What began with a steep drop in the stock market ended with a modest decline Thursday. The Dow Jones industrial average lost just 60 points after being down nearly 240 points earlier in the day.
A jump in the number of people applying for jobless benefits and plummeting oil prices drove stocks lower at the market open. By 11 a.m., the Dow was down 234 points. Then came late afternoon reports that Greece may have reached a deal for a new austerity plan. The Dow made up nearly 100 points between 2:45 and 3 p.m. alone.
The Dow finished with a loss of 59.67 points, or 0.5 percent, to 12,050. The Standard & Poor’s 500 index, down as many as 24 points, closed down just 3.64, or 0.3 percent, to 1,283.50.
Since late April, reports on manufacturing, retail sales, home sales and other economic indicators have come in weaker than economists anticipated. Europe’s debt problems and a slowing growth rate in China have also raised concerns about the global economy. On Wednesday, Federal Reserve Chairman Ben Bernanke said problems plaguing the economy may last longer than previously thought.
As a result, the stock market has fallen six of the last seven weeks. The S&P 500 is down 5.9 percent from its high for the year of 1363.61 in April.
“This is no longer looking like a small soft patch. It’s beginning to look more like quicksand,” said Lawrence Creatura, a stock portfolio manager at Federated Investors.
The continued rise in first-time claims for unemployment benefits indicated little improvement in the job market since May, when there was a drop in the number of new jobs created. New applications for unemployment benefits rose to 429,000 last week, from 420,000 the week before.
“400,000 is the magic number and we’ve been above it for 11 weeks,” Creatura said.
Energy companies like Exxon Mobil and Chevron Corp. led the market downward after oil prices tumbled nearly 5 percent. Oil dropped after the International Energy Agency said 60 million barrels of oil would be released from reserves to make up for the loss of Libyan exports. Oil prices had spiked following unrests in Middle East and North Africa, raising concerns that higher fuel costs would slow the world economy.
Companies like Netflix, Priceline.com and others in the consumer discretionary industry were mostly up guaranteed payday loans. Overall, the group rose 0.4 percent. Investors are betting that a drop in oil costs could lead consumers to spend more money on things like movies, restaurants and clothing. Netflix was up 2.9 percent. Chipotle Mexican Grill gained 2.2 percent.
Companies that benefit from lower fuel costs also rose. Airline stocks like United Continental Holdings Inc. and AMR Corp, the parent company of American Airlines, rose more than 4 percent.
The two indexes most tied to economic growth fared better than the broader market. The tech-focused Nasdaq composite index was up 17.56, or 0.7 percent, to 2,686.75. And the Russell 2000 index of small companies gained 0.4 percent. For the week, both are up 2.7 percent.
“We’re starting to see that the supply-chain disruptions caused by the tragedy in Japan are easing a bit, and the biggest beneficiaries of that are technology and auto-supply companies” which tend to be smaller businesses, said Burt White, the chief investment officer at LPL Financial.
Among the most active stocks, Bed Bath & Beyond gained 5.3 percent after the home furnishings retailer posted a 31 percent jump in income. The company also raised its earnings forecast for the rest of the year, in part because of cost controls it has in place. ConAgra Foods Inc. fell 0.2 percent. The owner of Slim Jim and Hebrew National brands cut its earnings estimate for the current quarter.
Government bond prices were higher as traders shifted money into investments that are considered safe, pushing long-term interest rates lower. The yield on the 10-year Treasury note sank to 2.90 percent, near its low mark for the year. Bond yields fall when their prices rise.
Even so, portfolio manager Creatura says that the recent market slide could represent a chance to pick up some stocks on the cheap. Current prices already reflect reaction to most of the economy’s problems, he says. “The most fearful times can be the best times to invest,” he said. “It’s not only what you buy, it’s the price you pay that matters.”
Three stocks fell for every two that rose on the New York Stock Exchange. Volume was slightly above average at 4.4 billion.
