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Setbacks May Push Europe Into a New Downturn

August 15, 2011 by Leave a Comment

Mr. Knott, 53, who runs Furness Heating Components, has cut his work force to 18 people from 25 and said business was tougher than he had ever seen it. “There’s a lot of competition, and people are just not building that many houses anymore,” Mr. Knott said.

Data released on Friday leaves little doubt that the European economy is losing momentum before most countries have even recovered to the level of output they had in 2008, when the recession hit.

But the larger question is whether an increasingly bitter brew of flagging output and a sovereign debt crisis — along with the market downturn — will create something more sinister than a mere slowdown, and lead more businesses to cut jobs and investment as Mr. Knott has.

In France, the second-largest economy in the European Union after Germany, growth came to a standstill in the three months through June, according to official figures. Meanwhile, industrial production in the 17-nation euro area fell 0.7 percent in June compared with May, more than analysts had forecast.

On Tuesday, economists expect a report on euro area economic activity to show that gross domestic product slowed to 0.3 percent in the second quarter, from 0.8 percent in the first three months of the year.

If there is less economic growth, governments will collect less tax revenue. They will have more trouble paying their debts. That could make investors even more nervous and add to turmoil in the stock and bond markets, which will undercut business and consumer confidence, which will lead to yet slower growth, and so on.

“There is a real risk that there is a self-enforcing cycle under way here,” said Martin Lueck, an economist at UBS in Frankfurt.

Mr. Lueck says he believes the most likely prospect is less dire, but even his more optimistic view calls for a brief slowdown on the way to a “new normal” of weaker growth in Europe and the United States. And he acknowledged that, in 2008, many economists underestimated how quickly and severely the financial crisis would spill into the broader economy.

“We learned the hard way,” Mr. Lueck said. “The links between the financial world and the world economy are very strong.”

Another recession is already well under way in Greece and Portugal, while growth in countries like Spain, Italy and Britain has been very slow since last year. But now Germany, which has been remarkably strong, hauling the rest of the Continent along with it, seems to be decelerating. The Ifo Business Climate Index, considered a reliable predictor of German growth, fell in July as executives became less optimistic about exports.

“It is more than a soft patch,” said Eric Chaney, chief economist at a French insurer, the AXA Group. “The business cycle is really coming to a quasi-standstill in Europe.”

Worse-than-expected results from companies like Daimler, Deutsche Bank and Siemens in the last month have reinforced the feeling that Germany’s extraordinary boom is near an end. E.On, Germany’s largest utility, said on Wednesday that it might need to cut as many as 11,000 jobs after experiencing the first loss since it was created a decade ago from a group of state-owned utilities.

E.On attributed the loss chiefly to the government’s decision to force some of the company’s nuclear power plants to close early, but sales declines in foreign markets like Britain and Hungary also played a role.

Even companies that have done well are warning about risks ahead. “The coming months will be challenging for us,” Martin Winterkorn, the chief executive of Volkswagen, said in late July after the carmaker reported that profit more than tripled, to 4.8 billion euros ($6.8 billion).

A big problem for Europe is that domestic demand is weak and growth has become primarily dependent on sales from abroad, where the signals are flashing yellow. The United States, still the largest foreign market for companies like BMW, is slowing and could slip into recession. The earthquake, tsunami and nuclear disaster in Japan had a greater impact on global trade than economists expected. And demand from China and emerging markets is slackening.

“Germany is so leveraged in global trade that if something happens, then Germany slows immediately,” Mr. Chaney said. “That makes the recovery more fragile. It depends on the good health of the rest of the world.”

Some German exporters are still smarting from the severe recession that followed the collapse of Lehman Brothers in 2008, and must now gird for another retrenchment. An association that represents makers of construction machinery said last Wednesday that it expected a sales increase of more than 10 percent this year, but that sales were still one-third below their 2008 peak.

Many German companies are still not operating at capacity, while they worry about debt problems in the United States and Europe as well as unrest in the crucial Middle East market, said Christof Kemmann, chief executive of BHS-Sonthofen, a maker of machinery for processing building materials.

“Even when some sectors are reporting good numbers, there is no reason for euphoria,” Mr. Kemmann said.

Jack Ewing reported from Frankfurt and Julia Werdigier from London.

Article source: http://www.nytimes.com/2011/08/15/business/global/threats-on-many-fronts-for-european-economy.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Recovery Still Slow as New Data Show Little Growth

July 29, 2011 by Leave a Comment

The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent . Both figures were well below economists’ expectations.

Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is actually smaller than it was in 2007, when the Great Recession officially began.

“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.”

The latest figures come as Congress is debating how to put the nation on a more sustainable fiscal path, with measures that some economists worry could further slow the recovery and even throw the economy back into recession. Even in the absence of further austerity measures, some of the government’s stimulative policies, such as the payroll tax cut, are phasing out, and state and local governments are slashing spending dramatically.

Such fiscal retrenchment was already expected to be a drag on growth in the coming year; the Commerce Department’s report only magnifies those concerns.

