RHS News Articles

Grim jobs market confronts Obama, Fed

September 07th, 2012  

(Reuters) - Jobs growth slowed sharply in August, setting the stage for the Federal Reserve to pump additional money into the sluggish economy next week and dealing a blow to President Barack Obama as he seeks re-election.

Nonfarm payrolls increased only 96,000 last month, the Labor Department said on Friday.

While the unemployment rate dropped to 8.1 percent from 8.3 percent in July, that was because so many Americans gave up the hunt for work. The survey of households from which the jobless rate is derived actually showed a drop in employment.

"This weak employment report, in jobs, wages, hours worked and participation is probably the last piece the Fed needs before launching another round of quantitative easing next week," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

The lackluster report piled pressure on Obama ahead of the November vote in which the health of the economy looms large.

"This report underscores President Obama's failed promises to get our economy moving again," House of Representatives Speaker John Boehner, the top Republican in Congress, said in a statement. "Wages are stagnant, gas prices and health care costs are up, our national debt has surpassed $16 trillion, and millions of Americans remain out of work or underemployed."

The data dampened spirits in U.S. stock markets, which opened marginally higher. Treasury debt prices rallied and the dollar slipped against the euro to its lowest in nearly four months as traders increased bets the Fed would launch a third round of bond buying at a meeting next Wednesday and Thursday.

Economists polled by Reuters had expected payrolls to rise 125,000 last month, but some had pushed their forecasts higher after upbeat data on Thursday.

LOOKING FOR A SILVER LINING

Fed Chairman Ben Bernanke last week said the labor market's stagnation was a "grave concern," a comment that raised expectations for a further easing of monetary policy.

The economy has experienced three years of growth since the 2007-09 recession, but the expansion has been grudging and the jobless rate has held above 8 percent for 43 straight months -- the longest stretch since the Great Depression.

The jobless rate peaked at 10 percent in October 2009, but progress reducing it stalled this year, threatening Obama's bid for a second term. An online Reuters/Ipsos poll on Thursday gave Republican Challenger Mitt Romney a 1-point edge on Obama, 45 percent to 44 percent.

Republicans were quick to seize on the fact that the unemployment rate has held above 8 percent for essentially Obama's entire term.

Democrats sought to find a silver lining.

"Today we learned that the economy added 96,000 jobs in August, marking 30 consecutive months of private sector job growth," Senator Bob Casey, the Democratic chairman of the congressional Joint Economic Committee said in a statement.

The lack of headway putting Americans back to work has put the question of further monetary stimulus on the table at the Fed. The central bank has held interest rates close to zero for nearly four years and pumped about $2.3 trillion into the economy through two bouts of bond buying, or quantitative easing.

"This is certainly a disappointing report and increases the odds for QE, which were already reasonably high," said David Sloan, an economist at 4CAST in New York.

Economists said at the very least the Fed appeared set to push further into the future its conditional pledge to keep rates near zero through late 2014. Futures traders added to bets on Friday that the central bank would keep rates near zero until at least the second quarter of 2015.

AMERICANS GIVE UP SEARCHING FOR WORK

The weak tenor of the report was also emphasized by revisions to June and July data to show 41,000 fewer jobs created than previously reported.

In addition, the labor force participation rate, or the percentage of Americans who either have a job or are looking for one, fell to 63.5 percent -- the lowest since September 1981.

A total of 368,000 people gave up looking for work in August, the household survey showed.

Since the beginning of the year, job growth has averaged 139,000 per month, compared with an average monthly gain of 153,000 in 2011. The latest gain left the economy 4.7 million jobs in the hole since a brutal recession struck in December 2007, and that does not take into account population growth, which would make the deficit even greater.

Economists blame fears of the so-called U.S. fiscal cliff -- the $500 billion or so in expiring tax cuts and government spending reductions set to take hold at the start of next year unless Congress acts -- and Europe's long-running debt problems, for the slowdown in hiring.

Job creation last month was weak across the board, with manufacturing payrolls falling 15,000, the first decline since September last year. Factory jobs were inflated in July because automobile manufacturers kept plants running when they would normally shut them for retooling.

There was little improvement in construction employment, which added 1,000 jobs. Temporary hiring fell 4,900, declining for the first time since March.

Utilities payrolls saw a snap back, adding 8,800 after being depressed by the strike of about 9,000 workers in July.

Government payrolls declined 7,000, falling for a sixth straight month.

Average hourly earnings fell one cent last month, highlighting the underlying weakness in the labor market. Earnings have risen 1.7 percent over the past 12 months.

