Treasury Secretary Timothy Geithner says the U.S. economy is in a “much stronger position” than it was two years ago.
The same could be said of him.
Once the focal point for criticism of the administration’s struggle to resolve the financial crisis, opposed by almost all Senate Republicans for confirmation, and the butt of jokes by late-night comedians, Geithner has emerged as President Barack Obama’s most powerful economic policy maker. His influence on everything from overhauling housing finance to remaking the corporate tax code is reminiscent of the clout that Robert Rubin and James Baker enjoyed when they ran Treasury.
“Many would have faltered during those tough days at the beginning, but he didn’t,” said Roger Altman, founder of the investment bank Evercore Partners Inc. and a former deputy Treasury secretary under President Bill Clinton. “And, between the success of the TARP investments, the auto rescues, and the overall recovery in the banking system, he’s now on top.”
At a Bloomberg Breakfast yesterday, the 49-year-old Geithner parried with leading reporters from nine news organizations on a variety of subjects, from budget battles with Republicans to U.S. differences with China over its currency policy.
He outlined a two-pronged approach to closing the federal budget gap: lowering the record $1.6 trillion deficit to more manageable levels over the next five years, and then tackling the longer-term peril posed by entitlement programs such as the Medicare health-insurance system.
Avoiding Shutdown
He voiced hopes that Congress would avoid a government shutdown in the standoff between Republicans and Democrats over this year’s budget, even as he reiterated his criticism of the Republican spending-reduction plans as unrealistic.
And he said the U.S. has picked up support over the last six months for its campaign to pressure China for a stronger yuan to help ease global trade imbalances.
Two years ago, it was Geithner who was feeling the pressure. Tarred by an uproar over his underpayment of federal taxes, he won Senate confirmation as Treasury secretary by the slimmest margin since World War II. His rollout of a bank-rescue plan on Feb. 10, 2009, triggered a 4.9 percent drop in the Standard & Poor’s 500 Stock Index as investors dismissed his proposal as inadequate.
A lot has changed since, for the economy, the financial system and for Geithner himself. After contracting at a 4.9 percent annual clip in the first quarter of 2009, the economy has righted itself, helped by Obama’s $814 billion stimulus package, and is on course to rack up its fastest growth in seven years, according to economists surveyed by Bloomberg.
“By really almost any measure you look at, the economy is just gradually getting stronger,” Geithner said.
S&P Surge
So is the financial system. U.S. banks had net income of $87.5 billion in 2010, the highest since 2007, the Federal Deposit Insurance Corp. said yesterday.
“The core of the American financial system is in a much stronger position than it was before the crisis,” Geithner said.
The Treasury chief deserves much of the credit, said Douglas Elliott of the Brookings Institution in Washington and a former managing director of JP Morgan Securities Inc.
“The administration handled the crisis quite well and Secretary Geithner played a key role,” he said.
‘Longer-Term Vision’
Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. In Newport Beach, California, agreed one hour payday loan.
“Geithner has done very well in tackling the difficult problems that confronted the country when he took office, including a battered banking system and an economy in virtual freefall,” said El-Erian, who is also co-chief investment officer of Pimco, which manages the world’s largest bond fund.
“His major challenge now is to articulate and mobilize broad-based support for a longer-term vision,” he said.
A lot of that revolves around the budget.
Obama aims to reduce the deficit by $1.1 trillion over a decade. His budget, his first since Republicans took control of the House of Representatives, includes cuts to energy, transportation, housing and other programs popular with Democrats. Republicans have attacked the budget as inadequate, saying it doesn’t go far enough to address long-term deficits.
‘Multiyear Strategy’
“You have to look at things that have a multiyear strategy so that you can phase in the deficit reduction as the economy recovers,” Geithner said, “And you have to make sure you’re giving a lot of care and attention to sustaining the ability to invest in things that matter for the future.”
He is skeptical that Republicans can carry through with promises to cut the deficit more deeply than the administration does while eschewing tax increases and repealing a health-care program that the Congressional Budget Office said will save the government money.
“I don’t think there is a realistic prospect they can do it politically,” he said.
Congress needs to enact a new spending plan by March 4 to avoid a government shutdown, and congressional Republicans and Democrats are preparing competing plans to prevent that outcome.
