U.S. Economic News Week Ending March 11, 2011

In a highly volatile week, markets fell broadly on a series of disturbing events. Renewed worries about Middle East oil flow disruptions combined with concerns about disappointing trade figures from Germany and China to pressure markets, and sovereign debt downgrades in Greece and Spain added a further element of risk that sent investors to safe havens such as U.S. Treasuries. The increased demand caused Treasury yields to fall sharply. Topping things off was a tsunami that hit Japan late Friday afternoon as Japan's stock market was about to close.

The tidal wave, which washed away cars, trucks, boats, and houses, was triggered by an earthquake with a magnitude of 8.9 centered 230 miles northeast of Tokyo. The quake, Japans largest ever and reportedly the fifth largest in the world since 1900, shook Tokyo's buildings and investors nerves. Tsunami warnings were issued for dozens of countries with shorelines along the Pacific Ocean. Wide-scale evacuations occurred in Hawaii. The full local and global economic impact of this disaster is not yet known.

Fears that oil production could be disrupted, along with the increased violence in Libya and new protests in Saudi Arabia, pushed the price of a barrel of crude oil above $106.

Gold prices dipped along with other commodities on concerns that global demand could drop if Chinese economic growth slows.
Global economic news

Greece, Spain see debt downgraded
Moodys Investors Service downgraded the sovereign debt rating of Spain and Greece this week. On Monday, Moodys cut Greeces credit rating by three levels, to "B1" with a negative outlook, from "Ba1." On Thursday, Moodys cut its rating for Spanish sovereign debt to "Aa2" with a negative outlook, from "Aa1." The news reignited fears that countries with high deficits might bring the eurozone into a new debt crisis.

Data show higher gas prices weigh on consumers
The Reuters/University of Michigan consumer sentiment index fell to its lowest level since October as recent turmoil in Libya left consumers more pessimistic about their current and future economic situation. The report also showed a rise in inflation expectations in line with the surge in gas prices. The rise in gas prices also seemed to chip away at retail sales in the month of February. While sales climbed at the fastest rate in four months, the increase was still smaller than expected.

U.S. trade deficit widens
The U.S. trade deficit widened to its highest level in seven months in January despite a record-high level of exports, as surging oil prices added significantly to the price of imports. The U.S. trade deficit jumped 15% to $46.34 billion in January from $40.26 billion in December, the U.S. Department of Commerce reported. The deficit came in much higher than the $41.5 billion shortfall that had been estimated by economists surveyed by Dow Jones Newswires. Higher prices for oil contributed to the growing trade gap along with strong consumer demand.

Trade balances affected by high oil, commodities prices
China and Germany surprised the financial world with unexpectedly weak trade reports this week.

China has largest trade deficit in seven years
Chinas $7.3 billion February trade deficit, its largest monthly deficit in seven years, resulted from a 2.4% increase in exports from a year earlier and a 19.4% rise in imports for the same period. Higher prices for commodities played a key role, with the average price for Chinas iron ore imports rising 63%. Oil and soybean costs also rose.

Germanys trade surplus shrinks
Germanys current account surplus fell to 7.2 billion in January from 19.3 billion in December. From January 2010, exports rose 24.2% and imports were up 24.1%.

Japan reports monthly trade deficit
Japan incurred its first monthly trade deficit in two years as its exports rose 2.9% in January while imports grew by 15.6%. Imports of petroleum products rose 38.6%, as the price of crude oil was 18.2% higher than the previous year.

Consumer prices rise in China, Germany
Chinas consumer prices rose 4.9% in February from a year earlier, exceeding the governments 4% inflation target for a fifth month. In Germany, consumer price inflation was at its highest in more than two years in February, reaching 2.1% annually. The rising cost of energy was a factor in both instances.

U.S. wholesale inventories and sales rise
U.S. wholesale inventories rose by 1.1% in January to a seasonally adjusted $387 billion, the highest level since July 2008, while sales rose by 3.4%. Since January 2010, inventories rose 11.9% while sales were 15.4% higher. These strong numbers reflect increased consumer spending as well as greater confidence among businesses.

Confidence grows among U.S. small companies
U.S. small companies were more confident in February than they have been in three years, according to the National Federation of Independent Business optimism index, which rose to its highest level since the recession began in December 2007.

Consumer debt rises overall; credit card debt eases
U.S. consumer credit rose in January at an annual rate of 2.5% while credit card debt fell to a six-year low, according to the U.S. Federal Reserve Board. Overall consumer credit reached $2.412 trillion, an increase of $5 billion. Revolving credit, or credit-card debt, fell by $4.2 billion to $795.5 billion, marking the twenty-eighth decline in credit card use in 29 months.
Global corporate news

Sales of luxury goods soars
German luxury carmakers Audi and BMW had highly profitable years in 2010, signaling that demand for luxury vehicles recovered after almost stalling in 2009. Audi doubled its annual profits in 2010 and improved its operating profit margin to 9.4% from 5.4%. BMW substantially raised its dividends and had a 19% increase in revenue.

EADS posts major profit
European aerospace firm European Aeronautic Defence & Space Co. (EADS) reported a fourth-quarter net profit of 355 million, a big improvement from a loss of 1.05 billion a year earlier. The maker of the Airbus, among other aircraft, benefited from cost savings, increased aircraft deliveries, and improved performance in non-Airbus divisions.

AIG repays $6.9 billion to U.S. Treasury
American International Group (AIG), one of the major recipients of the U.S. governments Troubled Asset Relief Program (TARP), repaid $6.9 billion, reducing the U.S. Treasury Departments preferred equity stake in AIG. To date, 70% of the $700 billion the government has disbursed through TARP has been repaid.

Coffee rivals Green Mountain, Starbucks team up
Green Mountain Coffee Roasters has agreed to sell Starbucks coffee and Tazo tea in its Keurig brewing system in the fall. Just two weeks ago, Green Mountain announced a deal to sell coffee from Starbucks' rival Dunkin Donuts. In 2010, Green Mountain sold 2.9 million Keurig cup portion packs, a 75% increase year over year.

AOL announces job cut
To streamline its businesses, AOL has begun laying off 20% of its work force with plans to eliminate 950 jobs in the United States and India. Last year, AOL cut about one-third of its work force.