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European shares fall as China plunges nearly 7 pct
European shares fell Monday after Chinese stocks plunged nearly 7 percent and Japanese shares weakened after that nation's opposition party came to power in a landslide victory.
Germany's DAX 30 blue-chip index fell 0.7 percent to 5,476.87, while France's CAC-40 was down 0.6 percent at 3670.43. The London Stock Exchange was closed for a public holiday, and end-of-August trading volumes were light, which can enhance volatility.
Futures indicated a lower open on Wall Street as well, with Dow industrials futures 65 points lower at 9,471 and the broader Standard & Poor's 500 index futures down 5.9 points at 1021.50.
Dips in Chinese shares have sent ripples throughout markets in Europe and the United States, since China has continued to grow during the world recession. Questions about China's ability to sustain stimulus-fed growth rates have fueled fears that any global economic recovery may not last.
In Shanghai, the main index plummeted 6.7 percent to 2,697.70, adding to a nearly 3 percent decline on Friday. Hong Kong's Hang Seng lost 1.9 percent. Tokyo's Nikkei 225 stock average lost 41.61 points, or 0.4 percent, to 10,492.53 after jumping over 200 points earlier in the day.
Renewed selling in mainland Chinese shares reflected the growing unease among investors about government measures to restrict the lavish bank lending that has helped send markets surging this year.
Oliver Roth of Close Brothers Seydler Bank AG in Frankfurt said investors were concerned about possible trouble in China after huge amounts of government stimulus.
"The difference between the rest of the world and China is that in China, the huge money amounts that are coming from the central bank are already in the economy, so there is a bubble of a huge amount of liquidity in the real economy and the stock market," Roth said. "And people are afraid of a blowing up of the bubble."
Additionally, political uncertainties weighed on German stocks after weekend election setbacks for Chancellor Angela Merkel's conservatives, ahead of Sept. 27 national election, he said.
In Japan, investors tread cautiously after the Democratic Party of Japan swept to power in national elections over the weekend amid frustrations with the ruling party as the world's second-economy emerges from its worst downturn in decades.
After spiking in the morning, stocks fell as initial enthusiasm over the opposition's victory quickly gave way to concerns about its economic policies and the surging yen, which hurts exports. The Democrats are largely untested and there are worries their programs would increase Japan's already ballooning debt, analysts said.
Elsewhere, Korea's Kospi was down 1.1 percent and India's Sensex dropped 1.7 percent despite Asia's third-largest economy picking up pace in the April-June quarter. Australian shares were down 0.2 percent.
Chinese share prices rose more than 80 percent earlier this year before falling back in mid-August. The months long rally coincided with unprecedented lending aimed at fighting off the economic downturn.
Many in China believe that a big chunk of the lending found its way into property and share markets, fueling bubbles in asset prices, though the extent to which such funds were illicitly diverted into speculative investments remains unclear.
On Friday, Wall Street ended the week on a down note, with the Dow falling 36.43, or 0.4 percent, to 9,544.20 in somewhat quiet trade. The Standard & Poor's 500 index fell 2.05, or 0.3 percent, to 1,027.76, while Nasdaq composite index rose 1.04, or 0.1 percent, to 2,028.77.
Monday's fall in Chinese stocks was followed by a dip in crude oil prices, which fell to $71.23, down $1.51, in midday trading European time on the Nymex exchange.
The dollar fell 0.4 percent to 93.15 yen. The euro traded 0.2 percent lower at $1.4273.
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Baker Hughes to buy BJ Services in $5.5B deal
Oilfield services company Baker Hughes Inc. said Monday that it will buy BJ Services Co. in a cash-and-stock deal valued at $5.5 billion that the company said will allow it to drive international growth and compete for projects of companies engaged in all phases of the oil business.
The acquisition is expected to produce $75 million in cost savings for Baker Hughes in 2010 and $150 million in 2011, and add to earnings per share in 2011.
Baker Hughes Chairman, President and CEO Chad C. Deaton said in a statement that the transaction will particularly help customers with unconventional gas and deepwater fields.
"It will better position us to drive international growth and to compete for the growing large integrated projects by incorporating pressure pumping into our product offering," he added. Integrated oil companies are active in all phases of the business including production, refining, transportation and marketing.
Pressure pumping made up less than 1 percent of Baker Hughes 2008 revenue, but is expected to comprise about 20 percent of the company's revenue after the deal is complete. Pressure pumping is used, in part, to increase the amount of recoverable oil or gas from wells. This added business will boost Baker Hughes total revenue near levels of its two largest competitors, the company noted. Schlumberger Ltd. is the world's largest oilfield services company, with Halliburton Co. just behind it in size.
BJ stockholders will receive 0.40035 shares of Baker Hughes and $2.69 in cash for each share they own. The deal represents a 16.3 percent premium to BJ's $15.43 Friday closing stock price, the companies said.
BJ's shareholders will have an approximately 27.5 percent stake in Baker Hughes once the acquisition closes, and two BJ services board members will join Baker's board.
The is the first major oil services takeover of the year. After larger oil companies reaped hefty profits from last year's crude and gas price rally, some analysts predicted that crumbling stock and crude prices would make smaller oil and gas companies potential takeover targets.
Exxon Mobil Corp., BP PLC and other oil giants find it increasingly difficult to secure new sources of fossil fuels the old-fashioned way — by simply exploring and drilling for them.
Smaller producers that don't have the same massive capital reserves have been stung by a credit crisis that's severely limited or even paralyzed their ability to finance new exploration and production.
In July BJ Services posted a net loss for its fiscal third quarter, citing declining demand for oil and natural gas amid global economic weakness.
The company reported a fiscal third-quarter loss of $32.3 million compared with earnings of $141.8 million during the same period last year.
Revenue slid 41 percent to $786.9 million.
The acquisition, which has approval from both companies' boards, may close by year's end. It still needs the approval of both companies' shareholders.
Shares of Baker Hughes fell $1.21, or 3.2 percent, to $36.88 in premarket trading. BJ Services shares jumped $1.67, or 10.8 percent, to $17.10 before the opening bell.
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Stocks mixed after Intel boosts forecast
Stocks were mixed in early trading Friday as technology shares got a boost from a rosy sales outlook from Intel Corp.
Intel shares rose nearly 5 percent, helping to lift the Nasdaq composite index more than 0.5 percent, after the world's largest maker of computer chips said it now expects sales of up to $9.2 billion in the current quarter, up from its previous forecast of as much as $8.9 billion.
Intel's upbeat report came a day after computer maker Dell Inc. posted better-than-expected results for its May-July quarter. While Dell's sales continued to fall because of reduced spending by consumers and businesses, the company said it has seen signs of improvement.
Despite a rise of nearly 5 percent in the Dow Jones industrials over the past eight days, the market remains cautious. Investors are worried that the market's huge rally this spring and summer, which pushed stocks up more than 45 percent since early March, may have run its course. Trading has been choppy and volume has been light as summer on Wall Street winds to a close.
In early trading, the Dow Jones industrial average fell 17.46, or 0.2 percent, to 9,563.17. The Standard & Poor's 500 index rose 0.54, or 0.1 percent, to 1,031.52, while the tech-heavy Nasdaq composite index rose 13.36, or 0.7 percent, to 2,041.09.
Advancing issues were relatively even with decliners on the New York Stock Exchange, where volume came to a light 242.2 million shares, compared with 151 million at the same time on Thursday.
In other trading, the Russell 2000 index of smaller companies rose 0.69, or 0.1 percent, to 584.46.
Among the economic data Friday, a Commerce Department report said consumer spending rose 0.2 percent in July, in line with economists' expectations.
Growth in spending and consumer confidence has been slowed by rising unemployment and weak income growth. Spending got a boost during the month from an increase in auto sales tied to the popular Cash for Clunkers program. Recent economic data has benefited from the government's various stimulus programs, and investors have been worried about how well the economy will fare without government support.
The latest report also said personal income was flat in July. Economists had expected a 0.2 percent increase. Personal income, which fuels future spending increases, has been hammered during the recession as employers cut payrolls and force workers to take unpaid days off to hold down wage costs.
Intel shares rose 87 cents, or 4.5 percent, to $20.34, while Dell added 78 cents, or 5 percent, to $16.43.
Major indexes edged out gains on Thursday after starting the day lower. The Dow rose for the eighth consecutive day, increasing 37 points, its longest winning streak since April 2007. The market's five-month rally appears to have lost much of its steam though as analysts say most of the improving economic data has already been priced into stocks.
Bond prices fell early Friday. The yield on the 10-year Treasury note rose to 3.50 percent from 3.46 percent late Thursday.
Oil prices moved higher, rising 29 cents to $72.78 a barrel on the New York Mercantile Exchange.
The dollar mostly fell against other major currencies, while gold prices rose.
Overseas, Japan's Nikkei stock average rose 0.6 percent. In afternoon trading, Britain's FTSE 100 rose 1.3 percent, Germany's DAX index gained 1.6 percent, and France's CAC-40 climbed 1.8 percent.
