U.S. Economic News Week Ending June 24 2011

Financial markets were volatile this week, as many economic reports pointed to an anemic U.S. economic recovery and the drama over a possible Greek sovereign debt default continued to unfold. On Friday, European leaders eased investor tensions a bit when they pledged to support Greece if the nation approves austerity measures.

Mixed economic news dominated the headlines throughout much of the week. Positive indicators included strong orders for U.S. durable goods and an upbeat forecast by economic bellwether FedEx that pointed to the temporary impact of the earthquake in Japan and higher oil prices.

However, consumer confidence fell on both sides of the Atlantic. U.S. home sales fell while jobless claims rose, and economic expectations slid in Germany, Europes strongest economy.

The International Energy Agencys announcement that it would release 60 million barrels of oil from strategic reserves caused the price of crude oil to tumble below $90 per barrel while sending energy stocks downward. Relative to the yield on benchmark German bunds, the yields on bonds issued by Portugal, Spain, Italy, and Ireland all rose, reflecting heightened risk. Against this backdrop, U.S. Treasury securities rallied, and Treasury yields fell.

Global economic news

EU leaders promise aid to Greece
European Union leaders promised to help Greece avoid a debt default as long as Greek Prime Minister George Papandreou pushes through a package of budget cuts next week. Leaders pledged to do whatever it takes to stabilize the eurozone economy. Greece has been in talks with European and international officials over 5.5 billion ($7.9 billion) in austerity measures as a necessary step to receiving its next quarterly disbursement on its existing loan as well as securing a second aid package. Greece will now have to get 78 billion of austerity measures through parliament.

U.S. Federal Reserve Board lowers growth forecast
The U.S. Federal Reserve Board lowered its forecasts for economic growth and employment in 2011 and 2012. The Fed now projects economic growth of 2.7% to 2.9% in 2011, down from 3.1% to 3.3%. It currently predicts an unemployment rate of 8.6% to 8.9% in the final quarter of this year, compared with a rate of 8.4% to 8.7% projected in April. However, the Fed noted that several factors holding back growth are temporary, including the impact of higher energy prices and disruptions to manufacturing caused by Japans earthquake.

Japan posts near-record trade deficit
Japan recorded its second-largest trade deficit ever in May, as the nation continued to feel the aftereffects of its March earthquake and tsunami and subsequent disruption to exports. Higher fuel costs caused the price of imports to rise. Despite Japans recent struggles, many analysts expect the economy to resume growth in the July-to-September quarter, because industrial output has started to show signs of improvement.

Italian banks trading halted
Trading in Italian banks was suspended Friday after a sharp drop in stock prices. It is rumored that several Italian banks could fail a Europe-wide stress test in July. Moodys Investors Service also warned that some Italian banks face possible debt rating downgrades.

U.S. durable goods rebound
A 1.9% rebound in orders for long-lasting manufactured goods in May, reported by the U.S. Department of Commerce, gave hope that recent economic weakness would turn out to be temporary. Durable goods orders had fallen 2.7% in April after the March 11 earthquake and tsunami in Japan had caused disruptions in the supply of automobile and electronics components.

U.S. first-quarter gross domestic product revised up to 1.9%
The U.S. economy grew slightly faster in the first quarter of 2011 than had been previously estimated. The Commerce Department revised its GDP growth figure to an inflation-adjusted annualized rate of 1.9% from its previous estimate of 1.8%.

U.S. home sales fall further
The National Association of Realtors reported that both existing and new home sales slowed in May. Sales of previously occupied homes in the United States fell 3.8% from April to their lowest level in six months. Purchases of new U.S. houses fell 2.1% from April, according to the Commerce Department. However, preliminary figures showed a jump in contract signings, a trend that points to a possible pickup in future sales.

U.S. jobless claims up
Initial claims for unemployment benefits by U.S. workers rose by 9,000 to a seasonally adjusted 429,000 in the week ended June 18. The four-week moving average of new claims remained unchanged from the previous weeks revised figure of 426,250.

U.S. consumer confidence drops
U.S. consumer confidence fell in the period ended June 19 for the first time in five weeks, according to the Bloomberg Consumer Comfort Index, which dropped to -44.9 from -44.0 a week earlier. A high unemployment rate, higher food costs, and lower home values all contributed.

Eurozone consumer confidence slips
Consumers in the 17 countries that use the euro were slightly less confident in June, according to an early estimate from the European Commissions monthly survey. The measure of confidence slipped to -10.0 from -9.9 in May. Both readings were better than Aprils -11.9.

Eurozone economies contract overall
Germany and France were the only eurozone nations in which private-sector activity grew in June. Most of the remaining 15 nations had economic contractions for the first time since November 2009. Output by both manufacturing and services firms slowed, sending the Markit eurozone Purchasing Managers Composite Index down to 53.6 in June from 55.8 in May.

German business confidence rises; economic expectations fall
German business confidence improved in June, its first move upward since February, according to German research institute Ifo. Business confidence reached 114.5, up from 114.2 in May. Another report showed economic expectations fell much more than expected in June. The Center for European Economic Research, ZEWs widely watched index fell to -9.0 in June from a revised 3.1 in May. A decline to -4.1 had been forecast.
Global corporate news

FedEx posts sharply better profit, issues positive forecast
FedEx reported a 33% growth in its quarterly profit and forecast annual 2012 earnings above Wall Street expectations. Because of the worlds largest air-cargo carriers extensive reach, it is seen as a bellwether of global trade. While acknowledging the short-term impact of higher oil prices, poor weather, and Japans earthquake, FedEx forecasts a 3% rise in U.S. gross domestic product in 2012, after 2.5% growth in 2011, and a 4.3% rise in U.S. industrial production in 2012 after a 4.2% increase in 2011.

Oracle posts strong profits, but softness in hardware
Technology giant Oracle posted a 36% rise in profits and a 13% growth in revenue for its fiscal fourth quarter. However, declining hardware product sales a new area for Oracle as a result of its Sun Microsystems acquisition last year gave investors cause for concern. Meanwhile, Oracles traditional software business thrived, with new sales up 19%.

Lennar earnings down 65%
Homebuilder Lennar reported a 65% decrease in its second-quarter profit, exceeding very low expectations, as oversupply and foreclosures weighed on home prices and sales. Lennars overall revenue fell by 6.1%, and its revenue from home sales was off by 6.5%.

Kroger profit higher
Supermarket chain Kroger posted a 16% increase in its fiscal first-quarter earnings, surpassing estimates, as the company benefited from cost controls and sales growth. Kroger increased sales 11% on low prices and a strategy of building customer loyalty.

Supreme Court sides with Wal-Mart on lawsuit
The Supreme Court threw out an enormous employment-discrimination lawsuit against Wal-Mart Stores, ruling that 1.6 million female alleged victims had too little in common to form a single class of plaintiffs. The decision on the largest class-action lawsuit in U.S. history is expected to affect other employment class-action suits.