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Fed takes a sober look You've got to read today's statement from the Federal Reserve very closely to catch any hint of cheer. Yes, the recovery is "continuing." And, yes, household spending is "increasing at a moderate pace."
But ... the recovery is continuing "though at a rate that has been insufficient to bring down unemployment." And household spending is increasing "but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit."
Wait, there's more: "Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward."
As expected, the Federal Open Market Committee, the central bank's policy-setting panel, made no change to interest rates and held its new quantitative easing program, known as QE2, in place. That's a $600-billion (U.S.) initiative to spur lending and spending by buying longer-term Treasuries to bring down longer-term interest rates.
The statement is particularly sober given that there have been some improving signs from the U.S. economy late.
"Of course, in recent weeks the economy has picked up some momentum," said Paul Dales, senior U.S. economist at Capital Economics in Toronto.
"The Fed hinted as much saying that household spending is increasing 'at a moderate pace' rather than 'gradually,'" he said, adding that he would not be surprised to see the U.S. central bank holding rates near zero for at least another two years.
Added Toronto-Dominion Bank economist Martin Schwerdtfeger: "There have been a number of positive developments on several fronts in recent weeks, which suggest the U.S. economy is gaining a bit of traction ... Still, these developments must be kept in context. With unemployment at 9.8 per cent and core inflation at its lowest level in almost seven decades, the FOMC is more than justified to invoke its dual mandate of full employment and price stability."
U.S. retail sales rise The Fed aside, U.S. retailers headed into the key holiday shopping season in a stronger position.
Retail sales in the United States climbed 0.8 per cent in November, more than projected, amid good signs for holiday sales. Numbers for October and September were also revised up today, giving even more pep to the data.
Consumers are clearly showing increased optimism and pent-up demand is being released," said Scott Hoyt, senior director of consumer economics at Moody's Analytics.
"Additional support will come next year in the form of reduced taxes and increased unemployment insurance benefits if the tax compromise passes. Stock market gains are also lifting spending among higher income households. Debt payments have fallen dramatically.
"Yet while these factors will continue to support spending growth, the recent pace is not sustainable. Unemployment is high and job gains have not been consistent or sufficient to lower the jobless rate."
Economist Alistair Bentley of Toronto-Dominion Bank said sales will probably top pre-recession levels either this month or early next year, though employment in the industry is still 7.3 per cent shy of its pre-slump peak.
"This means U.S. retail firms are selling comparable levels of merchandise with only 92.7% of the work force - a trend which has been mirrored across the U.S. economy."
If it's Tuesday ... Standard & Poor's warned today it could cut Belgium's credit rating, given the inability of several political parties to actually form a government since the summer and a debt level near 100 per cent of GDP.
Belgium is the latest country to be swept up in Europe's crisis, though fractured politics have added to credit woes, unlike other countries that are grappling simply with being buried in debts.
"We believe that Belgium's prolonged domestic political uncertainty poses risks to its government's credit standing, especially given the difficult market conditions many euro zone governments are facing," S&P said.
"... If Belgium fails to form a government soon, a downgrade could occur, potentially within six months."
It's yet another blow for the embattled euro zone, where Greece and Ireland have already been bailed out and the market's attention has turned to Portugal and Spain.
Late yesterday, the chief of the European Central Bank called for a fatter bailout fund to deal with the burgeoning debt crisis.
"We're calling for maximum flexibility and maximum capacity, quantitatively and qualitatively," Jean-Claude Trichet told.
As markets focus on the continent's debt troubles, there are still some encouraging economic signs emerging. Industrial production in the euro zone, the 16 countries that use the common currency, climbed 0.7 per cent in October. That's weaker than expected but the second month of gains in a row.
- EU leaders bump heads over bailout
- Rescue Europe's banks before states, Soros says
- Germany willing to boost ECB capital
- Greeks walk off the job
Rio Tinto to spend $1-billion Global mining giant Rio Tinto PLC is moving ahead with major spending commitments on two Alcan aluminum smelter upgrade projects in Canada.
