Citigroup Inc is expected to be fined $600,000 by the Financial Industry Regulatory Authority over derivatives transactions that helped foreign clients avoid taxes on dividends, a source familiar with the matter said on Sunday.
The fine is expected to be announced on Monday, the source said, declining to be identified because it is not yet public.
The development comes as governments around the world crack down on tax evasion as they look to close widening budget gaps fueled by economic weakness.
The centerpiece of the U.S. tax recovery effort has been its legal case against Swiss banking giant UBS AG(), which earlier this year agreed to pay $780 million to settle criminal claims that it helped U payday loan company.S. citizens evade taxes.
A Citigroup representative was not immediately available for comment.
FINRA declined to comment.
The Financial Times first reported the news.
(Reporting by Paritosh Bansal; Editing by Jan Paschal)
The American whiskey market may be back on a roll. The industry which produces Jack Daniel’s and Jim Beam is seeing sales flatten in its domestic market but overseas business is booming and driving overall growth.
These two top brands already have half or more of their sales overseas and are dragging the rest toward export markets such as Western Europe and Australia where annual sales volume growth has averaged nearly 6 percent over the last 10 years.
Both compete head on with other Scotch, Irish and Canadian whiskies, but have done well as Brown-Forman Corp’s Jack Daniel’s became the world’s largest selling single whisky brand four years ago overtaking Diageo’s Johnnie Walker Red.
“Worldwide American whiskey has the opportunity to be the fastest growing in overseas markets. One of its advantages is its mixability compared to scotch whisky,” said Brown-Forman’s Chief Executive Officer Paul Varga.
In the economic downturn, Varga has seen some downtrading to cheaper brands, but whisky’s heritage and taste protects it from the worst of the downtrading seen in the vodka sector.
“The summer months have seen some easing of industry destocking while there is still some trading down,” he said.
The current downturn comes after a decade of growth which followed sliding volumes in the 1990s, and the domestic market has gained nearly 2 million 12-bottle cases since 2000 as whiskey like other spirits gained at the expense of beer.
The U.S. whiskey market was worth 28.3 million cases in 2008, over twice the size of the French cognac market at 12.4 million, but well below the scotch industry at around 100 million. This U.S. industry takes in two Tennessee whiskey distilleries and around 10 bourbon distilleries in Kentucky.
The market is dominated by Jack Daniel’s at 9.5 million cases and Jim Beam at 6 million, which make up 55 percent of U faxless pay day loans.S. industry volumes, and on the export front the former started selling more overseas two years ago and now sells 4.8 million cases outside the U.S. as it pushes into the big export markets of Britain, France, Japan and Australia.
“We are a near-10 million case brand, but could be a 17 million brand with more warehousing,” said master distiller Jeff Arnett at the Jack Daniel’s Lynchburg distillery in Tennessee.
North of Tennessee, Jim Beam is the world’s No 1 Kentucky bourbon, owned by Fortune Brands Inc, selling its 6 million case sales split equally between the U.S. and its big export markets especially Australia and Canada.
Around 12 years ago Jack Daniel’s first moved ahead of Jim Beam in volume terms, but Beam is fighting back as it is the first to move into flavored whiskeys, so popular in the vodka market, with its new Red Stag bourbon infused with black cherry.
This new product has sold 90,000 cases since its launch in June and is attracting new drinkers not seen as typical bourbon consumers. It is Fortune’s first major launch since Jim Beam Black Label over 10 years ago, and executives say if U.S. sales continue strong, it will look at the overseas market.
At Brown-Forman, Varga says Jack Daniel’s has not launched a new pure whiskey product for 12 years, and its flagship No 7 brand accounts for 97 percent of Jack Daniel’s volume.
In its last quarter, (May-July) the Jack Daniel’s family of brands, which includes strongly-growing ready to drink products, saw sales up 8 percent at constant currencies, and Varga says the sales mainly came from volume rather than higher prices.
