US payrolls surge, bolster Fed rate hike prospects

WASHINGTON - US employment gains surged in February, the clearest sign yet of labor market strength that could further ease fears the economy was heading into recession and allow the Federal Reserve to gradually raise interest rates this year.

Nonfarm payrolls increased by 242,000 jobs last month, the Labor Department said on Friday. The unemployment rate held at an eight-year low of 4.9 percent even as more people piled into the labor market.

"This is the best news the Fed could have expected going into the meeting. With jobs bouncing back, you can be sure that rate hikes are just around the corner," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The economy added 30,000 more jobs in December and January than previously reported. The only blemish in the report was a three-cent drop in average hourly earnings, but that was mostly because of a calendar quirk.

The average length of the workweek also fell last month.

Economists had forecast employment increasing by 190,000 last month and the jobless rate holding steady.

The employment report added to data such as consumer and business spending in suggesting the economy had regained momentum after growth slowed to a 1.0 percent annual rate in the fourth quarter. Growth estimates for the first quarter are around a 2.5 percent rate.

Fears of a recession in the wake of poor economic reports in December and slowing growth in China sparked a global stock market rout at the start of the year, causing financial market conditions to tighten.

Financial markets have priced out bets of a rate rise at the Fed's March 15-16 policy meeting and see a roughly 50 percent chance of a hike at the September and November meetings, according to CME FedWatch.

Economists, however, believe the strong jobs market and improved growth outlook, together with signs that inflation is creeping up, could prompt the Fed to lift borrowing costs in June.

The Fed raised its key overnight interest rate in December for the first time in nearly a decade.

Prices of U.S. Treasuries fell after the data, while U.S. stock index futures rose. The U.S. dollar gained against the euro and hit session highs against the yen and Swiss franc.

Slower wage growth
Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased two-tenths of a percentage point to 62.9 percent, the highest level in just over a year.

Adding to the report's strength, a broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point to 9.7 percent.

The employment-to-population ratio also increased to 59.8 percent last month, the highest since April 2009, from 59.6 percent in January.

While wage growth weakened in February, it was largely payback for January's jump, which was driven by a calendar quirk. Growth in wages is seen accelerating as the labor market settles into full employment.

The drop in average hourly earnings lowered the year-on-year gain in earnings to 2.2 percent from 2.5 percent in January. The average workweek fell to 34.4 hours from 34.6 hours in January.

In February, job gains were almost broad-based, though manufacturing and mining employment fell. The services sector created 245,000 jobs after adding 153,000 jobs in January. Mining lost a further 18,000 jobs after shedding 9,000 positions in January.

Mining payrolls have declined by 171,000 jobs since peaking in September 2014, with three-fourths of the losses in support activities. More losses are likely after oilfield services provider Halliburton Co. said last month it would cut a further 5,000 jobs because of a prolonged slump in oil prices.

Manufacturing employment lost 16,000 jobs, reversing some of January's surprise increase. Private education jobs rebounded after plunging in January. Construction payrolls increased 19,000 and government added 12,000 jobs.

source: interaksyon.com

Fed looks past a world in turmoil, confident in U.S. recovery

WASHINGTON - U.S. central bankers have looked beyond a global deflation threat, fear of energy-sector bond defaults, and a surge of oil patch layoffs to reach what appears to be a firm conclusion: the U.S. recovery is here to stay.

New trade data released on Wednesday and signs of ever-stronger consumer spending confirmed the United States remains the bright spot in a global economy plagued by uncertainty.

The trade deficit shrank in November to less than $40 billion, providing a boost to growth as Americans spent less on imported oil.

Meanwhile, the first corporate reports from the Christmas season showed at least some of that money trickling into stores as J.C. Penney Co Inc. said same-store sales rose 3.7 percent in November and December, pushing the company's stock up nearly 20 percent.

At its December policy-setting meeting, according to minutes released on Wednesday, the Federal Reserve took close stock of plunging world oil prices and turmoil in Europe and decided that those negative trends would not undo that underlying strength.

