March 21, 2023

German Central Bank Cuts Growth Prediction for 2013

Acknowledging that a recovery in the euro zone would be weaker than expected, the Bundesbank said it saw signs that the euro zone economy was bottoming out, but it warned that other countries should take steps to make their economies more competitive.

“Much will depend on whether the economic situation stabilizes in the euro-area crisis countries and whether expansionary forces will gradually gain the upper hand there,” Jens Weidmann, the Bundesbank president, said in a statement.

The slightly more pessimistic outlook came a day after the European Central Bank also adjusted downward its estimate of euro zone growth for 2013. Germany has the largest economy in Europe and is crucial to the Continent’s fortunes, so the Bundesbank’s slightly gloomier view was yet more confirmation that an economic revival in Europe remained uncertain and distant.

The Bundesbank said it expected the German economy to grow 0.3 percent this year, after having forecast in December an increase of 0.4 percent. In 2014 Europe’s largest economy will grow 1.5 percent, the bank said; its previous forecast was 1.9 percent.

Germany has so far avoided the recession afflicting the rest of the euro zone, but just barely. Growth in the first quarter was 0.1 percent compared with the last three months of 2012, when the economy shrank 0.7 percent.

Unemployment, however, remains relatively low in Germany at 5.4 percent, compared with a record-high 12.2 percent for the euro zone as a whole. The low joblessness, as well as low inflation, should support consumer demand and retail sales, the Bundesbank said. Record low interest rates will also help the construction industry by encouraging investment in new homes and buildings, it said.

The Bundesbank warned, though, that Germany was dependent on the global economy and demand for its exports. Growth could be worse than expected if the global recovery proved disappointing, the bank said.

Like other national central banks in the euro zone, the Bundesbank is part of the so-called Eurosystem managed by the European Central Bank. Though it no longer controls monetary policy, the Bundesbank remains an influential institution in Germany and an important part of the euro zone monetary system. For example, it manages the payments system that businesses in the euro zone use for large financial transactions.

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Existing-Home Sales Rose in April

The National Association of Realtors said on Wednesday existing home sales advanced 0.6 percent to an annual rate of 4.97 million units, the highest level since November 2009.

The data underscored the housing market’s improving fortunes as it starts to regain its lost glory. Resales were 9.7 percent higher than the same period last year.

“It’s quite supportive of the overall economy,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “It’s a cushion against some of the other concerns in the economy.”

Economic activity appears to have slowed somewhat early in the second quarter as the effects of higher taxes and deep government spending cuts started filtering through.

Manufacturing, in particular, has been showing strains, but housing has held up surprisingly well, with the gains in home values helping to boost consumer confidence and retail sales.

The ripples from housing’s recovery have also extended to the jobs market, where construction employment has been rising.

That should limit the degree to which the economy slows this quarter. It expanded at a 2.5 percent annual pace in the first three months of the year.

U.S. stocks were narrowly mixed in afternoon trading. Treasury debt prices were lower while the dollar was higher against a basket of currencies.


Tight supplies in some parts of the country have constrained the pace of home sales, but sellers are starting to wade back into the market, attracted by rising prices.

In April, the median home sales price increased 11 percent from a year ago to $192,800, the highest level since August 2008. It was the fifth consecutive month of double-digit gains.

With prices rising, more sellers put their properties on the market. The inventory of homes on the market rose 11.9 percent from March to 2.16 million.

That represented a 5.2 months’ supply at April’s sales pace, up from 4.7 months in March. It remained, however, below the 6.0 months that is normally considered a good balance between supply and demand.

The market has been helped by monetary stimulus from the Federal Reserve that has kept mortgage rates near record lows. On Wednesday, Fed Chairman Ben Bernanke made clear he was not yet ready to retreat from the U.S. central bank’s monthly $85 billion asset purchase program.

Adding to signs that the housing recovery was becoming firmly established, distressed properties – which can weigh on prices because they typically sell at deep discounts – accounted for only 18 percent of sales last month.

That was the lowest since the Realtors group started monitoring them in October 2008. These properties, foreclosures and short sales, had made up 21 percent of sales in March.

In another bright sign, properties are selling faster. The median time on market for homes was 46 days in April, down from 62 days the prior month. That was the fewest days since the NAR started monitoring that number in May 2011. Before the market collapsed in 2006, it usually took about 90 days to sell a home.

