2008-07-08T18:34:29-06:00 ExpressionEngine Copyright (c) 2008, Staff tag:therochesterdemocrat.com,2008:ee/index.php/38.43465 2008-07-08T18:32:00-06:00 2008-07-08T18:34:29-06:00

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2008-07-08T18:32:00-06:00 Staff editor@TheRochesterDemocrat.com Housing Sales are expected to begin to improve in the second part of the year


BBC NEWS | July 8, 2008


The number of homes sold in the US fell more than expected in May, down 14% compared with the same month last year.

Figures from the National Association of Realtors (NAR) also showed an uneven picture across the country.

Sales in southern states were down 22.1%, whereas sales contracts in the west were 2% higher than in May 2007.

Lower prices were attracting some buyers back into the market, the NAR said, but the downturn is expected to continue for some months to come.

"You are going to see this trend for a while," said Bob Moulton of American Mortgage Group.

"People are nervous about their jobs, they are nervous about getting [a mortgage] approved and they are nervous about paying too much for a house."

There were, however, positive signs from Colorado and California where estate agents reported double-digit growth in Colorado Springs and Sacramento.

"Some markets have seen a doubling in home sales from a year ago, while others are seeing contract signings cut in half," said NAR chief economist Lawrence Yun.

The sales of new homes have been particularly badly hit, with sales expected to be almost a third lower this year compared with 2007.


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2008-07-08T16:55:00-06:00 Staff editor@TheRochesterDemocrat.com Business


By CHARLES DUHIGG
NY Times
Published: July 8, 2008


As home prices decline and Washington struggles to end the economic malaise, Wall Street is starting to send a sobering message: The worst is yet to come.

One of the strongest warning signs came Monday, when shares of the nation’s most important mortgage companies, Fannie Mae and Freddie Mac, plummeted. After falling almost continuously over the past month, in just one day Freddie Mac tumbled another 18 percent, and Fannie Mae lost 16 percent amid concerns that the companies would need to raise billions of dollars in fresh capital.

Fannie Mae and Freddie Mac are the nation’s largest buyers of home mortgages, and traditionally the government’s backstop for the housing economy. But with Monday’s plunge, each of these giants has now lost more than 60 percent of its market value this year. The declines, along with a falling stock market and growing unease about the possibility of more red ink at big banks, reflect a growing conviction consensus among investors that the current housing slump will last longer, and prove more severe, than initially feared.

As a result, investors are signaling that they are far from convinced that any enterprise — even ones with the strongest backing — can successfully navigate these choppy waters, and that those who do survive will pay dearly.

“Everything points to a lot more bad news to come,” said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. “If Fannie and Freddie are vulnerable, it means no one is absolutely safe.”

Representatives of Freddie Mac and Fannie Mae declined to comment on their stocks’ performances on Monday. Freddie Mac closed at $11.91, the company’s lowest price since 1994. Fannie fell to $15.74, its lowest level since 1992.

The stocks’ dips were part of a broad decline in financial shares. Shares of Bank of America and JPMorgan Chase fell more than 3 percent, and the Dow Jones industrial average ended a tumultuous day down half a percent.

The decline in Freddie Mac and Fannie Mae comes at a delicate time for the financial markets. In coming weeks, many of the nation’s largest financial institutions — including Citigroup and Merrill Lynch — will report results that investors worry will be disappointing. Lehman Brothers, which some on Wall Street worry might run into trouble similar to that at Bear Stearns, continues to struggle to restore confidence among investors. Lehman’s share price fell almost 8 percent on Monday.

If banks’ results are as gloomy as anticipated, the news could depress other sectors of the stock market and further sap consumer confidence, which is already battered by rising oil costs, mounting credit card defaults and prices that are rising because of spiraling energy costs and a weakening dollar.

Worldwide, banks and brokerages have written down the value of the assets they hold, notably those linked to mortgages, by more than $400 billion since the beginning of last year. In April, the International Monetary Fund said total losses for banks, insurance companies and investment funds may reach $945 billion, and some forecasters say the bill could be even higher.

“The economic story has gotten worse and worse and worse, and every financial institution seems like it’s in freefall,” said Steven D. Persky, chief executive at Dalton Investments in Los Angeles, which manages about $1 billion. “It’s not clear at all when this ends.”

The gloomy news also threatens to further shrink Washington’s influence has over the economy. Legislators are widely expected to approve a housing rescue bill by the end of the month. That legislation will overhaul the regulatory structure for Freddie Mac and Fannie Mae, which are government chartered enterprises, and will force the two companies to hand over hundreds of millions of dollars each year to refinance troubled home loans.

But the reform legislation will also likely bolster the odds that taxpayers will foot the bill if either company falters.

“If Fannie or Freddie ever became critically undercapitalized, their regulator would have no choice but to put in place a taxpayer rescue,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company.

To ward off that possibility, in recent weeks Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. have both urged Freddie Mac and Fannie Mae to raise additional capital from investors.

But as share prices at the companies have declined, raising new funds has become increasingly difficult. Freddie Mac, for instance, announced on May 14 that it intended to sell $2.75 billion in new common stock to investors. Since then, the company’s stock price has declined by 56 percent.

As a result, Freddie Mac will have to issue more than twice as many shares to raise the new funds. When those new shares hit the market, they are likely to further push the company’s stock price down, and make it even harder for Freddie Mac to recover when the market eventually rebounds.

Similar problems are likely to plague investment banks and other financial firms also hoping to raise new money. So, as the housing market declines, there are new concerns that the financial spigot that keeps Wall Street and the economy afloat may be closing.

It is unclear precisely why Fannie Mae and Freddie Mac suffered so greatly on Monday. Early in the day, analysts at Lehman Brothers estimated that a proposed change in accounting rules would require the companies to raise about $75 billion in additional capital — an enormous sum for two firms that have already asked investors for $25 billion since last December.

But other analysts disputed Lehman’s conclusions, and even the Lehman report predicted the proposed rule changes would not be enacted, or that the two mortgage companies would be exempt.

Additionally, Freddie Mac and Fannie Mae were battered by news on Monday that their cost of borrowing, when compared to what the government pays, had increased to their widest spread since March, when it set a 22-year record. And some analysts raised fears that the companies would suffer from chaos in the private mortgage insurance market, where Fannie Mae and Freddie Mac have sought protections from the risk of borrower defaults.