PepsiCo Inc reported weaker-than-expected quarterly revenue on Thursday, hurt by falling North American soft drink sales, and cautioned it did not expect a major revival of consumer spending next year.
Shares of the world’s second-largest soft drinks maker slipped 1.5 percent, while larger rival Coca-Cola Co fell 0.7 percent.
“Our consumer research shows that the age of thrift that we’re seeing in consumers in the U.S. and Western Europe will continue in 2010, and that consumers will continue to remain very careful about their spending,” said Chief Executive Indra Nooyi on a conference call.
In emerging markets of Asia and South America, Nooyi said consumer spending should grow, but not at a pace that entirely offsets the slow growth in the West.
The company, which is buying Pepsi Bottling Group Inc and PepsiAmericas Inc for $7.8 billion, also affirmed its 2009 earnings target and set a 2010 earnings target ahead of analysts’ expectations.
Net income in the third quarter rose to $1.72 billion, or $1.09 per share, from $1.58 billion, or 99 cents per share, a year earlier.
Excluding items, PepsiCo earned $1.08 per share, topping analysts’ average estimate of $1.03, according to Thomson Reuters I/B/E/S. The profit surprise was mainly driven by a lower-than-expected tax rate, according to JP Morgan analyst John Faucher.
Revenue fell 1.5 percent to $11.08 billion, missing analysts’ average expectation for $11 online pay day loans.25 billion.
Morningstar analyst Philip Gorham said the lower-than-expected revenue likely prompted investor concern over the company’s ability to grow its sales in the future.
Sales by volume rose 2 percent in PepsiCo’s snacks business, both in the Americas and internationally. In the drinks business, volume was up 0.5 percent, with a decline of 6 percent in the Americas and a rise of 9 percent internationally.
2010 — A YEAR TO INVEST
Buying its two largest bottlers will consolidate 80 percent of PepsiCo’s North American drinks volume, which it has said will speed decision-making and eliminate friction between the companies. Pepsi said it still expects the deal to close in late 2009 or early 2010.
Nooyi said 2010 will be a year to reinvest for the company, whose products range from sodas and Tropicana juices to Frito-Lay snacks and Quaker oatmeal.
Pepsi plans to invest in a few big global brands as well as in research and development to make healthier products, expand its emerging market infrastructure and make tuck-in acquisitions, she said.
The company forecast 2010 earnings-per-share growth of 11 percent to 13 percent on a constant currency basis, including a “modest” gain from the bottler acquisitions.
Gold’s rally to a record shows commodity investors remain concerned that the U.S. economic recovery will spur inflation even as Wall Street forecasts and government bonds suggest stable prices.
Bullion has jumped 19 percent this year, heading for a ninth annual gain, after futures touched a record $1,045 an ounce yesterday and extended gains today amid rising demand for a hedge against inflation and a weaker dollar. Economists surveyed in the past month expect U.S. consumer prices to fall 0.5 percent this year, the first drop in five decades.
Demand for gold is increasing as U.S. government debt reaches record levels and the Federal Reserve keeps interest rates near zero percent. Inflation surged to a 14.8 percent annual rate in March 1980 after a four-year gain in gold that included a then-record $873 in January 1980.
“Gold is a forecaster of inflation instead of a coincident indicator,” based on its surge before 1980, said Dan Greenhaus, the chief economic strategist at Miller Tabak & Co. in New York. “There’s nothing right now that says inflation will break out to all-time highs. But gold can move considerably higher from here. Should growth return, inflation will return.”
Deutsche Bank AG forecast on Oct. 1 that gold may top $1,100 in 2010. Mark O’Byrne, an executive director at Dublin- based brokerage GoldCore Ltd., said demand for a hedge against financial risk will send the precious metal to $2,000. He didn’t specify a date. Gold for December delivery was at $1,048.90 an ounce at 4:45 p.m. in Singapore today after rising 0.9 percent.