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New jobless claims and total benefit rolls drop
The number of newly laid-off workers filing claims for jobless benefits dropped last week, and the number of people remaining on the rolls also fell, evidence that layoffs have eased.
Still, both figures remain above levels associated with a healthy economy, and analysts expect the unemployment rate to keep rising.
The Labor Department said Thursday that first-time unemployment claims fell to a seasonally-adjusted 570,000, down from an upwardly revised figure of 580,000 the previous week. Analysts expected a slightly larger drop to 565,000, according to Thomson Reuters.
The tally of those continuing to claim benefits dropped to 6.13 million from 6.25 million in the previous week, the lowest level since early April. The figures on continuing claims lag initial claims by a week.
Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.
While the figures are volatile, first-time claims have trended downward in recent months. Initial claims topped 600,000 for most of this year, until falling below that level in early July.
The four-week average of claims, which smooths out fluctuations, fell by 4,750 to 566,250 last week. That's about 90,000 below its peak for the current recession, in early April.
The weekly figures remain far above the roughly 325,000 that analysts say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007.
Job losses have slowed recently. The department said earlier this month that companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.
The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months. But Obama economic adviser Christina Romer predicted Tuesday that unemployment could reach 10 percent this year and average 9.8 percent next year.
The recession, which began in December 2007 and is the worst since World War II, has eliminated a net total of 6.7 million jobs.
And when federal emergency programs are included, the total number of jobless benefit recipients was 9.19 million people in the week that ended Aug. 8. That was up from 9.18 million in the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.
The large number of people remaining on the rolls is an indication that unemployed workers are having a hard time finding new jobs.
More job cuts were announced this week. Columbus, Ind.-based Cummins Filtration, a division of diesel engine manufacturer Cummins Inc., said it will eliminate about 400 jobs through next March as it shifts production of filter assemblies to a Mexican plant.
Among the states, Michigan reported the largest increase in initial claims, with 4,068, which it attributed to layoffs in the auto industry. The state data lags the initial claims data by one week.
Pennsylvania, Florida, Puerto Rico and Missouri had the next largest increases.
California reported the largest decrease in claims of 6,286, which it attributed to fewer layoffs in the service industries. Tennessee, Texas, Wisconsin and Ohio had the next largest drops.
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July new US home sales up 9.6 percent
New U.S. home sales surged 9.6 percent in July, rising for the fourth straight month and beating expectations as the housing market marches steadily back from its historic downturn.
The Commerce Department said Wednesday that sales rose to a seasonally adjusted annual rate of 433,000 from an upwardly revised June rate of 395,000.
It was the strongest sales pace since September and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 390,000 units. The last time sales rose so dramatically was in February 2005.
The median sales price of $210,100, however, was still down 11.5 percent from $237,300 a year earlier.
There were 271,000 new homes for sale at the end of July, down more than 3 percent from May. At the current sales pace, that represents 7.5 months of supply — the lowest since April 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance.
Buyers, meanwhile, are rushing to take advantage of a federal tax credit that covers 10 percent of the home price, or up to $8,000 for first-time owners. Home sales must be completed by the end of November for buyers to qualify.
Builders and real estate agents are pressing Congress for that credit to be extended. If it isn't, sales could reverse their upward trend.
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Consumer sentiment improves more than expected
Consumer sentiment rose more than expected in August and expectations hit the highest level since the recession began, indications that Americans' pessimism about the economy may be lifting.
The housing sector also showed signs of life as a national measure of home prices posted its first quarterly increase in three years.
The New York-based Conference Board said Tuesday its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July. Economists surveyed by Thomson Reuters had expected a slight increase to 47.5.
Still, the index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth.
Economists closely monitor confidence because consumer spending accounts for about 70 percent of U.S. economic activity. Consumer sentiment — fueled by signs the economy is stabilizing — has recovered a bit since hitting a record-low of 25.3 in February.
Many analysts expect the economy to grow 2-3 percent in the current July-September quarter, spurred by a more stable housing market and the Cash for Clunkers program, which has boosted auto sales.
But economists worry that without healthier consumer spending, the recovery may weaken next year.
The housing slump and a weak job market have made consumers reluctant to spend. But the outlook for jobs is improving, the Conference Board said, with fewer respondents saying positions are "hard to get," and more claiming they are "plentiful."
Consumers' expectations for the economy over the next six months rose to 73.5 from 63.4 in July, the highest level since December 2007, when the recession began. The consumer confidence survey was sent to 5,000 households and had a cutoff date for responses of August 18.
Sal Guatieri, an economist at BMO Capital Markets, said the jump in the expectations index meant consumers likely will spend more in the months ahead.
"It won't be a smooth ride, but with consumer confidence now tracking higher, the groundwork for a sustainable recovery appears to be in place," he wrote in a note to clients.
The housing sector also received positive news. The Standard & Poor's/Case-Shiller's U.S. National Home Price Index rose 1.4 percent in the second quarter from the January-March period, the first quarterly increase in three years. Home prices, while still down almost 15 percent from last year, are at levels last seen in early 2003.
The reports, along with President Barack Obama's reappointment of Ben Bernanke as Federal Reserve chief, sent the financial markets higher. The Dow Jones industrial average rose more than 80 points in midday trading, and broader indices also gained.
Obama said Tuesday that his administration's $787 billion stimulus package, and the extraordinary efforts by Bernanke to pump trillions of dollars into the financial system, have helped turn the economy around.
"Our auto industry is showing signs of life," Obama said. "Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse."
Jobs are a weak spot, however, and could limit future consumer spending if Americans remain concerned about layoffs or declining wages.
Still, the Labor Department reported earlier this month that the unemployment rate dipped for the first time in 15 months, and workers' hours and pay rose slightly in July. The unemployment rate slipped to 9.4 percent, from 9.5 percent, while July job losses slowed to a total of 247,000, the fewest in a year and a big improvement from June's 443,000.
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Borders Group posts 2Q loss on charges, sales drop
Borders Group Inc. said Tuesday that it continued to lose money in its fiscal second quarter on charges and declining sales at its bookstores.
The bookseller also looked to trim inventory and reduce costs as shoppers continue to head online and to discount retailers for books.
Borders recorded a loss of $45.6 million, or 76 cents per basic share, for the period ended Aug. 1. That compares with a loss of $9.2 million, or 15 cents per basic share, in the same period a year ago.
Quarterly results included non-operating charges of $32.9 million, or 55 cents per basic share. The charges were related to items such as a warrant liability fair value adjustment, store closings and consulting, professional and other fees.
Excluding the mainly non-cash charges, the company's loss was 21 cents per share in the latest quarter.
"The second quarter was a transitional one as we made significant space and inventory reductions to strategically position declining categories for profitability while further developing businesses that have potential," CEO Ron Marshall said in a statement.
Marshall said the actions hurt its sales in the near term, but added the chain is now in position for better sales during the second half of the year.
The Ann Arbor, Mich.-based company's performance was similar to that of its first quarter, when its results were weighed down by soft sales and some charges.
Borders managed to lower its second-quarter selling, general and administrative expenses to $168.9 million from $205.1 million in the prior-year period.
Sales slid 18 percent to $616.8 million from $749.2 million mostly on declines at its namesake bookstores and Waldenbooks specialty retail stores. International sales fell 5.6 percent to $28.7 million, pulled down by the stronger dollar.
Same-store sales for its Borders superstores dropped 17.9 percent, while Waldenbooks specialty retail stores reported a 10.8 percent same-store sales decline.
Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones.
Borders operates about 1,000 stores globally under the Borders and Waldenbooks brands.
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Cash for Clunkers program heads into final day
It was a race to the finish for dealers and customers alike as the government's Cash for Clunkers program headed into its final lap on Monday.
Over the weekend, car dealers across the country watched their lots grow empty as crowds rushed to trade in gas guzzlers after the government said that the $3 billion rebate program would end at 8 p.m. EDT Monday, two weeks earlier than expected.
Adding to the urgency, some dealers said they would stop Cash for Clunkers sales even earlier to make sure the government reimbursed them for the rebates — or because they didn't have enough eligible cars left.
"We thought about it a couple weeks ago," said Annette Palmer, 51, at Town and Country Honda in Berlin, Vt., on Saturday with her husband. They hoped to trade in a 1999 Jeep Grand Cherokee for a Honda CR-V.
"We kind of dragged our feet. Then we heard it was closing and we picked up our feet and ran," she said.
Though short of some new models, such as the Ford Focus, Honda Civic, Toyota Corolla and Nissan Altima, many dealers were still selling as many cars as they could before Monday night's deadline.
Standing outside one of his Hyundai dealerships in Appleton, Wis., John Bergstrom said customers traded in 100 clunkers throughout his fleet of 20 dealerships on Saturday and 100 the day before. They were his two biggest sales days during the clunkers program.
"That's about as good as it gets," Bergstrom said. "It's going out with a bang."
In all, Bergstrom said his dealerships — whose brands include Ford, GM and Toyota — sold 800 cars during the program, boosting sales 30 percent. He had to bring in extra staff to deal with the paperwork, but the sales were worth the hassle, Bergstrom said.
