US markets rallies on upbeat Fed report

03 Sep 2015 Evaluate

The US markets closed higher on Wednesday, as a Federal Reserve report painted a more optimistic economic picture, soothing worries about the possible impact of the slowdown in China on the US. The Federal Reserve’s Beige Book stated that several district banks reported increasing wage pressures caused by labor market tightening a change from earlier reports that noted higher pay in isolated sectors. But there were also indications that the strong dollar and the drop in oil prices were depressing activity, which could argue for holding off on raising interest rates at the September 16-17 policy meeting. Higher wage pressures could lead to a pickup in consumer spending, meaning more jobs and more demand. More general wage pressure could give the Fed confidence that inflation is moving up toward its 2% annual rate target. On the side of caution, industries in three districts reported reduced demand due to a slowdown in China: wool products in San Francisco, chemicals in Boston and high-tech goods in Dallas. The Beige Book covers the period ending August 24, just as markets were beginning to swoon. Overall, the Fed report was generally optimistic, in line with the prior report from earlier in the summer. Only one district, Cleveland, raised concern that growth was below the modest or moderate pace seen in the other regions.

On the economy front, the productivity of US workers and businesses in the spring was stronger than initially reported, reflecting a pickup in economic growth after a poor start to the year. Yet the longer-term trend remains unusually weak. US productivity rose at a 3.3% annual pace in the second quarter, up from a preliminary 1.3% estimate. The sharp upward revision in productivity stemmed mostly from a big jump in the amount of goods and services produced by American workers. Output was revised to show a 4.7% gain instead of 2.8%. Unit-labor costs, meanwhile, fell 1.4% in the second quarter instead of rising 0.5% as previously reported. Private-sector employment gains continued in August at a slightly faster pace than in the prior month. Employers added 190,000 jobs last month. ADP revised July’s gain down slightly to 177,000 from a prior estimate of 185,000.

Meanwhile, factory orders rose 0.4% in July, marking the second month of gains after a strong June. June’s figures were upwardly revised to show a 2.2% gain from a previously reported 1.8% rise. The gain in July’s factory orders was led by a 5.5% jump in transportation equipment, while orders for manufactured nondurable goods fell 1.3%. Other highlights: defense communication equipment orders jumped 25.5% and ship and boat orders rose 19.5%, while defense aircraft and parts slumped 13.1% and computer orders fell 10.6%.

The Dow Jones Industrial Average was up by 293.03 points or 1.82 percent to 16,351.38, the Nasdaq added 113.87 points or 2.46 percent to 4,749.98, while the S&P 500 gained by 35.01 points or 1.83 percent to 1,948.86.

The Indian ADRs ended in green on Wednesday, HDFC Bank was up by 1.27%, Dr. Reddy’s Lab was up 0.78%, Infosys was up 0.60%, Tata Motors was up 0.17% and Wipro was up 0.14%.

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