The average work week was steady at 34.4 hours in August.

Source: Reuters.com

S&P 500 Set for Longest Rally Since March After Bernanke

August 31th, 2012  

The Standard & Poor's 500 Index (SPX) rose toward its longest monthly gain since March as Federal Reserve Chairman Ben S. Bernanke said he wouldn't rule out more steps to lower a jobless rate he described as a "grave concern."

Read more: S&P 500 Set for Longest Rally Since March After Bernanke

German Growth Slowed Less Than Forecast in Second Quarter

August 14th, 2012  

The German and French economies slowed less than forecast in the second quarter, fending off a debt crisis that has dragged at least six of their euro-area neighbors into recession.

Read more: German Growth Slowed Less Than Forecast in Second Quarter

Bank Loans at Post-Recession Peak Support U.S. Growth

August 06th, 2012  

Banks in the U.S. are lending the most since the recession ended in June 2009, supporting an economy weighed down by 8.3 percent unemployment.

Borrowing by consumers and businesses rose in the week ending July 25 to $7.1 trillion, within 2.9 percent of its October 2008 peak, according to Federal Reserve data. New lending for autos jumped to $134.3 billion in the first four months of the year, up 56 percent from the same period in 2009, according to credit bureau Equifax Inc. (EFX)

The increase in lending may prevent the economy from slowing further after growth cooled to a 1.5 percent annual pace of growth in the second quarter. While the Fed last week moved closer to expanding its record stimulus, the figures on credit indicate that 43 months of near-zero interest rates may finally be giving the economy the jolt it needs, said Jim Paulsen, who helps oversee $320 billion as chief investment strategist at Wells Capital Management in Minneapolis.

"Many pieces of the credit-creation process are starting to work again," Paulsen said. "Banks are lending, people are borrowing, housing prices are going up and a sense of normality is returning."

Among the reasons for the pickup in lending: Households, whose spending makes up 70 percent of the economy, have cut debt since the 2008-09 credit crisis, while banks have increased liquidity and bolstered capital buffers. Credit requirements for buyers of new and used cars have eased.

Stocks climbed today amid better-than-estimated corporate earnings. The Standard & Poor's 500 Index rose 0.6 percent to 1,399.01 at 10:35 a.m. in New York.

Slowing Growth

The economy needs sustained credit growth to begin a cycle of spending and hiring and to reverse the slowdown, said Steven Blitz, chief economist at New York-based ITG Investment Research Inc. Economic growth has slowed from a 4.1 percent pace in the final quarter of last year as consumers and companies pulled back on spending.

"Borrowing is the best indicator out there for future growth," Blitz said. "If you see the demand to borrow grow, and banks willing to lend to meet that demand, you'll grow your national income faster."

Fed officials last week left unchanged their statement that economic conditions would likely warrant holding the benchmark interest rate target near zero at least through late 2014.

Policy makers "will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," the Fed said.

"The Fed will consider loan data" when they next meet on Sept. 12-13, Paulsen said.

More Optimistic

Paulsen is more optimistic than many of his peers: he sees the economy growing 2.75 percent to 3 percent in the second half of the year, more than the 2.2 percent median forecast in a Bloomberg survey of 76 economists from July 6 to July 10.

The economy could use a fillip from stronger lending, said Sean Incremona, senior economist at 4Cast Inc. in New York. "We're still showing pretty weak growth in the economy and we're not really impressed by the trends going forward, so bank lending would help."

A Labor Department report last week eased concern the three-year recovery is faltering. While the jobless rate unexpectedly rose in July, employers added 163,000 workers to payrolls, more than forecast and up from 64,000 in June.

Jobless Claims

The Labor Department will report Aug. 9 that initial jobless claims rose to 370,000 last week from 365,000 in the week ended July 28, according to the average of 37 economist estimates compiled by Bloomberg.

Elsewhere, house prices in the U.K. fell in July for the first time in three months, losing 0.6 percent from the previous month, mortgage lender Halifax said today. Finland's Finance Minister Jutta Urpilainen said the economy may stall next year as Europe's debt woes stunt the expansion. In Indonesia, the economy unexpectedly accelerated in the second quarter as the country withstands Europe's sovereign-debt crisis.

Some U.S. growth is coming from automakers and retailers that are adding workers to meet demand as consumers gain access to credit. Fort Lauderdale, Florida-based AutoNation Inc. (AN), the largest U.S. retailer of new vehicles, reported quarterly profit that beat analysts' estimates on July 19.

