By Ann Saphir

CHICAGO |
Mon Feb 6, 2012 12:55pm EST

CHICAGO (Reuters) – The Federal Reserve should start raising interest rates next year, a top Fed official said on Monday, arguing that many years of near-zero rates will do little to return economic output to pre-recession levels and risks causing “disaster.”

St. Louis Fed President James Bullard said he disagreed with the Fed’s decision last month to keep interest rates exceptionally low through late 2014 to bolster a recovery that was moving too slowly.

Bullard, who does not have a vote on the Fed’s policy-setting Federal Open Market Committee this year, is seen as a policy centrist.

“It’s important to start to remove accommodation – even when you go up to 1 percent or 1-1/2 percent, that’s still very easy monetary policy,” Bullard told reporters. “It’s a matter of getting to a normal level of interest rates at the right time. I don’t think you want to wait until everything is exactly the way you’d expect it to be.”

Fed Chairman Ben Bernanke last month gave a bleak assessment of the economy and left the door open to new bond purchases to boost growth, a move that Bullard said he would support only if the economy worsened further and the threat of deflation re-emerged.

The Fed cut rates to near zero more than three years ago and has bought $2.3 trillion worth of bonds to spur economic activity.

Because the recession was brought on by a collapse in housing that destroyed household wealth, unemployment is likely to stay high and labor markets will improve only slowly even if rates are kept low for years, Bullard said.

The belief that the U.S. economy suffering from an “output gap” that can be bridged only if borrowing costs are kept low enough for long enough is wrong, he said.

“If we continue using this interpretation of events, it may be very difficult for the U.S. to ever move off of the zero lower bound on nominal interest rates,” Bullard said. “This could be a looming disaster for the United States.”

The U.S. economy is on track to grow at a 3 percent rate this year and to strengthen further next year, Bullard said. That should help push the unemployment rate below 8 percent by the end of this year, he projected.

It registered 8.3 percent in January, and most Fed officials last month saw the rate staying above 8 percent through this year.

Meanwhile, inflation, while falling, is running above the Fed’s newly set target of 2 percent.

Bullard said keeping rates low for several quarters is very different from keeping them there for years, which punishes savers. Younger generations hurt by high unemployment are not increasing their consumption to make up for the decline in consumption among older generations, he said.

“In this sense, the policy could be counterproductive,” he said.

Some lawmakers in Congress levied a similar criticism against Bernanke last week, saying the Fed’s low-rate policy was hurting savers and, in Congressman Paul Ryan’s words, “bailing out” debtors.

Charles Schwab Corp’s eponymous founder, in an op-ed in the Wall Street Journal on Monday, took the argument further, saying rock-bottom interest rates are destroying confidence in the economy and are unwisely forcing older savers to take risks with their money in search of decent investment returns.

In testimony last week, Bernanke said the Fed was “quite aware” of the costs of low-rate policy for savers, but he has repeatedly made the case that fostering faster growth overall is more important for the economy as a whole.

Bullard said he welcomed the Fed’s adoption of an explicit inflation target because it may keep the central bank from allowing higher inflation in pursuit of bridging an illusionary output gap.

“This is an important development, as it may prevent the U.S. from repeating the mistakes of the 1970s, in which a misreading of the size of the output gap led the Fed to maintain easy monetary policies for far too long,” he said.

(Editing by James Dalgleish)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/yNpsXqqki4Y/us-usa-fed-bullard-idUSTRE8121QG20120206

By Lucia Mutikani

WASHINGTON |
Fri Feb 3, 2012 7:14pm EST

WASHINGTON (Reuters) – The United States created jobs at the fastest pace in nine months in January and the unemployment rate unexpectedly dropped to a near three-year low, giving a boost to President Barack Obama.

Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent – the lowest since February 2009 – from 8.5 percent in December.

The gain in employment was the largest since April and it far outstripped the 150,000 predicted in a Reuters poll of economists. It hinted at underlying economic strength and lessened chances of further stimulus from the Federal Reserve.

“More pistons in the economic engine have begun to fire, pointing to accelerating economic growth. One of the happiest persons reading this job report is President Obama,” said Sung Won Sohn, an economics professor at California State University Channel Islands.

The payroll gains were widespread – from retail to temporary help, and from construction to manufacturing – an indication the recovery was becoming more durable.

A survey of households showed the unemployment rate declined even as new job seekers flooded into the labor force. Economists had expected the jobless rate, which has now fallen 0.8 percentage point since August, to hold steady.