China registered new concern Friday over the fate of its top trading partner, the embattled eurozone, saying the ability of stricken countries to overcome their financial woes is of “crucial importance.”
China’s support in terms of buying European debt and promoting imports is beneficial to both sides, Vice Foreign Minister Fu Ying told reporters at a briefing ahead of Premier Wen Jiabao’s visit next week to Hungary, Britain and Germany.
But she expressed some anxiety over the fate of the eurozone. Greece is at risk of defaulting on its debt even after a massive bailout, and European leaders fear the country’s problems could hurt other struggling economies that use the euro, including bailed-out Ireland and Portugal.
“Whether some European countries can overcome their difficulties and recover from the crisis is of crucial importance for China,” Fu said.
“Therefore since the advent of the financial crisis, China has on one hand been trying to stimulate our economy and overcome the impact of the crisis, while on the other hand provided support to European countries in their efforts to overcome the financial crisis,” she said.
China has supported highly indebted European countries, offering last year to buy Greece’s debt and reportedly pledging to buy $4 billion in Portuguese government debt.
While China has been quiet on how much money it will actually invest, the pledges from Beijing have temporarily taken some pressure off European debt markets.
No agenda has been announced for Wen’s visit, although the European debt crisis is expected to be a major topic of discussion.
Top on the list could be Greece, where rioters have clashed with police in Athens over proposed austerity measures and coalition talks between Greece’s government and opposition parties have collapsed, renewing fears of a government debt default.
Federal Reserve Bank of Kansas City President Thomas Hoenig, the central bank’s longest-serving policy maker, said the U.S. needs to raise interest rates to encourage individuals to save and avoid future asset bubbles.
Hoenig, who doesn’t vote on monetary policy this year, has repeatedly urged the central bank to tighten lending to prevent inflation and asset price bubbles. He voted eight times in 2010 against record monetary stimulus led by Chairman Ben S. Bernanke, tying former Governor Henry Wallich’s record in 1980 for most dissents in a single year.
The Fed cut its benchmark rate to zero to 0.25 percent in 2008 to boost economic growth and will keep it unchanged until the first quarter of 2012, according to the median estimate in a Bloomberg survey of economists and analysts.
“I’m not advocating for tight monetary policy, but I do think we have to get off of zero if we want to avoid repeating some of the mistakes of the past with a very easy credit environment,” Hoenig said in an interview on CNN’s “Fareed Zakaria GPS” show scheduled for broadcast today.
Fed officials are discussing how quickly to begin tightening policy after completing the purchase of $600 billion in U.S. Treasuries by the end of June. They are also considering a strategy for how to remove stimulus, with a majority favoring ending the policy of reinvesting proceeds from maturing securities first before raising interest rates or selling assets, minutes of their April 26-27 meeting showed.
Spending Encouraged
Leaving the Fed funds target at its current level encourages consumers to spend at a time when the U.S. needs higher savings rates to ensure long-term prosperity, Hoenig said in the CNN interview pay day advance.
The savings rate held at 4.9 percent in April, the Commerce Department said, the lowest level since October 2008.
The Fed under Chairman Alan Greenspan kept interest rates at 2 percent or less from December 2001 to December 2004. The savings rate averaged about 3.4 percent during that period, compared with 5.4 percent in the previous two decades, and fell to 0.8 percent in 2005, the lowest level since at least 1959, according to Commerce Department data. Defaults on home loans to the riskiest borrowers in 2007 and 2008 triggered the worst recession and financial crisis since the 1930s.
“We kept the interest rates too low,” Hoenig, who served on the Federal Open Market Committee that sets interest rates, said of those years in the CNN interview. “It’s not that I want to point blame to myself or anyone else, but I do have to say this is what happened, what were the consequences and what have I learned from it and — and adjust policy the next time going forward.”
Bernanke, speaking on April 27 at a press conference, signaled that the central bank will maintain its record monetary stimulus after June and indicated that the need to contain inflation means further easing is unlikely.
