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Fewer Layoffs, but Employers Are Still Hesitant to Hire

April 25, 2013 by Leave a Comment

Applications for benefits dropped 16,000, the Labor Department said Thursday. The four-week average declined 4,500 to 357,500.

Jobless claims are a proxy for layoffs. When they decline, it signals that companies are cutting fewer jobs.

Still, layoffs are only half the equation. Businesses also need to be confident enough in the economy to step up hiring. Many companies have been advertising more jobs but have been slow to fill them. Job openings jumped 11 percent during the 12 months that ended in February, but the number of people hired declined, according to a Labor Department report this month.

The still-uncertain economy has made many companies reluctant to hire. Some employers appear to be holding out for perfect job candidates. In particular, companies say they cannot find enough qualified candidates for high-skilled manufacturing and engineering jobs.

Still, most economists were encouraged by Thursday’s report on unemployment benefits, though some cautioned against reading too much into one week’s data. “The downtrend in unemployment remains on track,” said Jim O’Sullivan, chief United States economist at High Frequency Economics.

In March, employers added only 88,000 jobs. That was a sharp drop from the previous four months, when hiring averaged 220,000 a month.

The unemployment rate fell to a four-year low of 7.6 percent in March from 7.7 percent in February. But the drop occurred because more people out of work stopped looking for jobs. The government does not count people as unemployed unless they are actively looking for work.

More than five million Americans received unemployment aid in the week ending April 6, the latest data available. That is about 80,000 fewer than the previous week. Some recipients may no longer receive benefits because they have found jobs. But many have used up all the benefits available to them.

The economy is expected to have grown at a much quicker pace in the January-March quarter, and the government will give its first estimate on growth in the nation’s gross domestic product on Friday. Many economists forecast that growth accelerated to an annual rate of more than 3 percent in the first quarter, up from just a 0.4 percent rate in the fourth quarter.

Article source: http://www.nytimes.com/2013/04/26/business/economy/fewer-layoffs-but-employers-are-still-hesitant-to-hire.html?partner=rss&emc=rss

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Today’s Economist: Simon Johnson: The Impact of Higher Capital Requirements for Banks

April 18, 2013 by Leave a Comment

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Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The Clearing House, an association of banks, is at the forefront of efforts to prevent further potential restrictions on how large financial firms operate. One piece of the Clearing House-led pushback is a report recently commissioned from Oxford Economics, which purports to show that higher capital requirements would depress economic growth. (The report appeared on the Clearing House Web site last week.)

Today’s Economist

Perspectives from expert contributors.

Oxford Economics is a well-known economic forecasting firm with corporate and government clients and some prominent economists on its board. Presumably the Clearing House commissioned the report in order to add credibility to what would otherwise be seen as self-serving claims. Should we take this Oxford Economics report seriously and use it to guide policy? No.

There are three major conceptual and factual problems with the Oxford Economics report. Taken together, these issues are serious enough that the report should be given precisely zero weight in thinking about policy.

First, Oxford Economics fails to engage with the central analytical question: why exactly would higher capital requirements be bad for the economy? We know that banks like to borrow a great deal relative to their equity funding — excessive leverage, as it is known, means that the people running banks get the upside when things go well and someone else gets the downside when everything goes badly. Why is it good for the rest of us to allow global megabanks, for example, to generate a high level of systemic risk and a high probability of economic meltdown? This is a form of economic pollution that we could do without. There is no serious discussion of these issues in the report.

Higher capital requirements address this by requiring that banks fund themselves more with equity and less with debt. This creates a bigger buffer that can absorb losses, making banks less likely to fail and less likely to become any kind of zombie. In effect, requiring higher equity makes both their equity and their debt safer. The properly measured funding costs of banks should not increase, although bankers will scream and shout as their subsidies are withdrawn. (We allow tax deductibility of interest payments but not payments to equity holders, so debt is subsidized relative to equity through the tax code. When banks receive a government backstop because they are too big to fail, this is an additional form of implicit subsidy; you cannot see it in the government’s budget but it may be huge.)