“There’s nothing that you can look at here that is signaling some revival in growth in the second half of the year, and in fact we may see another catastrophically weak quarter next quarter if things go wrong next week,” said Nigel Gault, chief United States economist at IHS Global Insight. By “things going wrong,” he said he means “if Congress actually starts implementing a massive contraction by suddenly cutting government spending immediately,” as many Republican representatives hope to do.

Prolonging the continuing talks in Washington to raise the amount of money the United States can borrow could also damage prospects for growth in the third quarter, he said, because the resulting uncertainty and threat of federal default are “surely paralyzing businesses and consumers,” making them reluctant to make the big purchases that keep the economy humming.

Usually, a sharp recession is followed by a sharp recovery, meaning the recovery growth rate is far faster than the long-term average growth rate; last quarter, though, output grew at only about one-third of the average rate seen in the 60 years preceding the Great Recession. As a result, the country’s output is far below its potential.

Particularly distressing to economists is that consumer spending — which, alongside housing, usually leads the way in a recovery — has been extraordinarily weak in recent quarters. Inflation-adjusted consumer spending in the second quarter barely budged, increasing just 0.1 percent, the Commerce Department report showed.

“People are spending more, but that spending is being absorbed in higher prices, not in buying more stuff,” Mr. Ryding said.

Even the brightest parts of the report were seen as bittersweet. For example, motor vehicle output fell much less than was predicted after the natural disasters in Japan disrupted supply chains. But that means there will likely be a less dramatic bounce back in autos in the coming months, which economists were counting on to raise growth rates later this year.

The economy’s slow growth rate is largely responsible for stubbornly high joblessness across the country, economists say. As of June, 14 million Americans were actively looking for work, and the average duration of unemployment has been reaching record highs month after month. Businesses are sitting on a lot of cash, but are still reluctant to hire because there is so much uncertainty about the future of the economy and whether they will continue to have a steady flow of customers.

Slow economic growth takes not only a human toll, but a fiscal one as well. Tepid output increases mean slow growth in the tax revenue needed to pay down the nation’s debt.

Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on — primarily because of the country’s growing health care obligations — Congress needs to impose greater fiscal discipline. But imposing too much too soon, or being too focused on the wrong types of spending cuts, could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.  

Given inflation concerns, it also seemed unlikely that the Federal Reserve will swoop in with another round of monetary easing to goose growth.

“There’s not going to be additional monetary stimulus, and it’s hard to imagine any fiscal stimulus given the current discussion in Washington,” Mr. Ryding said. “So what’s going to get us out of this? The inevitable conclusion is time, and that’s not very satisfactory.”

Article source: http://feeds.nytimes.com/click.phdo?i=94e2babb8abf047d4762ee4be7f19bbe

Filed Under: Business News Tagged With: , ,

Home Sales Fall 0.8%; 3rd Drop in 3 Months

July 24, 2011 by Leave a Comment

The National Association of Realtors said home sales fell 0.8 percent last month to a seasonally adjusted annual rate of 4.77 million homes. That is far below the six million homes a year rate that economists say represents a healthy housing market.

June’s decrease was the third consecutive monthly decline in home sales.

Through the first six months of 2011, the number of sales is behind last year’s 4.91 million homes sold — the weakest sales in 13 years. Sales have fallen in four of the last five years.

The association said a record number of people who signed contracts canceled their deals last month. And first-time buyers are becoming a smaller share of the market.

Sales of single-family homes held steady in June, while sales of condominiums declined 7 percent.

Bigger down payments, tougher lending rules, high debt and a shortage of desirable starter homes are deterring many would-be buyers. Even some people with good credit and enough money for a down payment are delaying because they are worried that prices will keep falling.

“It all goes back to uncertainty about the future and hiring,” said Jennifer Lee, senior economist at BMO Capital Markets.

First-time buyers made up just 31 percent of sales in June, when normally they make up about half of all home sales. First-time buyers are valuable in the housing market because they tend to keep their homes for years and because their purchases allow sellers to move to more expensive homes.

About 16 percent of home deals were canceled last month, four times the number in May and the highest level since such record keeping began more than a year ago. A sale is not final until a mortgage is closed.

The median sales price rose nearly 9 percent in June from May, to $184,300. The increase was mainly a result of seasonal factors that led to a big increase in prices in the Northeast and West.

Sales were uneven across the country. In May, sales rose 0.5 percent in the West and 1 percent in the Midwest and fell 1.7 percent in the South and 5.2 percent in the Northeast.

The supply of unsold homes rose slightly in June to 3.77 million. At last month’s sales pace, it would take 9.5 months to sell those homes.

Article source: http://feeds.nytimes.com/click.phdo?i=c3095b2a58206e06b16199ab021c3442

Filed Under: Economy News Tagged With: , ,

Obama Signals Openness to Short-Term Debt Extension

July 20, 2011 by Leave a Comment

WASHINGTON (AP) — Running out of time, President Barack Obama called Democratic and Republican leaders back to the White House on Wednesday for separate, bottom-line negotiations on how to prevent a disastrous government default — and perhaps cut staggering federal deficits as well.