“I think this is a sign that maybe the economy is reaching that holy grail of a self-sustaining economic expansion,” Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.

The outlook was further brightened by a separate report showing service sector activity quickened last month to a near one-year high. A gauge of service sector employment touched a six-year high.

The fairly upbeat data buoyed stocks on Wall Street, with the tech-heavy Nasdaq Composite index hitting an 11-year high. The Dow Jones industrial average rose to a near four year high, while the Standard Poor’s index extended its 2012 advance to about 7 percent.

U.S. Treasury debt prices tumbled as investors dialed back expectations on Fed easing. The dollar was little changed against a basket of currencies after rising earlier in the session.

The employment report contrasted with a fairly glum assessment of the economy offered by the Fed last week.

Officials at the central bank have been debating whether to buy more bonds – a program dubbed QE3 – to drive interest rates lower. It also raised doubts about the Fed’s expectation that it could hold interest rates near zero at least through late 2014.

“At the very least this scales back QE3 (quantitative easing) odds. The surprisingly persistent decline in the unemployment rate also calls into question how firmly wedded the Fed is to the late-2014 rate guidance,” said Michael Feroli, an economist at JPMorgan in New York.

Interest rate futures indicated that at least some traders were beginning to lay bets the Fed could move interest rates up in early 2014.

Fed fund futures were pricing in a 38 percent chance of a January 2014 rate hike, up from 29 percent before the report, and the first better than even chance of a rate hike was in April 2014, according to CME Group, where the contracts are traded.

However, economists at most leading Wall Street firms still believe the Fed will undertake another bond-buying program, according to a Reuters poll.

DON’T MUCK IT UP

Obama welcomed the strong jobs report and urged Congress to extend a payroll tax cut and benefits for long-term unemployed, which expire at the end of this month.

“Now is not is not the time for self-inflicted wounds to our economy. I want to send a clear message for Congress. Do not slow down the recovery that we are on, don’t muck it up,” he said at a firehouse in Arlington, Virginia.

Republicans acknowledged the improvement in the labor market, but said the jobless rate was still too high.

“Our economy still isn’t creating jobs the way it should be and that’s why we need a new approach,” said House Speaker John Boehner.

While employment growth has quickened there are no jobs for three out of every four unemployed people and 23.8 million Americans are either out of work or underemployed. The level of employment is still 5.57 million from its pre-recession level.

But steady progress is being made. The economy added 60,000 more jobs in November and December than previously reported.

In addition, average hourly earnings rose four cents, which should help to support spending. The report suggested that expectations of a slowdown in U.S. economic growth in the first quarter were not yet impacting on companies’ hiring decisions.

Employment in the private sector surged 257,000 – the largest gain since April. Government payrolls fell 14,000, the least since September.

U.S. economic growth accelerated to a 2.8 percent annual rate in the final three months of 2011, but it was widely expected to slow as businesses ease back on efforts to rebuild inventories and exports slip amid a likely recession in Europe.

Some economists cautioned that January’s jobs figures could overstate the pulse of the recovery, citing still lackluster consumer confidence, income and spending growth.

While some said the jobless rate could drop below 8 percent by year end, others warned it would likely move up in the near-term as people who had given up the search for a job re-enter the workforce.

“For this to mark an upturn in the labor market, then businesses will have to continue to hire on this scale throughout the winter,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board in New York.

CAUTIOUS OPTIMISM

The unemployment rate has now declined for five straight months, although part of the drop reflects discouraged Americans giving up the hunt for work.

A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, slipped to a near three-year low of 15.1 percent in January from 15.2 percent in December.

Revisions to the payrolls figures showed 180,000 more jobs were created last year than previously believed.

Mild winter weather boosted employment last month in construction, which added 21,000 jobs after a 31,000 increase in December. Manufacturing payrolls surged 50,000, the largest gain in a year, after rising 32,000 the prior month.

Overall, the goods-producing sector added 81,000 jobs last month, the most since January 2006.

Transportation and warehousing employment increased 13,100 and courier jobs only fell 1,500. Last month, the Labor Department reported a large increase in courier jobs in December, but revisions showed they actually declined.

Retail employment rose 10,500 after gaining 6,200 in December. Temporary help services jumped 20,100 after rising 8,300, a potentially good sign for future permanent hiring.

