The Bank of England may have suffered a setback to its inflation-fighting credibility as it struggles to contain inflation that has accelerated to almost twice its 2 percent target, former policy maker Kate Barker said.
“There’s a perception in business as well as in financial markets that the committee has perhaps been behaving in a different way coming out of the crisis and has tolerated inflation more than you might have expected,” Barker said late yesterday at an event hosted by Anglia Ruskin University in Chelmsford, England. Companies “probably have less belief that it will come back to 2 percent than in the good old days, and that’s a sort of modest loss of credibility.” Soaring food and energy costs and an increase in sales tax lifted U.K. inflation to an eight-month high of 3.7 percent in December, the 13th month it’s been above the target. Surveys this week showed price pressures intensified in January among service, manufacturing, and construction companies.
The outlook has split the nine-member Monetary Policy Committee, which has maintained emergency stimulus as the government’s fiscal squeeze takes hold. While Governor Mervyn King said last month that price gains will slow to the target, Andrew Sentance was joined by Martin Weale at the January policy meeting in a vote to raise the benchmark interest rate from a record low 0.5 percent to tame inflation.
Barker, who stepped down from the MPC at the end of May after serving three consecutive three-year terms, said there is a risk the bank may lose credibility in a “more profound way” and that the dilemma it faces “has got worse” since she left.
‘Confidence Trick’
“If you believe inflation is going to come back to 2 percent, you are going to behave as if that’s going to happen when you’re setting wages and setting prices,” she said. “Once you start to think this monetary policy isn’t all that it’s cracked up to be, and things need to be changed in some way, then things inevitably become more difficult.”
“It’s like a confidence trick,” she said.
King forecast last month that price gains could accelerate to more than 4 percent in the coming months before returning to the goal. Still, Barker said she doesn’t see the bank losing credibility “in a big sense,” with prices moving “completely out of control.”
She also said that while the recovery seems to be under way, the economy still faces risks from turmoil in sovereign debt markets and the U.K. government’s spending cuts. Still, people should take optimism from companies’ capacity to invest and a “strong” global economy.
“We haven’t laid all the risks to bed in the financial system,” she said. “If you were thinking of the crisis as a game of football, we’re in about the 60th minute. Things are still going reasonably well, but there’s always a chance of some sneaky goals from the opposition.”
To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net
Jumat, 04 Februari 2011
Rabu, 02 Februari 2011
U.S. Goods Costs Won't Increase as Much as Raw Materials, ISM's Ore Says
Manufacturers in the U.S. will be able to prevent rising raw-material prices from hurting earnings in coming months, according to Norbert Ore, chairman of the Institute for Supply Management’s factory survey.
By combining some price increases with gains in productivity and growing sales, factories will be able keep profits climbing, Ore said in a telephone interview from Atlanta. The ISM’s prices-paid index jumped to 81.5 in January, the highest level in more than two years, reflecting climbing costs for metals, chemicals and even soybean oil, the Tempe, Arizona-based group said today.
“The challenge is going to be to offset the increase in commodity prices through either increased productivity, expanding volumes or price recovery,” said Ore. “You try to work all three of those levers. The net effect on profits, given the volumes we’re looking at and the amount of growth we’re seeing, shouldn’t present a problem in the first quarter.” ISM’s factory index last month rose to 60.8, signaling manufacturing expanded at the fastest pace in more than six years. The last time its raw-material costs index was as high was in July 2008, the month crude oil reached a record, intraday high of $147.27.
While oil and other commodities are surging, largely due to growth in emerging economies like China, companies have less scope to pass those increases along, said Ore. “No one wants to raise prices to their customers where they will kill demand,” he said.
Earnings Gains
Earnings for Standard & Poor’s 500 companies will rise 15 percent this year, according to forecasts of analysts surveyed by Bloomberg News. That would follow growth of 30 percent in 2010, the first full year of recovery from the recession that ended in June 2009.
More than 74 percent of the 204 companies that reported earnings since Jan. 10 topped analysts’ projections, according to data compiled by Bloomberg.
Dallas-based Kimberly-Clark Corp., the maker of Huggies diapers and Viva paper towels, is one company cutting costs as well as raising prices. It plans to exit its remaining pulp- manufacturing operations to help boost earnings after reporting fourth-quarter profit last week that was little changed.
Chief Executive Officer Tom Falk saved $90 million in operating costs during the quarter and raised the prices of consumer-tissue products to soften the impact of price increases for fiber, resin and other raw materials.
