Weekly Industry Crib Sheet: Treasury Dept. Declines to Name China a Currency Manipulator

Plus: U.S. GDP Growth Improves in Third Quarter, BP Banned from Government Contracts, Durable Goods Demand Inches Up and Consumer Confidence Hits Five-Year Peak.

U.S. Economy Grew Faster in Third Quarter

The United States economy expanded at a faster pace in the third quarter of 2012 than initially reported, with the nation’s gross domestic product (GDP) growing 2.7 percent from July to September, rather than the 2 percent increase originally estimated, according to the U.S. Department of Commerce.

The upward revision reflected positive contributions from personal consumption expenditures, private inventory investment, federal government spending, residential fixed investment and exports. Growth was also significantly stronger in the third quarter than the second quarter, when real GDP increased 1.3 percent.

“But the details of the report aren’t entirely positive. About 0.7 percentage points of growth between July and September came from an anomalous spike in federal defense outlays,” the Washington Post notes. “…experts say it most likely came from the Pentagon looking to spend through its existing budget authority before the end of the fiscal year (and before the sequester spending cuts clamped down).”

Meanwhile, an additional 0.8 percentage points of growth were driven by increasing inventory accumulation as businesses restocked their inventories. However, final sales growth has been revised downward, from 2.1 percent to 1.9 percent.

“What’s more, the revised figures show that spending by businesses on equipment and software declined by 2.7 percent in the third quarter, the first decrease since the end of the recession in mid-2009,” the New York Times reports. The cut in spending derives mainly from “growing uncertainty among executives about whether Congress and the White House can reach a deal before Jan. 1 that prevents more than $600 billion in automatic tax increases and spending cuts from going into effect early next year.”

BP Banned from U.S. Contracts

In addition to pleading guilty to criminal charges related to the Deepwater Horizon disaster and agreeing to pay $4.5 billion in damages for culpability in the largest oil spill in U.S. history, BP will temporarily be denied from making new U.S. contracts.

The Environmental Protection Agency (EPA) announced that BP would be suspended from engaging in new government contracts “until the company can provide sufficient evidence to EPA demonstrating that it meets federal business standards.” The suspension will not affect existing contracts. In handing out the suspension, the EPA cited BP’s “lack of business integrity.”

The suspension “sends the signal to BP, and incidentally to the whole oil and gas drilling industry, that the United States will take strong steps to protect itself against a recurrence of that tragedy,” University of Baltimore law professor Charles Tiefer told Bloomberg News.

BP will attempt to convince the EPA to lift the suspension, having submitted a “responsibility statement” to the agency. The energy giant also claims the EPA is preparing a “proposed administrative agreement” to eventually lift the contract ban.

Durable Goods Orders Improve in October

New orders for manufactured durable goods inched up in October, following a 9.2 percent gain in September and a 13.1 percent decline in August, the Commerce Department noted. Excluding the often volatile transportation category, new orders rose 1.5 percent for the month.

The overall value of durable goods orders last month totaled $216.9 billion and marked the fifth monthly improvement in the latest six-month period. Machinery orders, up for two consecutive months, posted the largest increase, climbing 2.9 percent to $30.9 billion. Meanwhile, primary metals rose 1.7 percent and fabricated metal products climbed 1.1 percent.

“Still, core orders for the first 10 months of 2012 were unchanged compared to a year earlier, reflecting the pervasive softness in demand faced by domestic manufacturers. A slower U.S. economy and weakness in key export markets such as Europe and China have caused orders to wane,” MarketWatch reports. “Durable goods are items such as cars, computers or heavy machinery expected to last at least three years. A sort of economic canary in the coal mine, orders spike when U.S. growth accelerates and soften when a slowdown ensues.”

Orders for core capital goods, which serve as a key gauge of business investment plans, rose 1.7 percent in October, the strongest gain since May but relatively flat on a year-over-year level.

“Recent data continue to suggest that U.S. factory sector growth, while having slowed significantly, is at least staying above water,” Cliff Waldman, economist for MAPI, explained. “In October, demand for the output of industry sectors that are fundamental to manufacturing supply chains…were all positive, although machinery demand was down by 3.3 percent on a year-over-year basis. While slow but positive growth remains the most likely path for U.S. manufacturing over the short-term, U.S. and world economies that still have the potential to deliver negative surprises suggest that the risks remain on the downside for U.S. goods producers.”

Treasury Dept. Refuses to Label China a Currency Manipulator

Last week, the U.S. Treasury Department declared the Chinese yuan (also known as renminbi or RMB) to be “significantly undervalued,” but declined to name China a currency manipulator under U.S. law.

The Treasury Department said the yuan has appreciated 9.3 percent against the dollar since June 2010, or 12.6 percent in real terms if adjusted for inflation. China’s practices have not met the standards in Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 defining currency manipulation. Regardless, the department pledged to “continue to closely monitor exchange rate developments in all the countries covered…with particular attention to the pace of RMB appreciation” in order to assure level trade conditions.

Private businesses and trade organizations were divided about the lack of action.

“It appears that the strategy of the last two administrations to use diplomacy rather than confrontation in dealing with the yuan’s value is having some positive results,” William Reinsch, president of the National Foreign Trade Council, told Bloomberg News. “There is clearly room for further appreciation, however.”

On the other hand, the Precision Metalforming Asssociation (PMA) and the National Tooling & Machining Association jointly released a letter expressing disappointment about the lack of action, IMT sister publication Machining Journal reports.

“Given the tough tone on China that we saw from both parties during this past election, we had hoped to see tougher action by the Administration on this issue,” PMA president William E. Gaskin said. “Such a declaration by Treasury would have offered tangible, robust support to U.S. manufacturers.”

Consumer Confidence Climbs to Post-Recession Peak

The Conference Board’s Consumer Confidence Index increased 0.6 percentage points to 73.7 in November, its highest reading since February 2008, as expectations for the future improved despite the looming fiscal cliff.

The findings reflect widespread improvement in consumer perceptions. The proportion of survey respondents who expect business conditions to improve over the next six months edged up to 22.2 percent from 21.5 percent, while those expecting business conditions to worsen dropped to 14.3 percent from 15 percent.

“This month’s moderate improvement was the result of an uptick in expectations, while consumers’ assessment of present-day conditions continues to hold steady,” Lynn Franco, director of economic indicators at the Conference Board, noted. “Over the past few months, consumers have grown increasingly more upbeat about the current and expected state of the job market, and this turnaround in sentiment is helping to boost confidence.”

Respondents’ views on current conditions were more mixed. Those saying business conditions are “good” fell to 14.4 percent from 16.5 percent, while those saying business conditions are “bad” deceased to 31.5 percent from 33 percent.



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