U.S. Economic News Week Ending May 27, 2011

Global stocks clawed their way higher this week, despite reports of weak economic data and worries over Greek debt woes. Weak U.S. economic reports capped gains among U.S. indices and sent the U.S. dollar broadly lower. The U.S. currency hit an all-time low against the Swiss franc, which historically has been seen as a safe-haven currency. Stocks also got a boost Friday from positive comments from the Group of Eight leading industrialized nations, who said the "global recovery is gaining strength and is becoming self-sustained." The group added that a strengthening global economy will pave the way to cuts in the debt built up during the recession.

Global economic news

U.S. corporations report best profits ever
American companies reported their best profits ever in the third quarter, according to a report released this week by the U.S. Department of Commerce. Profits came in at an annual rate of $1.659 trillion in the third quarter. This is the highest figure recorded since the government began keeping track over 60 years ago. Profits have now grown for seven consecutive quarters, and as a share of gross domestic product, they now account for 11.7% of GDP. However, after-tax corporate profits unexpectedly contracted in the first quarter to record their first decline in more than two years.

U.S. data underline a still-shaky recovery
The U.S. economy slowed considerably in the first three months of the year. Gross domestic product was reported to be 1.8% which was below the 2.1% expected by economists, as consumers cut spending and commodity prices increased. In April consumer spending slowed, increasing 0.4% less than the 0.5% increase in March. That decline is seen as the result of rising gas and grocery prices, which have taken a bite out of discretionary spending budgets. New claims for unemployment benefits unexpectedly climbed to 424,000 last week, in another sign that the job markets are improving at a painfully slow rate. Other reports show new homes sales rose 7.1% in April from March, but home prices continued to fall in March as a glut of foreclosures pressured home values. Also underlining the sluggishness of this year's economic growth, the U.S. manufacturing sector cooled as orders for durable goods fell 3.6% in April and a measure of business investment declined. On a more positive note however, consumer sentiment at the end of May was better than expected according to the Thomson Reuters/University of Michigan survey.

Greece's debt woes rattle investors
Worries over Greece's ability to pay off its debt and reach budget deficit goals were rampant this week. As European policymakers warned of the risk of a Greek debt rescheduling, the euro fell to a record low against the Swiss franc and weakened against the dollar. Investors are fearful that Greece will have a difficult time implementing needed austerity measures because the government's main opposition party is against such a move.

Japan experiences inflation for first time in 25 months
Japan's consumer prices rose in April for the first time in 25 months. The increases came after global energy and food costs rose and retailers suffered product shortages in the aftermath of a record earthquake and tsunami that caused the economy to shrink in the first quarter. Consumer prices, excluding fresh food, rose an annual 0.6%.

Fitch Ratings lowers Japan rating
Fitch Ratings lowered its outlook for Japan's debt to negative from stable. The rating agency cited the risks associated with the nuclear power plant crisis and noted that the country's gross debt ratio is the highest of any country it tracks.

German economy grows 1.5%
Germany's gross domestic product rose 1.5% in the first quarter from the previous three months, the fastest growth since the second quarter of 2010. Exports advanced 2.3%, and construction spending jumped 6.2%. Meanwhile, German business confidence was unchanged in May according to the Ifo institute's business climax index, which is based on a survey of 7,000 executives.

U.K. economy grows by 0.5% in first quarter
The U.K. economy grew by 0.5% in the first quarter and 1.8% from a year earlier helped by export growth that outweighed the biggest slump in company investment and consumer spending in almost two years. Exports rose 3.7% in the quarter, and trade added a record 1.7 percentage points to gross domestic product growth.

France's Lagarde announces IMF bid
France's Finance Minister Christine Lagarde officially declared her candidacy to replace Dominique Strauss-Kahn as the managing director of the International Monetary Fund. Her bid began a global race for the position.

Global corporate news

Costco's profits up 6%; Polo Ralph Lauren's dip 36%; RBC profit increase 13%
Costco Wholesale's third-quarter earnings rose 6% as strong same-store sales growth and expense controls more than offset a slight decline in margins. Revenue jumped 16% as the largest U.S. warehouse-style retailer by revenue benefited from stronger foreign currencies in addition to a bulk-selling approach that appeals to cost-conscious consumers.

Polo Ralph Lauren's fourth-quarter profit dropped 36% amid higher costs and lower sales in Japan. The company, whose brands include American Living, Chaps, Club Monaco, said earnings fell to $73.2 million for the quarter. Polo, like other apparel manufacturers and retailers, faced rising production costs, including a jump in the price of cotton.

Royal Bank of Canada's fiscal second-quarter profit jumped 13%. The increase reflected its home-market dominance in retail banking, wealth management, and insurance. The bank raised its quarterly dividend by 8%, the first increase since the third quarter of fiscal year 2007.