Consumer Spending Weak for 4 Straight Months

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1. Consumer Spending Weak for 4 Straight Months
2. Manufacturing Sector Rebounds
3. Paulson: Strong Dollar in ‘Nation's Interest'
4. Hedge Fund, Mideast Investment for Carlyle Group?

1. Consumer Spending Weak for 4 Straight Months

According to the Commerce Department, consumer spending - which accounts for more than two-thirds of the economy - jumped only 0.4% in June, compared to 0.6% gains in May.

The government attributed the lower spending to still-rising gasoline prices that are leaving many Americans with little to spend on other things.

At the same time, prices went up - and that is at the center of a difficult question for the Fed. Which is more of a threat to the U.S. economy: slower growth or inflation?

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"After adjusting for inflation, the gain was an even weaker 0.2%, the fourth straight month of a spending increase of 0.2% or less," according to Forbes. "Income growth rose a solid 0.6% in June, following a 0.4% increase in May."

Meanwhile, Bloomberg News reports that "the Federal Reserve's preferred gauge of inflation [the core personal consumption expenditure price index, excluding food and energy] increased 2.4% from the same month last year, the most since September 2002." Forbes says that in June, this key core inflation measure rose by the fastest pace in over a decade.

"Fed policy makers meet next week to consider raising rates for the 18th consecutive time and assess whether they have lifted borrowing costs far enough to contain inflation or should pause. Reports showing an increase in prices raise questions about whether to err on the side of still-higher rates."

A 2.4% rise far exceeds the fed's comfort zone of 1% to 2%, and economists are split on whether Bernanke and friends will raise interest rates for an 18th consecutive time.

Editor's Notes:

Inflation is even higher than the government reports. To read more about the government's manipulation of inflation data, check out our report, "The Inflation Lie." Go here now.

2. Manufacturing Sector Rebounds The Institute of Supply Management says the manufacturing sector expanded in July, according to its survey of industry executives. The health of the manufacturing sector surprised economists who had expected activity to slow.

The ISM index rose to 54.7 from 53.8 in June, while economists forecast the index would fall to 53.5, according to Briefing.com. A reading above 50 indicates that the sector is expanding.

"The overall message is that manufacturing is proving to be quite resilient in the face of higher interest rates and weakening consumer spending," Norbert Ore, of the ISM, said in a statement.

The prices paid component of the report rose to its highest reading since October, reports Reuters. The index jumped to 78.5 from 76.5 in June. The prices paid index is a measure of inflationary pressures in the manufacturing sector.

The Commerce Department's consumer spending index shows higher prices as well. The combined reports could make the Fed think twice before pausing its rate hikes.

Editor's Notes:

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3. Paulson: Strong Dollar in ‘Nation's Interest'

U.S. Treasury Secretary Henry Paulson Tuesday said a strong dollar was in the interest of the United States, and urged China to show more flexibility in its foreign exchange policy to help correct global imbalances.

"A strong dollar is in our nation's interest," Paulson said in an interview with CNBC Television, his first public comments since taking office last month.

He also said currency exchange rates were best set in an open and competitive market.

"China needs to show more flexibility. We will encourage China to open their markets," he added.

Paulson said the U.S. fiscal deficit was improving and manageable and he would work to curb government spending.

Editor's Notes:

Warren Buffett, the world's second-richest man, is so convinced the dollar will decline in 2006 that he's placed a $16.5 billion bet on it. Find out how you can get in on it. Go here now.

4. Hedge Fund, Mideast Investment for Carlyle Group?

It appears the Carlyle Group, which manages the largest buyout fund in the U.S., is moving into hedge funds - and looking toward the Middle East.

The Wall Street Journal says that the well-known group's venture into hedge funds is just "the latest move by private-equity firms to enter new businesses as their traditional way of investing struggles to keep pace with the billions of dollars pouring in from investors."

Bloomberg reports that the consortium "wants to start a Middle East team to invest in the oil-rich region, which is flush with cash and booming after prices almost quadrupled in the past 4 1/2 years."

According to the news service, Carlyle hasn't concluded where such a team would be situated or how many people would be hired. A spokesman confirmed that the firm is indeed attempting to put together a Middle East investment team, but he refused to comment on whether Carlyle intended to raise a $1 billion Middle East investment fund.

The firm is reported to be close to bringing in Ralph Reynolds to lead its new unit. He is presently the global head of proprietary trading at New York's Deutsche Bank.

"Firms like Carlyle are starting multiple private-equity funds to focus on a broad variety of countries and industries. Carlyle, based in Washington, D.C., manages a total of $41.9 billion in 42 individual funds, with focuses ranging from Japanese buyouts of big companies to a global energy fund," says WSJ.

Editor's Notes:

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Editor's Notes:

Inflation is even higher than the government reports. To read more about the government's manipulation of inflation data, check out our report, "The Inflation Lie." Go here now.
Sector investing beats the S&P every time. Go here now.
Warren Buffett, the world's second-richest man, is so convinced the dollar will decline in 2006 that he's placed a $16.5 billion bet on it. Find out how you can get in on it. Go here now.
Get exclusive access to million-dollar hedge fund strategies for the price of a newsletter subscription with our new service, Wilkinson's Hedge Fund Investing. Go here now.
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