"The credit environment is very strong, with low interest rates and ample credit availability," Mike Jackson, AutoNation's chief executive officer, said on an earnings call.

Greg Williams, a warehouse manager at Box-Board Products Inc. in Greensboro, North Carolina, said he bought a new BMW 535 in June, lured in part by a 2.9 percent, 60-month interest rate, the least he's ever paid for a car loan.

'More Affordable'

"We've had some pretty good growth at my company and we're meeting our budgets, and I actually think the economy is OK," said Williams, 50. The lower rate "made it easier to get into the car and it made it more affordable. Otherwise I wouldn't have purchased this car."

Lenders have reduced the average credit score for new-car buyers to 760 in the first quarter of this year from 776 two years earlier, and for used-car buyers to 659 from 665, according to researcher Experian Automotive.

"People want to borrow to buy cars, and banks have been looking at cars as less risky assets in the last couple years, so they're jumping back into the game," according to Alec Gutierrez, the senior market analyst at Irvine, California-based auto-market researcher Kelley Blue Book Co.

Supbrime Loans

Sales of bonds tied to payments on subprime car loans are accelerating at the fastest pace in five years. Issuance of asset-backed debt linked to vehicle loans to borrowers with sub- par credit records rose to $10 billion from January until July 30 compared with $8.2 billion in the same period last year, according to Barclays Plc.

"We've been seeing a lot of pent-up demand coming back into the market from people who didn't buy in the past few years," said Lacey Plache, chief economist at auto researcher Edmunds.com in Santa Monica, California.

U.S. auto sales are on pace for the best year since 2007. Light-vehicle deliveries rose 8.9 percent in July to 1.15 million, and first-half sales are up 15 percent, setting a pace for more than 14 million annual sales, according to researcher Autodata Corp.

"Consumer spending is something that has ripple effects throughout the economy, and autos are certainly helping prop up the pace of recovery," Plache said. Autos and auto parts comprise 7 percent of U.S. manufacturing, according to the Fed.

Debt Payments

Consumers have become more attractive to lenders by paring debt. A gauge of household indebtedness fell for a record 12 straight quarters to the lowest level since 1994. The ratio of household debt payments to disposable income declined to 10.98 in the first quarter, down from a peak of 13.96 in September 2007, according to Fed data.

Total outstanding U.S. consumer credit, which includes student loans, has rebounded close to a record. The Fed's tally of short- and intermediate-term loans to individuals, excluding real estate lending, rose to $2.57 trillion in May, near the $2.58 trillion peak in July 2008.

The value of bank loans in the U.S. has increased for five straight quarters, rebounding to more than $7 trillion from last year's low of $6.69 trillion in March 2011, Fed data show. Loans to individuals account for $1.11 trillion of that total.

"We're getting back to a financial system where the economy can grow closer to its full potential," said Jerry Webman, chief economist at New York-based OppenheimerFunds Inc., which has $177 billion in assets. "It'll employ more people, enhance capital investment, and all that begins a virtuous cycle."

Source: Bloomberg.com

U.S. Stocks Rise Before Fed Decision; Spain Bonds Climb

August 01th, 2012  

U.S. stocks rose, with the Standard & Poor's 500 Index snapping a two-day decline before the Federal Reserve concludes its policy meeting. European shares and Spanish and Italian bonds gained.

Read more: U.S. Stocks Rise Before Fed Decision; Spain Bonds Climb

Euro Falls While U.S. Stocks Erase Gains; Apple Tumbles

July 25th, 2012  

The euro snapped a five-day drop amid speculation that policy makers may expand Europe's rescue fund. U.S. stocks erased gains in the last hour of trading as Apple Inc.'s results and an unexpected drop in new U.S. home sales outweighed a rally in financial shares.

The euro added 0.8 percent to $1.2155 as of 4 p.m. in New York. The S&P 500 was little changed at 1,337.91, reversing a 0.4 percent advance. Apple tumbled 4.3 percent after reporting iPhone sales that missed projections. S&P's GSCI gauge of 24 commodities gained 0.6 percent. The pound weakened after the U.K. economy shrank the most in three years. Yields on five-, seven- and 30-year Treasuries touched all-time lows for a third straight day.

Demand for new U.S. homes fell in June from a two-year high, indicating the housing recovery will be uneven. There are arguments in favor of granting a banking license to the permanent bailout fund, said Ewald Nowotny, a European Central Bank council member who also heads Austria's central bank. Granting a banking license to the ESM would give it access to ECB lending.