In contrast, the Oxford Economics report assumes the answer that the Clearing House has long offered — that funding costs for banks would increase and by a significant amount (see the equation Oxford Economics uses on Page 8). This is not just a questionable assumption; this approach has been refuted at length in the new book, “The Bankers’ New Clothes,” by Anat Admati and Martin Hellwig.

The Oxford Economics report ignores Professors Admati and Hellwig completely, and consequently appears ill-informed about the current state of the policy debate. Professors Admati and Hellwig are central to all the serious discussions I have witnessed recently. The failure to even acknowledge the presence of leading critics of banking industry hardly helps convince the reader that Oxford Economics really wants to evaluate the available arguments and relevant evidence.

Second, the Oxford Economics report almost completely ignores the costs of financial crises, such as the deep recession that followed the downturn in fall 2008. Highly leveraged banks are more likely to collapse and to bring down the economy; avoiding this is the central rationale for capital requirements. (There is some mention in passing on Page 17 and again on Page 18, but in the context of downplaying potential permanent effects of crises.)

As Oxford Economics says says of one study (see Page 17):

A further key assumption is that financial crises have permanent effects on GDP. If this assumption is discarded and only temporary effects are allowed, the estimated net benefits from reform are dramatically lower — and low enough that further alterations to other assumptions might remove them altogether.

To the extent that Oxford Economics is willing to acknowledge there was a big crisis, it plays down the idea that such catastrophes have persistent negative effects (see Page 17-18). This is news to the millions of people who have struggled to find new employment — and to their children, many of whom will suffer long-term consequences in their schooling and later lives. The economic and social damage from deep financial crises and the aftermath is profound.

More broadly, the Oxford Economics team seems blissfully unaware that we subsidize debt through the tax code and through implicit government guarantees. Again, these points are not really mentioned (I don’t even find the words “subsidy” or “guarantee” in the text). In effect, we are subsidizing the production of financial-system pollution. If we cut back on that subsidy, there will be less pollution, which is precisely the point of the policy. In effect, the report provides cost-benefit analysis without acknowledging any benefits. Why would a serious research firm want to take such a position?

Third, the central mechanism for the negative effect of higher capital requirements does not make sense on Oxford Economics’ macroeconomic framework. It assumes that the interest rates charged on loans will go up (see Page 8). However, they are also aware that monetary policy can offset this effect (for example, see Page 33). They assume that the offset is only partial, but why? If monetary policy wants to offset fully, that can be achieved by some combination of conventional tools (like cutting policy-controlled interest rates) and quantitative easing.

Of course, permanently low interest rates are not a goal. Even the Clearing House, in other materials on its Web site, asserts that low rates were a contributing factor in the crisis of 2007 (see Page 13 in this presentation).

So what exactly is the problem? Is Oxford Economics seriously suggesting that higher capital requirements would reduce the effectiveness of countercyclical monetary policy, or make it harder to recover given precisely where we are in the cycle? I find no coherent macroeconomic discussion along these lines in the report, presumably because such a position would make no sense.

The Clearing House is apparently pleased with the report (see this news release and what is prominent on its Web site). But the Clearing House can produce the level of analysis itself with this simple approach on any policy that removes subsidies enjoyed by its members: ignore the relevant literature, assume the costs of removing subsidies are big and pretend there are no benefits to making the financial system safer.

This kind of work would undermine the reputation of any serious consulting firm.

Let me note also that in the context of my exchanges with Oxford Economics, I looked further into how it cites an International Monetary Fund working paper by Douglas Elliott and some co-authors. The Oxford Economics paper refers extensively to this work as an “I.M.F. study” (e.g., on Pages 7, 8 and 38), creating the impression that this is official work somehow representing the view of that institution (at the staff, management or board level).