Producers Surge
Gold producers advanced on bullion’s gain. Newcrest Mining Ltd., Australia’s biggest gold-mining company rose as much as 7.5 percent in Sydney today, and Sino Gold Mining Ltd. surged 9 percent in Hong Kong. Newmont Mining Corp., the largest U.S. producer, added 7 percent yesterday.
The outlook among gold buyers conflicts with government and economist forecasts as the U.S. emerges from the worst slowdown since the Great Depression.
Federal Reserve Bank of New York President William Dudley said on Oct. 5 that slowing inflation is “problematic” for the economy and that interest rates should stay low. His remarks bolstered comments made in the minutes of the Fed’s September meeting that “inflation will remain subdued for some time.”
Gross domestic product shrank in the past four quarters, including a 6.4 percent plunge in the first three months of the year, government data show. The economy will contract 2.6 percent this year, based on the median of 57 estimates in a Bloomberg survey as of Sept. 11. Consumer prices will fall 0.5 percent, before rising 1.9 percent in 2010, based on the median of 47 estimates collected by Bloomberg. The average gain in the previous decade was 2.5 percent.
Bond-Inflation Outlook
Bond investors don’t see prices accelerating, based on the difference in yields between 10-year notes and similar-maturity Treasury Inflation Protected Securities. The so-called breakeven rate shows traders expect consumer prices to rise an average 1.75 percentage points annually over the next 10 years, compared with this year’s high of 2.13 percentage points in June.
Gold also gained on concern that ballooning U.S. debt will continue to drive down the dollar. President Barack Obama has increased the nation’s marketable debt to an unprecedented $7.1 trillion as the government borrows to revive growth. Goldman Sachs Group Inc. predicts the U.S. will sell about $2.9 trillion of debt in the two years ending next September.
“The government will have to accept a higher level of inflation to get the economy going again,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, who began trading gold in the 1970s. “The gold market is looking four to six months ahead. This is a monetary rally.”
Competing Dollar Views
The gold price also conflicts with Wall Street’s consensus view of the dollar, which has slumped about 6.1 percent against a weighted basket of six major currencies this year.
Deutsche Bank said on Oct. 1 that the U.S. currency will fall to $1.60 per euro in 2010, a drop of as much as 8.7 percent from yesterday’s $1.4722, because of “rising fiscal deficits and loose monetary policy.” The metal usually moves in the opposite direction of the dollar, which slumped 4.7 percent against the euro this year.
Gold has more than tripled in the past eight years as the dollar tumbled 67 percent versus the euro, according to data compiled by Bloomberg.
“People are selling the dollar to fund other plays at this point,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “People are concerned about currency debasement and obviously gold is a beneficiary of that.”
The slump will abate and the dollar will rebound to $1.46 against the euro by year-end, and to $1.45 by March 31, according to the median forecast of 48 analysts surveyed by Bloomberg News. Forward rates suggest the dollar will be little changed in six months, at around $1.47.
Gold as Currency
Miller Tabak’s Greenhaus said the outlook for the dollar may need to change. “If there’s a decline in your currency, it takes more of that currency to buy something,” he said. “Gold is seen as a currency itself and a store of value. It is better than any currency because you cannot print more gold.”
Gold is appreciating along with other assets, from commodities to stocks, because money is so cheap, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
The Fed has kept its target rate for overnight loans among banks between zero and 0.25 percent since December to help stimulate the economy. The Standard & Poor’s 500 stock index gained 17 percent this year, and the Reuters/Jefferies CRB Index of 19 commodities gained 13 percent, including a 97 percent jump in copper, a 60 percent rally in crude oil and a doubling of sugar prices.
“The momentum for gold is higher from here,” Kaplan said. “The Fed has sent so much money into the market, so everything has to go up, including gold.”
