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Russia, Belarus fail to agree on $500M loan
Russia and Belarus failed to agree Thursday on the last $500 million installment of a $2 billion Russian loan that aimed to help its struggling neighbor avoid bankruptcy, Russia's finance minister said.
Russian Finance Minister Alexei Kudrin said his country offered to provide the final installment in Russian rubles instead of dollars but Belarus refused.
Kudrin, who accompanied Russian Prime Minister Vladimir Putin on a trip to the Belarusian capital, blasted Belarus's planned economy and the stiff control of its currency as a "meaningless policy." He also described Belarus as taking a "parasitic" attitude to Russia.
The unusually blunt criticism reflected a growing tensions between the two neighbors and allies, which have been increasingly divided by economic and political arguments.
Kudrin told reporters that Belarus — which spent $2 billion to prop up its national currency in the first quarter of 2009 — will run out of hard currency reserves by the end of third quarter if it keeps up that level of spending.
"We may see insolvency of the Belarusian government and the Belarusian economy as a whole due to the hard currency shortage at the end of this year or next year," he said.
Russia and Belarus have an accord envisaging close political, economic and military ties, and they declared a joint goal of building a single state. Moscow has been the main ally and sponsor of Belarusian President Alexander Lukashenko, who has been described by many in the West as "Europe's last dictator" for his relentless crackdown on the opposition and free media.
But the Kremlin has been increasingly vexed by Lukashenko's staunch resistance to Russian attempts to take control of key Belarusian industrial assets.
Moscow also expected Belarus to quickly follow its example in recognizing Georgia's breakaway provinces of South Ossetia and Abkhazia as independent nations, which Russia did in the wake of the Russian-Georgian war last August.
The Belarusian parliament, however, has not taken up the issue.
Kudrin denied that the disagreement on the final loan installment to Belarus had been rooted in Belarus' refusal to recognize the independence of two Georgian regions.
"I have never raised this issue with any Belarusian official," he said.
Adding to Moscow's dismay, Lukashenko has sought recently to improve ties with the United States and the European Union, releasing political prisoners and making other overtures. Russia has accused the West of trying to encroach on what it sees as its traditional sphere of influence.
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US new home sales edge higher in April
US new home sales edged slightly higher in April house prices increased, the government said Thursday in a report showing modest improvement in the troubled sector.
The Commerce Department reported sales of new one-family houses in April rose to a seasonally adjusted annual rate of 352,000 units, a gain of 0.3 percent above the revised March rate of 351,000 units.
Most analysts had expected a stronger sales pace of 360,000 houses.
Last month's sales rate was 34.0 percent lower than in April 2008.
However, compared with January's record low for the data series begun in 1963, at 329,000 units, sales were up 7.0 percent over the three months.
The new home sales data followed a National Association of Realtors report Wednesday of an unexpectedly strong 2.9 percent increase in sales of existing homes, the dominant sector in the residential market, as falling prices attracted buyers.
The Commerce Department said the median sales price of new houses in April rose 3.7 percent, to 209,700 dollars, in April from March, but was 14.9 percent lower than a year ago.
The glut of new houses on the market continued to fall as builders slashed projects in the face of falling home prices and rising unemployment in the recession-gripped economy.
Residential construction plunged 4.2 percent compared with the end of March, and was down 35.4 percent from a year ago to a pace last seen in 1963.
The number of new houses for sale fell to a seasonally adjusted 297,000 at the end of April, the lowest level since May 2001.
At the current sales rate, it would take 10.1 months to buy all the inventory on the market. That was down from 10.6-month supply in March and a peak glut at 12.4 months in January.
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U.S. jobless claims fell 13,000 last week
The number of U.S. workers filing new claims for jobless benefits dropped by 13,000 last week, the Labor Department reported on Thursday, but so-called continued claims hit a new record as the recession took a further toll on job prospects.
Initial claims for state unemployment insurance benefits declined to a seasonally adjusted 623,000 in the week ended May 23 from a revised 636,000 in the prior week. It was the second straight week in which initial claims fell.
Analysts polled by Reuters had forecast 630,000 new claims for benefits last week compared with a previously reported 631,000 in the preceding week.
Some 5.7 million U.S. jobs have been scrubbed from payrolls since a severe recession began in late 2007, battering labor markets as companies cut current employees and hold off on hiring.
The number of people staying on benefit rolls after drawing an initial week of aid increased by 110,000 to a higher-than-forecast 6.79 million in the week ended May 16, the most recent period for which the data was available. Analysts had estimated continued claims would be 6.74 million.
Continued claims have set new records in every week since January 24 and now are more than double the level they were at a year ago.
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GM says bondholders support sweetened offer
General Motors Corp. said Thursday a committee of bondholders has agreed to a sweetened deal to erase the automaker's unsecured debt in exchange for company stock.
A person familiar with the deal said that it is probable GM will file for bankruptcy protection. The person asked not to be identified by name because discussions are still under way with the U.S. and Canadian governments and there is a small chance that the company could avoid a Chapter 11 filing.
The company said in a statement that it offered bondholders 10 percent of the stock in a newly formed GM, with warrants to buy up to 15 percent if the bondholders agree to support selling the company's assets to a new company under bankruptcy court protection.
The company made the disclosure in a filing with the U.S. Securities and Exchange Commission.
The filing says if the bondholders don't agree to support the sale, then the amount of stock and warrants they get would be substantially reduced or eliminated.
Under the proposal, which has a deadline of 5 p.m. Saturday, GM would at some point enter bankruptcy protection and its good assets would be separated from bad ones.
The U.S. Treasury would get 72.5 percent of the new company's shares, while a United Auto Workers' retiree health care trust fund will get 17.5 percent and the old GM would get 10 percent.
The bondholders' stake would presumably be additional shares that would dilute the first batch issued by the new company. The UAW trust and others would get warrants for additional shares that would further dilute the stock.
Trading of GM shares was halted for a short time Thursday morning, but resumed to rise 18 cents, or 15.7 percent, to $1.33.
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Home prices fall by record 19.1 percent in 1Q
Home prices fell at the fastest annual rate on record in the first quarter, but the pace of month-to-month declines continues to slow, a closely watched housing index showed Tuesday.
The Standard & Poor's/Case-Shiller National Home Price index reported home prices tumbled by 19.1 percent in the first quarter, the most in its 21-year history.
Home prices have fallen 32.2 percent since peaking in the second quarter of 2006 and are at levels not seen since the end of 2002.
The 20-city index fell by 18.7 percent in March from the year before and the 10-city index lost 18.6 percent. Those declines were a bit better than February's and marked the second straight month the indexes didn't post record drops.
Still, there are no signs home prices have hit bottom.
"We see no evidence that a recovery in home prices has begun," said, David M. Blitzer, chairman of the S&P index committee.
All 20 cities showed monthly and annual price declines, with nine setting annual records. Fifteen cities posted double-digit drops and three cities — Phoenix, Las Vegas and San Francisco — all recorded declines of more than 30 percent.
Minneapolis posted a 6.1 percent decline from February to March, and the biggest monthly drop on record for all of the metro area.
Charlotte, N.C., and Denver home prices had the best performance in March over February, both edging up less than 1 percent. Home prices in Dallas were flat in March.
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Consumer confidence soars in May
Consumer confidence extended its rebound in May, soaring to the highest level since last September as more shoppers are feeling the worst of the recession is behind them.
The Conference Board said Tuesday that its Consumer Confidence Index, which had dramatically increased in April, zoomed past economists' expectations to 54.9 from a revised 40.8 in April. Economists surveyed by Thomson Reuters were expecting 42.3. In February, confidence levels had hit a new historic low of 25.3.
The reading marks the highest in eight months when the level was 61.4. The levels are also closer to the year-ago's 58.1, though the widely watched barometer is still below 100, which indicates a healthy economy.
The Present Situation Index, which measures how shoppers feel now about the economy, rose to 28.9 from 25.5 last month. But the Expectations Index, which measures shoppers' outlook over the next six months, climbed to 72.3 from 51.0 in April.
Investors focused on the upbeat sentiment reading, shaking off a mostly downbeat report on the housing market, also released Tuesday. In midmorning trading, the Dow Jones industrial average rose 130.62, or 1.6 percent, to 8,407.94.
"Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. "While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us."
The confidence report offered encouraging news to merchants,which are counting on consumers to be in the mood to spend after confidence plummeted to historic lows late last year but has been rising since March. A two-month stock rally has helped make shoppers feel a little better about their retirement funds, spurring dramatic rebounds in confidence in April and May levels.
Meanwhile, better-than-expected earnings results from such retailers as Sears Holdings Corp. and Gap Inc. have offered the latest evidence that spending has begun to stabilize, though overall business is still weak.