"We have a deepening recession in Europe, and a deceleration in North America, and that is leading investors to believe there's going to be some sort of additional stimulus applied by the central banks," said Peter Sorrentino, who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati.

Pound Weakens

The pound slumped 0.8 percent to 78.42 pence per euro. The U.K. economy shrank more than economists forecast in the second quarter as record rainfall and an extra public holiday sent output down the most in more than three years.

Treasuries fell, snapping a three-day advance, as speculation that European policy makers will boost the firepower of their bailout fund damped demand before the U.S. sold $35 billion in five-year notes. The securities drew an auction record yield amid lower-than-average demand. The yield on the benchmark 10-year note rose one basis points to 1.40 percent.

Apple fell the most since October. The company sold 26 million iPhones in the fiscal third quarter, compared with the 28.4 million predicted by analysts surveyed by Bloomberg. That caused it to miss quarterly sales and profit estimates for the second time since 2003.

"Apple is priced for perfection," Mark Eibel, the director of client-investment strategies in North America at Russell Investments Ltd., told Bloomberg Television. "Other companies may be able to have a quarter like this but when Apple does it, it will move markets around the world. It's certainly not what this market is looking for."

A gauge of homebuilders in S&P indexes slid 3.2 percent. Sales of new U.S. homes fell 8.4 percent to a 350,000 annual rate, the weakest since January, the Commerce Department reported today in Washington.

Earnings Season

Boeing gained 2.8 percent. The company raised its forecast for full-year profit to $4.40 to $4.60 a share from his April prediction of $4.15 to $4.35 a share. Caterpillar (CAT) Inc. rallied 1.6 percent to $82.75. The largest maker of construction and mining equipment raised its full-year earnings forecast as increasing demand from North American builders and overseas miners bucks an economic slowdown.

Earnings have exceeded analyst estimates at about 71 percent of the 196 companies in the S&P 500 that reported so far this quarter, according to data compiled by Bloomberg. Sales rose an average 3.3 percent and profits are down 0.5 percent.

Oil Stockpiles

Oil in New York gained 0.6 percent to $88.99 a barrel. Crude dropped as much as 1.9 percent after an Energy Department report showed U.S. stockpiles unexpectedly climbed as production surged to the highest level in 13 years. Wheat jumped 2.8 percent after falling 3.7 percent yesterday, and corn climbed 1.3 percent, the first gain in three days.

The Stoxx 600 was little changed after a three-day, 4.3 percent decline. Lonza Group AG rallied 3.7 percent as the Swiss drug-ingredient maker reported earnings that exceeded estimates. BT Group Plc, the U.K.'s largest fixed-line phone company, sank 3.3 percent after first-quarter sales trailed behind analyst projections.

The MSCI Emerging Markets Index lost 0.2 percent, its fourth day of declines. The Shanghai Composite Index slid 0.5 percent to the lowest level since March 2009 as the International Monetary Fund said the country's economy faces significant downside risks and investors speculated the government won't loosen property curbs.

South Korea's Kospi slid 1.4 percent, the most among emerging-market gauges today, to the lowest level since Oct. 10. Bank of Korea Governor Kim Choong Soo said the nation risks failing to meet a growth estimate for 2012 that the central bank already cut two weeks ago because of Europe's debt crisis.

Source: Bloomberg.com

Factories in U.S. Show Resilience as Production Rises: Economy

July 17th, 2012  

Industrial production increased in June, paced by gains among auto and machinery makers that may ease concern some of the drivers of the U.S. economic expansion were floundering.

Read more: Factories in U.S. Show Resilience as Production Rises: Economy

S&P, Nasdaq dip on growth worry; P&G supports Dow

July 12th, 2012  

NEW YORK (Reuters) - U.S. stocks edged lower on Thursday, led by technology shares, while diminished chances of monetary stimulus from major central banks prompted investors to shy away from risky assets.

Read more: S&P, Nasdaq dip on growth worry; P&G supports Dow

Trio of top central banks leap into action in sign of alarm

July 05th, 2012  

(Reuters) - China, Europe and Britain loosened monetary policy in the space of less than an hour on Thursday, signaling a growing level of alarm about the world economy, although suggestions of coordinated action were played down.

Read more: Trio of top central banks leap into action in sign of alarm

S&P 500 Rallies to Two-Month High After Factory Orders

July 03th, 2012  

U.S. stocks advanced, sending the Standard & Poor's 500 Index toward a two-month high, after a report showing factory orders exceeded forecasts bolstered confidence in the world's largest economy.

Read more: S&P 500 Rallies to Two-Month High After Factory Orders