It is no such thing. A working paper is no more than a paper written by someone with some affiliation to the I.M.F. (and Mr. Elliott was only loosely affiliated; he was not an employee). It in no way represents the views of anyone other than Mr. Elliott and his co-authors. I was chief economist at the I.M.F. in 2007-8) and I’ve checked this point carefully. In fact, I could not find anyone at the I.M.F. who wanted to be associated with Mr. Elliott’s methodology or findings (perhaps I did not look hard enough). Oxford Economics should withdraw the term “I.M.F. study” from its published paper; it is entirely misleading.

Oxford Economics feels that my assessment of its report does not accurately reflect its views. It states that its terms of reference for the report were narrowly limited to comparing the sensitivity of results to assumptions in particular studies and did not constitute a full cost-benefit analysis. This precluded Oxford Economics from considering the issues that I raise above. It does not deny that financial crises can have substantial economic and social costs. Its critique of raising capital requirements apparently should not be construed as opposition to raising these capital requirements. And its read of macroeconomic realities would preclude monetary policy from fully offsetting the effects of increasing loan rates, in part because quantitative easing may not be effective in the future.

I expect that the Clearing House will use this report as part of its campaign to oppose higher capital requirements. If Oxford Economics wishes to distance itself from that campaign, I would welcome the move. But I expect no such development.

Article source: http://economix.blogs.nytimes.com/2013/04/18/the-impact-of-higher-capital-requirements-for-banks/?partner=rss&emc=rss

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Bank of England Stands Pat

April 4, 2013 by Leave a Comment

LONDON — The Bank of England kept its benchmark interest rate unchanged on Thursday amid concern that the British economy fell back into recession at the beginning of the year.

The central bank decided to leave its interest rate at the record low of 0.5 percent, where it has been since March 2009. It also held its program of economic stimulus at £375 billion, or about $568 billion.

The governor of the Bank of England, Mervyn A. King, has been pushing this year for more fiscal stimulus to help the economy grow, but has been overruled by other members of the central bank’s interest rate setting committee. Mr. King is to be succeeded in three months by Mark J. Carney, the governor of the Bank of Canada.

The concern is that more stimulus would weigh on the pound, which in turn would fan inflation that is already running at an annual rate of 2.8 percent, above the central bank’s target of 2 percent.

Disappointing manufacturing data, apprehensive consumers and concern about the effects of the crisis in Cyprus mean that many economists still expect the Bank of England to expand its bond-purchasing program this year.

“The economy is going nowhere,” said Vicky Redwood, an economist at Capital Economics in London. “There’s essentially no growth.”

Data released in three weeks is to show whether Britain fell back into a recession in the first quarter, which would be the third recession for the economy in five years. Consumers have curbed spending as the government’s austerity measures, which include spending cuts and tax increases, raise fears that unemployment will increase. Higher costs for electricity during an unusually long winter have further squeezed households.

Many companies are reluctant to spend while bank loans are difficult to come by and while the outlook for demand — especially from the euro zone, Britain’s largest export market — is difficult to predict.

George Osborne, the chancellor of the Exchequer, warned last month when he updated Parliament on the state of the economy that “another bout of economic storms in the euro zone would hit Britain’s economic fortunes hard again.”

In March, the Office for Budget Responsibility halved its forecast for British economic growth to 0.6 percent this year from a previous forecast of 1.2 percent. Growth is expected to rise to 1.8 percent next year, compared with a previous estimate of 2 percent, the office said.

Cold weather was partly to blame for a contraction in the construction industry in March, the fifth consecutive month of declining activity, according to Markit Economics. Disposable income fell 0.1 percent in the fourth quarter from the previous three months, the Office for National Statistics said last month.

Article source: http://www.nytimes.com/2013/04/05/business/global/05iht-pound05.html?partner=rss&emc=rss

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I.M.F. Calls for Curbing Fuel Subsidies

March 28, 2013 by Leave a Comment

WASHINGTON (Reuters) — Developing and industrialized countries should rein in energy subsidies that totaled $1.9 trillion in 2011 to ease budgetary pressures and free resources for public spending in areas like education and health care, International Monetary Fund economists said in a research paper published Wednesday.