“Both sides have an interest in working to avoid this, in part because of the risks it would hurt the recovery,” Geithner said.
Corporate Taxes
He sees a chance the administration and Congress can agree this year on a plan to overhaul the corporate tax code.
“There’s a lot of interest in doing it,” Geithner said.
Obama said in his Jan. 25 State of the Union address that the corporate code is riddled with “loopholes” because of the influence of a “parade of lobbyists.” He hasn’t offered details on what changes he’s seeking except to say any reforms shouldn’t result in lost revenue for the government.
Businesses are clamoring for relief from a top 35 percent corporate tax rate that is among the developed world’s highest.
Geithner also put forward this month a series of proposals for attracting private capital back into the $11 trillion mortgage market while shrinking the role played by Fannie Mae and Freddie Mac, the government-sponsored enterprises that have been sustained by U.S. aid since September 2008.
“I’m very encouraged by the reaction so far,” Geithner said, while adding that it will take a couple of years to reach a consensus with Congress.
Cajoling China
On the international front, Geithner is trying to reorient the world economy to avoid the imbalances that helped contribute to the financial crisis. At the heart of the effort is his attempt to cajole China into accepting a faster appreciation of its currency.
He said the U.S. has gained backing for its campaign for a stronger yuan, pointing to growing concern in Brazil and India about China’s policies.
“People want to see them move faster,” he said.
China has allowed the yuan to appreciate about 3.8 percent against the U.S. dollar since June, or at a 10 percent annual rate in real terms, Treasury Assistant Secretary Charles Collyns said in a speech this week in San Francisco.
While Geithner’s role in helping settle these issues has grown since his rocky start in the administration, he still jokes that he doesn’t get enough respect.
Told that he was the second policy maker to appear at a Bloomberg Breakfast — White House chief of staff William Daley was first — he feigned umbrage.
“I’m so offended that I’m number two,” he said. “You know, the story of my life.”
Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits.
Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials.
While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.
“It’s a slow train wreck coming and we all know it’s going to happen,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.”
The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections.
Budget Proposal
That compares with 69 percent for Portugal, whose bonds have plummeted on speculation it may need to be bailed out by the European Union and International Monetary Fund.
Forecasts of higher interest expenses raises the pressure on Obama to plan for trimming the deficit. The President, who has called for a five-year freeze on discretionary spending other than national security, is scheduled to release his proposed fiscal 2012 budget today as his administration and Congress negotiate boosting the $14.3 trillion debt ceiling.
“If government debt and deficits were actually to grow at the pace envisioned, the economic and financial effects would be severe,” Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee Feb. 9. “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on U.S. output, incomes, and standards of living.”
Yield Forecasts
Treasuries lost 2.67 percent last quarter, even after reinvested interest, and are down 1.54 percent this year, Bank of America Merrill Lynch index data show. Yields rose last week to an average of 2.19 percent for all maturities from 2010’s low of 1.30 percent on Nov. 4.
The yield on benchmark 10-year Treasury note will climb to 4.25 by the end of the second quarter of 2012, from 3.63 percent last week, according to the median estimate of 51 economists and strategists surveyed by Bloomberg News. The rate was 3.64 percent as of 2:08 p.m. today in Tokyo. The economy will grow 3.2 percent in 2011, the fastest pace since 2004, according to another poll.
“People are starting to come to the conclusion that you’ve got a self-sustaining recovery going on here,” said Thomas Girard who helps manage $133 billion in fixed income at New York Life Investment Management in New York. “When interest rates start to go back up because of the normal business cycle, debt service costs have the potential to just skyrocket. Every day that we don’t address this in a meaningful way it gets more and more dangerous.”
‘Kind of Disruption’
While yields on the benchmark 10-year note are up, they remain below the average of 4.14 percent over the past decade as Europe’s debt crisis bolsters investor demand for safer assets, Bank of America Merrill Lynch index data show.
“The market is still giving the U.S. government the benefit of the doubt,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $3.56 trillion in assets. “What we’re concerned with is whether the budget will only be corrected after the market has tested them. Will we need some kind of disruption within the bond market before they’ll actually do anything.”