Hewlett-Packard Co may get acquisitive again despite its recent absence from the technology sector’s M&A scene, analysts said, and Brocade Communications Systems Inc may a prime target.
Brocade is putting itself up for sale, and HP has looked at the company’s assets but has not made a formal bid, sources told Reuters. Brocade and HP declined to comment.
Brocade makes routers and switches for blade servers, as well as software to help companies manage data efficiently. It has been expanding its partnerships and already sells equipment to HP, International Business Machines Corp and Dell Inc.
Analysts say HP’s sprawling portfolio has cushioned it against the shock of the IT spending downturn, but that investors now want to see the world’s largest computer company move to ramp up growth. Some say one way to do that is through acquisitions.
Stifel Nicolaus analyst Aaron Rakers said HP is likely looking to acquire in areas such as software and networking, to complement its ProCurve networking product.
HP has been relatively quiet on the M&A front, Rakers said, given that the company is still working through last year’s blockbuster $13 billion acquisition of EDS.
“As we roll out into the next couple of quarters, I wouldn’t be surprised to see them do something,” he said.
Kaufman Bros analyst Shaw Wu said HP and its rivals are focused on offering customers an end-to-end suite of products. Cisco recently began selling computer servers targeted at data centers, pitting the company against HP and IBM.
“It makes sense for HP to add to its portfolio in two areas: one is networking, the other is software,” Wu said. “The more software and the more networking that they do, the better the margins.”
Wu said Brocade would be a good fit for HP, noting that an offer for Juniper Networks — another tie-up much speculated on in markets — the No. 2 networking equipment maker after Cisco, would be a bolder and more expensive move.
M&A HEATS UP
Juniper’s market capitalization of roughly $13.8 billion is more than three times that of Brocade. F5 Networks is another networking name that crops up in acquisition talk.
As the IT sector has stabilized, the economy steadies and credit looses, M&A has been picking up. Last week, Cisco agreed to acquire Norwegian videoconferencing company Tandberg for $3 billion, leading analysts to wonder whether HP would respond.
There were also major deals in an IT services sector that analysts say is ripe for consolidation: Dell’s $3.9 billion bid for Perot Systems Corp and Xerox Corp’s $5.5 billion play for Affiliated Computer Services.
HP has a formidable warchest of $13.7 billion in cash should it decide to deal. It has made more than 45 acquisitions since 2001.
In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.
Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.
Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.
So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.
Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.
But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.
Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.
So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.
This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 no teletrack payday loans.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.
Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.
"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.
Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.
Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."
As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."
Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.
"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.
Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.
Charlie Eickmeyer says he was a fan of Saturn vehicles years before he was able to drive. Today he’s in shock.
So were employees at Day Automotive Group in Pittsburgh when they read the news online that a deal to rescue Saturn had fallen through. And Mike Martin is left wondering how he can move the Saturns left on his lot or what to do with the employees at his Manassas, Va., dealership now that the brand is apparently doomed.
"It seemed like the deal was going through," said Eickmeyer, 34, who started following Saturn when he was 10 years old and now runs a website for enthusiasts of the brand. "I was really excited about the next chapter in Saturn’s history."
The chapter was supposed to be a future under former race car driver Roger Penske with the novel approach of filling dealerships with cars made overseas and rebranded as Saturns.
Instead, the collapse of talks between GM and Penske Automotive Group Inc. this week likely means the end of the nearly 25-year-old brand, sending Saturn dealers, including six dealerships in the St. Louis metro area, scrambling over what to do with their soon-to-be empty showrooms and leaving the company’s loyal owners mourning the apparent demise of a company that built its reputation on customer care.
GM said it will cease making Saturns at plants in Kansas, Mexico and Michigan almost immediately, but will continue to honor warranties after Saturn dealers stop selling cars. Saturn owners can still get their vehicles serviced at GM’s remaining dealerships once their Saturn dealer shuts down.
Lou Fusz Jr., whose family-operated automobile network includes five Saturn dealerships, said his company will continue selling the discontinued line through October 2010.