(Reporting by Lucia Mutikani; Additional reporting by Ann Saphir in Chicago; Editing by Diane Craft)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/de2DWljxIKo/us-usa-economy-idUSTRE7BM0AB20120204

WASHINGTON |
Fri Feb 3, 2012 4:10pm EST

WASHINGTON (Reuters) – St. Louis Federal Reserve President James Bullard said on Friday the U.S. economy appears to be gaining momentum that will make further Fed purchases of bonds unnecessary.

“The economic news and economic data, including today’s data, has been surprising to the upside,” Bullard said in a Bloomberg News interview. “I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before I would consider more” central bank stimulus, or quantitative easing, he said.

The government earlier in the day said employers added 243,000 jobs in January and that the jobless rate dipped to 8.3 percent, a three-year low.

Bullard, who does not have a vote on the Fed’s policy-setting Federal Open Market Committee this year, is seen as a policy centrist.

The Fed last month said it would likely hold interest rates at rock bottom levels until late 2014. Fed Chairman Ben Bernanke was cautious about recent improvement in the U.S. economy and left the door open to new bond purchases to boost growth.

The Fed cut rates to near zero more than three years ago and has bought $2.3 trillion worth of bonds to spur economic activity.

Bullard said economic conditions are different now than when the Fed launched its last bond buying initiative in late 2010. At that time, inflation was so low policymakers were concerned the economy was at risk of tipping into a dangerous deflationary spiral, but that is not now the case, Bullard said.

“Inflation is coming down but at least for now it is above our inflation target” of 2 percent, he said. “We will see how things develop. But I am also more bullish on the economy as a whole. I do think we have momentum coming out of 2011.”

(Reporting by Timothy Ahmann, Editing by Gary Crosse and Dan Grebler)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/lujIobZjZTY/us-usa-fed-bullard-idUSTRE8121QG20120203

By Edward McAllister and Jeanine Prezioso

Fri Feb 3, 2012 2:57pm EST

(Reuters) – Halfway through what might turn out to be the second mildest U.S. winter on record, major parts of the nation’s economy are feeling the impact, for better or worse.

Apparel sales have been dented, ski slopes are emptier, and there has probably been a modest impact on economic figures for everything from payroll numbers to housing starts.

But lower energy prices mean that some consumers and municipal governments will likely benefit as heating charges and snow removal costs decline. And some retailers are betting on the early sale of lawn mowers.

After two brutally long winters, the temperatures this year have been so balmy – forecasters say the average temperatures across the nation have been 3-4 degrees Fahrenheit above normal in January – that many Americans have been wondering whether the cold will arrive at all.

In January, the U.S. recorded the least amount of snowfall since the mild winter of 2006, while Canada had the second lowest snowfall amount in 50 years, according to Planalytics weather forecasters.

Natural gas prices have slumped to 10-year lows as warm weather cuts heating demand, hammering the profits of drillers and forcing firms like Chesapeake Energy (CHK.N) and ConocoPhillips (COP.N) to shut in production.

In shopping malls, retailers are struggling to get rid of winter clothing as consumers do without seasonal apparel.

“We are going through peak heating season and temperatures have been well above normal for most of the nation with weather maps going into early February painting a similar picture,” said Chris Jarvis, president of Caprock Risk Management in Rye, New Hampshire.

Below is a summary of some of the sectors affected:

NATURAL GAS PRICES

Energy prices offer the clearest signal that the weather isn’t behaving normally, as traders scour forecast screens for a hint of how much heat households and businesses will need in the coming days and weeks.

The answer this winter: not much. November, December and January have come and gone without much sustained cold in the major energy demand centers such as the Northeast, swelling gas inventories to more than 20 percent above last year. Even oil demand has been hit slightly.

Heating degree days, a measurement that reflects the strength of energy demand for home heating, are running 12 percent below winter norms and analysts say gas storage levels will remain high unless there is an extreme and prolonged spell into early spring.

For a graphic showing the fall in U.S. heating demand: link.reuters.com/gyt36s

To return storage levels to normal by the end of winter, every single day between mid-February and mid-April would need to be 10 degrees colder than normal, according to Jan Schulte, in-house analyst at Thomson Reuters Natural Gas Analytics.

“That is simply impossible,” Schulte said.

Above-normal temperatures are forecast for the first half of February, though private forecaster Weather Services International sees colder than normal temperatures across most of the northern and western United States for some weeks after that.

THE ECONOMY

The mild winter likely provided a slight temporary boost to the economy as builders broke ground on new home construction earlier than normal, though researchers at JPMorgan recently estimated this impact was minor.