The talks center on a single but complex question: What will it take to muster enough votes from both parties to muscle legislation through the House and Senate and raise the national debt limit by the Aug. 2 deadline. Obama was meeting first at the White House with the top four Democrats in the House and Senate, then with House Speaker John Boehner and his deputy, Eric Cantor.

Intensity was rising as the country lurched toward an unprecedented default. Congressional leaders say they want to prevent that, but they are far from agreed on how.

The government will exhaust its ability to borrow money and pay its bills come Aug. 2, and economists say that could sink the country back into recession. All sides are also pushing competing plans to cut the nation’s deficit in tandem with the politically unpopular step of raising the debt limit, although deep divisions remain over tax hikes and entitlement cuts that could be part of the attack on future deficits.

In a sign of the closing window for action, the White House said for the first time that Obama would accept a short-term extension of the debt limit, but only if a broader deal was already in place and required more time — perhaps a few days — to get through Congress. Obama had previously threatened to veto any stopgap measure.

“There is still time to do something significant if all parties are willing to compromise,” Obama spokesman Jay Carney urged.

Realistically, Congress probably must come to terms with the White House on a deal this week.

The Obama administration and Congress are also working on a backup plan to increase the debt limit if no big plan can be reached. It would allow Obama to raise the ceiling on his own unless overridden by Congress. Yet many House Republicans loathe that idea and have pledged to vote against it, raising doubts about how tenable even the fallback choice is.

That plan is the result of work by the Democratic and Republican leaders of the Senate, Harry Reid of Nevada and Mitch McConnell of Kentucky.

Obama is trying to seize on momentum from a proposal from a bipartisan “Gang of Six” senators that would cut the deficit by almost $4 trillion but lacks many specifics.

The separate nature of Obama’s negotiations Wednesday underscored his need to get a bottom line from both his own party and the leaders of the Republican-run House.

He keeps pushing for a mixed approach of higher taxes on the wealthy and spending cuts that would be spread across the government.

His challenge with fellow Democrats is to persuade them to accept changes to the popular entitlement programs of Medicare and Social Security. House Minority Leader Nancy Pelosi has said simply, “We do not support cuts in benefits for Social Security and Medicare.”

With Republicans, Obama is slamming into opposition from conservatives who refuse to consider tax increases.

“We need to meet, talk, consult and narrow down in fairly short order what train we’re riding into the station,” Carney said ahead of the meetings.

The plan by the Gang of Six is probably far too complicated and contentious to win passage before the Aug. 2 deadline. But the plan’s authors hope it could serve as a template for a “grand bargain” later in the year that could erase perhaps $4 trillion from the deficit over the coming decade.

Even among Democrats, Rep. Chris Van Hollen, senior Democrat on the House Budget Committee, said lawmakers had too few details about the Gang of Six plan.

Pelosi, the top Democrat in the House, reacted positively Wednesday to the new plan, saying it “has some good principles in it.”

However, Republican Rep. Howard “Buck” McKeon of California, chairman of the Armed Services Committee, blasted the plan in a missive to his panel members, saying it would cut the Pentagon much too deeply and would unfairly curb military health and retirement benefits.

On the Senate floor Wednesday morning, Democratic leader Reid said he was confident Obama and congressional negotiators could avoid a government default, but he also said the Senate still needed to hear from the House.

“We have a plan to go forward over here so I await word from the speaker,” said the Nevada lawmaker. He was referring to the plan he’s working on with GOP leader McConnell to give Obama new powers to obtain an increase in the borrowing cap unless overridden by Congress.

In the House, majority Republicans won a 234-190 vote Tuesday on a “cut, cap and balance” plan conditioning any increase in the government’s borrowing authority on congressional passage of a balanced budget constitutional amendment and a fresh wave of spending cuts. That reflected the strength of tea party forces elected in last year’s midterm election. GOP conservatives reveled in their victory, but it was temporary. That plan faces a White House veto threat and is a dead letter in the Senate anyway.

The Gang of Six plan, meanwhile, promises almost $4 trillion in deficit cuts, including an immediate 10-year, $500 billion down payment that would come as Congress sets caps on the agency budgets it passes each year. It also requires an additional $500 billion in cost curbs on federal health care programs, cuts to federal employee pensions, curbs in the growth of military health care and retirement costs and modest cuts to farm subsidies.

___

Associated Press writers David Espo, Andrew Taylor, Erica Werner, Jim Kuhnhenn and Julie Pace contributed to this report.

Article source: http://feeds.nytimes.com/click.phdo?i=9716b2f95992a9789bfd396ad7189f9e

Filed Under: Business News Tagged With: , ,

You’re the Boss: Did Wells Fargo Answer Your Lending Questions?

