US consumer sentiment hits record low
US consumer sentiment
unexpectedly deteriorated for a second straight month to its lowest in over a
year in January, with many consumers citing the recent fiscal cliff debate in
Washington, a survey released on Friday showed.The sharp drop in sentiment over
the last two months coincides with rancorous federal budget negotiations that
have led to higher taxes for many Americans.Just weeks after that deal,
President Barack Obama and Republican lawmakers are expected to enter another
tough round of negotiations over spending cuts, which could dent consumer
confidence still further."The handling of the fiscal cliff talks and the
realization that paychecks are going to be smaller due to the sunset of the
payroll tax holiday are probably weighing on consumer attitudes at the
moment," said Thomas Simons, a money market economist at Jefferies
& Co. in New York. "With the debt ceiling yet to be tackled and more
political acrimony on the way, we suspect that confidence has room to
deteriorate further."The Thomson Reuters/University of Michigan's preliminary reading
on the overall index of consumer sentiment came in at 71.3, down from 72.9 the
month before. The index was at its lowest since December 2011. It was also
below the median forecast of 75 among economists polled by Reuters."The
most unique aspect of the early January data was that an all-time record number
of consumers - 35% - negatively referred to the fiscal cliff
negotiations," survey director Richard Curtin said in a statement.
"Importantly, the debt ceiling debate is still upcoming and could further
weaken confidence," he said.House Republicans signaled on Thursday they
might support a short-term extension of U.S. borrowing authority when the
government exhausts that capacity sometime between mid-February and early
March. A failure by Congress to raise this debt ceiling could result in a
market-rattling government default. US stocks remained little changed after the
data. The S&P 500 hit a five-year high in the last session. But on Friday,
a weak outlook from Intel offset encouraging data out of China and a
fourth-quarter profit at Morgan Stanley So far there has been a disconnect
between what consumers say and do. US retail sales
increased a better-than-expected 0.5% in December. But given the recent
weakening in sentiment investors will be watching for any signs that spending
is starting to slip."The impact on consumers will be from the hike in the
social security tax. That is undoubtedly going to hit discretionary spending.
So this may be a signal of things to come," said Michael Woolfolk, a
senior currency strategist at BNY Mellon in New York.The consumer survey's
barometer of current economic conditions fell to 84.8 from 87.0 and was below a
forecast of 88.0. The gauge hit its lowest since July.The survey's gauge of
consumer expectations also slipped, hitting its lowest since November 2011 at
62.7 from 63.8, and was below an expected 65.2.The survey's one-year inflation
expectations rose to 3.4% from 3.2%, while the survey's five-to-10-year
inflation outlook was at unchanged at 2.9%.
China's growth
slows in 2012
China's economy grew
at its slowest pace in 13 years in 2012, though a year-end spurt supported by
infrastructure spending and a jump in trade signalled the foundation for the
stable growth path Beijing says is vital for economic reform may be in
sight.Evidence of a burgeoning recovery in exports, stronger than expected
industrial output and retail sales, together with robust fixed asset
investment, all indicated that Beijing's pro-growth policy mix has gained
sufficient traction to underpin a revival without yet igniting inflationary
risks.Year-on-year growth of 7.9% in the fourth quarter beat a consensus
forecast of 7.8% in a Reuters poll and snapped a streak of seven consecutive
quarters of slowdown.The performance was at the upper end of the 7%-8% rate
economists reckon is needed to deliver on reforms essential to China's
long-term development after three decades of red-hot, double-digit growth.Full
year growth of 7.8% was also just ahead of the poll's 7.7% call and, although
the weakest since 1999, comfortably ahead of the government's 7.5% target,
which just months ago seemed to some economists to be in jeopardy."It's
kind of like a golden spot - stronger growth, but not strong enough to trigger
a lot more inflationary concern. That's perfect for equity markets." said
Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong."What everybody wants is
