March 22, 2023

U.S. Steel and AK Steel Report Losses, but Top Forecasts

At U.S. Steel, the net loss was $50 million, or 35 cents a share, compared with a loss of $211 million, or $1.46 a share, in the period a year earlier. Revenue fell 6.9 percent, to $4.49 billion.

Excluding items, the loss was 41 cents a share. Analysts had expected a loss of 75 cents a share on revenue of $4.35 billion, according to Thomson Reuters.

AK Steel’s net loss widened to $230.4 million, or $1.89 a share, compared with $193.9 million, or $1.76 a share, in the period a year earlier. But the results beat analysts’ estimates. Revenue fell 6 percent, to $1.42 billion.

Global steel demand is expected to rise 3.2 percent this year, compared with projected growth of 2.1 percent in 2012, the World Steel Association said in its most recent forecast in October.

China, the world’s biggest steel producer and consumer, will account for most of the increase in 2013, the association said.

“Steel buyers in North America continued to exhibit caution early in the year, but recent increases in our daily order entry rates suggest increased spot market demand as the quarter progresses,” John P. Surma, the chief executive of U.S. Steel, said in a statement.

AK Steel’s raw material and energy costs are expected to decline by $150 million in 2013, its chief executive, James L. Wainscott, said in a conference call with analysts.

Shares of U.S. Steel fell 52 cents, or 2.2 percent, to $23.20, while AK Steel fell 8 cents, or 2 percent, to $4.03.

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Proposal Would Force Bank Loan Write-Downs

The proposal appears likely to lead to greater write-downs — and thus earlier losses — than one being considered by international rule makers.

“The global financial crisis highlighted the need for improvements in the accounting for credit losses on loans and other debt instruments held as investments,” said Leslie F. Seidman, the chairwoman of the board. The proposed model from FASB (pronounced FASS-bee) “would require more timely recognition of expected credit losses and more transparent information about the reasons for any changes in those estimates.”

The new rules, which are unlikely to actually take effect for several years, were initiated by complaints that banks were unable to write down the value of loans as soon as they should have as the financial crisis was growing. Under the exposure draft issued by the board, banks would frequently evaluate the expected cash flows from groups of loans and securities they owned, and take write-downs to the extent they expect the cash flow to be lower than called for in the loan documents.

As a practical matter, it seems likely that any bank making a loan would almost immediately have to write down the value of the loan, even though nothing indicated that particular loan was likely to go bad, simply because experience would indicate that some percentage of similar loans do wind up defaulting.

The value would then be adjusted each quarter, based on changes in conditions. An improving economy might make defaults seem less likely and cause banks to write up the value of loans on their books, thus raising reported profits.

But the initial write-down could mean that banks with limited capital would be constrained from making as many loans as they otherwise would make.

The International Accounting Standards Board plans to propose its rule early next year, enabling people to compare them when they file comments. The principal difference is that the rule that board plans to propose would limit the initial write-down to the losses expected during the first year the loan was outstanding, rather than over its entire life.

The two boards had reached agreement on the set of principles contained in the I.A.S.B. proposal, but the American board backed away from them in a joint meeting in July, leaving Hans Hoogervorst, the chairman of the international board, sputtering with frustration.

The Americans switched course at least partly because bank regulators feared that under the agreement banks might be too slow to write down the value of loans that could go bad, making the banks appear to be better capitalized than they really were.

The international regulators privately argued that the pricing of loans reflected the degree of loss expected, therefore there was no need for an initial write-down. They agreed to the limited first-year write-down in what they saw as a compromise with the Americans, only to have the Americans walk away from it.

Under either rule, the change in accounting will be significant. Current rules refer to “incurred losses,” in which loans are written down as it becomes clear that a particular loan is likely to default.

Those rules stemmed from what were seen as abuses in a previous era, as banks used loan loss reserves to smooth reported profits. Now banks will have more flexibility.

The American board said it expected the rule to cover bonds as well as loans, but some details remained vague and were likely to be fleshed out after the two boards considered public comments.

The comment period for the American proposal will end April 30.

