The U.S. trade gap narrowed unexpectedly to $26 billion in May to the lowest reading since November 1999, as exports rose and imports shrank, government data on Friday showed.
The Commerce Department said exports increased 1.6% to $123.3 billion, while imports declined by 0.6% to $149.3 billion.
Analysts polled by Reuters had expected the trade deficit to widen to $30.2 billion in May. The trade gap in April was revised to $28.8 billion from a previously reported $29.2 billion deficit.
May’s import level was the lowest since July 2004 and the 10th straight monthly decline, providing further evidence that the recession-mired United States has diminished as a source of demand for the rest of the world.
The auto sector has been hard hit in the economic slowdown and May imports of automotive vehicles and parts slipped to $10.2 billion, the lowest level since March 1996, while auto exports were the lowest since July 1998 cash advance no faxing.
The monthly deficit on goods trade with China grew to $17.5 billion from $16.8 billion in April and was the largest with any single country.
But the U.S. trade deficit with other big trading partners declined, falling to $2.8 billion with the European Union in May, for the lowest reading since March 1999, and retreating to $1.9 billion with Japan, which was the lowest since February 1984.
Imported oil cost $51.21 a barrel in May, up from $46.60 in April. The value of crude oil imports in May declined only slightly to $13.4 billion, despite a sharper decline in the quantity of oil actually imported, to 262 million barrels from 293 million in April, the Commerce Department said.
It looks like Americans still aren’t in the mood to splurge at the mall.
Several of the nation’s leading retail chains reported Thursday that their same-store sales declined again in June.
The reports raise questions about whether the government’s effort to use stimulus spending to boost consumer spending is working.
Sales tracker Thomson Reuters, which tracks monthly same-store sales for 30 chains such as Target (TGT, Fortune 500), Gap Inc. (GPS, Fortune 500) and J.C. Penney (JCP, Fortune 500), said overall June sales for the group fell 4.9%, compared to a gain of 1.9% last June.
It marked the 10th-straight monthly decline for that index, which measures sales at stores open at least a year. That’s worrisome because consumer spending fuels two-thirds of all economic activity.
By comparison, retailers last June cashed in plenty of one-time rebate checks given to eligible taxpayers — and much as $600 for individuals and $1,200 for couples – that were being doled out to consumers to stimulate the economy.
This year, many Americans have already seen extra money in their pockets through 2009 stimulus measures such as lower tax withholdings, higher unemployment benefits and Social Security payouts. But consumers continue to restrict their store purchases to everyday necessities while forgoing other discretionary items.
Still, some economists argued that the stimulus to consumers is having a positive impact on consumer spending.
"Consider what consumer spending would be doing without this stimulus," said Scott Hoyt, senior director of consumer economics with Moody’s Economy.com.
"People are still losing jobs, their personal wealth is eroding and real wages are falling," said Hoyt. "But consumer spending is trending flat so far this year. It’s not declining like it did in the second-half of last year. So I guess the stimulus is working."
And while last year’s rebates were sent out as one-time payments over mostly a concentrated period of time, Hoyt said the additional money consumers are getting this year is "stretched out over a nine to 10 month period."
"They aren’t getting a one-time check. So the impact will be spread out over time," he said.
What’s more, Hoyt said, temporary factors like cooler-than-normal weather in June also hurt sales of warm-weather products last month.
Saving more, spending less? Other industry watchers have speculated that this recession has changed consumer behavior in a significant way guaranteed online payday loans.
They said frivolous spending, one of the hallmarks of America’s consumer-driven economy, is on its way out. Budget shopping and saving are becoming the mantra for many households.
Hoyt said many households are likely socking away any additional money toward savings or using it to pay down debt. While this is a negative to consumer spending in the short-run, he sees it as a good thing for the economy in the longer run.
"If consumers are rebuilding their balance sheets and getting their financial house in order, they will be in a better position to make more discretionary purchases in the long run," Hoyt said.
