April 20, 2021

Jobless Claims Surge in Wake of Storm

Initial claims for state unemployment benefits rose 78,000 to a seasonally adjusted 439,000, the Labor Department said. That was the highest level since April 2011 and well above the median forecast in a Reuters poll. It was also the biggest one-week increase in new claims since 2005.

“Stepping back from the storm distortions, the economy is growing at about 2 percent,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “We will likely see a step back in job growth … because of Sandy. The economy is just muddling along.”

An analyst from the Labor Department said several states from the mid-Atlantic and Northeast reported large increases in claims due to Sandy, a mammoth storm that slammed into the East Coast in late October.

The storm left millions of homes and businesses without electricity, shut down public transportation and caused widespread damage in costal communities. However, the economic impact of the storm is likely to be temporary.

Economists expect the storm could shave as much as half a percentage point from economic growth in the last three months of the year, but should be made up early next year.

Retail sales data on Wednesday pointed to a softening in U.S. consumer spending early in the fourth quarter as Sandy slammed the brakes on automobile purchases last month.

The four-week moving average for jobless claims, which smoothes out volatility, rose 11,750 to 383,750. Economists generally think a reading below 400,000 points to an increase in employment.

Dow and SP index futures turned negative after the data, while U.S. Treasury debt cut early price losses. The dollar pared losses against the euro and pared gains against the yen.

MODEST INFLATION

A separate report showed consumer prices edged higher last month as the cost of shelter jumped by the most in over four years, while gasoline prices fell.

The Consumer Price Index increased 0.1 percent last month, in line with analysts’ expectations, data from the Labor Department showed.

The data pointed to only modest inflation pressures that appear unlikely to derail the U.S. Federal Reserve’s plan to keep interest rates low for an extended period.

“I wouldn’t say that core CPI is worrying at all,” said David Sloan, an economist at 4Cast in New York.

Prices for shelter, which include rent, rose 0.3 percent during the month, the most since 2008, and accounted for over half of the overall increase in the CPI. That could be a hopeful sign for the economy if it is because landlords felt they have more leverage to raise rents. Rents for primary residences rose 0.4 percent.

Gasoline prices fell 0.6 percent in October after climbing 7 percent the prior month. That was the first drop in gasoline prices since June. Higher costs at the pump have forced many American consumers to cut back on other spending.

A measure of underlying inflation was relatively muted. The core CPI, which excludes food and energy prices, increased 0.2 percent.

In the 12 months to October overall consumer prices increased 2.2 percent, up a tenth of a point from September’s reading. Core prices rose 2 percent in the year through October.

Most economists don’t see inflation threatening the economy in the short or long term.

A gauge of manufacturing in New York state showed that activity slowed in November for a fourth straight month, the New York Federal Reserve said.

Despite the decline, new orders rose, the first positive reading for the forward-looking component index since June.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

(Reporting by Jason Lange; Additional reporting by Chris Reese and Edward Krudy in New York; Editing by Neil Stempleman)

Article source: http://www.nytimes.com/reuters/2012/11/15/business/15reuters-usa-economy.html?partner=rss&emc=rss

Europeans Struggle to Clear Hurdles to Latest Euro Rescue Plan

They also found themselves at odds with the U.S. Treasury secretary, Timothy F. Geithner, who, after his highly unusual attendance at a meeting of top European officials, warned them that a lack of decisive action could leave “the fate of Europe” to outsiders.

The first of two days of talks in Poland left the European finance ministers no closer to overcoming crucial hurdles holding up their bailout plan for Greece. And it highlighted trans-Atlantic differences over the best ways to revive growth in developed economies and restore stability to the financial markets.

Mr. Geithner suggested increasing the firepower of the euro zone’s bailout fund to help protect banks potentially vulnerable to a default by Greece and other deeply indebted countries, but did not appear to convince European ministers. Conversely, Mr. Geithner opposed a European proposal for a financial transaction tax, the officials said.

Meanwhile Jean-Claude Juncker, president of the group of euro area finance ministers, ruled out any possibility that Europeans might change course and stimulate economic growth, citing this as a significant difference with the Obama administration.

The talks came at a time of continued anxiety in the financial markets, and before a deadline for Greece’s foreign creditors to decide whether to release the next installment of its original bailout.

If Greece does not get its next €8 billion, or $11 billion, in funds scheduled to be released in October, it could have to default on its debts, with potentially devastating consequences for Europe and the global economy.

The fact that Mr. Geithner made the trans-Atlantic journey — just one week after attending the meeting of finance ministers from the Group of 7 countries in Marseille — was seen as a signal of the seriousness with which the United States viewed the European situation.

Meeting in the morning with finance ministers representing the 17 nations in the euro zone, Mr. Geithner suggested that they give the euro zone’s planned €440 billion bailout fund added heft by allowing it to act more like a bank and borrow more freely on the financial markets.