“While there are clearly a lot of interested buyers out there snapping up homes at a rapid clip, there do not seem to be enough homes on the market,” said Omair Sharif, an economist at RBS in Stamford, Connecticut.

About 44 percent of all homes sold in April had been on the market for less than a month, while only 8 percent had been on the market for a year or longer.

Last month, first-time buyers accounted for 29 percent of the transactions, with investors buying 19 percent of homes. Investors, both individuals and institutions, are mostly buying homes for renting.

Sales were up in three of the four regions, falling 3.4 percent in the Midwest.

(Editing by Andrea Ricci)

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China Data Show Uptick but Fail to Impress

HONG KONG — Chinese factory activity and retail sales picked up a notch in April, according to data released Monday, regaining some steam from weak showings the previous month. But expansion remained underwhelming, analysts said, and underlined that the once red-hot Chinese economy is in the throes of a long-term transition toward slower growth.

Industrial output, the data showed, expanded by 9.3 percent from April last year, compared with the 8.9 percent reading in March, while retail sales grew 12.8 percent, from compared with 12.6 percent in March. Fixed-asset investment, an important engine of economic growth, disappointed, with growth of just 20.6 percent in the first four months of this year, data also released on Monday showed.

Analysts cautioned that the improvements did not represent a substantive pickup in growth and that the momentum in the Chinese economy remained muted. “This is not the start of a rally, it is a sputtering whimper as momentum continues to fade,” Xianfang Ren and Alistair Thornton, economists at IHS Global Insight in Beijing, said in a research note. Although they stressed that “fading momentum is not the same as collapsing growth” and that the government is likely to be able to engineer full-year gross domestic product growth of more than 7.5 percent this year, they added, “we feel the risks remain firmly on the downside.”

The figures out Monday were the latest of a series of disappointing indicators from the Chinese economy in recent weeks. Data released last month showed the economy had expanded by 7.7 percent in the January-March quarter, compared with the same period last year – far less than the 8 percent that analysts had expected. Two surveys of purchasing managers in the manufacturing sector showed that April activity was disappointing, thanks in large part to weakness in new orders for exports. And last week, the Canton Fair, China’s biggest export event, announced that export orders placed at the spring session had fallen 1.4 percent from a year ago.

In part, the weakness stems from the euro zone’s festering debt crisis and austerity measures, which have eroded the ability and willingness of European customers to spend, thus denting exports from China. Rising wages in China and a gradually appreciating currency also have started to erode the country’s international competitiveness.

China is putting its own brakes on the economy with reforms that are likely to ensure that the double-digit expansion rates seen over much of the past three decades are now a thing of the past. Aware that the economy cannot continue to grow on the back of exports and heavy industry alone, Beijing has begun to steer China toward a growth model that is based on domestic demand and urbanization. While this should help raise living standards and productivity, it will also mean less fast-paced growth, analysts say.

At the same time, Beijing is trying to keep a lid on risk factors, like the expansion in local government debt, which some analyst fear could turn sour, and shadow banking activities, which have been an important source of funding but are relatively nontransparent, loosely regulated and carry elevated credit risk.

Moody’s underlined the concerns about shadow banking in a report released on Monday. The credit ratings agency welcomed recent regulatory steps to tighten controls and restrict the growth of shadow banking, but it said that “the opacity associated with shadow banking products and the threat of loss and contagion outweigh their potential benefits in terms of diverting riskier borrowers from the formal banking system.”

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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.”

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U.S. Auto Sales Ended 2011 With Strong Gains

For Chrysler, December was the best month in nearly three years, as passenger-car deliveries more than doubled and total sales rose 37 percent. Chrysler’s sales for all of 2011 were up 26 percent.

General Motors reported a 5 percent increase in December and a 13 percent gain for the year.

At the Ford Motor Company, sales were up 10 percent in December and 11 percent for the year. Sales by Ford’s namesake brand totaled 2.06 million, the most by any automotive brand since 2007.

“The year finished on a high note, with industry sales momentum strengthening as the year came to a close,” Ken Czubay, Ford’s vice president for United States marketing, sales and service, said in a statement. “We saw Ford sales strengthen as well, posting our best December retail sales month since 2005 and closing the year as America’s best-selling brand.”