Still, U.S. spending on debt service accounts for 1.7 percent of its GDP compared with 2.5 percent for Germany, 2.6 percent for the United Kingdom and a median of 1.2 percent for AAA rated sovereign issuers, according to a study by Standard & Poor’s published Dec. 24. Among AA rated nations, China’s ratio is 0.4 percent, while Japan’s is 2.9 percent, and for BBB rated countries, Mexico devotes 1.7 percent of its output to debt service and Brazil 5.2 percent, the report shows.
Auction Demand
Demand for Treasuries remains close to record levels at government debt auctions. Investors bid $3.04 for each dollar of bonds sold in the government’s $178 billion of auctions last month, the most since September, according to data compiled by Bloomberg. Indirect bidders, a group that includes foreign central banks, bought a record 71 percent, or $17 billion of the $24 billion in 10-year notes offered on Feb. 9.
Foreign holdings of Treasuries have increased 18 percent to $4.35 trillion through November. China, the largest overseas holder, has increased its stake by 0.1 percent to $895.6 billion, and Japan, the second largest, boosted its by 14.6 percent to $877.2 billion.
‘Killing Itself’
“China cannot dump Treasuries without killing itself,” said Michael Cheah, who oversees $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “They’re holding Treasuries as a means to an end,” said Cheah, who worked at the Singapore Monetary Authority from 1982 through 1999, and now teaches finance classes at New York University and at Chinese universities. “It’s part of what’s needed to promote exports.”
At least some of the increase in interest expense is related to an effort by the Treasury to extend the average maturity of its debt when rates are relatively low by selling more long-term bonds, which have higher yields than short-term notes. The average life of the U.S. debt is 59 months, up from 49.4 months in March 2009. That was the lowest since 1984.
The U.S. produced four budget surpluses from 1998 through 2001, the first since 1969, as the expanding economy, declining rates and a boom in stock prices combined to swell tax receipts.
Tax cuts in 2001 and 2003, the strain of the Sept. 11 terror attacks, the cost of funding wars in Afghanistan and Iraq, the collapse in home prices and the subsequent recession and financial crisis has led to the three largest deficits in dollar terms on record, totaling $3.17 trillion the past three years.
‘Demonstrates Confidence’
The U.S. needs to manage its spending decisions “in a way that demonstrates confidence to investors so we can bring down our long-term fiscal deficits, because if we don’t do that, it’s going to hurt future growth,” Treasury Secretary Timothy F. Geithner said in Washington on Feb. 9.
The Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Soros Fund Management LLC, expressed concern in the Feb. 1 report that the U.S. is exposing itself to the risk that demand erodes unless it cultivates more domestic demand.
“A more diversified debt holder base would prepare the Treasury for a potential decline in foreign participation,” the report said.
Foreign investors held 49.7 percent of the $8.75 trillion of public Treasury debt outstanding as of November, down from as high as 55.7 percent in April 2008 after the collapse of Bear Stearns Cos., according to Treasury data.
Potential Demand
The committee projects there may be $2.4 trillion in latent demand for Treasuries from banks, insurance companies and pension funds as well as individual investors. New securities with maturities as long as 100 years, as well as callable Treasuries or bonds whose principal is linked to the growth of the economy might entice potential lenders, the report said.
“They are opening up a can of worms with the idea of all these other instruments,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “They should try to keep the Treasury issuance as simple as possible. The more issuance you have in particular issue, the more people will trade them — whether it be domestic or foreign investors.”
White House Budget Director Jacob Lew said the Obama administration’s 2012 budget would save $1.1 trillion over the next 10 years by cutting programs to rein in a deficit that may reach a record $1.5 trillion this year.
“We have to start living within our means,” Lew said yesterday on CNN’s “State of the Union” program.
Still, about $4.5 trillion, or 63 percent of the $7.2 trillion in public Treasury coupon debt, needs to be refinanced by 2016. That gives the government a narrowing window as growing interest expense will curtail its ability to spend.
“There is roll-over risk,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade with the Fed. “It’s a vicious cycle.”
Toyota reported a 39 percent slide in quarterly profit but raised its full-year forecasts for earnings and car sales as business booms in Asia and other emerging markets.
