December 15, 2017

In Surprise, Fed Decides to Maintain Pace of Stimulus

All summer, Federal Reserve officials said flattering things about the economy’s performance: how strong it looked, how well it was recovering, how eager they were to step back and watch it walk on its own.

But, in a reversal that stunned economists and investors on Wall Street, the Fed said on Wednesday that it would postpone any retreat from its monetary stimulus campaign for at least another month and quite possibly until next year. The Fed’s chairman, Ben S. Bernanke, emphasized that economic conditions were improving. But he said that the Fed still feared a turn for the worse.

He noted that Congressional Republicans and the White House were hurtling toward an impasse over government spending. That was reinforced on Wednesday, when House leaders said they would seek to pass a federal budget stripping all financing for President Obama’s signature health care law, increasing the chances of a government shutdown.

And the Fed undermined its own efforts when it declared in June that it intended to begin a retreat by the end of the year, causing investors to immediately begin to demand higher interest rates on mortgage loans and other financial products, a trend that the Fed said Wednesday was threatening to slow the economy.

“We have been overoptimistic,” Mr. Bernanke said at a news conference Wednesday. The Fed, he said, is “avoiding a tightening until we can be comfortable that the economy is in fact growing the way that we want it to be growing.”

Investors cheered the Fed’s hesitation. The Standard Poor’s 500 stock-index rose 1.22 percent, to close at a record high, in nominal terms. Interest rates also fell; the yield on the benchmark 10-year Treasury reversed some of its recent rise.

Some analysts, however, warned that the unexpected announcement was likely to worsen confusion about the Fed’s plans, increasing the volatility of the markets in the coming months as investors sort through the Fed’s mixed messages about how much longer it plans to continue its bond-buying campaign. The delay also means that the decision to retreat may ultimately be made by the next Fed chairman, after Mr. Bernanke steps down at the end of January. President Obama has said that he plans to nominate a replacement as soon as next week. Janet L. Yellen, the Fed’s vice chairman, is the leading candidate.

“The cost of not setting out on a default gradual glide path for completing QE3 today is that this issue is now likely to be front and center in the nomination and confirmation process for the new Fed chair,” wrote Krishna Guha, head of central bank strategy at the financial services firm International Strategy Investment, referring to the Fed’s asset purchases of quantitative easing.

The Fed unrolled an aggressive combination of new policies last year in an effort to encourage a housing recovery and increase the pace of job creation. It started adding $85 billion a month to its holdings of Treasury securities and mortgage-backed securities, to help keep long-term borrowing costs down and said it planned to keep buying until the outlook for the labor market improved substantially. The Fed also said it would keep short-term rates near zero for even longer — at least as long as the unemployment rate remained above 6.5 percent.

Half a year later, in June, Mr. Bernanke surprised many investors by announcing that the Fed intended to start cutting back on those asset purchases by the end of 2013. Fed officials reiterated that intention in July, and several officials had since suggested that the Fed might begin to pull back at the September meeting. It is also scheduled to meet next month and in mid-December.

Some critics question the Fed’s assessment of the economy, in particular its claim that a declining unemployment rate is a sign of progress. They note that unemployment is falling in part because fewer people are looking for work, and therefore are no longer officially counted as unemployed.

Jack Ewing contributed reporting from Frankfurt.

Article source: http://www.nytimes.com/2013/09/19/business/economy/fed-in-surprise-move-postpones-retreat-from-stimulus-campaign.html?partner=rss&emc=rss

Emerging Markets Bracing as Fed Meets

JAKARTA — Higher long-term interest rates in the United States as the Federal Reserve prepares to change its policies are already causing hardship for millions of businesses and workers in emerging markets from Indonesia and India to Turkey and Brazil.

But the economic slowdowns and falling currencies precipitated by capital flight back to the United States seem less severe so far than other recent downturns.

At the IGP Group, Indonesia’s dominant manufacturer of car and truck axles, sales plummeted 95 percent and stayed down for six months when the Asian financial crisis hit in 1997. Four-fifths of the company’s workers lost their jobs.

When the global financial crisis began in 2008, IGP’s sales briefly dropped by nearly a third, and a quarter of the employees were put out of work as temporary workers’ contracts were not renewed.