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Economix Blog: More Jobs Than We Knew

The government’s estimates of job creation are not particularly accurate, a point that is often made and often ignored. On Thursday morning, the Bureau of Labor Statistics provided another reminder. The agency said it probably undercounted the extent of job creation between April 2011 and March 2012 by 20 percent.

The agency, which issues a much-discussed monthly estimate, also issues regular revisions of those estimates, which regularly receive much less attention. One of the most important revisions uses state unemployment insurance tax records – records filed by nearly all employers, which include actual counts of the numbers of people they employ — to check the accuracy of a full year of its monthly estimates.

In that revision, published Thursday, the agency concluded that an additional 386,000 jobs were created during the 12-month period, a 20 percent jump over its previous estimate that employment increased by about 1.94 million jobs. The revision is preliminary; a final version will not be published until February.

The new numbers would increase the monthly pace of job creation during that period to about 194,000 a month, up from a pace of 162,000 jobs a month.

The agency still estimates that job growth has since slowed to a pace of 87,000 jobs a month over the last five months. Those data won’t be revised until next September.

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Economix Blog: A Look Back at Extended Unemployment Benefits

Tangled in the current Washington debate over extending the payroll tax is another thorny, but less prominent, policy issue: whether to also renew extended unemployment benefits.

States typically allow unemployed workers to receive up to 26 weeks of unemployment benefits. But two temporary, federally funded programs have enabled some job-seekers to receive checks for up to 99 weeks in states with especially high unemployment rates.

At the end of this month, those federally paid programs will end unless Congress decides to extend them once again. (The programs have been renewed several times already in the years since they were first created.) The White House estimates that without an extension, an additional five million jobless workers will exhaust their benefits by the end of 2012.

Given all this, it’s probably worth looking back at the role that unemployment benefits have played in the economy. Since June 2008, when Congress first created the Emergency Unemployment Compensation program, nearly 18 million Americans have at some point received federally funded extended unemployment benefits.


Many economists have argued that, besides being compassionate, unemployment benefits have stimulated the economy. That’s because people who receive jobless benefits go out and spend their checks very quickly after receiving them, and spending ripples through the rest of the economy.

But some economists worry that longer periods for benefits may delay the job market recovery. By definition, jobless benefits make unemployment less uncomfortable, and so on the margins they may discourage idle Americans from going back to work if they have the option.

Benefits generally don’t cover more than half of a worker’s lost wages, and they’re capped at a maximum amount. In many states, the cap is quite low relative to the cost of living and local wages, so there is probably still a strong incentive for most unemployed workers to start earning higher wages again instead of receiving benefit checks.

The table below is from a new White House report on jobless benefits, and it shows average weekly unemployment benefits received per worker, the maximum weekly benefit granted in that state and the share of a worker’s lost wages that jobless benefits cover.


Another variable to bear in mind when thinking about how extended jobless benefits are interacting with unemployment rates is the employer side of the puzzle. After all, unemployment isn’t only about Americans’ work incentives; it’s also about employers’ willingness to hire.

In October, there were 3.3 million job openings, but 14 million unemployed workers, according to the Labor Department. That means that even if every single open job was filled with a willing worker, more than 10 million Americans would still be pounding the pavement.

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On the Road: Airports Say They Too Need to Raise Fees

Last week, I heard from the representatives of the nation’s airports, who would like to be able to raise the limit on the $4.50 maximum charge that they can impose on each passenger who comes their way.

Then on Monday, I expected to hear from the Transportation Department about the airlines’ total annual revenue from the array of fees that they have been adding to the price of tickets. But after months of wrangling with the airlines over exactly how they must report their fee revenue, the department basically punted.

In finally releasing fee data for 2010, in a report delayed for over a month, the department said that domestic airlines raised “almost $5.7 billion in fees” last year. But the report included revenue from only two basic categories of fees, checked bag charges (up 24.6 percent from 2009, to about $3.4 billion) and charges for reservations changes (down 3.1 percent, to about $2.3 billion).