“These companies, and the economy in general, are fighting a lot of demons right now,” said Sean J. Egan, managing director of Egan-Jones Ratings, an independent credit ratings firm. “If things don’t get turned around, you’re going to see more downward pressure on homebuilding, on financial institutions, on spending. There’s not a lot of places that will be protected.”

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2008-07-08T16:49:00-06:00 Staff editor@TheRochesterDemocrat.com Federal Reserve


By STEPHEN LABATON
NY Times
Published: July 9, 2008


WASHINGTON — With no end in sight to the turbulence in the housing and financial markets, the chairman of the Federal Reserve said on Tuesday morning that it would issue new lending rules next week to restrict exotic mortgages and high-cost loans for people with weak credit.

The chairman, Ben S. Bernanke, also said that the Fed was considering extending its program of low-cost overnight loans to the nation’s largest investment banks into next year. The lending program, which is supposed to be temporary, began in March in response to liquidity problems on Wall Street during the near-collapse of Bear Stearns, which was sold to JPMorgan Chase to avert going into bankruptcy.

At a forum in Arlington, Va., on lending for low- and moderate-income households, Mr. Bernanke said Bear Stearns’s difficulties had highlighted weaknesses in the financial system that policy makers were trying to address. He said they included poorly underwritten mortgages, regulatory gaps, tight credit and insufficiently capitalized financial institutions.

“The financial turmoil is ongoing, and our efforts today are concentrated on helping the financial system return to more normal functioning,” Mr. Bernanke said, according to an advance text of his speech issued by the Fed. “It is not too soon, however, to begin to think about the steps we might take to reduce the incidence and severity of future crises.”

Mr. Bernanke’s remarks appeared to have a reassuring effect on the markets, a day after shares of Fannie Mae and Freddie Mac, the mortgage financing giants, plunged amid renewed concerns that the worst of the mortgage crisis was yet to come. Shares of Freddie Mac were up slightly in midday trading Tuesday, shares of Fannie Mae were down slightly and the major Wall Street stock indexes were flat. Earlier, European stocks cut their losses.

But new housing figures released Tuesday morning showed that the chill in the housing market was continuing. Pending home sales fell 4.7 percent in May, far more than expected, according to the National Association of Realtors. Compared to a year earlier, sales were down 14 percent.

In his remarks Tuesday morning, Mr. Bernanke repeated his support for overhauling the oversight of Fannie Mae and Freddie Mac. He and other senior government officials have expressed hope that the two companies can play a central role in helping to prop up the markets by providing billions of dollars of investments in mortgages.

“If these firms are strong, well-regulated, well-capitalized and focused on their mission, they will be better able to serve their function of increasing access to mortgage credit, without posing undue risks to the financial system or the taxpayer,” he said.

The decision to consider extending the Fed’s Wall Street credit program, which provides overnight loans to the 20 largest investment banks who serve as “primary dealers” and trade Treasury securities directly with the Fed, suggested that the Fed is coming to believe that the crisis that has been plaguing financial markets may spill into next year.

The lending program was originally set to last at least six months, through mid-September. It was established at the same time that officials were engineering the rescue of Bear Stearns after Fed officials concluded that credit markets had all but frozen, raising fears of widespread defaults on Wall Street.

Under federal law, the program can continue only if the Fed continues to determine there are “unusual and exigent circumstances” in the markets. The program allows the government to hold as collateral a wide variety of investments, including hard-to-sell securities backed by mortgages.

“Although short-term funding markets remain strained, they have improved somewhat since March,” Mr. Bernanke said, reflecting both the intervention of the Fed in offering loans to Wall Street and “ongoing efforts of financial firms to repair their balance sheets and increase their liquidity.”

The Federal Reserve is expected to announce new mortgage lending rules at a meeting on Monday. It is not known whether the Fed will significantly change the proposal it made last December, which provoked more than 5,000 letters, including heavy criticism from the mortgage industry and other parts of the housing industry.

Industry lobbyists maintained that at a time of tight credit, tougher rules could make many mortgages more expensive by creating more paperwork and potentially exposing lenders to more lawsuits. They also complained that the restrictions were too broad and would restrain lenders from issuing otherwise creditworthy loans. Three of the industry’s most influential trade groups — the American Bankers Association, the Mortgage Bankers Association and the Independent Community Bankers of America — separately filed letters criticizing the proposals.

On the other hand, consumer groups complained that the proposed rules would not be strong enough. They maintained that any efforts to further weaken the proposal would render it all but useless.

Mr. Bernanke said there would be changes to the original proposal in response to the letters that were sent to the Fed. But he did not specify them.

“These new rules, which will apply to all lenders and not just banks, will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending,” Mr. Bernanke said. “We received many helpful comments on our proposal and we incorporated a number of them into the final rules.”

The proposals were made after the Fed came under criticism for being captive to the lending industry and had failed over many years to supervise it adequately. They would not cover existing mortgages, but would apply only to new ones.

Under the proposal issued last December, mortgage companies would be required to show that customers could realistically afford their mortgages. Lenders would have to disclose hidden fees often rolled into interest payments. And certain types of advertising considered misleading would be prohibited.

As envisioned when the proposal was issued, the Fed sought to broadly apply special consumer protection to a far broader class of borrowers than it had previously. Under its existing rules, based on the Home Ownership Equity Protection Act of 1994, the Fed’s extra protections had originally applied to less than 1 percent of all mortgages — those with interest rates at least 8 percentage points above the prevailing rates on Treasury securities.

But the proposed new rules, by contrast, invoked broader legal authority to apply to any mortgage with an interest rate 3 percentage points or more above Treasury rates. Fed officials said that would cover all subprime loans, which accounted for about 25 percent of all mortgages last year, as well as many exotic mortgages — known in the industry as “Alt-A” loans — made to people with relatively good credit scores.

Industry lobbyists had complained that the definition was too broad and would sweep in many conventional kinds of loans, making them more expensive for borrowers.

Among those who argued that the proposals did not go far enough was Sheila C. Bair, the Republican head of the Federal Deposit Insurance Corporation and senior members of the House Financial Services Committee.

Ms. Bair proposed making it easier for borrowers to sue lenders by eliminating the proposed requirement that the borrowers would have to establish a pattern of abusive practices. She said that forcing borrowers to show a pattern of abuse “clearly favors lenders by limiting the number of individual consumer lawsuits and the ability of regulators to pursue individual violations.”

Ms. Bair also recommended that the Fed eliminate a so-called safe harbor provision in the proposal that protects lenders who fail to verify the income or assets of a borrower in some circumstances.