Goldman Sachs estimates the weather probably led employers to add about 20,000 jobs to payrolls in December, about 10 percent of the total gain in employment that month.

Fewer snow storms allowed people to shop more readily. Without the mild weather, there may have been a small contraction in retail sales in December rather than a 0.1 percent increase, Goldman estimates.

Lower spending by households on heating in the fourth quarter subtracted a bit from economic growth during the period. The money, though, may show up eventually in higher consumption of other products and services or in a higher savings rate.

RETAIL

Warm winter weather forced many U.S. retailers to offer deeper-than-usual discounts in January to clear their shelves off winter gear ranging from coats and sweaters to boots and gloves. Meanwhile restaurants and beer sellers might see a kick up in business.

“In this economy, nobody is going to buy unless there is a need for it, and the weather says, ‘You don’t need it,’” said Scott Bernhardt, chief operating officer of Planalytics, which provides weather data for businesses.

“It’s apparel that’s hit the most,” said Bernhardt, who expects outerwear sales to drop 20 to 30 percent in the month. Demand was weak for items such as snow shovels and rock salt as well, Bernhardt said.

At a Home Depot store in Overland Park, Kansas, where the temperature was an unseasonably warm 65 degrees Fahrenheit on Tuesday, snow shovels, snow blowers and other winter equipment had been relegated to a small corner at the end of the store. Prime selling space has been given over to shiny green lawn mowers.

A Target store in the Kansas City area had snow sleds on clearance last week.

Toro Co (TTC.N), which makes snow throwers, would not provide specifics on demand ahead of its quarterly earnings report. “Certainly the snow thrower products we sell would be negatively impacted by the lack of snow pretty much everywhere,” said Kurt Svendsen, spokesman for Toro.

Instead of hats, gloves and snow blowers, what consumers may be after in balmy weather is a nice cold beer.

“Warm weather does always help beer sales in the winter. Hard to quantify how much it’s helped the past two months though. Too early to tell,” said Harry Schuhmacher, editor and publisher of Beer Business Daily.

LOCAL GOVERNMENT

The mild winter is delivering welcome savings to many U.S. local governments still battling drag from the financial crisis and subsequent deep recession.

Cities, counties and other local governments report lower costs on heating bills for schools and other government buildings.

Lower overtime costs for ploughing crews, less use of salt to de-ice highways, and less wear and tear on equipment and roads, have also helped local authorities.

The state of Illinois reported that it saved $50,000 in December on heating the State Capitol and other buildings it controls in the state.

In Chicago, where a single fierce blizzard blew through the city’s snow budget in February 2011, the unseasonably warm December and January have barely dented the $20 million allocated for snow costs.

Plows were deployed just nine times in the past two months, versus 17 times during the same two months in the previous winter, while the amount of salt used so far is about half, said Matt Smith, spokesman for Chicago’s Department of Streets and Sanitation.

But the city, where Mayor Rahm Emanuel continues to chip away at a nearly $636 million structural budget gap with layoffs and other measures, is not counting yet on any savings.

“Just like every snow flake is different, every winter is different,” Smith said, adding “we still have a long way to go this winter.”

Kansas City snowfall this season is just three-tenths of an inch, down from the 1981-2010 seasonal average snowfall of 19.5 inches, and following two years when snowfall annually topped 40 inches, according to Kansas State climatologist Mary Knapp.

So far this has saved at least $250,000 in overtime pay, fuel and other snow-removal costs, city spokesman Dennis Gagnon said.

“No one wants to put a number on total savings, because you never know what will happen, and last February we had a big storm,” Gagnon said. “If we don’t use any salt, and can use it next year, additional savings might be as much as $1.3 million.”

The savings in the city’s $2.75 million yearly budget for snow removal were being offset by lost revenues tied to a tax on home heating fuel use, Gagnon said.

TOURISM

Business at ski resorts in New Hampshire in the U.S Northeast is down roughly 30 percent from a year ago because of the warmer weather, hurting sales at local inns and restaurants as well as the earnings of staff, said Ben Craig, snowsports school director and resort marketing coordinator for Dartmouth Skiway in the state.

“The warmer weather has certainly impacted business,” Craig said. “When people don’t see snow in their front yard, it’s hard to get excited to go skiing,” he said.

The lack of natural snow has forced the Dartmouth Skiway to make more snow than normal, raising costs, Craig said.

“A lot of ski resorts are in more rural areas and they are the biggest economic factor in those areas,” he said.

Warm-weather travel is also less on people’s minds when they don’t see snow on the ground, travel industry executives said.