Fusz said Saturn has yet to notify dealers when to expect the final deliveries of the models.
"All I can tell you is that we’re still in business," Fusz said. "We’re not closing up."
When the time comes, he added, Fusz will sell and service other brands of vehicles in locations now occupied by Saturn.
Fusz said 200 people are employed at the five Saturn dealerships — four in the St. Louis metro area and the fifth in Columbia, Mo. — and could wind up working for "the other franchises we put in there."
A spokesperson for the two remaining local Saturn dealerships, which are run by Jim Butler, couldn’t be reached for comment.
Saturn’s future has been in doubt since GM said earlier this year that it planned to phase out the brand by 2011. GM was shrinking to four brands as part of a deep restructuring. Just five days after GM filed for bankruptcy, Penske emerged as a possible buyer for Saturn payday loan online. Wednesday, Penske backed out, unable to find another company to supply vehicles after GM stops making Saturns in two years.
So, more than 350 Saturn dealers expecting to hear about the closing of a deal instead are faced with shutting their showrooms if they don’t have a viable contingency plan. Thousands of jobs are in jeopardy. Dealers will have to figure out how to sell remaining vehicles to customers who may be skittish over the news that the brand will disappear. But they won’t close immediately — GM gave dealerships until October 2010 to wind down their operations.
Many Saturn dealers have already been through difficult times recently, hit by a combination of one of the worst downturns in auto sales in decades and the uncertainty about the brand’s future. In a clear sign of that pain, GM reported Thursday that Saturn sales were down 84 percent in September from a year ago. But about 13,000 jobs are still tied to Saturn, the vast majority of them at dealerships.
GM had a midday conference call with dealers to discuss the closures. Dealers said executives expressed shock and disappointment that the Penske deal fell through, but didn’t provide much detail on the specifics.
The mood was grim Thursday at dealerships, where owners said they were blindsided by the news.
"This is nothing short of the bride running away at the altar," said Lou Gonzales, president and owner of the Saturn of Antelope Valley dealership in Palmdale, Calif., about 60 miles north of Los Angeles. "The millions of Saturn customers across the United States, I’m sure are disappointed. But they will not be left out in the lurch."
GM spokesman John M. McDonald said GM estimates it will take 4 months to sell the existing inventory of 12,000 Saturns. Dealers believe it could take longer, worried they will have difficulty selling a lame-duck brand to customers.
Martin was weighing whether to run his lot as a used car business or shift his employees over to the Chevrolet dealership he also operates nearby. He has only about 25 Saturns left on his lot after the popular cash for clunkers program, but said he hoped GM would offer some generous incentive programs to help dealers sell out the cars that remained.
There are no plans to offer any special incentives to help sell remaining vehicles, McDonald said. Other brands that are winding down like Pontiac are still selling well without any extras.
Steve Giegerich of the Post-Dispatch contributed to this report.
Congressional approval of an Obama administration plan to create a “systemic risk” regulator for the U.S. economy looks more likely after lawmakers noted a change in tone by the Federal Reserve on Thursday.
“We’re on a course now to perhaps put together something that can be accomplished,” said Democratic Representative Paul Kanjorski at a House of Representatives committee hearing where Fed Chairman Ben Bernanke testified on the issue.
In remarks to the House Financial Services Committee, Bernanke emphasized that a new council of financial regulators, not just the Fed, should monitor “systemic risk” to the economy. The Fed chairman said that this position was not new.
But lawmakers detected a shift in tone that could help the administration’s financial reform program move forward on Capitol Hill, where it has been overshadowed recently by other issues such as healthcare reform.
“There were some, myself included, who earlier this year thought that the Federal Reserve would have a larger role in this. Now it looks like it will be part of a conciliar structure,” said committee Chairman Barney Frank.