Cash for Clunkers has been wildly successful in spurring new-car sales and getting gas-guzzling models off the road, though some energy experts have said the pollution reduction is too small to be cost-effective. Customers receive rebates of between $3,500 and $4,500, depending on the improvement in fuel efficiency from their old vehicle to their new one. As of early Friday, nearly half a million cars had been sold through the program.
But the new sales left many dealers worried about not being reimbursed by the government. As of Friday, dealers had been reimbursed for just a small fraction of the billions in sales.
Some dealers chose to stop participating over the weekend so they could have enough time to process and file the paperwork, including AutoNation Inc., the nation's largest auto dealership chain.
Martin Main Line Honda in the Philadelphia suburb of Ardmore stopped its Cash for Clunkers sales at noon on Saturday. But by late afternoon there were still groups of people wandering the lot.
General sales manager Michael Freeman said the program had been "overwhelming," with 115 clunker sales and big surges in customer traffic at the start and now at the end. He's aiming to get the final stack of paperwork filed before Monday's deadline.
"I have people upstairs, that's all they're doing — paperwork," he said. "The backlog is a nightmare, and it's starting to be a nightmare at the end."
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Oil prices spike to highest level this year
Oil prices have hit their highest level this year after a strong rise in China's bellwether stock market gave global investors confidence.
Benchmark crude for October delivery is up $1.11 to $74.2 a barrel by afternoon European electronic trading on the New York Mercantile Exchange. On Thursday, the contract fell 92 cents to settle at $72.91.
In earlier intraday trading, crude gained $1.51, briefly hitting $74.05 a barrel — the highest it has been this year.
The crude market is taking its cue from stocks after European indexes and Wall Street futures rose on the advance in China.
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World stocks up on another Shanghai advance
European stock markets and Wall Street futures rose Friday after another advance in China and ahead of key comments from U.S. Federal Reserve chairman Ben Bernanke.
The FTSE 100 index of leading British shares was up 53.28 points, or 1.1 percent, at 4,809.86, while Germany's DAX rose 90.45 points, or 1.7 percent, to 5,401.51. The CAC-40 in France was 51.24 points, or 1.5 percent, higher at 3,556.56.
Earlier in Asia, Japan's Nikkei 225 stock average fell 145.21 points, or 1.4 percent, to 10,238.20 and Hong Kong's Hang Seng dropped 129.84, or 0.6 percent, to 20,199.02.
However, China's Shanghai Composite index rose for a second day — gaining 1.7 percent to 2,960.77 — after rattling investors worldwide when it tumbled earlier this week.
Many analysts consider the Chinese market a lead indicator for worldwide, particularly European, stocks — over the last couple of years, Chinese stocks have led where others have followed. Sharp falls in the summer of 2007 proved to be a precursor to the start of the seizing up in credit markets, the prime cause of the global recession.
This week, that relationship has seemingly become even more entrenched, particularly on Wednesday, when big declines in Shanghai prompted a fall in Europe before stronger trading on Wall Street soothed frayed nerves.
Stephen Lewis, an analyst at Monument Securities, said financial markets appear to be "in thrall" with what's going on in Asia, and European equities, specifically, are rising and falling with the ups and downs of the Shanghai stock indices.
"So much of the markets' optimism with regard to global economic recovery is bound up with growth in China that it is not entirely irrational for European investors to attach substantial weight to the gyrations in Shanghai equity prices," he said.
However, analysts know that in the long-run, the direction equities take will largely depend on what happens on Wall Street, and further insights will likely emerge when trading traditionally picks up after the Labor Day holiday in early September.
As has been the case in recent days, trading volumes remained relatively light — and one effect of low volumes is that volatility tends to be higher, meaning any news developments could quickly get indexes moving. The most likely event on the calendar to shake up trading will be Bernanke's address at an annual Fed conference in Jackson Hole, Wyoming. In particular, investors will be interested to hear anything he may say on how the Fed plans to withdraw its monetary stimulus when the time comes.
"With the U.S. economy showing signs of sitting up and taking nourishment, observers wonder whether the Fed chairman will discuss any exit strategy from quantitative easing," said David Buik, markets analyst at BGC Partners.
Prospects for Wall Street's open appeared bright. Dow futures were up 45 points, or 0.5 percent, at 9,365 while the broader Standard & Poor's 500 futures rose 5.8 points, or 0.6 percent, to 1,010.50. Wall Street posted modest gains Thursday as news of an improvement in regional manufacturing and an uptick in a gauge of leading economic indicators offset an unexpected rise in new claims for unemployment benefits.
Elsewhere in Asia, Australia's index retreated 2 percent after a government fund sold a big chunk of shares in the country's top telecommunications company Telstra. South Korea's Kospi rose 0.3 percent while India's Sensex was up 0.4 percent.
Oil prices pushed back above $73 a barrel amid the improving equities backdrop. Benchmark crude for October delivery was up 82 cents to $73.73 a barrel in electronic trading on the New York Mercantile Exchange.
In currencies, the dollar fell 0.4 percent to 93.785 yen while the euro rose 0.6 percent to $1.4337.
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Traders keep buying old GM stock, despite warnings
Whether it's a matter of ignorance or greed, people are still buying General Motors stock, even though the company and the government have warned that the shares will someday be worthless.
Investors are picking up millions of shares every day, thinking they'll profit from what is really a hodgepodge of outdated factories and a pile of debt left behind when the new General Motors Co. exited bankruptcy court protection.
Instead, they could end up losing money very quickly. The price of the shares, currently under $1, has ratcheted up or down as much as 50 cents in one day.
On Wednesday, investors bought or sold 12.6 million shares for around 90 cents apiece. The old GM stock had a higher trading volume than big, viable companies like retailer CVS Caremark Corp., banker Capital One Financial Corp. and consumer products maker Procter & Gamble Co.
Industry analysts and regulators say two groups are buying Motors Liquidation stock: People who are confused and think they are getting shares of the new GM for cheap, and day traders or institutional investors hoping for short-term gains as others continue buying the stock.
GM and federal regulators say they have done all they can to warn investors, giving old GM the appropriate moniker of Motors Liquidation Co., issuing multiple public warnings and changing the stock symbol from GMGMQ to MTLQQ.PK.
"There are people who think they are buying the new General Motors. Stop. You're not. You're buying the detritus," said Harlan Platt, a finance professor at Northeastern University who follows corporate bankruptcies.
Those who invest, experts say, run a very real risk of losing everything at any moment. Aside from the possibility of the stock vanishing once liquidation of the old company ends, demand could wane and prices could plummet to near zero as more people figure out that they're not investing in the new GM.
But for now, there still are traders who haven't gotten the message that Motors Liquidation is merely a shell set up to oversee the sale of GM's bad assets, get as much money for creditors as possible and then be dissolved.
One investor, in a posting on a Web site for small cap stock traders last week, wondered why the shares, which he bought in June for 47 cents, fell more than 40 cents in one day.
"Today it went all the way up to $1.20 and I got greedy and thought I could get out around $1.30," the trader wrote. "When I came home from work it tanked down to 0.73. Can anyone give me any reasons or signs why this happened?"
Another trader responded on the site that the stock is not the real GM and he should be surprised that it hit $1.20.
Motors Liquidation was born July 10 when the new GM emerged from 40 days in bankruptcy court free of much of its debt and burdensome contracts.
Douglas Baird, a University of Chicago law professor who specializes in bankruptcy, said it's typical for trading of the old company's shares to continue after bad assets have been separated from the good ones in court. The company is still a legal entity and has to have owners. The shares, he said, may not go away until after the old GM is liquidated and legal claims settled, which could take years.
Motors Liquidation has posted a warning on its Web site saying the stock will have no value, but the company cannot halt trading, said spokesman Tim Yost.
"We're not in any way promoting the trading of it," Yost said. "We have no legal right to stop the trading. That's well beyond the purview of any given company."
The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, which regulates over-the-counter stocks, issued an "investor alert" on July 14 warning against buying or keeping the shares.
Beyond that, SEC officials say they can't prohibit trading in the old stock, only warn against it. They say there aren't grounds because the bankruptcy is widely known to the public, although FINRA says some stock promoters may have given out confusing and potentially misleading information.
So even though the new GM has said it won't offer shares to the public until next year, there are those who still believe they are buying into the new company.
Ron Humenny, president of Starfire Investment Advisers Inc., in the Detroit suburb of Southfield, said he has received calls about buying Motors Liquidation shares from Detroit-area investors who want to see GM succeed.
"The thing about people in the Detroit area is we're homers," he said. "We want to root for the home team. A lot of times people will do that, more with their heart than with their head."
Some have seen Internet blog activity that incorrectly says Motors Liquidation is the new GM, he said. They can end up falling for an old scam of pumping up a stock on the Internet and then selling it.
Even some well-known public trading sites offer descriptions of Motors Liquidation that could be confusing to investors. Scottrade and Ameritrade, for example, describe it as a company that makes and sells cars and trucks all over the world. The language, spokeswomen for both sites say, came from a third party that they hire to provide content for the sites. The language also says most of GM's assets were sold to the new company.
