Issue 15| February 17, 2012
China diversifies bond holdings amid efforts to support Europe
China reduced its holdings of U.S. Treasury bonds in December to their lowest level since June of 2010. The move, according to analysts, is designed to diversify the Treasury’s assets away from U.S. debt, of which they now hold $1.11 trillion, the total dropping by $31.9 billion from November. The reduction could also indicate China’s interest in assisting Europe with the ongoing debt crisis by purchasing increased quantities of European bonds. “China will always adhere to the principle of holding assets of EU sovereign debt,” said People’s Bank of China Governor Zhou Xiaochuan. “We would participate in resolving the euro debt crisis.”
January activity at Ports of Los Angeles and Long Beach reflects an export led recovery
The Ports of Los Angeles and Long Beach enjoyed their best January since 2008 last month, shipping 1.16 million cargo containers, an increase from 1.14 million last year. The Port of Los Angeles reported a 5.25 percent increase in imports as well as a 6 percent increase in exports; the Port handled a total of 698,715 containers, constituting its best January to date. While the Port of Long Beach saw a 3.9 percent decline in containers handled, the increased trade volumes pleasantly surprised many who were projecting declines of 2 to 3 percent in 2012.
Chinese Vice President Xi Jinping encourages deeper trade ties
Vice President of China Xi Jinping spoke positively of increasing trade between the United States and China to business leaders in Washington this week. Xi, widely expected to become the next president of China, met with President Barack Obama, Vice President Joe Biden, Secretary of State Hillary Clinton and congressional leaders during his trip to Washington. Xi did not publically discuss contentious trade issues such as Chinese currency controls, but he claimed that “measures to increase imports” of American goods were being taken. “This shows the door is open to trade between the United States and China,” Xi said. “It can only open wider and wider.” Vice President Xi arrived in Los Angeles on Feb. 16, where he was greeted by Gov. Jerry Brown and L.A. Mayor Antonio Villaraigosa before attending a welcome luncheon and touring the terminal for the China Shipping company at the Port of Los Angeles.
Increasing retail sales and consumer consumption suggest stronger growth
The Department of Commerce reported a sanguine increase in retail sales of 0.4 percent in January, reflecting the positive impact of increased consumer spending. While the gains were primarily experienced by stores with lower-priced products, the increase has nonetheless been interpreted as a sign of a recovering economy and improved consumer confidence, especially as it comes in the wake of increased hiring and a strong growth rate of 2.8 percent during the final months of 2011.
More Greek concessions requested as debt crisis continues
Disagreements continue to flare between European nations as the Greek debt crisis continues. An additional 130 billion euro aid package is being prepared for approval and disbursement prior to March 20, the date on which a 14.5 euro payment must be made by Greece to avoid default. The upcoming deadline is raising tensions between the leaders of the countries in southern Europe, who assert that German backed austerity measures are unnecessarily harsh, and leaders in the rest of Europe, who have pushed for substantial cuts in Greek spending.
Payroll tax cut extension deal reached
The extension of the payroll tax cut seems more secure than ever as Congress reported reaching a deal on Feb. 15 between Democrats and Republicans that allows the $100 billion cut to continue. Republicans dropped their demand that spending cuts elsewhere be implemented to pay for the cost of the tax reduction, allowing negotiations to conclude. The tax cut was a major provision of President Obama’s economic recovery plan, allowing workers to reduce their payments into Social Security. The cut amounts to approximately $83 each month for a worker with $50,000 in income. The measure is expected to come to a vote later this week.