The results show a mixed picture for the world’s biggest automaker, which is enjoying booming sales in high-growth markets in Asia, Africa and South America, while facing lingering worries about quality lapses in the key U.S. market.
Toyota Motor Corp. reported Tuesday a net profit of 93.63 billion yen ($1.1 billion) for its fiscal third quarter, down from 153 billion yen a year earlier. Quarterly sales at the Japanese automaker declined 11.7 percent to 4.673 trillion yen ($57 billion).
The drop was largely due to damage from the strong yen, which erodes the value of Japanese exports, and the end of government-backed incentives for green cars in Japan, according to Toyota.
The maker of the Lexus luxury model, Camry sedan and the Prius hybrid now expects to sell 7.48 million vehicles around the world in the year ending March 31, up from the previous forecast for 7.1 million vehicles.
Toyota raised its annual net profit forecast to 490 billion yen ($6 billion) from 350 billion yen ($4.3 billion).
The new projection is more than double Toyota’s annual profit the previous year.
Senior Managing Director Takehiko Ijichi shrugged off the threat from a strong yen, saying that solid demand from emerging markets was growing into “one of the pillars supporting our earnings.”
The one area where Toyota has been stumbling is the U.S., where it has been losing market share because of worries about the quality of its cars after the massive series of recalls that began in 2009.
The recalls, which have ballooned to more than 12 million vehicles around the world, include sticky gas pedals, faulty floor mats, braking software glitches and other defects.
Ijichi acknowledged Toyota had not fully put the recall mess behind it, but was going in the right direction because of its efforts to be quicker and more responsive over the past year and a half.
“We think that the wound is now half-healed,” he told reporters at Toyota’s Tokyo office. “It is going to be a gradual effort, but we are starting to regain the trust of our customers. We are only halfway there.”
Later in the day, an investigation into the runaway cars in the U.S. by the National Highway Traffic Safety Administration and NASA is set to be released. Toyota officials said they were also awaiting the report and declined comment.
Toyota said it will continue efforts to beef up quality controls and speed up responses in each region.
Ijichi was relatively upbeat about how Toyota sales in North America had not collapsed despite the recall fiasco, holding up at about 14 percent market share, and rising in number of vehicles sold compared to the previous fiscal year.
In recent months, other automakers have seen jumps in sales as the U.S. auto market bounced back from the recession.
Toyota has also earmarked unprecedented generous incentives in the U.S. to woo customers to its cars. Ijichi declined comment on the incentives.
For the first nine months of the fiscal year, Toyota’s profit quadrupled to 382.7 billion yen ($4.7 billion) from 97.2 billion yen in the same three quarters the previous year. Sales improved 5 percent to 14.35 trillion yen ($175 billion).
Japanese rival Honda Motor Co. also raised its full-year earnings forecast despite reporting lower profit for the October-December quarter. Nissan Motor Co., Japan’s No. 2 automaker, reports earnings Wednesday.
Toyota shares were unchanged at 3,490 yen ($43). Results were announced shortly after trading ended on the Tokyo Stock Exchange.
More Americans than forecast filed first-time claims for unemployment insurance payments last week, indicating it will take time for the labor market to mend.
Applications for jobless benefits increased by 51,000 to 454,000 in the week ended Jan. 22, Labor Department figures showed today. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls rose, while those collecting extended payments fell.
A Labor Department official said snow in four southern states in previous weeks created a backlog of claims that were processed last week. While the economy has improved, it hasn’t been enough to reduce an unemployment rate that Federal Reserve policy makers said yesterday is too high and requires pressing ahead with a $600 billion stimulus plan.
“If claims drift higher, we’re just going to have to wait and see, tread water,” Julia Coronado, chief economist for North America at BNP Paribas in New York, said. “We’re creating enough jobs to keep the unemployment rate roughly steady and at a pace to keep the economy on track, but it’s not necessarily a picture of rapid improvement.”
Estimates in the Bloomberg News survey of 52 economists ranged from 375,000 to 428,000, after the Labor Department initially reported claims fell to 404,000 the prior week.
Futures on the Standard & Poor’s 500 Index expiring in March fell 0.2 percent to 1,291.70 at 8:47 a.m. in New York. The yield on the 10-year Treasury note, which moves inversely to price, rose to 3.44 percent from 3.42 percent late yesterday.