Hoenig plans to retire from the central bank in October after 20 years as leader of the Kansas City district bank.
“If we want to be a great nation, continue to be a great nation, then we do have to address our fiscal challenges,” Hoenig said in the CNN interview, according to an advance transcript of his remarks.
China ranks first among 22 emerging Asian economies as the country most likely to maintain steady and rapid growth over the next five years, according to the Bloomberg Economic Momentum Index for Developing Asia.
China scored 76.2 percent in a ranking of 16 areas including economic competition, education level, urban migration, high-technology exports and inflation that measure a country’s ability to continue delivering high growth. India was second with a score of 64.1 percent followed by Vietnam at 61.9 percent. Timor-Leste was last at 25.3 percent.
The index suggests China and India’s economic surge is durable and will likely continue to drive global growth as the U.S., Europe and Japan lag behind. China eclipsed Japan last year as the world’s second-largest economy.
“I am not surprised that China comes out on top on this metric, and China probably should be placed on top among emerging Asian economies,” said Victor Shih, a professor who studies China’s financial system at Northwestern University in Evanston, Illinois.
In the past 30 years, China’s economy has expanded on average by 10 percent a year as it overhauled state-owned companies and allowed more foreign investment. Among economies with annual gross domestic product above $1 trillion, India posted the second-highest growth rate after China last year, expanding by 8.2 percent in the last quarter of 2010.
The Organization for Economic Cooperation and Development forecasts U.S. economic growth of 2.6 percent this year, 2 percent for the eurozone and a 0.9 percent contraction for Japan.
China Shocks
Shih said the measure may overstate China’s rank relative to India’s and other countries, in part because Chinese official figures understate debt levels overnight pay day loans.
China could face economic and political shocks that would impact on its growth. Fitch Ratings said in March that China faced a 60 percent chance of a banking crisis by mid-2013 in the aftermath of record lending and surging property prices. Strikes, riots and protests are also on the rise, doubling in five years to 180,000 incidents last year, according to Sun Liping, a sociology professor at Beijing’s Tsinghua University.
The index put some countries with among the world’s highest growth rates in the past several decades, including Malaysia and Thailand, behind such countries as Vietnam, which ranked third, and Bangladesh, which ranked fifth.
Equity Markets
The index gives weightings of 10 percent each to four categories: the competitiveness of market structure, which rewards countries for having fewer big companies that dominate equity markets; the quality of the labor force, including education levels, the age of the work force, and the growth rate of scientific journal publications; gross national savings as a percentage of GDP; and the growth of high-technology exports.
A further 12 areas have 5 percent weightings, including growth in GDP per capita adjusted for the cost of living, growth in world share of GDP, stability of inflation rates, diversity of top trading partners, external and public debt burdens, lending costs, net foreign direct investment and deforestation. Four “cohesiveness factors” include ethnic and religious homogeneity, income equality, rates of urbanization and poverty reduction, and variation in the jobless rate.
A military spokesman in Ivory Coast says that French helicopters were fired upon during an evacuation mission by forces supporting the country’s strongman, who refuses to emerge from a bunker at his residence.
Cmdr. Frederic Daguillon, military spokesman for the French base in Ivory Coast, said Saturday that no soldiers were injured in the attack, but that French helicopters fired back at forces supporting Laurent Gbagbo and destroyed at least one armored vehicle payday advance lender.
He said the diplomatic evacuation mission was aborted.
France’s embassy was also hit by two mortars and a rocket fired by Gbagbo’s forces.
Forces supporting the democratically elected president have tried to force Gbagbo from his bunker but he refuses to emerge or cede power.
Thailand’s economy strengthened in the fourth quarter on exports and consumer spending, capping the fastest annual expansion in 15 years and adding to the central bank’s case to raise borrowing costs further.