Michael Niemira, chief retail economist with the International Council of Shopping Centers, agreed. He cited a 2008 consumer survey his group conducted that showed consumers used two-thirds of their rebate checks to pay down debt and only one-third of the money was spent in stores.
"I suspect this year the amount spent in stores will be even smaller," Niemira said.
But the other thing that’s holding back spending, he said, is the fact that upper-income consumers are spending less.
To his point, a May Gallup poll showed that consumers earning $90,000 or more a year spent 15% less during the first half of May — an average of $94 per day — than they did in April. That made May the lowest average daily spending rate of the year, according to the survey.
Further, the Gallup survey said upper-income spending is off 48% from the first half of May 2008, also representing the sharpest year-to-year decline seen so far in 2009.
Since upper-income Americans spend a disproportionate share of the nation’s disposable income, these shoppers also have to ramp up their purchases to boost overall consumer spending.
"I am not looking at consumers to lead the recovery," Niemira said. "The catalysts for the recovery will have to come from government spending, stock market recovery and other things."
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The number of Americans filing initial unemployment claims fell sharply last week, while those filing ongoing claims rose to another all-time high, according to government data released Thursday.
There were 565,000 initial jobless claims filed in the week ended July 4, down 52,000 from a revised 617,000 the previous week, the Labor Department said.
It was the lowest number since January and was below the consensus estimate of 603,000 from economists surveyed by Briefing.com.
Analysts said last week’s drop was distorted by a change in the pattern of seasonal layoffs in the automotive industry.
Initial claims typically spike in July as automakers idle certain manufacturing plants, and the Labor Department adjusts its data for such seasonal factors.
However, many plant closures occurred early this year, said Mark Vitner, an economist at Wacovia Economics Group.
On a non-seasonally adjusted basis, initial claims were 577,506.
"The improvement in first week of July was exaggerated by the timing of plant closures," Vitner said. "This is something we’re going to be dealing with throughout the month."
Meanwhile, the number of people requesting continued jobless benefits rose to a record high, indicating that the labor market remains weak business cards.
The government said continuing claims rose to 6,883,000 in the week ended June 27, the most recent data available.
That’s an increase of 159,000 from the previous week’s revised total of 6,724,000 and was the highest reading since the Labor Department began keeping records in 1967.
The 4-week moving average of continuing claims rose 12,000 to 6,769,000.
The ongoing rise in continuing claims suggests that more workers are struggling to re-enter the work force.
"While layoffs have topped out, hiring has not picked up," Vitner said. "The increase in unemployment rate going forward will be more a result of lack of hiring rather than layoffs," he said.
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For years, Microsoft has been trying to devise a "Google killer" (Can you say Live? Bing?). On Wednesday, the search engine giant lashed back with its own Chrome operating system. Could it be a "Microsoft killer?"
"Just like Henry Ford drove down car prices and ripped the heart out of the automobile industry, Google is trying to force Microsoft to cut its prices and eat the heart out of Microsoft’s revenues," said Tom Austin, Google analyst with Gartner.
The battleground Google (GOOG, Fortune 500) has chosen: tiny, cheap laptop-like computers known as netbooks, which are quickly gobbling up market share. Netbooks made up nearly 20% of all notebook sales in the first quarter of 2009, according to DisplaySearch data. Currently, Microsoft (MSFT, Fortune 500) dominates the netbook operating system market, with a 90% share, according to Gartner.
Netbooks are getting faster, but they’re still not so great for software — Microsoft’s main domain. But they can easily handle the Web just about as well as your average desktop. And as Web-based applications overtake software bit-by-bit, many believe netbooks will dominate consumer and small business PC sales in years to come.
Google is certainly taking that bet. Its plan: offer a scaled-back, inexpensive operating system that is designed around the Internet rather than software.
The right stuff. Some analysts say Google’s strategy makes perfect sense.
"It’s not personal, it’s just about getting everybody using the Internet for everything, which means more revenue for Google," said Austin. "It’s all part of Google’s grand commoditization plan."
In other words, if it seems like Google is trying to take over your PC, it is. If Google successfully creates an operating system that seamlessly integrates its Chrome Internet browser, Google Apps and Google search, that means cash in the bank for Google — and lost business for Microsoft.
