PLANYC 2030

 

 

Loans to households and companies in Europe grew at the fastest pace in 13 months in July after the economic recovery gathered steam.

Loans to the private sector rose 0.9 percent from a year earlier after growing an annual 0.5 percent in June, the European Central Bank in Frankfurt said today. That’s the strongest increase since June 2009. M3 money supply, which the ECB uses as a gauge of future inflation, increased an annual 0.2 percent in July, the same rate recorded in the previous month.

Strengthening global demand helped Europe’s economy expand 1 percent in the second quarter, the fastest pace in four years. Economic growth may slow as governments reduce spending to tackle bloated budget deficits and the global recovery shows signs of losing momentum. Orders for durable goods in the U.S. increased less than forecast in July, a sign one of the few remaining bright spots in the economy is cooling, while China’s industrial output rose the least in 11 months.

“It is encouraging that the annual growth rate of bank lending to the private sector is moving in the right direction,” said Martin van Vliet, an economist at ING Group in Amsterdam. “But overall demand for bank credit remains subdued. This highlights the fragility of domestic demand in the euro zone, and is a reminder not to get too carried away by the recent resilience of the euro-zone dataflow.”

Confidence

European confidence in the economic outlook rose to the highest in more than two years in July and business sentiment in Germany, Europe’s largest economy, unexpectedly increased to a three-year high in August, suggesting the recovery may not lose as much momentum as some economists forecast.

ECB council member Axel Weber said last week the bank is likely to raise its euro-region growth forecasts next month after the German economy expanded in the second quarter at the fastest pace since records for a reunified country began in 1991. The ECB in June predicted euro-area growth of 1 percent this year and 1.2 percent in 2011.

Still, a report today showed Italian consumer confidence fell in August to the lowest in more than a year as government austerity measures made households more pessimistic about the their ability to save.

According to the ECB’s latest Bank Lending Survey published on July 28, euro-area banks “anticipate credit standards on loans to enterprises to tighten somewhat in the third quarter.”

In the three months through June, M3 rose 0.1 percent from the same period a year earlier, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings. The annual rate of M1 money-supply growth eased to 8.1 percent from 9.2 percent.

 

Gloom is overtaking financial markets’ view of the euro zone again–just at the moment when the region prepares to announce what will be the strongest growth figures in two years.

Eurostat is expected to announce Friday that the euro-zone economy grew by around 0.7% in the second quarter, led by a veritable boom in Germany, its largest member state. Germany is expected to have grown 1.4% from the first quarter, according to a poll of analysts by Dow Jones Newswires. That would make it one of the strongest quarters since reunification in 1990.

That development seems at odds with the news from the region in the spring, when fears that one or more of its 16 countries might go bankrupt caused upheavals in government bond markets, and forced governments and the European Central Bank to intervene massively to stave off a whole new crisis.

The trouble is, in the market’s mind, the European recovery is already history. Growing signs of an economic slowdown in the U.S. and China have already convinced markets that the euro zone’s rebound can’t last. The euro has fallen by more than 4.5 cents in a week against the dollar, as concerns about global growth have spread, again raising questions as to how the euro zone–especially its weaker states–will service its debt mountain in the future. At 1320 GMT, the euro was at $1.2817, from a high of nearly $1.3300 last week.

Even ECB President Jean-Claude Trichet last week acknowledged that the second half of the year would be “less buoyant” than the last three months, although he still thought that the momentum generated in the spring will help make the third quarter better than expected. That view is supported by survey data across the region showing reasonably high levels of business confidence.

Analysts say that the slowdown elsewhere in the world will expose the fragility of the euro zone’s recovery, which has relied too much on exporting and not enough on keeping the domestic economy going, with growth in many countries not strong enough to create jobs. Chiara Corsa, an economist with UniCredit in Milan, said she expects euro-area joblessness “to drift higher for a while still” and that dramatic steps to reduce budget deficits will also continue to weigh on consumption.

Overall, professional forecasters still expect the euro zone to grow by 1.1% this year, the ECB said Thursday. That implies a slowdown in the second half, but no new recession.

Exports, at least, have been bolstered by a revival in world trade, which had collapsed in early 2009 as the crisis exposed the high degree of interconnection between all parts of the global economy and its financial sector. But even this may not last, because China, exerting an ever-larger influence in the world economy, has cut its stimulus measures, restricted bank lending and announced measures to close 2,000 energy-efficient factories. At the same time, the U.S. economy has weakened enough to convince the Federal Reserve not to rein in its stimulus measures.