Gross domestic product rose 1.2 percent from the previous three months, the National Economic and Social Development Board said in Bangkok today. That compared with a revised 0.3 percent decline in the third quarter, which reflected a mid-2010 slump stemming from political unrest and flooding, and the 0.9 percent median estimate in a Bloomberg News survey of 10 economists.
The Bank of Thailand is poised to extend interest-rate increases after saying inflation is a threat, as counterparts from Indonesia to China also strive to damp jumps in the cost of living. Prime Minister Abhisit Vejjajiva has raised the minimum wage and will boost civil service pay, which may push up prices ahead of an election he plans to hold by the end of June.
“A recovery in developed economies toward the year-end supported external demand and export-oriented countries like Thailand will continue to see benefit from that,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo.
The baht climbed 0.1 percent to 30.56 per dollar as of 11:06 a.m. in Bangkok from Feb. 17 and has risen about 3.2 percent in the past six months, the least apart from the Hong Kong dollar and Indonesia’s rupiah in a basket of 10 major Asian currencies tracked by Bloomberg, excluding the yen.
Asian Tightening
On a year-on-year basis, the expansion slowed to 3.8 percent from a revised 6.6 percent advance in the three months through September. Growth also eased last quarter from a year earlier in neighbor Malaysia while quickening in Indonesia, the Philippines and Vietnam. Thailand has joined Indonesia, South Korea, India and China in boosting borrowing costs this year.
The central bank is expected to raise rates further to tame price pressures, Arkhom Termpittayapaisith, secretary-general at the development board, told a news conference in Bangkok today.
Economic “growth momentum will continue this year,” supported by the global recovery, rising incomes and agricultural prices, Arkhom said, adding the board assumed borrowing costs would rise a total of 1 percentage point in 2011 so that they exceed the pace of inflation.
The agency raised its consumer-price growth forecast for this year to a range of 2.8 percent to 3.8 percent from the 2.5 percent to 3.5 percent estimated in September. The board said the baht would trade from 29.5 to 30.5 per dollar in 2011.
Rising Rates
Private consumption rose 3.8 percent last quarter from a year earlier, manufacturing expanded 4.8 percent and total investment advanced 6.4 percent, according to today’s report payday loans for bad credit.
Exports climbed 22.3 percent in January from a year earlier and may gain 15 percent in the first quarter of 2011, the commerce ministry said separately today.
The Bank of Thailand raised its one-day bond repurchase rate for the fourth time in seven months on Jan. 12, by a quarter of a percentage point to 2.25 percent.
Stocks and bonds across Asia have declined this year amid concern that accelerating inflation will erode purchasing power and spur further rate increases. The MSCI Asia Pacific Excluding Japan Index is down approximately 1.3 percent. Asian local- currency bonds have lost about 0.2 percent, based on an index compiled by HSBC Holdings Plc.
Central bank Governor Prasarn Trairatvorakul said last month the monetary authority needs to raise rates to damp inflation. Consumer prices increased 3.03 percent in January from a year earlier, compared with 3 percent the previous month.
Political Risk
The economy grew 7.8 percent last year, the strongest pace since 1995, today’s report showed. The development board, also known as the state planning agency, maintained its 2011 growth forecast of 3.5 percent to 4.5 percent. The agency, the finance ministry and the central bank release separate projections.
Disputes over the outcome of the last election in 2007 have fueled protests in the country of 67 million citizens, killing about 100 people and souring the investment climate. The government said this month a vote will be held within the first half of 2011, as Abhisit moves to ease the political turmoil.
“Politics remains the main question mark for the Thai economy. It’s very hard to predict what will come out,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG.
Still, rising private consumption backed by higher agricultural prices will help the economy expand 4.6 percent this year, according to the company’s projections. Government efforts to boost incomes and curb costs will help, he said.
Abhisit increased the minimum wage last month and will raise the salaries of civil servants in April. The administration subsidizes the cost of diesel, cooking gas and electricity, and in January approved price controls on 39 products including pork and eggs.