Winter Effects
The Labor Department official said winter weather in Alabama, Georgia, North Carolina and South Carolina in previous weeks kept people from filing claims. Those unemployed Americans ended up filing last week, boosting the claims number.
“In addition to seasonal volatility, we have this extra effect in the numbers,” the Labor Department official said as the figures were released.
The four-week moving average, a less-volatile measure, rose to 428,750 from 413,000.
The number of people continuing to collect jobless benefits increased by 94,000 in the week ended Jan. 15 to 3.99 million. Economists forecast the number would increase to 3.87 million.
The continuing claims figure does not include the number of workers receiving extended benefits under federal programs.
Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 98,000 to 4.62 million in the week ended Jan. 8.
President Barack Obama in December signed into law an $858 billion bill extending for two years tax cuts for all income levels. The measure also continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes for workers by two percentage points this year.
Democrats, Republicans
“These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private- sector jobs created last year,” Obama said this week during the State of the Union address.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.2 percent in the week ended Jan. 15, today’s report showed. Fifty states and territories reported a decrease in claims, while three had an increase. These data are reported with a one-week lag.
Initial jobless claims reflect weekly firings and tend to fall as job growth — measured by the monthly non-farm payrolls report — accelerates.
Economic expansion in the U.S. is “continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions,” the Federal Open Market Committee said yesterday in its statement after a two-day meeting in Washington.
Unemployment is too high to be consistent in the long run with policy makers’ congressional mandate of full employment, the Fed said, repeating that progress toward its objectives has been “disappointingly slow.”
The labor market gradually improved at the end of last year, with unemployment falling to 9.4 percent in December from 9.8 percent a month earlier, according to Labor Department figures released Jan. 7. The country added 103,000 jobs in December, fewer than economists forecast in a Bloomberg survey.
Company Workforce
Some companies have been shifting the composition of their workforce to meet consumer demand, which probably grew 4 percent in the final three months of last year, according to the median estimate of economists surveyed by Bloomberg before the Commerce Department’s first estimate of fourth-quarter growth tomorrow.
Lowe’s Cos., the second-biggest U.S. home-improvement retailer, said this week it plans to eliminate 1,700 middle- management jobs in stores as profit growth trails that of larger Home Depot Inc. At the same time, Mooresville, North Carolina- based Lowe’s plans to add 8,000 to 10,000 weekend sales positions to improve staffing at the chain’s busiest time of the week.
“Adding a third shift is a response to customer demand for heavy-duty pickups, which most people use to tow, haul and plow,” Mark Reuss, president of GM North America, said in the statement. “Equally importantly, it brings jobs and a needed economic boost to the Flint area.”
Reserve Bank of Australia Governor Glenn Stevens can glimpse the inflation threat he faces from the nation’s floods at the produce shop near his suburban Sydney home in Sylvania Waters.
Tomato prices soared 20 percent in the past week and bananas, grapes and sweet potatoes are up 10 percent, said Maurice Sorace, owner of Sylvania Best Fresh, who gets about a third of his fruit and vegetables from flood-ravaged Queensland state. “Prices will be higher in the next week” as the deluge drowns more crops and clogs roads, he said.
The crisis may force the RBA to accept higher inflation in coming months as the floods spur food and commodity costs and slow growth in a disaster zone the size of Egypt. Australian inflation-linked bonds yesterday rallied the most in more than a year as the damage, along with future rebuilding in a country already near full employment, risked stoking consumer prices.
“At a time when the economy does not have a lot of spare capacity and a mining and energy-investment boom is also expected over the next few years, the RBA will face an even greater challenge to manage medium-term inflation pressures,” said Paul Brennan, an economist at Citigroup Inc. in Sydney.
The river that bisects the Queensland state capital, Brisbane, burst its banks, threatening thousands of properties and inundating parts of the nation’s third-biggest city. A torrent of brown water filled with shattered pontoons, trees and boats broken from moorings, the Brisbane River is forecast to peak today.