growth that's strong enough to give us peace of mind that revenues will
increase and there is no hard landing risk, but not excessive, not strong
enough to trigger inflation. And this is what I think we are getting. I'm
bullish on China still."Market reaction was generally upbeat, with Asian shares
advancing and platinum and palladium following suit, while oil traders took the
opportunity of data confirming the recovery to book profits after two sessions
of steep rises.China's new leaders
must stabilise the economy this year to keep employment high while avoiding a
surge in housing prices and inflation that could undermine reforms needed to
overhaul the country's export-oriented growth model.Without stability, incoming
President Xi Jinping and Premier Li Keqiang, who are set to be confirmed in
March, have no chance of delivering a slew of reforms they say are needed to
tackle a host of financial, industrial and income imbalances that threaten
China's future.China's statistics chief, admitting the country's wealth gap was
"relatively large", released a recalculated indicator of economic
inequality on Friday, the first time in several years that officialdom has
addressed the sensitive issue head-on. China's Gini coefficient stood at 0.474 in 2012, down from 0.477 in 2011 and from a peak
of 0.491 in 2008, Ma Jiantang, the head of the National Bureau of Statistics, told
reporters at a press conference on 2012 economic performance. The index ranges
from 0 to 1, with the 0.4 mark viewed by analysts as the point at which social
dissatisfaction may come to a head. China's leaders say rebalancing the economy
to consumption and away from the investment and export model followed for the
last 30 years holds the key to tackling inequality, but detailed data on Friday
underlined the scale of that task. While consumption made the biggest
contribution to growth in 2012, with a 51.8% share, Q4 marked the third consecutive
quarter of decline. The fall has been driven by the government's focus on using
investment spending as the main expedient to underpin an economy still levered
to external demand. Exports generate about a third of economic activity and
sinking demand from foreign customers in struggling European Union and United States economies dragged on growth in 2012. Net exports made a negative 2.2%
contribution, data showed. ith China's consumers still relatively poor -
average annual urban disposable income was just 21,810 yuan ($3 500) in 2011 -
it remains too hard for the government to rely on them to help compensate for
any shortfall from the export sector. "There's just not enough
money," said Liu Jiongda, 35, a manager at a Shanghai
logistics company who earns just over 11,000 yuan ($1 500) per month, more than
half of which goes straight into a mortgage on a property he bought in 2009.
"If the government wants a so-called consumer culture, they have to cut
the amount of tax I have to pay. That is simple. If I have more money then I'll
be willing to spend more." Investment meanwhile, at 50.4%, has picked up
as the new leadership has looked to underpin a recovery with spending on
infrastructure a tried and tested method. Quarter-on-quarter growth of 2.0% was
below the market's expectation of a 2.3% rise, which was taken as a sign that
the recovery's momentum is not strong enough to worry the authorities into
pre-emptive action to snuff out any whiff of inflation - China's long term policy
pre-occupation. The People's Bank of China, which cut interest rates twice in
mid-2012 and cut banks' reserve ratios (RRR) three times since late 2011, has
since switched to short-term cash injections via open market operations to
guide monetary policy, apparently wary of fanning price pressures or
encouraging a property bubble."We need to keep
vigilant against inflation," NBS chief Ma Jiantang told a news conference
on Friday. The risk of policy tightening looms as growth gathers pace, leaving Beijing with a fine line to
tread to ensure the recovery continues without reigniting speculative activity
in the key area of real estate. Data released alongside GDP numbers on Friday
showed home prices extending a slow rise in December, with an average rise of
0.3% month-on-month in 70 major Chinese cities, the fifth month in the last six
to show an increase, despite government efforts to temper prices. Real estate
investment, which accounted for 13.8% of China's gross domestic
product in 2012, rose 16.2% last year from a year earlier and remains a key
component of overall fixed asset investment - the cornerstone of Beijing's recovery strategy.