So far, users have been willing to pay more for Windows-based machines over Linux-based netbooks, but Austin said the Google name will help the company penetrate the netbook market.
"Previous Linux versions offered on netbooks failed dramatically, but Microsoft can’t assume this one will fail as well," he said.
Furthermore, many analysts doubt Microsoft’s ability to run its soon-to-be-released Windows 7 OS on netbooks. Netbooks mostly run Microsoft’s Windows XP, because its current operating system, Vista, is too big. Though Windows 7 is slightly leaner, it isn’t dramatically smaller than Vista.
"Microsoft’s decision to run Windows 7 on netbooks is curious," said Zeus Kerravala, analyst at Yankee Group. "It’s hard to take the stuff out of a big OS, but much easier to add to one that’s lighter car loan interest rates."
Still, Kerravala and other analysts are skeptical that Google will be able to drive revenue from Chrome OS.
"Google has really been unable to monetize anything other than its search engine," said Kerravala. "Google gets a lot of accolades — and deservingly so — but as far as monetization is concerned, it’s still a one-trick pony."
Microsoft’s tight grip. Even experts who believe the plan will ultimately succeed say it will be a long time before Google can really convince customers that online software, or "cloud computing" is the answer.
"The revolution is happening … but it’s going to take another 15 to 20 years," said Austin. "Google is today with cloud where Microsoft was with the PC in 1990: Businesses didn’t start to embrace PCs en masse until Windows 95."
We may, one day, look back on the days that we used OS-based software like we look back now on the days we spent hours manually entering data into mainframes. But for the time being, most computer users are still hesitant to give up Microsoft Word and Outlook for Google Docs, Google Calendar and Gmail.
"Users may go for a Google netbook, but it depends on what they expect when they get it home," said Mike Silver, Gartner’s vice president. "If they want to use their existing software, they may not be so thrilled."
As a result, analysts believe netbooks will likely remain a niche product for at least 3 to 5 years. Meanwhile, some think Google won’t make much of a dent in Microsoft’s dominance.
"The Chrome OS isn’t the final bullet in the war between Google and Microsoft, rather it’s merely a shot across the bow," said Joshua Martin, senior analyst at Yankee Group. "Google’s targeting of netbooks will reduce Windows’ market share of this high-growth category, but the effect will only be slightly greater than the introduction of Linux-based netbooks."
But that may not be the point. Similar to how Google head-faked on its bid for the rights to analog TV signals last year, driving up Verizon’s (VZ, Fortune 500) bid, some think that a point taken away from Microsoft is a point for Google.
"I don’t see this as a major revenue enhancement strategy as much as it’s an attempt to drain money out of Microsoft," said Austin. "Google just wants to force Microsoft to cut the cost of its netbook OS by 60% to 70%."
California’s bond rating is far from golden.
Citing the Golden State’s ongoing budget upheaval, Fitch Ratings on Monday downgraded California’s long-term debt to BBB, one category above junk bond status. The next step is BBB- before the state’s bonds would be considered speculative debt.
Fitch also maintained its so-called negative outlook on California. "[I]nstitutional gridlock could persist, further aggravating the state’s already severe economic, revenue and liquidity challenges," Fitch wrote.
The agency had downgraded the state to A- on June 25.
While Gov. Arnold Schwarzenegger and lawmakers battle over closing a $26.3 billion budget gap, the state’s controller last week was forced to issue IOUs for the first time in 17 years. Some county agencies, state vendors and taxpayers are getting paid in paper. The IOUs help the state controller stave off a deficit of nearly $3 billion for July.
"The fact that they have to take this step shows how tight the state’s cash became and how limited their options are in the absence of a budget solution," said Douglas Offerman, Fitch credit analyst. "Without a budget, [the controller’s] flexibility gets more and more reduced over time."
California has the lowest bond rating of any state, and therefore must pay higher interest rates than its peers when it issues debt. Whatever agreement officials come to will likely rely heavily on borrowing to balance the budget for the current fiscal year.
