U.S. Economic News Week Ending Febuary 18, 2011

Despite ongoing unrest in the Middle East, global financial markets enjoyed a strong week overall. Pushing markets higher were more signs of an increasingly healthy U.S. economy, an Organization for Economic Cooperation and Development (OECD) report indicating widespread global economic growth, and substantial profits posted by large European banks, mining giants, and other multinationals.

While investors around the world are closely monitoring Middle East tensions, for now the impact is confined to demonstrations and some street violence in Egypt, Yemen, Bahrain, and Libya. Potential confrontations this weekend loomed in Iran, Iraq, Algeria, and Tunisia. In Egypt, banks were shuttered this week because of labor unrest. The Egyptian stock market will remain closed until next Monday at the earliest. The presence of Iranian warships in the Suez Canal led investors back to safe-haven assets. Crude oil prices rose slightly during the week, to around $87 per barrel.

It has been a strong quarter overall for stock earnings. Of the first 387 companies in the Standard & Poor’s 500 Stock Index that have reported quarterly earnings since January 10, 72% have beaten analysts’ expectations, and per-share earnings are up 35% overall from a year ago, Bloomberg reported.
Global economic news

U.S. inflation still tame
Wholesale prices in the United States rose a seasonally adjusted 0.8% from December to January, the U.S. Department of Labor said. However, core inflation, stripping out food and energy prices, was up just 0.5%. Year over year, the core index of producer prices increased 1.6%. U.S. consumer prices rose more modestly in January, by 0.4%, and just 0.2% excluding food and energy. For the year, consumer prices rose 1.6% before seasonal adjustments, and core inflation was 1.0%, below the U.S. Federal Reserve Board’s 2.0% target.

U.S. mortgage delinquencies drop
Fewer U.S. households were behind on mortgage payments at year-end than at any time in the past two years. Nearly 12.9% of homes — 6 million households — were 30 days or more past due or in foreclosure at the end of December, according to the Mortgage Bankers Association quarterly survey. This figure represents a decrease of 14% from one year ago but is higher than the 11% delinquency rate of two years ago.

Leading U.S. regional manufacturing index has best month in seven years
Manufacturers in the mid-Atlantic area had their strongest monthly showing since January 2004, according to the Federal Reserve Bank of Philadelphia’s general business activity index, which rose to 35.9 in February from 19.3 in January. The report, which is seen as an economic bellwether, is in keeping with other regional surveys of manufacturing activity.

U.S. deficit projected to reach $1.65 trillion
The White House projects the U.S. federal deficit will reach a record $1.65 trillion this fiscal year. However, the administration also forecasts that the deficit will decline to $1.1 trillion in fiscal year 2012 and shrink to $627 billion by 2017, or to 3% from 10.8% this year.

German producer prices rise sharply
Producer prices in Germany rose 1.2% in January and 5.7% from a year earlier, the Federal Statistics Office reported. Energy prices rose 2.3% for the month and 9.3% for the year.

OECD indicators point to global growth
Most developed economies will continue to grow in the coming months, predicts the OECD. Its leading indicator of economic activity in the 33 member countries rose to 102.8 in December from 102.5 in November. Growth was projected to be highest in Germany, Japan, and the United States, with Italy and China heading for a decline.

U.S. jobless claims rise
After reaching a two-year low in initial claims for unemployment benefits the previous week, the number of American workers filing new claims rose last week, by 25,000 to 410,000, the Labor Department reported. The four-week average of new claims rose to 417,750.

China overtakes Japan as number-two global economy
China officially overtook Japan as the world’s second-largest economy in 2010, according to figures from both governments. China’s gross domestic product reached $5.88 trillion last year, an annual growth rate of 9.8%, surpassing the showing of Japan’s $5.47-trillion economy. Both economies are far behind the United States’ 2010 GDP of $14.66 trillion.

Chinese trade surplus shrinks in January
China’s trade surplus fell to $6.45 billion in January from $13.1 billion in December, according to customs data. Although China’s exports rose 38% from a year earlier, imports were up 51%, reflecting robust domestic demand within the world’s most populous country and supporting a 10% annual economic growth rate.
Global corporate news

European financial firms in solid standing
Reports from European large financial firms were encouraging. London-based Barclays’ annual earnings were 36% higher than a year earlier. Dutch financial services company ING returned to a profit in the fourth quarter, on strong performance by its banking business, which enjoyed higher interest rate margins and lower loan losses than a year earlier. French lender Société Générale reported a fourth-quarter net profit almost four times higher than a year earlier on strength in retail banking, a recovery by its corporate investment bank, and smaller provisions against bad loans.

Megacorporations post large profits, reflecting recovery
Swiss food-making giant Nestlé tripled its 2010 net profit from a year earlier, helped by the sale of its eye-care unit and a growth in sales in emerging markets and its nutrition division.

Swiss electrical engineering firm ABB posted a 30% growth in fourth-quarter net profit. Sales rose 5% and orders, reflecting future revenue growth, increased 17%.

Anglo-Australian mining giant BHP Billiton netted a 72% growth in profits in the first half of its fiscal year, benefiting from strong demand in China and other rapidly growing regions of the world. BHP is a leading producer of coking coal that is used in steelmaking, copper, iron ore, nickel, and silver.

Anglo American, another massive mining company, reported that its annual profit nearly tripled, as demand and prices increased for its commodities — platinum, copper, nickel, coal, and iron ore.

Growth propels John Deere into higher gear
Deere & Company more than doubled its first-quarter profit from a year ago on strong sales of farm and construction machinery. The world’s largest farm equipment manufacturer beat quarterly analyst expectations and raised its sales and profit forecasts for the fiscal year.

Sanofi to buy Genzyme
France’s Sanofi-Aventis has agreed to purchase Genzyme for more than $20 billion. The acquisition gives Sanofi a dedicated U.S. research team with better ties to other U.S. researchers in the biotechnology industry and academic world.