Financial thoughts

The U.S. economy probably grew in the first quarter at a faster pace than originally estimated as exports rose, economists said before a government report today.

Gross domestic product expanded at an annual pace of 0.9 percent from January through March, up from the 0.6 percent projected last month, according to the median estimate of 74 economists surveyed by Bloomberg News.

Surging fuel and food bills and falling home values signal consumer spending, the biggest part of the economy, is unlikely to accelerate in coming months. Stricter lending, a worsening housing slump and shrinking job market will constrain households and businesses, even as government tax rebates give growth a temporary boost.

The economy “still faces a host of problems,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “The only bright spot is exports.''

While a recession is often described as consecutive declines in GDP, the National Bureau of Economic Research, the official arbiter in the U.S., defines contractions as a “significant'' decrease in activity over a sustained period of time.

The group says that in a recession, decreases would be visible in payrolls, production, sales and incomes in addition to GDP.

Declines in payrolls and production indicate the odds are better than even that the U.S. is in a recession, said Shapiro. “Looking at the GDP revisions as an indicator would be missing the forest for the trees.''

Second Estimate

The Commerce Department's revised growth figures are due at 8:30 a.m. in Washington. The report is the second of three estimates. Economists' forecasts ranged from gains of 0.6 percent to 1.3 percent.

Following a 0.6 percent growth rate in the fourth quarter, the projected reading would mark the smallest back-to-back pace of expansion in five years.

A report from the Labor Department, also due at 8:30 a.m., may show the number of workers filing initial claims for jobless benefits rose to 370,000 last week from 365,000 the prior week, according to the Bloomberg survey median.

The revision to economic growth last quarter probably reflected a bigger narrowing of the trade deficit than the government projected on April 30 guaranteed approval cash advance loans. A cheaper dollar and economic growth overseas are benefiting exports, while slower U.S. demand is limiting imports.

Spending Slows

Consumer spending, which accounts for more than two-thirds of the economy, probably grew at a 1 percent pace in the first quarter, according to the survey median. The gain would be the smallest since the 2001 recession and match last month's advance estimate.

Purchases are likely to slow even more as Americans struggle with surging fuel and food costs, fewer jobs and declining property values. Confidence among consumers fell in May to the lowest level since 1992, the Conference Board reported this week.

Auto sales in April slid to a 14.4 million annual rate, the lowest level since 1998, according to industry figures. Spending this quarter will grow at a 0.5 percent pace, the smallest gain since 1991, according to the median estimate of economists surveyed earlier this month.

Federal Reserve policy makers last month trimmed their economic growth projections for this year by a percentage point to a range of 0.3 percent to 1.2 percent.

`Financial Headwinds'

“A number of participants were of the view that financial headwinds would probably continue to restrain economic activity through much of next year,'' minutes of the Fed's April meeting showed last week. “The strength of U.S. exports remained a notable bright spot.''

The gain in growth last quarter would have been even larger if not for a reduction in estimates for inventories. A measure of total sales, which strips out stockpiles, will probably be revised to show a gain rather than a decline.

“Not only is the GDP gain likely to be somewhat larger than originally reported, but the mix was likely healthier'' with more growth coming from increases in demand and less from inventories, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. Still, it was “an anemic performance,'' he said.

Source

The prices of homes sold in the first quarter of 2008 posted a record decline, according to a new report from the Office of Federal Housing Enterprise Oversight.

Home prices fell 3.1% from the first quarter of 2007, the largest decline in the purchase-only index, which excludes refinancings, since the agency began keeping records 17 years ago.

First-quarter prices dropped 1.7% from the fourth quarter, the largest quarterly dip ever.

"It’s not going to be the largest decline on record for long," said Peter Schiff, president and chief global strategist at Euro Pacific Capital."Prices are going to keep falling until we get to the equilibrium, which is much, much lower. This is only the beginning."

The inflation-adjusted price of homes fell 7.7% on a year-over-year basis. At the same time, the prices of other goods and services rose 4.6%, according to OFHEO.

"The nominal price declines aren’t as spectacular as they would be if we didn’t have so much inflation," Schiff said no checking account payday advance. "Houses are becoming a less valuable asset relative to the cost of living."

