-
World markets mixed on weak economy, earnings
European markets were mixed Friday, after sharp losses in Japan, amid more dismal economic numbers and quarterly reports from leading companies like Sony and Honda showing plunging profits.
In Europe, banking and mining stocks were stronger, but trading was subdued by news euro-zone unemployment edged up to 8 percent in December and by expectations U.S. GDP figures for the fourth quarter due later in the day will show the biggest drop in more than 25 years.
By noon in mainland Europe, Britain's FTSE 100 was up 0.21 percent. But Germany's DAX fell 0.39 percent and France's CAC 40 was down a similar 0.31 percent.
In London, mining giant Rio Tinto's shares rose 4.3 percent after it said it had struck a deal to sell an iron ore mine and other projects in South America to rival Vale for $1.6 billion.
Shares in banks Lloyds Banking Group, Royal Bank of Scotland and Barclays were up 7.1 percent, 6.2 percent and 5.4 percent. In Frankfurt, Commerzbank was up 5.8 percent and Deutsche Bank 1.4 percent.
"The banks for the time being are continuing to be supported by further banking initiatives by western governments and the U.S. bailout package which is slowly working its way through the legal system," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers in London. The U.S. plan involves "buying some of the toxic assets and ringfencing them in bad banks," he added.
Later Friday, the U.S. Commerce Department is set to release a report which analysts expect will show the economy shrank at an annualized pace of 5.4 percent in the October-December period, a much faster descent than the 0.5 percent decline logged in the prior quarter. If economists' forecasts are correct, it would mark the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through a severe recession.
Investors also digested news from the European Union that an additional 230,000 people in the euro zone lost their jobs in December, reflecting a worsening economic situation across the 16-nation single currency area.
In Asia, Japan's Nikkei 225 stock average fell 257.19, or 3.1 percent, to 7,994.05 as investors reeled from a mounting pile of bad earnings reports and the latest economic data.
Industrial output at Japan's manufacturers plunged 9.6 percent from the previous month in December, the largest drop since Tokyo began measuring such data in 1953. The unemployment rate in the world's second-biggest economy jumped to 4.4 percent in December from 3.9 percent in November.
Honda Motor Corp. dived 9.2 percent ahead of quarterly results. The automaker's October-December profit, released after the market closed, tumbled 90 percent, hit by rising costs, a stronger yen and falling sales in key markets.
Megabank Mizuho Financial Group Inc., which had a quarterly loss of 50.55 billion yen ($559 million), slid 7.4 percent. Electronics giant Sony Corp., which Thursday reported a 95 plunge in October-December profit, sank 6.8 percent.
Toshiba Corp. tumbled 17.4 percent after forecasting a full year loss due to plummeting demand for its flash memory chips, used to store data in consumer gadgets like music players and digital cameras.
"Investors are looking for a magic bullet but there isn't one. There isn't one solution that by itself can solve all the complex problems that the world economy faces," said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore.
"In typical myopic fashion, markets are alternating between despair and hope," he said. "The problem is that there is no real visibility about earnings and the economic situation and there may not be until the second half of this year or very late in the year."
Hong Kong's key index clawed back early losses to rise 0.9 percent to 13,278.21 on speculation about an interest rate cut in mainland China or other stimulus measures.
"There are hopes for more stimulus measures because the authorities in China have said they are determined to stabilize the economy," said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong.
India's Sensex rose 2 percent, South Korea's Kospi retreated 0.4 percent while markets in Singapore and the Philippines also lost ground. Australia's main index gained 0.4 percent. Markets in mainland China are closed all week for the Lunar New Year.
On Wall Street Thursday, the Dow Jones industrial index slid 2.7 percent Thursday to 8,149.01, while the S&P 500 index dropped 3.3 percent to 845.14.
Oil languished below $42 a barrel in Asia as more dismal U.S. economic numbers offset news that OPEC may further cut production. Light, sweet crude for March delivery rose 28 cents to $41.72 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange.
more
-
Gov't to report on jobless claims as layoffs rise
The government will provide a snapshot of the battered labor market Thursday when it reports how many people filed first-time claims for jobless benefits last week.
Economists forecast that about 575,000 initial claims were filed, down from 589,000 the previous week. Still, last week's figure matched a level hit in November that was the highest in 26 years, although the labor force has grown by about half since then.
The Labor Department's report comes as large corporations from virtually all sectors of the economy are announcing massive layoffs.
The latest to do so is Starbucks Corp., which said Wednesday that it would cut 6,700 jobs. The coffee company also said it would close 300 underperforming stores, on top of 600 it already planned to shut down.
Time Warner Inc.'s AOL division said Wednesday that it is cutting up to 700 jobs, or about 10 percent of the online unit's work force. IBM Corp., meanwhile, has cut thousands of jobs in its sales, software and hardware divisions in the past week, without announcing specific numbers.
Boeing, Pfizer, Home Depot and other U.S. corporate titans have announced tens of thousands of job cuts this week alone.
Companies have announced more than 125,000 layoffs in January, according to an Associated Press tally.
The economy is likely to continue to shed jobs for the rest of this year, even if an economic stimulus bill pushed by President Barack Obama is approved, economists said.
Meanwhile, the Labor Department said Wednesday that layoffs involving 50 or more workers increased sharply last year.
The department reported that 21,137 mass layoffs took place last year, up from 15,493 in 2007. That's the highest annual total since 2001, the last time the economy was in recession, and the second-highest since the department began tracking mass layoffs in 1995.
More than 2.1 million workers were fired as a result of last year's mass layoffs, the department said.
The financial markets, meanwhile, rose Wednesday on news that the government may take additional steps to assist the nation's ailing banks. The Dow Jones Industrial average rose nearly 201 points, or about 2.5 percent, to 8,375.45.
Still, the current recession, which began in December 2007, likely will result in greater job losses than any downturn since the late 1950s, said Adam York, an economic analyst at Wachovia Corp.
Total employment will drop by 3.5 percent by the end of this year, a sharper decline than the 3.1 percent fall that took place during the steep 1981-1982 recession, York said. Employers cut 2.6 million jobs last year and will likely eliminate more than 2 million this year, he said.
Obama sought to use the mounting employment losses to ramp up support for his $825 billion economic stimulus package, which the Democratic-controlled House approved Wednesday night. The vote was 244-188, with Republicans unanimous in opposition despite Obama's frequent pleas for bipartisan support. The vote sent the bill to the Senate, where debate could begin as early as Monday on a companion measure already taking shape.
"These businesses that are shedding jobs to stay afloat — they cannot afford inaction or delay," Obama said Wednesday. "The workers who are returning home to tell their husbands and wives and children that they no longer have a job, and all those who live in fear that theirs will be the next job cut, they need help now."
Meanwhile, the Federal Reserve acknowledged Wednesday that the economy is continuing to deteriorate and signaled it would use unconventional tools, such as buying longer-term Treasury securities, to cushion the fallout. Such a move could help drive down mortgage rates and provide help to the stricken housing market, economists said.
The Fed also kept the key interest rate it controls at nearly zero and said it would remain at that level for "some time."
Many other companies announced large layoffs this week, including Caterpillar Inc., Sprint Nextel Corp., Target Corp., Corning Inc. and chemical company Ashland Inc.
more
-
Stocks signal sharply higher open on stimulus vote
Investors grew hopeful about an economic recovery Wednesday as the House neared a vote on an $825 billion stimulus plan that contains a mix of new spending and tax cuts.
Stock futures signaled Wall Street was set to open sharply higher.
Investors are looking to the massive government spending to jolt the economy out of a yearlong recession that is the most severe in decades.
Wall Street's focus on Washington is on Capitol Hill, not the Federal Reserve, which is all but certain to leave its federal funds rate at a record low Wednesday to try to help the economy by making it cheaper to borrow money.
It's unclear whether the central bank might take any new steps to help the economy, however. In December, the Fed took the unprecedented step of slashing its key rate from 1 percent to a range of zero to 0.25 percent. The Fed's statement announcing any actions, and its assessment of the economy, is due at 2:15 p.m. EST.
Investor sentiment has been buoyed somewhat this week by somewhat improved corporate results from the final three months of 2008. After weeks dominated by terrible results from the banking industry, investors have welcomed news that some companies are still able to gather profits despite the weak economy. Companies from United States Steel Corp. to American Express Co. turned in earnings that helped lift stocks moderately Tuesday.
The rush of earnings continues Wednesday. AT&T Inc., Boeing Co. and Starbucks Corp. are set to report results.
Dow Jones industrial average futures rose 144, or 1.78 percent, to 8,237. Standard & Poor's 500 index futures jumped 18.50, or 2.20 percent, to 857.70, while Nasdaq 100 index futures rose 24.25, or 2.05 percent, to 1,210.00.
Bond prices were little changed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was unchanged at 2.53 percent from late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.14 percent from 0.13 percent Tuesday.