Kim Hillyer, spokeswoman for Ameritrade, said the description is merely a snapshot of Motors Liquidation. She said Ameritrade posted two warnings for its subscribers and added that it's incumbent on investors to check out stocks.
"Any time you're interested in a security, it's up to you as an individual to do your research," she said.
Baird said the SEC isn't likely to step in unless people are misrepresenting Motors Liquidation as the new GM.
"If you have two consenting adults and one wants to buy, I can sell you Confederate war bonds and the SEC is not going to stop me," he said.
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New credit card rules may reveal unwelcome details
The rules your credit card company operates by will start getting much clearer on Thursday. But just because you'll know what they're up to doesn't mean you're going to like what you learn.
Regulations aimed at reining in practices like unexpected interest rate increases and credit limit cuts start with two rules. Consumers will now be given advance warning of any major changes to the terms of their accounts, and get more time to pay their balance after receiving a bill.
These small changes come ahead of more sweeping regulations that will take effect starting in February. Those touch on matters ranging from mandating reviews every six months of accounts that have had rate hikes to limiting the credit that can be offered to students.
Card companies have been gearing up for the new landscape for months, mailing consumers a spate of warnings about fee and interest rate changes. If the notices already sent are any indication, consumers may not be happy about much of the new information they receive.
Citi, for example, is in the process of informing some cardholders that it will institute an annual fee, about $30, on certain accounts.
And American Express Co. recently sent out notice it will eliminate over-the-limit fees on its consumer credit cards in October. They were dropped in response to a provision in that law that, starting in February, requires card companies to offer a way for customers to agree to pay each time a transaction triggers such a fee.
But the good news from Amex stopped there.
The letter Cynthia Vancho received last week from Amex informing her of the fee elimination also included notice that the interest rate on her card will jump to 10.24 percent from 6.99 percent. If she makes any late payments, the rate will shoot up to 27.24 percent.
And while overlimit fees are gone, Amex changed its fees for making late payments to $19 for balances under $250, and $39 for balances over that line. The prior fees were $19 for balances under $400, and $38 for balances over $400.
Vancho, who lives in Pemberton Township, N.J., sees rate and fee increases as penalizing good customers who did nothing wrong. "They're taking advantage of the situation," she said, maintaining that the hikes are being made to offset the cost of complying with the new rules. "I find it unfair for people who pay on time, pay over what is expected of them monthly and are basically good clients."
Amex spokeswoman Desiree Fish acknowledged the regulations played a part in recent rate and fee hikes. "The reason why we did it is to be responsive to the business and economic environment, which obviously included the recent regulatory changes," she said.
The company started changing rates and fees in November. Rates on certain credit cards like its Blue and Optima cards have risen on average 4 percent, while co-branded cards like airline miles cards are up an average 2 percent. "It's just part of the plan changes over the past few months that we've been making," Fish said. Citi spokesman Samuel Wang said in an e-mailed statement the new annual fees "also reflect the dramatically higher cost of doing business in our industry."
American Express and Citi are not unique. A survey by the Pew Charitable Trusts of nearly 400 credit cards offered by the 12 largest issuers in the country found that rates have gone up on average 2 percent since December. Banks are making the moves in response to an array of factors, including the regulatory changes and a spike in the number of accounts that have slipped into default as the unemployment rate has risen, said Nick Bourke, project manager of the Pew Safe Credit Cards Project.
"They're trying to manage a lot of uncertainty, because they don't know what this market is going to look like once this law takes effect," Bourke said. "And they're trying to preserve a very profitable business."
Bourke is among the industry observers who think the new law will benefit consumers.
"The things that people look at when they're looking at a credit card are: What's the interest rate? What are the rewards? and Is there an annual fee?" Bourke said. Problems cropped up because banks started incorporating things consumers didn't expect, like overlimit fees and surprise interest rate hikes. "I think the transparency that the law brings will end up saving people money," he added.
Many elements of the Credit Card Accountability Responsibility and Disclosure (CARD) Act were actually echoes of regulations the Federal Reserve crafted last year that will take effect in July, noted Gene Truono managing Director with BDO Consulting, who previously worked for both Chase cards and American Express.
The aim of all the new rules is to make credit card contracts easier for consumers to understand. Previously, the disclosures on most credit card contracts were "not comprehensible to the average consumer," he said.
In that sense, things like the requirement coming in February that banks spell out on a statement how long it will take to pay off a card making only the minimum payment, and how much interest that will cost, are bound to help consumers manage their credit better, Truono said.
"It passes what I call the 'Dolores Test,'" explaining that Dolores is his octogenarian mother. "If most consumers read them and can actually understand them, it really does have the intended effect."
Nevertheless, while the new regulations will curtail most of the practices the credit card industry has been criticized for in recent years, Truono said consumers must still stay on top of their accounts, adding, "The disclosures are only as good as the consumers who actually read them."
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US home construction falls 1 percent, misses views
Construction of new U.S. homes dipped slightly last month, missing expectations, in a sign that the building industry's recovery from the housing bust is likely to be bumpy and gradual.
The Commerce Department said Tuesday that construction started on homes and apartments fell 1 percent in July to a seasonally adjusted annual rate of 581,000 units, from an upwardly revised rate of 587,000 in June. Economists polled by Thomson Reuters expected a pace of 600,000 units.
Builders slammed the brakes on construction after the housing bubble burst, and in April housing starts plunged to the lowest point in a half-century. Then construction began a recovery, rising to the highest level in seven months in June before slipping again last month.
But the industry is still a long way from a return to normal. July's housing starts were still nearly 38 percent below last year's levels.
The decline in construction was led by a drop of more than 13 percent in multifamily properties. Construction of single-family homes rose 1 percent last month.
Applications for building permits, an indicator of future activity, fell 1.8 percent to an annual rate of 560,000 units. Economists expected an annual rate of 580,000 units.
The industry is seeing increased demand from consumers who want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 percent of a home price up to $8,000. It is set to expire at the end of November.
While numerous signs have emerged that the U.S. housing market has stabilized after the worst housing recession since the Great Depression, there are several threats to any recovery.
The unemployment rate, now 9.4 percent, is expected to surpass 10 percent, leaving even more homeowners unable to pay their mortgages. Mortgage rates are still at attractive levels but they could rise, making buying a home less affordable.
Nevertheless, builders have been growing more confident. The National Association of Home Builders said Monday its housing market index rose to the highest point in more than a year in August. The trade association's index rose one point to 18, a level not seen since June 2008.
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Wholesale prices drop more than expected in July
Wholesale prices dropped sharply in July, and over the past 12 months fell by the largest amount in more than six decades of record-keeping.
The Labor Department said Tuesday that wholesale prices dropped 0.9 percent last month. That's triple the decline economists had expected and was driven by big decreases in both energy and food costs. Over the past 12 months, the prices of goods before they reach store shelves fell 6.8 percent.
Core inflation, which excludes energy and food, also was well-behaved. It dropped 0.1 percent in July, better than 0.1 percent gain economists expected.
The declines in the Producer Price Index showed wholesale inflation pressures were even more subdued than prices at the consumer level. The government last week reported that the Consumer Price Index was unchanged in July and over the past 12 months fell 2.1 percent, the biggest decline in nearly 60 years.
For July, wholesale energy prices fell 2.4 percent after having surged 6.6 percent in June. Gasoline dropped 10.2 percent and home heating oil plunged 11.9 percent.
Food prices at the wholesale level fell 1.5 percent last month, reversing a 1.1 percent rise in June. A big drop in vegetable prices led the overall decline, but beef and egg prices also fell.
The 6.8 percent decline in wholesale prices over the past year was the biggest since the government began keeping such records in 1947. It surpassed the 5.2 percent drop in the period ending in August 1949.
The 0.1 percent drop in core inflation left those prices rising 2.6 percent over the past 12 months. In July, prices for passenger cars fell 1.7 percent, the biggest decline in nearly three years.
The 1.8 percent gain in wholesale prices in June was the biggest one-month increase since November 2007. But economists said it represented a temporary burst and was not the beginning of a dangerous bout of spiraling prices.
Economists believe energy prices, which had propelled much of the gain, will level out and that the weak economy will keep the lid on overall inflation. Crude oil prices topped $72 a barrel in June but were trading below $67 per barrel Tuesday.
The Federal Reserve believes inflation will remain subdued for some time as the country struggles to emerge from the worst recession since World War II.
The Fed last week they planned to keep a key bank lending rate at a record low near zero for an "extended period," despite seeing signs that the economic downturn was "leveling out."
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Map locates areas where wildfires have broken out in California
Commercial lender CIT Group Inc. said Monday its offer to repurchase outstanding debt at a discount — a crucial step to help stave off bankruptcy — was successful.
The embattled New York-based lender offered to buy $1 billion in debt that was set to mature Monday. CIT warned that if not enough bondholders were willing to sell the debt back to the company, it would likely have to file for bankruptcy protection.
The company said nearly 60 percent of the debt was tendered for purchase, barely topping the 58 percent minimum needed to complete the offer. CIT is paying $875 for every $1,000 tendered as part of the offer.
CIT will pay off the remaining notes that matured Monday but were not tendered for purchase as part of the offer.