More Productive
Manufacturers have been among the most adept at cutting labor expenses by boosting efficiency to combat rising raw- material prices. Factory productivity climbed 4 percent from the third quarter of 2009 to the same period last year, according Labor Department data. The comparable figure for all non-farm businesses was 2.5 percent.
Year-over-year gains in productivity for all companies peaked at a 48-year high of 6.3 percent in the first three months of 2010, led by an 8.1 percent jump among factories.
Gains in productivity are a double-edged sword. While they help control costs, they also mean hiring will be slow to recover. Factories boosted payrolls by 10,000 workers in December, the first gain in five months, according to figures from the Labor Department. January data, due Feb. 4, will show a similar gain, according to the median forecast of economists surveyed by Bloomberg.
The ISM’s employment gauge last month reached the highest level since 1973, today’s report showed, indicating manufacturers may be more willing to hire as sales pick up.
Raising Prices
Illinois Tool Works Inc. has been among companies offsetting some of the increase in raw materials by raising prices.
“We’re probably going to continue to see, at least in some categories, some ongoing cost increases, which will require further pricing action.” David Speer, chief executive officer of the Glenview, Illinois-based company, said on a Jan. call with analysts.
Some economists aren’t as sanguine manufacturers will be able to push through price increases.
“It’s a headwind for corporate profits and earnings, as it means the cost of production is increasing,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We’re not dealing with roaring inflation, but there’s a turn in prices.”
Fed View
Instead of being a concern, higher prices may come as a relief to Federal Reserve policy makers. Beside the elevated unemployment rate, the central bank’s main concern has been avoiding deflation, a prolonged and widespread fall in prices that can hurt the economy.
“Measures of underlying inflation are somewhat low, relative” to its long-range target, the Fed said Jan. 26 after its most recent policy meeting.
Even so, Chairman Ben S. Bernanke said Jan. 13 at a forum in Arlington, Virginia, that risk of deflation had “receded considerably.”
ISM’s Ore was more emphatic.
“As far as manufacturers are concerned, deflation is in the rear-view mirror,” he said. “They are much more concerned about the effect of inflation.”
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
By combining some price increases with gains in productivity and growing sales, factories will be able keep profits climbing, Ore said in a telephone interview from Atlanta. The ISM’s prices-paid index jumped to 81.5 in January, the highest level in more than two years, reflecting climbing costs for metals, chemicals and even soybean oil, the Tempe, Arizona-based group said today.
“The challenge is going to be to offset the increase in commodity prices through either increased productivity, expanding volumes or price recovery,” said Ore. “You try to work all three of those levers. The net effect on profits, given the volumes we’re looking at and the amount of growth we’re seeing, shouldn’t present a problem in the first quarter.” ISM’s factory index last month rose to 60.8, signaling manufacturing expanded at the fastest pace in more than six years. The last time its raw-material costs index was as high was in July 2008, the month crude oil reached a record, intraday high of $147.27.
While oil and other commodities are surging, largely due to growth in emerging economies like China, companies have less scope to pass those increases along, said Ore. “No one wants to raise prices to their customers where they will kill demand,” he said.
Earnings Gains
Earnings for Standard & Poor’s 500 companies will rise 15 percent this year, according to forecasts of analysts surveyed by Bloomberg News. That would follow growth of 30 percent in 2010, the first full year of recovery from the recession that ended in June 2009.
More than 74 percent of the 204 companies that reported earnings since Jan. 10 topped analysts’ projections, according to data compiled by Bloomberg.
Dallas-based Kimberly-Clark Corp., the maker of Huggies diapers and Viva paper towels, is one company cutting costs as well as raising prices. It plans to exit its remaining pulp- manufacturing operations to help boost earnings after reporting fourth-quarter profit last week that was little changed.
Chief Executive Officer Tom Falk saved $90 million in operating costs during the quarter and raised the prices of consumer-tissue products to soften the impact of price increases for fiber, resin and other raw materials.
More Productive
Manufacturers have been among the most adept at cutting labor expenses by boosting efficiency to combat rising raw- material prices. Factory productivity climbed 4 percent from the third quarter of 2009 to the same period last year, according Labor Department data. The comparable figure for all non-farm businesses was 2.5 percent.
Year-over-year gains in productivity for all companies peaked at a 48-year high of 6.3 percent in the first three months of 2010, led by an 8.1 percent jump among factories.