A similar model was used by the United States after the collapse of Lehman Brothers at the height of the 2008 financial crisis. That program, known as TALF, began while Mr. Geithner was still president of the Federal Reserve Bank of New York. Under it, the U.S. Treasury made $20 billion available in seed money that the New York Fed expanded into $200 billion to help revive lending in the consumer and small-business markets by purchasing securities backed by auto loans, business loans and credit card receivables.

“He raised it among other issues but did not press it,” Mr. Juncker said, who added, pointedly, that the euro group was not discussing “an increase or expansion” of its bailout fund “with a nonmember of the euro area.”

The Irish finance minister, Michael Noonan, said Mr. Geithner had been “very succinct” in raising the question. “It’s something he suggested that should be examined by Europe,” he said.

Mr. Geithner spoke first with ministers from euro zone countries and then addressed those from all 27 nations of the European Union. Officials at the U.S. Treasury Department said they would not comment on the details of private discussions. But at a separate business conference in Wroclaw, Mr. Geithner appealed to Europeans to solve the crisis themselves.

“One of the starkest ways to emphasize the importance of Europe getting on top of this,” Mr. Geithner said, according to a transcript of his remarks, “is that you don’t want the fate of Europe to rest in the hands of those who provide financing” to the International Monetary Fund “or who provide financing outside of the I.M.F.”

Maria Fekter, the finance minister of Austria, criticized Mr. Geithner for calling on Europeans to spend more to resolve the crisis while rejecting the idea of a small financial transaction tax to raise revenue from traders in the stock market.

“He conveyed dramatically that we need to commit money to avoid bringing the system into difficulty,” Ms. Fekter said. But when European officials, including the German finance minister, Wolfgang Schäuble, countered by suggesting the United States join Europe in adopting a transaction tax as a way to also promote more market stability, Mr. Geithner “ruled that out,” she said.

There was also a clear gap over who is primarily to blame for the current economic troubles plaguing both the United States and Europe.

Article source: http://www.nytimes.com/2011/09/17/business/global/europeans-struggle-to-clear-hurdles-to-latest-euro-rescue-plan.html?partner=rss&emc=rss

From Europe, Mounting Pressure Over Greece’s Debt

The announcement could portend yet another restructuring of Greek debt to stave off a default. A stopgap bailout plan announced on July 21 has yet to be approved by all 17 nations that share the euro currency, and in recent weeks a renewed sense of crisis has engulfed the euro region.

In the latest sign of turmoil, Italy — the euro region’s most indebted member, after Greece — was forced to pay record-high interest rates in order to complete an auction of its five-year bonds on Tuesday, despite continuing purchases by the European Central Bank. Spain, which plans a bond sale on Wednesday, could be subjected to similar investor wariness.

Plans were clearly being laid Tuesday for a serious conversation with Mr. Papandreou. His government has proved incapable so far of making the kinds of legal changes and budget cuts in the middle of a deep recession that Athens has promised its European partners and the International Monetary Fund.

France, where shares of the biggest banks have plummeted recently on fears of exposure to Greece’s debt, is pressing for a stronger signal from Germany that Europe will act to resolve the Greek matter before it spreads further contagion.

Despite the stepped-up pace of economic diplomacy, Europe’s response to the debt crisis still appeared to be behind the curve. That was underscored by the announcement that Timothy F. Geithner, the United States Treasury secretary, will make a rare appearance at an informal meeting of European finance ministers to be held Friday in Wroclaw, Poland. The trip will be Mr. Geithner’s second across the Atlantic in a week, following the Group of 7 session in Marseille, France, last weekend.

“Clearly the U.S. Treasury is disappointed with the direction of the European debt crisis and is looking for action, before further sections of the banking system are drawn in and a global financial crisis is revisited,” Chris Turner and Tom Levinson, strategists at ING, said in a research note.

Growing concern in Washington about the euro crisis and the damage it is doing to the markets and the global economy was also expressed by President Obama, meeting with Spanish-speaking journalists in Washington.

Mr. Obama urged European leaders to step up their efforts. “In the end the big countries in Europe, the leaders in Europe, must meet and take a decision on how to coordinate monetary integration with more effective coordinated fiscal policy,” Mr. Obama said, according to the Spanish news agency EFE.

Mr. Sarkozy met Tuesday evening at the Élysée Palace with Herman Van Rompuy, the president of the 27-nation European Council, to discuss the euro crisis, but neither man spoke afterward to the press. Mr. Van Rompuy has been asked by Germany and France to head a similar council of the 17 euro zone nations.

France and Germany are pressing to put into place the decisions made at the last euro zone summit meeting on July 21, which called for raising the total bailout fund to 440 billion euros ($598 billion). Germany, whose participation would be the most crucial financially and politically, is among the many countries that have yet to ratify that agreement.

Mrs. Merkel, who is working to win a ratification vote in the Parliament this month, said on Tuesday that Germany would ensure there would be no “uncontrolled default” of Greece that could pull down the euro zone. An uncontrolled default would be the equivalent of Greece’s simply walking away from its debts, whatever the consequences, rather than undergoing the equivalent of supervised bankruptcy proceedings.