Bigger Impact
“Now the floods are urban, much greater damage to infrastructure is likely,” Roland Randall, an economist at TD Securities Inc. in Singapore, said in a note to clients yesterday. “We have pushed out our expectation for the RBA to resume tightening monetary policy to April or May” from a previous call of March, he wrote.
As the water crests, investors are increasing bets that price gains will accelerate. The extra yield of Australian inflation-linked bonds maturing in five years compared with nominal five-year government debt — a gauge of the inflation investors expect over the period — yesterday reached an eight- month high of 2.92 percentage points.
The rain that closed coal mines and cut railways also drove the Australian dollar down to a one-month low versus its U.S. counterpart on concern the floods will slow growth.
Hit to GDP
The cost to the nation may total as much as A$13 billion ($12.9 billion), or 1 percent of gross domestic product, said Stephen Walters, chief economist for Australia at JPMorgan Chase & Co. in Sydney, who has changed his forecast for the next rate rise to May from February. RBA board member Warwick McKibbin said such a hit to GDP “is not out of the question,” the Sydney Morning Herald reported yesterday.
Much of the economic damage assessment is incomplete. The Port of Brisbane remained closed yesterday and all ships were directed out of the harbor, which lies 24 kilometers (15 miles) from the city’s central business district, as debris littered the waterway guaranteed payday loans.
Mining companies including Rio Tinto Group, BHP Billiton Ltd. and Xstrata Plc have deferred deliveries of coal, driving up the price for steelmaking and power coal. Thermal coal prices have already risen to the highest since September 2008.
Cattle Prices
Cattle prices in Australia, the second-largest beef exporter, jumped to near a record. The Eastern Young Cattle Indicator, which measures prices at sales, gained to A$4.108 per kilogram yesterday, reaching the highest level since October 2005, Tim McRae, economist at Sydney-based Meat & Livestock Australia said.
Once Stevens does resume raising rates, the rise in borrowing cost would pose an additional burden on farmers and homeowners with floating-rate debt, after the RBA already boosted rates faster than any Group of 20 nation since the end of the crisis.
Stevens has a mandate to keep inflation in a range of 2 percent to 3 percent. In July to September, the consumer price index rose at a quarterly pace of 0.7 percent. It may rise 1.2 percent in the first quarter of this year, according to the median of six estimates in a Bloomberg News survey, compared with a pre-flood estimate of 0.9 percent.
Inflation Outlook
The projected pace would be the fastest since the third quarter of 2008, when the RBA’s cash rate target was at 7.25 percent, compared with its current level of 4.75 percent.
GDP growth in the first three months this year will be half as high as the pre-flood forecast, at 0.4 percent, a survey of seven economists showed.
The reconstruction efforts may suffer from skill shortages already straining mining operations, threatening to push up wages for some workers.
Australian employers probably added 25,000 workers in December from a month earlier and the jobless rate likely declined to 5.1 percent from 5.2 percent, according to the median estimate of 17 economists surveyed by Bloomberg News before an employment report released today.
Bank of America Merrill Lynch economists said the RBA would resume raising rates “from the middle of the year, assuming that weather normalizes in about April.”
An entertainment company controlled by St. Louis Rams owner Stan Kroenke and a Canadian company have bought a 50-percent stake in cable’s World Fishing Network. Altitude Sports and Entertainment, a subsidiary of Denver-based Kroenke Sports Enterprises, partnered with Toronto-based Insight Sports to buy the network. U.S. operations will be based in Denver. Kroenke owns hockey’s Colorado Avalanche and basketball’s Denver Nuggets. He is also the controlling owner of the Rams. (Matthew Hathaway)
Stocks closed barely changed Tuesday amid light trading ahead of the New Year’s holiday.
The blue-chip Dow Jones industrial average finished slightly higher, though stocks had dipped earlier on disappointing consumer confidence and home prices reports.
The Dow edged up after Treasury prices fell in the wake of a weak bond auction in the afternoon. Fewer than expected buyers emerged for the government’s auction of $35 billion five-year bonds. The yield on the 10-year Treasury note rose to 3.49 percent from 3.34 percent late Monday.
The Dow closed the day higher by 20.51 points, or 0.2 percent, to 11,575.54. The Standard and Poor’s 500 index was up 0.97, or less than 0.1 percent, to 1,258.51. The technology-focused Nasdaq composite index lost 4.39, or 0.2 percent, to 2,662.88.