"This underscores the urgency to solve our entire deficit with the necessary cuts instead of kicking the can down the alley," Schwarzenegger said in a statement. "This is not the time for boycotting budget meetings — all sides must come to the table and balance the budget immediately."
The other two major ratings agencies — Standard & Poors and Moody’s — had previously placed the state on watch for a possible downgrade easy online payday loans. They did not follow Fitch’s lead Monday and have maintained California’s ratings at several levels above junk.
Moody’s put the state on watch in mid-June after Controller John Chiang warned of the pending cash shortfall. Standard & Poors affirmed its rating last week.
The IOUs, while not preferable, do allow the state to preserve cash to pay its debt obligations for several weeks, Standard & Poors analyst Gabriel Petek said in an interview Monday.
"We believe California retains the ability to take the actions necessary to meet its debt service payments in full and on time, although we remain concerned about the state’s financial liquidity," Petek wrote in a report last week.
But it is on a short leash since the IOUs will only carry it for a few months, he said. By October, the state is looking at a $16.7 billion shortfall, according to the controller’s office.
California officials say the state is in no danger of defaulting on its debts.
"It won’t happen," Tom Dresslar, spokesman for Treasurer Bill Lockyer, said in an interview last week.
Few states, however, have ventured into BBB territory. California last had such a low rating from Fitch and Standard & Poors in 2003, during another fiscal crisis that resulted in the recall of Gov. Gray Davis. It was the only other time the state had fallen so low.
Standard & Poors has never relegated a state to junk territory. States are usually seen as a relatively safe credit risk. If a state such as California were to fall into speculative status, it would be "catastrophic" for its ability to issue bonds.
Home mortgage rates retreated last week, with the 30-year fixed slipping to 5.7% from 5.8% the week prior, according to a report from a financial data aggregator released Thursday.
The average 15-year mortgage rate also fell, dipping to 5.07% from 5.16%, according to the weekly national survey from Bankrate.com.
Mortgage rates fell to month-ago levels "as evidence mounts of continued economic weakness," the report said, citing troubling recent data on unemployment, GDP and consumer spending.
"Rates are likely to bob up and down as concerns alternate between economic weakness and future inflation," the report said. "Spurts of volatility should be expected, especially given the uncertain economic and financial climate."
A related report this week said home prices fell 18.1% from a year earlier, but the change from March narrowed sharply in a possible sign that housing markets may be starting to turn cashadvance.com.
Current rates remain much lower than last year’s levels, when the average 30-year fixed mortgage rate was 6.53%, according to Bankrate.com.
At the current rate of 5.7%, the monthly payment on a $200,000 mortgage would be $1,160.80, or about $107 less than the monthly payment at last year’s rate of 6.53%.
Other rates: The average jumbo 30-year fixed rate ticked up to 6.67% from 6.96%. Loans are considered "jumbo" when they are too large to be purchased or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).
Adjustable-rate mortgages were mixed, the report said, with the average 1-year ARM ticking up to 5.17% and the 5-year ARM falling to 5.17% from 5.26%.
Wal-Mart Stores Inc , the world’s largest retailer, said Tuesday that it supports President Obama’s push to require large employers to offer health insurance to workers.
"We are for an employer mandate which is fair and broad in its coverage," stated a letter addressed to Obama and signed by Mike Duke, the chief executive of Wal-Mart; Andy Stern, the president of Service Employees International Union (SEIU) and John Podesta, the CEO of the Center for American Progress.
Wal-Mart’s public statement of support for employer mandated coverage comes as Obama pushes for an overhaul of the $2.5 trillion U.S. healthcare system. He has made a healthcare plan that reins in costs and covers most of the roughly 46 million uninsured Americans one of his top priorities.
While the president has left much of the details of health reform to Congress, he has told U.S. lawmakers he is open to requiring larger companies to provide coverage for employees but exempting smaller businesses.