“The global inventory cycle contribution was very strong in the first half of this year and there are clearly signs that this can’t continue,” said UniCredit’s Corsa.

The ECB itself fretted Thursday in its August monthly bulletin that neither the private sector nor the banking sector looks strong enough to replace the state as the engine of growth, saying: “The sustainability of the recovery in global and euro-area trade will depend critically not only on a further strengthening of private demand, but also on the robustness and health of the global financial system.”

Half of the problem is the huge differences in fortunes between the various member states of the euro zone. The overall picture is helped by the fact that all of the bloc’s three largest economies–Germany, France and Italy–are growing.

The problems begin in the smaller, peripheral economies, such as Greece and Portugal, which are forcing through heavy public-spending cuts to bring their budget deficits under control. Data released Thursday showed the Greek economy shrunk 1.5% in the second quarter, and growth in Spain and Portugal is also expected to be close to zero.

 

 

Apple Inc. is boosting efforts to appeal to a new type of customer: small businesses.

The consumer electronics giant responsible for the iPhone is seeking to hire engineers in as many as a dozen U.S. retail stores to put together Apple-based computer systems for small businesses, according to recent job postings on Apple’s website. The employees would implement computer systems for clients and are expected to be proficient in networking hardware and server platforms.

“Thousands of businesses run on Apple products,” the posting reads. “Many more would like to, and that’s where you come in.”

The new positions mark the latest development in Apple’s evolving strategy, which has historically focused on the consumer market and niche businesses, like design and media firms. Now, Apple wants to leverage its popular iPhone and iPad devices, using their appeal as a selling point for more expensive products, including its line of Macintosh computers and servers. (See related article on C10.)

Apple is targeting smaller, local businesses that it can reach through its chain of nearly 300 retail stores, according to two Apple employees familiar with the company’s strategy. The new jobs could pay up to $80,000 a year, one of them said.

Each of Apple’s stores already has at least one salesman dedicated to managing accounts with local businesses, the employees said. Recently, Apple also began recruiting from within the sales staff to create a specialized team that negotiates leasing and pricing terms for business customers, one of the people said. Some stores have seen revenue more than double after implementing the program, the person added.

An Apple spokeswoman declined to comment.

The focus on smaller businesses is unlikely to push Apple into further competition with big computer makers like Hewlett-Packard Co. and Dell Inc., though it could upset its network of authorized consultants, who often serve local businesses.

Targeting smaller businesses could prove lucrative. North American businesses with fewer than 1,000 employees are expected to spend $310.8 billion on information technology this year, according to industry tracker Gartner. The figure is seen rising roughly 6% to $328.3 billion next year. Capturing part of those sales could boost Apple’s annual revenue, which is expected to grow 46% to $62.6 billion this year, according to consensus estimates from Thomson Reuters. “They’re well aware of the opportunities in business,” said Gleacher & Co. analyst Brian Marshall. “This is something they’re focusing on even if they’re not talking about it publicly.”

Apple has had mixed results trying to crack the business market in the past. Its computers are generally more expensive than comparable PCs, prompting cost-conscious companies to look for cheaper alternatives.

Apple’s retail staff historically hasn’t provided the hand-holding and on-site support that many businesses expect. Instead, it has cultivated a network of authorized consultants, many of whose customers are referrals from Apple’s retail employees.

“Almost half of our new customers come from the Apple Store,” said Allen Cleaton, owner of Virginia-based MacPro Solutions. He said local businesses often come to him because Apple’s staff generally don’t have the level of technical expertise needed to set up and maintain a businesses computer network.However, Mr. Cleaton said that if Apple starts providing a higher level of service, it could threaten local companies like his own.

The Apple employees familiar with the new position said it was a natural progression of recent initiatives. Apple maintains a team at its headquarters to handle big companies and government agencies, but it has increasingly handed responsibility for small and mid-sized business accounts to its retail stores, the people said.

Apple has put an incentive program in place to manage the growth of these new business initiatives, they said, assigning new business sales staff based on revenue targets for each store.

Apple also has designed specialized conference rooms in its newer retail stores, like those in Minneapolis and Shanghai, which are specifically meant for meetings between sales staff and high-level business executives.

 

SK Energy Co., South Korea’s biggest refiner, said it will focus on producing oil and gas overseas, developing electric-car batteries and making petrochemicals with emissions-reduction technology to drive future earnings.

“The current business model may not be able to boost the company’s operating profit a lot from now,” Chief Executive Officer Koo Ja Young told reporters on June 18. “Innovations in the business model, and in technology, are needed.”