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2008-07-08T14:11:00-06:00 Staff editor@TheRochesterDemocrat.com Federal Reserve



WASHINGTON (AP) - The Federal Reserve, trying to stabilize a shaky U.S. financial system, may give squeezed Wall Street firms more time to tap the central bank's emergency loan program, chairman Ben Bernanke said Tuesday.

And, in an effort to prevent a repeat of the current mortgage mess, Bernanke said the Fed next week will issue new rules aimed at protecting future homebuyers from dubious lending practices.

The rules will crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers - those with spotty credit or low incomes - who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.

It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

In an extraordinary action, the Fed in March agreed to let investment houses go to the Fed - on a temporary basis - for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed's decision to act - temporarily at least - as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co. (JPM), with the Fed providing $28.82 billion in financial backing.

Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.

Bernanke, in appearances on Capitol Hill has said he doesn't believe taxpayers will suffer any losses.

In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn't intervene, he said, problems in financial markets would have snowballed, imperiling the country.

"Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy," Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.

The Fed's consideration of giving Wall Street firms more time to tap the Fed's emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.

Policymakers - in the White House, in Congress and other federal agencies - will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.

Although those efforts are already under way, it will fall to the next president and next Congress to settle them.

The Bush administration has proposed revamping the nation's financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.

The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.

Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.

Bernanke recommended that Congress give a regulator in the future the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC's oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.

"Strong holding company oversight is essential," he said.

Bernanke also said that a growing number of central banks in recent years have been given the statutory authority to oversee systems for processing financial transactions by securities firms as well as overseeing traditional banking transactions. "A strong case can be made for granting the Federal Reserve explicit oversight for systemically important payment and settlement systems," he said.

And, the Fed chief favors looking into an idea - raised by Treasury Secretary Henry Paulson - to create formal procedures to make sure that if an investment firm fails it won't wreak havoc on the broader economy. Such procedures, which allow for a more orderly liquidation, are in place for banks.

The housing, credit and financial crises have bruised the economy. Growth has slowed and employers have cut jobs every month so far this year.

Bernanke said that "it is unrealistic to hope" that financial crises can be entirely eliminated, while maintaining an innovative financial system. "Nonetheless, recent experience has illustrated once again that financial instability can have serious economic costs," he said.


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2008-07-07T12:40:00-06:00 Staff editor@TheRochesterDemocrat.com Currency
By Agnes Lovasz and Kosuke Goto

July 7 (Bloomberg) -- The dollar rose against the euro and the yen on speculation leaders of the Group of Eight nations will signal support for the U.S. currency following a meeting starting today.

The dollar climbed to a one-week high versus the euro after the Bundesbank said German industrial production unexpectedly fell in May and President George W. Bush reiterated support for a ``a strong'' U.S. currency. The yen weakened as stocks advanced, reviving demand for the so-called carry trade. The pound dropped after a report showed U.K. manufacturing contracted more than forecast in May.

``We are seeing some broad-based dollar support,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the largest French bank. ``The trend towards dollar recovery is very much in place. We're likely to see continued official support for the dollar in the form of verbal intervention. It supports the idea that, globally, a stronger dollar is in everyone's interest.''

The dollar rose to $1.5624 per euro, the highest level since June 25, before trading at $1.5661 as of 7:09 a.m. in New York, compared with $1.5706 on July 4. It also strengthened to 107.55 yen, from 106.80. The yen fell to 168.40 against the euro, from 167.73.

The dollar also rose to the highest level in more than a week versus the yen on speculation U.S. officials will say the currency has fallen too far and try to stem gains in oil prices as the G8 summit gets under way. Leaders from Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S. are meeting in Hokkaido, Japan for three days.

`Strong Dollar'

Bush said yesterday, on the first day of his five-day trip to Japan, the U.S. will continue to pursue a strong dollar.

``The U.S. believes in a strong dollar policy,'' Bush said at a news conference with Japanese Prime Minister Yasuo Fukuda in Tokyo yesterday. The U.S. economy remains fundamentally strong even as growth has slowed, he said.

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of the U.S.'s six biggest trading partners, rose 0.4 percent to 73.006, the highest level since June 25.

The dollar will advance to $1.53 per euro in coming months and the dollar index will rise to about 77 by year-end, Stannard forecast.

The U.S. currency also strengthened as crude oil fell after Iran's foreign minister expressed confidence in talks with western governments on the country's nuclear program. Crude oil for August delivery traded at $142.39 a barrel on the New York Mercantile Exchange. Oil reached a record $145.85 on July 3.

German Production

OPEC President Chakib Khelil said yesterday record oil prices are more related to the dollar exchange rate than supply.

Prices have surged mostly because the ``U.S. Federal Reserve lowered interest rates to boost the American economy, which weakened the dollar,'' said Khelil, Algeria's oil minister, who also heads the Organization of Petroleum Exporting Countries.

The euro fell to the lowest level in more than a week against the dollar as German industrial production unexpectedly dropped 2.4 percent in May, its third straight decline, prompting traders to pare bets the European Central Bank will raise interest rates a second time this year.

``We do see the euro weaker,'' said Stuart Bennett, a senior European strategist at Calyon, the investment-banking unit of Credit Agricole SA, France's second-biggest lender. ``We are not relaxed about the growth outlook and it's weaker than the ECB is accepting. Even though we suspect inflation means that they might have to hike again, the growth dynamics for Europe are pointing towards a weaker euro.''

Euro Sentiment `Bad'

The euro will fall to between $1.43 and $1.45 by the end of the year, Bennett predicted.

The 15-nation currency declined last week after ECB President Jean-Claude Trichet said he had ``no bias'' on borrowing costs following the decision to raise the main refinancing rate by a quarter-percentage point to 4.25 percent.

``The sentiment on the euro is bad,'' said Kenichi Nishii, manager of the foreign-exchange trading department at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo, a unit of Japan's biggest publicly traded lender. ``Faced with a worsening economic outlook, the ECB won't be able to raise rates anytime soon. The markets are also wary of any comments on dollar weakness from the Group of Eight summit.''

Pound Declines

The British pound weakened to a one-week low against the dollar after U.K. factory output fell 0.5 percent in May. The median forecast of analysts surveyed by Bloomberg News was for no change.

``That would raise concern over the U.K. economy further and lead to a decline in the pound,'' Tohru Sasaki and Junya Tanase, currency strategists at JPMorgan Chase & Co. in Tokyo, wrote in a research note today before the data were released.

JPMorgan, the third-largest U.S. bank, predicted the Bank of England will keep borrowing costs on hold ``for the time being,'' a change from its previous estimate for higher rates in August.