Earlier in the day, the Conference Board announced that consumer confidence in the economy slid to a level of 52.5 in December, down from 54.3 in November, as Americans continued to fret about the high rate of unemployment. The market was expecting a slightly higher reading because of signs of improved consumer spending in the Christmas holiday season this year.
“The spending patterns this Christmas looks better, but unemployment continues to be a big question,” said Kim Caughey Forrest, senior equity research analyst at Fort Pitt Capital Group.
Another factor weighing on the minds of traders is fear that the housing market will continue to fall. Standard & Poor’s/Case-Shiller said Tuesday that home prices fell 1.3 percent in October from a month earlier.
Home prices slid across the country, including the biggest cities. Prices were down 2.9 percent in Atlanta, 2 percent in Chicago, and 1.9 percent in San Francisco.
Energy and materials companies were posting gains as the price of crude oil gained. Chevron Corp. led Dow gainers, rising 1.2 percent to finish at $91.19.
American Express Co. had the largest fall, losing 0.6 percent to $42.79.
In corporate news, General Motors Co. gained 2.1 percent to close at $35.32 after a handful of analysts from investment banks that underwrote the automaker’s IPO initiated coverage with favorable ratings.
Home builder Beazer Homes USA Inc. fell 4.5 percent to $5.37 on the disappointing home prices report.
The dollar slid to a 7-week low versus the Japanese yen Tuesday in thin post-Christmas trading, but rose against the euro and pound.
About 559 million shares changed hands, about half the usual volume on Wall Street. Trading is expected to be light for most of the week as many investors have already closed their books for the year.
Falling shares narrowly outpaced rising ones on the New York Stock Exchange.
Electric car maker Fisker Automotive plans to sell its luxury Karma model in China, teaming up with a local distributor of top auto brands.
Irvine, California-based Fisker has reached an agreement with vehicle retailer and service provider China Grand Automotive Group to sell Fisker vehicles in its more than 200 outlets, which carry such brands as Mercedes-Benz, Lexus and Lamborghini.
The Fisker Karma is due to debut in China at the Shanghai Auto show next April and to begin deliveries by the autumn, the company said in a release seen Thursday on its website. The hybrid sedan has a total range of 483 kilometers (300 miles) and can travel 80 kilometers (50 miles) on electricity alone.
The first factory built Karma debuted at the Paris auto show in October.
“With its vast network of experienced retailers CGA will give Fisker an instant and credible footprint in the region,” said Henrik Fisker, Fisker’s CEO.
He said China’s fast growing market and keenness to reduce smog make it a good potential market for Fisker. Though most Chinese car buyers purchase economy or mid-range vehicles, there is a relatively large and growing pool of affluent car aficionados who opt for flashy luxury sedans and sports cars.
China is promoting use of electric vehicles with subsidies and other incentives, but has yet to construct a widespread system of charging stations and other infrastructure _ one factor behind the relatively low level of interest so far in purchasing electric and hybrid vehicles in a market that is forecast to grow 30 percent this year.
China Grand Automotive, one of five international distributors for Fisker, estimates its 2010 sales at 50 billion yuan ($7.5 billion). The company is a joint venture between Xinjiang Guanghui Industry Investment (Group) Co., a diversified property and energy group, and Texas-based private equity firm TPG Newbridge Capital LLC.
Call it the pregame show for Santa and his elves.
Monday is expected to be the busiest day in FedEx history, with nearly 16 million packages moving on its conveyer belts, trucks and planes. That’s up 13 percent from 14.2 million on the busiest day last year, and double what the company handles on a normal day.
That jump in shipments bodes well for the nation’s retailers, online stores and larger rival UPS, which has its single busiest day next week.
About half of the increase is from the company’s SmartPost partnership with the U.S. Postal Service. SmartPost moves lighter, cheaper packages through FedEx that are then delivered by a postal worker. A growing number of online and catalog purchases is driving growth in that unit and across the company.
Online holiday spending since Nov. 1 is up 12 percent over last year, to nearly $22 billion, according to research company comScore. Last Monday and Wednesday ranked in the top five days for online spending ever, comScore said no fax cash advances.