The latest downturn, which began in early August, has been much more modest. IGP’s axle shipments are down 10 percent in the past month from a year ago. The company’s work force has barely shrunk, to 2,000 from 2,077 at the end of July, though it plans to reach 1,900 by the end of this year.

“These are challenging times, but I don’t think they will be the same as in 2008 or 1998,” Kusharijono, IGP’s operations director, who uses only one name, yelled over a clanking, cream-colored assembly line here for minivan rear axles.

As the Federal Reserve’s monetary policy-making committee concludes its meeting Wednesday, emerging markets around the globe are feeling the effects of investors’ expectations that the American central bank will begin tightening monetary policy.

As long-term interest rates have risen this summer in the United States on bets that the Fed will begin tapering its “quantitative easing” of bond purchases, institutions and rich individuals have shifted tens of billions of dollars out of emerging markets. They have been moving them into dollar-based investments that offer higher yields.

Business leaders and economists across the developing world expect emerging markets to face tougher times in the months and maybe even years ahead. Emre Deliveli, a Turkish economic consultant and columnist, said, “Even if all goes well and emerging markets end up rallying, the era of easy money and abundant capital flows will officially be over on Sept. 18,” when the two-day Fed meeting ends.

But while previous exoduses by investors from volatile emerging markets have caused waves of bank failures, corporate bankruptcies and mass layoffs, the latest retrenchment has been much milder so far.

That partly reflects hopes that the Fed will move very gradually to scale back its bond purchases, business leaders and economists around the world said in interviews this week. The effects have also been limited partly because banks and companies and their regulators in many emerging markets have become much more careful about borrowing in dollars over the past two decades, except when they expect dollar revenue with which to repay these debts.

In 1997 and 1998, “the whole problem began with the banking sector. Now I think the banking sector is much better,” said Sofjan Wanandi, a tycoon who is the chairman of the Indonesian Employers’ Association and part owner of IGP.

Trading in currency and stock markets seems to suggest that some of the worst fears over the summer are starting to recede. The Brazilian real has recovered about 8 percent of its value against the dollar since Aug. 21 and a little over a third of its losses since the start of May, when worries began to spread in financial markets about the vulnerability of emerging markets to a tightening of monetary policy. Stock markets from India to South Africa have rallied from lows in late August, with Johannesburg’s market up 14.7 percent since late June after a swoon earlier than most emerging markets.

“While the Fed hasn’t started the tapering process as yet, there has been a considerable withdrawal of money in the emerging markets and especially in India since May. In my opinion, the major effect has already taken place,” said Sujan Hajra, the chief economist at AnandRathi, a Mumbai-based investment bank.

One lingering question is how much inflation will accelerate in emerging markets. Many of their industries depend heavily on commodities like oil that are priced in dollars.

Keith Bradsher reported from Jakarta, Simon Romero reported from Rio de Janeiro and Ceylan Yeginsu from Istanbul. Neha Thirani Bagri contributed reporting from Mumbai.

Article source: http://www.nytimes.com/2013/09/19/business/global/emerging-markets-bracing-as-fed-meets.html?partner=rss&emc=rss

Manufacturing Sector Regaining Some Momentum

Although another report on Monday showed a slight pullback in factory activity in New York state this month, businesses were upbeat about the future. In addition, gauges of new orders and shipments in the state jumped, all pointing to a pick-up in manufacturing after a speed bump in the spring.

“Growth in the manufacturing sector is picking up and will run faster over the balance of the year than has been the case in recent months,” said John Ryding, chief economist at RDQ Economics in New York.

Manufacturing production advanced 0.7 percent, the Federal Reserve said. The rise, which more than reversed the prior month’s 0.4 percent drop, helped to lift overall industrial production 0.4 percent.

Factory output had lagged solid gains in the Institute for Supply Management’s index of manufacturing activity.

“The sharp recovery in the ISM since May followed now by this surge in manufacturing output are encouraging signs that the spring soft patch in factory activity is over,” said Ted Wieseman, an economist at Morgan Stanley in New York.

In a separate report, the New York Federal Reserve said its Empire State general business conditions index slipped to 6.29 in September from 8.24 last month. A reading above zero indicates expansion.

Economists cautioned against reading too much in the step-back in activity, saying it was not a reliable indicator of national manufacturing.