The size of the monthly increases in April and May in consumer confidence encouraged economists. Gary Thayer, chief economist at Wells Fargo Advisors, says that unless the economy suffers from major financial shocks, it looks like "we've turned the corner" on confidence.
"This is a significant change," said Thayer. "While (consumers) are unhappy about their job situation and their home values, they see light at the end of the tunnel." He added, however, sentiment has a way to go before shoppers go back to splurging. That can only happen when the job and housing markets, which have been holding down sentiment, start to turn around.
The latest report on home prices, released Tuesday, wasn't comforting. Home prices fell at the fastest annual rate on record in the first quarter, though the pace of month-to-month declines continues to slow, according to a closely watched housing index.
The Standard & Poor's/Case-Shiller National Home Price index reported home prices tumbled by 19.1 percent in the first quarter, the most in its 21-year history.
Home prices have fallen 32.2 percent since peaking in the second quarter of 2006 and are at levels not seen since the end of 2002.
Meanwhile, Americans continue to cut back on nonessentials like furniture while focusing on buying necessities as they worry about their jobs. The unemployment rate is expected to climb to 9.2 percent in May from 8.9 percent in April and employers are expected to shed a net total of 523,000 jobs, according to economists surveyed by Thomson Reuters. The Labor Department is expected to release unemployment figures on June 5.
The Consumer Confidence survey — whose responses were received through May 19 from a representative sample of 5,000 U.S. households — showed a marked improvement in consumers' outlook for jobs. The percentage of consumers expecting more jobs in the months ahead increased to 20.0 percent from 14.2 percent, while those anticipating fewer jobs declined to 25.2 percent from 32.5 percent. The proportion of consumers anticipating an increase in their incomes edged up to 10.2 percent from 8.3 percent.
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Obama set to approve new rules for credit cards
New rules for the credit card industry that are designed to protect consumers from surprise charges, such as over-the-limit fees and costs for paying a bill by phone, are part of a bill President Barack Obama is set to sign into law.
Obama plans to sign on Friday an overhaul of credit card regulations that he blames in part for the economic downturn. Despite opposition from financial companies, the bill cleared Congress with broad support.
"These are important reforms to protect consumers and to bring some commonsense rationality into our financial system, and the president looks forward to signing it as quickly as possible," White House spokesman Robert Gibbs said.
The new rules, which would go into effect in nine months, would prohibit credit card companies from giving cards to people under 21 unless they can prove they have the means to pay the debt or a parent or guardian co-signs for the card.
Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. Even then, the lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.
Consumers also would have to receive 45 days' notice and an explanation before their interest rates increased.
Last year, the Nilson Report estimated that more than 700 million credit cards were in circulation in the United States. That's more than two cards for every man, woman and child.
Many cardholders are carrying hefty balances. According to the Federal Reserve, the nation is some $2.5 trillion in debt, a figure that does not include home mortgages.
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GM sees three Opel bidders as deadline runs out
Stricken US auto giant General Motors said Wednesday it expected at least three bidders for a stake in its European Opel unit to hand over plans to the German government ahead of a 1600 GMT deadline.
A spokesman for GM Europe stopped short of naming names but Italy's Fiat and Canadian auto parts maker Magna have confirmed an interest, while US investment fund Ripplewood is also reportedly throwing its hat into the ring.
The final decision on Germany's Opel, as well as other units of GM Europe including Britain's Vauxhall and Sweden's Saab, lies with GM itself and with the US government, but Berlin will sweeten any deal with loan guarantees.
GM is relying on more than 15 billion dollars (11 billion euros) in emergency government loans and faces a June 1 deadline to complete major restructuring or follow fellow former behemoth Chrysler into bankruptcy.
GM's chief executive Fritz Henderson said last week that a bankruptcy filing is the "more probable" outcome "given the objectives that we've set for ourselves."
The most prominent bidder for Opel is Italy's Fiat, which wants to combine GM's European, Latin American and South African operations with Chrysler to create the world's second largest carmaker behind Japan's Toyota.
Fiat earlier negotiated a 20-percent stake in bankrupt Chrysler in exchange for its production technology and can increase that to a controlling 51-percent share in the US auto maker as long as Chrysler repays state aid.
Canadian car parts maker Magna has also expressed an interest, teaming up with Russian state-owned lender Sberbank and with Russian carmaker GAZ, owned by tycoon Oleg Deripaska.
"This evening the deadline expires and these expressions of interest will be quickly evaluated by the government, but they will also be assessed in parellel by GM and the US government," government spokesman Ulrich Wilhelm said.
"Afterwards, in light of this assessment we will engage in further talks and negotiations. A government delegation is also ready... to travel to the US."
Bidders making a formal offer will be expected to come up with around 650 million euros (886 million euros), the FT reported on Wednesday, and that GM will give preference to cash bids.
This could be a blow to Fiat, a spokesman said on Tuesday that the firm intended to offer assets instead of cash, in a similar model to its recent deal securing a stake in Chrysler.
"We are in crisis but we still have a value," Klaus Franz, the head of Opel's powerful works council told the FT. "Such remarks are bursting with arrogance and disrespect for the employees at Opel."
Italy's Economic Development Minister Claudio Scajola said on Italian television on Wednesday however that Fiat had a "good chance" of getting control of Opel.
"It is difficult to say who has the best cards," BHF-Bank analyst Aleksi Wunraw told AFP.
The fate of Opel, an industrial icon dating back to the 19th century and which directly employs around 25,000 people in Germany, has become a hot-button political issue with barely over four months to go until general elections.
Chancellor Angela Merkel, up for a second term in the September 27 vote, is prepared to pull out all the stops to save Opel from collapse but being seen as writing a blank cheque on behalf of taxpayers could hurt her re-election hopes.
The German government is also drawing up emergency plans involving a special trustee and so-called bridge financing to keep Opel going in the event of a GM bankruptcy.
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Target posts 13 percent drop in 1st-quarter profit
Discount retailer Target Corp. reported a 13 percent decline in first-quarter profit on Wednesday as it confronts sluggish consumer spending. But the results beat analysts' estimates because of cost-control measures.
The Minneapolis-based retailer said Wednesday that it earned $522 million, or 69 cents per share, for the three months ended May 2. That compares with $602 million, or 74 cents per share, a year earlier.
Revenue was little changed at $14.83 billion, compared with $14.80 billion a year earlier. Analysts, who usually exclude one-time items, were expecting 60 cents per share on revenue of $14.81 billion.
Chairman and Chief Executive Gregg Steinhafel said in a statement that the chain saw strong gains in sales at established stores, especially in areas like food. He said results from the company's credit card business, which have dragged down its performance in the past because of a rise in delinquencies, were "stable, profitable and consistent" with expectations.
"We believe this improved stability and predictability in key aspects of both our retail and credit card segments reflects the resilience of our strategy," he said.
Discounters, particularly Wal-Mart Stores Inc., have benefited from consumers switching to cheaper stores. But at Target, where more than 40 percent of revenue comes from nonessentials such as trendy fashions and home goods, the cheap-chic formula that once was its strength became a drag as shoppers cut their spending overall.
Target has been reducing staff, tightening consumer credit card underwriting and freezing senior managers' salaries. It's also expanding further into food sales, which it believes will help drive customer traffic and help it compete with Wal-Mart.
The company is facing pressure from activist shareholder William Ackman to make more dramatic changes. Ackman, who leads hedge fund Pershing Square Capital Management, which owns 7.8 percent of the discounter's outstanding shares, has been fighting to change its board of directors — a move he believes will provide fresh perspectives and make the discounter more profitable.
Target has rejected his proposal to separate Target's stores and distribution centers from the land it owns underneath them. Ackman has been urging the company to look at this and other ways to unlock the company's real estate's value. The shareholders' meeting is set for next week.
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Stocks jump on renewed optimism on housing, banks
Reassuring news about housing and banking on Monday convinced investors to return to the stock market.
The Dow Jones industrial average shot up 235 points, making up three-quarters of last week's losses. All the major indexes rose about 3 percent.
A better-than-expected profit report from Lowe's Cos., an uptick in homebuilder sentiment and positive comments from analysts about U.S. banks revived investors' confidence in an economic rebound. Stocks fell sharply last week on worries that a recovery might be further off than hoped, interrupting a rally that has left the Standard & Poor's 500 index up 34.5 percent since March 9.
Steep drops in home values have been at the heart of the economy's troubles, slicing into consumers' wealth and saddling banks with huge losses. Analysts believe that stability in the housing and banking industries are imperative for the economy to rebound.
"There's a realization that things are going to get better," said James Cox, managing partner at Harris Financial Group. "That's the main theme of the market over the last couple of weeks."