June 15, 2011 by Leave a Comment

Marc Bernstein and Douglas Case, the Wells Fargo's two top executives for small-business lending.Peter DaSilva for The New York TimesMarc Bernstein and Douglas Case, Wells Fargo’s two top executives for small-business lending.
The Agenda

Two weeks ago, in tandem with our conversation with two Wells Fargo small-business lending officers, Marc Bernstein and Doug Case, we invited You’re The Boss readers to submit questions for the executives. Today, we present their responses.

We selected the questions from the comments posted by readers. We only forwarded clear questions specifically about small-business lending (and not questions about, say, deposits or complaints about customer service), and we edited them for clarity or space. In some cases, readers posted comments that suggested interesting questions, so we formulated those and sent them to the Wells Fargo executives as well. Their answers have also been edited for space.

Did they answer the questions to your satisfaction? Tell us what you think, using the comment form below.

Q. Reader 7themick is very pessimistic about economic recovery and small business: “The rush to lend to this segment may result in a relapse of portfolio quality, only this time there would be no TARP because the government is out of money.” Does he have a point? If, as some economists are now predicting, we’re heading into a double-dip recession, should that mean less lending, rather than more?

MR. BERNSTEIN: Yes, the economic recovery is slow, but we are lending, and more so than a year ago. We don’t foresee any substantial changes to our current lending criteria even if the economy were to weaken in the near future. But lending could be reduced if, because of the weak environment, small-business owners become more cautious about borrowing to grow their business or to make other investments or if a slower economy reduces revenues and profits for some small businesses, which also reduces their ability to support additional borrowing.

Q. From Shylock: “Smaller businesses, especially those under $1 million in annual sales, are what most people I know consider ’small business.’ What is Wells Fargo doing specifically for these smallest businesses? It seems pretty easy to show an increase in small business lending the larger you make the threshold for ’small.’ Will you provide more detailed information on your lending to businesses under $5 million, under $1 million, and start-ups?” For more specificity, The Agenda suggests percentage changes and total loan dollars for 2009, 2010, and the first quarter of 2011 (compared to the same time last year).

MR. BERNSTEIN: We take great pride in our long history of being a leading lender to America’s smallest businesses. Our industry leadership in small business is why the World Bank Group has invited Wells Fargo to work with banks in developing countries around the world. We’ve worked with banks in Africa, Asia, the Middle East, and elsewhere to help bankers reach out and increase lending to the smallest businesses in their countries.

There are various reports that measure banks’ lending volumes. The most relevant to your question about business size would be the federal government’s Community Reinvestment Act data. C.R.A. uses the dollar amount of the loan to determine whether it is a small business loan. For eight consecutive years, Wells Fargo is America’s No. 1 small-business lender for loans less than $100,000. In 2009 (the most recent C.R.A. data published by the government) we extended more than 630,000 loans with originations of $100,000 or less. The average loan size was about $30,000.

While we do provide many start-ups with credit cards, we do not generally lend larger sums to brand new businesses. Studies show that about half of new start-ups close in their first three years, and it’s difficult to predict up front which businesses will succeed and which will fail. So we require a business to be a minimum of at least two years old before we’ll consider providing a large line of credit or loan, although we do sometimes make exceptions for customers with a strong, long-standing consumer relationship with Wells Fargo.

Q. NathanielB writes that “my recent experiences with the Main Office Commercial Loan Vice President was fraught with delays, procrastinations, and an eventual response that the designated location was declared to be within a ‘no loan’ area and we had spent over three months negotiating this loan.” Does Wells Fargo really have “no loan areas,” and if so, what defines this territory? And if not — since I think no-loan areas are illegal — what do you suppose that banker might have said for this prospective borrower to construe the rejection as red-lining?

MR. BERNSTEIN: We’re committed to doing what is right for our customers and upholding sound underwriting practices. Wells Fargo will only approve an application when we believe the borrower has the ability to repay the loan. We do not have “no loan areas.”

Q. JRG, who seems to have experience in large-bank lending, writes about credit scoring: “Loan scoring is based on complex models that desire a certain return outcome based on assumed risk factors and loan pricing. Likely included in these models are other big picture factors such as industry and geography. A borrower can have good individual credit characteristics but if you are a general contractor in Las Vegas you could get declined for a new loan or asked to leave the bank only because the bank has too much contractor exposure in Las Vegas and want to bring that exposure down. This concept is called ‘portfolio management’ and is similar to managing concentration risk in an investment portfolio.”

In our conversation you acknowledged the role such big-picture factors play in credit scoring, but is our commenter right that they could knock someone with otherwise good credit out of the running for a loan? Does Wells Fargo use credit scoring not (or not just) for determining an individual borrower’s likelihood of default but for managing the risk and return across the portfolio? Is there, in your view, a difference between the two?