OFHEO reported that prices fell in 43 states, with eight states seeing quarterly price declines of more than 3%. California and Nevada were the biggest losers, with home prices falling more than 8% in both states.

Prices on all transactions, including homes sales and refinancings, fell 0.2%year-over-year and remained flat compared to the fourth quarter, OFHEO reported.

California, Nevada, Florida, Arizona and Michigan exhibited the greatest price depreciation in all transactions in the first quarter. Wyoming, Utah, Montana, Texas and Alabama saw prices for all transactions increase the most. 

Source

U.K. mortgage approvals fell in April as sliding home values and tighter loan terms dimmed the appeal of borrowing to buy property, a report by the British Bankers' Association showed.

Banks granted 38,704 loans for house purchase, down 39 percent from a year earlier, the London-based BBA, which represents the U.K.'s biggest banks, said today in a statement. The number is up 9 percent from March.

House prices are declining as fallout from the global credit squeeze prompts financial institutions to curtail lending. Banks raised the average cost of a mortgage with a 5 percent down payment to the highest in more than eight years last month, Bank of England data show.

“Pressures on household finances, stalling house prices and tighter lending criteria in response to lower liquidity are all constraining demand for house purchase,'' David Dooks, director of statistics at the BBA, said in the statement.

House prices fell 1.9 percent in May from a year earlier, the most since November 2005, Hometrack Ltd. said yesterday.

Approvals for refinancing of mortgages jumped 20 percent to 74,722 from a year earlier, the BBA said.

“There is an active remortgaging market as people switch lenders to obtain better deals,'' the BBA said.

Annual growth in credit card lending slowed to 4.9 percent in April and growth in personal loans and overdrafts declined to 3.6 percent, the BBA said.

Sourse

A World Trade Organisation (WTO) mediator issued new proposals on Monday for opening up services such as telecoms and banking as part of a global trade deal.

But the new text, replacing a previous document isued in February, did not set dates for revised offers or final commitments in the services negotiations.

The document, by Mexico’s WTO ambassador, Fernando de Mateo y Venturini, who chairs the services talks, showed big differences remain between developed and developing countries on how to proceed.

“Members shared the view that substantial efforts were needed to reach a successful conclusion of the negotiations,” Mateo said in his report, summarizing progress in the services talks in the WTO’s Doha round over the past few months.

Reflecting the difficulties in reaching agreement, Mateo entitled his document a report with a draft annex, rather than a formal negotiating text, as three WTO members — Bolivia, Cuba and Venezuela — argue that no formal services text is needed.

Together with revised texts for Doha’s core chapters of agriculture and industrial goods, the new document serves as a blueprint for a possible meeting of ministers to reach an outline deal in the round, now in its seventh year.

Besides talks on agriculture and industry, ministers would also hold a “signaling conference” to indicate their intentions in services overnight payday loans. That would allow, for example, a country that agrees to a big cut in farm tariffs to take comfort from a probable market opening in telecoms elsewhere.

FRAMEWORK FOR AGREEMENT 

Read more

Subaru Canada has the best website among auto manufacturers in the country, according to J.D. Power and Associates.

J.D. Power, a prominent consumer research agency, says a study of more than 3,600 new-vehicle shoppers found Subaru’s site had the highest ranking in customer satisfaction index among 25 companies.

Shoppers who plan to buy a vehicle in the next year responded to questions regarding website content, navigation, appearance and speed in loading pages. Subaru performed particularly well in content, speed and ease of navigation, J.D. Power said.

Kia, Volvo, Jeep and Ford also finished in the top five among best websites.

The Hyundai, Land Rover, Acura, Infiniti, Volkswagen and Mitsubishi brands had the poorest rankings.

The study also showed overall customer satisfaction with auto websites has decreased for the second consecutive year.

However, J.D faxless payday advance. Power found manufacturers that redesigned their websites in the past year tended to improve their overall satisfaction scores. Subaru had overhauled its site.

"Customers have high expectations when it comes to navigating and researching manufacturer websites," said Adrian Chung, manager of auto syndicated research at J.D. Power.

Source

Bank of Japan policy makers said they need to monitor consumers' inflation expectations as prices increase at the fastest pace in a decade, minutes today showed.

