United States:
U.S. GDP Grows Above-Forecast 2.6% as Business Spending Picks Up
The U.S. economy cooled by less than expected last quarter as business investment picked up, suggesting growth could be stronger for longer as the Federal Reserve takes a patient approach to interest rates. The 2.6 percent annualized rate of gains in gross domestic product from October to December compared with the 2.2 percent median estimate of economists surveyed by Bloomberg. It followed a 3.4 percent advance in the prior three months, according to a Commerce Department report Thursday that was delayed a month by the government shutdown. Consumption, which accounts for the majority of the economy, grew 2.8 percent, slightly below forecasts, while nonresidential business investment accelerated to a 6.2 percent gain on equipment, software and research spending. Government spending slowed, trade was a minor drag and inventories gave GDP a small boost. The report shows how Republican-backed tax cuts may have continued to aid growth and help bring the full-year figure to 3.1 percent, just above President Donald Trump’s 3 percent goal. While the expansion is poised to become the nation’s longest on record at midyear amid a still-healthy consumer, supportive Fed and robust labor market, the pace could cool amid the trade war, slowing global growth and fading impact of fiscal stimulus. A separate report Thursday from the Labor Department showed filings for unemployment benefits rose by more than expected last week to 225,000, still near a five-decade low. The week included the Presidents Day holiday, and claims tend to be more volatile around such events.
Europe:
U.K. Business Confidence Hits a Seven-Year Low Ahead of Brexit
Brexit continues to take a toll on the U.K., with new figures Thursday showing a fall in business confidence and continued weakness in the property market. House price-growth remained tepid in February, with values rising just 0.4 percent from a year earlier, according to Nationwide Building Society. A separate report from Lloyds showed optimism among firms at a seven-year low, while GfK said consumer confidence is still close to the weakest since 2013. The figures underscore the stress being felt by companies and households as Britain confronts the possibility of leaving the European Union without a settled plan for future ties with its biggest trading partner. Prime Minister Theresa May this week conceded that exit day on March 29 may need to be postponed as she tries to get her withdrawal deal through Parliament, though analysts warn the move merely postpones the risk of a damaging no-deal Brexit. Nationwide said house prices edged lower compared with the month earlier, while the annual rate of growth, though better than the 0.1 percent figure in January, remained far below the pace recorded in 2018. A shortage of homes, record employment and low interest rates are preventing a sharp downturn in prices. “Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have remained broadly stable in recent months, but survey data suggests that sentiment has softened.” said Robert Gardner, Nationwide’s chief economist. Financial results this week highlighted the nation’s increasingly divided housing market, with resilience outside the capital contrasting with London’s sluggishness. Bovis Homes Group Plc, which operates across the U.K., reported record profits Thursday, while London-focused Telford Homes Plc warned of a drop in profit and broker Foxtons Group Plc reported a pretax loss.
Asia:
South Korea’s Economy Is Alive But Not Well
Domestic activity is in a tough spot, but the Bank of Korea seems preoccupied with second-guessing the Federal Reserve and parsing any trade accord between the U.S. and China. The central bank kept its benchmark interest rate at 1.75 percent Thursday, a non-step that was widely forecast. The flaw is that reasons advanced by economists for stasis are arguments in favor of cutting: weakness in inflation, faltering exports and a distinct lack of vim in the labor market. The first paragraph of the Bank of Korea’s statement is all about the Fed, U.S.-China trade and Brexit, each of which is cited by name. That’s revealing because often in major economies these phenomena, while shaping officials’ thinking, are rarely called out explicitly. There’s simply no way Federal Open Market Committee statements would launch right away into offshore events or institutions. The Fed would be crucified in Congress. Best, lower down, to use euphemisms like “global economic and financial developments.” Save the naming for verbal follow-ups. That’s fine for the Fed, one might argue. It’s the big guy. And Seoul is right to focus on how the international becomes local. No country is an island. But if the effects of the trade war and China’s slowdown ricochet in your backyard, then you should act to ameliorate the impact. Rather than citing global events to do nothing, why not leverage this opportunity to do something? Life at home could use a jolt. Inflation was just 0.8 percent last month, well below the BOK’s 2 percent target. Officials reckon it will stay below 1 percent for some time. (The Bank of Japan gets browbeaten for this type of miss.) While unemployment isn’t a disaster at 4.4 percent, it’s the highest in almost a decade. Exports have been hammered in light of China’s travails and a drop in semiconductor prices.
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