MR. BERNSTEIN: When considering an application for credit, we do take into account the challenges facing a given industry and the nature of the economy of a particular region. Continuing with the example in the question, contractors in Las Vegas were indeed having a very difficult time after the housing bubble collapsed – and, before granting a loan to a contractor in Las Vegas, we would want to have reason to believe that the business would be able to repay the loan to offset those very obvious risks. “Concentration risk” is a legitimate concern for lenders; however, Wells Fargo has a diversified portfolio of small-business loans in all 50 states and across hundreds of industries. In the 16 years I’ve managed our lending business for loans under $100,000, we’ve never once declined a small business loan application out of a concern that we have too many loans already in that area or that industry.

Q. Reader beaconps asks, “With all this performance data, does Wells Fargo counsel any of their small business customers? Many start businesses with a skill but that skill is not business finance.” I’ll add to that: What sort of counseling does Wells Fargo make available? Is it ever mandatory?

MR. CASE: Providing financial education and advice is at the center of our work at Wells Fargo. We know many business owners don’t start with a strong understanding of business finance. Our bankers can help business owners understand cash flow and credit so the owners can focus on running their businesses. We recently launched a comprehensive resource center called the Business Insight Resource Center, offering a video library covering topics from taxes and retirement to cash flow and understanding credit. The site also houses hundreds of articles and several webcasts that address a wide range of topics related to running a business.

Q. Rick A recounts trying to get a $7,000 loan from Wachovia a few years ago to buy two computers for his business. “I am a sole proprietor, and in spite of having pumped several million dollars through my Wachovia checking account in the last 15 years, I was told to use my high-interest credit card.” Despite your stated commitment to loans under $100,000, is there a minimum threshold for a loan necessary to justify your bankers’ time and resources? Are standards for credit-worthiness lower, or higher, when it comes to small-dollar loans?

MR. BERNSTEIN: I can’t speak to the experience you had at Wachovia several years back but what I can say is that Wells Fargo welcomes the opportunity to help you with your financial service needs, including potentially credit. Since your business finances are private and confidential, we would welcome the opportunity to connect offline so we can see what we can do to help. There’s no minimum size for us, and we do a lot of very small loans.

Q. Finally, a question from a You’re The Boss colleague, Jay Goltz: “I would like you to do everyone a great service. How about a look behind the curtain? Most people do not know what a bank is looking for when they consider a loan, or they do know but they don’t know the specifics. For instance, The “Five C’s” of credit are pretty well known — character, cash flow, collateral, capital, and conditions. What are the minimal requirements you are looking for? Let’s say someone wants to borrow $100,000. The cash flow, collateral and capital are somewhat objective. That is the easier part. What about character? Does a previous bankruptcy count against them? Credit score? Doesn’t go to their kid’s baseball games? Married four times? What about conditions? From my experience, many people trying to borrow money are not even close to qualified, but they don’t know it. If you answer these questions I believe that many people will have a better idea of where they stand. Perhaps they can work toward improving their situation, or at least stop wasting time. When you answer, can you please, just for a moment, pretend that there are no lawyers or P.R. people to answer to. I’m sure everyone will appreciate it.”

MR. CASE: The Five C’s help us develop a profile of the applicant. There is no specific weighting — the focus is on your ability to repay the loan. If you have derogatories on your application, such as a 60-day payment delinquency, these may hurt your chances of obtaining credit. In this case, you’ll want to work on cleaning up your credit report — both business and personal. There’s no magical formula for capital, but a substantial personal stake will help show that you’ll do everything you can to make the business successful and repay the loan.

You could add a sixth “C” to this list: customer. If you have an existing relationship with us, it allows us to access more information on your character and ability to manage your financial situation. For example, establishing a deposit account with us can be an excellent way to show your cash flow firsthand.

Article source: http://feeds.nytimes.com/click.phdo?i=e470861da9157897c6add3f50fbbcc8b

Filed Under: Small Business Tagged With: , ,

Markets Rise Sharply on Retail Sales and Other Economic Data

June 15, 2011 by Leave a Comment

Analysts described the stronger market, which represented the Dow’s biggest gain this month, as a relief rally.

David Krein, a senior director for Dow Jones Indexes, said investors were pleased with the retail sales report. Best Buy’s fiscal first-quarter results also helped buoy the markets, Mr. Krein said.

The company reported earnings of $136 million, or $0.35 a share, compared with $155 million, or $0.36 a share, for the same period in 2010. The results beat forecasts, and shares of Best Buy rose more than 4.5 percent to $30.13.

An indicator of consumer purchasing from the Commerce Department showed that overall retail sales in May declined by 0.2 percent, less than the 0.5 percent fall that had been forecast by analysts surveyed by Bloomberg. The figure was a reversal of the 0.3 percent increase in April, and it was the first monthly decline after 10 consecutive gains.

While the decline was not as steep as expected, economists cited areas of concern.

“With higher gas prices eating into the income available for discretionary spending, the consumer faces stiff headwinds,” said Joshua Shapiro, the chief United States economist for MFR.

The Producer Price Index, which reflects commodity prices for manufacturers, rose 0.2 percent in May, according to seasonally adjusted figures provided Tuesday by the Bureau of Labor Statistics. The increase was slightly higher than the 0.1 percent analysts had forecast, and it was below the 0.8 percent rise in April.