Even as activity in the state slowed, businesses were confident about the future. The survey’s index of six-month business conditions approached a 1-1/2 year high in September, a good sign for business spending.

In addition, a gauge of new orders rose sharply after almost stalling in August and shipments surged to their highest level in more than a year.

ECONOMY EXPANDING STEADILY

The improvement in industrial output last month pointed to some underlying momentum in factory activity, which supports views of only a mild slowdown in economic growth this quarter.

That should keep the Federal Reserve on course to announce cuts to its monthly bond purchases when policymakers meet on Tuesday and Wednesday to assess the economy’s health.

“The economy continues to expand at enough of a pace where we are creating jobs and helping to bring down the unemployment rate,” said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh. “I would not be surprised to see an announcement (on tapering) on Wednesday.”

Gains in manufacturing output last month were led by a 5.2 percent rebound in auto assemblies, which had slumped 4.5 percent in July. It was the largest increase since November and it took assemblies to an 11.25 million-unit rate, the highest since June 2007.

There were also increases in the production of consumer goods, high-tech equipment, machinery, aerospace and electrical equipment and appliances, among others.

Utilities output fell for a fifth consecutive month in August, a decline economists blame on a relatively cool summer and difficulties adjusting the series for seasonal fluctuations.

Mining production rose 0.3 percent last month.

The amount of industrial capacity in use edged up to 77.8 percent from 77.6 percent in July. Capacity use, which can indicate how much factories can ramp up production before economic growth becomes inflationary, is still 2.4 percentage points below its long-run average.

“There is no evidence of any inflation pressure at this point in the production cycle,” said Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York.

(Reporting by Lucia Mutikani; Additional reporting by Steven C Johnson and Richard Leong in New York; Editing by Andrea Ricci)

Article source: http://www.nytimes.com/reuters/2013/09/16/business/16reuters-usa-economy-output.html?partner=rss&emc=rss

Contracts to Buy Homes Fall Slightly

WASHINGTON — Fewer people signed contracts to buy American homes in July, but the level stayed close to a six-and-a-half-year high. The modest decline suggests that higher mortgage rates have yet to slow sales sharply.

The National Association of Realtors said its seasonally adjusted index for pending home sales declined 1.3 percent, to 109.5 in July. That is close to May’s reading of 111.3, which was the highest since December 2006.

The small decline suggests that sales of previously owned homes should remain healthy in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale.

Final sales jumped to an annual pace of 5.4 million in July, the highest in three and a half years, the group said last week. Such a pace is consistent with a healthy housing market.

Higher mortgage rates appeared to have had a bigger impact on new-home sales, which plummeted last month. That raised fears that rate increases were restraining the housing recovery.

But many economists note that home prices and mortgage rates remain low by historical standards. Consistent job gains and rising consumer confidence may also support sales in the coming months.

“Higher mortgage rates are clearly negative for housing, but other key drivers — including the labor market, confidence and expectations for prices and interest rates — still point to improvement,” Jim O’Sullivan, chief United States economist at High Frequency Economics, said in a note to clients.

The average rate on a 30-year mortgage reached 4.58 percent last week, the highest level in two years and up from 3.35 percent in early May. Still, that is below the average since 1985 of about 7 percent, according to Bankrate.com.

Mortgage rates began to rise after the Federal Reserve chairman, Ben S. Bernanke, signaled that the Fed might reduce its bond purchases later this year. The purchases have helped keep borrowing costs low.

Rising home prices and more construction have bolstered economic growth and created more jobs. The housing recovery has provided crucial support to the economy when other drivers, like manufacturing, have struggled.

Gains in home prices may be starting to level off, however. Prices jumped 12.1 percent in June from a year earlier, according to the Standard Poor’s/Case-Shiller home price index released on Tuesday. That is slightly slower than May’s 12.2 percent year-over-year gain. But price increases slowed in June from May in 14 of the 20 cities tracked by the index.

The stabilization in prices is not necessarily a bad thing, economists said, because it could keep homes affordable and help prevent a bubble from developing in the housing market.

Article source: http://www.nytimes.com/2013/08/29/business/economy/contracts-to-buy-homes-fall-slightly.html?partner=rss&emc=rss

Bank of England Ties Interest Rate to Employment

LONDON — The Bank of England said Wednesday that it planned to keep interest rates at a record low until unemployment falls to at least 7 percent, a significant shift in the bank’s strategy to help Britain’s economic recovery.