“Consumers' inflation expectations were rising, reflecting the ongoing rise in the price of daily necessities, and this warranted attention,'' some members said at the April 8-9 policy meeting, according to the minutes. The central bank has kept the key interest rate at 0.5 percent since February 2007.

Japanese consumers, used to stagnating prices and wages, are facing more expensive milk, bread and gasoline, and most households expect costs to keep rising. Bank of Japan Governor Masaaki Shirakawa said this week that he's watching how rising inflation expectations affect the way companies set prices.

“If you're a central bank you've got to be worried when you see such a pickup in inflation expectations,'' said Richard Jerram, chief Japan economist at Macquarie Group Ltd. in Tokyo. “In the short term, they want to be comfortable with the cyclical outlook, but once you get into next year you could see reasonably aggressive tightening.''

The yield on Japan's 10-year bond rose 7 basis points to 1.735 percent, a seven-month high, as investors cut their holdings of debt on concern inflation will accelerate. The yen was little changed at 104.05 per dollar as of 12:27 p.m. in Tokyo.

Easier to Raise

Some 86.2 percent of households predict prices will increase a year from now, the second-highest proportion on record, a government report showed last week. That may make it easier for companies to raise prices, fanning inflation, economists say.

“As inflation expectations rise, price hikes that have been impossible to implement in the past become easier to implement,'' Glenn Maguire, chief Asia-Pacific economist at Societe Generale in Hong Kong, said in a May 19 note.

Yamazaki Baking Co., Japan's largest bread and pastry maker, increased bread and pastry prices for the first time in 17 years in December. Meiji Dairies Corp. and Morinaga Milk Industry Co., the nation's biggest milk producers, raised prices for the first time in 30 years because of higher costs of grains and petroleum.

The seven board members agreed that the risk of higher inflation worldwide is increasing because of costlier commodities and crude oil, according to the minutes. They said the increase in raw-materials costs will cause Japan's economy to slow “for the time being'' before returning to a “moderate growth path.''

Pessimistic Consumers

Consumer prices rose 1.2 percent in March from a year earlier, the fastest pace since 1998 http://paydayloans-on.com. Gains probably eased in April, though prices will keep rising as a trend, one member said. A few members said rising prices have worsened consumer sentiment, which fell to a five-year low in April.

Shirakawa told parliament yesterday that costlier energy and raw materials will erode corporate profits and household incomes and that may force companies and consumers to pare spending. Crude oil exceeded $135 a barrel for the first time yesterday.

Since the April 8-9 meeting, the central bank cut its growth forecast, raised its prediction for inflation, and shelved a policy of gradually raising interest rates.

The members said “downside risks'' for the U.S. economy are rising and the outlook for global growth is “uncertain,'' according to the minutes. Financial markets around the world remain volatile, they said.

The International Monetary Fund said this week that the bank's policy shift represents a “wait-and-see attitude.'' That's the “appropriate stance'' to safeguard growth, said Daniel Citrin, IMF deputy director and mission chief for Japan.

Economists' Predictions

Only two of 31 economists surveyed by Bloomberg News predict the bank will increase borrowing costs this year, with the remaining 29 expecting no change. Japan's key rate remains the lowest in the industrialized world.

Board members shared the view that business investment is slowing and corporate profits are leveling off, the minutes said. One policy maker said Japanese companies may have to cut their profit forecasts for the year ending March 2009 because the yen was stronger against the dollar than executives predicted.

Companies said the dollar would average 109.21 yen this fiscal year in the central bank's March Tankan survey.

Shirakawa was appointed governor of the central bank on April 9, while the policy meeting was under way. He had been acting chief since March 20, after the term of his predecessor, Toshihiko Fukui, expired and the opposition blocked the government's first two choices for the role. Two positions on the nine-member policy board remain unfilled.

Source

Most Federal Reserve officials viewed the decision to cut the benchmark interest rate as “a close call'' in April, signaling they may hold off from further reductions.

“The risks to growth were now thought to be more closely balanced by the risks to inflation,'' minutes of the April 29-30 Federal Open Market Committee meeting, released in Washington today, said. Several policy makers judged “it was unlikely to be appropriate'' to lower rates further unless data indicated a “significant weakening'' in the outlook.