"The completion of this tender offer is another important milestone as the company continues to make progress on the development and execution of a comprehensive restructuring plan," CIT Group said in a statement.
At the same time that CIT received $3 billion in emergency funding last month from its largest bondholders, it launched the offer to buy back outstanding debt in an effort to ease a cash crunch that nearly forced it out of business. CIT turned to and received funding from its bondholders only after negotiations for a government-led bailout failed.
Some experts feared that if CIT collapsed it would deal a crippling blow to an economy still bleeding hundreds of thousands of jobs a month despite a nearly $800 billion federal stimulus program.
The retail sector would be hit especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.
It could continue to struggle with liquidity issues as more debt is due to mature next year.
Last week, CIT reached an agreement with the Federal Reserve Bank of New York that puts the company under the oversight of federal regulators. The agreement requires CIT to submit a plan for how it will maintain sufficient cash. It must also provide budgets through the end of 2010 that include details about how the company will meet current and future capital requirements.
Shares of CIT fell 11 cents, or 7.8 percent, to $1.30 shortly after Monday's market open.
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Stocks drop as investors worry about consumers
Stocks fell sharply Friday as investors worried that nervous consumers will short-circuit the economic recovery.
Traders were disappointed by media reports that the Reuters/University of Michigan index of consumer sentiment fell sharply in the first part of this month, a sign that consumers may continue to curtail their spending as they worry about losing their jobs. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.
The discouraging reading came a day after the Commerce Department reported an unexpected decline in retail sales. Investors were able to shake off that reading, but Friday's consumer sentiment number had them bailing out of stocks and moving their money to the relative safety of government bonds. Treasury prices rose sharply, pushing their yields lower.
The Labor Department said the Consumer Price Index was flat in July after a slight increase in June. Inflation is bad for bonds because it eats into their fixed returns over time.
Meanwhile, the market shrugged off a report showing a bigger-than-expected increase in industrial production. Investors have come to expect an improvement in manufacturing activity; their concern now is the consumer.
In early trading, the Dow Jones industrial average fell 137.55, or 1.5 percent, to 9,260.64. The Standard & Poor's 500 index fell 15.35, or 1.5 percent, to 997.38, while the Nasdaq composite index fell 32.47, or 1.6 percent, to 1,976.88.
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Oil prices rise further on demand hopes
Oil prices extended gains Friday on raised hopes of a better-than-expected recovery in energy demand, traders said.
Brent North Sea crude for delivery in September rose 30 cents to 73.78 dollars a barrel in morning London trade.
New York's main contract, light sweet crude for September, edged up five cents to 70.57 dollars a barrel.
Despite prices rising Friday, one analyst said he expected a reverse of direction soon as current demand remains weak.
"We remain very sceptical that any rally can be sustained, and we still favour the downside in the short term," said VTB Capital commodities analyst Andrey Kryuchenkov in London.
"Brent should slip back to 72 dollars and eventually 70 dollars, once the euphoria subsides."
Crude prices have been winning support since Thursday's release of better-than-expected growth data on the 16-nation eurozone economy that gave hope of a stronger pick-up in crude demand than suggested by experts this week.
The eurozone's GDP contracted a mere 0.1 percent in the second quarter after a 2.5 percent drop in the January-March period.
Germany and France, the eurozone's two largest economies, both posted growth of 0.3 percent, surprising economists and officially confirming the end of the recession in the two countries.
Oil prices had also risen on Wednesday after the Federal Reserve said economic activity was "levelling out."
The policymaking Federal Open Market Committee (FOMC) maintained ultra-low interest rates, but said it would gradually end a programme of Treasury bond purchases after completing a 300-billion-dollar scheme in October.
The US economy is the world's largest energy consumer and an economic recovery is seen as key to boosting global oil demand after the recession.
However latest government data on US energy reserves showed oil demand remained weak. The US Department of Energy on Wednesday said crude inventories rose by 2.5 million barrels to 352 million barrels in the week ended August 7, more than triple the amount expected by analysts.
It was the third week running of higher crude stockpiles.
On Wednesday, the International Energy Agency gave a cool assessment of so-called "green shoots" of economic growth, saying that oil demand was lagging behind inconclusive signs of global recovery from the economic crisis.
Demand this year would be far weaker than last year and an unexpectedly weak rally next year would fall far short of compensating for this, the IEA said.
The broad findings of the IEA report chimed with the overall assessment of the Organization of Petroleum Exporting Countries which reported Tuesday that world oil demand would decline slightly this year but begin to grow in 2010.
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Spain's economy shrinks further
Spain's economy shrank for a fourth quarter in the three months to June but the rate of contraction slowed, official data showed Friday, even as other European economies rebounded from the recession.
Gross domestic product in Spain, Europe's fifth-largest economy, contracted 1.0 percent in the second quarter from the first, the National Statistics Institute said.
Compared to the same period last year, GDP was off by 4.1 percent.
If confirmed by final figures on August 27, it would be the fourth shrinkage in a row after a fall of 1.9 percent in the first quarter, 1.0 percent in the last quarter of 2008 and 0.3 percent in the third quarter of 2008.
The latest figure was worse than an estimate of 0.9-percent contraction issued by the Bank of Spain last month. The central bank also said that the rate of contraction in the economy would continue to slow.
Spain remains mired in its first recession for 15 years.
Its economy has proved especially vulnerable to the global credit crunch because growth relied heavily on credit-fueled domestic demand and a property boom boosted by easy access to loans.
While the recession has not been as deep as in many other major economies, most economists forecast Spain will take longer to recover.
Socialist Prime Minister Jose Luis Rodriguez Zapatero however said last week that "the worst of the crisis is over."
And the secretary of state for the economy, Jose Manuel Campa, said on Thursday that the recovery in other EU economies would help Spain "grow in the same direction and possibly at the same rhythm."
But the conservative opposition Popular Party leapt on the latest figures to call for a change in economic policy, warning the country "runs the risk of being left behind in the global economic recovery."
On Thursday, Germany and France led a surprise rebound out of recession, helping drag the 16-nation eurozone back towards positive territory in a further sign a global economic recovery is taking hold.
The two largest economies in the 16-nation eurozone enjoyed growth of 0.3 percent in the second quarter -- snapping a period of negative growth dating back to early 2008.
Official figures showed Portugal and Sweden had also exited recession.
However, the economy in the 27-nation European Union as a whole shrank by 0.3 percent in the second quarter, weighed down in part by a 0.8 percent drop in Britain and deep recessions in Central and Eastern Europe.
Analysts also warned that a painful legacy, namely in the form of rising unemployment, would not be shaken off so easily.
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Stocks edge lower after jobs, retail data
Stocks turned lower in early trading Thursday as disappointing reports on jobs and retail sales deflated some of investors' optimism about the economy.
Investors sent the major indexes slightly higher at the opening, but stocks failed to hold on to the gains and extend Wednesday's big rally, which followed upbeat comments from the Federal Reserve.
Falling retail sales put a damper on hopes the recession will end sooner rather than later. The Commerce Department said retail sales fell 0.1 percent in July, significantly worse than the 0.7 percent increase that was expected by economists polled by Thomson Reuters.
Results would have been even worse had it not been for a boost in auto sales thanks to the Cash for Clunkers autos trade-in program. Excluding autos, retail sales fell 0.6 percent, compared with expectations for a gain of 0.1 percent.
Retail sales are considered a strong indicator of economic recovery because consumer spending accounts for more than two-thirds of all economic activity.
A weekly report on unemployment also came in worse than projected.
The Labor Department said the number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts were expecting new claims to drop to 545,000.
Despite the increase, initial claims remain below their peak levels above 600,000 where they have been for most of this year.
In early trading, the Dow Jones industrial average fell 50.26, or 0.5 percent, to 9,311.35. The Standard & Poor's 500 index fell 4.57, or 0.5 percent, to 1,001.24, while the Nasdaq composite index fell 11.49, or 0.6 percent, to 1,987.23.
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Wal-Mart posts flat 2Q profit, beats expectations
Wal-Mart Stores Inc. on Thursday reported second-quarter income virtually unchanged from a year ago, but results beat Wall Street expectations.
The world's largest retailer also raised the low end of its profit outlook as it benefits from a series of cost-cutting moves, particularly from inventory controls, and draws frugal shoppers away from rivals.
But Wal-Mart officials cautioned that the economy will continue to remain difficult in coming months, forcing their shoppers to keep buying less-expensive store label products and smaller-pack sizes. And they don't expect the holiday season to be dramatically better than last year.
"Overall, our customers are more disciplined in their spending," Mike Duke, Wal-Mart's president and chief executive, told investors during a pre-recorded call Thursday. "There's a new normal" of saving more and spending less, he added.
As for the holidays, Chief Financial Officer Tom Schoewe told reporters during a conference call he's "hopeful that it will be better than last year."
"Last year was a very very unusual time," he added.
Wal-Mart earned $3.44 billion, or 88 cents per share, in the quarter ended July 31. That compares with $3.45 billion, or 87 cents per share, in the year-ago period. Revenue fell 1.4 percent to $100.08 billion.