The comments from Kanjorski, Frank and Bernanke came amid growing skepticism in Congress about the administration’s proposal to give the Fed the lead role in policing systemic risk, albeit in coordination with an inter-agency council.
Bernanke told the committee the Fed is “well suited” to supervise major financial institutions of systemic importance, and he said those firms should answer to a consolidated regulator, whether or not the firms own banks.
But an inter-agency council should be used to monitor the very broadest sorts of risk, he said, underscoring an idea embraced by increasingly vocal critics of the Fed.
While the administration has backed the idea of creating an inter-agency council to work with the Fed, it has been firm on its determination to place the most power in the Fed.
“We have never supported, and the administration has never supported, a situation in which the Fed would be some kind of untrammeled super-regulator,” Bernanke added.
“That has never been contemplated. The original administration proposal proposes a council and we support the council. We think it has a very valuable role to play.”
GLOBAL REFORM PUSH
In the aftermath of the worst financial crisis in generations, President Barack Obama and other world leaders are trying to tighten regulation of banks and capital markets.
The effort got a boost from the Group of 20 summit meeting in Pittsburgh last week, where leaders urged major changes. But in the United States, banks are resisting proposed reforms, including one to create a financial consumer watchdog agency.
Bernanke said part of the origin of that proposal is disappointment with Fed’s consumer protection performance.
The U.S. economy contracted in the second quarter more slowly than initially thought, but negative news on jobs and on manufacturing activity in the country’s Midwest region in September pointed to a patchy recovery from recession.
Gross domestic product, which measures total goods and services output within U.S. borders, fell at a 0.7 percent annual rate instead of the 1.0 percent decline reported last month, the Commerce Department said on Wednesday.
It was the fourth straight quarter of decline in real GDP, but probably the last quarter of falling output for the U.S. economy, which slipped into recession in December 2007. The economy is believed to have rebounded in the July-September quarter.
On the manufacturing front, however, the Institute for Supply Management-Chicago said its business barometer fell to 46.1 in September from 50.0 in August; a reading above 50 indicates expansion.
A separate survey by the ADP Employer Services showed private employers cut 254,000 jobs in September, more than the 210,000 layoffs financial markets had been expecting.
“What it comes down to is how much of this recovery is going to be sustainable. I’m not a believer yet that this is a robust economy. This is going to be a very frustratingly weak growth period,” said Robert MacIntosh, chief economist at Eaton Vance Corp. in Boston.
The poor manufacturing and jobs reports sent U.S. stocks tumbling, though they erased losses in the early afternoon. The price of Treasury bonds, which are seen as a safe-haven in times of economic uncertainty, had risen in the morning, but prices retreated as the stock market rebounded.
The mixed economic picture will probably result in the Federal Reserve holding its key overnight lending rate near zero percent for a while.
The president of the Atlanta Federal Reserve Bank, Dennis Lockhart, said on Wednesday that more evidence that the economic recovery was sustainable was needed for the U.S. central bank to exit from the extremely low interest rates and other policies designed to stimulate the economy.
Elsewhere, factory activity in China and Japan rose, while Germany reported an unexpected decline in unemployment.
LAST QUARTER OF CONTRACTION
The 0.7 percent decline in U.S. economic activity in the second quarter was better than market expectations for a 1.2 percent contraction and an improvement from the first quarter, when GDP fell at a 6.4 percent rate.
“Today’s revision of real GDP in the second quarter indicates that the economy has begun to stabilize,” said Mark Doms, chief economist at the U.S. Commerce Department. “The economy is moving in the right direction, and further stimulus spending should support this momentum in the coming months.”
The shallow decline in activity reflected more moderate drops in consumer spending and business investment than previously thought.
Consumer spending, which normally accounts for over two-thirds of U.S. economic activity, fell at a 0.9 percent rate in the second quarter — smaller than the previously estimated 1.0 percent decline. Spending rose at a 0.6 percent rate in the previous quarter.
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