In the paper, “Energy Subsidy Reform — Lessons and Implications,” the economists reviewed a database of 176 countries and analyzed ways to change energy subsidies by examining case studies of 22 countries.

In 2011, energy subsidies intended to contain energy prices for consumers accounted for 2.5 percent of global gross domestic product, or 8 percent of all government revenue, the fund said.

“The paper shows that for some countries the fiscal weight of energy subsidies is growing so large that budget deficits are becoming unmanageable and threaten the stability of the economy,” David Lipton, first deputy managing director of the fund, said in a speech on Wednesday.

The paper said that subsidies were expensive for governments, and that, instead of helping consumers, they detracted from increased investment in infrastructure, education and health care, which would help the poor more directly.

Subsidies have been a counterproductive way to help the poor because they are more beneficial to the rich, who consume more energy, the fund said. The richest 20 percent of households in low- and middle-income countries received six times more in fuel subsidies than the lowest 20 percent, the fund said.

According to its research, 20 countries have pretax energy subsidies that exceed 5 percent of gross domestic product. The top three subsidizers are the United States at $502 billion, China at $279 billion, and Russia at $116 billion.

In advanced economies, like the United States, removing subsidies for fossil fuels could inject revenue into government coffers, the fund said.

“Insufficient energy taxation, including in the largest economy in the world, the United States, is a problem not only for the environment, but many advanced economies are in need of additional resources to support the effort to lower public debt, which is very high now in those economies,” said Carlo Cottarelli, director of the fund’s fiscal affairs department.

Over the longer term, limiting energy subsidies could spur stronger economic growth because it would encourage a more efficient distribution of resources and encourage investment in energy-efficient alternative technologies, Mr. Lipton said.

Article source: http://www.nytimes.com/2013/03/28/business/imf-calls-for-curbing-fuel-subsidies.html?partner=rss&emc=rss

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Economix Blog: Casey B. Mulligan: Hidden Costs of the Minimum Wage

March 13, 2013 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

The current federal minimum wage of $7.55 an hour is increasingly creating economic damage that needs to be considered with the benefits it might offer the poor.

Today’s Economist

Perspectives from expert contributors.

Democrats are now proposing to increase the federal minimum wage to $9 an hour. News organizations have repeatedly noted that economists do not agree on the employment effects of historical minimum-wage changes (the more recent federal changes in 2007, 2008 and 2009 have not yet been studied enough for us to agree or disagree on results specific to those episodes) and do not agree on whether minimum wage increases confer benefits on the poor.

That doesn’t mean that we economists disagree on every aspect of the minimum wage. We agree that minimum wages do some economic damage, although reasonable economists sometimes believe that the damage can be offset and even outweighed by benefits.

More important, we agree that the extent of that damage increases with the gap between the minimum wage and the market wage that would prevail without the minimum. A $10 minimum wage does less damage in an economy in which market wages would have been $9 than it would in an economy in which market wages would have been $2.

Moreover, elevating the wage $2 above the market does more than twice the damage of elevating the wage $1 above the market. (Employers can more easily adjust to the first dollar by asking employees to take more responsibility or taking steps to reduce turnover, steps that get progressively harder.) That’s why economists who favor small minimum wage increases do not call for, say, a $100 minimum wage, because at that point the damage would far outweigh the benefits.

Market wages normally tend to increase over time with inflation and as workers become more productive. As long as the minimum wage is a fixed dollar amount, the tendency for market wages to increase over time means that economic damage from the minimum wage is shrinking. That’s one reason that economists who see benefits of minimum wages would like to see minimum wages indexed to inflation, allowing the minimum wage to increase automatically as the economic damages fell.

But these are not normal times. The least-skilled workers are seeing their wages fall over time, largely because they are out of work and failing to acquire the skills that come with working. Moreover, the new health care regulations going into effect in January are expected to reduce cash wages, as many employers of low-skill workers are hit with per-employee fines of about $3,000 per employee per year, as the law mandates new fringe benefits for other employers and low-skill workers have to compete with others for the part-time jobs that are a popular loophole in the new legislation. (The minimum wage law restricts flexibility on cash wages, by establishing a floor, but makes no rule on fringe benefits.)