The pound slid to $1.9683 against the dollar, the lowest since June 25, from $1.9823 on July 4. It may fall to $1.94 by the end of September, Sasaki said, confirming the research note.

The South Korean won snapped two days of losses versus the dollar, rising against all 16 major currencies tracked by Bloomberg, after the government pledged ``stern action'' to stabilize the currency. The won climbed to 1,042.90 per dollar from 1,050.35 last week.

Yen Weakens

The yen weakened for a third day against the dollar as a rally in stocks encouraged the so-called carry trade, in which investors add to holdings of higher-yielding assets funded in low interest-rate currencies such as the Japanese currency.

Stocks rose in Europe and Asia and U.S. index futures advanced as investors speculated shares at their cheapest relative to profit in at least 13 years were attractive. The MSCI Asia-Pacific Index gained 0.4 percent. Europe's Dow Jones Stoxx 600 Index strengthened 0.2 percent and the Standard & Poor's 500 Index of futures climbed 0.5 percent.

The MSCI World Index, which has fallen for five straight weeks, closed last week at its cheapest relative to earnings since at least 1995, based on data compiled by Bloomberg News. The index is valued at 14.3 times earnings.

``Some people are buying foreign currencies and selling yen,'' said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world's largest money manager. ``It's easy to trade off of Japanese equities, because their recovery from a historic losing streak may make people think the carry trade is back on.''

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits.

Pending Home Sales

Japan's target lending rate of 0.5 percent is the lowest among major economies and compares with 8.25 percent in New Zealand and 7.25 percent in Australia.

Gains in the dollar may be limited by speculation industry reports this week will show U.S. home sales declined and consumer confidence fell to a 28-year low.

Pending home resales fell 2.5 percent in May following a 6.3 percent advance the previous month, according to a Bloomberg News survey of economists. The National Association of Realtors will release the data tomorrow at 10 a.m. in Washington.

The University of Michigan will say July 11 that its index of consumer sentiment fell to 55.5 this month, the lowest since May 1980, from 56.4 in June, according to a separate survey.


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2008-07-07T11:38:04-06:00 Staff editor@TheRochesterDemocrat.com U.S. Economy




By Dana Milbank
Washington Post
Friday, July 4, 2008


Think you're worried about the economy? Phillip Swagel is a wreck.

The assistant Treasury secretary for economic policy, Swagel came out for his monthly economic briefing yesterday, 90 minutes after the Labor Department reported that the country had shed jobs in June for the sixth straight month.

Does this mean the economy is worse than the Bush administration expected?

"We shouldn't, in a sense, be surprised when the data are, are, soft," Swagel managed to say.

Does the economy need another stimulus package?

"I-it seems, you know, it seems like that's, that's enough, uh, enough."

What might trigger another round of economic stimulus?

"I don't, I guess I don't have an answer, I mean, you know, beyond saying we look at all the data and, um -- so, my usual line."

Okay, so it wasn't a strong performance. But let's cut Swagel some slack. He's a sharp economist (his PhD is from Harvard) and, in ordinary conversation, he suffers none of the speech difficulties that plagued him on the stage yesterday. His various roles in government, at the Council of Economic Advisers, the Federal Reserve and the International Monetary Fund, were too junior for him to deserve any blame for the current economic troubles.


But Treasury Secretary Hank Paulson, who was in London yesterday, and Swagel's other superiors in the Bush administration left him with an impossible task: appearing on camera to put a favorable and reassuring gloss on an economy that has gone to the dogs.

Yesterday's report that 62,000 jobs were lost brought the total for the first half of the year to 438,000 jobs. Meanwhile, the Institute for Supply Management reported that its measure of the service sector had declined in June. Stock markets, flirting with a bear market, finished another losing week. Oil pushed to a record high. Inflation and foreclosures are up, consumer confidence is down, and administration forecasts for a "strong pace of growth" in the second half of 2008 are look increasingly absurd.

It was a hopeless spin assignment -- but Swagel, the administration's sacrificial lamb for the day, had to try. And so Swagel, bookish and bespectacled, entered the Treasury Department's briefing room with evident trepidation. He nodded and offered smiles every which way. His heavy breathing, picked up by the microphone, could be heard in the back of the room.

Um, I'll start off as usual with a short statement and then, uh, take questions," he began.

In his statement, he employed the great euphemisms of his profession: the economic "headwinds," the housing "correction," the credit-market "disruption." But, he offered, "the stimulus package will help support . . . spending."

A questioner asked about private forecasts, which, in contrast to administration forecasts, see a contracting economy through early next year. "You know, it doesn't look like it to us now, but obviously we'll have to see where we are at the end of the year," he answered.

Might a second stimulus package be necessary? "Right now, the way we see it is the rebates that are already going out are big enough, and were timely enough, to make a difference and-and to support spending," he said.

Swagel was asked whether the energy shock and a longer-than-expected housing slump justify more federal action. He admitted that rising gas prices have pretty much offset the tax rebate checks, but this only proves, he said, that "the stimulus payments were timely and needed."

Asked if he could reassure those who worry it's time to hide valuables under the mattress and get a shotgun, he chuckled and then ventured: "You know it's i-in a sense what -- I think what matters is it's worse than, it's worse than, it should be."

For a brief, joyous moment for the economist, it appeared he had exhausted all the questions, but as soon as Swagel got out "I hope everyone has a good holiday," another hand went up.
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The reporter asked if he saw any hope for economic revival in the new employment report. Swagel exhaled loudly. "No," he said, then sniffed and exhaled again. "You know, the data today, right, we had, wage gains were decent, but of course we know that overall inflation, uh, is going to fully offset and more those, uh, you know, those wage gains," he said. The unemployment rate remained at 5.5 percent, but "I don't . . . take any comfort from that."

Though still forecasting "modest but positive growth," he cautioned that "you're going to still see a weak labor market, so, um, yeah, so it's not, I don't expect to come out next month and, uh, you know, and have great news on the labor market, either."

And with that, the Treasury official departed the room for what one hopes will be some much-needed calm.

TO SEE THE VIDEO: Click HERE


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2008-07-07T01:49:00-06:00 Staff editor@TheRochesterDemocrat.com Currency


By Jamie McGee

July 4 (Bloomberg) -- The U.S. dollar will appreciate against most emerging market currencies as their economies are hurt by rising energy prices, according to a Morgan Stanley.