Stocks tumbled after the report stoked speculation Chairman Ben S. Bernanke and his colleagues are finished lowering borrowing costs as the threat of inflation rises. Questions about whether to lower the rate last month came even as officials cut their 2008 growth estimate by almost 1 percentage point.

“The Fed is wary about the economy, but cautious to act due to high inflation,'' said Christopher Low, chief economist at FTN Financial in New York. The report “reinforced the idea of a pause'' from rate reductions, he said.

Investors anticipate officials will keep the rate at 2 percent when they next meet June 24-25. Fed officials cut the benchmark lending rate by a quarter point on April 30. The 2.25 percentage points of reductions this year were the fastest in almost two decades.

Warsh Remarks

Two district-bank presidents dissented from the April rate cut, while Fed Governor Kevin Warsh said today that central bankers should be “inclined to resist'' calls for further moves “even if the economy were to weaken somewhat further.'' Warsh made the remarks in a Washington speech.

The Standard and Poor's 500 Index dropped 1.6 percent to 1,390.71 at the close of New York trading. Treasury prices fell, raising yields on benchmark 10-year notes to 3.82 percent from 3.78 percent late yesterday.

In their April 30 statement, officials dropped previous language referring to “downside'' risks to economic growth remaining even after the rate cut.

“The committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth,'' the minutes said today. Officials judged that the risk of another round of financial disruptions hobbling the economy had “receded'' since their March meeting.

Growth Forecast

Fed officials lowered their 2008 economic growth projections to 0.3 percent to 1.2 percent from a January forecast of 1.3 percent to 2 percent. The figures represent the median estimates of the five current Fed governors and 12 district-bank presidents. Next year, the panel sees an expansion rate of 2 percent to 2.8 percent.

The group raised its expectations for inflation, excluding food and energy, to 2.2 percent to 2.4 percent this year, from 2 percent to 2.2 percent. The Commerce Department's so-called core personal consumption expenditures price index is seen rising 1.9 percent to 2.1 percent next year.

The April 30 statement said that “substantial'' rate cuts over the past 12 months “should help promote moderate growth over time.''

“Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices and that fact that some indicators suggested that inflation expectations had risen in recent months,'' the minutes said fast payday loan no faxing.

`Calibrated' Stance

Fed Vice Chairman Donald Kohn said yesterday that “monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation of the medium term.'' He also said the recovery in growth into next year may be “relatively moderate'' as it will take time for investors to regain confidence and for housing demand to rise.

Traders see a 90 percent chance the FOMC will keep its target rate for overnight loans between banks at 2 percent when they next meet June 24-25, according to futures prices quoted on the Chicago Board of Trade. The contracts indicate a 23 percent likelihood officials will raise the rate in September.

“Most members viewed the decision to reduce interest rates at this meeting as a close call,'' the minutes said today, referring to the April 29-30 meeting.

Policy makers lowered their growth forecasts after economic figures showed a continued decline in housing and slump in consumer confidence to the weakest since 1980. Businesses have also cut payrolls for five consecutive months.

`A Crawl'

“Growth in consumer spending appeared to have slowed to a crawl in recent months and consumer sentiment had fallen sharply,'' the minutes aid. “The outlook for business spending remained decidedly downbeat.''

Construction of U.S. single-family houses in April dropped to the lowest level in 17 years, the Commerce Department said last week. Residential investment, a component of gross domestic product, has declined for nine consecutive quarters.

Fed officials are also contending with a surge in oil prices that has both depressed confidence and spending on other items and pushed up inflation.

Crude oil surpassed $133 a barrel today for the first time and has climbed about 37 percent this year. Food prices rose at a 6.1 percent annual rate for the three months ending April, according to the Bureau of Labor Statistics.

The Labor Department's gauge of consumer prices rose 3.9 percent in the 12 months ending in April, the sixth straight month that the rate exceeded 3.5 percent.

“Participants expected the recent increases in oil and food prices to continue to boost overall consumer price inflation in the near term,'' the minutes said.