By linking future interest rate decisions directly to the unemployment rate, the Bank of England’s new governor, Mark J. Carney, broke with tradition and aligned the bank more with the U.S. Federal Reserve’s policy of giving more clarity about its intentions. Mario Draghi, the president of the European Central Bank, also recently eliminated some uncertainty by saying interest rates would not rise for some time.

After an initial drop against the dollar following Mr. Carney’s announcement, the pound recovered and continued to strengthen, rising against the euro as well. The FTSE 100 share index fell slightly.

Short of pumping more money into economies that are still struggling to recover, central bankers in Europe have been seeking new ways to encourage banks to lend and trying to increase confidence among companies and consumers. Mr. Carney, who took over at the Bank of England last month, said the link with unemployment was aimed at reducing uncertainty.

The Bank of England said it did not plan to increase interest rates, currently at 0.5 percent, until the unemployment rate declined to at least 7 percent from the current level of 7.8 percent. The central bank also forecast that unemployment might not reach that level until at least the third quarter of 2016, hinting that interest rates in Britain could remain unchanged for another three years.

“The economy is in recovery rather than remission and this guidance gives the bank the flexibility to reduce the risk of relapse,” Peter Spencer, an economic adviser at Ernst Young’s ITEM Club, said.

Giving such guidance “reduces uncertainty because there can be a premature view of withdrawal of stimulus as the recovery builds up,” Mr. Carney said. “Our biggest concern is the possibility that as the recovery gathers pace that there is an unwarranted expectation of the pace of withdrawal of stimulus.”

Mr. Carney noted that the unemployment rate benchmark should be seen as a “way station” at which the Bank of England would start to reassess its policy, not a target that would automatically trigger a change in interest rates. The Bank of England picked the unemployment rate, he said, because it sought a figure that was “widely understood and widely available.”

Mr. Carney said the strategy, which he called “forward guidance,” does not mean the Bank of England would abandon its main objective of lowering inflation to 2 percent. In a letter to the chancellor of the Exchequer, George Osborne, explaining the new strategy, Mr. Carney wrote that forward guidance “will further enhance the effectiveness of monetary policy so that it fully plays its part in securing a sustainable recovery over the medium term.”

After closely avoiding a triple-dip recession earlier this year, the British economy has started to show some signs of improvement. Consumer confidence has recovered, the value of homes has increased and some economists have predicted that growth will gather speed over the rest of the year.

Mr. Carney cautioned, however, that while there was “understandable relief that the U.K. economy has begun growing again” there “should be little satisfaction.”

“This is the slowest recovery in output on record,” he said.

Article source: http://www.nytimes.com/2013/08/08/business/global/bank-of-england-ties-interest-rate-to-employment.html?partner=rss&emc=rss

U.S. Economy Grew 1.7% During the 2nd Quarter, Topping Forecasts

The mixed picture facing the country was evident on Wednesday, as the Commerce Department reported that the economy, adjusted for inflation, expanded at a better-than-expected annual rate of 1.7 percent in the April-June quarter, even as inflation-adjusted growth in the first part of the year now appears slower than first thought. In a separate statement after a two-day meeting of policy makers at the Federal Reserve, the central bank said the economy was on a “modest” trajectory but gave no clue as to when it might start tapering back its huge stimulus efforts.

Like economists and traders, as well as the 12 million unemployed Americans looking for work, the Fed is struggling to gauge whether better growth does indeed lie ahead.

Optimists point to improved levels of job creation in recent months, a more robust housing sector and a surging stock market that has lifted the value of investment and retirement accounts for millions of consumers. Pessimists focus on the fact that the estimated economic growth rate of about 1.4 percent so far in 2013 is well below last year’s levels of 2.8 percent, even as automatic cuts in federal spending and higher taxes continue to bite.

There were pockets of strength in Wednesday’s data from the Bureau of Economic Analysis, all of which will be subject to further revision as the Commerce Department gathers more information about the economy. For example, residential fixed investment increased by 13.4 percent, a sign that housing continues to rebound. Personal consumption rose 1.8 percent, as consumers showed some resiliency, especially given the increase in payroll taxes at the beginning of 2013.