The dollar will also strengthen to $1.53 against the euro by year-end and $1.40 by the end of 2009, Morgan Stanley's chief currency strategist Stephen Jen wrote. The research note was released yesterday after the European Central Bank's quarter- percentage point increase in its benchmark loan rate to 4.25 percent. Jen also forecast the dollar will trade at 97 yen by January and at 110 by the end of 2009.

``While the dollar may remain somewhat vulnerable against the euro in the near term, we continue to believe that the dollar is grossly under-valued and should perform better over the longer term against the majors,'' London-based Jen said. ``It is the oil price issue that will likely cause the emerging- market dominos to topple over. Euroland will likely follow.''

Crude oil rose above $145 a barrel yesterday to a record amid signs global demand for fuels, particularly from China, may strain supplies.

The euro fell the most against the dollar in more than two months after Trichet signaled that he may not increase interest rates again. The euro dropped 1.1 percent to $1.5703 yesterday in New York, from $1.5882 on July 2. The dollar appreciated 0.8 percent to 106.73 yen, from 105.91.


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2008-07-07T00:12:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Economy



NEW YORK (AP) - Investors battered by surging energy prices, disappointing economic data and the ongoing credit crisis will have something else to worry about this week - second-quarter corporate results.

The unofficial start to earnings season takes place Tuesday when aluminum producer Alcoa Inc. (AA) (AA) posts results. General Electric Co. (GE) (GE) on Friday will also be among the companies reporting.

The pair of Dow Jones industrials could give Wall Street a glimpse of what to expect when hundreds of other companies report results throughout the month. Not only are investors concerned that companies can't beat already lowered expectations, but they'll also be focused, undoubtedly with some skepticism, on what corporate executives forecast for the second half of 2008.

"The earnings, which are a reflection of the economy in general, have been going down and unfortunately there's a lot of concern it will go down a lot more," said Howard Silverblatt, Standard & Poor's senior index analyst. "How long can they continue through the storm? Nobody believes the 'worst is behind us' comments from the CEOs because they can't predict where this economy is going."

Earnings from members of the S&P 500 are forecast to be down 10 percent for the second quarter. The nation's banks and brokerages are likely to lead the pullback with another disappointing quarter.

Companies like Merrill Lynch & Co. (MER) (MERPO) and Citigroup Inc. (C) (C) are again expected to write off billions of dollars of assets rendered nearly worthless because of the global credit crisis. Since last year, banks have written down nearly $300 billion - and that is not expected to let up.

Financial stocks last year contributed $60.7 billion of earnings to the overall S&P, and this time around the number is expected at $24.6 billion, according to S&P. And, in a demonstration of how dominant financials are, Silverblatt said earnings for the S&P 500 would rise 9 percent during the second quarter if banks and brokers were stripped out of it.

Wall Street finished last week with another decline, with the Dow Jones industrials down 0.51 percent, the Standard & Poor's 500 index down 1.21 percent and the Nasdaq composite index down 3.01 percent. While that was a less steep drop compared to the week before, investors clearly are showing dissatisfaction with the economy - especially higher energy prices.

Investors are expected to remain anxious this week as crude oil approaches $150 a barrel. On Thursday, oil touched a trading high of nearly $146 before it settled at a record $145.29.

The approximately 50 percent jump in the price of oil this year has weighed on both businesses and consumers and posed a challenge to Federal Reserve policymakers who are trying to keep the economy out of a prolonged downturn.

Low interest rates have weakened the dollar, which has in turn made oil more expensive. Now, with consumers forced to pay more at the gas pump, Wall Street is worried about a broad slowdown in spending - a serious blow to the economy as consumer spending accounts for more than two-thirds of U.S. economic activity.

Investors will be looking to a light flow of economic data next week for insights into how surging energy costs are affecting the economy.

On Tuesday, the National Association of Realtors reports on pending sales of existing homes. The May index is expected to come in at 87.0, according to the median estimate of economists surveyed last Wednesday by Thomson Financial/IFR. That would be down from a reading of 88.2 in April.

On Thursday, the Labor Department releases its weekly reading on unemployment claims. Economists anticipate a slight rise of 1,000 to 385,000.

On Friday, the University of Michigan releases its preliminary reading on July consumer sentiment. Economists expect the index to slide to 56.0 from 56.4 in June.

Also Friday, the Commerce Department reports on the U.S. trade deficit. After increasing to $60.9 billion in April, the trade gap is expected to have widened again in May to $62.3 billion.

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2008-07-04T14:09:01-06:00 Staff editor@TheRochesterDemocrat.com Oil & Gas


NEW YORK (AP) - Fireworks aren't the only thing skyrocketing on this Fourth of July. The price of gas has hit another all-time high.

The AAA fuel-gauge report puts the national average price of a gallon of regular at a fraction over $4.10.

The price of premium as of today is $4.51.

A month ago, regular was going for $3.98 a gallon and a year ago you could gas up for $2.95 a gallon.

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2008-07-03T18:06:00-06:00 Staff editor@TheRochesterDemocrat.com Business


By Michael Patterson


July 3 (Bloomberg) -- Most U.S. stocks fell, completing the longest streak of weekly declines in four years, after a reduced sales forecast by Nvidia Corp. outweighed speculation the Federal Reserve will hold off raising interest rates.

The Standard & Poor's 500 Index gained 0.1 percent to 1262.9 after earlier dipping below 1,252.12, a 20 percent decline from its Oct. 9 record. Nvidia, the second-biggest maker of computer-graphics chips, plunged the most since 2004. Freddie Mac tumbled, helping drag the S&P 500 Banks Index to a 12-year low, after saying it is ``unlikely'' to raise capital this month. General Electric Co. and General Motors Corp. advanced after a drop in jobs spurred traders to bet the Fed will keep the overnight lending rate between banks at 2 percent.

More than five stocks retreated for every three that rose on the New York Stock Exchange. The S&P 500 climbed 1.38 points, paring its weekly drop to 1.2 percent, the fifth straight retreat. The Dow Jones Industrial Average, which closed in a bear market yesterday, added 73.03, or 0.7 percent, to 11,288.54. The Nasdaq Composite Index lost 6.08, or 0.3 percent, to 2,245.38 as Nvidia plunged 31 percent.

``Staying in this economic malaise for an extended period of time seems likely,'' said Michael Strauss, the Wilton, Connecticut-based chief economist and market strategist at Commonfund, which oversees about $43 billion. ``Input cost pressures and the squeeze of profit margins because of the lack of consumer demand may make earnings more challenging and I think the equity market has been reflecting that.''