"Several participants ... suggested that the real economy may end up showing more momentum than anticipated, while a few others thought that the boost to domestic spending coming from lower energy prices could turn out to be quite large."

The minutes set the stage for what could be a key economic theme this year: how the global system will react as Fed policy diverges from that of other major central banks.

The European Central Bank and the Bank of Japan are expected to further loosen monetary conditions in coming weeks or months, while the luster has fallen from emerging markets that had been attracting record levels of investment in recent years.

"These minutes defined the environment post-tapering," said Robert Tipp, chief investment strategist at Prudential Fixed Income in New Jersey. "If the Fed moves aggressively it would suck up capital from emerging markets."

Global conditions have arguably weakened since the Fed's Dec. 16-17 meeting, and the minutes note that the United States would not be immune if the world economy turns sharply down.

There is already fallout. Credit analysts have honed in on the debts of companies involved in oil and gas exploration and production, with Standard & Poor's downgrading half a dozen firms at the end of 2014 and concluding the entire sector will be under pressure if prices remain so low.

Workers have taken a hit not just directly among energy firms but in affiliated industries. U.S. Steel announced this week it was laying off 756 workers due to weakening demand for steel pipe and other products used by energy firms.

But the positive impulse from cheap oil is only beginning, according to analysts, and is expected to keep the Fed firmly on track even if it pushes inflation further from the central bank's target in coming months.

The narrowing trade deficit prompted analysts to up their estimates for 2014 economic growth.

The fall in oil prices also was putting hundreds of billions of dollars in the pockets of consumers, a trend that started to show up in earnest in November's retails sales. The December numbers are expected to be strong as well, with the National Retail Federation forecasting 4.1 percent overall growth over the year before.

Falling yields

Even the steady drop in U.S. bond yields says less about expectations for future interest rates than it does about the oil-driven path of inflation and its longer-term impact on the economy, Cornerstone Macro economist Roberto Perli said in a recent analysis.

Bond yields were dropping, he said, in part because the amount investors demanded to offset inflation was falling faster even as expectations for economic growth continued to increase.

"Investors might be tempted to assume that the bond market is sending a very bearish message about the U.S. economy, but in reality the bond market is saying exactly the opposite," Perli wrote.

"Growth expectations embedded in the 10-year yield have actually improved this month, and have been doing so ever since oil prices started to drop in the summer. The bond market shares our view that the drop in oil prices is a good thing for the aggregate U.S. economy."

source: interaksyon.com

Asian shares firm, but U.S. budget impasse constrains

TOKYO - Asian shares ticked up on Friday after U.S. jobless claims data pointed to an improving labor market, but the lack of progress in budget and debt negotiations in Washington kept investors on edge.



The solid jobs data revived expectations of a reduction in U.S. monetary stimulus, but not without reservation, after the Federal Reserve's surprise decision not to do so last week and conflicting messages from various top Fed officials since then.



MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.1 percent, with Australian shares scaling a five-year high, in sympathy with Wall Street shares, which broke a five-day losing streak on Thursday.



"Though U.S. jobless claims data is positive enough to marginally lift the market, investors need further evidence of a U.S. economic recovery as well as a settlement in Washington," said Hanyang Securities analyst Lim Dong-rak.



U.S. weekly initial claims for unemployment benefits dropped 5,000 last week despite economists' expectations of a rise, helping U.S. shares to end a five-day losing streak.



The claims data's four-week moving average, a key gauge that smoothes out weekly volatility, dropped to 308,000, the lowest level since June 2007.



That fall could add to the case that the Fed is safe to go ahead with winding down its bond buying program later this year. Yet, investors are now cautious not to jump to a conclusion.



"The communication between markets and the Fed has broken down since last week. And different Fed officials are saying different things these days, and nobody knows exactly why the Fed did not taper this month after all," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.



Indeed, four top Fed officials acknowledged on Thursday the Fed confused markets but they hardly agree on what to do next, with both hawks and doves making their own cases, doing little to ease investors' confusion.