Additionally, government experts have introduced the first comprehensive change in four years in how the economy is measured. They revised figures all the way back to 1929, while also restating more recent data to show that the 2007-9 recession was slightly milder than originally estimated and growth in 2012 was a bit better.

Still, economists emphasized that although the economy’s performance in the second quarter was significantly stronger than had been feared — Wall Street experts forecast growth would come in at just under 1 percent — big challenges remain.

“The basic story of a deep recession followed by a lackluster recovery is essentially unchanged,” said Nariman Behravesh, chief economist at IHS. Growth in the current quarter, which wraps up at the end of next month, remains a wild card, he added. IHS and other companies do expect a pickup in the second half of 2013, but more fallout from the fiscal tightening in Washington could still be felt, he cautioned.

“So far the effects have been fairly muted,” Mr. Behravesh said. “We’re puzzling over that.”

Were it not for the federal cuts, growth would have been close to 2 percent in both the first and second quarters, said Steve Blitz, chief economist at ITG Investment Research. But that’s about the best Americans can hope for, he said, at least in 2013.

“I don’t see the economy breaking away from that 2 percent rate for now,” Mr. Blitz said. He is more optimistic about 2014, when he said he thought the annual rate of growth could rise to about 3.5 percent. “The economy will have adjusted to the downshift in federal spending by then, and Europe won’t be decelerating as rapidly, nor will China and Japan,” he said.

The pace at which spending by the federal government is dropping stabilized last quarter. It fell by 1.5 percent, compared with an 8.4 percent decrease in the first quarter of 2013 and a 13.9 percent plunge in the final quarter of 2012.

More clues about the economy’s performance will come on Friday, when the Labor Department reports on monthly job creation and the unemployment rate. Economists estimate the economy created 185,000 jobs in July, according to a Bloomberg survey, a bit below the 195,000 level in June, with the unemployment rate falling to 7.5 percent, from 7.6 percent.

Article source: http://www.nytimes.com/2013/08/01/business/economy/us-economy-grew-by-1-7-in-2nd-quarter-faster-than-expected.html?partner=rss&emc=rss

Our Generation: Reinvented in His 60s, After 26 Jobless Months

From 2001 to 2008 he was vice president of a student loan company making about $150,000 a year and also taught a few business courses at the University of Maryland. He had an M.B.A., had been previously employed by the Federal Reserve and G.A.O.; and executives in his field said he was well regarded and quite good at what he did.

The loan company gave him a $188,000 severance package, so he felt he would be fine financially. “I’d thought I’d find another job quickly and actually wind up ahead,” he said then.

Not hardly. By the time I wrote about him, he’d sent out 600 résumés and had just three interviews — two by phone. It was not until March 2010, 26 months after being let go, that he finally got a job (at $75,000 a year, half his former salary) working for Merrill Lynch as a financial adviser. “I did well by focusing on people in my position who needed to preserve what was left of their savings,” he said in an interview last week. “I’d been in their shoes.”

What Mr. Blattman went through during the economic collapse was more extreme than the typical boomer who lost a job, but not that much more.

The unemployment rate is lower for people in their 50s and 60s than younger workers, but once they lose a job it takes them a lot longer to find one. And even with the improvement in the economy, there has been little change since the worst of the recession.

The average unemployed 55- to 64-year-old who got a job last month had been out of work for more than 11 months, versus 6 months for the average 20- to 24-year-old.

In June of 2007, when the economy was still humming along, the gap was smaller: 5 months of job searching for the 55 to 64 year olds and 3 months for the 20-24-year-olds.

At the worst of the economic downturn, it took an average of 13 months for a 55- to 64-year-old to find work, versus 7 months for a 20- to 24-year-old and 9 months for those 25 to 34. “Basically, the older you are, the longer it takes,” said Steven Hipple, a Bureau of Labor Statistics economist who provided the data.

After I wrote about Mr. Blattman, he was featured on an NBC special about boomers facing hard times, which was anchored by Tom Brokaw. About a month and a half later, he got the job offer from Merrill Lynch.