Refiners in South Korea, Asia’s largest fuel exporter, are seeking new growth engines as expanding Chinese and Indian suppliers cut profitability. SK Energy took the first step toward reorganizing in October by turning its lubricants division into a wholly owned unit.

“This is very positive in the long term,” said Cho Seung Yeon, an analyst at HMC Securities Co. “The reorganization will let each division focus resources on its own business while the parent boosts investment in new sectors.”

Starting next year, SK Energy will spin off petroleum and chemicals divisions that accounted for 98 percent of overall revenue in the first quarter. Ahead of the change, the refiner has completed its first electric-car battery production line to supply Daimler AG’s Japanese unit. SK Energy has also signed up for 38 oil and natural-gas projects in 17 countries.

The petroleum and chemicals divisions, as they start off as wholly owned units, may sell assets or form partnerships with overseas companies to raise funds, Koo said.

The petroleum division posted an operating loss for three consecutive quarters last year as the global financial crisis cut demand and China and India increased shipments.

New Growth Engines

SK Energy has fallen 11 percent in Seoul trading this year, compared with the 1.7 percent gain by the benchmark Kospi index. The stock closed unchanged at 104,500 won on June 18.

The company’s smaller rival GS Caltex Corp. bought an unlisted waste-treatment company in April, while S-Oil Corp. may seek opportunities in alternative energy.

SK Energy plans to start up a 30 billion won ($25 million) trial plant in October that can produce more olefins while emitting less carbon dioxide than current facilities, Koo said. The refiner is also developing technology to use carbon dioxide as a raw material for producing plastics, he said.

“The technologies will help SK Energy reach its target of 100 trillion won in revenue before 2020, up from 35 trillion won currently,” Koo said.

In energy exploration, the company is seeking rights to overseas projects and may acquire exploration companies, the chief executive said. SK Energy is producing 71,000 barrels of oil equivalent a day currently.

The chemicals division may build ethane-based ethylene plants in Latin America, including Peru and Colombia, Koo said at the company’s Daejeon research & development center. SK Energy has a stake in a gas project in Peru.

The company’s lubricants unit is in talks with a European company and an Asian company to form joint ventures, he said.

Retail sales continued to climb in April despite concerns that a dramatic spike in spending during the previous month would dampen consumers’ appetites.

About one-third of the 31 national chain stores that reported monthly results on Thursday showed an increase in sales at stores open at least a year, a measure known as same-store sales that gives a key reading of a retailer’s health. Shoppers visited luxury department stores such as Neiman Marcus, where monthly sales jumped 11 percent compared with April 2009, and warehouse clubs such as Costco, which recorded a 3 percent rise in sales excluding fuel at its U.S. stores.

According to an analysis by market research firm Kantar Retail, overall retail sales increased 1.2 percent in April from a year ago — significantly lower than the 9.2 percent jump in March but well above the 2.3 percent decline in April 2009.

“These results provide some signs of the pick-up in spending that shoppers are sustaining,” said Frank Badillo, the firm’s senior economist.

Consumers slowly have begun to open their wallets after freezing spending for much of the recession. The International Council of Shopping Centers, a trade group, reported that industry same-store sales rose 0.8 percent in April, marking the fifth straight monthly increase since December. Luxury stores, which had taken a beating during the financial crisis, have rebounded to become one of the biggest gainers.

Saks said its strongest sales in April were in women’s clothing, shoes and handbags; same-store sales grew 3 percent. The company said those gains came even though its promotions and discounts were less aggressive than last year. ICSC showed sales in the overall luxury sector rising 7.4 percent.

“We continue to believe consumers are reengaging with retailers across the value chain and would continue to look for signs of consumers trading back up,” wrote Robert S. Drbul, an analyst with Barclays Capital, in a note to clients.

Still, April’s results were muted compared with the previous month’s. Sales at teen clothing stores took a dive, with Abercrombie & Fitch, Aeropostale and Wet Seal all posting declines. Even some discounters posted lower sales, with Target dropping 6 percent and Kohl’s falling nearly 8 percent.

Retail experts said an early Easter and warm weather in March shifted some sales into that month. In addition, they cautioned that last spring’s results were so dismal that even mediocre performances this year look rosy. Taken together, same-store sales for March and April compared with a year ago were up 4.9 percent, according to the ICSC.

“We think it more likely [means] that April represents a pause in the action after wildly positive trends in March,” Todd Slater, an analyst for Lazard Capital Markets, wrote in a note to clients.