Analysts surveyed by Thomson Reuters projected earnings per share of 85 cents on revenue of $102.9 billion.
Wal-Mart shares rose $1.11 to $51.62 in premarket trading, after closing at $50.51 Wednesday, as investors appeared pleased that the company was stepping up its cost cuts.
But same-store sales, or sales at stores opened at least a year, slipped 1.2 percent during the period, compared with a 4.3 percent gain in the year-ago period, whose sales were boosted by the distribution of government stimulus checks.
That figure provides the first glimpse of a key sales measurement in the quarter, because Wal-Mart stopped reporting those figures on a monthly basis after announcing April results. Schoewe noted that same-stores sales were also hurt by price deflation in dairy products as well as consumer electronics.
"In a sales environment more difficult than we expected, we managed our operations in a disciplined manner," Duke said in a statement. "Our U.S. segments delivered strong inventory performance, which contributed to the company's healthy increase in year-over-year earnings. We are accelerating our focus on reducing our expenses."
Schoewe told reporters that inventory at Wal-Mart U.S. stores was down 6 percent during the quarter from the year-ago period.
Wal-Mart has been one of the few bright spots in retailing this year, benefiting from shoppers focusing on necessities during the recession. But a big part of its success in drawing new customers away from higher-priced stores has been largely due to its low prices and its efforts to clean up stores and improve merchandise. That all came together just as the economy started to sour.
Now Wal-Mart is embarking on an ambitious store remodeling plan and is sprucing up its merchandise even more in the hope of retaining its new customers after the economy recovers. It plans to redo up to 600 stores this fiscal year at a cost of $1.6 billion to $1.7 billion.
The new store format includes lower shelving that will make it easier to see across the store, better lighting and wider aisles. The chain also is adding more brands and expanding its electronics offerings.
But Wal-Mart shares, which soared 20 percent last year, have fallen 11 percent since the beginning of the year as investors turn to the beaten-down shares of more upscale companies like Williams Sonoma Inc., which Wall Street believes didn't have much further to fall and could benefit when shoppers start spending again.
Right now, the recovery in consumer spending doesn't seem near. Wal-Mart's Schoewe said early signs for the back-to-school season show that shoppers are focusing on replenishing basics and are fixated on "value" but he believes that Wal-Mart is picking up market share across all categories of business.
He also noted that he sees the continued trend toward shoppers financing more of their purchases with cash and debit cards instead of credit cards.
Given the challenging environment, the company predicts same-store sales anywhere from unchanged to up 2 percent in the third quarter ended Oct. 30.
Wal-Mart boosted the low end of its annual profit guidance to a range of $3.50 to $3.60 per share, from $3.45 to $3.60 per share. Analysts surveyed by Thomson Reuters predict $3.56 per share.
For the third quarter, Wal-Mart expects earnings per share between 78 cents and 82 cents per share, including a 3-cent negative impact from currency exchange rates. Analysts surveyed by Thomson Reuters expect 80 cents per share.
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Jobless claims up, retail sales dip unexpectedly
Retail sales disappointed in July and the number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly last week. The latest government reports reinforced concerns about how quickly consumers will be able to contribute to a broad economic recovery.
"There is really no positive spin to put on these numbers," Jennifer Lee, an economist with BMO Capital Markets, wrote in a research note. "The U.S. consumer remains very weak. The jobs situation, while slowly improving, is still dismal."
The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.
While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump — the biggest in six months — there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines.
The July dip was the first setback following two months of modest sales gains. Excluding autos, sales fell 0.6 percent, worse than the 0.1 percent rise economists had forecast.
Households are working to pay down debt and add to savings, longer-term trends along with little job growth making it "probable that the U.S. consumer will not be much of a help during the early stages of the economic recovery," Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc., wrote in a note to clients.
The Labor Department said initial claims increased to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts expected new claims to drop to 545,000, according to Thomson Reuters.
The number of people remaining on the benefit rolls, meanwhile, fell to 6.2 million from 6.34 million the previous week. Analysts had expected a smaller decline. The continuing claims data lags initial claims by one week.
The four-week average of initial claims, which smooths out fluctuations, rose by 8,500 to 565,000. That reverses six straight weeks of decline.
A weak job market hurt sales last month. Gas station sales plunged 2.1 percent in July, due more to falling pump prices than weak demand. Excluding that drop, retail sales would have posted a modest 0.1 percent increase.
Department store sales fell 1.6 percent and the broader category of general merchandise stores, which includes big chains such as Wal-Mart Stores Inc. and Target Corp., posted a decline of 0.8 percent.
Wal-Mart on Thursday reported virtually flat second-quarter income compared with a year ago, but the results beat Wall Street expectations and the world's largest retailer raised the low end of its profit outlook as a series of cost-cutting moves draw frugal shoppers away from rivals.
Still, the July weakness in overall retail sales highlighted worries about the potential strength of the recovery from the recession. Consumer spending accounts for about 70 percent of total economic activity.
"Households are in no position to drive a decent economic recovery," Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients.
While there have been recent signs of stability in the U.S. housing market after three years of plunging prices, record foreclosures persist. The number of U.S. households on the verge of losing their homes rose 7 percent in July, as the foreclosure crisis continued to outpace government efforts to limit the damage.
Foreclosure filings rose 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.
The Federal Reserve on Wednesday delivered a more upbeat assessment of the economy. The central bank held interest rates at record lows and said it would slow the pace of an emergency rescue program to buy $300 billion worth of Treasury securities, shutting it down at the end of October, a month later than previously scheduled.
The Fed again pledged to keep a key bank lending rate near zero for "an extended period" to nurture an anticipated recovery.
Fed Chairman Ben Bernanke and his colleagues said the economy appeared to be "leveling out" — a considerable upgrade from their last meeting in June, when the Fed observed only that the economy's contraction was slowing.
On Wall Street, stocks slipped in morning trading Thursday. The Dow Jones industrial average dipped about 25 points, and broader indices also edged down.
Initial claims reflect the pace of layoffs by employers. The Labor Department last week said companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.
The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months.
There were 617,000 new jobless claims in late June, before the figures were distorted last month by a shift in the timing of temporary auto plant shutdowns. That shift caused claims to drop sharply and then jump up last month.
Claims fell steeply last week, however, when the data were no longer affected by the distortions.
Still, initial claims remain far above the roughly 325,000 that economists say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007.
Including federal emergency benefit programs, 9.25 million people received unemployment compensation in the week ending July 25, the latest data available. That's down from a record of 9.35 million the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.
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Macy's profit falls in 2Q; company raises outlook
Macy's Inc. posted a lower second-quarter profit Wednesday as the department store chain's results were weighed down by costs for consolidations and store closings.
The Cincinnati-based chain also boosted its full-year profit outlook as it benefits from the cost-cutting, but the expected range of 70 cents to 80 cents per share is mostly below average analyst estimates of 79 cents per share.
Shares fell 22 cents to $15.25 in premarket trading.
Macy's earned $7 million, or 2 cents per share, in the quarter ended Aug. 1. That compares with $73 million, or 17 cents per share, in same period last year.
But excluding restructuring charges of $34 million, or 18 cents per share, related to division consolidations and initiatives to localize merchandising to regional markets, the company earned 20 cents per share. That well exceeded the 15 cents projects by analysts surveyed by Thomson Reuters.
Revenues were $5.16 billion, down almost 10 percent from a year ago, slightly below analysts' forecasts of $5.18 billion. Macy's same-store sales, or sales at stores opened at least a year, were down 9.5 percent. Same-store sales are considered a key indicator of a retailer's health.
"Our unified organizational structure is settling in and working well," said Terry J. Lundgren, Macy's chairman, president and chief executive, in a statement. "It has allowed us to streamline decision-making and build closer relationship with our key vendor resources."
Department stores are facing big challenges as shoppers — worried about job security, tight credit and slumping home prices — keep their focus on basics like food. While there are signs of stabilization, business remains weak.
Macy's has been shoring up profits with aggressive cost-cutting. It announced in February that it will eliminate 7,000 jobs, almost 4 percent of its work force; it also cut capital spending, reduced its contributions to its employees' retirement funds and slashed its dividend to preserve cash.
The moves follow Macy's announcement in January — on the heels of the worst holiday season in decades — that it would close 11 stores, affecting 960 employees.
Last year, it began rolling out a program to localize merchandising to regional markets, and Lundgren noted Wednesday that he's pleased with the results so far.
The idea is to concentrate Macy's top talent in local markets and better stay on top of trends by grouping Macy's stores nationwide into 69 geographic districts of 10 to 12 stores each. Twenty of the districts — in the Midwest, Upper Midwest and Pacific Northwest — were created as pilots in spring 2008 and will remain in place.
The initiative rolled out to the remaining 49 new districts nationwide in the second quarter, and Lundgren added that same-store sales performance in the 20 pilot districts continued to outpace the rest of the company.
That gap continued to widen in the second quarter, but he expects sales performance at the new districts will catch up with those of the pilot districts as they get up to speed.