The increase in May in the index was attributed mostly to prices for energy goods — including gasoline and electricity — which rose 1.5 percent, the eighth consecutive monthly advance. The food component of the index declined 1.4 percent.

Analysts suggested that the markets were helped after data from China pointed to an increase in industrial output as well as a rise in consumer prices that was in line with forecasts. That helped markets in Asia move higher, and the momentum continued in trading in Europe and the United States.

“It is a pretty powerful relief rally,” said Keith B. Hembre, the chief economist and chief investment strategist at First American Funds.

The Dow Jones industrial average closed up 123.14 points, or 1.03 percent, to 12,076.11. The Standard Poor’s 500-stock index rose 16.04 points, or 1.26 percent, to 1,287.87. The Nasdaq composite index average climbed 39.03 points, or 1.48 percent, to 2,678.72.

The stock market had been in a six-week slump, partly fueled by concerns over the pace of the global and domestic economic recovery, and concerns over sovereign debt problems in the euro zone.

Protracted political wrangling over the national debt ceiling in the United States also has been a factor. Moody’s Investors Service said early this month that it might downgrade the United States credit rating if lawmakers did not raise the ceiling “in coming weeks.”

On Tuesday, the chairman of the Federal Reserve, Ben S. Bernanke, warned about the consequences of continued delay, saying even a short suspension of payments on principal or interest on the Treasury’s debt obligations could severely disrupt financial markets.

He also said that interest rates soared as investors lost confidence, as seen in a number of countries recently.

“Although historical experience and economic theory do not show the exact threshold at which the perceived risks associated with the U. S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory is moving us ever closer to that point,” he said.

On Tuesday, the yield on the Treasury’s 10-year note, which is linked to interest rates on mortgages and other borrowing, rose to 3.10 percent, from 2.98 percent late Monday. Its price fell 1 point, to 101 7/32.

Stocks, however, kept their momentum throughout the day.

J. C. Penney rose nearly 17.5 percent to $35.37, after the retailer announced that the head of Apple’s retail stores would lead its company.

The Apple executive, Ron Johnson, will replace Myron E. Ullman III as Penney’s chief executive on Nov. 1, the retailer said.

“The markets have been in a corrective stage, and I think we have reached levels now that perhaps we can see some renewed interest in terms of valuations,” said Peter Cardillo, the chief market economist for Avalon Partners.

Article source: http://feeds.nytimes.com/click.phdo?i=dc7596c913e44dc0fc8eaca95004bbd3

Filed Under: Economy News Tagged With: , ,

Inside Asia: For Bankers, a Week of Difficult Calls

June 6, 2011 by Leave a Comment

SINGAPORE — Predicting the next interest rate moves out of South Korea or China was hard enough before the global economy wobbled. Now it’s looking like a coin toss.

Five central banks in the Asia-Pacific region hold policy-setting meetings this week — Australia, New Zealand, Indonesia, South Korea and Sri Lanka. All except South Korea are expected to remain on hold, and even the economists forecasting a Bank of Korea rate increase acknowledge that it has become a close call.

Even if they all stick to the script, officials’ comments merit careful parsing for any indication about how they interpret the recent run of weak economic data. Is it merely a Japan-induced, short-lived lull or something more worrisome?

Policy makers must balance powerful, conflicting forces: The softening global outlook cools exports and therefore growth prospects, but home-grown demand remains strong in most countries, keeping up the inflationary pressure.

Richard Prior-Wandesforde, a Credit Suisse economist in Singapore, said that as long as inflation remained uncomfortably high and interest rates below normal, most Asian central banks would keep tightening monetary policy to reduce the flow of cheap credit. China, South Korea, India and Thailand may be even more aggressive than investors expect, he said.

“We only expect the region to suffer a few quarters of subtrend growth, not a return to recession,” Mr. Prior-Wandesforde said. “In fact, economic activity is unlikely to be soft enough to put an end to Asia’s rate-hiking cycle for a few months yet.”

But for central bankers inclined to put more emphasis on growth than inflation, even a modest slowdown may be reason enough to delay tightening. U.S. employment softened last month, and businesses around the world trimmed factory orders, so export-focused economies have reason for concern.

South Korea is arguably the toughest call. The Bank of Korea has developed a reputation for unpredictability, and it surprised markets yet again at its May meeting by holding rates steady. But it was a split decision, with two of the six board members expressing concerns about rising inflation expectations.

Many economists expect a quarter-point increase at the bank’s meeting Friday as steep food and energy costs filter into the prices of other goods and services. Core inflation, which excludes food and energy prices, has crept higher.

Doubts, however, are growing. Nomura dropped its call for a June rate increase, arguing that the Bank of Korea seemed more concerned about the risk of faltering growth than about inflation.

“The inherently pro-growth Korean government may have influenced the B.O.K.’s monetary policy,” said Young Sun Kwon, Nomura’s senior Korea economist in Seoul.