The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude fell 33 cents to $41.25 a barrel in premarket trading on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average rose 0.56 percent. In afternoon trading, Britain's FTSE 100 rose 1.65 percent, Germany's DAX index jumped 2.70 percent, and France's CAC-40 rose 2.56 percent.
more
-
Wall Street rises on earnings; economy woes drag
Stocks rose on Tuesday, boosted by standouts in a bleak earnings season, including American Express (AXP.N), but a fall in consumer confidence to a record low in January revived worries over the economy's health.
American Express led the Dow higher, gaining more than 6 percent to $16.19 after posting results late Monday that surpassed expectations, though, like many companies, it warned 2009 will be tough.
"We've had some more numbers coming through that have been -- I don't want to say good -- but to some extent not as bad as people had thought," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.
Chip maker Texas Instruments reported a quarterly profit that fell less than feared and announced a 12 percent cut in jobs, pushing its shares up 3.6 percent and helping the Philadelpia Semiconductor Index (.SOXX) rise 3.2 percent.
U.S. Steel Corp (X.N) jumped 7.2 percent to $31.58 after the steelmaker's profit jumped, helped by higher prices for pipeline products for the oil and gas industry.
The Dow Jones industrial average (.DJI) added 42.69 points, or 0.53 percent, to 8,158.72. The Standard & Poor's 500 Index (.SPX) was up 6.37 points, or 0.76 percent, at 842.94. The Nasdaq Composite Index (.IXIC) rose 10.46 points, or 0.70 percent, tp 1,499.92.
The S&P financial index (.GSPF) was up 2.2 percent.
Stocks cut gains after the Conference Board's U.S. consumer confidence index fell to a record low in January as the beaten-down housing sector and jitters over job prospects weighed.
"When you have consumer confidence come out and question yet again the strength of any kind of activity economically, you're going to have those gains really pare down," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.
Despite some bright spots, analysts have called the earnings season overall a weak one, as expected, with companies warning of more pain to come and making deep job cuts in the wake of the global economic downturn.
Verizon Communications Inc (VZ.N), the No. 2 U.S. phone company, was the Dow's biggest weight after it reported fewer-than-expected wireless subscribers and warned on earnings for 2009. Verizon was down 5 percent at $29.45, while AT&T (T.N) fell 2.9 percent to $26.04.
Dow component DuPont Co (DD.N) reported a loss, hurt by a decline in demand, and trimmed its full-year 2009 forecast. Shares of the chemical maker were down 3.1 percent at $22.46.
Following Monday's confirmation of Timothy Geithner as Treasury secretary, the New York Federal Reserve Bank on Tuesday named William Dudley as his replacement as president of the regional Fed bank.
Dudley, a former Goldman Sachs chief economist, has played a central role in the Fed's response to the financial crisis.
The Federal Reserve's monetary policy-setting Federal Open Market Committee begins a two-day meeting on Tuesday and investors will be watching for signals of any nonconventional methods of fighting the credit crisis the Fed might employ.
Economists expect the central bank will leave benchmark interest rates unchanged at zero to 0.25 percent.
more
-
Obama lobbies for stimulus as economy clouds darken
Barack Obama lobbied support for his 825-billion-dollar stimulus package Tuesday after Timothy Geithner, his pick to help restore the crumbling US economy, was sworn in as treasury secretary.
As Federal Reserve policymakers were to hold their first meeting of Obama's presidency in search of new tools to kickstart lending, more big job losses highlighted the global impact of the crisis facing the world's biggest economy.
Authorities in Asia meanwhile tried to battle the impact of the downturn, with Japan saying it would inject public funds into ailing companies while India's central bank held leading interest rates at historic low points.
Two giants of the auto industry also took a hit from the economic crisis with Honda rolling back production further in Japan and North America and Audi announcing a temporary stoppage at a plant in Hungary.
Obama, hoping for strong cross-party support for his rescue plan, scheduled talks for Tuesday with congressional Republicans who have said his 800-billion-dollar-plus stimulus plan is too expensive and will not work.
Speaking as Geithner's appointment won Congressional approval, Obama underlined the urgency of the work at hand, noting that 2.5 million jobs were lost last year and seven major corporations had just announced thousands more cuts.
"We cannot lose a day because every day the economic picture is darkening, here and across the globe," Obama said at the Treasury Department.
"It will take a secretary of the treasury who understands this challenge and all its complexities to help lead us forward," added Obama, who is eager to confront the worst US downturn since the Great Depression of the 1930s.
"You have got your work cut out for you as I think everybody knows. But you also have my full confidence, my deepest trust, my unyielding belief that we can rise to achieve what is required of us at this moment."
Geithner, a senior Treasury official in the 1990s, brings inside knowledge of how the crisis has unfolded from his most recent job as president of the New York Federal Reserve.
"Our agenda, Mr. President, is to move quickly to help you do what the country asked you to do ... to restore confidence in America's economic leadership around the world," he said at his swearing-in ceremony.
Among his immediate objectives were "to make our economy more productive ... to restore trust in our financial system with fundamental reform (and) to make our tax system better at rewarding work and investment," he said.
Geithner took the oath amid a slew of grim news on the jobs front from all sides of the globe.
The latest large-scale losses came from Japan where electronics maker NEC Tokin announced it would shed about 9,450 jobs worldwide due to the economic crisis.
Japanese firms have been severely affected by the downturn, which has pushed the world's second-biggest economy into its first recession for seven years.
The country's largest brokerage Nomura Holdings reported a 3.8-billion-dollar net loss Tuesday for the three months to December.
A survey released Tuesday said 400,000 temporary workers in Japan's manufacturing sector are expected to lose their jobs by the end of March.
But despite the grim news, Tokyo's Nikkei stock index soared 4.9 percent as investors responded positively to reports that the government plans to channel funds worth 1.5 trillion yen (17 billion dollars) to struggling industries.
Meanwhile in India, Asia's third-biggest economy, the central bank reduced its growth forecast to seven percent due to the deepening worldwide recession as it held leading interest rates at a historic low of 5.5 percent.
Europe's number one economy, Germany, is hoping to cushion the impact with a 50-billion-euro (66-billion-dollar) stimulus package which was approved by Chancellor Angela Merkel's cabinet Tuesday.
An earlier raft of measures worth around 31 billion euros, approved in November, was denounced as insufficient.
The problems were highlightged with an announcement that Audi is to halt car and engine manufacturing in Hungary for a week next month.
more
-
Texas Instruments profit falls, to cut jobs
Texas Instruments (TXN.N) posted a smaller-than-expected drop in quarterly profit, but said it may post a loss in the current quarter and announced a 12 percent cut in jobs, as demand for cell phone chips fell.
But shares of the maker of wireless and analog chips rose 5 percent in after-hours trading on Monday as analysts said the better-than-expected fourth quarter and the cost-cutting measures meant TI could be positioned for growth when demand recovers.
"The hope is that we'll start to find the bottom at these levels. That, along with expense reductions, will create a greater flow through to the bottom line when revenue starts to recover," said Collins Stewart analyst Ashok Kumar.
TI said it was cutting its workforce by 3,400 to reduce costs, which American Technology Research analyst Doug Freeman said would "signal a recovery in earnings even if demand levels don't improve."
The company warned that it still had tough times ahead, forecasting a possible loss for the first quarter, when utilization of its factories was expected to fall below 35 percent from 48 percent in the fourth quarter. It said it expected to idle many factories for several weeks in March.
Chief Financial Officer Kevin March told Reuters in an interview that the company had no sense of how soon demand would recover as virtually all its customers in all regions and product segments were cutting orders.
"We left the quarter with a very low level of backlog, which gives us considerably less visibility than normal ... We're preparing for what could be an extended down period in the economy," March said. "We can barely see out one quarter."
The report follows a worse-than-expected fall in profit at TI's biggest client, Nokia (NOK1V.HE). The world's biggest mobile phone maker warned of an industry phone sales decline of 10 percent for 2009.
For the current quarter, TI saw a loss of 11 cents to a profit of 3 cents per share, including a 3 cent restructuring charge. Analysts had forecast a profit of 3 cents per share excluding the charge, according to Reuters Estimates.
TI saw revenue falling to between $1.62 billion and $2.12 billion in the first quarter, whereas analysts' average estimate was $2.04 billion, according to Reuters Estimates.
WIRELESS WEAKEST
March said that while business was weak across the board with total orders down 42 percent, wireless was the weakest with revenue down 29 percent sequentially compared with a typical fourth-quarter decline of about 3 percent.
TI executives said the company had stopped trying to sell its merchant business, which makes off-the-shelf chips, after talking to potential buyers. Instead, it would shut most of its internal efforts for the unit and only support existing customers with minimal staffing.
"As we progressed, it became clear to us that a sale would not achieve the same value that we will accomplish by retaining this operation and reducing the investment levels to the minimal required," Ron Slaymaker, head of investor relations for the company, said on a call with analysts.
TI said it expects annual savings of about $700 million from cost cuts, including scaling down the merchant chip business and the workforce reduction, which includes 1,800 layoffs and 1,600 voluntary departures.