David Fishman, president of Cadillac Travel in the Detroit suburb of Southfield, Michigan, said people have to be reminded during warmer winters that they want to go on vacation, preferably to a place where it’s sunnier.

“When it’s like this, people don’t think about travel as much,” he said. “People just aren’t as quick to pull the trigger because they are not looking outside or seeing snow or ice.”

(Additional reporting by Eileen Houlihan, Joe Silha, Martinne Geller and Dhanya Skariachan in New York, Karen Pierog in Chicago, Karen Jacobs in Atlanta, Michael Connor in Miami, Lisa Baertlein in San Francisco, Carey Gillam in Kansas City,; Writing by Edward McAllister; Editing by Martin Howell)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/6uImk6UMERU/us-usa-weather-economy-idUSTRE81002O20120203

By Donna Smith

WASHINGTON |
Fri Feb 3, 2012 2:57pm EST

WASHINGTON (Reuters) – Top Senate Republicans wanting to spare the military from further deep spending cuts on Thursday unveiled a money-saving proposal to slash the federal workforce by 5 percent instead.

Some $1.2 trillion in automatic spending cuts across domestic and military programs are due to kick in from 2013 as part of a 10-year deficit reduction deal agreed to by lawmakers last year. Half of the cuts, or $600 billion, would fall on the military.

Many Republican lawmakers do not like the blunt approach to deficit reduction. The bill unveiled by John McCain, the top Republican on the Senate Armed Services Committee, John Kyl, the No. 2 Republican in the Senate, and four fellow senators would scrap the first installment of the cuts.

Under the measure, about $127 billion would be saved by scaling back the 2 million-strong federal civilian workforce through attrition and freezing its pay.

A 5 percent cut in personnel would translate to about 100,000 jobs. Agencies would only be able to hire two people for every three who retire or leave government employment.

“I believe that the cuts … aimed at the Department of Defense are a threat to our nation’s security and we are opposed to that draconian action,” McCain said at a news conference.

But his bill faces an uphill battle in the Senate. Democrats insist on a “balanced” approach to deficit reduction that includes both spending cuts and tax increases on the wealthy.

Many also oppose a provision in the bill that would continue a pay freeze for federal workers through mid-2014. The current freeze expires at the end of this year and President Barack Obama has proposed a 0.5 percent pay increase next year.

The White House has expressed opposition to efforts that would circumvent the across-the-board spending cuts, which were triggered after a special congressional committee failed last year to reach agreement on a deficit reduction package.

A number of Republicans and Democrats have already said they are open to negotiations on other ways of achieving the $1.2 trillion in cuts. But Democratic Senator Benjamin Cardin signaled his party would not go along with the proposed federal pay freeze and work force reductions.

“This is an attack on government,” Cardin told reporters. “People want clean air, people want border security, people want

safe food, people want technology advancements, they want to make sure that government carries out its responsibilities.”

DEFENSE INDUSTRY WORRIES

Defense Secretary Leon Panetta has warned of dire effects from the scheduled $600 billion in defense cuts on top of some $487 billion already being sliced from projected spending over the next decade.

The Pentagon has initiated a round of reductions after a review to align spending with U.S. strategic interests. Panetta has said the Pentagon would have to start over to design a new strategy if Congress does not act to stop the automatic cuts.

Many analysts believe Congress could step in and block some or all of the spending cuts at the last minute in a post-election session. But McCain stressed the importance of providing certainty to the Pentagon.

Defense industry executives are bracing for the worst, telling investors that uncertainty and pressure on the defense budget will depress sales and earnings this year after a decade of strong growth.

Kyl called the bill a “bite size” piece of deficit reduction that could help lawmakers succeed where other attempts at reducing government red ink have failed.

“If we start with those things that have strong support from the American people … I think we can get several years down the road with pretty good bipartisan agreement,” Kyl said.

In the Republican-led House of Representatives, Armed Services Committee Chairman Howard McKeon has introduced a measure that would slash the federal workforce by 10 percent.

Republican leaders have not openly supported the bill but have said they want to replace the automatic cuts with other spending reductions.

(Additional reporting by Andrea Shalal-Esa; Editing by Vicki Allen and Ross Colvin)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/SyigAfOJTjk/us-usa-budget-cuts-idUSTRE8110DA20120203

NEW YORK |
Fri Feb 3, 2012 2:57pm EST

NEW YORK (Reuters) – The number of planned layoffs at U.S. firms surged in January to its highest level in four months as retailers and financial firms cut jobs, a report on Thursday showed.