Jiwon Lim, a JPMorgan Chase economist also based in Seoul, is sticking with a forecast for a rate increase this week but said it “now becomes a close call” after the recent run of weak economic data.

Australia’s rate decision is also looking like less of a sure thing than it was a week ago, when the government released data showing that flooding had pushed first-quarter economic output down 1.2 percent, slightly worse than economists had expected.

Although economists are still banking on no change to monetary policy, some think the Reserve Bank of Australia might want to burnish its inflation-fighting credentials by springing a surprise interest rate increase Tuesday.

Even if it holds its fire at this meeting, the Reserve Bank of Australia will probably lay the groundwork for higher rates soon. Inflation accelerated in the first quarter despite the negative reading on growth, and with unemployment at a tight 4.9 percent, the economy does not have much slack.

It is a very different story in Indonesia, where economists expect no change in monetary policy. Inflation readings have looked benign, helped by Jakarta’s subsidies for fuel, keeping consumer prices down.

The global cooldown has taken some of the pressure off commodity prices, particularly for oil. That will eventually filter into Asian economies and reduce concerns about overheating. Indeed, many economists think inflation will peak soon.

But that does not mean central bankers can afford to wait it out. China in particular has a few tricky months to navigate before it can be sure that inflation will not go higher.

Drought and power shortages mean China’s food and energy costs may keep rising even after global prices begin to fall. Although Beijing raised power prices last week, a move that could make it more cost-effective for energy companies to increase production, demand is still running far ahead of supply.

Jian Chang, a China economist for Barclays in Hong Kong, said Beijing probably would not deviate from its planned tightening course and could raise rates before it releases May consumer price data next week.

Still, for central bankers already leaning toward keeping monetary policy looser, the combination of inflation peaking and growth slowing may be too much temptation.

Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong, said the bad economic news did not justify a pause in the tightening cycle, pointing out that interest rates in the region remain “structurally far too low.”

“But, central bankers may see something nastier on the horizon and opt to hold. This week will bring important clues as to what they are thinking,” Mr. Neumann said.




Emily Kaiser is a Reuters correspondent.

Article source: http://feeds.nytimes.com/click.phdo?i=dde699c112f90576004dc2530ed1f653

Filed Under: Business News Tagged With: , ,

Bottom May Be Near for Slide in Housing

June 1, 2011 by Leave a Comment

For real estate, some economists say, an end to the seemingly endless decline in housing values might be in sight.

Not immediately. At the moment, prices are still dropping. In 20 large cities, prices fell 0.8 percent in March from the previous month, according to the Standard Poor’s Case-Shiller Home Price Index released Tuesday. That pushed the closely watched index below its level of two years ago to a new post-bubble low, and put it 33.1 percent under its July 2006 peak.

Few analysts expect housing prices to rebound anytime soon. But quite a few are predicting that the market is close to the moment when things will stop getting worse, which will be a major improvement all by itself.

“By far the bulk of the downturn of housing prices is beyond us,” said Paul Dales of Capital Economics. He expects the market to slip 5 percent further, slightly more than he was expecting a few months ago.

“There are some amazingly favorable signs. Housing is the most undervalued it’s been in 35 years,” Mr. Dales said. “At some point, it’s going to do very well.”

Peter Muoio, senior principal of Maximus Advisors, says he thinks the market has already bottomed, although he expects it to bounce around in a narrow range for a few years rather than recovering. And James F. Smith, chief economist for the investment firm Parsec Financial and a rare housing bull, is predicting a 25 percent climb from here by mid-decade.

“There’s a lot of pent-up demand for housing and someday it will be unleashed,” Mr. Smith said, adding: “Your guess is as good as mine when it will come.”

The new Case-Shiller data did not offer much room for short-term optimism. The national housing index, which is reported quarterly, fell 4.2 percent in the first quarter after a drop of 3.6 percent in the fourth quarter of 2010. This, too, is a new recession low.

Twelve of the 20 cities in the index hit a post-bubble low in March. Washington, D.C., was the only city where prices rose both in March and over the last year. In a double-digit drop that echoed the worst era of the crash, Minneapolis fell by 10 percent over the year.

“Home prices continue on their downward spiral with no relief in sight,” David M. Blitzer, the S. P. Index Committee chairman, said in a statement.

Housing prices are now back to where they were in mid-2002 even before taking inflation into account. Such a decline was unimaginable to the boosters and many of the analysts in the middle of the boom, who were fond of saying that house prices never fell on a national basis. But as credit dried up and the easy refinances disappeared, the foreclosures began. Prices fell sharply in late 2006, 2007 and 2008.

The market turned around in 2009, prompting hopes that the worst was over. A government tax credit proved wildly popular, but the declines resumed after its expiration a year ago.

Some economists think there are still relatively large drops to come. Dean Baker, co-director of the Center for Economic and Policy Research, expects a 6 to 8 percent fall during the rest of the year. “There are a lot of forces pushing prices downward,” he said.