He stayed there about a year, and then had an offer for a full-time position with the University of Maryland, which has programs at military installations all over the world. He now teaches business courses at the Army base in Wiesbaden, Germany. “It’s my dream job,” he said. “Since I was a little kid I wanted to be a professor in Europe.” He won’t say how much he earns but says it’s five figures and “considerably less” than his position with the student loan company paid.

When the economy was healthy, he hadn’t been hesitant about changing jobs. But this time, he said, he was losing sleep over telling Merrill Lynch. “I’d been out of work so long, I was very, very grateful that they’d hired me.”

Mr. Blattman, who is divorced, said he has made a good group of friends in Germany and loves teaching soldiers. “They’re so motivated and so appreciative about being able to take college courses on the base.”

When I interviewed him in 2009 about life without work, he was filling his time writing two novels, one a thriller about a consumer loan officer, the other a romance between a 58-year-old unemployed man and a waitress who was a Holocaust survivor. (As they say in the novel business, write what you know.)

He told me that he gave the second book a happy ending because despite what he’d been through, he’d always been a big believer in happy endings.

Though he hasn’t been able to sell the novels, and his savings will never be what they were, he considers himself lucky. “I’m having a happy ending as far as I’m concerned,” he said. “I feel useful again.”

Previous Our Generation columns can be found here.

Booming: Living Through the Middle Ages offers news and commentary about baby boomers, anchored by Michael Winerip. Sign up for our weekly newsletter here. You may also follow Booming via RSS here or visit nytimes.com/booming. Our e-mail is booming@nytimes.com.

Article source: http://www.nytimes.com/2013/07/29/booming/reinvented-in-his-60s-after-26-jobless-months.html?partner=rss&emc=rss

Senate Scrutiny of Potential Risk in Markets for Commodities

The hearing, convened by the Senate Financial Institutions and Consumer Protection subcommittee, came as Goldman Sachs, JPMorgan Chase and others face growing scrutiny over their role in the commodities markets and the extent to which their activities can inflate prices paid by manufacturers and consumers. The Federal Reserve is reviewing the potential risks posed by the operations, which have generated many billions of dollars in profits for the banks.

The hearing followed an article in The New York Times on Sunday that explored the operations of warehouses controlled in part by Goldman Sachs. The bank’s tactics, along with those of other financial players, have inflated the price of aluminum and ultimately cost consumers billions of dollars, an investigation by The Times found. The Commodity Futures Trading Commission is now gathering information on the warehouse operations.

Several witnesses at Tuesday’s hearings warned that letting the country’s largest financial institutions own commodities units that store and ship vast quantities of metals, oil and the other basic building blocks of the economy could pose grave risks to the financial system. The ability of those bank subsidiaries to gather nonpublic information on commodities stores and shipping also could give the banks an unfair advantage in the markets and cost consumers billions of dollars, the witnesses said.

Representatives from the financial industry did not testify on Tuesday, but Goldman Sachs for the first time addressed its role in the aluminum market. In a statement posted on its Web site, Goldman said that its ownership of aluminum warehouses did not affect prices of the metal, in part because only 5 percent of the aluminum that is used in manufacturing passes through the warehouses owned by Goldman and others. Goldman controls 27 warehouses in the Detroit area that are used to store aluminum for customers.

In addition, Goldman said, delivered aluminum prices are nearly 40 percent lower than they were in 2006. During the financial crisis, warehoused inventories of aluminum more than tripled, the company said, because of weakened consumer demand.

The Times investigation found that Goldman’s warehouse subsidiary moved large amounts of aluminum among its warehouses daily, a process that lengthened the storage time and increased the premium that was added to the basic price of aluminum. The London Metal Exchange, which sets the rules under which the metals warehouses operate, said in a separate statement that it was working with the industry to amend the delivery obligations of warehouse companies with long waiting periods.

Even with the waiting periods, “there is no reported shortage of aluminum in the market,” the exchange said. “Consumers can continue to buy directly from producers as they always have done.”

Saule T. Omarova, a law professor at the University of North Carolina who has studied the issue, told the subcommittee that there was one other company that was an early leader in combining the practice of moving physical commodities with the financing of market activity — Enron.