Bear Market Brink

The S&P 500 earlier fell below the 1,252.12 threshold that marks a 20 percent bear market retreat. The slide was limited by a third straight rally in Lehman Brothers Holdings Inc. securities firm. Record oil prices and signs the U.S. economy is slowing pushed steelmakers and coal producers in S&P indexes down more than 10 percent this week, leaving the S&P 500 with a 14 percent decline in 2008.

U.S. exchanges closed at 1 p.m. New York time ahead of the Independence Day holiday tomorrow. Nvidia sank $5.54 to $12.49, the lowest since July 2006. Sales this quarter will fall to between $875 million and $975 million, the company said. The second-biggest U.S. maker of graphics processors predicted in May that revenue would decline 5 percent from the previous period's $1.15 billion, indicating about $1.1 billion. Nvidia will also record costs of as much as $200 million because of a defect in some laptop chips.

Chip Stocks

An index of companies in the S&P 500 that produce semiconductors and related equipment slid 2.1 percent, the steepest drop among 24 industries. Intel Corp., the world's largest chipmaker, lost 27 cents to $20.66.

Freddie Mac declined $1.42 to $14.50, the lowest since March 1995. The second-largest U.S. mortgage-finance company said it's ``unlikely'' to raise capital until after reporting second-quarter earnings next month. Executives told investors in May the company would secure $5.5 billion in additional reserves by ``mid-year'' to combat loan delinquencies.

AT&T Inc. dropped 31 cents to $32.58 after Credit Suisse reduced profit estimates for the largest U.S. phone company, saying a slowing economy and increased competition will reduce earnings.

The S&P 500 Managed Health Care Index tumbled 6 percent to the lowest level since November 2004 after analysts downgraded UnitedHealth Group Inc., Aetna Inc. and Health Net Inc.

UBS AG lowered UnitedHealth's rating to ``neutral'' from ``buy.'' Aetna and Health Net were downgraded to ``sell'' from ``neutral'' at Goldman Sachs. Both analysts cited declines in commercial membership, growth in medical expenses and stronger price competition.

UnitedHealth, Aetna

UnitedHealth, the largest U.S. health insurer, tumbled $2.16 to $22.96. Aetna, headquartered in Hartford, Connecticut, fell $2.65 to $37.14. Health Net, the Woodlands Hills, California- based insurer, lost $3.09 to $22.55.

Futures trading showed 85 percent odds that policy makers will keep the central bank's benchmark interest rate at 2 percent next month, up from a 75 percent chance yesterday. The Labor Department said payrolls fell by 62,000 in June, the sixth straight month of declines. Economists surveyed by Bloomberg had forecast a decrease of 60,000 jobs. The jobless rate remained at 5.5 percent.

U.S. service industries unexpectedly contracted in June as a gauge of prices soared to a record and employment reached an all- time low. The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, decreased to 48.2, the lowest level since January, from 51.7 in May.

GE, GM Rise

GE, the world's fifth-largest company by market value, added 40 cents to $26.91. Sterne, Agee & Leach analysts wrote in a research note that it's ``highly unlikely'' GE will lose its top credit rating and predicted the company will report second- quarter earnings that meet analysts' estimates.

GM, which fell to the lowest level since 1954 yesterday, climbed 14 cents to $10.12.

Procter & Gamble Co., the consumer-products maker that gets about 23 percent of its sales from Europe, gained 98 cents to $63.67. European Central Bank President Jean-Claude Trichet played down prospects of further interest-rate increases, saying the quarter-point hike today will help bring inflation back below 2 percent.

Europe's Dow Jones Stoxx 600 Index climbed 0.9 percent.

Penn National Gaming Inc. gained $1.06 to $29.66. The company's $6.1 billion takeover by private-equity investors Fortress Investment Group LLC and Centerbridge Partners LP was scrapped. Penn will receive $225 million to terminate the takeover and $1.25 billion in preferred equity. Shares of the Wyomissing, Pennsylvania-based company fell 16 percent over the previous five sessions.

Zions Bancorporation fell the most in eight years after the sale of its preferred shares fell short. Zions sold $45.7 million in perpetual preferred stock after offering $150 million of the shares, the lender said in a regulatory filing today. The stock lost $4.57, or 14 percent, to $27.05. The S&P 500 Banks Index lost 1.7 percent.


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2008-07-03T12:41:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Economy


WASHINGTON (AP) - Employers cut payrolls by 62,000 in June, the sixth straight month of nationwide job losses, underscoring the economy's fragile state. The unemployment rate held steady at 5.5 percent.

The latest snapshot of business conditions, released by the Labor Department on Thursday, showed continued caution on the part of employers who are chafing under zooming energy prices and are uncertain about how long the economy will be stuck in a sluggish mode, reflecting fallout from housing, credit and financial troubles.

Heavy job losses in construction, manufacturing, business services and retailing eclipsed job gains in education and health services, leisure and hospitality, and government.

The report was largely on target with economists' forecasts. They had been expecting employers to reduce payrolls by around 60,000 jobs in June and for the unemployment rate to slip a notch to 5.4 percent.

The jobless rate spiked to 5.5 percent in May. That marked the biggest over-the-month increase in two decades and left the rate at its highest since October 2004.

Job losses in both April and May turned out to be considerably deeper than had been thought. Payrolls dropped by 67,000 in April, versus the 28,000 previously reported. And, losses in May came to 62,000, rather than the 49,000 initially estimated.

So far this year, the economy has lost a total of 438,00 jobs, an average of 73,000 a month.

The economy is the top concern of voters. The faltering labor market is a source of anxiety not only for those looking for work but also for those worried about keeping their jobs during uncertain economic times.

In a separate report from the department, the number of newly laid off people signing up for unemployment insurance rose sharply last week. New applications jumped by 16,000 to 404,000, the highest level since late March. The increase was bigger than economists were expecting; they were forecasting claims to rise to around 385,000.


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2008-07-03T12:39:00-06:00 Staff editor@TheRochesterDemocrat.com Oil & Gas


Associated Press
July 3, 2008


Oil prices neared $146 a barrel Thursday for the first time ever on reports of declining U.S. stockpiles and the threat of conflict with Iran.

Comments by Saudi Arabia's oil minister suggesting his country had no immediate plans to boost production also lifted prices.

Expectations that the European Central Bank will raise interest rates later Thursday could further weaken the U.S. dollar and drive oil prices even higher, as investors turn to commodities as a hedge against a falling greenback, traders said.