Annual fixed asset investment (FAI) growth was 20.6% in 2012, versus the 20.7%
forecast in the Reuters poll. "Typically FAI falls off at the end of the
year - on average December FAI is 1 percentage point lower than November, but
this time there was only a 0.1% edge off," said Ken Peng, an economist at
BNP Paribas in Beijing, highlighting the strength of investment spending and
the risk that it could be fuelling renewed speculation. Investment spending was
the key near-term concern of Ren Xianfang, senior analyst at IHS Global Insight
in Beijing. "We have to watch the investment numbers especially because China has started (to put)
controls on local financing, so this could limit fund raising and investment by
local governments," she said. "So far it's just talk, but if they implement
measures like the sharp tightening in 2011 the impact on growth could be very
substantial," Ren added, highlighting Beijing's policy dilemma. Other data
released alongside GDP showed industrial output grew 10.3% in December from a
year ago, versus expectations of 10.1%.Retail sales in December rose 15.2% on a
year ago versus an estimated 14.9% in a Reuters poll.A fourth-quarter recovery
had been heralded by an acceleration in industrial output in October and
November and a jump in exports in December, although some analysts believe last
month's sharp expansion in trade could be a blip.China's exports grew 14.1%
last month compared with a year earlier, racing past market expectations of 4%
and November's 2.9% pace. Ting Lu, chief China economist at Bank of
America/Merrill Lynch in Hong Kong, was confident that the data would not
change the near term policy stance. "Maintaining stable growth is the new
leadership's key policy mandate in 2013," Lu wrote in a note to clients,
adding that he expected a growth target of 7.5% to be adopted for 2013 and
policy calibrated to delivering it."Pro-growth policies in 2012 will be
extended into 2013, and big-bang stimulus will be avoided unless there is
another global financial crisis. Within 2013, policy will likely be marginally
tightened towards the second half of 2013 on concerns of rising inflation,
rising home prices, investment overheating and financial system risks," Lu
said.
Obama sends message with new cabinet
A dearth of diversity
in Barack Obama's top picks for his new cabinet is overshadowing signs of
intent the US president is sending with his freshened team ahead of his second
term.Obama takes the oath of office on Sunday ahead of four more years in the
White House, a watershed moment that will see familiar faces, led by Hillary
Clinton, depart and new blood ushered in to implement the president's political
agenda.His personnel decisions, both at the cabinet level and in a rejigging of
his White House inner circle, presage a fierce defence of Obama's political
legacy at home and abroad in his second term.While posts in a president's
cabinet are highly sought after, the centralisation of power in the White House
often leaves the secretaries of top government departments chafing at a lack of
clout.But several of Obama's top cabinet picks - like Chuck Hagel, John Kerry
and Jack Lew, his nominees to run the departments of Defence, State and
Treasury - clearly reflect the president's worldview and may wield significant
influence.Some cabinet members who are staying on, like Health and Human
Services Secretary Kathleen Sebelius - in charge of implementing Obama's top
domestic achievement health care reform - will also play key roles.Senator
Kerry and ex-senator Hagel, Vietnam veterans both, are sceptical of US military
adventures abroad, and backed a fundamental project of Obama's presidency -
getting troops home from Iraq and Afghanistan.They are also wary of embroiling
the United States in another war over Iran's nuclear programme, though they
will publicly back Obama's position that he is ready to use force as a last
resort should diplomacy fail.Sebelius will be entrusted with ensuring that
ObamaCare, which has yet to be fully implemented, is irrevocably embedded in
the fabric of US life by the time the president hands over the keys to the
White House in January 2017.Media buzz surrounding Obama's second cabinet has
focused mainly on the fact that the first African American president, who won
power thanks to a diverse racial and gender coalition, picked middle aged white
men for top cabinet jobs.In fact, but for winning a majority of votes among
women back in November, Obama might not be living in the White House at
all.Aides dismiss the idea that Obama has fallen short of diversity goals,
pointing out that his two Supreme Court picks have been women, one a Hispanic,
and that he has many females in positions of power around him.Perhaps Obama's
closest adviser is Valerie Jarrett, a mentor who followed his family from
Chicago to the White House, and he was brought up by strong female role models
in his mother and grandmother in the absence of his father.Eric Holder, the
African American attorney general, is also staying on.Obama had been expected
to name UN Ambassador Susan Rice, an African American, as secretary of state,
but her chances of Senate confirmation evaporated amid Republican outrage over
the aftermath of the raid on the US mission in Benghazi, Libya on 11
September."I think his record demonstrates the value he places on
diversity," White House spokesperson Jay Carney said, adding that more
diverse appointments could be expected with remaining open cabinet posts.Obama
also addressed the issue during a press conference last week."I think
until you've seen what my overall team looks like, it's premature to assume
that somehow we're going backward. We're not going backward, we're going
forward." Thomas Mann, a political scholar at the Brookings Institution in
Washington said that once Obama's full cabinet is announced with expected or
announced openings in big departments like Interior, Energy and the
Environmental Protection Agency - the picture could be more diverse.But Obama's
new cabinet will differ from his first term, in dispensing with the "Team
of Rivals" approach that included his former Democratic primary foe
Clinton and Republican secretary of defence Robert Gates, who had served under
George W Bush's administration.The selection of Clinton, which surprised senior
aides, turned out to be a masterstroke, as the former first lady proved to be a
political asset at the State Department, and Obama in effect removed a
potential critic from the fray.Few insiders expect Kerry and Hagel, substantial
figures in their own right, to be shrinking violets, but they are expected to
keep any policy differences inside the Obama administration tent.Some Obama
critics question whether the president, who tends to stick to aides who have
been with him for years for his White House kitchen cabinet, will get enough
outside advice.In one promotion from inside, Deputy National Security Adviser
Denis McDonough is expected to succeed Lew for the crucial post of chief of
staff.