Budget showdown



Traders also see an impasse in U.S. congressional negotiations over the budget and increasing the federal borrowing limit as likely to cap gains in global shares in the next few weeks.



Republican lawmakers in the House of Representatives refused to give in to President Barack Obama's demands for straight-forward bills to keep the government running beyond September 30, raising the chance of a government shutdown.



While investors see limited economic impact from a short period of shutdown, that does not bode well for negotiations on the more important issue of raising the debt ceiling.



Failure to act on the ceiling by October 17, when the Treasury will have run out of money, could lead to an unprecedented U.S. sovereign debt default.



The cost of protection against U.S. sovereign default in the credit default swap market has risen to its highest level in four months.



In the currency market, the dollar held onto modest overnight gains following the jobless claims data, but was on track to end the week flat, hampered by the risk of U.S. default.



The dollar was also helped by the euro's fall amid renewed concerns Italy's fractious coalition government could fall apart.



Italian center-right deputies supporting former Prime Minister Silvio Berlusconi renewed threats to resign if their leader is expelled from Parliament following a tax fraud conviction.



The euro traded at $1.3480, off a seven-month high of $1.3569 hit last week while the dollar fetched 98.80 yen, maintaining most of its 0.6 percent gain on Thursday.



The yen had no reaction to data that showed Japan's core inflation rose to a five-year high.



Oil prices were soft as fears of an escalation in a military conflict in the Middle East eased as the United States and Russia agreed on a draft resolution that would demand Syria give up its chemical arms and Washington and Tehran held the highest-level dialogue since the Islamic revolution in Iran three decades ago.



U.S. crude futures dropped 0.3 percent to $102.71.

source: interaksyon.com

Is Fed ready to begin the great taper? Markets say yes

WASHINGTON, September 15, 2013 (AFP) - Is the Federal Reserve ready to put the Great Recession behind it? Is the US economy prepared for it?

The markets think so, as the Fed's policy board prepares to meet on Tuesday and Wednesday to decide a momentous step: whether they begin cutting back its stimulus for the economy, $85 billion a month pumped in via bond purchases to fuel the engine.

Four months after Fed Chairman Ben Bernanke first suggested that the central bank could start to taper its stimulus program, called quantitative easing (QE), sometime this year, most expectations are that the Federal Open Market Committee (FOMC) will take the step.

And with Bernanke expected to step down at the end of January, many believe he needs to set the policy path now, rather than having it delayed for months until his successor settles into the job.

The prospect of less easy money from the Fed has already taken US stocks down from their all-time highs, and sent market interest rates climbing sharply. The yield on the benchmark 10-year Treasury bond has nearly doubled in four months, from 1.6 percent to 3.0 percent.

The anticipation has also wreaked havoc in emerging markets.

A pullout of foreign capital, driven by falling returns, turned into a flood outward when US bond yields rose. That sent authorities in countries like Indonesia, India and Turkey into a panic over their plummeting currencies.

And although that has drawn warnings to the Fed from around the world to not act too precipitously, analysts say the only question surrounding the taper is when, and how fast.

In his effort to remove any obscurity from Fed communications -- to make sure that everyone understands clearly what FOMC members are thinking -- Bernanke has set the course firmly to taper.

On May 22 he told a congressional hearing that the Fed could begin cutting the QE bond purchases "in the next few meetings" of the FOMC, while adding the condition, "If we see continued improvement, and we have confidence that that is going to be sustained."

Three weeks later he was more precise, saying the cutback could start "later this year" and be completely wound up by mid-2014.

But by July he was more cautious, voicing a worry over how government spending cuts might slow the economy through the rest of the year.

The minutes to the end-July FOMC meeting echoed that shift. Several members wanted to go ahead with the taper, while others counseled "the importance of being patient".

Economic data has backed both views. At the end of August the official estimate of US economic growth in the second quarter was raised to a solid 2.5 percent.

The August jobs report put the unemployment rate at 7.3 percent, compared with 8.1 percent a year earlier, and data on corporate and government layoffs has steadily improved.