March said on the conference call that he expects both the U.S. economy and global economy to decline this year.
He said the company would continue to aggressively drive down inventory in the first quarter. "I suspect we'll look back on this and say its the worst downturn we've seen," he said.
Net profit was $107 million, or 7 cents a share, in the December quarter, compared with $756 million, or 54 cents a share, a year ago. It said that the latest quarter included restructuring charges of 13 cents per share.
Excluding special charges, profit was 21 cents a share, better than the 12 cents forecast by Wall Street, according to Reuters Estimates.
Fourth quarter revenue fell to $2.49 billion from $3.56 billion, but better than Wall Street expectations of $2.37 billion.
Shares of TI rose 4.9 percent to $15.50 following the results, after closing down 1.47 percent at $14.77 on the New York Stock Exchange. The stock remains down 53 percent from a 12-month high of $33.00 in May 2008.
more
-
One term or two? Economy is key, experts say
It's always the economy, stupid.
Whether President Barack Obama enjoys one term or two in the White House will depend overwhelmingly on the state of U.S. pocketbooks.
With a daily stream of gloomy economic data, Obama has said he must act quickly to rescue the economy from the worst turmoil in decades. But the new president has plenty of time to help brighten the financial outlook before the next presidential election in November 2012, experts say.
"The truth is it's rare for someone who runs for re-election to get defeated in the absence of economic turmoil," said Jeremy Mayer, professor of public policy at George Mason University in Fairfax, Virginia. "There are tremendous advantages to incumbency."
The key is what happens in the months before voters head to the polls, experts said.
"The one thing you want to avoid if you want to be re-elected is a bad election-year economy," said Allan Lichtman, presidential historian at American University in Washington.
Only 12 presidents have served a single elected term -- and just two have failed to win a second term since the Great Depression -- Jimmy Carter and George H.W. Bush.
Further back was Herbert Hoover, whose lone term ended in 1933 as the country was locked in the Depression.
"What they had in common, among other things, was a bad economy," said Lichtman.
One-term presidents also tend to lack vision, be poor communicators and fail to inspire voters, Lichtman said.
So far, Obama seems to most observers not to suffer from those particular failings.
INSPIRING COMMUNICATORS
In fact, U.S. presidents considered to be the most inspiring communicators used an ailing economy to win their presidencies in the first place.
Bill Clinton's campaign in 1992 coined the phrase "It's the economy, stupid," and Ronald Reagan in 1980 wooed voters by asking if they were better off than they were four years earlier.
Although Obama's keeping his job may depend on how many Americans lose theirs, Lichtman cautioned that his role steering the financial ship can be quite limited.
"People expect the president, rightly or wrongly, to guide the economy in such a way as to provide prosperity," he said. "But the president does not control the economy. He can only influence the economy."
Less significant factors in determining a one- or two-term presidency include an intraparty challenge. Democratic challenger Edward Kennedy damaged fellow Democrat Carter's shot at re-election, and Republican challenger Pat Buchanan hurt fellow Republican George H.W. Bush.
"If you want to look for signs of trouble, if Obama loses an important wing of his party, the left, the center, .... then he could face an intraparty challenge," Mayer said.
The first test at the polls for Obama will come in 2010, when all seats in the U.S. House of Representatives, one-third of the U.S. Senate and many state governors' mansions will be up for grabs.
"If things get a lot worse in '09 and '10, Democrats will take a hit in the midterms. But if we start to see a recovery in 2011, Obama will get the credit for that," said Mayer. "It's when the pain comes and who's to blame."
more
-
New jobless claims rise more than expected to 589K
The number of new unemployment claims jumped more than expected last week, as companies continue to cut jobs at a furious pace and more Americans turn to an extended benefits program.
The Labor Department reported Thursday that initial jobless benefit claims rose to a seasonally adjusted 589,000 in the week ending Jan. 17, from an upwardly revised figure of 527,000 the previous week. The latest tally was well above Wall Street economists' expectations of 540,000 new claims.
The total matches a 26-year high reached four weeks ago. The last time claims were higher was in November 1982, when the economy was emerging from a steep recession, though the work force has grown by about half since then.
The increase is partly due to a backlog of claims that piled up in recent weeks in several states that experienced computer crashes due to a crush of applications, a Labor Department analyst said. The four-week average of claims, which smooths out fluctuations, was 519,250, the same as the previous week.
But the layoffs continued Thursday. Microsoft Corp. said it will cut up to 5,000 jobs as profit tumbles amid weakness in the personal computer market, and chemical maker Huntsman Corp. will slash 1,175 jobs this year, representing more than 9 percent of its work force, to reduce costs as demand slows amid the global economic downturn. Salt Lake City-based Huntsman also plans to cut an additional 490 contractors.
Another sign of the deepening recession came in a Commerce Department report that showed new home construction plunged 15.5 percent to a record low last month. Construction of new homes and apartments fell to an annual rate of 550,000 in December, below analysts' expectations of 610,000.
The report capped a miserable year for new home construction. Builders broke ground on 904,000 units last year, also the lowest since records began in 1959.
The Labor Department report showed that the number of people continuing to seek jobless benefits rose by 97,000 to 4.6 million. That was above analysts' expectations of 4.55 million and up substantially from a year ago, when 2.7 million people were continuing to receive unemployment checks.
The Obama administration is proposing to extend jobless benefits, which typically last about six months, and overhaul the unemployment insurance system as part of an $825 billion stimulus package currently being considered in the House.
The weak job market has caused millions of laid off workers who have exhausted their unemployment insurance to seek benefits under an emergency federal extension of the program authorized by Congress last June.
More than 2 million Americans requested benefits under the extended program in the week ending Jan. 3, the most recent data available. That's in addition to the 4.6 million people covered under the regular unemployment insurance system, though the 2 million figure is not seasonally adjusted and is volatile.
Roughly 900,000 people sought benefits under the emergency program the week ending Nov. 29. The rapid increase since then is partly due to an extension of the program Congress approved Nov. 21, a Labor Department analyst said.
Overall, the large number of Americans continuing to receive benefits is an indication that many laid off workers are having difficulty finding new jobs.
Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy. A year ago, initial claims stood at 324,000.
Companies from a range of sectors are hemorrhaging jobs amid a recession now in its second year. Consumers have dramatically cut back their spending, which accounts for about two-thirds of the economy, in response to declining home values and plummeting stock portfolios.
On Wednesday alone, at least four companies announced layoffs. Intel Corp. said it plans to cut up to 6,000 manufacturing jobs as the company struggles with lower demand for personal computers. United Airlines parent UAL Corp. said it would eliminate 1,000 jobs, on top of 1,500 it cut late last year. Industrial parts and systems maker Eaton Corp. said it is cutting 5,200 jobs, and airplane maker Hawker Beechcraft Corp. said it would eliminate workers after laying off 500 last year, though it didn't provide details.
Radio broadcaster Clear Channel Communications Inc., oil and gas company ConocoPhillips, and media company Time Warner Inc. also announced job cuts in the past week.
more
-
Credit card rewards programs getting stingier
Just as interest in cashing in points for the latest iPod model or airline tickets is likely to ratchet up, the banks that issue cards are making it harder to redeem those points.
"They're certainly raising the bar on redemption thresholds and return rates," said Jonathan Silver, chief executive of Affinity Solutions Inc., a New York company that develops and manages rewards programs. The weak economy is pressuring card issuers, and one way to reduce costs is to increase the number of points needed to redeem rewards, he said.
Silver said about 40 to 45 percent of existing credit cards have access to such programs, while about 20 to 25 percent of outstanding debit cards are linked to rewards programs.
Debit card use is growing, and banks that have targeted that segment of their business for increased earnings are expanding the rewards programs offered with them, Silver said. But debit card rewards programs tend to be "less rich," he added, meaning card users need to spend more in order to get enough points for the same rewards.
There are steps consumers can take to maximize the rewards they get, but advocates warn that rewards should not be the focus for those who carry debt on their credit cards.
"People that don't pay off their balance every month really want the lowest interest rate and the lowest fees," said Ed Mierzwinski, a consumer advocate at the U.S. Public Interest Research Group. "The rewards are not going to compensate for punitive interest rates and high fees."
Consumers had a total of $973.5 billion in revolving debt in November, the latest month for which statistics are available, according to the Federal Reserve.
Emily Peters, personal finance expert at Credit.com, said credit card issuers offer rewards because they encourage people to use those cards.
"It basically doubles the spending that you'll put on that card," she said. "If you're someone who has a debt situation, then that spending is rewarding something that you don't need to do."
Put another way, if you carry a balance or have a low credit score, "You're not ready to be rewarded yet," said Peters.
Whether you're looking for a new card or trying to take advantage of the rewards programs on your existing cards, there are some steps you can take to maximize the returns.- Check the fine print of the rules that apply to your card or to one you're interested in getting, said Ben Woolsey of Creditcards.com. Some cards come with limits on the number of points, amount of merchandise or how much cash back a holder can get each year, he said.