Tight security plans for Obama swearing-in
Crowds may be smaller
on Monday than when Barack Obama was first sworn into office in 2009, but
security is as tight as ever, with experts warning a "lone wolf"
would pose the greatest threat.Between 500 000 and 800 000 people are expected
to pass through the National Mall, the immense greenway that leads up to the
Capitol, compared to the 1.8 million spectators who came to applaud Obama four
years ago.Thousands of police the official figure has not been made public
will fan across the area, with several posted at every street corner.Airspace
over Washington will be under tight surveillance, as will the Potomac River
that runs along the city.Teams on horseback and with bomb-sniffing dogs will
crisscross the city looking for potential explosive devices.More than 13 000
soldiers will attend the parade, behind a security cordon, to escort President
Obama and to keep watch on the Capitol, the seat of Congress where he will be
officially sworn into office.There will be cameras everywhere surveillance,
media and tourist alike - a number of roads around the Mall will be closed to
vehicles and spectators will be thoroughly searched, controlled and screened at
each checkpoint.On the roofs of the main buildings in the area, snipers will
stand watch."We're prepared for a variety of threats," said US
Capitol Police spokesperson Shennell Antrobus.He expressed confidence in the
force's "robust, multi-task security plan" that has been in the works
for months.Michael Clancy, deputy assistant director of the FBI's
counterterrorism division, said "the bigger threat, the thing that keeps
you awake at night, are the lone offenders, regardless of their
affiliation"."Those are the ones that scare me the most, folks that
we don't have on our radar. It's the Timothy McVeighs of the world,"
Clancy added in an interview.He was referring to an American former soldier
turned political extremist whose 1995 bomb attack on an Oklahoma City federal building
killed 168."It would be crazy for anybody to try anything because of the
law enforcement in the area, but those are concerns," said Stephen Somers,
vice president of operations for AlliedBarton Security Services, one of the
private security firms tapped to support the force."Any lone wolf is a
tremendous threat that's why security is so tight," added Somers, whose
staff will be dispatched to the World Bank and International Monetary Fund."Everybody
needs to be on top of their game that day."Worried about any leaks,
officials have kept a tight lid on details about the security precautions.At an
undisclosed location in the suburbs of Washington, a command centre will
monitor in real time any developments in and around the proceedings. On the big
day, agents will monitor a collage of massive flat screens and cutting-edge
surveillance, while staying in contact with teams on the ground. Each one of
the 42 agencies involved in security - headed by the US Secret Service that
provides protection for the president will have representatives at the
headquarters, the convergence of 94 bases spread across the city.Secret Service
spokesperson Brian Leary said the Multi Agency Communications Centre
"really gives us the ability to monitor and co-ordinate security from a
central location".Antrobus, of the US Capitol Police, said this
partnership helps ensure that everyone can "enjoy the democratic process
and this historic day".Officials are also keen on avoiding a repeat of the
planning mishaps of 2009, when thousands of spectators were stuck in a massive
freeway tunnel for hours in the freezing cold, and missed Obama's
speech.Survivors of the ordeal dubbed it the Purple Tunnel of Doom.