But the report also showed a significant slowdown in new job generation for the June-August period. Gains in the unemployment rate were largely from the number of people dropping out of the jobs market altogether.

In addition, the rise in interest rates appears to have slowed the rebound of the property sector, and fresh retail sales data Friday suggested that, with the exception of buying new cars, US consumers were being very cautious about opening their wallets.

"Businesses aren't laying off workers -- the layoff rate is at a record low and initial unemployment insurance claims are trending down -- but they aren't hiring many, either," said Mark Zandi, chief economist at Moody's Analytics.

But as Zandi points out, the economy continues to heal, and the Fed's bond purchases -- aimed at holding down long-term interest rates -- have less impact as time passes.

Most analysts say there is not enough economic bad news for Bernanke to reverse course.

But the FOMC could cut its bond purchases by a small amount -- $5 to $20 billion out of the $85 billion total -- and then hold off on more cuts to see where the economy goes, analysts say.

Or it could put off the decision to one of the FOMC's two remaining meetings this year.

"The Fed will likely hold off on tapering at next week's meeting and move in December," said economists at IHS Global Insight in a report Friday, taking a minority view.

"The jobs market is simply too uncertain and there are risks on the horizon from Syria and congressional fiscal fights."

source: interaksyon.com

Wall Street Week Ahead: Cliff fight may knock out December rally

NEW YORK - In normal times, next week's slew of U.S. economic data could be a springboard for a December rally in the stock market.

December is historically a strong month for markets. The S&P 500 has risen 16 times in the past 20 years during the month.

But the market hasn't been operating under normal circumstances since November 7 when a day after the U.S. election, investors' focus shifted squarely to the looming "fiscal cliff."

Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S.economy into a recession.

A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday.

But the impact of those economic reports could be muted. Distortions in the data caused by Superstorm Sandy are discounted.

The spotlight will be more firmly on signs from Washington that politicians can settle their differences on how to avoid the fiscal cliff.

"We have a week with a lot of economic data, and obviously most of the economic data is going to reflect the effects of Sandy, and that might be a little bit negative for the market next week, but most of that is already expected - the main focus remains the fiscal cliff," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Concerns about the cliff sent the S&P 500 into a two-week decline after the elections, dropping as much as 5.3 percent, only to rally back nearly 4 percent as the initial tone of talks offered hope that a compromise could be reached and investors snapped up stocks that were viewed as undervalued.

On Wednesday, the S&P 500 gained more than 20 points from its intraday low after House Speaker John Boehner said he was optimistic that a budget deal to avoid big spending cuts and tax hikes could be worked out. The next day, more pessimistic comments from Boehner, an Ohio Republican, briefly wiped out the day's gains in stocks.

On Friday, the sharp divide between the Democrats and the Republicans on taxes and spending was evident in comments from President Barack Obama, who favors raising taxes on the wealthy, and Boehner, the top Republican in Congress, who said Obama's plan was the wrong approach and declared that the talks had reached a stalemate.

"It's unusual to end up with one variable in this industry, it's unusual to have a single bullet that is the causal factor effect, and you are sitting here for the next maybe two weeks or more, on that kind of condition," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago.

"And that is what is grabbing the markets."

Be contrary and make merry

But investor attitudes and seasonality could also help spur a rally for the final month of the year.

The most recent survey by the American Association of Individual Investors reflected investor caution about the cliff. Although bullish sentiment rose above 40 percent for the first time since August 23, bearish sentiment remained above its historical average of 30.5 percent for the 14th straight week.

December is a critical month for retailers such as Target Corp and Macy's Inc. They saw monthly retail sales results dented by Sandy, although the start of the holiday shopping season fared better.

With consumer spending making up roughly 70 percent of the U.S. economy, a solid showing for retailers during the holiday season could help fuel any gains.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, believes the recent drop after the election could be a market bottom, with sentiment leaving stocks poised for a December rally.

"The concerns on the fiscal cliff - as valid as they might be - could be overblown. When you look at a lot of the overriding sentiment, that has gotten extremely negative," said Detrick.

