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

The devastation of Japans magnitude-9 earthquake and tsunami dominated the news as engineers struggled to prevent a meltdown and the wide-scale release of radioactive materials at the crippled Fukushima Daiichi nuclear power plant in northeastern Japan. The nation coped with immense loss of life and destruction, with more than 6,500 confirmed dead and 10,000-plus missing. Close to 400,000 remained in shelters, tens of thousands remained without power or heat, and 1.6 million households lacked running water. It may take weeks to take full stock of the huge physical damage and the short- and long-term impact of the disaster on Japans economy, the worlds third largest.

On Friday, after the Japanese yen's rise in value, the Group of Seven nations staged a coordinated intervention in the foreign exchange market for the first time since 2000. The rise was seen as a significant threat to Japanese economic recovery, financial market stability, and global economic prospects. The move came after the yen hit a record high of ¥76.30 per U.S. dollar on Thursday. The intervention was intended to stabilize the yen at somewhat weaker levels. A stronger yen makes it more expensive for consumers elsewhere to buy Japanese-made goods, undermining demand for Japanese exports. The yen has been appreciating in part because Japanese companies, insurers, and investors are expected to repatriate large sums of cash from assets held overseas. The yen's rise came despite the Bank of Japan's move earlier in the week in which it pumped ¥15 trillion ($183 billion) into the countrys financial system and doubled the size of its asset-purchase program to ease the disasters economic impact. By 12:45 on Friday, the coordinated intervention witnessed some measure of initial success, weakening the yen to 81 per U.S. dollar.

Japans stock market was extremely volatile this week, with the Nikkei 225 Stock Average falling more than 16% Monday and Tuesday before rebounding somewhat Wednesday. Japanese stocks ended the week on an up note, after efforts to stabilize the yen were successful. Stock prices tumbled throughout Asia and the world while the price of safe-haven assets, such as U.S. Treasuries, rose. However, a declaration of ceasefire in Libya on Friday, in response to a United Nations Security Council resolution calling for military action, caused demand for safe-haven assets to soften. As a consequence, the prices of the 10-year U.S. Treasury note and 30-year U.S. Treasury bond rose sharply. The Libyan ceasefire sent stocks up and oil prices down, underscoring the weeks intense volatility.

The price of oil fell sharply early in the week, to $97 per barrel on anticipation of reduced short-term energy use in Japan, the worlds third-largest oil importer, as industrial production is expected to be reduced in the short term. Over the longer term, an economic resurgence is expected as Japan rebuilds. By early Friday, the price of oil rose above $102, as the chance of a long-term economic disruption, which would affect Japanese demand for oil, receded. However, the improved situation in Libya led to a sharp drop in oil prices, to $100 per barrel. All week, the world paid heightened attention to energy needs and alternatives, as dependence on Middle Eastern oil was weighed against the potentially catastrophic risks associated with nuclear power.
Global economic news

U.S. import prices rise sharply, core inflation stable
The price of goods imported into the United States rose 1.4% in February from January, as costs for energy, food and industrial supplies increased, the U.S. Department of Labor reported. Overall, prices were 8.5% higher than a year earlier. Excluding oil products, import prices were 3.5% higher than in February 2010. Meanwhile, U.S. consumer prices rose by 0.5% from January to February, and prices in February were 2.1% higher than a year earlier. The annual underlying inflation rate excluding energy and food was 1.1% in February.

U.S. jobless claims drop; four-week average lowest since 2008
The number of first-time claims made for unemployment insurance fell by 16,000 to 385,000 in the week ended March 12, the Labor Department reported. The four-week average of new claims fell 7,000, to its lowest level since July 2008.

U.S. factory production increases again
Production in U.S. factories increased in February for the sixth straight month, but overall industrial output declined for the first time since October because unseasonably warm weather reduced consumption of gas and electricity. Industrial production is 12% higher than in June 2009, but still 6% from its pre-recession peak in September 2007.

U.S. regional manufacturing gauge hits 27-year high
A gauge of manufacturing activity in the mid-Atlantic area rose in March to its highest level since January 1984. The Federal Reserve Bank of Philadelphias general business activity index jumped to 43.4 in March, from 35.9 in February. The Philadelphia Feds new orders measure rose to 40.3 in March, its highest since November 1983.

U.S. Federal Reserve reassures investors
In a volatile week, the U.S. Federal Reserve Board calmed the markets by upgrading its economic outlook and predicting that the inflationary impact of increased commodity prices would be transitory. The company predicted strong earnings growth for the quarter ended May 31 and was upbeat about revenue growth for the year.

U.S. housing starts fall
Housing starts in the United States fell in February to their slowest pace since April 2009. The drop in housing starts from January was the sharpest monthly plunge 22.5% since March 1984, according to figures released by the U.S. Department of Commerce.

Eurozone employment rises, output grows slightly
The number of people employed across the eurozone increased in the fourth quarter of 2010, the first such increase in two years, according to data released by Eurostat, the EUs statistics agency. Employment grew in Germany, France, and Italy, but fell in Spain and Portugal. Data on eurozone industrial output in January was positive as well. Industrial output grew 0.3% from December and 6.6% from January 2010, reported Eurostat.
Global corporate news

Disruption at Japanese automakers could have far-reaching impact
Production at various Japanese automakers was suspended for the week, and into next week in some cases, as the companies struggled with supply shortages, damages to their facilities, power outages, and in some cases, difficulties for employees in traveling to work. Toyota Motor, Honda Motor, Suzuki Motor, Mazda Motor, Nissan Motor, and Isuzu Motors were all affected by interruptions. In the United States, General Motors said Thursday that production at a plant in Louisiana would be interrupted next week because of a shortage of parts from Japan.

Berkshire Hathaway to buy Lubrizol for $9 billion
Berkshire Hathaway announced that it would purchase Lubrizol, a specialty chemical maker based in Ohio, for $9 billion in cash in one of the largest deals for Warren Buffett. Berkshire has $38 billion in cash available for such acquisitions.

U.S. Treasury 99% repaid for TARP funds
Six banks repaid the U.S. Department of the Treasury a total of $475 million in funds borrowed through the Troubled Asset Relief Program (TARP) this week. TARP was created in 2008 to help banks survive the credit crisis. To date, $244 billion of the $245 billion of money received through TARP has been repaid. The Treasury estimates that TARP bank programs will eventually generate a $20 billion profit for taxpayers.

FedEx has positive outlook
FedEx maintained a bullish outlook for revenue despite hurdles presented by Japans crisis and unrest in the Middle East and North Africa. FedExs profit for the quarter ended February 28 was down 4% from a year earlier because of harsh weather and rising fuel prices. FedEx is considered an economic bellwether because of the vast extent of its shipments.

Lufthansa returns to a profit
German airline Lufthansa earned a profit of 1.1 billion in 2010, after a loss of 34 million in 2009. Revenue for the airline rose 22% as passenger and cargo air traffic rose. Cost-cutting and higher ticket prices contributed to the profit.

Williams-Sonoma net profit up 28%
Williams-Sonoma, a seller of housewares and home-decor products, grew its profit by 28% on strength in its direct-to-consumer business, which includes catalog and Web sales.