U.S. Economic News Week Ending Febuary 4, 2011

Implications of political developments in Egypt
The ongoing tensions in Egypt, Tunisia, and other Middle Eastern countries have led to an increased sense of uncertainty among investors and raised questions and concerns about prospects for the region and global markets.

Other than the daily transit of 1.5 million barrels of crude oil through the Suez Canal, MFS® does not see many direct implications for the global economy from the political turmoil in Egypt and the surrounding region. U.S. crude oil prices rose above $91 per barrel this week, while prices for ICE Brent crude, the benchmark grade for two-thirds of the world’s oil market, pushed above $103 per barrel amid fears that any escalation of the situation in Egypt could lead to a disruption of the movement of oil through the canal.

Despite the political developments in Egypt, lingering concerns about sovereign debt in the eurozone and fresh concerns about how rising oil prices and accelerating inflation might impact the overall health of global financial markets, the Dow Jones Industrial Average closed above 12,000 on Tuesday for the first time since June 2008. Strong U.S. corporate earnings and mostly positive economic indicators in January, including strong manufacturing activity, helped boost investor confidence that the nation’s economy may finally be moving from recovery to expansion. Still, the political turmoil in Egypt may affect global financial markets as investors assess the impact of the crisis.

Global economic news

Biggest U.S. companies report strong fourth-quarter profits
Approximately 50% of U.S. companies have reported fourth-quarter earnings, and results have been exceptionally strong. Excluding financial firms, weighted earnings for the companies in the Standard & Poor’s 500 Stock Index are up 17% on an as-reported basis for companies representing 54% of the group’s market value. S&P forecasts that when all 500 companies report their fourth-quarter earnings, they will show an increase of approximately 32% from a year earlier.

ISM’s U.S. non-manufacturing index unexpectedly jumps
The Institute for Supply Management’s index of nonmanufacturing businesses rose to 59.4 in January from 57.1 the previous month.

U.S. home prices continue to drop
Home prices in all of the 28 major U.S. metropolitan areas tracked by The Wall Street Journal’s quarterly survey fell in the fourth quarter of 2010 compared with a year earlier. Home values fell the most in cities already rocked by the housing bust, including Atlanta, Chicago, Miami, and Orlando, according to data from real estate Web site Zillow.com. Several markets that had previously escaped the housing market downturn, such as Seattle, Washington, and Portland, Oregon, also saw significant price declines over the same period.

U.S. economy adds fewer-than-expected jobs last month
The U.S. economy added just 36,000 jobs in January, falling below economists’ expectations. Still, the unemployment rate dropped to 9.0% last month. The U.S. Department of Labor also revised payroll numbers for all of 2010. Overall, there were 215,000 fewer jobs added last year than previously reported.

Americans spend at fastest pace since 2007
The U.S. Department of Commerce reported that consumer spending in the United States rose 0.7% in December, the sixth-straight monthly increase. Consumer spending increased at a 3.5% rate for all of 2010, the most since 2007.

Sales of municipal bonds fall to 10-year low
Municipal bond sales in January fell to their lowest level in more than 10 years. Through January 28, states, cities, and other municipalities issued nearly $12 billion of bonds, according to data provider Thomson Reuters. That figure is down approximately 63% from the same month a year ago and the smallest monthly total since January 2000, when $9.6 billion of debt was sold.

Eurozone inflation accelerates at fastest pace since late 2008
Despite eurozone inflation accelerating in January at its fastest rate since late 2008, the European Central Bank voted to keep its main lending rate at a record-low 1% for a 21st straight month. Saying inflation risks are “broadly balanced,” ECB President Jean-Claude Trichet allayed fears among investors that the central bank was planning to raise interest rates at least in the short term. Eurozone inflation was at 2.4% in January, moving further above the ECB’s target rate of 2.0%.

Global food price index hits record high
The United Nations said that its monthly food price index reached its highest level since the organization began keeping records in 1990. The UN’s Food and Agriculture Organization Index rose to 231 points in January. The seventh consecutive monthly increase for the index occurred partly because of higher global prices for cereal, sugar, and vegetable oils. The FAO index is a measure of the monthly change in international prices of a basket of commodities. It is closely watched by investors and analysts as a global benchmark for food price trends.
Global corporate news

Nippon Steel, Sumitomo Metal to merge
Nippon Steel and Sumitomo Metal Industries, Japan’s number-one and number-three steelmakers by output, agreed to merge by 2012. The merger would create the world’s number-two steelmaker, with combined revenue of 4.8 trillion yen ($58.5 billion USD) as of the fiscal year that ended last March. The deal, the first major consolidation in the Japanese steel industry in a decade, will result in stronger competition against rival companies in China and India.

Time Warner to purchase NaviSite
Time Warner Cable announced that it is purchasing NaviSite for approximately $230 million. NaviSite hosts applications on remote servers. The move will help Time Warner offer more Web-based services to its business customers. The purchase also gives Time Warner access to NaviSite’s 1,200-plus customers.

Exxon profit surges 53%, tops Wall Street projections
Exxon Mobil’s profit rose 53% in the fourth quarter on higher oil prices and a jump in production. The world’s largest publicly traded oil company posted earnings of $9.25 billion, up from $6.05 billion a year earlier.

Merck posts fourth-quarter loss, forecasts lower-than-expected 2011 earnings
Merck, the second-largest U.S. drugmaker, reported a fourth-quarter net loss of $531 million after taking a $1.7 billion charge to write down its experimental blood thinner. The company, which also forecast 2011 earnings that were below analysts’ estimates, said it is moving ahead with plans to cut 15,000 jobs and close facilities to save $3.5 billion annually by 2012.

New York Times sees drop in profit
New York Times’ fourth-quarter profit decreased 26% from a year ago. The publisher posted a profit of $67.1 million, down from $90.9 million a year earlier. Still, core earnings for the company increased as costs dropped at a faster rate than revenue.

Dow Chemical profit nearly triples
Dow Chemical said its profit rose to $511 million from $172 million a year ago as the chemical giant benefited from increased demand and price increases. Revenue increased 10% to $13.8 billion.