The US economy gains momentum

US share prices continued to rise as investors became more confident in the strength and sustainability of the recovery of the world’s largest economy. By the end of the first quarter of 2010, the S&P 500 index had registered gains in two months out of the three, only posting a decline during January.

Consumer spending has strengthened while inflation has remained relatively benign while the rate of inflation remained unchanged during February, rising by 2.1%, year on year. Investors were reassured during the month by the news of the US Federal Reserve’s decision to maintain the country’s interest rates at zero to 0.25% in order to support the budding economic recovery.

Shares in General Electric rose after the company announced it hoped to restore dividend payouts in future. Meanwhile, third-quarter profits at FedEx more than doubled, year on year, as economic recovery led to a rise in shipments in Europe and Asia.

Elsewhere, following a protracted dispute between Google and the Chinese government about censorship within China, the world’s leading search engine chose to redirect mainline users in China to a Hong Kong website without filters. The move was applauded by anti-censorship campaigners but is likely to harm Google’s ability to develop within one of the world’s fastest-growing economies.

Index providers Standard & Poor’s reported that, of the 7,000 companies that report dividend information to it, only 48 cut their dividends during the first three months of 2010, compared with a record 367 during the first quarter of 2009. Indeed, Starbucks, the world’s leading coffee-shop operator, announced its first-ever dividend payout to shareholders since the company was floated on the stockmarket in 1992.

Despite unusually severe winter weather during February, retail sales registered an unexpected increase, rising by 0.3%, month on month. However, the heavy snowfalls hampered housing starts, which fell during the month.

Consumer sentiment remained anaemic and the rate of unemployment held steady at 9.7% during February. Meanwhile, the price of goods imported into the US fell more steeply than expected, suggesting overseas companies are wary of attempting to raise prices as the US economy continues its revival, for fear of derailing demand.

During the month, the US House of Representatives narrowly passed President Obama’s controversial healthcare reforms, which will lead to more than 30 million uninsured Americans being covered by health insurance. It is planned that the new measures will be financed primarily by new taxes.
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