Nissan posted a 15 percent increase for the full year, as its primary brand set a record, despite some disruptions after the earthquake and tsunami struck Japan in March. The company also reported an all-time high for December with a 7 percent increase.

Volkswagen reported gains of 36 percent for December and 26 percent for the year, its best since 2002.

Other carmakers were scheduled to report December and full-year sales later Wednesday.

For all of 2011, analysts said the industry sold about 12.8 million cars and trucks, a 10 percent increase from the 11.6 million sold in 2010.

Sales are expected to climb further this year. The automotive research Web site is forecasting 2012 sales of 13.6 million, while another site,, expects 13.8 million. Either figure would represent the industry’s best year since 2007, when sales totaled 16.1 million. G.M. forecast 2012 industry sales of 13.5 million to 14 million.

“Over the course of the fourth quarter of 2011, clear signs emerged that U.S. consumers are more confident and that other underpinnings of our economy are either stable or slowly improving,” Don Johnson, G.M.’s vice president of United States sales operations, said in a statement. “When we add improving economic fundamentals to pent-up demand and an aging vehicle fleet, it’s now clear that auto sales should continue to grow in 2012.”

The research firm J. D. Power Associates said December was the first month in which sales to individual consumers — a figure that excludes bulk deliveries to businesses and government buyers — topped 1 million for the first time since the August 2009 spike during the federal cash-for-clunkers trade-in program.

“The industry has managed through another series of external shocks and is in a healthier position as the year closes,” said John Humphrey, senior vice president of global automotive operations at J. D. Power.

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Off the Charts: As a Market Predictor, a Trusty Guide Falters

Through November, an investor in the stocks in the Standard Poor’s 500 had a small profit of 1.1 percent this year, including reinvested dividends. But that figure was a 6 percent loss a week earlier, before investors took pleasure from positive reports of post-Thanksgiving retail sales and became more optimistic that another round of European summit meetings next week would reduce the threat of a new financial collapse.

The last negative return during the third year of a presidential term was in 1939, when the loss was a barely noticeable 0.1 percent. That loss came as storm clouds gathered in Europe with the beginning of World War II. It is hard to think of any year since the war when Europe’s problems have loomed as large to investors as they have this year.

As can be seen from the accompanying charts, an investor who put money into American stocks at the beginning of each third year, and then got out of the market for the next three years, would have done far better than one who chose any other year of the presidential cycle to invest in.

With this year’s performance, the compound annual gain for all third years since World War II will dip below 20 percent, barring a major rally this month. During the postwar years, the second-best showing was from fourth years — the years when a new president is elected. It was just over 8 percent.

A $100 investment in 1947, allowed to grow only in third years, would be worth more than $2,000 now. Similar investments in the first, second or fourth years would have grown to less than $400.

It has long been suspected that the fact that third years were the best was far from a coincidence, as presidents sought to stimulate the economy and corporate profits heading into a year when they would seek re-election or, if they were completing a second term, try to keep the White House in the hands of the same party.

This year, the economic outlook has been anything but clear, with encouraging signs of growth early in the year replaced by fears of a double-dip recession in the summer as the European credit crisis intensified. Since August, the market has gyrated wildly as European prospects have seemed to change almost daily.

At the same time, it has become increasingly clear that Congressional Republicans are unlikely to allow any significant effort to stimulate the economy before next year’s election.

President Obama may be pleased to learn that third-year stock market returns have not been good predictors of election results. The four best third years — all with total gains of more than 30 percent — were in 1955, 1975, 1991 and 1995. In 1956 and 1996, incumbents easily won re-election. In 1976 and 1992, incumbents were defeated. Similarly, the results after the four lowest postwar gains were also split, with the incumbent party winning twice and losing twice.

The stock market has long been viewed as a leading indicator of the economy, and the presidential cycle seems to bear that out. The best economic growth, on average, has been in the fourth years of presidential cycles, with the third year second-best.

There is another historical indicator that provides hope that the third-year pattern will hold. Year-end rallies are common, and as a result December has been more likely to show increases than any other month over the last six decades.