Gains in productivity are a double-edged sword. While they help control costs, they also mean hiring will be slow to recover. Factories boosted payrolls by 10,000 workers in December, the first gain in five months, according to figures from the Labor Department. January data, due Feb. 4, will show a similar gain, according to the median forecast of economists surveyed by Bloomberg.
The ISM’s employment gauge last month reached the highest level since 1973, today’s report showed, indicating manufacturers may be more willing to hire as sales pick up.
Raising Prices
Illinois Tool Works Inc. has been among companies offsetting some of the increase in raw materials by raising prices.
“We’re probably going to continue to see, at least in some categories, some ongoing cost increases, which will require further pricing action.” David Speer, chief executive officer of the Glenview, Illinois-based company, said on a Jan. call with analysts.
Some economists aren’t as sanguine manufacturers will be able to push through price increases.
“It’s a headwind for corporate profits and earnings, as it means the cost of production is increasing,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We’re not dealing with roaring inflation, but there’s a turn in prices.”
Fed View
Instead of being a concern, higher prices may come as a relief to Federal Reserve policy makers. Beside the elevated unemployment rate, the central bank’s main concern has been avoiding deflation, a prolonged and widespread fall in prices that can hurt the economy.
“Measures of underlying inflation are somewhat low, relative” to its long-range target, the Fed said Jan. 26 after its most recent policy meeting.
Even so, Chairman Ben S. Bernanke said Jan. 13 at a forum in Arlington, Virginia, that risk of deflation had “receded considerably.”
ISM’s Ore was more emphatic.
“As far as manufacturers are concerned, deflation is in the rear-view mirror,” he said. “They are much more concerned about the effect of inflation.”
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
U.S. Economy: Manufacturing Grows by Most Since 2004 By Bob Willis - Feb 2, 2011 5:09 AM GMT+0700
Manufacturing in the U.S. unexpectedly accelerated in January at the fastest pace in more than six years, reinforcing forecasts the economic recovery will strengthen in 2011.
The Institute for Supply Management’s factory index rose to 60.8, exceeding the most optimistic forecast in a Bloomberg News survey of economists and the highest level since May 2004, figures from the Tempe, Arizona-based group showed today. Readings greater than 50 signal growth.
Stocks rose, extending a global rally, as factory reports from China to Europe bolstered the outlook for American companies like Caterpillar Inc. The ISM’s employment gauge climbed to the highest level since 1973, indicating manufacturers may be more willing to hire as sales pick up.
“Businesses have figured out the economic recovery has legs so they’re growing more confident about expanding production and new orders and increasing hiring,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Manufacturing is making a very decent contribution to growth.” The Standard & Poor’s 500 Index gained for the seventh day in the last eight, rising 1.7 percent to 1,307.59 at the 4 p.m. close in New York. The yield on the benchmark 10-year note increased to 3.44 percent from 3.37 percent late yesterday.
Estimates for the factory index in the Bloomberg survey of 78 economists ranged from 56 to 59.5.
Figures from the Commerce Department showed housing remains the economy’s weakest link. Construction spending in December fell 2.5 percent, the biggest drop since July, bringing the value of all projects to the lowest level in a decade.
Europe and China
Manufacturing in the U.K. grew at a record pace last month, while industry also expanded in China. The U.K. gauge, based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply, climbed to 62 in January from 58.7 a month earlier.
A reading of 52.9 for a purchasing managers’ index released by China’s logistics federation on its website exceeded the 50 level dividing expansion and contraction. A measure from HSBC Holdings Plc and Markit Economics rose to 54.5 in January.
The ISM’s measure of new orders, jumped in January to 67.8, the highest since January 2004. The employment gauge increased to 61.7 from 58.9 in the prior month.
The jobs data “sets us up for a good number for January payrolls,” Silvia said. Economists project a 10,000 increase in factory employment last month, according to the median forecast in a Bloomberg survey before the Labor Department’s Feb. 4 report. All payrolls may have climbed 140,000.
‘Stronger Every Day’
General Electric Co. last month posted its third straight quarter of profit growth, beating analysts’ estimates, driven by a rebound in its finance unit, health-care and transportation divisions.
“The environment continues to improve,” Jeffrey Immelt, GE’s chief executive officer, said on a Jan. 21 conference call. “The economy can get a little bit stronger every day.”
Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as sales advanced in China, Australia and Latin America.
The Peoria, Illinois-based company last week said sales climbed 62 percent to $12.8 billion from the year-ago quarter. The company said 2011 sales will exceed $50 billion, compared with $42.59 billion in 2010.
‘More Positive’
“Over the past quarter, we’ve become somewhat more positive about economic growth in the developed economies of North America, Europe, and Japan,” Mike DeWalt, director of investor relations at Caterpillar, said on a Jan. 27 teleconference. “And we’re now expecting the U.S. economy to grow about 3.5 percent in 2011.”
Manufacturing, which accounts for about 11 percent of the economy, led the recovery from the recession as businesses rebuilt stockpiles slashed during the slump. Rising exports have also spurred output.
Further gains may come from a pickup in consumer spending, which accounts for about 70 percent of the U.S. economy. Household purchases rose at a 4.4 percent pace in the fourth quarter, the fastest since the first three months of 2006, while the economy grew at a 3.2 percent rate, the Commerce Department reported last week.
Economists last month boosted forecasts for growth this year, reflecting a pickup in consumer spending and passage of an $858 billion bill extending tax cuts for two years. The legislation also continued emergency unemployment insurance benefits through 2011, trimmed payroll taxes and included accelerated tax depreciation for equipment purchases.
Auto dealers are also seeing improved demand. Car sales in December rose to a 12.53 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, according to industry data.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
The Institute for Supply Management’s factory index rose to 60.8, exceeding the most optimistic forecast in a Bloomberg News survey of economists and the highest level since May 2004, figures from the Tempe, Arizona-based group showed today. Readings greater than 50 signal growth.
Stocks rose, extending a global rally, as factory reports from China to Europe bolstered the outlook for American companies like Caterpillar Inc. The ISM’s employment gauge climbed to the highest level since 1973, indicating manufacturers may be more willing to hire as sales pick up.
“Businesses have figured out the economic recovery has legs so they’re growing more confident about expanding production and new orders and increasing hiring,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Manufacturing is making a very decent contribution to growth.” The Standard & Poor’s 500 Index gained for the seventh day in the last eight, rising 1.7 percent to 1,307.59 at the 4 p.m. close in New York. The yield on the benchmark 10-year note increased to 3.44 percent from 3.37 percent late yesterday.
Estimates for the factory index in the Bloomberg survey of 78 economists ranged from 56 to 59.5.
Figures from the Commerce Department showed housing remains the economy’s weakest link. Construction spending in December fell 2.5 percent, the biggest drop since July, bringing the value of all projects to the lowest level in a decade.
Europe and China
Manufacturing in the U.K. grew at a record pace last month, while industry also expanded in China. The U.K. gauge, based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply, climbed to 62 in January from 58.7 a month earlier.
A reading of 52.9 for a purchasing managers’ index released by China’s logistics federation on its website exceeded the 50 level dividing expansion and contraction. A measure from HSBC Holdings Plc and Markit Economics rose to 54.5 in January.
The ISM’s measure of new orders, jumped in January to 67.8, the highest since January 2004. The employment gauge increased to 61.7 from 58.9 in the prior month.
The jobs data “sets us up for a good number for January payrolls,” Silvia said. Economists project a 10,000 increase in factory employment last month, according to the median forecast in a Bloomberg survey before the Labor Department’s Feb. 4 report. All payrolls may have climbed 140,000.
‘Stronger Every Day’
General Electric Co. last month posted its third straight quarter of profit growth, beating analysts’ estimates, driven by a rebound in its finance unit, health-care and transportation divisions.
“The environment continues to improve,” Jeffrey Immelt, GE’s chief executive officer, said on a Jan. 21 conference call. “The economy can get a little bit stronger every day.”
Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as sales advanced in China, Australia and Latin America.
The Peoria, Illinois-based company last week said sales climbed 62 percent to $12.8 billion from the year-ago quarter. The company said 2011 sales will exceed $50 billion, compared with $42.59 billion in 2010.
‘More Positive’
“Over the past quarter, we’ve become somewhat more positive about economic growth in the developed economies of North America, Europe, and Japan,” Mike DeWalt, director of investor relations at Caterpillar, said on a Jan. 27 teleconference. “And we’re now expecting the U.S. economy to grow about 3.5 percent in 2011.”
Manufacturing, which accounts for about 11 percent of the economy, led the recovery from the recession as businesses rebuilt stockpiles slashed during the slump. Rising exports have also spurred output.