Consumer confidence is rising, climbing for the second consecutive month in January. Central Group, controller of the nation’s biggest operator of shopping malls, said this month it plans to lift investment by 57 percent to tap into higher consumer spending. Sentiment fell in November after the worst flooding in five decades affected a 10th of the population.
Some Chinese banks have raised lending rates to as much as 1.45 times benchmark levels in response to government calls to rein in credit growth, the official China Securities Journal reported today.
One large commercial lender has told branches to charge between 1.1 and 1.45 times the rate, depending on which industries borrowers are in, the newspaper said, citing an unidentified official from the bank. The key one-year borrowing cost is 5.81 percent. The report didn’t name the lender.
The surge in lending typical of the start of each year may be hampering government efforts to rein in liquidity, cool inflation and prevent asset bubbles. This month’s loans reached 1.2 trillion yuan ($182 billion) by Jan. 24, according to a China Business News report today citing an unidentified person. That would compare with 481 billion yuan last month.
“The central bank is reining in liquidity more aggressively this year to prevent a surge in loan growth from fueling liquidity and inflation,” said Lu Ting, a Hong Kong- based economist at Bank of America-Merrill Lynch. Acting now may avoid the need for “aggressive tightening later in the year,” Lu said.
The China Securities Journal report didn’t specify the duration of the loans that the increased rates apply to.
ICBC, Bank of China
At Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, Beijing-based press officer Xie Taifeng said he’s not aware of any increase in rates.
“The process of setting the lending rate is market based, our headquarters doesn’t give specific instructions to branches on that,” Xie said.
No comment was immediately available from Bank of China Ltd. or China Construction Bank Corp.
Higher lending costs may encourage some companies to sell bonds rather than borrow from banks, said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. He also said that a “liquidity shortage” may persist for the coming month.
China’s benchmark money-market rate jumped to the highest level since October 2007. The seven-day repurchase rate, which measures lending costs between banks, advanced 17 basis points to 7.82 percent, the highest level since Oct. 26, 2007, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center. A basis point is 0.01 percentage point.
‘Abnormal’ Loan Growth
Officials raised interest rates twice in the fourth quarter and have also ratcheted up banks’ reserve requirements. Premier Wen Jiabao has pledged to prevent “abnormal” loan growth.
The China Securities Journal also reported that the unidentified large commercial lender had increased rates for property loans and scrapped or partly removed special rates for preferred clients.
The central bank has told banks not to lend more than 12 percent of their annual loan target in January, the newspaper said, citing another unidentified bank official. Some banks’ lending may have exceeded monthly quotas within the first two weeks of the year, the official said.
Lending totaled 7.95 trillion yuan last year, breaching a government target of 7.5 trillion yuan. Inflation has topped 4 percent for each of the past three months and may peak at 6 percent this month, according to a Daiwa Capital Markets.
The central bank caps the interest that banks can pay on deposits and sets a floor on borrowing costs of 90 percent of the benchmark one-year rate.
–Li Yanping, with assistance from Eva Woo. Editors: Paul Panckhurst, Stephanie Phang.
To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net
General Electric Co. says its fourth-quarter income increased 52 percent on strong growth in equipment orders. It also cites improvement in its lending business.
The industrial and financial giant on Friday reported net income of $4.46 billion, or 42 cents per share, for the final three months of the year. That compares with $2.94 billion, or 28 cents per share, for the same part of 2009.
The company says earnings from continuing operations were 36 cents a share. That tops analyst’s expectations for earnings of 32 cents per share.
Its revenue increased 1 percent to $41.4 billion from a year ago. That beats Wall Street expectations for revenue of $40.3 billion.
Orders grew 12 percent year-over-year overall, including a 20 percent increase in equipment orders and a 5 percent expansion in services. Orders grew 4 percent at GE’s energy infrastructure business, and the total company backlog increased to a record $175 billion.
If 2011 is hinting at a national recovery, there is little sign of it in statehouses across the country.
