Thursday, July 3, 2014

Dow tops 17,000 on jobs report; Eurozone recovery gains speed; 'Worker revolt' hurting South Africa economy; Requisites for reform in India

1 Dow tops 17,000 on jobs report (San Francisco Chronicle) The Dow Jones industrial average topped 17,000 for the first time Thursday, another in a string of records for the index that has lifted portfolios in a five-year bull market for stocks. The gain pushed the 118-year-old Dow, the oldest gauge for tracking stock prices, past its first 1,000-point milestone this year.

The record came after another day of good news for the economy: The government reported surprisingly robust job gains in June, underscoring a recent trend of stronger hiring and healthy manufacturing. Investors also pushed the Standard & Poor's 500 index within striking range of its round-number milestone — just 15 points from 2,000.

On Thursday, the government reported that US employers added 288,000 workers to their payrolls in June and the unemployment rate fell to 6.1 percent. The US economy is now creating around 231,000 jobs each month in 2014, compared to roughly 194,000 a month last year.

The jobs report is the latest piece of data to show the economy continues to improve steadily. On Wednesday, payroll processor ADP said private businesses added 281,000 jobs in June, up from 179,000 in May. Also this week, the Institute for Supply Management said the US manufacturing expanded for the 13th consecutive month.


2 Eurozone recovery gains speed (Angela Monaghan in The Guardian) Recovery in some of the eurozone's worst hit crisis economies is speeding ahead, according to the latest snapshot of the private sector in the single currency bloc. Ireland, Spain and Italy were the best performing member states in Markit's June purchasing managers index survey combining activity in the manufacturing and services sector. Italy's services sector benefited from the sharpest rise in new orders since July 2007.

But a poor performance from France, where private sector activity shrank in June, dragged the overall growth reading in the eurozone down to 52.8 from 53.5 in May – where anything above 50 signals expansion.

Meanwhile the European Central Bank left interest rates on hold at its June policy meeting. President Mario Draghi made the surprise announcement that from January 2015 the central bank will reduce the frequency of meetings from once a month to every six weeks. It will also start to publish the minutes of its meetings.


3 ‘Worker revolt’ hurting South Africa economy (Ntsakisi Maswanganyi in Johannesburg Times) South Africa is facing one of its most difficult times economically since the 2009 recession, which is made worse by the current wave of "worker revolt" driven by frustration over what employees perceive to be a slow pace of economic transformation, according to economists at a Gordon Institute of Business Science (GIBS) seminar.

South Africa’s growth has been very poor due to local and international factors. Strikes and power supply constraints are among the factors limiting production locally, and slow growth and demand globally. A five-month long strike that recently ended at platinum mines, and low output in manufacturing, saw the economy contract by 0.6% in the first quarter. Another wage strike by more than 200,000 National Union of Metalworkers of South Africa (Numsa) members in the steel manufacturing and engineering industry began this week.

Renaissance Capital economist Thabi Leoka said a prolonged strike by Numsa members could be more damaging than the platinum strike given the role of manufacturing in the economy, which makes up about 15% of gross domestic product. GIBS visiting professor Adrian Saville said that South Africa was probably in a recession.


4 Requisites for reform in India (Eswar Prasad in The Wall Street Journal) India’s new Prime Minister, Narendra Modi, won a decisive mandate from an electorate yearning for effective leadership. His government’s first budget due out next week will be an important indicator of how forcefully Mr. Modi intends to translate this mandate into actions to put India’s economy back on track.

Despite his clear mandate, Mr. Modi will not have a free hand to impose reforms by decree. He is constrained by a democratic system of government and accountability to the electorate. A key priority is to signal greater fiscal discipline. High levels of public deficits and debt, exacerbated by wasteful subsidies and an inefficient tax system, have created many market distortions and contributed to high inflation.

The government needs to commit to long-term fiscal discipline. It should move aggressively to reduce fuel subsidies, implement a goods and services tax, and step up the pace of privatization of state enterprises. These measures would not only improve the fiscal position of the government but also enhance overall economic efficiency by shifting the focus away from purely redistributive policies.

It will also be helpful to signal that the government will not look for easy targets, such as foreign firms, to raise revenues by changing the rules whenever convenient. Policy certainty is as important for domestic investors as it is for foreign ones.




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