To keep constant the damage from the federal minimum wage, the federal minimum wage needs not an increase but an automatic reduction over the next couple of years in order for it to stay in parallel with market wages.

Article source: http://economix.blogs.nytimes.com/2013/03/13/hidden-costs-of-the-minimum-wage/?partner=rss&emc=rss

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Reports Show Consumer Confidence and Home Sales Are Growing

February 26, 2013 by Leave a Comment

Home prices are also rising steadily, and banks are lending more. Such improvements suggest that the economy is resilient enough to withstand about $85 billion in government cuts that are expected to take effect on Friday.

“The stars are lining up for stronger private sector growth this year,” said Craig Alexander, chief economist at TD Bank.

Sales of new homes jumped nearly 16 percent in January to their highest level in 4.5 years, adding momentum to the housing recovery. Consumer confidence rose in February after three months of declines. And home prices increased in December from the comparable month in 2011 by the largest amount in more than six years.

Over all, tax increases and spending cuts could shave up to 1.2 percentage points from growth this year, economists estimate. Mr. Alexander estimates that without the spending cuts or tax increases, the economy would expand more than 3 percent this year. Instead, he predicts growth of 2 percent.

But growth should accelerate later this year as the effects of the government cutbacks ease, he and other economists say. And several reports on Tuesday suggest that the economy’s underlying health is improving despite the prospect of lower government spending and further budget stalemates.

The Standard Poor’s/Case-Shiller 20-city home price index rose 6.8 percent in December from a year earlier. That was the biggest year-over-year increase since July 2006. Rising home prices tend to make homeowners feel wealthier and encourage more spending. They also cause more people to buy before prices rise further. And banks are more likely to provide mortgages if they foresee higher home prices.

Sales of new homes rose to a seasonally adjusted annual rate of 437,000, the Commerce Department said. Higher sales are keeping the supply of new homes low, even as builders have tried to keep up.

Consumer confidence rose after three months of declines, according to the Conference Board, a business research group. Confidence had plunged in January after higher taxes cut most Americans’ take-home pay. The rebound, though, suggests that some consumers have begun to adjust to smaller paychecks. The consumer confidence index rose to 69.6 in February from 58.4 in January, higher than last year’s average of 67.1.

Bank lending rose 1.7 percent in the October-December quarter, the Federal Deposit Insurance Corporation said. It was the sixth rise in seven quarters. Banks made more commercial and industrial loans to businesses and auto loans to consumers.

The F.D.I.C. also reported that profits at American banks jumped almost 37 percent for the October-December period, reaching the highest level for a fourth quarter in six years as lending increased.

Banks earned $34.7 billion in the last three months of 2012, up from $25.4 billion a year ago and the highest for a fourth quarter since 2006. Sixty percent of banks reported improved earnings from the fourth quarter of 2011, the agency said.

For all of 2012, the F.D.I.C. said bank earnings rose 19 percent to $141.3 billion, the second-highest annual level ever.

Article source: http://www.nytimes.com/2013/02/27/business/economy/home-prices-ended-2012-with-a-gain.html?partner=rss&emc=rss

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Today’s Economist: Who Pays the Corporate Income Tax

February 19, 2013 by Leave a Comment

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

The United States has had a corporate income tax since 1909, but in all the years since there is a major question about it that economists haven’t been able to answer satisfactorily: who pays it? The possibility that Congress may act on corporate tax reform this year makes this a highly salient question.

Today’s Economist

Perspectives from expert contributors.

The problem, of course, is that people must ultimately pay all taxes. Corporations, contrary to the views of some Republicans, are not people. They are legal entities that exist only because governments permit them to and are artificial vehicles through which sales, wages and profits flow. Hence, the actual burden of the corporate tax may fall on any of the groups that receive such flows; namely, customers, workers and shareholders, the ultimate owners of the corporation.