In recent years, Wal-Mart (WMT, Fortune 500), the nation’s largest private employer, has come under fire by labor-backed critic groups that accused it of mistreating employees and not offering adequate healthcare coverage payday loan lenders.
Wal-Mart has worked to counter critics by promoting its healthcare initiatives, such as its $4 generic drug program. In 2007, it also joined with the SEIU, which has more than 1 million members, in calling for universal health-care coverage for all Americans by 2012.
Wal-Mart said it supports an employer mandate that covers as many businesses as possible, as well as part-time and full-time employees. The requirement would ultimately save companies money, it added.
"This choice will require employers to consider the trade-off of agreeing to a coverage mandate and additional taxes versus the promise of reduced health care cost increases," it said.
It also said health care reform legislation should include provisions that reduce health costs, and that the retailer would support legislation that would put a public healthcare plan in place should private health insurers fail to meet price and competition targets, also known as a "trigger" provision.
The Dow and S&P 500 slipped Friday and closed lower for the second week in a row, while the Nasdaq ended higher on the day and week.
The Dow Jones industrial average (INDU) fell 34 points, or 0.4%. The S&P 500 (SPX) index lost 1 point, or 0.1% and the Nasdaq (COMP) gained 8 points, or 0.5%.
Stocks bounced back Thursday, after sliding for most of the week. But they failed to extend that recovery attempt Friday, as the spring surge that pushed the S&P 500 up by 40% continues to lose steam.
The Dow and S&P 500 have now closed lower for the last two weeks, while the Nasdaq managed to post slim gains for the week.
Bets that the economy is closer to stabilizing gave the rally some fuel, but a mixed batch of recent reports has caused worries that the market has gotten ahead of any recovery.
Friday’s economic news added to those concerns, after a government report showed personal income surged, but so did savings, as investors opted to sit out the recession rather than spend.
With consumer spending fueling two-thirds of economic growth, the steadily rising savings rate has been a cause of concern for economists.
Economy: May personal income rose 1.4%, the Commerce Department reported Friday. Economists surveyed by Briefing.com thought it would be up just 0.3% after climbing a revised 0.7% in April.
But the gain in personal spending was more modest, the government said. Spending rose 0.3% in May, in line with forecasts, after falling 0.1% in April.
Rather than spend, consumer beefed up their savings. Personal saving as a percentage of income rose to 6.9% in May from 5.6% in April. The rate was the highest level in more than 15 years.
The PCE deflator, the report’s inflation component, showed that pricing pressures remain moderate. PCE rose 0.1% after rising 0.3% in April, versus forecasts for a rise of 0 bad credit personal loans.2%.
A separate report from the University of Michigan showed consumer sentiment rose to 70.8 in June from an earlier reading of 68.7. Economists thought it would increase to 69.
Corporate news: KB Home (KBH) reported a narrower fiscal second-quarter loss that was worse than expected. The homebuilder also said that it sees signs that certain negative trends are moderating. Shares plunged 9% Friday.
Similarly, on Thursday, homebuilder Lennar (LEN) reported a big drop in fiscal second-quarter sales and earnings versus a year ago, but said new home sales and orders picked up versus the first quarter.
In other company news, Palm (PALM) reported a narrower-than-expected fiscal fourth-quarter loss late Thursday, due partly to strong demand for its new Pre smartphone. Shares rallied nearly 16%.
Market breadth was positive and volume was heavy, due to the annual rebalancing of the Russell indexes. On the New York Stock Exchange, winners beat losers by three to two on volume of 2.35 million shares. On the Nasdaq, advancers topped decliners two to one on volume of 3.65 billion shares.
Bonds: Treasury prices were little changed, with the yield on the benchmark 10-year note at 3.54%, roughly where it stood late Thursday. Treasury prices and yields move in opposite directions.
Other markets: In global trade, Asian markets ended higher and European markets ended mixed.
COMEX gold for August delivery settled up $1.50 to $941 an ounce.
U.S. light crude oil for August delivery settled down $1.07 to $69.16 a barrel on the New York Mercantile Exchange.
In currency trading, the dollar fell versus the euro and the yen.
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