Employers announced 53,486 planned job cuts last month, up 28 percent from 41,785 in December, according to the report from consultants Challenger, Gray Christmas, Inc.

January’s job cuts were also up from the same time a year ago, gaining 38.9 percent from the 38,519 layoffs announced in January 2011.

A surge in job cuts at the start of the year is not unusual, the report said. January is historically the heaviest month of cuts, averaging 101,084 layoffs between 1993 and 2001.

Retail companies cut 12,426 jobs, the largest amount for the sector in two years. The layoffs were due to store closings and other cost-cutting measures, rather than an exit of seasonal workers, which are typically not announced cuts.

Financial firms trimmed 7,611 jobs, while the government sector saw only a relatively small amount of cuts at 3,021.

The rise in job cuts comes a day before the key U.S. jobs report, which is forecast to show employment growth slowed last month.

(Reporting by Leah Schnurr)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/mPax2pFJmXE/us-usa-economy-jobs-challenger-idUSTRE81111U20120203

By Andy Bruce and Steven C. Johnson

LONDON/NEW YORK |
Fri Feb 3, 2012 2:57pm EST

LONDON/NEW YORK (Reuters) – A surprise surge in U.S. hiring and good news from businesses on both sides of the Atlantic got the world economy off to a hopeful start in 2012, though the euro zone’s debt woes and signs of slower growth in China remain a concern.

Data on Friday revealed U.S. employers increased payrolls in January by 243,000 – the fastest pace in nine months. That rise pushed the U.S. jobless rate down to 8.3 percent, its lowest in nearly three years.

In Europe, the vast services sector in the 17 countries that use the euro grew for the first time in five years, while Britain and the United States had an even better January, with each country’s services sector both growing at its fastest clip in nearly a year.

Wall Street welcomed the news, which boosted stock indexes and the dollar and triggered a selloff in safe-haven Treasury securities.

But few investors were able to hide their surprise at just how quickly economic conditions around the world, particularly in the United States, have improved.

“Even the pessimists are tongue-tied with this data,” said Todd Schoenberger, managing director at Landcolt Trading in Wilmington, Delaware.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on global services sector PMI:

link.reuters.com/zyp46s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

William Larkin, fixed-income portfolio manager at Cabot Money management in Salem, Massachusetts, said “things are on the right track.”

“Could we be taken off the tracks by some … geopolitical events or with the Europe (debt) situation? Certainly. But for now, things are looking more positive,” he added.

The U.S. data bolstered the view that strong growth in the final three months of 2011 was carrying over into the new year. Investors said that could delay or even scupper plans by the Federal Reserve to launch a new round of monetary easing.

The U.S. central bank said last week it would hold interest rates near zero for the better part of the next three years, but Rob Carnell, chief international economist at ING Group, said the data was making even that pledge “hard to take too seriously.”

CHINA, EUROPE CONCERNS LINGER

To be sure, news from China tempered some of the optimism. The official government services PMI dipped to 52.9 in January from 56.0, suggesting growth is slowing in the world’s second largest economy.

China has been an engine of global growth in recent years, but economists worry that a gradual slowdown will act as a drag in the future.

“The overall strength of economic growth remained relatively weak, which will inevitably weigh on the jobs market if weakness persists for longer,” said Qu Hongbin, chief economist for China at HSBC.

But Ron Florance, head of investment strategy at Wells Fargo Private Bank, saw a bright spot even here, attributing the tepid growth to China’s efforts to contain inflation.

“It looks like they’ve been able to do that,” he said. “If so, that is good for global growth.”

Europe’s debt crisis was also a concern, though the service sector data suggested the euro zone economy “is not as depressed as some have feared,” said Annalisa Piazza, economist at New Edge Strategy.

In fact, business and consumer sentiment surveys from the euro zone since the start of the year have shown a definite upturn in optimism, although hard data still point to profound economic weakness in the common currency area.

Economists warn, however, that developments in the euro zone debt crisis are still critical to the bloc’s economic outlook.

Greece at least looks likely to avoid a ruinous sovereign debt default by agreeing on a debt swap deal and a new bailout with the International Monetary Fund, although market focus is shifting to Portugal and its long-term solvency.

Elsewhere, India’s services sector grew at its fastest pace in six months during January as new business swelled, while rising employment boosted Russian service companies.