Floyd Norris comments on finance and the economy at

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Strong U.S. Retail Sales Lift Wall Street

Opinion »

The Case for Herman Cain’s Flat Tax

He’s been ridiculed right and left, but Room for Debate asks, is his “9-9-9” plan so far-fetched?

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Retail Sales Rose in May but Fell Short of Forecasts

Sales at discount stores that have been open at least a year grew by 7.8 percent in May, the best showing by any group of retailers in terms of sales last month, according to a survey of 24 retailers released on Thursday.

But the overall measure of what are known as same-store sales, compiled by Thomson Reuters, rose 4.9 percent on average in May, slightly below the 5.4 percent that analysts had forecast. It was also below the 8.9 percent growth in April, which was one of the biggest increases in the index in the last few years.Analysts said the May figures reflected the continued pressures on consumers from an uncertain jobs market, depressed housing sector, and the recent rise in gasoline prices. But retailers have tried to adapt to attract buyers who are still conservative about how much they open their wallets, and where.

Sherif Mityas, a partner in the retail practice at A.T. Kearney, a global management consulting firm, called the results “a bit underwhelming.”

“In totality we are still seeing significant headwinds from a consumer confidence perspective,” said Mr. Mityas. “You are seeing that show up in consumer retail sales.”

The monthly survey of same-store sales is used as a gauge for buoyancy in the retail sector and the strength of consumers, whose ability to spend is seen as a reflection of any progress in the economic recovery.

The survey fell a day ahead of the Labor Department’s monthly report on the jobs market. Analysts are forecasting an unemployment rate of 8.9 percent, down from 9 percent, and the addition of 170,000 jobs in May, although other jobs data this week has raised some concerns about whether those expectations will be met.

Economists said higher food and gasoline prices, although they have been moderating recently, have taken their toll on retailers in the United States. With people out of work and a depressed housing market, “people are feeling less confident about where their money is going,” Mr. Mityas said.

“The American consumer is still unfortunately focused on their needs when they open their wallet,” he said.

Still, the Thomson Reuters survey also suggested that while discount consumers were seeking bargains, higher end consumers were feeling less of a pinch. Retail sales at department stores rose 3.8 percent, but that was below the 4.5 percent increase expected. Apparel for teenagers also did well, climbing 4.5 percent overall, slightly above expectations of 4.2 percent.

Another survey of chain store sales from the International Council of Shopping Centers released on Thursday also suggested, as the Reuters survey did, that consumers on the high and low ends of the income scale were doing the most shopping. Neither survey includes Wal-Mart.

“The fact that luxury stores are plowing ahead gives some credence to suspicions that the high-end American consumer is pulling out of the recession relatively well, while the rest are having their incomes swallowed up by higher food and gasoline prices,” said Chris G. Christopher Jr., the senior principal economist for IHS Global Insight.

“In addition, shoppers are increasingly shopping for clothing from discount stores and staying away from the more expensive apparel outlets,” he said, commenting on the ICSC survey.

The Thomson Reuters survey accounts for sales in the four weeks through May 28. It quoted some retailers as saying that unseasonably cool and wet weather in the beginning of the month hurt traffic, but as the weather turned warmer near the end of the month, business picked up.

In the Thomson Reuters analysis, same-store sales at Saks showed the best increases of individual retailers, with a 20.2 percent jump in May, followed by Costco’s 13 percent rise.

Saks said in a statement that a four-day sales event helped push up May’s calculations. Macy’s reported same-store sales were up 7.4 percent. The department store said in a statement that it was raising its guidance, with same-store sales rising by about 5 percent in the second quarter from the previous estimate of about 4 percent. Macy’s includes online sales in its same-store sales calculations. Mr. Mityas said Saks and Macy’swere pursuing consumers with better pricing and merchandising.

“They are clearly setting the bar,” he said.

Nordstrom was up 7.4 percent.Among the companies that missed forecasts by the biggest margin were Destination Maternity, which showed same-store sales declining by 8.6 percent, the worst drop of the 24 retailers, worse than the decline of 1 percent forecast by analysts. J.C. Penney, which had been expected to show a 3.3 percent rise, fell by 1 percent. Gap Inc and Stage Store also fell short of forecasts.

Teen retailers The Buckle Inc and Zumiez Inc. beat expectations, with same-store sales rising 7.8 percent and 8.8 percent in May.

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