One of them is the excess number of houses. Builders built too much during the boom, and the mania for second and third homes has sharply diminished. New household formation will soak up the supply, but that will take years.

The financial blog Calculated Risk estimated the excess housing supply this week using 2010 Census data, which it compared to 1990 and 2000. The blog concluded that the excess in April 2010 was about 1.8 million units, but probably several hundred thousand fewer now.

The wild card in all of this is consumer sentiment, otherwise known as confidence. The United States Conference Board reported Tuesday that its consumer confidence index unexpectedly fell to 60.8 in May from a revised 66 in April. Analysts had forecast a one-point rise, but the mood turned hesitant. The May level is the lowest since the fall.

People without confidence in the economy and their own prospects tend to put off major purchases.

“People are still scared,” Douglas C. Yearley Jr., chief executive of the high-end builder Toll Brothers, said in a recent interview. “If they look in the paper and see that Robert Shiller says prices have another 20 percent to go, it has to keep them at home.”

Mr. Shiller, one of the developers of the Case-Shiller index and a housing bear, did not respond to requests for his latest forecast, a development that no doubt made Mr. Yearley’s day.

Article source: http://www.nytimes.com/2011/06/01/business/01housing.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Economix: Reflections on Warnings Unheeded

May 20, 2011 by Leave a Comment

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FRANKFURT — Jamie Dimon, chief executive of JPMorgan Chase, famously said at Davos in January that he was tired of everybody always picking on banks. Good thing he wasn’t at the going-away event for Gertrude Tumpel-Gugerell, outgoing member of the executive board of the European Central Bank.

Gertrude Tumpel-Gugerell, who is stepping down from the European Central Bank.Michele Tantussi/Bloomberg NewsGertrude Tumpel-Gugerell, who is stepping down from the European Central Bank.

At a colloquium and dinner attended by leading European central bankers and economists, several prominent speakers expressed frustration bordering on anger with the way banks have resisted efforts to create a less accident-prone financial system.

Alexandre Lamfalussy, one of the architects of the euro, set the tone Wednesday when, during a panel discussion in Frankfurt, he recalled the condescending reaction way back in 2001 when a committee he oversaw warned — presciently, it turned out — about the danger of financial market contagion.

“The warning was met with polite silence,” said Mr. Lamfalussy, former president of the European Monetary Institute, which was the predecessor to the European Central Bank.

“There were even a few investment bankers who argued that we had displayed a regrettable ignorance of the self-regulatory capability of financial markets,” Mr. Lamfalussy said, adding dryly, “Well, let bygones be bygones.”

Policy makers now must do more to discourage “the crisis-breeding inclination of the financial industry,” Mr. Lamfalussy said.

His statements illustrated the frustration that some central bankers feel as they struggle to cope with the aftermath of the financial crisis, even as commercial banks report higher profits and award their executives big bonuses.

There was more criticism of bank behavior later on at a dinner in honor of Ms. Tumpel-Gugerell, whose eight-year term on the E.C.B. ends on May 31. Martin Hellwig, an economist and a director of the Max-Planck Institute, attacked bank industry lobbyists for trying to obstruct efforts last year to write new regulations. Bankers insisted that new rules would throttle lending, for example.

“We just couldn’t believe how stupid many of the arguments being made were,” Mr. Hellwig said during a panel discussion, while guests dined on veal and asparagus.

Philipp M. Hildebrand, chairman of the governing board of the Swiss National Bank, used more diplomatic language, but also betrayed frustration with the banking industry.

He recalled how one prominent banker, whom he did not name, complained about especially tough requirements that the S.N.B. is imposing on Switzerland’s two big multinational banks, UBS and Credit Suisse.

“‘You are completely crazy. What are you doing in Switzerland?’” the banker said, according to Mr. Hildebrand. In fact, Mr. Hildebrand said, markets now rate Switzerland the least risky place in the world.

“Market indicators are telling us today that what we are trying to do today in Switzerland is not so crazy after all,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=30215ea857620e723e1c39bdba6812ef

Filed Under: Economy News Tagged With: , ,

Economix: Bruce Bartlett Joins Economix

May 17, 2011 by Leave a Comment

Goodman/Van Riper

Bruce Bartlett, an economist who specializes in budget and tax issues, is joining our panel of Daily Economists.

Mr. Bartlett worked in public service for many years, including for Representatives Ron Paul and Jack Kemp and Senator Roger Jepsen; as executive director of the Joint Economic Committee of Congress; senior policy analyst in the Reagan White House; and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration.

Lately he has broken ranks with many Republicans, however, by arguing that tax increases are necessary to reduce the deficit. David Leonhardt wrote about Mr. Bartlett’s book on this subject in a 2009 column.

We’re looking forward to having Mr. Bartlett weigh in every Tuesday about the intersection of politics and economics. His first column, on the real problems with Social Security and Medicare, will run tomorrow.

Article source: http://feeds.nytimes.com/click.phdo?i=524e6f4f5fe09d3b610d75ce783bdd5e

Filed Under: Economy News Tagged With: , ,
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