(Editing by Gary Crosse)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/6kXXKnGSCBw/us-global-economy-idUSTRE8101C520120203

By Pedro Nicolaci da Costa

WASHINGTON |
Fri Feb 3, 2012 2:57pm EST

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke on Thursday defended the U.S. central bank’s policies against charges from Republican lawmakers they risked sparking inflation, saying the economy still needs plenty of support.

Testifying before Congress, the Fed chief was repeatedly thrown on the defensive as he parried critiques from Republican lawmakers over the Fed’s zero interest rate policy, its focus on employment and its policy prescriptions for housing.

Bernanke told the House Budget Committee that Europe’s financial crisis still threatened the U.S. recovery, and said the Fed would do everything it can to ward off damage.

“The basic reason for low long-term rates, which are also a feature of every other industrial economy, are low inflation, slow expected growth and the fact that the dollar is a safe haven,” Bernanke said.

Paul Ryan, the committee’s Republican chairman, took issue with the central bank’s new 2 percent inflation target, saying a Fed policy statement last week suggested it would be willing to tolerate higher inflation nonetheless.

Bernanke pushed back against that idea: “We are not seeking higher inflation, we do not want higher inflation and we’re not tolerating higher inflation.”

After slashing rates to near zero in late 2008, the Fed bought $2.3 trillion in bonds in a further effort to spur the economy. Many analysts expect it will further expand its portfolio in the months ahead with another round of purchases.

Last week, the Fed said U.S. overnight interest rates would likely remain near zero until at least through late 2014, a pledge widely seen as an effort to push other borrowing costs lower to spur stronger growth and job creation.

NOT SATISFIED

Bernanke said he was seeing signs that some of the factors dampening U.S. business investment, including uncertainty surrounding European bank woes, might be waning. But he added it was far too soon to say whether the United States would remain unscathed by troubles beyond its borders.

“Risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home,” Bernanke said. “We will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.”

European leaders are haggling over how best to erect a firewall to prevent their debt crisis from spreading. At the same time, Greece is under pressure to clinch a deal with private creditors to make its debt load more manageable.

Many economists believe austerity moves throughout the euro zone have already tipped the region into recession.

Given that weak backdrop, many analysts believe the Fed will embark on a third round of bond purchases.

Bernanke kept the option of further easing on the table – and urged lawmakers to take steps of their own.

“We are obviously not satisfied with where we are and while we will continue to do all we can to meet our dual mandate (of price stability and full employment) … we hope that all of you and the administration will look for alternative ways to strengthen our economy,” he said.

VULNERABLE TO SHOCKS

Bernanke faced pushback against a recent Fed “white paper” on housing, which some Republicans argued crossed the line into fiscal policy.

New Jersey Representative Scott Garrett lashed out at New York Federal Reserve Bank President William Dudley and Fed Governor Elizabeth Duke for what he described as actively proposing housing recommendations to Congress.

Bernanke said his colleagues were offering their individual views rather than the official position of the central bank, and he said the “white paper” was intended to lay out both pros and cons of potential policies.

The Fed chief reiterated his hedge on U.S. budget policy. He argued that long-term deficits raised the possibility of a crisis but warned against near-term fiscal tightening that might threaten the recovery.

“Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery,” Bernanke said. “The sluggish expansion has left the economy vulnerable to shocks.”

(Additional reporting by Mark Felsenthal; Editing by Tim Ahmann and Andrea Ricci)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/qjsdfcI-yAw/us-usa-fed-idUSTRE8111E720120203

By Jonathan Spicer

AUSTIN, Texas |
Fri Feb 3, 2012 2:56pm EST

AUSTIN, Texas (Reuters) – A third round of large-scale asset purchases by the Federal Reserve is not needed and would compound the difficulties of tightening monetary policy when the time finally comes, a top Fed official said on Thursday.

“Personally I don’t see how you can justify it given the state of the current economy,” Dallas Federal Reserve President Richard Fisher said in remarks that underscored the sharp divide within the U.S. central bank over what to do in the face of an uneasy economic recovery.

Earlier Thursday, the head of the Chicago Fed, Charles Evans, advocated a much more forceful approach in tackling unemployment, even if it means jumping into a potentially controversial new round of so-called quantitative easing, or QE3.

“I would be very aggressive,” Evans told a small group of reporters.

Fisher and Evans stand on opposite ends of a wide philosophical spectrum of the 17 Fed policymakers, a divide that was clear last week when the central bank anonymously published their individual forecasts: some expect rates to rise this year while others don’t see that until 2016.