- Some cards offer more points or a higher percentage of cash back for certain types of purchases, like gas or groceries. Others offer incentives for buying certain things at specific times of the year, like home improvement shopping in the spring. "It's a great way for people who pay off their balances to leverage that kind of nondiscretionary spending," said Woolsey.
- If rewards are your goal, look at an issuer's rewards Web site before applying for the card to make sure it's easy for you to understand and use. "If it's really complicated and you're not going to figure out how to use those rewards, those rewards don't matter," said Peters.
- Pay attention to any information sent by the bank that issued your card to make sure the rules for redemptions haven't changed. In some cases, it may make sense to redeem points as soon as possible rather than trying to accumulate points for a specific item.
- The points on some cards expire after set periods of time, so make sure you are aware of expiration dates and redeem any points that set to disappear, said Emily Peters of Credit.com. You will lose points for an account that is closed, she said.
- Making late payments or going over your credit limit could result in a freeze on your rewards program until your account is current, Woolsey said. The situation has to become drastic before you lose the points altogether, but you could stop earning and may not be able to redeem points on overdue accounts.
- The cost for merchandise offered through rewards programs is often higher than it would be at retail. Woolsey said a point is typically worth about a penny, which means an item worth 25,000 points should be worth about $250. You can often earn the best return with a card that offers miles for a single airline or points toward a specific type of gas. Gift cards can also be a good option, because you'll often get a full penny per point when picking them
- Another way to counter overpriced merchandise in a rewards program is to take your rewards back as a credit to your account, if that option is available.
- Make sure your card doesn't have an annual fee. Some fees begin only after the account has been open for a year, but a large fee could offset any rewards you get back, Peters said.
more
-
Economic doldrums deepen, world waits on Obama
Pressure on incoming U.S. President Barack Obama to act quickly on the global financial crisis was underlined on Tuesday by tumbling bank shares, a slump in Japanese consumer sentiment and a teetering car sector.
The first African-American to become U.S. president will take his oath against a backdrop of a deep downturn, a trillion dollar federal deficit and fears of more crippling bank losses.
European shares fell despite a better-than-expected ZEW analyst and investor sentiment index in Germany. The monthly poll of economic sentiment by the ZEW economic think tank rose to -31.0 from -45.2 in December.
Underscoring the dire state of the world economy, Japan reported consumer confidence plunging to a record low last month in yet another sign of deepening recession.
Investors remained rattled, despite the launch of a second UK bank bailout this week, and the less downbeat ZEW indicator.
"This is mostly an expression of hope. The indicator is still clearly in negative territory. Nothing is changing in terms of the 2009 recession," said Gerd Hassel, economist at BHF-Bank.
On Monday, Britain threw its troubled banks a second multi-billion pound lifeline in three months and gave its central bank the green light to pump cash into the ailing economy because interest rates are already close to zero.
But bank shares suffered more heavy losses on Tuesday.
Europe's banking index fell to a 14-year low on fears that lenders will need more state help to raise capital as recession bites and bad debts rise. Shares in Lloyds (LLOY.L) and Barclays (BARC.L) fell particularly sharply.
Overall, world stocks were down 1.2 percent and in Europe, the FTSEurofirst 300 (.FTEU3) was 1.0 percent adrift with banks taking most toll on the index.
"After yesterday's carnage, the smoke is still hanging over the market," says Justin Urquhart Stewart, director at Seven Investment Management. (.EU).
CAR CRISIS
The banking sector aside, no sector has been worse hit than carmakers by the worst financial crisis in 80 years.
Italy's Fiat (FIA.MI) took a 35 percent stake in Chrysler on Tuesday, launching a venture designed to secure the beleaguered U.S. carmaker's future.
The deal will give the Italian carmaker the scale it needs to survive, while Chrysler can expand its product portfolio to include small, less-polluting cars.
Separately, France said it may pump up to 6 billion euros ($7.79 billion) of aid into the country's ailing car industry, but Prime Minister Francois Fillon warned on Tuesday that automakers would have to safeguard jobs in return.
"There is an emergency. We need a massive response on the automobile sector's financing," Fillon said.
His comments, at a summit on helping France's battered car industry, came after the head of PSA Peugeot Citroen (PEUP.PA) predicted a "terribly difficult" year in 2009 and declined to say whether the company would break even.
However, German Chancellor Angela Merkel said the aid threatened to distort competition wand was not a long-term solution to the struggling sector's problems.
And EU Industry Commissioner Guenter Veheugen said the EU must watch efforts to rescue U.S. carmakers to ensure they do not disadvantage European manufacturers.
BURDEN OF EXPECTATION
Obama's team has vowed to make bailout funds work harder to get credit flowing again to cash-starved consumers and companies and is expected to announce soon changes to the second half of Washington's $700 billion bank rescue scheme.
The incoming president is also working with lawmakers to launch a two-year $825 billion fiscal stimulus plan by mid-February.
In one of the most eagerly awaited inaugural addresses, Obama is expected to reassure Americans that the country can rebound from hard times.
But he faces stratospheric expectations.
"The expectations for the Obama administration are off the charts," said Willian Keylor, a history professor at Boston University. "Whatever he accomplishes will be below the extraordinary expectations that people have for him."
Economic figures due later this week and news of corporate shake-ups and downsizing are only likely to deepen the gloom.
German retailer Metro (MEOG.DE) plans to cut 15,000 jobs or about 5 percent of its global workforce by 2012, a source close to the company told Reuters on Tuesday.
And British luxury goods firm Burberry (BRBY.L) announced up to 35 million pounds ($49 million) of savings, including 540 job losses in the UK and Spain.
Britain is set to confirm on Friday the world's fifth-largest economy is now in its first recession since 1992.
China, the world's main growth engine, on Tuesday reported its first rise in urban unemployment in five years. It will release Q4 GDP data on Thursday which are forecast to show annual growth at 7.0 percent, the slowest pace in nine years.
more
-
Russia, Ukraine to sign gas deal, end standoff
The Ukrainian prime minister arrived in Moscow on Monday as Russia and Ukraine prepared to sign a deal ending a contentious dispute that cut off Russian natural gas shipments to Europe for nearly two weeks.
Yulia Tymoshenko and her Russian counterpart, Vladimir Putin, reached a preliminary agreement over the weekend to restore gas supplies to Europe and Ukraine. Tymoshenko's office said a formal deal would be signed Monday by Russia's gas monopoly Gazprom and Ukraine's Naftogaz.
Naftogaz says it would take up to one and a half days to pump gas to its western border once Russia restarts deliveries.
Russia stopped shipping gas to Ukraine for domestic use on Jan. 1 in a dispute over prices. It then halted all gas shipments to Europe via Ukraine on Jan. 7, alleging that Ukraine was siphoning off Europe-bound gas. Ukraine disputed this, claiming that Russia was not sending enough "technical gas" to push the rest further west.
The confrontation has deeply shaken Europeans' trust in both Russia and Ukraine as reliable energy suppliers, as more than 15 nations have been forced to scramble for alternative sources of energy. The dispute was further complicated by geopolitical struggles over Ukraine's future and over lucrative export routes for the energy riches of the former Soviet Union.
After weeks of frustration and dashed hopes, the European Union responded cautiously to the news.
"So far, they have been unable to do it and of course this raises serious concerns about their credibility as our partners," European Commission President Jose Manuel Barroso said Monday.
"The proof of the pudding is in the eating, and the proof of the gas is in the flowing," EU spokesman Johannes Laitenberger said.
Tymoshenko and Putin negotiated a preliminary deal for Ukraine to get gas with a 20 percent discount from this year's average European price, which Russia says is $450 per 1,000 cubic meters. That would double the price Ukraine paid in 2008.
However, natural gas prices for Europe are expected to fall sharply later this year, due to the fall in oil prices. By midsummer, Ukraine could be paying as little as $150 for 1,000 cubic meters, said Ronald Smith, a strategist at Moscow's Alfa Bank.
Ukrainian Parliament Speaker Volodymyr Lytvyn said Monday, citing Naftogaz and Russian officials, that the average price Ukraine will pay this year will be around $240 to $250. He did not elaborate.
Russia won a key principle, however, that Ukraine must pay more for its energy supplies. Russia also won't have to pay higher transit prices to Ukraine to use its pipelines.
Putin said in 2010, Ukraine will have to pay full price for Russian gas, and Russia will pay market prices for transit.
In the long term, it is not clear how Ukraine will pay for the huge amount of Russian gas needed to run its outdated factories and heating systems.
Opposition leader Viktor Yanukovych said any gas price higher than $250 would be mean a "collapse" of the economy, which is already coping with a collapse of the national currency, a drastic fall in exports and a shaken banking sector.
more
-
New jobless claims increase more than expected
New claims for jobless benefits increased more than expected last week, a trend many economists say is likely to continue for much of this year.
The Labor Department reported Thursday that first-time requests for unemployment insurance jumped to a seasonally adjusted 524,000 in the week ending Jan. 10, from an upwardly revised figure of 470,000 the previous week. Analysts had expected 500,000 new claims.