“It is our top priority to avoid an uncontrolled default,” Mrs. Merkel said, “because it would hit not only Greece. The danger would be very high that it would hit many other countries.”

Mrs. Merkel’s mention of default was significant, because there is increasing skepticism that even the second bailout of Greece would be enough to bring it to a sustainable level of debt.

The Dutch finance minister, Jan Kees de Jager, said on Tuesday that he was studying the possible consequences of a Greek default.

“We’re currently preparing for many scenarios and possible shock effects,” Mr. De Jager said in an interview with the broadcaster RTLZ. He declined to comment when asked whether euro zone officials were preparing for a default of Greece.

Reporting was contributed by Nicholas Kulish and Judy Dempsey in Berlin, Matthew Saltmarsh in London, Elisabetta Povoledo in Rome and Graham Bowley in New York.

Article source: http://feeds.nytimes.com/click.phdo?i=320f941de9b29b256dfc8e89dc53497a

Buy, Sell, Hold (Tight): Eight Days of Market Frenzy

ONE of the most harrowing stretches in Wall Street history began with the loss of the AAA credit rating of the United States and ended with fears of a new recession. In between, the wild swings in the financial markets captivated the nation, and the world.

Even financial professionals were grasping for answers. Many were selling — and many were buying as fast as they could. Each was making a bet on whether last week was a hiccup, or the start of something worse.

9:45 p.m. Friday, Aug. 5: Waterbury Center, Vt.

As she watched her beloved Red Sox battle the Yankees, Karissa McDonough opened her laptop to check e-mail.

Jumping off the screen was a subject line from a news alert at 9:03 p.m.: “U.S. Long-Term Debt Downgraded by Standard Poor’s.”

She stared at her screen in disbelief. Ms. McDonough, the chief bond strategist at People’s United Bank in Connecticut, had spent her working life analyzing the debt of companies and governments. This news, however, was surreal. This happened in other countries. Not here.

“We were just downgraded!” she exclaimed to her husband.

“Who’s we?”

“The United States!”

She had to react swiftly. Clients might panic. Money managers at People’s United would need to know what to say. She began tapping on her laptop. At 11:02 p.m. she sent an e-mail to more than 100 colleagues. The downgrade, she told them, was “historic but not catastrophic.”

Ms. McDonough went on: “The U.S. Treasury market remains the safest, largest, most liquid investable asset class in the world.” Governments like China’s, she said, would be hard-pressed to find a better alternative.

She collapsed into bed. She had a sinking feeling that her vacation on Cape Cod, scheduled for the coming week, was about to be downgraded, too.

Noon Saturday, Aug. 6: Pasadena, Calif.

Stephen Walsh, the chief investment officer of Western Asset, had been expecting the e-mail all day.

“How do you think the markets will respond on Monday?” a worried official from the United States Treasury asked him.

A few weeks earlier, Western Asset, one of the nation’s largest bond fund managers, had asked Standard Poor’s for a private briefing about America’s credit rating. S. P. had already announced that there was an even chance that the nation’s AAA rating might be lowered.

The S. P. analysts were prohibited from saying more. But when they met with Western Asset, it was clear that the odds had worsened. “You could tell a lot by their body language, how carefully they answered certain questions,” said one of the people in those meetings. The analysts didn’t say anything specific, but they didn’t have to. Afterward, Mr. Walsh took his top lieutenants into his office, one by one. A downgrade is inevitable, he told them. We need a plan.

Now, it had happened. The previous night, the once unthinkable had occurred. The Treasury official from Washington wanted to know how Mr. Walsh — a man who indirectly controls half a trillion dollars in assets — thought the markets would respond. The Treasury was planning to sell billions of dollars of new bonds in the coming week. If buyers didn’t materialize at the auctions, it could be disastrous for the government, the financial markets and the entire global economy.

”I think investors understand it’s not that big a deal,” Mr. Walsh told the Treasury official.

It was the same thing he had been saying all day to colleagues, hedge funds and investment banks seeking his advice. “U.S. Treasuries are still the most high-quality instrument out there,” he told them. People need a safe place to put their money, and if the downgrade unsettled the stock market, as he suspected it would, investors would flock to safe investments like Treasuries, regardless of S. P.’s opinions.

“World investors didn’t downgrade U.S. debt; S. P. did,” he told one caller. “It’s just one opinion.”

When he hung up, his wife turned to him.

“What if you’re wrong?” she asked.

“That’s the great thing about Wall Street,” he replied. “We’ll know Monday morning if I’m a genius or an idiot.”

11:30 p.m. Sunday, Aug. 7: East 66th Street, Manhattan

It looked like a sell-off. Not a panic like the one that had struck in 2008, but something different.

Michael Warlan, who heads equity trading for Third Avenue, a mutual fund company in Manhattan, sat in his home office on the Upper East Side, fielding calls and sending instant messages to brokers around the globe.

Amid the turbulence, he smelled opportunity.

Article source: http://www.nytimes.com/2011/08/14/business/market-frenzy-from-trading-rooms-to-living-rooms.html?partner=rss&emc=rss