Despite Monday's bounce, however, the market is expected to remain volatile as investors look for signs that the economy is actually recovering — not just slowing its descent.
At the start of the market's upswing in March, signs of stabilization were enough to encourage investors to buy stocks. Linda Duessel, equity market strategist at Federated Investors, said the rally has been driven by "less bad" information.
"Probably, we'll get bored with that as the months progress," Duessel said. "We'll need something better to move the market."
The Dow rose 235.44, or 2.9 percent, to 8,504.08. That was the biggest point gain since a 246-point jump on April 9.
The S&P 500 index rose 26.83, or 3 percent, to 909.71, putting it back into positive territory for the year. The Nasdaq composite index rose 52.22, or 3.1 percent, to 1,732.36.
Government bond prices fell, pushing the yield on the 10-year Treasury note — a widely used benchmark for home mortgages and other loans — up to 3.24 percent from 3.14 percent late Friday.
Last week, the Dow slid 3.6 percent, the S&P 500 index lost 5 percent and the Nasdaq fell 3.4 percent as a weak retail sales report and an uptick in job losses had investors questioning the merits of a two-month rally off of 12-year lows.
But U.S. and European trading started on strong footing Monday after India's stock market rose an unprecedented 17 percent. Investors viewed the country's election results as paving the way for economic reforms.
U.S. stocks got a boost when Lowe's Cos., the nation's second-largest home improvement chain, posted earnings that easily beat Wall Street's forecasts and raised its full-year profit outlook.
Lowe's closed up $1.49, or 8.1 percent, at $19.94.
Buying accelerated later in the day when the National Association of Home Builders said its housing market index rose for the second month in a row in May. The report reflected growing optimism among builders, an encouraging sign that housing activity might be picking up.
Homebuilding stocks soared on the news. Beazer Homes USA Inc. rose 47 cents, or 20 percent, to $2.81, while Lennar Corp. rose $1.21, or 13.7 percent, to $10.02.
Financial stocks also surged after a spate of analysts issued promising outlooks for the troubled banking industry.
Rochdale Securities analyst Richard Bove noted the potential for "explosive earnings growth and unusually strong stock price performance" for banks as the economy recovers. Goldman Sachs raised its rating on Bank of America Corp. to "Buy" on expectations for solid earnings in the second quarter. And BMO Capital Markets upgraded its view of the banking industry, anticipating that profits will start to rebound in coming quarters.
Bank of America rose $1.06, or 9.9 percent, to $11.73.
State Street Corp. was another big gainer after it became the latest bank to turn to the capital markets to raise money. The commercial bank said it expects to raise about $1.45 billion through a stock offering as part of an effort to repay a $2 billion government loan that came as part of the financial rescue program last fall.
State Street rose $3.28, or 8.5 percent, to $41.79.
Analysts say the ability of banks to raise cash is a welcome sign of strength, even if the introduction of added shares makes those already in circulation worth somewhat less.
"The banks are stable," Cox said. "We're not going to see any of the large banks go down. And now that we have stabilization in the banking system, we can move forward."
In other trading, the Russell 2000 index of smaller companies rose 18.95, or 4 percent, to 494.79.
About nine stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 5.5 billion shares, up from 5.3 billion shares Friday.
Energy stocks were lifted by a sharp gain in oil prices. Crude rose $2.69 to $59.03 a barrel as investors made bets that demand would be strong throughout the summer driving season, which kicks off this weekend with the Memorial Day holiday.
The dollar fell against other major currencies. Gold prices also fell.
Stocks overseas were mixed following weak corporate earnings reports in Asia. Japan's Nikkei stock average fell 2.4 percent. Britain's FTSE 100 jumped 2.3 percent, Germany's DAX index rose 2.4 percent, and France's CAC-40 rose 2.4 percent.
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Stocks point to higher open ahead of housing data
U.S. stocks signaled a moderately higher open Monday as investors look for bargains after last week's pullback.
Investors are again examining the housing market for clues about the economy. The National Association of Home Builders is set to release its index of builders' confidence for May at 1 p.m. Eastern.
There was some upbeat news on the housing industry before the opening bell. Lowe's Cos., the nation's second largest home improvement chain, posted a 22 percent drop in its first-quarter earnings but results topped Wall Street's forecasts.
Steep losses on home values are one of the economy's biggest trouble spots because it is hurting banks and consumers.
Banking company State Street Corp. said it plans to raise funds through stock and debt offerings as part of an effort to repay the $2 billion the government loaned as part of its financial rescue last fall. State Street, which specializes in serving institutional investors and wealthy customers, said it expects to raise $1.45 billion from the stock offer alone. The stock slipped 1 percent in electronic trading.
Dow Jones industrial average futures rose 52, or 0.6 percent, to 8,319. Standard & Poor's 500 index futures rose 6.60, or 0.8 percent, to 889.60, while Nasdaq 100 index futures rose 8.50, or 0.6 percent, to 1,362.75.
Analysts say the ability of banks to turn to the market to raise cash is a welcome sign of stability, even if the introduction of added shares makes those already in circulation worth less.
"If you look back just 60 days ago the talk was of nationalization of some of our biggest banks. Some of the prognosticators were calling for 5,000 Dow," said Jeff Layman, chief investment officer at BKD Wealth Advisors. The Dow closed Friday at 8,269.
He expects trading will remain volatile as investors look for signs that the recession is easing.
"It's going to be fits and starts for a while," Layman said.
Last week, the Dow slid 3.6 percent, the S&P 500 index lost 5 percent and the Nasdaq fell 3.4 percent as investors worried that the economy's recovery might be further off than hoped after stocks rallied since hitting 12-year lows more than two months ago.
Bond prices mostly rose early Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.12 percent from 3.14 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose $1.92 to $58.26 in electronic trading on the New York Mercantile Exchange.
Beyond the housing sales report, Wall Street will be looking this week to data Tuesday on housing construction and regional manufacturing on Thursday.
Investors are looking for signs that the economy is starting to recover, not simply slow its descent. At the start of the market's 30 percent rally since the lows of March 9 investors were willing to scoop up stocks when the economy signaled it might be stabilizing. But now, after the rally, analysts say more will be needed to carry the market higher.
Stocks overseas were mixed following weak corporate earnings reports in Asia. India's index surged 17 percent after investors saw election results as paving the way for economic reforms. Japan's Nikkei stock average fell 2.4 percent. In afternoon trading, Britain's FTSE 100 rose 1.1 percent, Germany's DAX index rose 1.2 percent, and France's CAC-40 fell 0.9 percent.
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Retail sales drop unexpectedly in April
Retail sales fell for a second straight month in April, a disappointing performance that raised doubts about whether consumers were regaining their desire to shop. A rebound in consumer demand is a necessary ingredient for ending the recession.
The Commerce Department said Wednesday that retail sales fell 0.4 percent last month, much worse than the flat reading economists expected. The April weakness followed a 1.3 percent drop in March that was worse than first estimated.
Retail sales had posted gains in January and February after falling for six straight months, raising hopes that the all-important consumer sector of the economy might be stabilizing. But the setbacks in March and April could darken some forecasts because consumer spending accounts for about 70 percent of economic activity.
The hope had been that consumers were starting to feel better about spending, helped by the start of tax breaks included in the $787 billion stimulus bill. Households had spent the fall hunkered down in the face of thousands of job layoffs and the worst financial crisis since the 1930s.
The worse-than-expected April retail sales reading came despite a 0.2 percent increase in auto sales, which fell 2 percent in March. Excluding autos, the drop in retail sales would have been 0.5 percent, much worse than the 0.2 percent gain economists expected.
Sales outside of autos showed widespread weakness. Demand at department stores and general merchandise stores fell 0.1 percent and sales at specialty clothing stores dropped 0.5 percent.
Sales also fell at furniture stores, electronic and appliance stores, food and beverage stores and gasoline stations.
The performance at department stores and specialty clothing stores came as a surprise since the nation's big chain stores had reported better-than-expected results for April. Same-store sales, rose 0.7 percent last month compared with April 2008. It was the first overall increase in six months, according to the tally by Goldman Sachs and the International Council of Shopping Centers.
For April, some mall-based clothing stores saw their declines level off and Wal-Mart Stores Inc., the world's largest retailer, had reported its same-store sales rose 5 percent, excluding fuel, which beat expectations. Same-store sales, or sales in stores open at least one year, is considered a key metric of a retailer's financial health.
The chain store sales report last week showed that Gap, American Eagle and Wet Seal posted smaller sales declines at their established locations than analysts had forecast.