States that already have raided their reserve funds, relied on borrowing or accounting gimmicks, and imposed deep cuts on schools, parks and public transit systems no longer can protect key services in the face of another round of multibillion dollar deficits.
As governors roll out their budget proposals and legislatures convene this month, they do so amid a sputtering economic recovery and predictions of slow growth for years to come. State and local governments face lackluster revenue projections, worries from Wall Street over looming debt and the end of federal stimulus spending.
In the first weeks of 2011, Republican and Democratic governors alike have begun detailing across-the-board pain for education, health care, transportation, public safety and other programs. Some say the year of reckoning for state and local governments is at hand, with calls for structural changes that could radically shift expectations of what services government provides.
Many believe the months ahead will be the most challenging in memory, with consequences for millions who depend on government funding.
“We need to send a message to the governor: We’re real, and we depend on all these services,” said Sergio Garibay, a 41-year-old Southern California resident who relies on state disability payments and recently protested deep cuts to Medi-Cal programs proposed by California Gov. Jerry Brown. “There are other alternatives to the budget. Why don’t we tax the rich, these corporations?”
In releasing his budget proposal, Brown told California lawmakers “the year ahead will demand courage and sacrifice” as the state faces a deficit projected to hit $25.4 billion over the next 18 months. His proposal combines spending cuts to Medi-Cal, in-home services for the elderly and higher education with a five-year extension of income, sales and vehicle taxes.
New York Gov. Andrew Cuomo proposed eliminating 20 percent of state agencies by combining duties, such as merging the Insurance Department, Banking Department and the Consumer Protection Board into the Department of Financial Regulation. It’s part of “radical reform” to pull his state out of its fiscal crisis. And Gov. Chris Christie in New Jersey skipped a $3.1 billion payment to the state’s pension system in a push to cut benefits for public workers, while proposing higher employee contributions and a boost in the retirement age from 62 to 65.
In Illinois, lawmakers voted for a dramatic 66 percent hike in personal income tax, from 3 percent to 5 percent, in a bid to resolve a $15 billion deficit, which amounts to more than half of the state’s entire general fund. The tax increase will be coupled with strict 2 percent limits on spending growth.
“It’s important for their state government not to be a fiscal basket case,” Gov. Pat Quinn in defending the major tax hike.
And on and on it goes:
_ In oil-rich Texas, where education and social service spending is relatively low and Republican Gov. Rick Perry has railed against government spending, hard times are looming. The shortfall is projected to be between $15 billion and $27 billion over the coming two-year budget cycle.
_ In South Carolina, outgoing Gov. Mark Sanford has proposed a spending plan that would end funding for museum and arts programs, slash college funding and give many state employees a 5 percent pay cut.
_ In Georgia, deep cuts appear to await the state’s popular HOPE scholarship program that provides public college tuition to students who earn good grades. Rising tuition and enrollment have outpaced the lottery revenues that fund the program and Gov. Nathan Deal has not proposed any additional state money to bail it out.
Even as tax revenue in many states shows signs of a rebound, states are expected to collect 6.5 percent less than they did in 2008, according to the National Association of State Budget Officers.
And any revenue gains could be more than offset by the expected loss of federal stimulus money. Most of the $814 billion stimulus program was designed to help states provide essential services and give a boost to the economy, but will start to run out this summer. A new round of stimulus funding is unlikely with Republicans controlling one house of Congress. Top GOP lawmakers say they will try to provide states with relief by reducing mandated programs, not by giving them more money.
“States came into this recession with relatively large rainy day funds. Now that states have done the accounting gimmicks and the relatively easier stuff, each year gets harder and harder because those one-time things are gone,” said Nicholas Johnson, director of the state fiscal project at the Center for Budget and Policy Priorities, a think tank in Washington, D.C.
Despite lower tax revenue since the recession began, the level of service expected from state and local governments remains, often creating a disconnect between public perception and the reality of the fiscal crisis confronting elected officials.