The Reuters/University of Michigan Survey of households showed inflation expectations for the coming 12 months rose to 5.2 percent in May, the highest level since 1982. Consumers' estimate for price gains over the next five years increased to 3.3 percent, the fastest since 1996.

Source

Global financial-market turmoil stemming from the U.S. subprime mortgage crisis may have yet to run its course, the International Monetary Fund's deputy chief said.

“We still see serious risks to global financial stability,'' Deputy Managing Director John Lipsky said in a speech that was delivered by Daniel Citrin, the IMF's deputy director for Asia Pacific, at a symposium in Tokyo today. Policy makers in Asia, where subprime losses have been “substantially lower than elsewhere,'' need to avoid complacency, he said.

Japanese Finance Minister Fukushiro Nukaga said growth in emerging markets is bolstering the global economy, which is going through a “difficult phase.'' Rising oil and food prices “are making monetary and macroeconomic policies more difficult,'' Nukaga said at the event.

Lipsky called on China to allow its currency to appreciate faster and said Asian governments should do more to encourage consumer spending. A stronger yuan would slow China's export growth, encourage imports and reduce the nation's record trade surpluses with the U.S. and Europe.

He said the current financial turmoil has narrowed the U.S. current account deficit, though that didn't mark the end of global imbalances, or lopsided trade flows.

U.S. Current Account

The deficit in the U.S. current account, the broadest measure of trade, shrank in 2007 for the first time since 2001 easy fast cash. The shortfall in the fourth quarter of last year was $172.9 billion, the smallest in three years.

“We therefore see a risk that the latest reduction in the U.S. current account deficit does not mark the end of large imbalances, but rather a shift to new ones,'' Lipsky said. “In particular, some economies with flexible exchange rates — like the euro area — are now faced with a currency that is on the strong side relative to medium-term fundamentals.''

The dollar is “at — or slightly stronger than — its medium-term equilibrium on a broad trade-weighted and inflation- adjusted basis,'' he said.

The IMF official criticized Asian countries for failing to move quickly enough to boost domestic demand and increase currency flexibility. “As a result, the drop in the U.S. current deficit has not been mirrored to date by a decline in Asian surpluses,'' Lipsky said in the speech.

“Failure to produce sustained stronger domestic demand growth in the major surplus economies could result in both slower global growth and sustained imbalances,'' he said. “That eventually would tend to undermine the confidence of both investors and consumers, and potentially heighten economic and financial volatility.''

Source

Federal Reserve Chairman Ben S. Bernanke asked Congress to give the Fed immediate authority to pay interest on reserves deposited by commercial banks, seeking to streamline efforts aimed at alleviating credit strains.

The payments would help officials push money into the banking system without influencing the main policy rate, by giving lenders an incentive to leave funds with the Fed. Congress already passed a law giving the central bank the authority, starting in October 2011.

“We recommend that the date be changed to make the legislation effective immediately,'' Bernanke wrote in a May 13 letter to House Speaker Nancy Pelosi, a California Democrat. “Congress recognized that payment of interest on reserves would contribute to the efficiency of the financial system.''

Pelosi, after speaking to Bernanke, is reviewing “the feasibility'' of meeting his request, said Nadeam Elshami, a spokesman for Pelosi.

The benchmark federal funds rate, the overnight lending rate between banks, has at times diverged from policy makers' target in recent months as banks attempted to manage their reserves amid the credit crunch. The fluctuations also came as officials stepped up provision of liquidity to the banking system.

Bernanke, 54, and his colleagues have started twice monthly auctions of cash to banks and opened lending to securities dealers to revive credit markets. Officials have also accepted mortgage debt and other asset-backed securities as collateral for loans.

`Vast Sums'

Interest payments on reserves may give policy makers the ability “to inject potentially vast sums of money into the system without having an impact on the federal funds rate'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. It would also “put a floor under'' the rate, he said.

Congress would need to approve the accelerated timetable for the payments, which would then require the president's signature.

Banks are required to hold a proportion of their customers' deposits in an account at the Fed $500 payday loan. If the Fed paid interest on surplus reserves, banks would be less inclined to dump the funds into the money markets, pushing the federal funds rate lower.