The Children's Place, T.J. Maxx owner TJX Cos. Inc. and teen retailer The Buckle saw bigger gains than expected. But luxury stores again were hard hit as their higher-end wares find fewer takers.
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Trade deficit widens in March to $27.6 billion
The U.S. trade deficit rose in March for the first time since last July as the global recession cut sharply into sales of American exports. The politically sensitive deficit with China increased.
The Commerce Department said Tuesday the deficit widened to $27.6 billion in March, slightly lower than the $29 billion gap that economists had forecast.
The March deficit was 5.5 percent higher than February's revised $26.1 billion trade gap, which had been the smallest since November 1999. Through the first three months of this year, the trade deficit was running at an annual rate of $359.7 billion, far below last year's $681.1 billion. Economists expect the deficit will remain at low levels this year as a recession in the U.S. crimps demand for foreign goods.
Other reports out Tuesday showed the federal government ran a deficit in April for the first time in 26 years, home prices in most of the U.S. fell in the first quarter, while job openings have hit an eight-year low. Still, economists said the latest data indicate the domestic and global economies are stabilizing, although at very low levels.
The global downturn also has cut into sales of U.S. exports. That will limit the amount of improvement seen in the deficit, which is the difference between what America imports and what it sells abroad. The slump in exports has been a blow to U.S. manufacturing giants such as Boeing Co. and Caterpillar Inc. who derive a large part of their sales from foreign markets.
For March, exports of goods and services fell 2.4 percent to $123.6 billion, the lowest level since August 2006. Sales of farm products dropped $2.4 billion, while exports of capital goods slid $1.7 billion, led by big declines in sales of civilian aircraft, telecommunications equipment, semiconductors, and domestic autos and auto parts.
"The composition of exports suggest that the global economy is beginning to stabilize," Nigel Gault, chief U.S. economist at IHS Global Insight, wrote in a research note. "The steepest export declines are behind us. But given the weak state of overseas economies, we do not expect the U.S. recovery to be export-led."
The March trade deficit also was smaller than the one the government assumed when it released its first estimate showing the overall economy, as measured by the gross domestic product, fell at an annual rate of 6.1 percent in the January-March quarter. That means the next GDP estimate for the first quarter likely will be revised to show a drop of around 5.7 percent, Gault said.
Imports declined 1 percent to $151.2 billion, the lowest level since September 2004. Imports of capital goods dropped $516 million, led by declines in industrial machinery. The overall import level fell even though imports of oil rose 6.2 percent to $17.2 billion, the highest level since January.
The politically sensitive deficit with China rose 10 percent to $15.6 billion in March. But for the first three months of this year, the deficit with China is running 10 percent below last year's pace.
China for more than a decade has been the country with the largest trade surplus with the U.S. The gap has triggered repeated calls in Congress for a crackdown on what critics see as unfair trade practices in China that also have resulted in the loss of millions of American manufacturing jobs.
But critics pushing for a tougher stance on trade said the rise in the overall deficit underscored the need for the Obama administration to take a tougher approach.
"A rising U.S. trade deficit amid a steep economic downturn means that foreign trade cheating is still handicapping U.S. domestic producers and undermining American growth. It's time for President Obama to get serious about leveling the playing field," Alan Tonelson, a research fellow at the U.S. Business and Industry Council, a coalition of medium-sized U.S. manufacturing companies, said in a statement.
China reported Tuesday that its global export sales fell 22.6 percent in April from the same month last year, fresh evidence that pain in the country's trade sector persists due to slumping global demand.
The Obama administration on Tuesday said Treasury Secretary Timothy Geithner will travel to Beijing early next month for meetings with senior Chinese officials. It will be Geithner's first trip to China since he became Treasury secretary.
The Treasury Department said Geithner's discussions on June 1-2 will cover ways to strengthen U.S.-China economic ties. The administration earlier this year said it will continue to hold high-level talks with China started by the Bush administration, although the frequency of the meetings was halved to once a year. The first meeting is scheduled for this summer in Washington.
The Treasury Department also said the federal government ran a $20.9 billion deficit in April, a sharp contrast to the $159.3 billion surplus in the same month last year.
For the budget year that began Oct. 1, the deficit totals $802.3 billion, keeping the country on track to register the first $1 trillion annual deficit in U.S. history. The Obama administration on Monday raised its deficit estimate for the year to $1.84 trillion, from the $1.75 trillion it estimated less than two months ago.
With the U.S. recession expected to last until the second half of this year and the downturn in many other nations expected to drag into 2010, economists don't expect a significant rebound in trade anytime soon.
Meanwhile, home prices in the U.S. also continue to fall, although that has prompted sales gains in a handful of states. The National Association of Realtors said that median sales prices of existing homes declined in 134 out of 152 metropolitan areas compared with the same period a year ago. Nationwide, sales of foreclosures and other distressed properties made up about half of the market.
Home sales fell in all but six states — Nevada, California, Arizona, Florida, Virginia and Minnesota — where buyers have been able to snap up foreclosures at a deep discount. Still, the median sales price nationwide was $169,900, down 13.8 percent from a year ago. The median price is the midpoint, which means half of the homes sold for more and half for less.
The housing slump and latest hit to export sales have added to the wave of job layoffs in the U.S. There were 2.7 million jobs available nationwide in March, down from 3 million in February and 4 million a year ago, according to the Labor Department. That's also the lowest number in the eight years the department has tracked job openings.
Other recent reports indicate that while layoffs may be slowing compared with the waves announced earlier this year, hiring hasn't picked up much since the department gathered the job openings data in March.
The department on Friday reported 539,000 net job losses in April. While still elevated, it was the lowest level in six months and below the 700,000 monthly average during the first quarter of this year.
Many economists believe the unemployment rate, which hit 8.9 percent in April, will climb to around 10 percent even if the recession ends and a recovery begins sometime this fall.
Without new hiring, the unemployment rate will continue to rise. That's because many people who were discouraged and stopped looking for work at the depths of a recession customarily return to the labor market once a recovery begins. If jobs aren't available, those new job seekers are added to the total of unemployed workers.
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China's exports sink, but factory investment rises
China's exports fell more than expected in April, dropping 22.6 percent from a year ago in the sixth straight monthly decline, as the government vowed to redouble efforts to help boost trade.
On the positive side, Beijing reported that investment in factories and property development jumped 30.5 percent during the first four months of the year to 3.71 trillion yuan ($543.2 billion), thanks to a slew of bank loans for government stimulus projects.
April's decline in exports, to $91.9 billion, was bigger than March's 17 percent drop and suggests China's trade sector has yet to see much relief from the prolonged drought in demand brought on by the global downturn.
"These figures show we cannot be optimistic about the future trends for exports," the Commerce Ministry said in a statement posted on its Web site that amounted to a lament over the lack of overseas demand for Chinese products.
"We will have to view the problems and risks more seriously, expect that the crisis will persist a bit longer and take more complete measures ... to help stabilize foreign trade," it said.
There were some glimmers of hope even in the trade figures. While exports of heavy machinery and other industrial equipment continue to fall, recent increases from the previous month in exports of clothing, shoes, plastics and other labor-intensive consumer goods suggest some recovery in demand, economists say.
American retailers have begun ordering to restock low inventories, amid signs that consumer spending may be stabilizing, Jing Ulrich, chairwoman for China equities at J.P.Morgan said in a note to clients.
"Nevertheless, operating conditions for Chinese exporters will remain challenging for some time," Ulrich said, noting that orders at the recent spring trade show in southern China's Guangdong fell 17 percent compared with the autumn show.
China's imports also remained anemic, falling 23 percent to $78.8 billion, the Customs Administration reported, putting China's trade surplus for April at $13.1 billion. That compared with an $18.6 billion surplus in March.
The surplus with the United States — or the amount exports exceed imports — edged higher to $10.6 billion in April from $10.2 billion in March, as exports dropped 15.7 percent from a year earlier to $17.2 billion while imports fell 17.4 percent to $6.6 billion.
China's surplus with the EU, its biggest trading partner, fell to $7.4 billion in April from $8 billion in March, while its deficit with Japan was $2.75 billion.
While China is channeling hundreds of billions of dollars into construction of roads, ports and other infrastructure, seeking to boost demand and create jobs, Beijing appears frustrated with the lack of a turnaround for the export sector.
Exports contributed only 0.8 percentage points to China's growth last year, down from 2.6 percentage points in 2007, the Commerce Ministry said. And the drag on consumer spending and investment from the weaker trade sector is causing further harm, it said.
"Weakening overseas demand, now and in the near future is affecting the overall economy," it said, adding that government will do whatever needed to facilitate trade, fight protectionism and encourage a more favorable environment for exports. It gave no details.
Given the protracted weakness in overseas demand for China's exports, massive spending on construction and factory equipment is seen as crucial for a recovery.