But if you want to compare apples to apples, the report does not quite add up. What about that oft-quoted figure of $7.8 billion in so-called ancillary revenue that the department reported for 2009?

Well, the 2009 figure included a wide range of the fees. And so far, the department and airlines have not been able to agree on how the comparable data for 2010 should be reported. The airlines have been insisting that they should not be required to break down ancillary revenue in minute detail, noting that McDonald’s does not account for how many French fries it sells. Airlines also say that fee revenue is now their only toehold on profitability, given high fuel costs.

We’ll let the government and the airlines sort that out. Industry analysts’ estimates for airline ancillary revenue last year put the comparable total at about $10 billion, by the way.

But what about the airports, which have been complaining that they cannot raise their passenger fees even as the airlines raise or impose surcharges at will on everything except the cabin air.

Some airport managers say the current rules hurt them in two ways. First, they say, the $4.50 maximum passenger facility fee is too low, especially since planes are flying fuller than ever, because their costs on things like security are rising. And, they note, the billions of dollars in airline ancillary fees are not subject to the 7.5 percent federal tax imposed on base fares.

Revenue from that tax goes into the government’s Airport and Airway Trust Fund, which covers most of the Federal Aviation Administration’s budget and also pays for some airport capital projects. If those fees were taxed, there would be more money for additional airport projects, the managers argue.

“Airports should be permitted to charge a user fee at whatever level they can charge that would also work in the market,” said Greg Principato, the president of the Airports Council International North America, which represents the nation’s roughly 450 commercial airports.

Mr. Principato knows that air travel fees are a touchy subject for consumers. But, he said, airlines lobby hard to prevent airports from raising the passenger fee ceiling partly because restricting this revenue limits the ability of airports to expand. That can discourage the entry of new airline competition, or the expansion of existing competition.

“The airlines are deregulated and can charge whatever they want,” he said. “But the airports are still regulated as they were in the old days, and cannot charge a fee beyond the $4.50. The airlines like that because it keeps competition out,” he said.

The airlines say that airports are overreaching on this. “Our customers already pay an exorbitant amount of taxes,” said Jean Medina, a spokeswoman for the Air Transport Association, the airline industry trade group. Any increase in the airport passenger fee, which is collected as part of the ticket price, “would raise the cost of travel, which harms consumers and the entire travel and tourism industry,” she said.

Meanwhile, I’ve heard from a few readers complaining that some of the fees they pay on airlines are not reimbursed by their companies. Last weekend, the Business Travel Coalition, which represents corporate travel managers, asked its members about their reimbursements.

In responses from more than 200 managers, almost all said their corporate policies allowed employees to be reimbursed for checked bag fees. But other airline fees were less likely to be approved. About 85 percent said that they would reimburse employees for itinerary change fees. About 74 percent said in-flight meals could be expensed, and 45 percent told the coalition they reimburse in-flight Wi-Fi charges.

And a mere 14 percent said they would approve an expense for a priority coach seat. But that is a perk, typically an aisle seat toward the front of the plane, that business travelers often opt for.

Myself, I don’t check bags but I do like to buy that aisle seat. Note to accounting: That’s an extra $15. O.K.?


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Economix: G.D.P. Estimates Slide Further

Earlier this week we wrote that several prominent economic forecasters had lowered their estimates of gross domestic product growth in the first quarter of this year. Today saw even further declines.

Macroeconomic Advisers, a forecasting firm, lowered its estimate to just 1.4 percent annualized, when just a few months ago they had pegged the number at 4.1 percent.

Capital Economics likewise brought its estimate down to 1 percent, writing in a client note:

Every data release last week seemed to necessitate a further downward revision to our first-quarter GDP growth forecast. By the end of the week when the dust had finally settled, that estimate was down to only 1% at an annualised pace. Indeed, there is now even a decent outside chance that the economy contracted outright.

The median estimate on Bloomberg is 1.8 percent annualized, although many of the usual forecasters have not yet submitted their numbers. We’ll get the Commerce Department’s preliminary number on April 28.

On the bright side, a few forecasters have also tentatively raised their estimates for output growth later this year.

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