Macy's said Wednesday that it expects same-stores sales to fall between 5 percent and 6 percent. That would result in a same-store sales decline of between 7 percent and 7.5 percent for the full year. That's within company's internal guidance of a drop of between 6 percent and 8 percent.
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June trade deficit rises to $27B, imports increase
The U.S. trade deficit edged up slightly in June as imports rose for the first time in 11 months, another sign that the worst recession since World War II is beginning to loosen its grip on the economy.
The Commerce Department said Wednesday that the deficit rose 4 percent to $27 billion, from May's $26 billion. The May imbalance had been the lowest deficit in nearly a decade.
The bigger June deficit reflected an increase in imports for the first time in nearly a year, an indication that demand in the U.S. is starting to revive.
In a good sign for American producers, exports rose for the second straight month. That could be a signal global demand also is starting to rebound.
Imports of goods and services climbed 2.3 percent to $152.8 billion. A 23.8 percent jump in petroleum to $21.5 billion led the increase. That was the largest amount this year, reflecting higher volume and rising oil prices. Imports of other products also rose, led by autos, computers and civilian aircraft.
Exports rose 2 percent to $125.8 billion, good news for America's manufacturing sector, which has seen demand slump domestically and in key foreign markets as the recession that began in the U.S. in December 2007 spread worldwide.
Even with the increase in exports and imports, the overall deficit is running well below last year's levels. Through the first half of this year, the deficit is running at an annual rate of $345.9 billion, about half the $695.9 billion imbalance for all of 2008.
Economists believe the deficit will widen slightly in coming months but will still finish the year far below the 2008 level. They expect the imbalance to begin to rise again in 2010 as the U.S. and global economies start to mend.
The politically sensitive deficit with China increased 5.4 percent to $18.4 billion, the highest level since January. But for the year, that deficit is running 13.1 percent below last year's record pace.
The Obama administration sought to play down trade tensions between the two nations during recent high level meetings. The change in tone partly reflects the growing dependence of the U.S. on the willingness of China, the largest holder of U.S. Treasury securities, to keep buying U.S. debt as the federal budget deficit soars to record levels. The deficit has soared due to massive spending by the administration to jump-start the economy and deal with the worst financial crisis since the Great Depression.
However, U.S. manufacturers have criticized the administration for not pressing the Chinese to do more to alter currency policies they contend are among the major reasons for America's huge trade gap with China, the largest with any country.
The economic troubles have increased political pressure to raise trade barriers to protect domestic industries in both the U.S. and China. A Chinese trade official said Wednesday a U.S. complaint that China's tire imports were harming American tire manufacturers violated trade rules overseen by the World Trade Organization.
"I believe the case is neither supported by facts nor does it have valid legal grounds," a deputy commerce minister, Fu Ziying, said at a Beijing news conference. "It is against basic WTO principles and looks like trade protectionism."
Besides tires, Washington has launched a series of investigations into whether Chinese exporters were dumping goods in the U.S. including wooden bedroom furniture, honey, candles, gift boxes, industrial chemicals and fresh garlic.
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Citigroup approves $6B in new lending initiatives
Citigroup Inc. said Tuesday it approved $6 billion in new lending initiatives during the second quarter as part of its programs supported by government bailout funds.
The New York-based bank said it has now approved $50.8 billion in lending programs tied to receiving money as part of the Troubled Asset Relief Program, or TARP. The program was launched last fall by the Treasury Department to help stabilize the lending markets at the peak of the credit crisis.
Citigroup has received $45 billion in TARP money since last October. A portion of that money was recently converted into a 34-percent ownership stake for the government.
Among the money approved for lending, $15.1 billion has been deployed, the banking giant said in its third quarterly update on how it is expanding lending efforts after receiving government money.
Two new programs, worth up to $6 billion, were approved by Citi in the second quarter. Citigroup will provide up to $4 billion in municipal letters of credit and another $2 billion for mortgage originators.
The lending initiative for municipalities builds on a $5 billion program Citi approved in the first quarter that provides loans to municipal clients to directly fund capital projects, such as building new infrastructure. The letters of credit will be available to local governments, municipal agencies, health care groups and other public finance clients for up to three years.
The $2 billion for mortgage originators will be available as loans known as warehouse lines of credit. Mortgage lenders will tap the lines of credit to originate new mortgages. When the new mortgages are then sold in the secondary markets, the money is repaid on the credit line. It then becomes available again to write new loans.
A majority of Citigroup's lending initiatives since receiving TARP funds have been geared toward the mortgage market, which began to collapse in 2007 and helped push the country into recession. Mounting loan losses on failed mortgages and the declining value of investments tied to the real estate loans have been the primary drivers of losses at banks and other financial institutions.
More than half the money Citi has deployed so far has been used to purchase bonds backed by mortgages in the secondary market.
Banks like Citigroup do not lend the TARP money directly to borrowers. Instead, the banks keep the extra capital on their books, which allows them to borrow more money from funding sources. Then, they lend that borrowed money to others. A bank makes money by borrowing cheaply for the short-term and lending at higher rates for the long-term; if a bank has no capital, other institutions and investors won't lend to it.
Since Citigroup received an initial $25 billion in October, it has made $330 billion in new credit available to U.S. consumers, small business and communities, including $129.7 billion in the second quarter.
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GM says new Volt to get 230 mpg in city driving
General Motors Corp. said Tuesday its Chevrolet Volt rechargeable electric car should get 230 miles per gallon of gasoline in city driving, more than four times the mileage of the current champion, the Toyota Prius.
The Volt is powered by an electric motor and a battery pack with a 40-mile range. After that, a small internal combustion engine kicks in to generate electricity for a total range of 300 miles. The battery pack can be recharged from a standard home outlet.
GM came up with the 230-mile figure in early tests using draft guidelines from the U.S. Environmental Protection Agency for calculating the mileage of extended range electric vehicles, said Tony Posawatz, GM's vehicle line director for the Volt.
If the figure is confirmed by the EPA, which does the tests for the mileage posted on new car door stickers, the Volt would be the first car to exceed triple-digit gas mileage, Posawatz said.
GM has produced about 30 Volts so far and is making 10 a week, CEO Fritz Henderson said during a presentation of the vehicle at the company's technical center in the Detroit suburb of Warren.
Henderson said charging the volt will cost about 40 cents a day.
"The EPA labels can and will be a game changer for us," he said.
Most automakers are working similar plug-in designs, but GM could be the leader with the Volt, which is due in showrooms late in 2010.
Toyota's Prius, the most efficient car now sold in the U.S., gets 48 miles per gallon of gas. It is a gas-electric hybrid that runs on a small internal combustion engine assisted by a battery-powered electric motor to save gasoline.
The first-generation Volt is expected to cost near $40,000, making it cost-prohibitive to many people even if gasoline returns to $4 per gallon. The price is expected to drop with future generations of the Volt, but GM has said government tax credits and the savings on fuel could make it cost-effective, especially at 230 miles per gallon.
"We get a little cautious about trying to forecast what fuel prices will do," Posawatz said. "We achieved this number and if fuel prices go up, it certainly does get more attractive even in the near-term generation," he said.
Figures for the Volt's highway and combined city/highway mileage have not yet been calculated, Posawatz said. The combined mileage will be in the triple digits as well, he said, but both combined and highway will be worse than city because the engine runs more on longer highway trips.
The EPA guidelines, developed with input from automakers, figure that cars like the Volt will travel more on straight electricity in the city than on the highway. If a person drives the Volt less than 40 miles, in theory they could go without using gasoline.
The mileage figure could vary as the guidelines are refined and the Volt gets further along in the manufacturing process, Posawatz said.
GM is nearly halfway through building about 80 Volts that will look and behave like the production model, and testing is running on schedule, Posawatz said.
Two critical areas, battery life and the electronic switching between battery and engine power, are still being refined, but the car is on schedule to reach showrooms late in 2010, he said.
GM is simulating tests to make sure the new lithium-ion batteries last 10 years, Posawatz said.
"We're further along, but we're still quite a ways from home," he said. "We're developing quite a knowledge base on all this stuff. Our confidence is growing."
The other area of new technology, switching between battery and engine power, is proceeding well, he said, with engineers just fine-tuning the operations.
"We're very pleased with the transition from when it's driving EV (electric vehicle) to when the engine and generator kick in," he said,
GM also is finishing work on the power cord, which will be durable enough that it can survive being run over by the car. The Volt, he said, will have software on board so it can be programmed to begin and end charging during off-peak electrical use hours.
Chrysler LLC, Ford Motor Co. and Daimler AG are all developing plug-ins and electric cars, and Toyota Motor Corp. is working on a plug-in version of its gas-electric hybrid system. Nissan Motor Co. announced last month that it would begin selling an electric vehicle in Japan and the U.S. next year.
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Stocks slip as traders await rally's next catalyst
With the stock market in a bit of a news lull, investors weren't making any big moves.
Stocks edged lower Monday in absence of any major corporate or economic developments. Investors are also cautious ahead of earnings reports from major retailers and a two-day meeting of the Federal Reserve on interest rates that starts Tuesday.
The day's modest action wasn't surprising after major indicators jumped 1 percent last week, including Friday's surge in response to the government's stronger-than-expected jobs report.