Probably most people assume that the corporate income tax is largely paid by consumers of its products or services. That is, they assume that although the tax is nominally levied on the corporation as a whole, in fact the burden of the tax is shifted onto customers in the form of higher prices.

All economists reject that idea. They point out that prices are set by market forces and the suppliers of goods and services aren’t only C-corporations, which pay taxes on the corporate tax schedule, but also sole proprietorships, partnerships and S-corporations that are taxed under the individual income tax. Other suppliers include foreign corporations and nonprofits.

Therefore, corporations cannot raise prices to compensate for the corporate income tax because they will be undercut by businesses to which the tax does not apply. It should also be noted that the states have substantially different corporate tax regimes, including some that do not tax corporations at all, and we do not observe that prices for goods and services vary from state to state depending on its taxation of corporations.

That leaves two remaining groups that may bear the burden of the corporate tax: workers and shareholders.

In 1962, the University of Chicago economist Arnold C. Harberger, published an important article arguing that the corporate tax was borne entirely by shareholders. This was unquestionably true in the first instance; that is, when the corporate income tax was first imposed. The tax simply reduced corporate profits and had to come out of the pockets of shareholders, given that it could not be shifted onto consumers.

But as time went by, some economists argued that a substantial portion of the corporate income tax was ultimately paid by workers in the form of lower wages. This resulted because the supply of capital would shrink in order to raise the rate of return on capital. A smaller capital stock would reduce the productivity of labor and cause real wages to be lower in the long run.

Most economists now agree that the burden of the corporate income tax falls on labor to some extent, but there is disagreement over the degree. This is important because the political prospects for cutting the statutory corporate tax rate, a goal shared by all tax reformers, may depend on the extent to which it can be shown that workers will benefit.

The just-published March 2013 issue of The National Tax Journal, the principal academic journal devoted to tax analysis, contains four articles by top scholars who have sought to clarify the incidence of the corporate income tax. Unfortunately, there is no consensus.

The first article, by a Reed College economist, Kimberly Clausing, supports the traditional idea that capital bears all of the corporate tax. She notes that large multinational corporations have a great deal of flexibility in determining where to locate production, incur costs and realize profits.

A company may borrow in one country and take the deduction for interest there, locate actual production facilities and employ workers in another country, and realize profits in a third country by transferring intellectual property such as patents there or by adjusting prices on internal sales among its foreign subsidiaries.

Moreover, Professor Clausing notes, corporate shareholders may live in many different countries, each facing a different tax regime with respect to the taxation of dividends and capital gains.

For these reasons, she argues that it is impossible for workers to bear any significant portion of the corporate tax in the form of lower wages. It all falls on capital. A second article, by Jennifer Gravelle, a Congressional Budget Office economist, agrees with this conclusion.

But a third article, by an Oxford University economist, Li Liu and a Rutgers economist, Rosanne Altshuler, argues in favor of the idea that labor bears most of the burden of the corporate tax.

They take advantage of the fact that different industries bear different tax burdens because of various provisions of the tax law, and also that concentration and competition varies among industries. They empirically examine wages among industries and conclude that labor bears about 60 percent of the corporate tax burden.

That is, a $1 increase in corporate taxes will reduce wages by about 60 cents.

Finally, four Treasury Department economists detail the method the Treasury uses to allocate the corporate tax in distribution tables. They have the advantage of access to actual corporate tax returns and far greater detail on corporate finances than available to private researchers.

The Treasury economists conclude that 82 percent of the corporate tax falls on capital and 18 percent on labor. This is very close to the methodology of the private Tax Policy Center, whose analyses are frequently cited in policy debates. It assumes that 80 percent of the corporate tax is borne by capital and 20 percent by labor.

Of course, all of these assumptions may be called into question when dealing with any specific tax reform proposal. For example, a change in depreciation allowances is mainly going to affect manufacturing companies, whereas a change in the taxes on foreign-source income will have an impact only on multinationals.

