U.S. Economic News Week Ending May 6, 2011

Concern about the strength of the global recovery sparked the most drastic selloff in commodities in two years and dragged global stocks lower this week. Assets considered risky were sold en masse, a move begun early in the week on fears that the killing of Al Qaeda leader Osama bin Laden would spark retribution. The decline in silver prices seemed to kick off the commodity-wide rout. Silver, which was up 161% on the year as recently as last Friday, lost one-quarter of its value over the week. The rapid decline prompted exchanges to raise margin requirements, and triggered computer-generated trend selling, which further exacerbated the exodus. Overall, commodities plunged the most since 2009 amid worries that the markets were overheated. On Friday, a solid U.S. employment report put an end to the selling for the week and helped the Dow Jones Industrial Average and Standard & Poor's 500 Stock Index recover some of their losses.

Global economic news

U.S. economic reports point to recovery woes
Economic news in the United States this week continued to underline the struggles the U.S. economy faces as it recovers. U.S. companies added more jobs than expected in April, even as the unemployment rate rose for the first time in five months. The private sector posted the strongest employment gains in five years as nonfarm payrolls rose by 244,000. The unemployment rate rose to 9% from 8.8% in March. That monthly jobs report came one day after news that applications for jobless benefits unexpectedly jumped more than expected last week. That increase was partially the result of auto shutdowns caused by the disaster in Japan. Other reports also pointed to the pressures on recovery. U.S. consumer confidence fell to a five-week low as the highest gas prices in five years negatively affected Americans' attitudes toward spending.

Manufacturing recovery losing momentum
The Institute for Supply Management's gauge of factory activity edged lower in April to 60.4 from 61.2; any reading above 50 indicates expansion. The report showed production growth and a rising backlog of orders and suggested that supply chain woes resulting from problems in Japan are affecting U.S. manufacturers. Also in April, manufacturing in the United Kingdom fell unexpectedly to a seven-month low amid declining consumer confidence and falling construction orders. In Russia, manufacturing suffered its largest monthly drop since December 2008 after export orders fell and companies scaled back investment.

Inflation concerns mount globally
Around the world, inflation concerns were front and center. The Organization for Economic Cooperation and Development reported that consumer prices in developed economies rose in March at the fastest pace since October 2008. The price increases were driven by faster energy and food inflation. Prices in the OECD's 34 member countries rose by 2.7% for the 12 months ended in March. The core inflation rate, which excludes volatile food and energy, rose to 1.4% in March from 1.3% in February.

Inflation concerns have prompted central banks to tighten monetary policy. The Reserve Bank of India raised rates for the ninth time since March 2010. Central banks in the Philippines, Malaysia, and Vietnam also lifted borrowing costs, and China's central bank, in its first-quarter monetary policy report, affirmed that controlling inflation is its top priority, even after its manufacturing survey slid in April from March, an indication that growth may slow.

ECB, BOE, and Royal Bank of Australia leave rates unchanged
The European Central Bank left rates unchanged as it tried to balance the challenges of its weaker members with its inflation concerns. In the United Kingdom, the Bank of England kept its benchmark rate at a record low amid signs that its recovery is faltering. The Reserve Bank of Australia also left its benchmark interest rate unchanged for a fifth-straight meeting as a record-low Australian dollar helps contain inflation pressures.

U.S. banks more willing to lend
The U.S. Federal Reserve Board's quarterly senior loan officer survey released Monday showed that the willingness of banks to lend money to consumers rose more than it has in 17 years. Consumer demand for loans remained spotty, however, and that slack demand has capped banks' top-line revenue growth. In stark contrast to the U.S. report, a survey of senior lending officers of 45 emerging market banks found that banks report strong and growing demand for loans from consumers and businesses. The first-of-its-kind survey was conducted by the Institute of International Finance, a global association of large banks.

Portugal agrees to bailout
To help its ailing economy, Portugal agreed to a three-year 78 billion financial bailout program with the European Union and International Monetary Fund.

U.S. becomes fuel exporter
The United States became a net exporter of fuel for the first time in nearly 20 years. U.S. refiner product exports rose 24.4% in the first quarter of 2011 from a year ago, while imports declined 14.4%, according to the American Petroleum Institute.
Global corporate news

Automakers report strong results
Profits at General Motors tripled on stronger vehicle demand and on gains from the sale of stakes in two of its subsidiaries. Chrysler swung to a quarterly profit as vehicle sales increased dramatically in the first quarter. This is the first profitable period the automaker has had since mid-2006, when it was part of DaimlerChrysler AG.

Marsh & McLennan's first-quarter earnings rose 31% on better-than-expected revenue growth, driven by its risk and insurance and consulting businesses.