The comparison was seized upon by Senator Elizabeth Warren, a Massachusetts Democrat. “The notion that two of largest financial companies are adopting a business method pioneered by Enron,” she said, “suggests that this movie will not end well.” Major beverage companies have complained about the maneuvers. Tim Weiner, a MillerCoors executive, told the panel on Tuesday that while consumers might not think they have much at stake from tons of aluminum bars stored in a warehouse near Detroit, the actions of Goldman and others have raised prices, cost jobs and hindered innovation.

That is in part because waiting times for customers who want to retrieve their metals purchases have grown to more than 16 months since Goldman Sachs took over the warehouses three years ago. Before Goldman arrived, the average wait was six weeks.

Imagine going to a liquor store to buy a case of beer, and taking it up to the cash register to pay, Mr. Weiner said. Then instead of taking the case of beer to your car, the clerk told you to visit the store’s warehouse, where you can retrieve the beer in 16 months.

Article source: http://www.nytimes.com/2013/07/24/business/senate-panel-examines-potential-risks-in-big-banks-involvement-in-commodities.html?partner=rss&emc=rss

Home Sales Fell 1.2% in June

The National Association of Realtors said on Monday that sales fell 1.2 percent last month from an annual rate of 5.14 million in May. The association revised down May’s sales, but they were still the highest since November 2009.

Despite last month’s dip, home sales have surged 15.2 percent from a year earlier. Sales have recovered since early last year, buoyed by job gains and low mortgage rates.

Still, mortgage rates have increased in recent weeks over concern that the Federal Reserve could slow its bond-buying programs later this year. The Fed’s bond purchases have helped keep long-term mortgage and other rates low.

Higher mortgage rates slowed sales last month of higher-priced homes in states like California and New York, the association said. The average rate nationally on a 30-year fixed mortgage jumped to 4.46 percent by the end of June from 3.81 percent at the end of May. The rate was 4.37 percent last week.

That rate increase could hamper sales in coming months, economists said. But most expect housing to continue to recover, though at a slower pace.

“There’s little doubt the housing market slowed in the summer as mortgage rates rose,” Daniel Greenhaus, chief global strategist at BTIG, an institutional brokerage firm, said in a note to clients. “Housing is still expected to grow and contribute to economic output. It just may not be at the pace we’ve seen of late.”

Sales of existing homes in June reflect contracts that were mostly signed in April and May, when mortgage rates were lower. Rising rates can cause some signed contracts to fall through if buyers no longer qualify for mortgages at higher rates.

The one factor that might be holding back sales is a limited supply of homes available. Though more sellers put their homes on the market in June, the supply remained unusually low — nearly 8 percent less than a year ago.

At the current sales pace, the number of homes for sale would be exhausted in 5.2 months. That’s below the six months’ supply that’s consistent with a healthy housing market.

Another concern is that first-time buyers, who usually drive healthy markets, are not participating as much in the current recovery. They made up only 29 percent of buyers in June, below the 40 percent that is typical. Since the housing bubble burst more than six years ago, banks have imposed tighter credit conditions and required larger down payments. That has made it harder for first-time buyers to qualify for mortgages.

The strength in housing this year has offset weaknesses elsewhere in the economy, like manufacturing and business investment. Rising home sales tend to lead to more spending at furniture and home supply stores.

Homebuilders have also stepped up construction in the last year, creating more construction jobs. In June, they applied for permits to build single-family homes at the fastest pace in five years.

Article source: http://www.nytimes.com/2013/07/23/business/economy/home-sales-fell-1-2-in-june.html?partner=rss&emc=rss

DealBook: Goldman, After Profit Doubles, Expresses Caution on Global Growth

Lloyd Blankfein, chief of Goldman Sachs, at the White House in February.Brendan Smialowski/Agence France-Presse — Getty ImagesLloyd Blankfein, chief of Goldman Sachs, at the White House in February.

6:24 p.m. | Updated The country’s improving economy gave a nice lift to second-quarter earnings at Goldman Sachs.

The bank posted profit on Tuesday that was twice what it reported in the period a year earlier, fueled by strong trading and investment banking results as companies looked to Goldman to arrange mergers and acquisitions.

Net income was $1.93 billion, or $3.70 a share, compared with $962 million, or $1.78 a share, in the period a year earlier. The performance beat analysts’ expectations for $2.82 a share, according to Thomson Reuters. Still, the results were not enough to propel Goldman shares higher. They closed at $160.24, down $2.76, or 1.7 percent. Investors, wondering if Goldman would be able to repeat the performance in coming quarters, opted to take some profit off the table rather than stick around and find out.

