U.S. Economic News Week Ending July 15, 2011

Stocks fell around the world this week amid deepening worries about the risk of contagion in Europe and the fiscal and economic woes of the United States. Italy's borrowing costs soared to their highest level in more than a decade amid fears over the country's solvency and political stability, and gold prices rallied to a record high as fears over Europe's sovereign debt crisis spurred investment demand for safe-haven assets. Throughout the week investors watched as rating agencies doled out and threatened more downgrades, European finance ministers continued their struggle to contain the region's sovereign debt crisis, and as U.S. lawmakers battled over raising the U.S. debt ceiling.

U.S. and global economic news

U.S. House announces plans for vote on debt ceiling
The U.S. House of Representatives announced Friday that it plans to vote next week on a measure that would raise the government's debt limit by $2.4 trillion, cut spending, cap government expenditures, and propose a balanced-budget constitutional amendment. President Barack Obama and congressional leaders from both parties have been meeting daily in search of a compromise that would cut the deficit and allow for the government to sell debt after its borrowing authority is exhausted August 2.

Moody's cuts Ireland's debt rating to junk status
Moody's Investors Service downgraded Ireland's debt rating to junk status, lowering it to "Ba1" from "Baa3." The rating agency cited the probability that Ireland will need additional financing and that investors will need to share in its losses before it returns to the private market to borrow. Moody's added that the outlook remains negative. Ireland, which had a top "Aaa" rating just over two years ago, has suffered after a real-estate boom collapsed, fueling bank bailouts and a surge in the country's debt level.

S&P puts chance U.S. debt will be downgraded at 50%
Standard & Poor's said there was a 50% chance that it would lower the "AAA" bond rating on U.S. debt within three months. The warning came as U.S. lawmakers continued to debate raising the debt ceiling.

Bernanke says Fed not likely to buy more bonds soon
U.S. Federal Reserve Board Chairman Ben Bernanke told U.S. lawmakers that the Fed was not inclined to launch a third round of bond buying soon to boost the economy. His words on Thursday crushed investors' hopes that the Fed would take further action to support the economy. Bernanke also warned lawmakers that the failure of the U.S. Congress to raise the debt ceiling would lead to "calamitous" consequences for the U.S. and global economies.

Consumer, producer, and import inflation tamed by drop in energy costs
The cost of living in the United States fell in June for the first time in a year as the biggest drop in energy costs since 2008 compensated for growing inflation in other goods and services. The Consumer Price Index fell 0.2%, while he core measure, which excludes more volatile food and energy costs, climbed 0.3% for a second month -- more than forecast and the biggest back-to-back gain in three years. Meanwhile, the Producer Price Index fell 0.4% in June, while the cost of goods, excluding fuel and energy, rose 0.3%. Prices of goods imported into the United States dropped for the first time in a year as oil and food prices retreated. The U.S. Department of Labor reported a 0.5% fall in the import price index following a revised 0.1% gain in May. The cost of imported petroleum fell 1.6% from the prior month.

Weekly jobs numbers show improvement in labor market
The number of Americans filing for first-time jobless claims for unemployment benefits dropped last week to the lowest level since April. Applications for jobless benefits fell 22,000 in the week ended July 9, to 405,000 claims.

U.S. trade gap widens as oil prices rise
The U.S. trade deficit widened in May to the highest level in almost three years as the cost of imported oil rose. The gap grew 15%, to $50.2 billion, far wider than forecast. Imports rose 2.6% as a barrel of crude oil averaged $108.70, the most since August 2008.

China grows more than expected
China reported another quarter of stronger-than-expected growth. Its economy grew 9.5% in the second quarter, and its industrial production was also better than expected.

U.S. and global corporate news

Investment banking profits boost JPMorgan, Citigroup profits
JPMorgan Chase, the second-largest U.S. bank, reported that its second-quarter net income rose a more-than-expected 13%, as its investment banking profits surged 49% and as improving credit trends allowed the bank to reduce its credit card loss reserve by $1 billion. In 2010 JPMorgan was the most profitable U.S. bank, with a record $17.4 billion in earnings.

Citigroup, the third-largest U.S. bank, said its second-quarter profit rose 24% on higher investment banking fees and fewer losses tied to troubled asserts. Investment banking revenue rose 61%.

BHP Billiton, the world's largest mining company, said it plans to acquire Petrohawk Energy for $12.1 billion in cash. The purchase will give BHP access to large shale assets in Texas and Louisiana. The deal, one of the largest of the year, will double BHP's resource base in oil and natural gas.

ConocoPhillips to split oil businesses
ConocoPhillips is splitting its oil refining and production businesses into separate publicly traded companies. The decision makes Conoco the latest energy company to bow to the stock market's preference for standalone exploration and production companies in an industry that once believed that bigger was better. Marathon Oil, El Paso, and Williams have already moved to separate exploration and production businesses from the rest of their operations.

News Corp. abandons bid for British Sky Broadcasting
News Corp. abandoned its £8.3 billion bid to take full control of British Sky Broadcasting as the company remains mired in a phone-hacking scandal. Last week that scandal led Rupert Murdoch to close its popular tabloid News of the World.

Google's profits jump 36%
Google reported a stronger-than-expected 36% jump in second-quarter profits as revenues rose to a record level. Google benefitted throughout the quarter from strength in its core search business. It also gained traction with its new operations, including its new social network Google+.