Public schools face rising enrollments, more people are seeking government health care because they have lost jobs or their employers have dropped coverage, and millions of those thrown out of work are receiving unemployment checks.
One possible solution is revising tax structures, even with an anti-tax mood persisting across much of the nation.
In Georgia, some lawmakers are considering a 4 percent state sales tax on groceries and boosting the tax on cigarettes as part of an overhaul of the state’s outdated tax code. The increases would be paired with reductions in the personal and corporate income taxes.
But any proposal for tax increases will run into opposition from Republicans, who were swept into office in large numbers last fall on a message of reducing the size and reach of government.
Republicans picked up 690 state legislative seats Nov. 2 _ the largest shift since 1966, according to data compiled by the national legislative group. The GOP now controls both chambers of the state legislature as well as the governorship in 21 states.
“When you’ve got an unemployment rate at 10 percent, I don’t think that’s a good time for us to tell Georgians that we need more of their money,” Georgia House Speaker David Ralston said. “I’m going to resist that again this year.”
As states struggle to balance their books, Wall Street is watching rising debt burdens, although analysts so far have not sounded many alarms. Federal law does not allow states to file for bankruptcy protection, but states can default on their debt if their financial condition worsens considerably.
That move is extremely rare. Arkansas was the last state to default on its debt payments, a move it took during the Great Depression. Moody’s predicts that no state government will default on its debt in 2011.
Moody’s Managing Director, Naomi Richman, said states generally borrow for long-term infrastructure projects. They don’t usually borrow to pay debt and fund operating budgets. Those that have, including California, Illinois and Arizona, already have been penalized with low credit ratings, which increases their borrowing costs.
It’s possible, however, that more cash-strapped cities and counties could seek bailouts from states, as Harrisburg sought help from the commonwealth of Pennsylvania.
“I think you’re more likely to see it cascade up, rather than down,” said Steve Malanga, a senior fellow at the Manhattan Institute, during a discussion about state budgets at George Mason University.
Kail Padgitt, an economist with the nonpartisan, nonprofit Tax Foundation, said the states with the greatest concerns about their fiscal health are those with costly public employee pensions that are underfunded.
Many public pension systems use overly optimistic rates of return and do not provide a true, long-term cost to taxpayers. Padgitt cited a recent study by the Pew Center on the States that found states face a $1 trillion funding shortfall in public-sector retirement benefits, but said that likely underestimate the problem.
“The long-term outlook is quite bad,” Padgitt said unless states begin to make pension reforms.
Matt Hanson, 50, a civil engineer who has worked for California’s transportation department for 22 years, said he understands that public pension systems could use adjustments but he believes pensions are fundamentally sound. For example, he said he’s open to contributing more to cover retiree health care costs, which have been rising.
“If there’s some shared pain that has to be felt than I want it to be constructive,” Hanson said. “There’s a difference between going out for a run and feeling pain right after _ at least you’ll be in better shape in the long run, rather than hitting your hand with a hammer. Pain for pain’s sake doesn’t make a lot of sense.”
____
McCaffrey reported from Atlanta. Associated Press writer Robert Jablon in Los Angeles contributed to this report.
Waste Management Inc. turned to a staffing company, Seaton Corp., to recruit 5,500 permanent employees this year, cutting annual hiring expenses for the trash hauler by $1.9 million.
Using Seaton has been “much more scalable and flexible for me than to have to find recruiters and get them on board, which may take weeks, if not months,” said Brent McCombs, Waste Management’s vice president of talent. It’s a “relatively risk- free way” to expand.
While U.S. hiring by private companies last month was the weakest since January at 50,000, the staffing industry is experiencing a boom in demand as employers retool their workforces to be more flexible and reduce expenses. That’s helped stocks of these businesses outperform the broader market, with the Standard & Poor’s Supercomposite Human Resources & Employment Services Index rising 47 percent since August 31, compared with 19 percent for the S&P 500 Index.