"Although much of the new bank lending has not yet turned into faster growth in economic activity, because of the time lag between lending and actual demand, we do expect fixed investment to accelerate in the coming months," Tao Wang, an economist with UBS, said in a report Monday.
"As a result, we expect orders to rise and industrial production to rebound," she said.
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Layoffs slow to 539K in April; jobless rate rises
The pace of layoffs slowed in April when employers cut 539,000 jobs, the fewest in six months. But the unemployment rate climbed to 8.9 percent, the highest since late 1983, as many businesses remain wary of hiring given all the economic uncertainties.
The Labor Department tally released Friday wasn't nearly as deep as the 620,000 job cuts that economists were expecting, and was helped by a burst of government hiring. The rise in the unemployment rate from 8.5 percent in March matched economists' forecasts.
The new report underscored the toll the longest recession since World War II has taken on America's workers and companies. However, the slowdown in layoffs may bolster expectations that the worst of the downturn's hefty job losses are past.
"There are glimmers of hope. We are moving in the right direction in terms of layoffs. They are measurably less bad than what we've been through," said Mark Zandi, chief economist at Moody's Economy.com.
Still, companies will remain cautious in hiring, making it harder for laid-off workers to find new jobs.
If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 15.8 percent in April, the highest on records dating back to 1994. The total number of unemployed now stands at 13.7 million, up from 13.2 million in March.
Companies also kept a tight rein on workers hours. The average work week in April stayed at 33.2 hours, matching the record low set in March.
Since the recession began in December 2007, the economy has lost a net total of 5.7 million jobs.
As the recession eats into sales and profits, companies have turned to layoffs and other cost-cutting measures to survive the storm. Those including holding down workers' hours, and freezing or cutting pay.
Job losses in February and March turned out to be deeper, according to revised figures. Employers cut 681,000 positions in February, 30,000 more than previously reported. They cut 699,000 jobs in March, more than the 663,000 first reported.
The deepest job cuts of the recession — 741,000 came in January. That was the most since the fall of 1949.
Employers last month cut the fewest jobs since 380,000 in October. Nonetheless, the April job losses were widespread.
Construction companies axed 110,000 jobs, down from 135,000 in March. Factories got rid of 149,000 jobs, down form 167,000 the month before. Retailers cut payrolls by nearly 47,000, less than the nearly 64,000 cut in March. And job losses in financial activities dropped by 40,000, down from 43,000 in the previous month.
The slower pace of job losses — along with 72,000 more government jobs — helped to temper the overall payroll reductions in April.
Looking ahead, economists expect monthly job losses continuing for most — if not all — of this year. However, they are hoping the reductions won't be as deep.
Fallout from housing, credit and financial crises — the worst since the 1930s — has hurt America's workers and companies, and the pain will continue. The jobs market traditionally doesn't rebound until well after an economic recovery starts.
Federal Reserve Chairman Ben Bernanke earlier this week gave his most optimistic prediction yet about the end of the recession, saying he expects the economy to start growing again this year — although the comeback could be weak and more jobs will disappear even after a recovery takes hold.
Companies will have little appetite to ramp up hiring until they feel the economy is truly out of the woods and a recovery is firmly rooted.
Against that backdrop, many economists predict the unemployment rate will hit 10 percent by the end of this year. Bernanke stopped short of that figure, saying it will be somewhere in the 9 percent range. Regardless, both private economists and Bernanke agree the unemployment rate will keep climbing into next year.
The Fed says unemployment will remain elevated into 2011. Economists say the job market may not get back to normal — meaning a 5 percent unemployment rate — until 2013.
And the job cuts have continued this week. Steelmaker Severstal International said it's idling plants in Wheeling, W.Va., and Warren, Ohio, resulting in 3,100 layoffs due to the continuing deterioration of the steel industry. Microsoft Corp. said it was starting thousands of the 5,000 job cuts it announced in earlier this year and left the door open to even more layoffs.
Still, glimmers of hope have emerged that the recession may be losing its grip on the country.
The Labor Department on Thursday said the number of newly laid-off workers filing applications for jobless benefits plunged to the lowest level in 14 weeks, a possible sign that the massive wave of layoffs has peaked. Still, the number of unemployed workers drawing benefits climbed to a new record — 6.35 million.
Other reports showed sales at many retailers fared better in April, with Wal-Mart Stores Inc. leading the way.
In the U.S., the economy shrank at faster than a 6 percent annual rate late last year and early this year, the worst six-month performance since the late 1950s. Analysts think it is still shrinking now — but probably at about half that pace. Many predict the economy could start growing in the third or fourth quarter as tax cuts and government spending on big public works projects included in President Barack Obama's $787 billion stimulus package take hold.
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Consumer credit falls at fastest pace in 18 years
Consumer borrowing plunged in March at the fastest pace in 18 years as Americans put away their credit cards and hoarded cash amid the worst recession in decades.
The Federal Reserve said Thursday that consumer borrowing dropped 5.2 percent in March, the biggest decline since an 8.1 percent fall in December 1990.
In dollar terms, consumer borrowing plunged by $11.1 billion. That's the largest dollar amount on records dating to 1943, and more than three times the $3.5 billion drop that economists expected.
The borrowing category that includes credit cards dropped 6.8 percent in March after a 12.1 percent plunge in February. The category that includes auto loans fell 4.2 percent after rising by 1.2 percent in February.
The Commerce Department last week said that the personal savings rate edged up to 4.2 percent in March, marking the first time in a decade that the savings rate has been above 4 percent for three straight months.
Households have been spending less and saving more as they seek to replenish nest eggs in the face of massive job layoffs.
Consumer spending, which accounts for about 70 percent of total economic activity, fell 0.2 percent in March, ending an otherwise strong quarter. Consumer spending grew at an annualized rate of 2.2 percent in the first quarter, according to government data.
And while economists believe shoppers are still cautious, many retailers on Thursday reported April sales results that beat expectations. Wal-Mart Stores Inc., T.J. Maxx owner TJX Cos. Inc. and others reported bigger sales gains than expected, and mall-based clothing stores including Gap, American Eagle and Wet Seal reported smaller dips than analysts had forecast.
Still, the overall economy was contracting at an annual rate of 6.1 percent in the first three months of this year following a 6.3 percent fall in the final three months of last year. That marked the worst six-month performance in a half-century.
Economists are counting on President Barack Obama's $787 billion stimulus program with increased government spending and tax cuts for individuals and businesses to boost growth in coming months and get the country out of the recession.
Many analysts believe the economy is declining in the current quarter by around 3 percent, and could turn slightly positive in the third quarter.
The $11.1 billion drop in consumer borrowing in March left total consumer credit at $2.55 trillion. The Federal Reserve's measure of consumer credit does not include home mortgages or other loans secured by real estate.
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New jobless claims unexpectedly plunge to 601K
New applications for jobless benefits plunged to the lowest level in 14 weeks, a possible sign that the massive wave of layoffs has peaked. Still, the number of unemployed workers getting benefits climbed to a new record.
The Labor Department reported Thursday that the number newly laid off workers applying for benefits dropped to 601,000 last week. That was far better than the rise to 635,000 claims that economists expected.
But the total number of people receiving jobless benefits climbed to 6.35 million, setting a record for a 14th straight week.
The four-week moving average of initial jobless claims, which smooths out volatility, totaled 623,500 last week, a decrease of more than 30,000 from the high in early April. Goldman Sachs economists have said a decline of 30,000 to 40,000 in the four-week average is needed to signal a peak.
In a separate report, the government said that productivity, the key ingredient to rising living standards, grew at a 0.8 percent annual rate in the January-March quarter, slightly better than the 0.6 percent increase that economists had expected. Wage pressures, as measured by unit labor costs, increased at a 3.3 percent rate, down from a 5.7 percent spike in the fourth quarter.
Even with the big drop in new applications for jobless benefits last week, the claims remained at elevated levels. By comparison, weekly jobless claims totaled 372,00 a year ago.
But since peaking at 674,000 in late March, claims have been trending lower, raising hopes that the huge wave of layoffs that have rocked the country could be easing a bit.
Even if the recent declines signal that layoffs have peaked, economists do not expect them to return to pre-recession levels anytime soon. They expect the jobless rate will keep rising through the rest of this year even if their forecasts for an end to the recession in the second half of 2009 are accurate.
The government is scheduled to release unemployment data for April on Friday. Analysts expect the jobless rate will climb to 8.9 percent from the current 25-year high of 8.5 percent. Many analysts expect the jobless rate will hit 10 percent by the end of this year.
The rise in continuing claims to 6.35 million was registered for the week ending April 25, the latest data available. That was up from 6.30 million in the previous week and marked the highest tally on records dating to 1967.