By midday in Europe, light, sweet crude for August delivery rose $2.28 to a record $145.85 a barrel in electronic trading on the New York Mercantile Exchange.

On Wednesday, the contract set a new closing record for floor trade at $143.57 - a full $2.60 above the previous close.

The latest spike means a barrel of crude has gone up by more than 50 percent since the end of last year, when oil was going for $96 a barrel.

In London, Brent crude futures rose to a trading record of $146.69 a barrel on the ICE Futures exchange before retreating to $146.07, up $1.81.

"Even though the rise of European interest rates has been priced into oil, an official announcement by the ECB will still add momentum to oil prices," said Victor Shum, an analyst with Purvin & Gertz in Singapore.

The push above $145 a barrel was seen as a last technical barrier to prices hitting $150, in what analyst Olivier Jakob of Petromatrix in Switzerland called "the Morgan Stanley (MS) self fulfilling prophecy."

In early June, a prediction by Morgan Stanley analyst Ole Slorer that oil prices could reach $150 by the July 4 weekend caused the Nymex contract to jump nearly $11 in a single day.

Speaking Thursday in Madrid, Saudi Arabia's oil minister, Ali Naimi, left the door open for increased output, but said the kingdom's oil customers were satisfied and that no production growth was planned for now.

The Energy Department's Energy Information Administration said Wednesday crude oil supplies fell by 2 million barrels last week, or about 800,000 barrels more than analysts surveyed by the energy research firm Platts had predicted.

However, the report offered a mixed picture of energy use by the world's thirstiest oil consumer. Gasoline supplies unexpectedly grew by a considerable amount, and demand continued to slide - suggesting record fuel prices are prompting a shift in American driving habits.

Ongoing rhetoric about possible attacks on Iran, the world's fourth-largest oil producer and OPEC's second-largest exporter, also left the market jittery.

Traders are worried Tehran could try to halt shipments and seize control of the strategically important Strait of Hormuz if attacked by Israel or the United States. About 40 percent of the world's tanker traffic passes through the Middle Eastern choke-point.

Iran's foreign minister did not rule the possibility that Iran could try to restrict oil traffic in the strait if the country was attacked.

"In Iran we must defend our national security, our country and our revolutionary system and we will continue to do so," Foreign Minister Manouchehr Mottaki said in an interview with The Associated Press in New York.

Mottaki said he does not believe Israel or the United States will attack, however, calling the prospect of another war in the Middle East "craziness."

A senior U.S. military commander vowed to ensure that the strait remains open.

"We will not allow Iran to close it," said Vice Adm. Kevin Cosgriff, commander of the 5th Fleet based in Bahrain, after talks with naval commanders of Persian Gulf countries in the United Arab Emirates.

The saber-rattling has left energy traders on edge as they try to ascertain the likelihood of a Middle East flare-up and the effect it could have on the world's already tight supply of oil.

In other Nymex trading, heating oil futures added 5.15 cents to $4.1230 a gallon (3.8 liters), while gasoline futures rose 2.56 cents to $3.5750 a gallon. Natural gas futures gained 13.7 cents to $13.526 per 1,000 cubic feet.

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2008-07-03T12:36:00-06:00 Staff editor@TheRochesterDemocrat.com Recession



WASHINGTON (AP) - Today's Labor Department's employment report is expected to show the sixth month of jobs losses and only a slight improvement in the unemployment rate. Meanwhile, the price of oil is approaching $146 a barrel for the first time.

Stocks headed for a mixed open Thursday ahead of the unemployment report which could offer insights into how well the economy is likely to fare in the coming months.

An interest rate decision from the European Central Bank will also cap a holiday-shortened week for Wall Street.

The data come on an abbreviated day for traders. The stock market closes three hours early, at 1 p.m. EDT, on ahead of the July 4th holiday on Friday.

Investors are nervous about the strength of the job market in part because consumer spending accounts for more than two-thirds of U.S. economic activity. Consumers who are out of work or are nervous about losing their job are likely to trim their spending.

In a figure released yesterday, orders to U.S. factories turned in the slowest performance in three months in May as a surge in demand for commercial aircraft was not enough to offset weakness in autos, heavy machinery and steel.

Factory orders rose by 0.6 percent in May, less than half the gains turned in during April and March, the Commerce Department reported Wednesday. It was the poorest showing since factory orders had fallen by 0.4 percent in February.


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2008-07-02T18:45:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Economy
NEW YORK (Reuters) - U.S. private employers slashed 79,000 jobs in June while planned layoffs at U.S. firms rose nearly 50 percent above year-ago levels, according to data that may spell bad news for a government payrolls report this week.

Wednesday's data brought some brighter news as well, however, with a boost in demand for aircraft lifting new orders at U.S. factories by an unexpectedly large 0.6 percent in May.

Also, U.S. mortgage applications rose last week with help from lower home loan rates, though the bounce follows a 6-1/2-year low the prior week.

Late payments on U.S. home equity lines of credit, however, rose to a 21-year high in the first quarter, given continued housing market stress and weakness in the economy, the American Bankers Association said.

On the labor front, private-sector employers' decisions to cut 79,000 jobs in June made for the largest decline since November 2002, according to a report by ADP Employer Services.

The data surprised financial markets, which were braced for a more modest 20,000-job loss. In May, the private sector added 25,000 jobs, revised down from an initial estimate of 40,000.

"The June ADP report offered another weak reading for employment. It looks like we're still seeing job cuts as economic growth is very weak," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri.

Some feared the news does not bode well for the government's more comprehensive jobs report, which is due on Thursday and is the main event on the monthly data calendar.

If recent history is any guide, said Ian Shepherdson, chief U.S. economist at High Frequency Economics, the ADP report could signal an astounding drop of 200,000 jobs in the official payroll numbers, much more than the fall of 60,000 that economists predicted in a Reuters poll.

"Expect a weak official (payrolls) report tomorrow," said Shepherdson, who is based in Valhalla, New York.

But Joel Prakken, chairman of Macroeconomic Advisers LLC, said the unexpectedly large decline in private sector jobs does not ensure a similar downside surprise in the government data.

"I'm expecting tomorrow a number like minus-60 (thousand)," Prakken told Reuters. He said recent months when payrolls data was gloomier than ADP's may have been "a statistical vagary."

Macroeconomic Advisers jointly develops the report with ADP Employer Services.

Economists polled by Reuters are looking for the unemployment rate to ease to 5.4 percent after spiking in May to 5.5 percent, its highest in more than 3-1/2 years.