Consumers are using smart phones and other mobile devices, as well as computers, to buy and ship. Online orders overall are likely to spike again this Friday, which many merchants are promoting as “Free Shipping Day.”
Online spending increases come with modestly brighter prospects for holiday spending in general. Retail experts predict total spending will increase 2 percent to 4 percent compared with last year.
UPS expects its busiest day closer to Christmas, on Dec. 22 when it will move about 24 million packages. That’s 60 percent more than a normal day. The Atlanta-based company will accept packages for Christmas delivery through Dec. 23.
FedEx’s busiest day is the high water mark of a holiday season in which it expects to move 223.3 million shipments worldwide. That’s 86 packages delivered every second from Thanksgiving Day to Christmas Eve. UPS will deliver almost double that
New claims for jobless benefits hit their lowest level in more than two years last week while consumer spending rose for a fourth straight month in October, suggesting the economy is nearing a self-sustaining recovery.
The picture was further brightened by another report on Wednesday that showed consumer sentiment in November reached its highest level since June, likely reflecting the surge in stock prices in the wake of a Federal Reserve decision to loosen monetary policy.
But the upbeat mood was tempered somewhat by unexpected declines in new home sales and orders for long-lasting manufactured goods in October.
“Up to this point I was very reluctant to say we have turned the corner into a self-sustaining expansion. I think we are verging on that,” said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.
Initial claims for state unemployment benefits fell 34,000 to 407,000, the lowest since mid-July 2008, the Labor Department said. That was well below economists’ expectations for a fall to 435,000.
Claims have broken out of lofty ranges that had held for much of the year and are now firmly in territory that economists say suggest solid job creation.
A separate report from the Commerce Department showed consumer spending rose 0.4 percent in October, just a touch below the 0.5 percent rise expected on Wall Street.
STRENGTHENING RECOVERY
The jobs and spending data provided further evidence of a strengthening in economic activity and helped to divert investors’ attention from Ireland’s debt crisis. U.S. stocks rose, while prices for government debt tumbled. The U.S. dollar was little changed against a basket of major currencies.
Spending is expected to get a boost this Friday, the traditional start to the holiday shopping season.
Consumers’ willingness to open their wallets was highlighted in upscale jeweler Tiffany & Co’s quarterly results, which beat Wall Street forecasts.
“It looks like Christmas is coming this year after all, and holiday spending will be the best since 2006,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ in New York.
Although spending increased last month, inflation continued to slow, helping to deflect criticism of the Fed’s decision to pump more money into the economy by buying an additional $600 billion worth of government debt no checking account payday advance.
The consumer spending report showed the Fed’s preferred core inflation measure slipped to just 0.9 percent when measured from year-ago levels, the smallest gain on records dating to 1960. Fed officials, who are worried an unexpected shock could tip the economy into a troubling deflation, want to see inflation running around 1.7 percent to 2 percent.
SENTIMENT RISES, BUT HOME SALES, PRICES FALL
Economists attributed the rise in the Thomson Reuters/University of Michigan’s final November consumer sentiment index to both improving labor market conditions and the lift stocks received from the Fed’s so-called quantitative easing. The index reached 71.6 this month, up from 67.7 in October.
“It does look like the launch of quantitative easing is coinciding with a turning point in the U.S. economy. Can we say there is a direct one-to-one correlation, I don’t think we can say that yet, but the timing sure looks good,” said PNC Financial’s Dye.
But an 8.1 percent drop in new homes sales to a 283,000 unit annual rate last month was a reminder of the risks to the recovery from the worst recession since the 1930s. The median new home price fell a record 13.9 percent from September to the lowest level since October 2003.
The Commerce Department also said durable goods orders slipped 3.3 percent, the largest decline since January 2009. Excluding transportation, orders dropped 2.7 percent, the biggest fall since March 2009.
Though economists were reluctant to read too much into the data given its volatile nature and the fact that the decreases followed big gains in September, they were worried that the drop in orders was almost across the board.
More concerning, non-defense capital goods orders excluding aircraft — a closely watched proxy for business spending — dropped 4.5 percent after rising 1.9 percent in September.
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