Further gains may come from a pickup in consumer spending, which accounts for about 70 percent of the U.S. economy. Household purchases rose at a 4.4 percent pace in the fourth quarter, the fastest since the first three months of 2006, while the economy grew at a 3.2 percent rate, the Commerce Department reported last week.
Economists last month boosted forecasts for growth this year, reflecting a pickup in consumer spending and passage of an $858 billion bill extending tax cuts for two years. The legislation also continued emergency unemployment insurance benefits through 2011, trimmed payroll taxes and included accelerated tax depreciation for equipment purchases.
Auto dealers are also seeing improved demand. Car sales in December rose to a 12.53 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, according to industry data.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
Selasa, 01 Februari 2011
Bank of America Top Bank Brand, Goldman 16th, Survey Finds
HSBC, Europe’s largest bank, fell to third place this year behind Charlotte, North Carolina-based Bank of America and San Francisco-based Wells Fargo & Co., the fourth-biggest U.S. lender by assets. Goldman Sachs Group Inc., which in July reached a $550 million settlement with the Securities and Exchange Commission over claims the firm misled investors in a collateralized debt obligation linked to subprime mortgages, dropped to 16th place from seventh.
Brand Finance, started in 1996, calculated the value of each banks’ brand using the so-called royalty relief method, which estimates the notional price a company would have to pay for the brand. Bank of America’s brand was valued at $30.6 billion, Wells Fargo’s at $28.9 billion and HSBC’s at $27.6 billion, the survey found. “American banking is beginning to rebound,” said David Haigh, chief executive officer of Brand Finance, which conducted the survey. “Bank of America and Wells Fargo did well because they have expanded through acquisitions, American growth expectations have improved and both have focused on promoting their roles as traditional main street lenders.”
Spain’s Banco Santander SA ranked fourth, New York-based JPMorgan Chase & Co. fifth, Brazil’s Banco Bradesco SA sixth and London-based Barclays Plc seventh.
Industrial & Commercial Bank of China Ltd. ranked eighth, New York-based Citigroup Inc. was ninth and China Construction Bank Corp. was 10th, according to the survey.
To contact the reporter on this story: Simon Clark in London at sclark4@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
Factory and spending data support strong growth tone
Another report on Monday showed consumer spending ended 2010 on a firmer footing, a trend that economists expected to continue as the labor market recovery gains traction.
The upbeat data, which showed inflation largely under wraps, suggested the economy started the year with strong momentum. Stocks rose as investors set aside jitters over the unrest in Egypt and prices for U.S. government debt fell.
"The factory sector news is an important positive omen for the broader economy, because increased production will yield significant income generation, which in turn will fuel strongerhousehold consumption," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.
The Institute for Supply Management-Chicago said its barometer of Midwestern business rose to 68.8 in January, the highest since July 1988, from 66.8 in December.
Economists had expected the index to slip to 65.0. A reading above 50 indicates expansion in the regional economy.
The jump reflected a surge in orders to their highest level in 27 years and the strongest reading in the employment component since May 1984 -- an encouraging outcome for a labor market whose recovery has lagged economic growth.
It suggested data on Tuesday could show a surprise rise in the Institute for Supply Management's index of national factory activity, whose expansion economists expected to have leveled off this month after recent strong gains.
SPENDING UP
Manufacturing has led the economy's recovery from the worst recession since the 1930s, but consumers are stepping up to the plate. They helped push the economy ahead at a 3.2 percent annual rate in the fourth quarter.
A report from the Commerce Department showed spending, which accounts for 70 percent of U.S. economic activity, increased 0.7 percent in December. That was the sixth straight monthly gain and added to November's 0.3 percent rise.
The higher spending outpaced the 0.4 percent gain in incomes, and savings dropped to $614.1 billion, the lowest level since March.
The spending figures were included in the government's fourth-quarter gross domestic product report on Friday, which showed spending grew at a brisk 4.4 percent pace in the final three months of 2010, the fastest in more than four years.
Economists expect spending to remain solid in the first quarter, bolstered by payroll tax reductions that were included in the $858 billion tax package enacted in December. An expected pick-up in the pace of the labor market's recovery and a rise in stock prices are also seen supporting spending.
"We will see a lot of consumers dip their toes back in the water and spend a little more freely than they did last year," said David Resler, chief economist at Nomura Securities International in New York.
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