The Anglo-Australian company said Tuesday it is investing more than $1-billion (U.S.) at facilities in the Saguenay region of Quebec and Kitimat, B.C., The Globe and Mail's Bertrand Marotte reports from Montreal.
The bulk of the new money is to go to completion of the first phase of the new-technology AP60 plant in Saguenay-Lac-Saint-Jean, Que.
More bad news for bond market Recent losses in the bond market have breached some key technical levels that may presage further losses for investors in Government of Canada debt, Streetwise columnist Boyd Erman reports today.
The rout in bonds has been sharp and sudden, and many investors are suddenly underwater on bonds that they bought of late. Those who piled into Wal-Mart's huge offering two months ago, which went out the door so fast it set a record low for corporate borrowing costs, recently saw their bonds trading 5 points below par.
Telus projects boost from wireless Telus Corp. today forecast profit and revenue increases next year, largely on its outlook for its wireless and data units.
The western telecom giant said in a statement it sees revenue increasing by between 1 per cent and 4 per cent, and earnings per share by between 9 per cent and 22 per cent.
"Next year's results are expected to benefit from the continuation of healthy wireless subscriber loading and accelerating adoption of wireless data services, as well as significantly reduced financing costs due to $2-billion in successful debt financings in the last 12 months at significantly lower interest rates," said chief financial officer Robert McFarlane.
Said analyst Maher Yaghi of Desjardins: "Over all, we continue to believe the shares are fairly valued as strong stock appreciation year-to-date has already priced in the return to a dividend growth model and potential resumption of share buybacks in 2011."
Agrium in talks to sell AWB unit Agrium Inc. is in talks to sell the commodity management business of AWB Ltd., the Australian company it purchased.
The agricultural products concern said in a statement today it was releasing the information because of stories in the Australian press, adding it is in dicsussions with several parties.
"No definitive agreement has been entered into with respect to the sale of the commodity management businesses and accordingly no assurance can be given that any agreement will be entered into or any sale completed," it said.
Goodbye, big spender These are not hard times on Wall Street by any measure, but year-end bonuses are taking a hit, the biggest since the financial crisis began, according to The Wall Street Journal.
Gone are some private jets for holiday getaways, catered meals, yachts, Lamborghinis and $65,000 watches, the newspaper said, as bonuses fall by between 22 per cent to 28 per cent. Besides the dip in the size of bonuses, there's also less cash because of new pay schemes urged by shareholders and regulatory authorities.
Here's how Wall Street bankers are coping, according to the report:
- Some are jet-pooling with strangers for holiday flights.
- Some are bringing their own lunches on board, rather than having catered meals.
- "It's a little quiet," Jeff Drajin of Manhattan Motorcars, a luxury outlet with Lamborghinis and Bentleys, told the newspaper.
- Yacht rentals in the Caribbean appear to be down.
- Demand for high-end watches at one Manhattan shop is still high, but the money is from Chinese and Brazilians.
In Personal Finance today
For charities, a few bucks here and there can add up. But to consumers, being asked for donations at retail stores can feel like a guilt trip. Find out how to give without the guilt.
Clients would be better off with a single, national designation, says Personal Finance columnist Rob Carrick.
A Toronto couple is quickly outgrowing their small income-generating property. Is it time to move on? Financial expert Kelley Keehn weighs in.
In Your Business today
Les McKeown, author of Predictable Success: Getting Your Organization on the Growth Track - and Keeping it There, has plotted the typical stages of company growth and found that, in order to become valuable, sellable businesses, companies have to travel through three phases of development.
A few weeks ago, Your Business columnist Mark Healy looked at trends from the past year that are likely to carry forward. What new ones can we expect in 2011?
In the latest of a series of monthly podcasts with Advancing Canadian Entrepreneurship honourees, Jeff Karr spoke with Diane Jermyn about balancing student and working life.
In Technology today
An advocacy group focused on ending the trade in conflict minerals used in consumer electronics has released a report ranks technology firms' efforts in keeping conflict minerals out of their electronic devices.
Blogger Amber MacArthur offers some tips on making sure your passwords are strong enough to prevent a security breach. On Monday, Gawker.com revealed hackers had broken into their database of users and had published some user names and passwords.
From today's Report on Business