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U.S. consumer spending regained momentum in January as households ramped up purchases of a variety of goods, in a hopeful sign that economic growth was picking up after slowing to a crawl at the end of 2015.

But the outlook for consumer spending was tempered by another report showed sentiment among households ebbed in early February. Still, the increase in consumer spending last month underscored the economy’s resilience and challenged the view that a recession was looming.

“The markets may have decided that the U.S. is headed for recession, but obviously no one told U.S. consumers,” said Paul Ashworth, chief economist at Capital Economics in Toronto. The Commerce Department said retail sales excluding automobiles, gasoline, building materials and food services increased 0.6 percent last month after an unrevised 0.3 percent decline in December.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales increasing 0.3 percent last month. U.S. stocks, which had been aggressively sold this week on concerns the economy was heading into recession, rallied on the data. Market sentiment was also buoyed by a rebound in oil prices from 12-year lows.

Prices for U.S. Treasury debt fell, while the dollar .DXY rose against a basket of currencies.

Though signs of firming consumer spending are likely to be welcomed by Federal Reserve officials, the stock market turmoil and tame inflation environment make it unlikely the U.S. central bank will raise interest rates next month. Rate hike prospects for the rest of the year have also diminished.

Source: Reuters

Inflation in the Euro zone has risen

Headline inflation in the Euro zone has risen, but it remains well below the European Central Bank’s (ECB) target of close to 2%. ECB President, Mario Draghi has already indicated another stimulus package could be unveiled as soon as March. The figures from the European Union’s statistics office, Eurostat showed consumer prices were up 0.4% in January compared with a year earlier.

It is double the rate of inflation in December. In the year to January energy prices fell 5.3% although that was less steep than in previous months. Core inflation, which strips out volatile food and energy prices, rose to 1% from 0.9% in December.

The ECB has taken drastic steps to try to bolster price growth. It has introduced negative interest rates, which means commercial banks have to pay it to keep their money rather than the reverse. This is designed to encourage banks to lend money, rather than sitting on cash. It has also spent billions buying assets from banks, under its quantitative easing programme, to push more money into the economy.

In December, the ECB extended its €60bn-a-month stimulus programme by six months to March 2017. Timo del Carpio, European economist at RBC Capital Markets, said: “Rather than representing the start of a convincing, upward trend, we view today’s upturn as a transitory hiccup in an otherwise lifeless path for inflation.”

Fluctuating oil prices will continue to create uncertainty about price growth in the months to come. At the beginning of 2016, oil prices plunged on the back of concerns about the Chinese economy, global trade, uncertainty in the Middle East and oversupply.

Oil prices have recovered slightly following speculation that the Opec cartel and other suppliers are considering cuts to production.

French economy grows at fastest pace for four years

France’s economy grew at its fastest pace in four years with a jump of 1.1% in 2015, providing a boost for the socialist government, which is still tackling record unemployment. The eurozone’s second-biggest economy grew 0.2% in the fourth quarter, down from 0.3% in July-September.

Finance Minister Michel Sapin said “the French did not give up” despite the Paris attacks. Gunmen and suicide bombers killed 130 people in the city in November. Mr Sapin said: “2015 was the year of recovery” and he predicted this would intensify in 2016.

The country’s national statistics agency Insee said the full-year growth figures were up from 0.2% in 2014. This was in line with government predictions, but they haven’t reached the 1.5% growth expected in the wider eurozone in 2015 by the European Commission.

Over the year there was an increase in consumer confidence with spending up 1.4%, while business investment grew 2% year-on-year. The figures provide a boost for President Hollande’s government after disappointing job data showed that in December the number of jobless reached a new record of 3.59m.

US economy adds 151,000 jobs in January

The US economy added 151,000 jobs in January, helping to push the country’s unemployment rate down to 4.9%. The number was lower than expected and is a sharp slowdown from December, when 292,000 jobs were added. Job losses in transport and education weighed on the numbers, the Bureau of Labour Statistics said.

Figures showed that US economic growth slowed to an annual rate 0.7% in the final three months of 2015, from 2% in the previous quarter.

Trading on Wall Street suggests investors are concerned that the slowdown in job creation could be a further sign of a weakening US economy. The main Dow Jones closed down 215 points, or 1.3%, at 16.201.75.

But some analysts focused on the positive – that weaker job numbers meant another rise in interest rates was unlikely for now. “I’m a little surprised the markets reacted somewhat negatively to it,” said Sean Lynch at the Wells Fargo Investment Institute. “It is actually a pretty good number that should be welcomed by the equity markets, it takes some of the concern the Fed moves too quickly off the table a little bit.”

Retailing saw the highest number of jobs created in January, at 58,000, with healthcare adding 37,000 and manufacturing 29,000.

Some 39,000 jobs were lost in private education services, however, with a further 20,000 lost in transport and warehousing.

The net job creation pushed the unemployment rate below 5% – where it had stood for the previous three months – to its lowest level since early 2008.

The labour participation rate was unchanged, suggesting fewer people are dropping out of the labour market – a key problem during the financial crisis.

Source: BBCB




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