The increase is partly due to a flood of requests from newly-laid off people who delayed filing claims over the holidays, a Labor Department analyst said.
The layoffs continued Thursday. MeadWestvaco, which makes paper and plastic products, said it will cut some 2,000 employees, or about 10 percent of its work force, as it accelerates cost savings, and software company Autodesk Inc. said it is cutting 750 jobs, or about 10 percent of its employees, as it prepares to report a loss in the fourth quarter.
On Wednesday, Internet search company Google Inc. said it was closing three engineering offices and cutting 100 recruiters as the recession dampens hiring, and computer equipment maker Seagate Technology said it will eliminate 2,950 jobs, or 6 percent of its work force.
The rise in initial claims came after two weeks of declines that economists said largely reflected those holiday-related distortions in the data. Analysts have said that retailers did not hire as many temporary seasonal workers this year, due to the recession, and so there weren't as many subsequent layoffs.
But the jump in last week's numbers, combined with a slew of layoffs already announced this week, could signal the resumption of an upward trend in claims that was evident last year.
Ian Shepherdson, chief U.S. economist for consulting firm High Frequency Economics, said in a research note that claims could reach 750,000 later this year.
"The experience of previous deep recessions suggests claims are nowhere near their peak, and we doubt that peak will be reached before the fall of this year," he said.
Job losses have soared in recent months as consumers, bit by falling home prices and plummeting stock portfolios, have cut back sharply on spending. The decline in home prices and the credit crunch pushed the economy into recession in December 2007.
The stock market, meanwhile, dropped sharply as reports that Bank of America Corp. needs more aid from the U.S. government fueled fears the banking crisis of last fall has returned. The Dow Jones industrial average lost about 140 points in midday trading.
Separately, the Labor Department said wholesale prices fell by 1.9 percent in December, closing out a year in which prices dropped by the largest amount in seven years. The decline was led by a huge plunge in energy prices.
For the year, the government says wholesale prices fell by 0.9 percent, the first annual decline since prices had fallen by 1.6 percent in 2001. That also was a year in which the country was in a recession.
Initial jobless claims reached their highest level in 26 years three weeks ago when the department said 589,000 people filed new claims. That was the highest level since November 1982, when the economy was emerging from a steep recession, though the labor force has grown by about half since then.
The four-week average of claims, which smooths out fluctuations, fell by 8,000 to 518,500 last week.
In one spot of good news, the number of people continuing to request benefits declined to 4.5 million from an upwardly revised 4.6 million the previous week. The continuing claims lag the initial claims data by one week.
Still, the number of people remaining on the rolls is near a 26-year high and is up sharply from a year ago, when it stood at 2.7 million.
The high level of continuing claims is an indication that many laid off workers are having difficulty finding new jobs.
Economists consider jobless claims a timely, if volatile, indicator of the health of the job market and broader economy. A year ago, initial claims stood at 315,000.
The Labor Department last week said the unemployment rate jumped to 7.2 percent in December, a 16-year high. Employers cut a net total of 524,000 jobs last month, bringing last year's total to a staggering 2.6 million.
Other companies that have announced layoffs recently include: pharmaceutical company Pfizer Inc., mobile phone maker Motorola Inc., and industrial conglomerates Textron Inc. and Cummins Inc.
more
-
7 Tax Moves to Make This Month
Some people are wary of making any tax moves this month because President-elect Barack Obama and Congress are working on a stimulus package with new tax provisions -- but don't let the uncertainty confuse you.
Here are seven steps you can and should take this month.
1. Don't miss the mail
If you moved in the last year or so, it's time to send out change-of-address notices. Not to the post office, but to employers, tax agencies, brokerages, and anyone else from whom you expect to get any kind of 1099, K-1, 1098, or other third-party report.
2. Get your stimulus
The stimulus rebate checks in 2008 were a real boon for many people. But not everyone got one. The good news: If you didn't get it last year, you might qualify this year.
3. Assess your paycheck withholding
It's time to review your paycheck withholding so it reflects the income and deductions you expect to have for 2009. If you need to increase or decrease your withholding, file a new Form W-4 with your payroll department. Remember to file a copy for your state, too, if that needs to be changed.
What triggers a need to make changes? Marriage, divorce, a new home, more money going into your retirement account. You can fill in the W-4 online, print it out and hand it to your payroll department.
4. Estimate how much you'll owe
Jan. 15 is the due date for the fourth installment of your 2008 estimated tax payments. Typically, if you have enough withholding from your paycheck this won't affect you. But if you have earnings from a business or investments, you may find yourself needing to make a payment.
If you expect to owe less than $1,000 on April 15, you can skip it. Otherwise, be sure you pay enough to cover 90% of your 2008 tax liability or 100% of the tax shown on your 2007 tax return. Use Form 1040-ES, voucher 4. If you use the IRS site to get your forms, be sure to select the 2008 form.
If you can't pay your balance due in January, you could wait until April 15 to make the payment. This will result in an underpayment penalty, but it won't be significant on an average balance due. And, even though delaying payment is not an ideal plan, at least you'll know how much you owe by April 15 -- and that will give you time to find the funds you'll need.
There are free tools online to help you project your 2008 balance due. You also can use these calculators to generate information for your student loan applications, too.
5. Prepare for business-expense deduction
Are you using your car for business? If you didn't record your odometer reading on Jan. 1, then look at your reading now and estimate how many miles you've driven since the first day of the year. This is a good time to start tracking your business mileage for the current year.
It's also a good time to start trying to reconstruct last year's mileage, both personal and business, so you're ready for your appointment with your tax professional or your online service.
Remember, you'll need to split up your business mileage into two parts for last year. The mileage rate for business miles from Jan. 1 to June 30, 2008, was 50.5 cents per mile. From July 1 to Dec. 31, 2008, the rate was 58.5 cents per mile.
6. Avoid fighting over the kids
Each year, many divorced couples battle over who gets to take the dependency exemption for their children. Resolve this issue early. If you expect to get the exemption, have your ex sign a Form 8332 to release his or her claim on one or more of your children for 2008.
Though the tax code defines who qualifies to claim the child, it's often the case that whoever files first will get the exemption plus any related benefits. The parent who is properly entitled to the exemption but who files later usually has to fight to defend his rights. Using Form 8332 will prevent this problem.
7. New homeowners
Did you buy a home last year? If you bought it after April 8, you may be entitled to the first-time homebuyer credit worth up to $7,500. In fact, if you plan to buy a home before July 1, 2009, you'd be wise to delay filing your tax return until your purchase goes through, so you can claim the credit on your 2008 tax return. To qualify, neither you nor your spouse may have owned a home in the three years before the purchase date.
Resolve to save
This year, we all must manage our money expeditiously. One good way to increase cash flow is to become proficient in the tax benefits available to you. Keeping good records and paying attention to tax-law changes can net you hundreds or even thousands of dollars.
more
-
Bank of America in talks for more U.S. bailout funds
Bank of America (BAC.N), the largest U.S. bank, is close to getting billions of dollars more in federal support from taxpayers, a person familiar with the matter said on Wednesday.
As Congress debated the future of the government's $700-billion financial markets rescue program, the source said that Bank of America has struggled to digest its January 1 buyout of former Wall Street brokerage giant Merrill Lynch & Co.
Merrill's fourth quarter losses exceeded expectations and spurred Bank of America in mid-December to start talking to the U.S. Treasury Department, which is managing the bailout.
U.S. Treasury Secretary Henry Paulson was driving the talks out of concern that Bank of America might be unable to complete the buyout, cutting Merrill adrift, the Wall Street Journal reported earlier on Wednesday.
The size and terms of any aid that could result are still being finalized, with details expected to be announced with Bank of America's fourth-quarter earnings, due out January 20.
In after-hours trading, Bank of America's shares dropped more than 5 percent to the lowest level since 1991. During Wednesday's trading session, Bank of America's shares dropped 4.2 percent to $10.20, down 28 percent so far this year.
Bank of America declined to comment. The White House declined to comment on the original report in the Wall Street Journal, as did a U.S. Treasury spokeswoman.
NEW URGENCY FOR TARP
The news came as President-elect Barack Obama pressured Congress to release a second installment of $350 billion for the bailout program known as the Troubled Asset Relief Program, or TARP. It was first approved in October.
Treasury has already committed $350 billion under the TARP, largely to shore up the balance sheets of large banks, but critics say the banking industry remains in desperate straits.
"The first round of TARP didn't give (Bank of America) the ability to build tangible equity, as well as fund Merrill Lynch, as well as handle loan losses and get rid of the problems on their balance sheets," said Christopher Marinac, an analyst at FIG Partners in Atlanta, Ga.
"The reality is that they need more common equity -- TARP may not be enough."
Bank of America and Merrill Lynch together received $25 billion from the TARP in October.
On Thursday, the U.S. House is expected to vote on a bill that would impose stricter terms and conditions on banks that want TARP money. A number of lawmakers who backed the initial TARP funding last year faced voter backlash in the November 4 congressional election.