"From that contrarian point of view with the historically bullish time frame of December, we once again could be setting ourselves up for a pretty nice end-of-year rally, based on lowered expectations."

Some feel the big chill

Others view the fiscal cliff as such an unusual event that any historical comparisons should be thrown out the window, with a rally unlikely because of a lack of confidence in Washington to reach an agreement and the economic hit caused by Sandy.

"History doesn't matter. You're dealing with an extraordinary set of circumstances that could very well end up in the U.S. economy going into a recession," said Phil Orlando, chief equity market strategist at Federated Investors in New York.

"And the likelihood of that is exclusively in the hands of our elected officials in Washington. They could absolutely drag us into a completely voluntary recession."

source: interaksyon.com

Obama 'cliff' remarks spark US stocks sell-off

NEW YORK - US stocks tumbled Wednesday as President Barack Obama challenged Republicans to accept tax increases for the wealthy in a deal to avert the year-end fiscal cliff.

After opening higher, helped by Cisco Systems's strong earnings, share prices slid and then turned more sharply downward after Obama laid out his terms for a deal in his first news conference since his re-election.

Wall Street stocks closed at their lowest level in more than four months after Obama drew a hard line against Republicans in the battle for a compromise to avoid automatic spending cuts and tax increases that take effect in January.

"The president's statements failed to inspire investor confidence, thus resulting in an afternoon sell-off," said Briefing.com analysts.


The Dow Jones Industrial Average dropped 185.23 points (1.45 percent) to 12,570.95, its lowest close since June 26.

The broad-market S&P 500 lost 19.04 (1.39 percent) at 1,355.49, while the tech-rich Nasdaq Composite gave up 37.08 (1.29 percent) at 2,846.81.

Bank of America led the Dow rout, sliding 3.6 percent, followed by General Electric, down 3.2 percent.

Dow component Cisco was the sole blue-chip gainer, jumping 4.8 percent after its 48 cents earnings per share for the fiscal first quarter beat analyst expectations by two cents.

Abercrombie & Fitch, the retailer of trendy clothing for youth, soared 34.5 percent after turning in a 40 percent jump in third-quarter profit and sharply increasing its forecasts for the full year.

Office supplies chain Staples added 2.6 percent after reporting an expected quarterly loss due to impairment charges mainly related to its struggling European business.

Excluding that, its earnings per share came in flat, and around analyst expectations.

On the Nasdaq, Dell added 1.9 percent and Facebook gained 12.6 percent, despite a lifting of a share-sale ban for insiders, while Apple fell 1.1 percent.

Starbucks dropped 2.9 percent after announcing it would buy tea chain Teavana for $620 million.

Bond prices were mixed.

The 10-year US Treasury yield was unchanged from Tuesday at 1.59 percent, and the 30-year rose to 2.73 percent from 2.72 percent.

Bond prices and yields move inversely.

source: interaksyon.com

Fed bets big in new push to rescue US economy

WASHINGTON - The Federal Reserve launched another aggressive stimulus program on Thursday, saying it would pump $40 billion into the U.S. economy until it saw a sustained upturn in the weak jobs market.

The central bank's decision to tie its controversial bond buying directly to economic conditions was an unprecedented step that marked a big escalation in its efforts to drive U.S. unemployment lower. Stock prices jumped, while gold hit a six-month high as investors braced for higher inflation.

Unlike in its two previous bond-buying sprees, the Fed said it would only purchase mortgage-backed debt, hoping in part to unstick a housing sector that Fed Chairman Ben Bernanke called "a missing piston" in the U.S. recovery.

One top Republican charged that the move was a bid to help President Barack Obama ahead of November's closely contested presidential election. Republican nominee Mitt Romney's campaign said it confirmed the failure of Obama's policies.

Bernanke dismissed talk the Fed was taking sides, saying it acted solely because of the dire state of the U.S. labor market.

"The employment situation ... remains a grave concern," Bernanke told reporters. "While the economy appears to be on a path of moderate recovery, it isn't growing fast enough to make significant progress reducing the unemployment rate."

