Production in U.S. Slowed Down
Economists reported that snowstorms on the East Coast of U.S and harsh weather in various parts of the U.S. possibly slowed factory production in February, marking a temporary setback in the recovery.
Output at factories, mines and utilities reveals slight changes after rising for the past seven months, according to the median estimate of 59 economists surveyed by Bloomberg News. Other reports may show manufacturing expanded in New York this month and homebuilder confidence remains stable.
This month, manufacturers will need to make up for the disruptions as companies strive to stabilise inventories and exports. Analysts anticipate that Federal Reserve will reiterate a pledge to keep interest rates low to keep the economy growing.
Robert Stein, a senior economist at First Trust Portfolios LP in Wheaton, Illinois said, “This really is a weather-driven phenomenon. Any time you get record snowstorms on the East Coast, you’re going to get a drop in manufacturing production.”
The Federal’s industrial production report estimates in the Bloomberg News survey ranged from a drop of 0.7 percent to 0.5 percent increase. Further production reports also revealed capacity utilisation, or the proportion of plants in use, decreased at 72.5 percent from 72.6 percent in January, according to the survey median. The measure averaged 80 percent over the past two decades and the estimate February figure suggests inflation will remain low.
Advances
Manufacturers, which make up about 12 percent of the economy, will probably continue to lead the recovery as business spending on equipment picks up and expanding global economies boost demand from overseas.
Investment in equipment and software increased at an 18 percent annual rate in the fourth quarter, the most since 2000, reports the Commerce Department. Companies are raising their forecasts for sales growth.
Forecasts
Deere & Co., the world’s largest maker of farm machinery, reported first-quarter profit and raised its 2010 forecast as projections improved for agricultural-equipment sales in the U.S. and Canada.
Samuel Allen, Chief Executive Officer said, the full year equipment revenue will increase as much as 8 percent. Farm machinery sales in the U.S. and Canada are expected to remain the same as last year, an improvement from November’s projection of a 10 percent decline in the region.
Manufacturing rebound may have paused last month as factories grappled with the storms that drove seasonal snowfall counts to records in parts of the eastern U.S.
According to the Labour Department’s employment, job losses slowed last month. Weekly hours worked by factory production employees fell to 40.3 in February from 40.7 in January, the biggest decline since December 2008.
India’s Inflation Accelerates to 16-Month High
India’s inflation quickens to a 16-month high in February as a results of increase prices from companies such as Steel Authority of India Ltd and Maruti Suzuki India Ltd. It is reported that the benchmark wholesale-price index rose to 9.89 percent from a year earlier, following an 8.56 percent increase in January, the commerce ministry said in New Delhi today. The median forecast of 20 economists in a Bloomberg news survey was for a 9.69 percent gain.
Manufacturing inflation is toughening in India. Central bank Governor Duvvuri Subbarao said that the various policy instruments are at his disposal to contain price gains. Economists expect the Reserve Bank of India to raise interest rates within weeks as growing consumer demand encourages companies to increase prices. India’s industrial output expanded 16.7 percent in January.
Robert Prior- Wandesforde, an economist at HSBC Holdings Plc in Singapore said, “ the policy authorities have fallen significantly behind the curve and need to act much more aggressively than they have so far to clamp down on underlying inflation. Rising economic activity is leading to a build-up in underlying price pressures.”
Inflation in Asia
It is reported by Bloomberg News that the yield on the benchmark 10-year Indian government bond increased one basis point to 8.01 percent after the report. The Sensitive stock index maintained losses, declining 0.4 percent to 17,102.10 as of 11:55 p.m. in Mumbai.
Manufactured-price inflation was 7.42 percent in February after a 6.55 percent gain the previous month, today’s report showed. And fuel-price index rose 10.19 percent from 6.9 percent in January, according to the report.
It is revealed that Asia is facing inflation and asset bubbles as the region rebounds from the impact of the global recession. China’s inflation rate rose to 2.7 percent in last month, the highest in 16 months.
Malaysian central bank Governor Zeti Akhtar Aziz, raised interest rates from a record low to 2.25 percent this month and added that the nation may increase rates further to avert asset bubbles and discourage risky investments.
Although Mr Subbarao kept the Indian central bank’s benchmark reverse repurchase rate unchanged at a record-low 3.25 percent, he said that higher taxes on fuel in the nation’s budget announcement will have “some impact” on inflation.
Tax
Mr Subbarao said, “But I believe that inflation will moderate in the weeks and months ahead”. In the last monetary policy statement in January, he asked lenders to maintain 5.75 percent of their deposits as cash reserves from 5 percent earlier. The next policy announcement is scheduled on April 20.
Finance Minister Pranab Mukherjee raised import and excise taxes on crude oil and refined products in the budget to cut the deficit to 5.5 percent of gross domestic product in the financial year starting April 1 from 6.9 percent of GDP in the previous year.
Indian Oil Corp., the nation’s biggest, increased prices of gasoline and diesel after the budget. Maruti, India’s biggest carmaker, and Steel Authority, the country’s second-biggest producer of the metal also increased prices due to raising consumer demand.
Food Prices
Food prices, the main driver of inflation in India since October, are showing signs of easing. The government said that the index measuring wholesale prices of lentils, rice and vegetables slowed to a 17.81 percent increase from a year earlier after a 17.87 percent gain as supplies increased.
It is reported that sugar output in India will be higher than forecast as cane yields improve, the Indian Sugar Mills Association said that production may total 16.8 million metric tons in the year ending September, an increase from an earlier estimate of 16 million tons.
Wheat harvest will also reach a record this year and the government may consider lifting a ban on its exports, Indian farm minister Sharad Pawar said.
“The good news is that food-price gains appear to be topping out and should slow in coming months,” Kevin Grice, an economist at Capital Economics Ltd. in London, said. “The bad news on inflation is that the rapid economic upswing is already beginning to stretch capacity use.”
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