As of Tuesday, the Treasury Department had paid out $271.7 billion from the initial $350 billion tranche of TARP, leaving a $78.3 billion balance in the bailout fund. All of the money, however, has been earmarked for various uses.
Of the $250 billion allocated to bank capital injections, Treasury had paid out $192.3 billion to 257 institutions, leaving $57.7 billion. The department is now sifting through funding requests from thousands of community banks, which have until February 13 to apply for TARP money.
DANGER SIGNS
The ominous news about Bank of America's need for more help came amid new danger signs for the financial sector.
Citigroup's share price tumbled below $5 a share on Wednesday, the lowest since a government rescue in November, on growing uncertainty about its future. More bad news may come on Friday, when analysts expect Citigroup to report a fifth straight quarter of multibillion-dollar losses.
Once the world's largest bank, Citigroup is expected to shrink by about one-third as it sheds unwanted businesses to survive. It has received $45 billion in taxpayer funds from the TARP, including $20 billion in November to avoid a collapse.
Merrill CEO John Thain negotiated the sale of the brokerage and investment bank, which had been rocked by billions of dollars in toxic assets, to Bank of America in mid-September.
It occurred on the same weekend that rival Lehman Brothers Holdings Inc filed for bankruptcy protection.
Some analysts saw the deal as a coup for Bank of America CEO Kenneth Lewis, who also used the bank's relative strength to buy Countrywide Financial, formerly the nation's largest mortgage lender, but the bank's stock has since slumped.
more
-
Economic stimulus to cost $850 billion: source
An economic stimulus bill being crafted by Democratic leaders in the U.S. Congress and aides to President-elect Barack Obama will cost about $850 billion, according to a government source.
The source, who asked not to be identified, did not provide other details of the bill, which could be unveiled on Thursday.
But the measure is expected to contain a combination of tax cuts and government financing for construction projects around the country, in addition to aid to states with the goal of creating or maintaining 3 million jobs and halting a year-long economic recession.
more
-
Bernanke: Obama stimulus would lift economy
Federal Reserve Chairman Ben Bernanke said Tuesday the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking economy. But he warned that such a recovery won't last unless other steps are taken to stabilize the shaky financial system.
Although Bernanke has previously endorsed the notion for a fresh round of government stimulus to lift the country out of a recession, it marked the first time the Fed chief has referenced the roughly $800 billion recovery plan now being worked on by Obama, who takes office next week. Obama envisions a blend of tax cuts and increased government spending, including on big public works projects, to make up the stimulus plan.
Bernanke, who didn't weigh in on the details of the evolving package, made clear that such a recovery plan was needed as part of a broader, multi-pronged government response to combat the worst financial crisis to hit the U.S. and the global economy since the 1930s.
"The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity," Bernanke said in a speech to the London School of Economics.
"In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," he warned. "History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively."
To help on that front, the Fed is loaning out billions to financial companies and buying mounds of companies' debt to help bust through the debilitating credit clog. And the Treasury Department is overseeing a $700 financial bailout program that has pledged to inject $250 billion into banks in return for partial government ownership. Some money from the bailout pot also is being used to guarantee against possible losses from risky assets held by Citigroup Inc.
Bernanke said "more capital injections and guarantees may become necessary" to stabilize financial markets and spur more lending. If Obama's incoming Treasury secretary Timothy Geithner decides to remove toxic assets from financial institutions' balance sheets — the original but abandoned strategy under the $700 billion bailout — Bernanke suggested some options to do that.
Public purchases of the troubled assets are one way to go, he said. Another option is to provide asset guarantees under which the government would agree to absorb — presumably in exchange for warrants or some other form of compensation — part of the prospective losses on specified portfolios of rotten assets held by banks. Yet another approach would be to set up and capitalize so-called "bad banks," which would buy assets from the financial institutions in exchange for cash and equity in the bad bank.
Some Americans and some on Capitol Hill have been upset about Treasury's management of the $700 billion program, which has provided aid to financial companies and others on Wall Street — some of whom are blamed for getting the country into economic the mess in the first place — while other struggling industries get little or no assistance.
Bernanke said he understands this concern, but added: "This disparate treatment, unappealing as it is, appears unavoidable."
The United States' economic system is critically dependent on the free-flow of credit, Bernanke said. It is like the economy's oxygen. As it has been cut off, the economy has sunk deeper into recession, taking Americans' jobs with it.
Washington policymakers, Bernanke said, "must therefore do what they can to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest."
Obama's political skills will be put to a high-stakes test with Congress as he seeks assess to the second half of the $700 billion bailout pot. Congress has a 15-day deadline to reject the request, which President George W. Bush made on Obama's behalf on Monday.
To cushion fallout from the recession, the Fed in December slashed its key rate to an all-time low of between zero and 0.25 percent. The Fed signaled that it would keep rates at that level for some time and pledged to use unconventional tools to revive the economy. One such tool Bernanke again mentioned is the possibility of the Fed buying longer-term Treasury securities.
The central bank will meet later this month to assess economic and financial conditions.
Even as the U.S. battles the current crisis, it must move to prevent future ones. To be effective, international cooperation is needed, Bernanke said.
"A clear lesson of the recent period is that the world is too interconnected for nations to go it alone in their economic, financial and regulatory policies," Bernanke said. "International cooperation is thus essential if we are to address the crisis successfully and provide the basis for a healthy, sustained recovery."
In time, the global economy will recover from the current crisis, "but the timing and strength of the recovery are highly uncertain," he added.
more
-
Oil falls below $39 as investors eye US earnings
Oil prices fell Monday on concerns over global economic growth, with key U.S. corporate earnings results expected to give a new reading on crude demand in the world's largest consuming nation.
Economic worries outweighed factors that would normally boost the market — Mideast tensions, signs that OPEC was implementing large-scale production cuts and the Gazprom-Ukraine gas dispute.
Light, sweet crude for February delivery was down $2.25 to $38.58 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. The contract on Friday fell 87 cents to settle at $40.83.
Steel producer Alcoa, chip maker Intel and biotech company Genentech are expected to report fourth quarter results this week, providing investors with a gauge of how deep the current recession may be.
"Given that we're likely to see quite a few rather poor fourth quarter earnings reports, downward pressure will continue to be exerted on oil," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Worries about the macroeconomic outlook will continue to constrain oil."
Although still far from their Dec. 19 closing of $33.87, oil prices fell 17 percent last week, weighed by fears that rising U.S. unemployment will undermine crude demand.
The Labor Department said Friday that employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. The nation's unemployment rate jumped to 7.2 percent, the highest since 1993.
"It seems that demand worries continue to dominate market psychology and not even the tensions in the Middle East, OPEC production cuts or the gas row between Russia and Ukraine were able to pull up prices," said Vienna's JBC Energy in a research note.
Still, those bearish factors were expected to keep further price erosion in check.
"We have these other factors that will support oil," Shum said. "Most likely, we won't see a big downward spiral despite the poor earnings reports."
Prices of futures contracts for later this year suggest investors expect oil to recover. The March contract trades near $46 a barrel while the April contract trades above $49.
"The expectation is that pricing will regain strength, and it's not a question of if but when," Shum said.
In other Nymex trading, gasoline and heating oil futures slid by more than 3 cents to $1.08 and $1.45 a gallon. Natural gas for February delivery sank 2 cents to $5.50 per 1,000 cubic feet.
In London, February Brent crude fell $1.83 to $42.59 a barrel on the ICE Futures exchange.
more
-
Citigroup, Morgan Stanley talk about merging units
Officials at the embattled banks Citigroup and Morgan Stanley will negotiate over the weekend about possibly combining their wealth management businesses, a deal mostly aimed at bolstering Citi with much-needed cash.
The deal to merge Citi's Smith Barney with Morgan Stanley's comparable division was confirmed late Friday by a person familiar with the talks, who spoke on condition of anonymity because he was not authorized to discuss the matter.
The negotiations come as investors digested news that Robert Rubin, a senior adviser to Citi who has drawn heavy criticism, would resign from the bank. The person said it was Rubin's decision to leave Citigroup and that "there was no inside pressure," or government pressure.
Citi's shares sank nearly 6 percent on Friday.
Even before the economy started tanking, many shareholders had complained that Citigroup was too huge, and lagging its peers. Calls for a breakup have been going on for years, and have grown louder since the federal government has had to pump billions into the ailing company.
The New York-based bank late last year signed an agreement with the federal government to receive an additional $20 billion on top of the initial $25 billion it received.
Citigroup was hit particularly hard by the housing market downturn because the bank was heavily invested in mortgages and other loans. The company has reported four straight quarters of losses, and is expected to post yet another loss when it releases fourth-quarter results later this month.
If Morgan Stanley ends up buying Smith Barney, it "sounds like the beginning of a liquidation," said Christopher Whalen, managing director of Institutional Risk Analytics.