The high level of continuing claims is a sign that many laid-off workers are having difficulty finding work.
More than 5 million jobs have vanished in the recession, and Federal Reserve Chairman Ben Bernanke on Tuesday predicted "further sizable job losses" in the coming months.
More companies recently announced job cuts. Microsoft Corp. said Tuesday it was starting thousands of the 5,000 job cuts it announced in earlier this year and left the door open to even more layoffs. Chip maker Atmel Corp. last week said it would lay off 300 people, or 5 percent of its work force.
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Chrysler offers up to $6,000 in incentives
Chrysler is offering up to $6,000 worth of incentives on 2009 vehicles as it tries to reduce inventory and counter a prolonged U.S. sales slump.
The company says the incentives, which begin Wednesday, focus on the bottom-line price of the car. They include $4,000 cash, $1,000 for current Chrysler vehicle owners, and up to $1,000 for financing through a participating credit union.
The incentives come off a price negotiated with a dealer. They replace employee pricing plus rebates and zero percent financing.
Chrysler's sales are down 46 percent through the first four months of the year. The company is subsisting on $4 billion in government loans and is in Chapter 11 bankruptcy protection.
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Europe's main stock markets posted modest gains on Wednesday as cautious investors awaited results of "stress tests" on troubled US banks and key unemployment data this week.
Markets were also nervous on the eve of interest rate decisions from both the Bank of England and the European Central Bank.
In late morning trading, London's FTSE 100 index of leading shares rose 0.30 percent to 4,350.15 points.
Frankfurt's DAX 30 added 0.08 percent to 4,857.07 points and in Paris the CAC 40 climbed 0.80 percent to 3,250.73 points.
The DJ Euro Stoxx 50 index of leading eurozone shares advanced 0.28 percent to 2,414.29 points.
The European single currency stood at 1.3320 dollars.
In Asia on Wednesday, Hong Kong shares leapt 2.46 percent, aided by banking giant HSBC, while Tokyo remained shut for the "Golden Week" public holidays.
Frankfurt, London and Paris have surged in value since hitting 2009 multi-year low points in March, as investor sentiment was buoyed by hopes that the battered global economy could have turned the corner.
However, ODL Securities analyst Chris Hossain warned that the ongoing global financial crisis which erupted in late 2007 was not over.
"Everything is suddenly rosy if you listen to market commentators, the decade of excess has been sorted out in under 18 months," said Hossain said.
"If you dig a bit deeper and look at the underlying facts, analysts expect unemployment in the US growing to just below 9 percent on Friday, and we are far from out of the woods in the banking system, with stress test results due for release on Thursday."
US banking regulators and the Federal Reserve are set to publish results from financial stress tests of the 19 banks.
On Friday, the US government's key report on April unemployment will provide an indication if the recession-hit American economy can regain momentum.
US media reported on Wednesday that Bank of America would need to raise between 33.9 billion and 35 billion dollars in capital to maintain its financial stability.
After days of talks, the government informed the banking giant it needs 33.9 billion dollars, the New York Times said, citing a bank executive. The amount is greater than what executives think the bank needs, however.
The Wall Street Journal meanwhile, citing people familiar with the situation, said US regulators told the Charlotte, North Carolina-based bank late Tuesday that it needs to address a roughly 35-billion-dollar capital shortfall.
"The main story of the week will be the release of the stress test results," added CMC Markets dealer Ian Griffiths in London.
"News yesterday that Bank of America may need to raise as much as 34 billion dollars will dominate today as investors worry that there may well be more surprises when the results are released.
"Sentiment still remains pretty strong, however, with the rally continuing to push higher."
New York stocks dipped on Tuesday in hesitant trade amid worries about capital shortfalls for US banks that underwent stress tests and cautious comments on the economy by Fed chairman Ben Bernanke.
The Dow Jones Industrial Average edged 0.19 percent lower to close at 8,410.65 points -- one day after a surge of 2.6 percent that lifted the blue-chip index to its highest level since January 13.
The US market churned in a narrow range in only a modest pullback from Monday's hefty rally. Wall Street reopens later Wednesday at 1430 GMT.
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US private sector cut 491,000 jobs in April
The US private sector shed 491,000 jobs in April, fewer than expected by analysts, a survey by payrolls firm ADP data showed Wednesday, signaling the prolonged recession may be easing.
The April figure was much lower than the 708,000 job cuts in March and the 645,000 expected by most analysts and the smallest private payrolls decline since October last year.
The data came a day after Federal Reserve chairman Ben Bernanke said that the US economy, which plunged into recession in December 2007, could rebound later this year.
"All statistics released recently point to a less pronounced deterioration in the labor market in April," said Natixis bank economist Marie-Pierre Ripert.
ADP said the service-providing sector shed 229,000 jobs while the goods-producing sector cut 262,000 jobs.
Large businesses, defined as those with 500 or more workers, saw employment decline by 77,000, while medium-size businesses with between 50 and 499 workers shed 231,000 jobs.
Employment among small-size businesses, defined as those with fewer than 50 workers, declined 183,000.
"The employment declines among medium- and small-size businesses indicate that the recession continues to spread beyond manufacturing and housing-related activities to almost every area of the economy," ADP said.
The government's last weekly jobless claims report on April 30 said new claims for unemployment benefits fell far more than expected.
The Labor Department said the number of initial claims in the week ending April 25 fell to a seasonally adjusted 631,000 from the previous week's 645,000, a level revised up by 5,000.
The 2.2 percent decline in new claims was more than double the 1.0 percent forecast by most analysts.
The weekly initial claims data, a snapshot on the labor market, has shown new claims above the 600,000 level for nearly three months as the country grapples with a severe recession.
The four-week moving average, which smoothes out volatility, fell to 637,250 new claims, compared with a revised 648,000 in the preceding week.
Economists are divided over whether the weekly initial claims, which have doubled since the recession began in December 2007, have peaked.
The department is to publish April unemployment and payrolls data on Friday.
In the March report, unemployment rose to a 25-year high of 8.5 percent.
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CVS Caremark profit falls on costs, charges
CVS Caremark Corp. said Tuesday that charges and higher costs outweighed a a boost in the drugstore operator's pharmacy sales, pushing first-quarter profit down slightly.
CVS said revenue from prescriptions and from discretionary items both increased. That was a break with competitor Walgreen Co., which reported weaker sales of nonessential items in its most recent quarter as consumers cut back amid the recession.
CVS earned $738.4 million, or 50 cents per share, down from profit of $745 million, or 51 cents per share, a year prior. Revenue rose 12 percent to $23.39 billion from $21.33 billion.
Excluding buyout costs, the company says it earned 55 cents per share. Wall Street expected 54 cents per share on revenue of $23.64 billion.
Woonsocket, R.I.-based CVS said sales from pharmacy services and retail pharmacies rose despite one less reporting day during the quarter. Revenue was also helped by the acquisition of 529 Longs Drugs stores.
CVS, which also manages prescription benefits for insurers and employers, saw pharmacy benefit network revenue rose 6.8 percent, while mail order service revenue rose 8.4 percent.
Pharmacy services revenue rose 7.2 percent to $11.5 billion during the quarter, while retail network claims processed rose 4.4 percent, primarily because of the addition of RxAmerica.
The retail segment gained 13.9 percent to reach $13.5 billion in revenue, with same-store sales rising 3.3 percent.
During the quarter, CVS opened 39 new retail stores while closing 50, 5 specialty pharmacies and one mail order facility. Also, it moved 53 retail stores. As of March 31, CVS operated 6,912 stores, 52 specialty pharmacy stores, 20 specialty mail order pharmacies and 6 mail order pharmacies in 43 states, the District of Columbia and Puerto Rico.
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Wall Street set for lower open on profit taking
Wall Street indexes pointed to a lower open on Tuesday with investors set to book profits a day after the S&P 500 turned positive for the year, while financials were in focus as the market awaits stress tests results from the government.
According to a source familiar with official talks between banks and regulators, about 10 of the 19 largest U.S. banks that have been put through government stress tests will be instructed by regulators to raise more capital.
The banks have been negotiating with the regulators about the depth of their capital needs, should the recession prove to be deeper and longer than anticipated.
Investors were hopeful that the amount of capital banks need to raise will be manageable but some jitters remain over any negative surprises that could be revealed.
"Right now the market is in a heightened sensitivity mode where any information will be absorbed, processed and acted on in a very quick manner," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.
"Although the market appears to have discounted much of the bad news given the positive behavior of the financials, there remains an uneasy queasiness about what will be said (in the stress tests)," Bakhos said.