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Goldman itself, while expressing optimism about the United States economy, was cautious about growth globally. Harvey Schwartz, Goldman’s chief financial officer, said client activity improved during the quarter but was then damped a bit by “macro concerns” about countries like China.

“Ultimately our clients are assessing the broader global economy, specifically whether a recovering U.S. will offset potential slower growth in other economic regions,” he told analysts during a conference call.

Goldman’s results followed similar strong performances by JPMorgan Chase and Citigroup. Over all, Goldman’s revenue in the quarter rose to $8.6 billion, from $6.6 billion in the period a year earlier.

On Wall Street, the last couple of months were dominated by a sudden and sharp rise in interest rates after the Federal Reserve indicated it might wind down its big bond purchase program, which has helped the economy recover from the financial crisis.

A rise in interest rates can both help and hurt banks, depending on the businesses they are in. As rates rise, fewer borrowers are likely to refinance or buy a house, and that reluctance can cut into banks’ profit. Goldman, unlike its rival JPMorgan Chase, is not a big player in originating residential mortgages, but it does trade mortgages, and as rates increased, its revenue in this area fell. At the same time, the move by various central banks to raise rates ignited a flurry of currency trading, which helped Goldman and other banks.

On the analyst call, Mr. Schwartz, in response to a question, said investors needed to look into why rates were rising. If they are being driven by inflation, he said, that is more problematic than “returning to a normal world of more steady economic growth,” as many investors believe. “That is what we are rooting for,” he added.

Goldman Sachs

The surge in interest rates was felt most acutely in Goldman’s fixed-income, or bond, department. Net revenue in the unit was $2.46 billion, up 12 percent, reflecting what the company said was significant higher net revenue in currencies, credit products and commodities. Still, these increases were offset in part by significantly lower revenue in mortgages and interest-rate products.

The bank reduced the risk it was taking in products related to interest rates. The firm’s so-called value-at-risk in rates declined to an average of $59 million in the second quarter from $83 million in the period a year earlier and $62 million in the first quarter. Value-at-risk is a yardstick of the amount of losses that could be experienced in one trading day.

The firm’s annualized return on equity was 10.5 percent for the quarter, up from 5.4 percent in the period a year earlier. It was far below its performance in boom years like 2006, when its return on equity was 41.5 percent.

Revenue from investing and lending activities came in at $1.42 billion, up from just $203 million in the period a year earlier. The firm had a rather rocky second quarter in 2012, and its results in that quarter included a big loss on a significant investment in this unit.

Investment banking revenue rose 29 percent, to $1.6 billion, helped by significantly higher net revenue in debt and equity underwriting. Equity underwriting was a particular standout, jumping 55 percent, to $371 million. Debt underwriting rose 40 percent, to $695 million.

Goldman also disclosed that it had set aside $3.7 billion in the quarter for compensation, up 27 percent from the period a year earlier. The current accrual represents 43 percent of revenue, which is in line with other years. Banks like Goldman set aside compensation during the year but do not pay it out until they determine earnings for the full year.

Over the last year, Goldman has reduced its payroll to 31,700 employees, down 2 percent from the period a year earlier, as the firm continues to focus on cutting costs.

On the call, analysts also pressed Mr. Schwartz to disclose how close Goldman was to meeting leverage ratio requirements proposed recently by regulators — 5 percent for the big bank holding companies and 6 percent for insured deposit-taking subsidiaries. The leverage ratio calculates capital as a percentage of assets held as a buffer against losses when investments go bad.

“Our first assessment is we’re very comfortable with where we are,” Mr. Schwartz said. Not satisfied, a Morgan Stanley analyst, Betsy Graseck, took another run at the question. “What is your definition of comfortable?” she asked.

“Comfortable,” Mr. Schwartz responded. “I’m not trying to be cute with you. Look, it’s just come out. Our team has looked at it. Our early read is all of the things we’ve done on the balance sheet over the past several years have left us reasonably well positioned.”

Article source: http://dealbook.nytimes.com/2013/07/16/quarterly-profit-doubles-at-goldman-sachs/?partner=rss&emc=rss