"Citi is under enormous pressure to downsize right now," added Bert Ely, a banking industry consultant in Alexandria, Va. After Citigroup received an extra dose of government funding, he said, "my sense is that the pressure has been increasing to accelerate the process."
In addition to the $45 billion infusion from the Treasury Department, which received preferred shares as part of the rescue, Citi also has received a government backstop for up to $306 billion in loans and securities backed by mortgages.
As Citigroup's stock plunged over the past year — it fell to $3.77 on Nov. 21 — Rubin, a former Treasury secretary, came under fire from critics who believed he should have had a more active role in preventing the bank's problems.
"Robert Rubin, in my opinion, spent a decade neglecting his duties as a director, just judging by their performance," Whalen said.
Rubin, 70, will continue to serve as a board director until his term expires at the next annual meeting in the spring, Citigroup said.
Rubin was U.S. Treasury Secretary under President Bill Clinton. For several decades before that, he worked at the Wall Street firm Goldman Sachs Group Inc. But his experience didn't keep Citigroup from taking on a massive amount of risk that relied on the housing market staying afloat.
Over the past six months, Rubin has slowly pared back his role at Citigroup, after serving as chairman for about a month following the ouster of former chairman and CEO Charles Prince in November 2007. Win Bischoff became Citi's chairman in December 2007, and investment banking head Vikram Pandit became CEO.
In August 2008, Rubin gave up his title as head of the board's executive committee, and became a "senior counselor" instead.
Leaving Citigroup, where he has worked for nearly 10 years, "is not a decision that I have come to lightly," Rubin said in a letter released by the bank. "But as I enter my 70s and with all that is now in place at Citi, I believe the time has come for me to make these changes."
He also wrote: "My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today."
Citigroup shares fell 41 cents, or 5.7 percent, to $6.75. Morgan Stanley shares were up 24 cents to $19.06.
more
-
Obama OKs modest tax changes after seeking ideas
Pushed by fellow Democrats, President-elect Barack Obama agreed to modest changes in his proposed tax cuts on Friday after inviting lawmakers to "just show me" ideas for fixing an economy shedding jobs at an alarming rate. Democratic congressional officials said that Obama aides came under pressure in closed-door talks to jettison or significantly alter a proposed tax credit for creating jobs.
Further, Democrats sought inclusion of relief for upper middle-class families hit by the alternative minimum tax. The so-called AMT was originally designed to make sure the very wealthy did not escape taxes, but it now hits many more people because of inflation, despite measures by Congress every year to prevent it from reaching tens of millions of middle-income families.
Congressional officials said aides to the president-elect had agreed to increase the $10 billion originally ticketed for energy tax breaks, although the final total remained unclear. Two officials said at least $20 billion would be reserved, but others indicated it could go higher.
Details were not available, but Obama has spoken in the past about increasing tax breaks for production of alternative energy sources such as wind power. The energy tax provisions make up a small part of a massive economic stimulus bill — expected to reach over $800 billion over two years — that congressional leaders hope to pass before mid-February.
With more than 11 million Americans out of work, Obama pressed Congress for urgent action and said the U.S. is undergoing "a devastating economic crisis that will become more difficult to contain with time." His warning was underscored by a government report showing that unemployment hit a 16-year high of 7.2 percent in December.
But congressional Democrats are making it clear they want to put their own stamp on the revival plan, despite the inevitable delays. Some Obama ideas, like a $3,000 job creation tax credit, might get scrapped.
Many Democrats aren't thrilled with Obama's business tax cut plans and are griping that there's not enough money in the measure for traditional infrastructure projects like road construction and water projects or for tax credits to promote renewable energy.
Beyond the emerging rifts — and the openness with which Democrats are pushing back against some of Obama's ideas — is the sheer enormity of crafting such a complex, controversial measure in just weeks. Lawmakers' insistence on making changes could delay the recovery plan beyond a mid-February deadline declared by House Speaker Nancy Pelosi, D-Calif.
Obama, at a news conference, sought to play down the differences. "There's no disagreement that the economy is in dire straits," he said. "There's no disagreement that we need to create jobs."
Top Democrats affirmed there is far more agreement than disagreement on the major parts of the recovery plan: aid to cash-strapped state governments, $500-$1,000 tax cuts for most workers and working couples, and a huge spending package blending old fashioned public works projects with aid to the poor and unemployed and a variety of other initiatives.
Obama said he welcomed input from lawmakers in both parties.
"If members of Congress have good ideas, if they can identify a project for me that will create jobs in an efficient way that does not hamper our ability over the long term to get control of our deficit, that is good for the economy, then I'm going to accept it," the president-elect said.
"What we can't do is drag this out when we just saw a half-million jobs lost," Obama said.
"If you can show me that something is going to work, I will welcome it," he said.
A squadron of Obama officials came to the Capitol on Friday to brief House Democrats on the measure, and they again heard criticism of some of Obama's proposed tax cuts, particularly a $3,000 credit for job creation. Lawmakers pressed for more infrastructure spending and tax credits to promote renewable energy and said that more needs to be done to address the housing crisis.
"There's considerable expertise running around the halls of Congress, and this week represents the first, most significant opportunity to have good, constructive dialogue on how we build the best package," said Rep. Earl Pomeroy, D-N.D.
Obama is promising to ride herd.
"It is my job to make sure that Congress stays focused in the weeks to come and gets this done," he said.
The top Democrat in Congress is a cheerleader for the Obama plan.
"All of their priorities are ones that we share," Pelosi said. "We just want to make sure that those (ideas), when they're written in the bill, are ones that can be used immediately and can create jobs."
Sen. Barbara Boxer, D-Calif., emphasized areas of broad agreement and the universal sentiment of a need to act.
"Please don't get the idea there was some sort of breakdown here," Boxer told reporters.
The details are closely held and subject to change — and the cost of various components seems to be bouncing around daily in the push and pull between the Obama transition team and congressional leaders.
"Spend more on infrastructure. That was a recommendation made in the caucus," Rep. Pomeroy said. Financial Services Committee Chairman Barney Frank, D-Mass., said money will be added to have state and local governments buy up foreclosed homes.
Boxer said about 20 percent of the bill would provide aid to the cash-strapped states, with 40 percent, or about $300 billion for tax cuts for individuals and businesses. The remaining 40 percent would go to spending programs such as infrastructure, help for the unemployed and renewable energy.
One tax provision would provide a $500 tax cut for most workers and $1,000 for couples, at a cost of about $140 billion to $150 billion over two years. The individual tax cuts may be awarded by withholding less from worker paychecks, effectively making checks about $10 to $20 larger each week.
more
-
Job losses hit 2.6 million as layoff pain deepens
A staggering 2.6 million jobs disappeared in 2008, the most since World War II, and the pain is only getting worse with 11 million Americans out of work and searching. Unemployment hit a 16-year high of 7.2 percent in December and could be headed for 10 percent or even higher by year's end.
Friday's government figures were "a stark reminder," said President-elect Barack Obama, that bold and immediate government action is needed to revive a national economy that's deep in recession and still sinking.
More than a half million jobs melted away as winter took hold in December — 524,000 in all, the government estimated — and the true carnage will almost certainly turn out to be even worse when the figures are nailed down more clearly a month from now.
"Behind the statistics that we see flashing on the screens are real lives, real suffering, real fears," said Obama, already moving full-speed with Congress to put together an emergency revival plan a week and a half before taking office.
It's real, indeed, for 38-year-old Rachel Davis of St. Louis.
"If you get laid off right now, God help your soul," she said. "You better hope you've got savings or someone backing you." In fact, she was laid off three months ago after working as a dental technician for 20 years. While Congress and the new president struggle to find answers, she says, "I have no faith in this system" and plans to move out of the country in hopes of finding better luck.
The severe recession, which just entered its second year, is already the longest in a quarter-century and is likely to stretch well into this year. The fact that the country is battling a housing collapse, a lockup in lending and the worst financial crisis since the 1930s makes the downturn especially dangerous.
All the problems have forced consumers and companies alike to retrench, feeding into a vicious cycle that Washington policymakers are finding difficult to break.
Investors, too. The Dow Jones industrial average fell 143 points Friday to end the week down nearly 5 percent, the worst week since November.
The Labor Department's unemployment report showed widespread damage across U.S. industries and workers — hitting blue-collar and white-collar workers, people without high school diplomas and those with college degrees.
"One word comes to mind — dreadful," said Stuart Hoffman, chief economist at PNC Financial Services Group.
And, there's no relief in sight. The new year got off to a rough start with a flurry of big corporate layoffs, and there were more on Friday. Airplane maker Boeing Co. said it plans to cut about 4,500 jobs this year, and uniform maker G&K Services Inc. is eliminating 460 jobs.
Employers also are cutting workers' hours and forcing some to go part-time. The average work week in December fell to 33.3 hours, the lowest in records dating to 1964 — and a sign of more job reductions in the months ahead since businesses tend to cut hours before eliminating positions entirely.
"There is no indication that the job situation would stabilize anytime soon," said Sung Won Sohn, economist at the Martin Smith School of Business at California State University. "This could turn out to be one of the worst economic setbacks since the Great Depression."
