the cliffs, but we still face high mountains.”

The fund said it downgraded its estimate of European growth from October despite “progress in national adjustment and a strengthened European Union-wide policy response to the euro area crisis.” It said that there might be “delays” as lower sovereign-bond yields and reduced financial stress eventually translate into improved private-sector borrowing conditions. It added that uncertainty about the ultimate resolution of the long-simmering European debt crisis remains high.

Mr. Blanchard said that policy challenges “clearly” remain highest in certain European countries struggling with large debt burdens and slow-growing economies. He said business competitiveness and exports had improved recently, but high interest rates, pressure for budget cuts and uncertainty continued to depress growth.

Slow growth in advanced economies, including the United States, Germany and Japan, will continue to weigh on growth in emerging economies, the fund said.

Mr. Blanchard noted that financial markets have become considerably more sanguine over the past year, with the European Central Bank starting a major new bond-buying program and the United States avoiding the worst of the so-called fiscal cliff package of tax increases and budget cuts. He said that could be a sign that the financial markets are experiencing some kind of “bubble” but also said that investors could be “seeing things which are truly good.” Ultimately, with less financial stress, the real economy should pick up, thus explaining the market optimism, he said.

In terms of policy advice, Mr. Blanchard said that his “main message” would be that “financial market optimism should not lead to policy complacency.”

For Washington, the “priority is to avoid excessive fiscal consolidation in the short term, promptly raise the debt ceiling and agree on a credible medium-term consolidation plan,” the fund’s economists said. Christine Lagarde, managing director, and other fund officials have repeatedly warned politicians in Washington not to embark on too stringent an austerity program, for the good of the world economy as well as the United States.

At the news conference, Thomas Helbling of the I.M.F.’s research division said that the United States faced a “long-term” fiscal problem, with much of the policy challenge resting in bringing down health care spending over time. He said that the challenge seemed “doable,” and stressed that other countries faced far more wrenching adjustments.

This month, its sister institution, the World Bank, released a rosier economic analysis. It foresees global growth of just 2.4 percent in 2013. But it said that emerging economies could worry less about downside risks from advanced economies and start focusing on domestic economic issues, like labor-market or regulatory reforms.

Article source: http://www.nytimes.com/2013/01/24/business/economy/imf-forecast-global-economic-growth-modest-at-best.html?partner=rss&emc=rss

Economy Ended the Year on an Upbeat Note

The United States economy ended 2012 on a surprisingly sound note as factory output increased and low inflation lifted the buying power of consumers, signaling that the economy may weather this year’s higher taxes.

Manufacturing output rose 0.8 percent in December, the Federal Reserve said Wednesday, a day after retail sales figures pointed to robust consumer spending last month.

“There is every indication that the improvement may be a reflection of a broader pickup in overall economic activity,” said Millan Mulraine, an economist at TD Securities in New York.

The increase in demand for goods appears unlikely to derail the Federal Reserve’s easy monetary policy soon, given the lack of inflation. The Labor Department said consumer prices were flat in December, restrained by a decline in gasoline prices.

That is good news for consumers still smarting from the 2007-9 recession. Weekly earnings rose 0.6 percent last month when adjusted for inflation, the department said.

The earnings increase means family budgets started this month on slightly better footing as payroll taxes rose for all workers and the wealthiest Americans faced higher income taxes.

The tax increases, enacted to reduce the federal budget deficit, are expected to restrain consumer spending through June. Some economists predict higher taxes will subtract a percentage point from economic growth this year.

American financial markets were little moved by the data, although the increases in factory output and real earnings beat the forecasts of analysts polled by Reuters.

Gains in manufacturing appeared broad, tempering the view that some of the growth resulted from a temporary rebound after Hurricane Sandy upset many lives on the East Coast in late October and early November.

The output of motor vehicles and parts jumped 2.6 percent, while production of machinery gained 0.6 percent. Factories made 1.5 percent more computers and electronics. Industrial production rose 0.3 percent.

Still, the data offered a reminder that the trend in factory output, like the broader economy, remains lackluster. Output of consumer goods fell 0.1 percent from November, and overall manufacturing gained by only 0.2 percent in the fourth quarter when measured at an annual rate.

“The manufacturing sector is just about keeping its head above water,” said Paul Ashworth, an economist at Capital Economics in Toronto.

Wednesday’s consumer price data reinforced the view that inflation will not reach the Fed’s 2 percent threshold soon.

“This leaves Ben Bernanke and the Fed with a free hand to continue with ultra-accommodative monetary policy,” said Michael Woolfolk, a currency strategist at Bank of New York Mellon.

The Fed has kept interest rates near zero since late 2008 and has bought about $2.5 trillion in assets to stimulate economic growth and get Americans back to work after the recession.The Fed uses a separate index of inflation that tends to run cooler than the Consumer Price Index. By either measure, annual inflation remains below the Fed’s threshold..

In the 12 months to December the price index increased 1.7 percent, the smallest increase since August. A measure of core prices, which strips out volatile food and energy prices to give a better sense of inflation trends, was up 1.9 percent.

The Fed’s latest beige book, a collection of anecdotal information on regional economic conditions, showed mild growth across the United States in recent weeks but it indicated no likelihood that economic expansion would accelerate.

Article source: http://www.nytimes.com/2013/01/17/business/economy/consumer-prices-unchanged-in-december.html?partner=rss&emc=rss