U.S. Economic News Week Ending January 21, 2011

It was a turbulent week for global financial markets. News of growing U.S. economic strength was welcomed. However, China’s vigorous economy, still growing by 10% per year even after numerous government efforts to slow it down, was seen as a potential problem. The prevailing concern of many economists is that Chinese leaders will have to put the brakes on an economy that the rest of the world has come to depend on as a catalyst for consumption of commodities and other goods. Stock markets around the world fell during the week while U.S. Treasury yields rose on diminished demand for safe havens. Prices for commodities – including oil, gold, silver, and copper – fell on anticipated slowing demand. Meanwhile, crude oil inventories rose, creating further downward pressure on prices.

Global economic news

U.S. manufacturing bellwether expands for fourth month
Manufacturing activity in the Philadelphia region expanded for a fourth consecutive month, according to the Federal Reserve Bank of Philadelphia’s Business Outlook Survey. However, the gauge edged down slightly to 19.3 in January from a revised December reading of 20.8. Although the survey pertains to the Philadelphia region, it is seen as a bellwether for broader trends in manufacturing.

U.S. home resales increase 12%
Sales of previously owned homes rose 12% in December, reported the National Association of Realtors. The sales growth easily surpasses the average estimate of 4.7% that was projected by economists surveyed by Dow Jones Newswires. However, the 2010 total of 4.9 million homes sold was the weakest annual total since 1977 and is down 4.8% from 2009.

Initial jobless claims drop in the United States
The number of Americans who filed claims for jobless benefits fell by 37,000 to 404,000 in the week ended January 15, according to the U.S. Department of Labor. The weekly figure beat analysts' expectations of 420,000 new claims.

Conference Board’s leading indicator up 1%
The Conference Board’s Leading Economic Index rose 1.0% in December to 112.4 after gaining 1.1% in November. As with the latest home resale and initial jobless claims numbers, this economic indicator was more favorable than anticipated, surpassing the 0.6% mark forecast by economists.

China’s economy grows 9.8%; inflation rises 4.6%
China’s robust economy continued to expand, which could be seen as good news or bad news. Its fourth-quarter gross domestic product (GDP) grew by 9.8% from a year earlier. For all of 2010, the country’s economy grew 10.3%. Meanwhile, China’s consumer price index rose 4.6% in the fourth quarter from a year earlier, well above Beijing’s target of 3%. Economists expect China to raise interest rates several times in 2011. In 2010, China raised interest rates twice and increased its reserve requirement ratio for state-controlled banks seven times. Observers fear that more serious measures to curb growth and control inflation could dampen global demand for commodities.

German economic expectations up sharply
Germany’s economic expectations rose considerably in January, according to the Centre for European Economic Recovery. Its ZEW Indicator of Economic Sentiment for Germany rose for the third consecutive month – climbing to 15.4 points from 4.3 points in December. German business confidence hit an all-time high in January, reported Ifo, a German research institute. Its business-climate index reached 110.3 from 109.8 in December. Germany’s GDP rose 3.6% in 2010, its strongest increase since 1992.

Global corporate news

Bank of America absorbs huge losses
Bank of America, the United States' largest bank by assets, posted a $1.24 billion fourth-quarter loss because of write-downs and charges related to the weak housing market. The bank took a $4.1-billion provision to cover the repurchase of troubled loans from Fannie Mae and Freddie Mac. In addition, it took a $2 billion charge to reflect a write-down of the value of its mortgage operations.

General Electric lights up its earnings
General Electric’s fourth-quarter profit rose 51% on increased revenue, reduced costs, and a lower-than-expected tax rate. Equipment orders grew and its sales increased for the first time since September 2008.

Morgan Stanley profits rise 35%; Goldman Sachs earnings plummet
Morgan Stanley posted a 35% increase in fourth-quarter profit on strength in its investment banking, wealth, and asset-management businesses. The firm’s trading activity declined, reflecting an industry slowdown. Net revenue rose 14%. In contrast, rival investment banking firm Goldman Sachs, posted a significant drop in fourth-quarter earnings, 53% less than its year-earlier period. Goldman’s fixed-income, currency, and commodities trading business performed below expectations. Overall, its revenue fell 10% from a year earlier.

Freeport-McMoran profit jumps 50%
Freeport-McMoran Copper & Gold, the world’s second-largest copper producer, posted a fourth-quarter profit that was 60% higher than a year ago. The increase reflected higher prices for commodities. Copper prices rose 31% in the quarter while gold prices were 25% higher. In addition, both copper and gold production rose. The company’s revenue increased 22% from a year earlier.

Southwest Airlines profit rises
Southwest Airlines, the largest U.S. airline by passenger numbers, posted a 13% gain in earnings. The travel and tourism industry experienced a rebound in demand. Excluding hedging, charges related to acquisitions and other factors, earnings were up 50% while revenue rose 15%.

Google has easy search for new CEO
Google co-founder Larry Page will take over as chief executive officer in April when Eric Schmidt steps down from a very successful decade as head of the world’s most-used search engine. Google’s fourth-quarter profit beat analysts’ estimates, benefiting from a boost in online advertising. Its net income rose 29% from a year earlier.

Boeing cuts work force while Rockwell Collins expands
Boeing announced that it plans to cut about 1,100 jobs in the next two years as it trims production of a line of military cargo aircraft. Meanwhile, aerospace group Rockwell Collins said it plans to grow its work force by about 4%, or 800 employees, including 550 engineers, in 2011.