To build support for or opposition to particular changes in corporate taxation, many claims will be made about the constituencies that will benefit or be harmed. People should be aware that even the best academic economists disagree on the basics of who actually pays the corporate tax.

Article source: http://economix.blogs.nytimes.com/2013/02/19/who-pays-the-corporate-income-tax/?partner=rss&emc=rss

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A Measure of Business Spending Rises 4.6%

January 28, 2013 by Leave a Comment

The Commerce Department said on Monday that new orders for capital goods increased 4.6 percent last month. The category of nondefense capital goods orders excluding aircraft, a closely watched proxy for investment plans, edged up 0.2 percent in December.

In a further sign of business confidence, the November reading on capital spending plans was revised higher to show a 3 percent gain, up from the 2.6 percent rise reported a month ago.

Many economists had expected businesses to invest more timidly late last year because of uncertainty over government spending cuts and tax increases that had been scheduled to begin this month. But Congress struck a deal to avoid or postpone most of the austerity measures.

Despite the uncertainty, the new data pointed to growing economic momentum as companies sensed improved consumer demand.

“It certainly seems to us that companies are slowly but surely expanding,” said Tim Ghriskey, chief investment officer at the Solaris Group in Bedford Hills, N.Y.

A second report showed that a measure of pending home sales slipped 4.3 percent in December. Still, the housing sector posted a rebound last year and economists expect it will add to growth again in 2013.

New orders for overall durable goods — long-lasting factory goods as diverse as toasters and automobiles — jumped 4.6 percent in December, beating economists’ expectations for a 1.8 percent gain. The gains were broad-based, with orders for machinery, cars and primary metals all increasing.

Orders for civilian aircraft surged 10.1 percent.

Article source: http://www.nytimes.com/2013/01/29/business/economy/durable-goods-orders-exceed-estimates.html?partner=rss&emc=rss

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DealBook: Amid Criticism, Global Rule Maker Defends Regulatory Efforts

January 25, 2013 by Leave a Comment

Stefan Ingves, the chairman of the Basel Committee on Banking Supervision and governor of the Riksbank, the Swedish central bank.Bertil Ericson/Scanpix, via Associated PressStefan Ingves, the chairman of the Basel Committee on Banking Supervision and governor of the Riksbank, the Swedish central bank.

DAVOS, Switzerland — The head of a panel that writes the global financial rulebook answered criticism that the so-called Basel Committee has gone soft on banks, arguing that lenders need more time to adjust to new regulations because the financial crisis has lasted longer than anyone expected.

Stefan Ingves, the chairman of the Basel Committee on Banking Supervision, was responding to some economists and other critics who interpreted a recent decision by the committee as a signal that regulators were losing their resolve to contain risk-taking by banks.

Earlier this month, the committee decided to give banks got more time to comply with a requirement that they maintain a 30-day supply of cash other assets that are easy to sell. The rule is supposed to make banks better able to survive a financial crisis like the one that occurred after Lehman Brothers collapsed in 2008.

When regulators drafted the rule in 2010, they did not expect the crisis to last so long and for banks to still be in such a weakened state, said Mr. Ingves, who is also governor of the Riksbank, the Swedish central bank. The important thing is that there is a rule at all, he said.

World Economic Forum in Davos
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“The Basel Committee has been discussing liquidity in different forms for 30 years,” Mr. Ingves said in an interview on Friday here at the World Economic Forum. “To get to a point where a global liquidity standard has been established is an achievement in itself.”

Banks will have until 2019 to fully comply with the requirement, instead of 2015 as originally planned. The rule will still achieve its purpose of making banks safer, Mr. Ingves said.

“If there’s stress in the system, a bank shouldn’t run out of money,” Mr. Ingves said. “It should take longer than the last time before you need to go to the central bank. It’s buying insurance within the private sector itself.”