Federal Reserve Chairman Ben Bernanke will testify on the economy before the Joint Economic Committee at 10:00 a.m. EDT. Investors will be keen for any new indication the recession is easing to provide support for recent optimism over the economy.
S&P 500 futures fell 3.80 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 24 points, and Nasdaq 100 futures were off 3 points.
The S&P 500 is now up 34 percent from its 12-year closing low on March 9 but it is still off 42 percent from its October 2007 record high.
Among financial shares, Wells Fargo (WFC.N) was off 2.2 percent to $23.71 and Bank of America (BAC.N) eased 1.8 percent to $10.19.
The final results on the stress tests are expected to be reported on Thursday. Any news that points to more stabilization in the sector will be a positive for investors as authorities have said shoring up the financial system is key to reviving the recession-hit economy.
Dow component Kraft Foods (KFT.N) rose in premarket trade after the maker of household brands including Oreo cookies and Maxwell House coffee reported a higher profit. Like many companies this earnings season, Kraft said it was helped by raising prices and cutting costs, sending its shares up 3.3 percent at $25.06.
On the data front, a reading on the Institute for Supply Management's nonmanufacturing index for April is expected later in the morning.
Stocks rose on Monday, driving the S&P 500 into positive territory for the year as investors bet banks' capital shortfalls may be manageable and housing data fueled hopes the recession is easing.
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Fiat aims for Opel deal without running up debt
Fiat Group SpA aims to take over General Motors Corp.'s main European unit without running up debt in a deal that could require billions of euros (dollars) in government loan guarantees, Germany's economy minister said Monday.
Fiat's concept — part of a wider plan to build a global powerhouse also including Chrysler — foresees keeping the Opel brand and the unit's three assembly plants in Germany, Economy Minister Karl-Theodor zu Guttenberg said after meeting Fiat CEO Sergio Marchionne.
However, he said there would be a "need for consolidation" and made clear that the future of an engine plant in Kaiserslautern, Germany would be in doubt.
Asked what the plan might mean overall in terms of job losses or plant closures, Guttenberg said Marchionne "hasn't offered any specific numbers yet, but he described them as not being too dramatic."
GM has been trying to find investors for its noncore and unprofitable assets to help stave off collapse. Germany and other countries are keen to safeguard the future of its European operations; GM says it has some 54,500 employees in Europe.
Guttenberg said that "Fiat wants to get into this deal without debts of its own."
He said the Turin, Italy-based company estimates the short-term financing needs — stemming from GM's debts and pension obligations — at some euro5-7 billion ($6.6-9.3 billion) Europe-wide, which could be covered by loan guarantees from various governments.
Adam Opel GmbH employs about 25,000 workers in Germany. It and its sister brand Vauxhall also build cars in countries including Belgium, Poland, Spain and Britain. GM's European operations include Sweden's Saab, which also is expected to be part of any deal.
In Stockholm, government spokeswoman Karin Flygare said the Swedish government has also been in contact with Fiat, but she declined to give any more information.
Guttenberg described Fiat's proposal as "interesting" but stressed that the government would have to examine it further before reaching a verdict. Last week, he met with Canadian car parts maker Magna International Inc., which also has expressed an interest in taking a stake in Opel.
Guttenberg noted that Marchionne's proposal is part of a Fiat plan to put together the biggest European auto maker and the world's No. 2.
Talk of a possible takeover of GM's European operations comes just a week after Fiat signed an agreement to acquire an initial 20 percent stake in U.S. automaker Chrysler LLC.
Fiat said Sunday that it is evaluating the possible spinoff of its auto business to form a new listed company — possibly as soon as the summer.
If it does successfully conclude the two deals, Fiat would be in the driver's seat of an alliance that last year collectively made some 5 million vehicles in a contracting market.
Marchionne reckons that the only automakers to survive the crisis will need to be able to churn out between 5 million and 6 million vehicles a year.
Marchionne told Italian media going into Monday's talks that "the Opel operation begins now." He did not comment afterward, and left the Economy Ministry before Guttenberg spoke.
He was quoted in the Financial Times earlier Monday as saying of his company's plan: "From an engineering and industrial point of view, this is a marriage made in heaven."
While analysts have touted the synergies of Fiat's deal for Chrysler, which inhabit complementary sectors of the auto market and different geographic regions, there is more skepticism among industry experts and unions in both Italy and Germany about a play for Opel.
Both automakers focus on small cars, and Fiat has been making inroads into the German market. Employee representatives have made clear they worry about what a Fiat investment might mean for jobs.
IG Metall union official Armin Schild, who sits on Opel's supervisory board, said on ZDF television that Fiat and Opel "are in the same markets with roughly comparable vehicles." He added that "these two companies can give each other little, but take a lot away from each other."
Marchionne also was meeting Monday with Frank-Walter Steinmeier, Germany's foreign minister and vice chancellor.
Steinmeier is the center-left challenger to conservative Chancellor Angela Merkel in elections this September. Some members of his Social Democrats have echoed unions' concerns.
The party governs Rhineland-Palatinate state, home to the endangered Kaiserslautern plant. State economy minister Hendrik Hering said it was "unacceptable if Fiat's entrance is to be at the expense of an entire Opel facility."
Max Warburton, an auto analyst at Sanford C. Bernstein, questioned whether a collection of loss-making auto companies can generate cash, noting that Fiat's auto business only posts a profit because of its Brazil business, and asking where the capital would come from to make a new company viable.
Still, "an Opel deal makes sense if it can be made to function," Warburton wrote in a research note. "Fiat and Opel have large and realizable platform, powertrain and engineering savings and complimentary geographic exposures."
"However, whether this combination can be made to work from a management, political or cultural view is unclear," he said, adding that he is "unconvinced that Fiat has the management depth to pull off this very ambitious task."
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EU says euro-zone jobless to hit postwar record
Deepening the economic gloom in Europe, the European Union admitted Monday that its previous forecasts were way off the mark. It now predicts "a deep and widespread recession" across the continent and says unemployment among nations using the euro currency will rise to a postwar record of 11.5 percent in 2010.
The new forecasts expect the economies of the 27-nation EU and the 16-nation euro-zone to shrink by 4 percent this year — more than double a January estimate.
Driving the pessimism was the region's biggest economy, Germany, which has been hit hard by the "near collapse" in global trade — a potentially difficult backdrop for Chancellor Angela Merkel as she strives to win elections later this year.
The EU now reckons that Germany will contract by a massive 5.4 percent this year as global demand dries up for the high-value goods such as cars and machinery that the country makes and exports. In January, the EU thought Germany would only shrink 2.3 percent this year.
The European Commission said more than 26 million people in the EU will be out of work next year as a contracting economy sheds an extra 8.5 million jobs — putting pressure on governments and central bankers to do more to alleviate the downturn.
Monday's forecasts are likely to cement market expectations that the European Central Bank will cut its benchmark interest rate by a further quarter percentage point to 1 percent on Thursday and unveil new measures — such as buying up corporate debt from the banks — to stimulate growth.
European governments may also see renewed pressure to increase stimulus spending after shrugging off calls last month from the U.S. and others ahead of the Group of 20 summit. EU Economy Commissioner Joaquin Almunia said EU leaders could discuss a new effort in June.
Just four months ago, the EU thought the EU economy would only contract 1.8 percent and the euro-zone only sink 1.9 percent this year.
Germany especially has resisted efforts to spend more to stoke growth — but the deepening pessimism may force politicians to back new stimulus measures. With domestic demand weak, Germany's recovery could be slow and dependent on exports, the EU warned.
Almunia, the EU's top economy official, blamed the EU downgrades on an "exceptionally bad" first three months of 2009, as industrial output slumped at a record pace, exports stalled and business and consumer confidence hit new lows.
However, he said recent surveys for euro-zone and German confidence "appear to confirm that the economy is no longer in free fall" and that the EU economy is now expected to start bottoming out in the middle of this year.
But UniCredit economist Aurelio Maccario warned against reading too much from recent "mildly positive" news.
"This remains a year where the euro area will be one of the worst performers in the G-20," he said. "We are still missing convincing signals that may hint at a turning point in the business cycle."
Almunia did say quarterly growth is unlikely to emerge until 2010, and that even then both the EU and the euro-zone will likely shrink 0.1 percent over the whole year — provided the banking sector recovers and world trade turns around.
Plunging exports and industrial output are causing the economy to shrink and unemployment to surge, wiping out the number of new jobs created in the last two years.
Euro-zone exports are "forecast to suffer one of the worst setbacks on record" with a 13 percent slump this year, partly because the strong euro makes euro goods more expensive for U.S. and British customers. Germany will see exports shrink by 16 percent, forcing companies to reduce investment in new equipment by a fifth and cut 1.5 million jobs in 2009 and 2010.