The New York Fed's Open Market Desk is charged with buying and selling Treasuries with 20 Wall Street securities firms to keep the federal funds rate close to the target set by the Federal Open Market Committee. The desk has struggled to keep it stable as banks raised and lowered their reserves, removing or injecting funds into cash markets.

Rate Fluctuations

On May 14, for example, the benchmark rate fluctuated between 1.75 percent and 7 percent. On April 23, the range was 1 percent to 10 percent.

Under the current statute, the Fed may pay interest “at a rate or rates not to exceed the general level of short-term interest rates'' starting in October 2011.

The U.S. central bank cut the federal funds rate target to 2 percent April 30 and indicated it may hold off on further reductions. The Fed's Board of Governors discussed paying interest on reserves in a closed session the same day.

Central bank staff began discussions this month with Congress on bringing forward the date that interest can be paid. Fed officials are considering how the program would work, including the rate the Fed would pay.

Pelosi “will continue to work with'' Representative Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, “to examine the feasibility of enacting'' the early interest payments, Elshami said.

Frank called the Fed's proposal “reasonable'' in a May 7 interview. The change would give “some help to the banking system, and it is fair,'' he said. “I'm supportive.''

Bernanke sent a copy of his letter to Frank and Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee.

Source

Production at U.S. industries probably dropped in April, as the slowdown in consumer spending prompted automakers to cut back, economists said before a report from the Federal Reserve today.

Output at manufacturers, mines and utilities fell 0.3 percent after rising 0.3 percent in March, according to the median forecast in a Bloomberg News survey. Separate regional Fed reports may also show the decline continued into May.

A deepening housing slump, restrictions on credit and soaring food and fuel prices have caused consumers and businesses to rein in purchases of expensive items like cars and machinery. Only growing demand from overseas has prevented American factories from declining even more.

“Manufacturing is in a mild downturn,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “The trade sector is doing well. Companies don't have to cut back a lot.''

The Fed figures on industrial production are due at 9:15 a.m. in Washington. Estimates from the 76 economists surveyed ranged from a drop of 0.8 percent to a gain of 0.7 percent.

Capacity utilization, which measures the proportion of plants in use, may have dropped to 80.1 percent, the lowest level in more than two years.

The Fed Bank of New York's Empire State index, due at 8:30 a.m., is forecast to show manufacturing in that region stalled this month, according to economists surveyed. A similar report from the Philadelphia Fed at 10:00 a.m. is projected show factories in that region contracted in May for a sixth month.

Sales Slump

Sales of cars and light trucks in April slid to a 14.4 million annual rate, the fewest since 1998, according to industry figures. Officials at General Motors Corp., the world's largest automaker, said this week the company may have to borrow cash and reduce spending to fund its operations if the economy worsens.

“There have been a lot of questions about whether the U.S 1500 payday loans. economy is in recession — the U.S. auto industry is definitely in a recession,'' GM's Chief Operating Officer Fritz Henderson said in a May 13 conference call.

GM is cutting production by 138,000 trucks and sport-utility vehicles at four plants in the U.S. and Canada this year amid record-high gasoline prices. The reduction is about 10 percent of GM's planned large pickup and SUV production for 2008.

Part of the projected slump in auto making last month also reflected a protracted strike at American Axle & Manufacturing Holdings Inc., GM's biggest axle supplier.

Ongoing Strike

The United Auto Workers walkout at American Axle, which began Feb. 26, idled all or part of as many as 33 GM factories, and cut GM's output by 230,000 vehicles through April, according to the Detroit-based automaker. GM this week said it reopened or added shifts at five North American plants.

Consumers aren't the only ones tightening their belts. Business investment in new equipment and software dropped last quarter for the first time in more than a year, according to figures from the Commerce Department.

Deere & Co., the world's largest maker of tractors and combines, yesterday reported second-quarter profit grew less than analysts estimated because of a 7.2 percent drop in demand for construction equipment and rising raw-material costs.

So far, manufacturing has done better than in past economic slowdowns, in part due to gains in exports. The Institute for Supply Management's factory index reached a five-year low of 48.3 in February, and then stabilized just above that level over the last two months. The index fell as low as 42.1 in February 2001, a month before the start of the last recession.

Source