Economists predict a net total of 1.5 million to 2 million or more jobs will vanish in 2009, and the unemployment rate could hit 9 or 10 percent, underscoring the challenges Obama will face and the tough road ahead for job seekers.
All told, 11.1 million people were unemployed in December. An additional 8 million people were working part time — a category that includes those who would like to work full time but whose hours were cut back or those who were unable to find full-time work. That was up sharply from 7.3 million in November.
If those part-time employees, discouraged workers and others are factored in, the unemployment rate would have been much higher — 13.5 percent in December. That was the highest for that broader category in records going back to 1994.
Worried about the sinking economy and their own financial fortunes, companies are trimming payrolls as a way to cut costs. Government revisions showed losses in both October and November to be much deeper than previously reported.
"Clearly, the situation is dire, it is deteriorating, and it demands urgent action," Obama said Friday. "For the sake of our economy and our people, this is the moment to act, and to act without delay."
Obama, who takes over Jan. 20, is promoting a huge package of tax cuts and government spending that could total nearly $800 billion over two years. With add-ons by lawmakers, the package could swell to $850 billion or higher.
The unemployment rate zoomed from 6.8 percent in November, to 7.2 percent last month, the highest since January 1993.
The rate for blacks climbed to 11.9 percent, the highest since the spring of 1994. The rate for Hispanics rose to 9.2 percent, the highest since May 1996. The rate for teenagers rose to 20.8 percent, the highest since September 1992.
Last year was the first that payrolls had fallen for a full year since 2002, and the loss was the most since 1945, when nearly 2.8 million jobs disappeared. Though the number of payroll jobs in the U.S. has more than tripled since then, losses of this magnitude are still brutal.
The nation's jobless rate averaged 5.8 percent for the year — up sharply from 4.6 percent in 2007 and the highest since 2003.
During President George W. Bush's nearly eight years in office, a net total of 3 million jobs were created. In President Clinton's two terms, roughly 21 million jobs were generated.
Employment last month shrank in virtually every part of the economy — construction companies, factories, mortgage brokers, banks, real-estate firms, accountants and bookkeepers, computer designers, architects and engineers, retailers, food services, temporary help firms, transportation, publishing and waste management. The few fields spared included education, health care and government.
The lost-job total for December probably understated the reality since some companies probably held off on layoffs around the holidays, economists said. Moreover, the government collects the payroll information around mid-month. So the full extent of the layoffs probably wasn't captured, making it even more likely there will be big reductions in January and that December's cuts will be revised upward.
Workers with jobs saw modest wage gains. Average hourly earnings rose to $18.36 in December, a 3.7 percent increase over the year. But high prices for energy and food through much of 2008 made people feel that their paychecks weren't stretching that far.
Corporate layoffs continue to pile up. Earlier this week, drugstore operator Walgreen Co., managed care provider Cigna Corp., aluminum producer Alcoa Inc., data-storage company EMC Corp., Intermec Inc., which makes electronic devices for tracking inventory, and computer products maker Logitech International announced major layoffs to cope with the recession.
more
-
Radical cheap: Houses selling for $1,000
The real estate market is so awful that buyers are now scooping up homes for as little as $1,000.
There are 18 listings in Flint, Mich., for under $3,000, according to Realtor.com. There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.
"Foreclosures have turned banks into property management companies," said Heather Fernandez, a spokeswoman for Trulia.com, the real estate Web site. "And it's often cheaper for them to give these homes away rather than try to get market value for them."
In Detroit for instance, Century 21 Villa owner Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to Zillow.com.
With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.
In fact, the $500, $1,000 or $3,000 that a buyer forks over often goes straight to the real estate brokers as a commission. And often the lenders have to kick in extra cash to make it worthwhile for a realtor even take the listings, according to Eissa.
"Usually these homes are bank repossessions that the lenders have already tried to sell on the market, perhaps then put up for auction without success and then re-listed," he said.
Fixer uppers
These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances.
Often buyers are legally required to rehab these homes to bring them up to code. In Detroit, buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in.
But even factoring in these costs, they're still bargains.
And as the housing crisis drags on, there are more and more four-figure listings popping up, as lenders try to unload their repossessed properties.
Cleveland is another city with many incredibly inexpensive homes. On Ardenall Avenue, in East Cleveland, McMullen Realty has a listing for a four-bedroom, one-and-a-half bath house for $1,900. It's been vandalized inside, but the outside is in good shape.
It features a deep front porch with Doric columns, double dormer windows and a separate garage. It's an excellent opportunity, according to agent Tonya Stoudamire. The last time it sold was in March of 2008 when it went for $16,677, according to Zillow.
"East Cleveland has a beautiful housing stock," she said. "These houses just need someone to come in and love them a little."
Another property for sale in Birmingham Ala. is priced at $1,900. The one-bedroom, one bathroom home was built in 1923 and has major fire damage, according to its listing broker, Tom Murphy Realty. The listing states that "Rooms are hard to distinguish."
But it's on a nice-sized lot, about 0.38 acre, close to downtown and transportation and has all utilities. Nearby, comparable homes in good condition sell for about $100,000, according to Zillow.
Rehab money
Most of these $1,000 homes can be renovated relatively inexpensively, and buyers can actually get government help to finance these repairs. The U.S. Department of Housing and Urban Development (HUD) has a special loan program for just such purchases.
Its rehabilitation mortgage insurance, available through FHA-approved lenders, was designed to encourage banks to issue a single, long-term loan to buyers that covers both the acquisition and rehabilitation of a property, according to HUD spokesman Brian Sullivan.
He adds that there may also be grant money available from the $4 billion Neighborhood Stabilization Program, which was a part of the massive housing rescue bill passed by Congress in July, to assist buyers with grants for down payments.
Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and provide residents with good, dirt-cheap housing.
"It's a sad time," said Stoudamire. "But it's also a time of opportunity, especially for low and moderate income people."
more
-
Private job losses mount in December
Job losses and plans to lay off workers hammered the struggling U.S. economy in the final month of 2008, according to private reports that foreshadow grim labor market data from the government on Friday.
U.S. private employers shed 693,000 jobs in December, up sharply from the revised 476,000 jobs lost in November and far more than economists estimated, a report by ADP Employer Services said on Wednesday.
Separate data also showed planned layoffs at U.S. firms eased in December from the previous month's seven-year high but were up an astounding 275 percent annually as the year-old recession cut a huge swathe of destruction through job market.
"It is absolutely terrible," said Dave Lutz, managing director, Stifel Nicolaus, Baltimore.
"I can't imagine this is going to bode very well for any kind of forecasting going into the nonfarm payroll and unemployment rate numbers that we're going to see on Friday."
The ADP December U.S. job losses were the highest since the ADP's survey launch in 2001. Economists expect Friday's payrolls report to show 500,000 jobs were cut in December, according to the median of their forecasts in a Reuters poll.
However, Joel Prakken, chairman of Macroeconomic Advisers, which jointly developed the ADP report, said its data was consistent with a loss of about 670,000 jobs in the government's more comprehensive non-farm payrolls report.
Worse yet, he said he still expected a little more than 2 million U.S. job losses over the next year.
He added that the U.S. economy probably contracted at a 5.5 percent annualized rate in the fourth quarter and would shrink 3.5 percent in the first quarter of this year.
"After that economic growth is going to depend on the size and timing of the fiscal package that is being discussed in Washington right now," Prakken said.
The grim jobs data sent U.S. stock index futures lower. Government bonds, which generally benefit from weak economic data, pared their losses.
LAYOFFS CHALLENGE
The median of estimates from 20 economists surveyed by Reuters for the ADP Employer Services report was for 473,000 private-sector jobs lost in December.
The report for December was the first month the data was issued using a new methodology, which ADP said was designed to more closely predict the outcome of the government's non-farm payrolls report.
The economic slump, which is likely to be the longest since the Great Depression of the 1930s, also produced the worst year of layoffs since 2003, outplacement company Challenger, Gray & Christmas said in its monthly report on U.S. job cuts.
The Challenger report said heavy job-cutting could continue through at least the first half of 2009, and the outlook afterward hinges on President-elect Barack Obama's plans to stimulate the economy through increased government spending.
Job cuts announced in December totaled 166,348, down 8.4 percent from November's 181,671, Challenger, Gray & Christmas said. Despite the monthly decline, layoffs were up from just 44,416 in the year-ago period.
Overall, employers announced 1,223,993 job cuts in 2008, the largest annual total since 2003, when there were 1,236,426 job cuts.
The job losses, on top of the worst credit crunch in a generation, do not bode well for consumers, who struggled throughout 2008.
The American Bankers Association said late payments on U.S. consumer loans rose in the third quarter to their highest level since 1980, with late payments on indirect auto loans and home equity lines of credit hitting the highest ever during that period.
The ABA said it expected delinquencies on all types of U.S. consumer loans to rise in coming quarters.
more
Subscribe to:
Posts (Atom)