With employment and housing numbers looking better, consumers are likely to be the market's main concern during August. Big retailers such as Wal-Mart Stores Inc. and Macy's Inc. report earnings this week, and others will release their results in the coming weeks.
What stores have to say about their expectations for the future could help stocks extend their summer rally or stifle it. "There's less emphasis on earnings and more emphasis on outlooks," said Bryan Place, principal at Place Financial Advisors.
Investors also will look to the Fed for indications of how the economy is faring. It is widely expected the Fed will keep key interest rates steady at near zero, but Wall Street will be paying more attention to the economic assessment the Fed issues with its rate decision rather than the decision itself.
"Today is, I think, just a sideways-moving day waiting for a catalyst to drive this in either direction," said Jeffrey Phillips, chief investment officer at Rehmann Financial in Troy, Mich.
In midday trading, the Dow Jones industrial average fell 26.67, or 0.3 percent, to 9,343.40. The Standard & Poor's 500 index fell 3.19, or 0.3 percent, to 1,007.29, while the Nasdaq composite index fell 7.31, or 0.4 percent, to 1,992.94.
Falling stocks narrowly outnumbered those that rose on the New York Stock Exchange, where volume came to 408.1 million shares, compared with 600 million Friday.
The market's pullbacks are likely to be small, Place said, because there is enough cash still being held by investors to meet dips in the market with buying.
In corporate news, McDonald's Corp. said sales at restaurants open at least 13 months rose 4.3 percent in July. The nation's largest hamburger chain rose 94 cents, or 1.7 percent, to $56.14.
Online travel company Priceline.com Inc. posted a 35 percent increase in its second-quarter profit and an 18 percent gain in sales. Results topped analysts' expectations and the stock jumped $18.09, or 13.8 percent, to $149.41.
Bookstore chain Barnes & Noble Inc. said it will buy Barnes & Noble College Booksellers from its chairman in a $596 million deal. Barnes & Noble rose $2.04, or 8.5 percent, to $26.08.
In other trading Monday, bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.81 percent from 3.86 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose 9 cents to $71.02 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 0.65, or 0.1 percent, to 573.05.
Overseas, Asian markets rose on a positive report on Japanese machinery orders, a key indicator of corporate capital spending. Japan's Nikkei stock average rose 1.1 percent.
Britain's FTSE 100 slipped 0.2 percent, Germany's DAX index lost 0.8 percent, and France's CAC-40 fell 0.5 percent.
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Dynegy sells plants for $1 billion, 2Q loss widens
Power provider Dynegy will sell eight plants plus another under development for about $1 billion in cash and $500 million in stock as the company attempts to bolster its finances and reduce debt.
Houston-based Dynegy reported Monday that its second-quarter loss widened by 27 percent as it wrote down the value of some of the plants it will sell to former development partner LS Power Associates and because of falling energy prices. The company said it will also slash expenses by $400 million to $450 million over the next four years.
Losses for the quarter ended June 30 totaled $345 million, or 41 cents per share, compared with $272 million, or 32 cents per share, in the year ago quarter. The year-ago loss was driven by mark-to-market losses of $481 million that reflect an updated estimate of what investments are worth based on current market values.
The second-quarter loss included a $405 million charge to write down the value of four plants, two of which will be sold to LS Power. Dynegy said it expects to record additional charges on the sale and a loss on the value of assets that currently are estimated at nearly $500 million.
Revenue rose 53 percent to $493 million from $322 million because of the year ago charge along with stronger production from its plants in the Midwest and Northeast. The company has strong operations in agribusiness and food processing, meaning it has avoided some of the declines seen by other power generators that serve the auto and steel industries.
Analysts surveyed by Thomson Reuters expect a loss of 4 cents per share. Such estimates typically exclude one-time charges.
The company, which had to lower its profit outlook several times as power prices fell this year, reaffirmed its latest projections of $680 million to $740 million in earnings before income taxes, depreciation and amortization. Including charges, the company expects to report a loss of $935 million to $975 million this year.
Because of charges associated with the deal from LS Power and its cost-saving programs, adjusted EBITDA will be $425 million to $550 million.
The company's prices for power generally are based on natural gas prices, which are down about 70 percent from a year ago.
Under the deal with LS Power, Dynegy will sell about a quarter of its generating capacity. LS Power also will receive $235 million in notes due in 2015. The deal is expected to close before the end of the year.
LS Power's remaining Class B shares of Dynegy will be converted into Class A shares representing about 15 percent of Dynegy. The Class B shares will be eliminated. The deal eliminates about 30 percent of Dynegy's shares.
Bruce Williamson, Dynegy's chairman, president and CEO, said the deal with LS Power will help the company reduce its near-term debt maturities and simplify the company's structure. The company has total debt of $5.1 billion.
"It was a long negotiation and we think that the package of assets that is leaving really leaves us still with a very strong, well positioned portfolio," Williamson told analysts on a conference call.
LS Power acquired its stake in Dynegy in 2006 when Dynegy spent $4.1 billion to buy LS Power's generating capacity. Dynegy also became 50-50 partners in building nine power plants already under development. The joint venture was dissolved this year because of constrained credit markets and economic uncertainty.
Three of the plants LS Power is buying were plants it had sold to Dynegy.
When the deal is done, Dynegy will have about 20 plants in seven states that will be more concentrated on its baseload coal and natural gas plants and less on plants used only at times of peak demand for power.
Year-to-date, Dynegy posted a loss of $680 million, or 81 cents per share, compared with a loss of $424 million, or 51 cents, a share, in the first half of 2008. Revenue so far this year has totaled $1.4 billion, up from $865 million in the first half of 2008.
Dynegy shares rose a penny to $1.94 Monday. The shares have traded
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AIG reports 2Q profit, first since 2007
American International Group Inc. reported its first quarterly profit since 2007 on Friday, as the government-controlled insurer saw the value of some of its soured assets recover.
AIG said results at its core insurance operations fell during the second quarter due to the weak economy, a trend reported by other insurers. But investors appeared relieved by the company's report. AIG shares jumped $4.11, or 18.2 percent, to $26.64 in midday trading Friday.
AIG said it earned $1.82 billion. Of that, $311 million, or $2.30 per share, was attributable to common shareholders because the government owns 80 percent of the company after bailing it out last fall.
A year earlier, AIG lost $5.4 billion, or $41.13 per share.
Total revenue rose 48 percent, to $29.53 billion from $19.93 billion a year earlier.
Chairman and CEO Edward M. Liddy said in a prepared statement that company was still contending with the aftereffects of the company's near-collapse last fall. He said "performance trends stabilized from the first quarter," but added that AIG's financial results would continue to be volatile in future quarters, in part because of accounting charges related to its ongoing restructuring.
AIG now has received a government loan package worth up to $182.5 billion. The company is in the process of trying to sell off some of its assets to begin to repay the government money. It said in a filing with the Securities and Exchange Commission on Friday that it expects proceeds of about $8 billion from sales so far this year, giving it about $4.6 billion to begin repaying debts, including what it owes the government.
The company said its profit was driven by the stabilizing value of some of its riskier investments, including in its AIG Financial Products Corp. portfolio, the division responsible for many of the transactions that prompted the government bailout last fall.
AIG's near-collapse was due to risky contracts such as credit default swaps, which act as insurance to protect an investor against default on an investment such as a mortgage-backed security. The financial-products division was able to increase the value of remaining swaps on its books by $636 million during the quarter, thanks to improving credit markets. In the second quarter of 2008, AIG cut the value of those holdings by $5.57 billion.
AIG has been unwinding its derivatives, reducing the number it holds 36 percent to 22,500 as of the end of June. The value of those investments has been reduced by 13 percent to about $1.3 trillion, the company said. Still, many of the contracts are long-term so the company "expects that an orderly wind-down will take a substantial period of time," it said.
The company said operating income in its general insurance business, which includes property and casualty coverage, fell to $1 billion from $1.7 billion a year earlier, reflecting a 19.2 percent drop in premiums written, or new and renewed insurance contracts. Commercial insurance premiums written fell 18.2 percent.
AIG said its general insurance business was hurt by the recession and by higher payouts on catastrophic losses.
Its life insurance business had operating income of $1.8 billion, compared to a $2.4 billion loss a year earlier. AIG said it had fewer assets under managment, the result of the huge drop in the stock market over the past year, but that the recovery in the markets was improving the performance of that part of the company.
AIG's subsidiary International Lease Finance Corp., which leases aircraft to airlines, saw its operating profit fall to $335 million, from $352 million during the same period last year. The decrease was despite an increase in lease money as its fleet grew.
Liddy is stepping down amid the company's restructuring and management shuffle, with new President and CEO Robert Benmosche starting on Monday. AIG announced on Thursday that director Harvey Golub, the former chairman and CEO of American Express Co., will become non-executive chairman on Monday.
Liddy's departure was first announced in May, and at the time it was also announced the CEO and chairman roles would be split, similar to what many financial firms have done over the past year. The former CEO of Allstate Corp., Liddy has served as chairman and CEO of AIG since the government rescued the insurer in September.
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