Chairman Ben Bernanke and others have suggested that more asset purchases may be necessary if unemployment, now at 8.5 percent, remains high and if inflation is subdued, and if the U.S. economic recovery fails to gain traction.

Inflation has slowed over the last couple of months and the Fed expects it to ease this year. Core inflation is now running at about 1.7 percent.

Fisher, an outspoken policy hawk, acknowledged that the Fed may have more latitude to pursue easy-money policies if inflation runs below its newly set 2 percent target – though he added that such a move does not guarantee more jobs, and that he personally would not advocate it.

“Again it’s a question of efficacy,” he told reporters after a speech to the Headliners Club of Austin. “Is it needed? I don’t think so. And secondly it compounds the difficulty of an exit when the right time comes.”

UNPRECEDENTED POLICY STEPS

In a big step toward transparency, the central bank last week adopted the explicit inflation target. But it declined to likewise set a target for its other main concern, unemployment, arguing that monetary policy has little direct influence on jobs.

Already the Fed has bought some $2.3 trillion in long-term securities and has kept interest rates near zero for more than three years in an unprecedented attempt to revive the economy after a harsh recession that doubled the jobless rate.

Bernanke, testifying before Congress Thursday, found himself on the defensive against charges from Republican lawmakers that the Fed’s easy-money policies and focus on employment risked sparking inflation. The chairman argued the economy still needs plenty of support, aligning himself more with the doves like Evans than with the hawks.

On Friday, U.S. data on new January jobs are released, which could show how sustainable were the labor market improvements at the end of 2011.

EYES ON THE CALENDAR

In what was interpreted as more easy policy, the Fed’s policy-setting committee last week also said it expected to keep interest rates “exceptionally low” at least through late 2014, more than a year later than its previous target date.

Fisher – echoing comments by Charles Plosser of the Philadelphia Fed on Wednesday – criticized the move on grounds that monetary policy should not be tied to a specific date.

“Instead, I feel that the key should be to calibrate monetary policy according to the state or condition of the economy,” Fisher said.

The Fed should use monetary policy to sustain the signs of improvement, “and not to crimp what are emerging buds,” he said of the recent signs of economic improvement.

Fisher dissented in decisions of the Fed’s policy-setting committee last year because he saw the actions as over-accommodative and risking inflation in the future.

Both he and Evans do not have votes this year but they regain them in 2014, when most policymakers expect the first rate rise, according to the forecasts by individual Fed officials.

The Fed’s new inflation target and the acknowledgement on unemployment effectively puts the ball into Congress’ court to take steps to lower unemployment and help the economy, Fisher added.

“The Fed, the nation’s monetary authority, has clearly articulated its longer-run goal and policy strategy and has conducted itself with integrity by responding to the needs of the economy,” he said.

“In contrast, the fiscal authorities have conducted themselves with impunity: Their only long-term strategy is to pass the bill to our children and grandchildren.”

(Reporting by Jonathan Spicer; Editing by Andrew Hay, Carol Bishopric, Gary Hill)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/6ztbi77OhVI/us-usa-fed-fisher-idUSTRE81200O20120203

WASHINGTON |
Fri Feb 3, 2012 2:56pm EST

WASHINGTON (Reuters) – New orders for U.S. factory-made products posted a second straight monthly rise in December and business capital spending also picked up, a government report on Friday showed.

The Commerce Department said orders for manufactured goods increased 1.1 percent, slightly below Wall Street economist’s forecast for a 1.5 percent gain.

But November’s gain was revised up to 2.2 percent from a previously reported 1.8 percent and there were signs in the report of a firmer pace of overall factory activity.

During the full year 2011, factory orders gained 12.1 percent after a 12.9 percent rise in 2010.

Orders for non-defense capital goods excluding aircraft – a closely watched category because it is taken as a sign of businesses’ future spending plans – climbed a solid 3.1 percent in December. That followed declines of 1.5 percent in November and 0.9 percent in October.

Shipments for this category also increased by 3.1 percent in December after matching decreases of 0.9 percent in each of the two prior months.

Business spending had been a driver of the recovery since the 2007-2009 financial crisis, which pushed the U.S. economy into a deep recession.

During December, there were widespread gains in key order categories from computers to fabricated metal products and transportation equipment. Orders for electrical equipment were down from November, one of the few categories that declined.

(Reporting By Glenn Somerville; Editing by Neil Stempleman)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/xd-co5pZb5w/us-usa-economy-factory-idUSTRE81211G20120203