The economy created just 96,000 jobs last month, less than needed to keep up with population growth. While the unemployment rate edged down to 8.1 percent, it was only because many Americans gave up on the search for work.

By buying mortgage-linked debt, the Fed hopes to press mortgage rates lower, helping the housing market and also encouraging investors in MBS to switch into other assets, lowering their yields as well.

Those lower borrowing costs should spur more lending and foster faster economic growth, officials believe. U.S. growth cooled in the second quarter to a tepid 1.7 percent annual rate, and forecasters do not see the economy doing much better now.

In an additional move, the Fed said it was not likely to raise overnight interest rates from their current near-zero level until at least mid-2015. Previously, it had set such guidance at late 2014.

To underscore its resolve, it said it would pursue an easy monetary policy "for a considerable time" even after the economy strengthened.

"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement.

Asked repeatedly during a post-decision news conference to amplify on that pledge, Bernanke said the Fed wanted to see a convincing improvement in the economy that could deliver sustainable job creation and a gradual decline in unemployment.

"There's not a specific number we have in mind, but what we have seen in the last six months isn't it," he said.

U.S. stocks shot higher on the Fed's move, with the S&P 500 closing at its highest level since December 2007 and the Dow Jones industrial average adding more than 200 points.

Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut, said that by tying its purchases to progress reducing U.S. unemployment, the Fed had "basically locked on the handcuffs and swallowed the key."

Pushing on a string?

Economists said the Fed could eventually buy more than $1 trillion in debt given the open-ended nature of its new policy. Capital Economics estimated purchases could top $1.4 trillion.

The plan fueled some nervousness in financial markets over the potential for inflation, even though the Fed would pull back on its buying if the economy strengthened.

Bernanke stated explicitly that pushing up prices was not the Fed's intention.

The price of gold, a traditional inflation safe haven, hit a six month high, while oil also gained on expectations investors would pile into riskier assets such as commodities and equities.

Prices for most U.S. Treasury debt rose, although the 30-year bond fell, reflecting both disappointment that government debt was not on the Fed's purchase list and inflation worries.

The decision comes in the face of widespread questions about the likely effectiveness of a further foray into unorthodox monetary policy, including from Romney. The Fed has already bought $2.3 trillion in U.S. government and housing-related debt it two rounds of so-called quantitative easing.

Those programs, dubbed QE1 and QE2, bought bonds closer to a pace around $100 billion per month.

Senator John Cornyn, head of the Senate Republican Campaign Committee, said the Fed appeared to be "trying to juice the economy" ahead of the November 6 election, while Lanhee Chen, policy director for the Romney campaign, argued that the Fed's decision pointed to a need for new policies from the White House.

"We should be creating wealth, not printing dollars," Chen said.

The White House, which scrupulously avoids commenting on Fed decisions, declined to be drawn into the debate, but other Democrats rallied to defense of Bernanke, who once served as an adviser to Republican President George W. Bush. It was Bush who first nominated Bernanke to the Fed.

"It is unfortunate that Republicans already have expressed disappointment in this action and are clearly upset that they were unable to intimidate the Fed into putting partisan politics ahead of national economic interests," said Democratic Representative Barney Frank.

The Fed also caused ripples aboard. Brazilian Finance Minister Guido Mantega said he would monitor the impact of the action on Brazil's real currency. Mantega had accused the Fed's earlier bond buying of unfairly weakening the U.S. dollar.

Brighter outlook

In its statement, the Fed said the fresh MBS purchases, which it will start on Friday, would come on top of its so-called Operation Twist program, in which it is selling short-term bonds to buy longer-term Treasury debt.

With its new MBS purchases, the Fed said it would now be buying about $85 billion in long-term securities each month.

In a reflection of optimism over their new policy path, officials lowered their forecast for the unemployment rate at the end of 2014 to a 6.7 percent to 7.3 percent range, down from a range of 7.0 percent to 7.7 percent in June.

Still, even in 2015, they believe the jobless rate will be above the 5.2 percent to 6 percent range where they think it should eventually settle.