Some employers who shrank their human-resource staffs during the recession now lack the recruiters to ramp up hiring even modestly, said Tobey Sommer, a staffing analyst at SunTrust Robinson Humphrey, a unit of SunTrust Banks Inc. in Atlanta. He recommends buying Robert Half International Inc., Kforce Inc. and Korn/Ferry International.
“What we are seeing right now in HR departments is a microcosm of the shift to a more flexible labor force” and “more variable cost structure,” said Sommer, who is based in Nashville, Tennessee.
John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, agrees.
‘Fundamental Change’
“There is a fundamental change under way in the hiring habits of companies, who are not very sure about the strength of final demand and the strength of the economy,” said Silvia, who predicts the unemployment rate will reach 10 percent early next year compared with 9.8 percent in November, even as he has raised his forecast for fourth-quarter growth to 3.5 percent from 2.6 percent. “This certainly suggests more caution.”
Revenue from permanent job placements rose 33 percent in the third quarter at Menlo Park, California-based Robert Half, 50 percent at SFN Group Inc. in Fort Lauderdale, Florida, and 61 percent at Tampa, Florida-based Kforce, according to the companies.
Such outsourcing may expand 40 percent overall next year, said Elliot Clark, chief executive officer of SharedXpertise Media LLC, which held a trade show Dec. 7-8 in Las Vegas for companies interested in contracting out recruiting. The event attracted 270 attendees, up 23 percent from a year earlier, said Clark, a former staffing-industry executive.
‘Wheeling and Dealing’
So many people were “doing deals around the tables,” it was difficult to get them to attend the formal meetings, he said. “There was a lot of wheeling and dealing going on.”
Houston-based Waste Management, which has more than 45,000 employees, cut hiring and employment-advertising costs by consolidating recruiting through Chicago-based Seaton starting in 2008, McCombs said cash advance companies. Openings have been filled in less than a month compared with more than 50 days in 2007, thanks partly to the new process and the weaker economy, he said.
“We have shown a massive improvement,” especially in finding drivers, a career field with continuing strong demand, McCombs said.
Staffing companies are gaining clients even as the unemployment rate remains near a 26-year high. The labor market may not return to normal for five years, Federal Reserve Chairman Ben S. Bernanke said in an interview broadcast Dec. 5 on CBS Corp.’s “60 Minutes” program.
Continuing Recovery
“The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment,” the Federal Open Market Committee said in its Dec. 14 statement.
Fourteen percent of U.S. employers plan to add to their staffs in the first quarter, while 10 percent anticipate reductions, according to a survey released this month by Manpower Inc. While the survey shows that demand is the highest since 2008, the pickup in hiring will be “slight,” Manpower said.
The jobless rate is likely to average 9.4 percent in 2011 and 8.7 percent in 2012, according to a Bloomberg News survey of economists this month.
Some businesses that are adding employees say outside recruiters may not be able to find people who are the best fit. While Intel Corp., the world’s largest chipmaker, is testing a “pilot program” of outsourcing, the Santa Clara, California- based company has maintained most hiring responsibilities, spokeswoman Gail Dundas said.
“Intel is a complex company with a unique culture, and we have found the best model for us” is “retaining our internal recruiting staff,” she said.
Hiring 500
Tarrytown, New York-based Regeneron Pharmaceuticals Inc. has had a more positive experience with staffing firms. The biotechnology company wasn’t “particularly efficient at hiring,” so it turned to Kenexa Corp. to help it find 500 people this year, more than doubling its staff to 1,500 since 2008, said Ross Grossman, vice president for human resources.
“We have reduced the cost per hire by about half,” Grossman said. Kenexa, based in Wayne, Pennsylvania, also designed a program to help recruit scientists who “really fit into the Regeneron culture,” where researchers are urged to shun bureaucracy and come up with new approaches.
The ad campaign, “Five Reasons You Do Not Want to Work for Us,” has been a hit with scientists, Grossman said. “It is about more than cost savings.”
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