The loosening of the rule this month raised concerns that members of the Basel Committee, whose decisions serve as a benchmark for national regulators around the world, would also become more lenient on other issues as they conduct a comprehensive overhaul of banking rules.

The Basel Committee also expanded the definition of liquid assets to include even securities backed by home mortgages, one of the financial instruments that helped case the crisis. Mr. Ingves pointed out that the rules contain safeguards to ensure that banks only use high-quality mortgage-backed securities.

Following the initial outcry about changes in the rules, some other leading economists have welcomed the decision, saying it simply acknowledges the need to balance stricter oversight with the need to make sure credit keeps flowing.

There was a danger that banks in western Europe would curtail lending in eastern Europe even more severely than they already have, said Erik Berglof, chief economist of the European Bank for Reconstruction and Development. The development bank, partly owned by the United States as well as European countries, supplies credit to the former Soviet Bloc countries as well as newly democratic countries in the Middle East.

The decision by the Basel Committee this month “was a good thing,” Mr. Berglof said in an interview. “It was particularly good for emerging markets.” In eastern Europe and many developing regions, most banks are foreign owned and dependent on their parent banks for financing.

The Basel Committee’s decisions are not binding and must be put into force by individual countries. The United States has agreed to the rules, but has come under criticism for being too slow to implement them and not sticking to the agreed blueprint. American officials point out that big banks in the country are healthier and already comply with the Basel rules that have yet to take effect.

Mr. Ingves was diplomatic when asked about the United States implementation, pointing out that the European Union is also taking longer to agree on how to apply the rules.

“They are a bit behind schedule but work is being done,” he said. “Both have said they will get this done. I have no doubt they will.”

At the World Economic Forum, the central issue is probably whether the euro zone crisis has reached a turning point. Mr. Ingves, a former official at the International Monetary Fund with decades of experiences in banking crises, was fairly optimistic.

“You never know, but it looks like it,” he said.

Article source: http://dealbook.nytimes.com/2013/01/25/amid-criticism-global-rule-maker-defends-regulatory-efforts/?partner=rss&emc=rss

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U.S. Home Sales in 2012 Highest in 5 Years

January 23, 2013 by Leave a Comment

The National Association of Realtors said on Tuesday that home sales declined in December to an annual rate of 4.94 million. That rate was down from 4.99 million in November, which was revised lower but was still the highest in three years.

Total home sales last year increased to 4.65 million. That is 9.2 percent higher than 2011 and the most since 2007. Sales finished below the roughly 5.5 million that is consistent with a healthy market. Still, most economists say that home sales are improving steadily and that the gains should continue this year.

Stable hiring, record-low mortgage rates and a tight supply of homes available for sale have helped increase sales and prices in most markets.

”We remain convinced that the housing recovery is well under way and should continue through 2013,” said Dan Greenhaus, chief global strategist at BTIG, an institutional brokerage.

The market is being held back by the shrinking supply of homes for sale. The inventory of available homes on the market dropped to 1.82 million in December, the lowest in 12 years.

And first-time buyers, who are critical to a housing recovery, made up only 30 percent of sales in December. That is down slightly from a year ago and well below the 40 percent that is typical in a healthy market.

Since the housing bubble collapsed six years ago, banks have tightened credit standards and are requiring larger down payments. Many would-be buyers are unable to qualify for the lowest mortgage rates on record.

The rate on the 30-year fixed mortgage averaged 3.66 percent in 2012, the lowest annual average in 65 years, according to Freddie Mac.

Sales are rising faster for more expensive homes, the Realtors group said. Sales of homes priced $1 million or more surged 62 percent in 2012, while sales of homes below $100,000 fell 17 percent.

Home prices rose 7.4 percent on an annual rate in November, the real estate data provider CoreLogic reported. That is the biggest annual increase since 2006, when the housing bubble burst. CoreLogic forecasts that home prices will rise 6 percent nationally this year.

Article source: http://www.nytimes.com/2013/01/23/business/economy/existing-home-sales-decline.html?partner=rss&emc=rss

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