One official, Richmond Federal Reserve Bank President Jeffrey Lacker, dissented against the decision, as he has at every FOMC meeting this year.

source: interaksyon.com

New iPhone could boost US GDP, JP Morgan says

The next generation iPhone 5, which Apple Inc. plans to release this week, could not only boost the tech giant’s bottom line – but could give a significant boost to the overall U.S. economy.

Sales of the new iPhone could add between a quarter and a half percentage point to fourth quarter annualized growth in the U.S., according to J.P. Morgan’s chief economist, Michael Feroli in a note to clients on Monday.

Such an impact would be significant.

“Calculated using the so-called retail control method, sales of iPhone 5 could boost annualized GDP growth by $3.2 billion, or $12.8 billion at an annual rate,” Feroli wrote. That 0.33 percentage-point boost, he added, “would limit the downside risk to our Q4 GDP growth protection, which remains 2.0 percent.”

Feroli laid out his math. J.P. Morgan’s analysts expect Apple to sell around 8 million iPhone 5s in the fourth quarter. They expect the sales price to be about $600.

With about $200 in discounted import component costs, the government can factor in $400 per phone into its measure of gross domestic product for the fourth quarter.

Feroli said the estimate of between a quarter to a half point of annualized GDP “seems fairly large, and for that reason should be treated skeptically.” But, he added, “we think the recent evidence is consistent with this projection.”

Feroli said that when the last iPhone was launched in October 2011, sales significantly outperformed expectations.

“Given the iPhone 5 launch is expected to be much larger, we think the estimate mentioned … is reasonable,” Feroli wrote.

According to a recent Reuters poll of Wall Street dealers and economists, U.S. GDP was seen at 2.0 percent on average in 2013, down slightly from estimates this summer.

source: interaksyon.com

China central bank vows to ensure steady credit growth

BEIJING - China's central bank on Thursday pledged to guarantee steady expansion in money supply and credit to cushion the world's second-largest economy against stiff global headwinds.

Chinese top leaders on Tuesday pledged to step up policy fine-tuning in the second half of 2012 to bolster an economy that saw its slowest pace of growth in more than three years in the second quarter.

"China will use multiple monetary policy tools to guide stable and appropriate growth in credit and money supply and maintain the reasonable scale of social financing aggregate," the People's Bank of China said in its second-quarter monetary policy implementation report.

"China will make monetary policy more forward-looking, targeted and flexible while continuing to preemptively adjust and fine-tune policy when appropriate," it said in the report published on the bank's website, www.pob.gov.cn.

The central bank pledged to use multiple monetary policy tools, including banks' reserve requirement ratio (RRR) and open market operations, to manage liquidity.

Still, it cautioned that loosening policy too quickly could stoke inflation, which cooled to a 29-month low of 2.2 percent in June.

"The impact of China's expansionary policy may wane in stimulating growth, while the impact on inflation will rise," it said. Consumer inflation may rebound after August, the bank said.

Bank lending is a centerpiece of the central bank's policy setting as it ratchets up efforts to support economic growth that hit a three-year low of 7.6 percent in the second quarter.

The central bank has cut interest rates twice since June and cut RRR three times since late 2011. Further policy easing is widely anticipated.

China will forge ahead with market-based interest rate reforms and increase the flexibility of the yuan, the bank said.

"The central bank will reduce the frequency of currency market interventions to increase yuan flexibility," it said.

As the U.S. economy lacks a foundation for solid recovery, Europe's festering debt crisis could pull the world economy into a second recession if the bloc should fail to bolster market confidence timely, the central bank warned.

China is at risk of a rebound in inflation and monetary policy should focus on managing financial system liquidity as the best way to underpin slowing growth, the Financial News operated by the PBOC said earlier on Thursday.

The paper said China should keep curbs in place designed to kill off speculative pressure in the real estate market that saw home prices double in key cities between 2009 and 2011, pushing them beyond the reach of many middle class Chinese citizens.

source: interaksyon.com