Economic Recovery Falls Short of Expectations; U.S. Stocks Zigzag

Bikram Pandey
27 Jan, 2012
New York City

U.S. indexes fell after the latest economic growth data failed to spark enthusiasm. Ford Motor reported a large net profit on one-time tax gains but operating net lagged on weak Asian and European results. Markets indexes in Europe declined after Greek talks foundered and Spanish jobs surged to 23%.

[R]4:00 PM New York – U.S. indexes turned lower after the latest economic growth data failed to spark enthusiasm. Ford Motor reported a large net profit on one-time tax gains but operating profit lagged on weak Asian and European results. Markets indexes in Europe declined after Greek negotiations foundered and Spanish jobless surged to 23%.[/R]

U.S. stocks struggled after the government reported less than expected growth in the final quarter of 2011 and economists worried that the growth will subside as businesses hold back new production.

The U.S. economy gathered steam and expanded at 2.8% annual rate in fourth quarter after growing at 1.8% in the third. The economic growth has been uneven in the last six quarters. The economy for the first time is larger than it was before the recession.

For the year 2011, the economy expanded at 1.7% after growing at 3% in 2010 and dipping 2.6% in 2009. The protracted and slow recovery has largely been a jobless recovery and uneven as the dollar lost half its value against several currencies in the last ten years and manufacturing exports failed to stem the rise in oil imports.

The latest quarterly growth was the fastest in the last six quarters and also the first quarterly growth above 2.5% in the period. The economy expanded for the tenth quarter in a row after the decline of more than 8% in the final quarter of 2008 followed by two quarterly losses in the first half of 2009.

The current recovery is rooted more in the businesses building inventories in anticipation of consumer demand which appears to be not growing as fast as expected. The economic recovery has not benefitted employment and six million less people are employed before the recession set in 2008 when 146 million people were gainfully employed.

Eastman Chemical agreed to acquire Solutia for $4.7 billion. Ford quarterly net soared and reported annual profit for third year in a row.

Amgen fourth quarter net slipped to $937 million. Chevron fourth quarter net decreased to $5.1 billion and Caterpillar fourth quarter net surged 60% to $1.54 billion. Ford fourth quarter net surged to $13.6 billion. Procter & Gamble second quarter net slumped 49% to $1.7 billion.

European markets traded sideways and Italy sold €11 billion in bills today. Spanish jobless rate rose to 22.9% in the fourth quarter and Greek negotiations founder. Aegon entered into €2 billion syndicated credit facility.

Euro area money supply growth slowed, German import price inflation eased, and Swedish retail sales rose in December. Spanish jobless rate rose to 22.9% in the fourth quarter. Swiss leading index fell in January.

The UK indexes gained and investors focused on the Greek debt restructuring outcome. Irish retail sales improved in December. BP plc ordered to bear all costs related to the oil spill in the Gulf of Mexico in 2010.

Stocks in Japan traded lower as commodities gained in Asian markets trading. Tepco surged on the expectations that the company will accept 1 trillion yen bailout in exchange of two thirds stake. Fanuc said nine-month earnings increased 22% and sales rose 23%.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond decreased to 1.92% and 30-year bond closed flat at 3.09%.

The U.S. dollar traded down 0.6% to $1.32 to one euro and traded lower against the Japanese yen to 76.77.

Immediate delivery futures of Texas crude oil traded unchanged at $99.70 a barrel and futures of natural gas rose 3 cents to $2.64 per mbtu and gasoline price increased 8.9 cents to 293.55 cents a gallon.

In metals trading, copper decreased 1.3 cents to $3.88 per pound, gold increased $5.50 to $1,731.30 per ounce and silver increased 5 cents to $33.79.