The EU forecast that Britain and Italy will shrink by between 4 percent to 4.5 percent this year, while France, cushioned by heavy government spending that supports growth, will post a smaller 3 percent drop. Spain will also likely shrink by 3 percent.
Both Britain and France will see unemployment climb over 3 million next year — with France reporting an 11 percent jobless rate, the EU said. Spain is forecast to fare worse with one in five workers unable to find a job — an unemployment rate of 20 percent.
German Finance Minister Peer Steinbrueck said he was particularly worried by the jobless figures.
"It is of little comfort to me that Germany fares only a little better" than nations such as Spain and France, he said.
Only one of the EU's 27 states — Cyprus — may see economic growth this year. Double-digit declines will hit countries suffering from a collapsed housing market — including Latvia, Lithuania and Estonia.
The EU warned that even worse may be ahead and banks' efforts to deleverage — shore up their financial position by putting more money aside to cover bad debt — "may unravel with greater intensity than currently expected."
It also said a bad debt spiral from falling house prices could trigger a wave of business bankruptcies that lead to more unemployment and more debt defaults.
To avoid this, it called on European governments to increase confidence in banks by moving swiftly to clean up banks' balance sheets.
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Stocks jump as home sales, construction increase
Investors are rushing into stocks Monday as surprise increases in pending home sales and construction spending offered the latest signs that the economy is stabilizing.
Stocks surged about 2 percent, including the Dow Jones industrial average, which jumped 200 points.
Investors have been more upbeat about prospects for the economy in the last two months and Monday's reports bolstered the case that the economy's slide could be slowing.
Two new economic nuggets added to demand for stocks. Construction spending rose unexpectedly in March after five straight declines, and pending U.S. home sales rose more than expected.
The Commerce Department said construction spending rose 0.3 percent, the best showing since a similar rise last September. Economists surveyed by Thomson Reuters had expected spending to drop 1.5 percent.
Separately, the National Association of Realtors said its index of pending sales for previously occupied homes rose 3.2 percent to 84.6 on strength in nonresidential projects and government building. The report was well ahead of the 82.1 economists had been expecting.
In late morning trading, the Dow Jones industrial average rose 199.75, or 2.4 percent, to 8,412.16. The blue chips had been up about 100 ahead of the reports.
The Standard & Poor's 500 index rose 21.31, or 2.4 percent, to 898.83, and the Nasdaq composite index rose 33.89, or 2 percent, to 1,753.09.
The market's enthusiasm will be put to several tests this week including the April employment report, one of the most closely watched economic indicators, which comes out on Friday.
But one of the biggest concerns for the market is the release Thursday of the results of the government's "stress tests" on the 19 largest U.S. financial companies. If the results trigger renewed anxiety about the state of the financial system that could upend the market's powerful two-month advance, which has sent the Standard & Poor's 500 index up 29.7 percent since March 9.
The market's spring rally was triggered by word from some of the nation's biggest banks that business conditions were improving, and has since been bolstered by those banks' better-than-expected earnings reports.
Many investors anticipate that the stress tests — designed to determine which banks would need more cash if the recession worsens — will show that several banks need more capital.
Investors are concerned about Citigroup Inc. and Bank of America Corp. The Financial Times reported Sunday that the banks are working on plans to raise more than $10 billion each as they negotiate with regulators over the findings of the stress tests.
But the new economic data and media reports that the stress tests could reassure the market helped financial stocks. Citi rose 13 cents, or 4.4 percent, to $3.10, while Bank of America rose 46 cents, or 5.3 percent, to $9.16.
Market sentiment has been improving and an increasing number of reports suggest the economy's slide is easing. But there is still evidence of pain: Chrysler LLC filed for bankruptcy last week, and many companies continue to report weak first-quarter results.
Stocks gained about 1.5 percent last week despite concerns about a potential swine flu pandemic and Chrysler's bankruptcy filing.
In dealmaking, Italian automaker Fiat confirmed Sunday it is in talks to buy most of General Motors Corp.'s European operations. GM has been trying to find buyers for its noncore, unprofitable businesses to help it avoid bankruptcy. Fiat is also in the process of acquiring a stake in Chrysler.
Sprint Nextel Corp. reported a first-quarter loss, but beat expectations. The nation's third largest wireless carrier said its revenue fell and it took a charge related to job cuts. The stock jumped 51 cents, or 10.9 percent, to $5.18.
In other trading, the Russell 2000 index of smaller companies rose 11.68, or 2.4 percent, to 498.66.
Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 383.2 million shares.
The rally in stocks damped demand for the safety of government debt. That pushed the yield on the benchmark 10-year Treasury note up to 3.19 percent from 3.16 percent late Friday.
The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude rose 52 cents to $53.72 on the New York Mercantile Exchange.
Overseas, Hong Kong's Hang Seng index jumped 5.5 percent. In afternoon trading, Germany's DAX rose 2.5 percent and France's CAC-40 gained 2.2 percent. Markets in Japan and London are closed for holidays.
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Credit card legislation faces Senate test
Propelled through the House by antibusiness sentiment in tough economic times, legislation putting new reins on the credit card industry now goes to the Senate, where the bill's prospects appear promising.
The legislation, which has President Barack Obama's backing, would eliminate abrupt increases in interest rates and other practices decried by consumer advocates. It could be taken up in the Senate as early as next week.
Supporters want to get a final congressional package to Obama's desk by the Memorial Day holiday. They acknowledged, though, that House passage of the measure on Thursday was just an opening salvo and that industry interests could succeed in getting restrictions weakened during the legislative slog ahead.
Signaling an aggressive campaign, Edward Yingling, president and CEO of the American Bankers Association, said the group "strongly believes that any additional legislative efforts should strive to achieve the right balance between enhancing consumer protection and ensuring that credit remains available to consumers and small businesses at a reasonable cost."
"We continue to believe that more work needs to be done to achieve that balance," he said in a statement.
The House measure, called the Credit Card Holders' Bill of Rights, passed on a bipartisan vote of 357-70 following lobbying by Obama and members of his administration.
The bill would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18.
If they become law, the new House provisions won't take effect for a year, except for a requirement that customers get 45 days' notice before their interest rates are increased. That would take effect in 90 days.
Consumer advocates and some Democrats have sought for years to bring new rules to the industry.
"This is a unique opportunity to end abusive practices that afflict millions of families across the nation, to contribute to our economic recovery and to take a stand for American consumers," Sen. Christopher Dodd, chairman of the Senate Banking Committee and the bill's primary sponsor, said after the House vote. "Now it is the Senate's turn to act."
The bill's boosters are tapping into public anger over corporate excesses and the conduct of banks and other companies receiving billions of dollars in taxpayer money.
Obama's engagement in the issue diverged sharply from his handling of a plan to spare hundreds of thousands of homeowners from foreclosure through bankruptcy, which met defeat in the Democratic-controlled Senate Thursday on a 51-45 vote. Obama had embraced the plan, but facing stiff opposition from the banking industry he did little to pressure lawmakers who worried it would encourage bankruptcy filings and catapult interest rates higher.
Obama met at the White House last week with executives of the credit card industry and made clear he wants to sign a bill into law. And a day before the House vote, Treasury Secretary Timothy Geithner convened a meeting with Rep. Carolyn Maloney, D-N.Y., the bill's chief sponsor, and representatives of consumer and civil rights groups.
The administration is pushing for stricter practices that could crimp banks' revenue at the same time the government is shoring up the financial institutions with hundreds of billions of dollars in bailout aid.
"The administration supports Congress' efforts to ... provide additional strong and reliable protections for consumers that ban unfair and abusive practices," the White House said in a statement following the House vote. "The nation's credit card system must have more accountability, including more effective oversight and more effective enforcement of credit card issuers who violate the law."
Before approving the credit card bill, the House adopted a series of amendments — some of which were pressed by the White House — that amplified the restrictions on industry practices.
The House measure incorporates Federal Reserve regulations due to take effect in July 2010 but goes further by adding restrictions for credit cards for college students as well as other changes.
Consumers would have to be notified 30 days before their accounts are closed.
Double-cycle billing eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance.
Opponents tried vainly on the House floor to temper a fast-moving bill with amendments that would have given credit card issuers some openings to raise rates within the proposed restraints.
"We shouldn't take credit opportunities away," said Rep. Jeb Hensarling, R-Texas. "I just want consumers to have choices. I want there to be a competitive marketplace."
Hensarling and other Republican opponents endorsed the bill's requirements for clearer disclosure in the fine print of credit card agreements. But they said the legislation overall could prompt lenders to restrict credit in an already tight market to compensate for the new requirements.
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