On Wall Street, stock futures pared gains after the ADP report but stocks recovered much of that ground on the rise in factory orders, while the dollar fell against the euro. Safe-haven government bonds, which perform better in times of economic malaise, rose as investors worried about consumers' ability to keep spending as firms shed jobs.

LAYOFFS AND FACTORY ORDERS

Employment consulting firm Challenger, Gray & Christmas Inc said planned layoffs at U.S. companies fell 21 percent in June from May's 29-month high.

But they were 47 percent above June 2007, while total second-quarter cuts were the highest since late 2005. Planned job cuts at U.S. companies totaled 81,755 in June, compared with 103,522 in May and 55,726 in June 2007, Challenger said.

In other labor market news, the Monster Employment Index edged down in June as U.S. online recruitment eased slightly following the early springtime hiring period.

The news from the manufacturing sector was a bit better, with the Commerce Department reporting new factory orders rose 0.6 percent in May, though economists said that was largely the result of higher oil prices pushing up the value of orders.

The data comes a day after the Institute for Supply Management said U.S. manufacturing expanded in June for the first time in five months.

"It's great every time you see something positive like this come out," said Edward Bretschger, director of equity sales and trading at Calyon Securities in New York. "It shows there's light out there and not everything is as bad as predicted."

HOMES

There was some good news from housing, too, with the Mortgage Bankers Association reporting its seasonally adjusted application index rose 3.6 percent to 477.7 in the week ended June 27, as 30-year fixed mortgage rates slipped 0.06 percentage point from a 10-month high to 6.33 percent.

The U.S. housing market, caught in the worst downturn since the Great Depression of the 1930s, has been stuck in a vicious cycle, even through the normally buoyant spring sales season.

Until prices show signs of stabilizing, many economists see little chance that home sales will rebound meaningfully.

In a quarterly report on consumer borrowing, the American Bankers Association said the percentage of home equity lines more than 30 days past due rose to 1.1 percent from 0.96 percent the prior quarter. That rate is the highest since the ABA started collecting such data in 1987.

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2008-07-02T18:41:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Treasury


WASHINGTON (AFP) - US Treasury Secretary Henry Paulson said Wednesday that the US economy was enduring "a rough period" and warned that home foreclosures would likely remain high in the near future.

The US Treasury chief said soaring crude oil prices, a widespread credit crunch and a two-year long housing market slump had taken some of the wind out of the sails of the US economy.

"The US economy is going through a rough period. US foreclosures will remain elevated and we should not be surprised at continued reports of falling home prices," Paulson warned during a speech in London.

Paulson's remarks were also released by the Treasury in Washington. The Treasury chief and former banker stopped off in London Wednesday amid a whistle-stop tour of European capitals.

He said the giant economic stimulus, stuffed with tax rebates, backed by the administration of US President George W. Bush had helped shore up US growth, but that the housing downturn poses a "significant" downside risk to economic momentum.

Foreclosures have soared in recent months as home sales and property prices have continued to tumble across many parts of the United States.

The world's biggest economy posted subpar growth of 1.0 percent during the first quarter of the year, and some analysts believe the economy is on the brink of a recession.

Paulson said the sooner house prices stabilize, the sooner the economy will bounce back to stronger growth, but he also blamed rocketing oil prices for extending economic angst.

"High oil prices will in all likelihood prolong our economic slowdown," he said, as oil prices continued to roil near record highs at 141 dollars a barrel.

Economic growth has been weighed down by the credit squeeze as major banks, including Citigroup and Merrill Lynch, have announced multibillion dollar losses tied to ailing mortgage investments.

Many other banks have also suffered similar losses and reined in lending as they seek to restore stressed balance sheets.

Paulson said US regulators, including the Federal Reserve and the Securities and Exchange Commission, are collaborating closely on developing new measures to help offset the credit squeeze.

But the authorities have to walk a fine line, he said, as officials do not want to promote irresponsible market risk-taking by suggesting they would always ride to rescue of an imperiled bank or finance house.

"For market discipline to be effective it is imperative that market participants not have the expectation that lending from the Fed, or any other government support, is readily available," Paulson said during the speech at Chatham House in London which houses the Royal Institute of International Affairs.

The Fed and Treasury have been criticized for assisting in the rescue of the US investment bank Bear Stearns in March, and for helping to broker a takeover of Bear by JPMorgan Chase.

Fed chairman Ben Bernanke has said the central bank stumped up billions of dollars to support deal because a Bear Stearns collapse could have destabilized Wall Street.

US lawmakers are considering possible changes to the regulatory environment that could help avoid a repeat of the credit crunch and the downfall of a major financial institution like Bear Stearns.

"To that end, we should create a system that gives us the best chance of foreseeing a crisis, including a market stability regulator with the authorities to avert systemic issues it foresees," Paulson said.

"We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm," the Treasury chief added.

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2008-07-02T08:23:01-06:00 Staff editor@TheRochesterDemocrat.com Oil & Gas



MADRID, Spain (AP) - As crude soared to a new record, the head of the International Energy Agency declared that the world was in the grip of an "oil shock," and the president of OPEC acknowledged he could not say whether prices would flatten out or continue to soar.

The comments by IEA chief Nobuko Tanaka, OPEC chief and Algerian Energy minister Chakib Khelil and other industry leaders at the 19th World Petroleum conference reflected the concern surrounding record oil prices that seem ready to spike higher.

An IEA report released at the conference confirmed what most consumers fear: that supplies of oil will remain tight, whether for cooking fires in the poorest countries or powering cars and cooling or heating homes in the richest. And that's despite record prices and reduced demand as costly crude dampens the world's oil hunger.

Reflecting the world's oil price doldrums, light, sweet crude for August delivery rose 97 cents to settle at a new high of $140.97 a barrel on the New York Mercantile Exchange. Prices at one point rose as high as $143.33, just 34 cents shy of Monday's trading record.

"We are clearly in the third oil price shock," declared Tanaka, comparing the effects to periods of soaring prices in the 1970s and 1980s.

But he suggested there is less of a likelihood of a quick fix this time.

"Those price peaks forced consumers into saving oil" and oil companies to look for new wells, said Tanaka, but now "the biggest energy savings have been made (and) ... the easy oil outside (of) a few countries has been found."

His agency's report said the world's estimated daily oil needs would rise from 86.87 million barrels this year to 94.14 million barrels in 2013 - less than anticipated in its 2007 report because of skyrocketing prices.

The energy agency predicted producers would be able to meet world needs - but noted that supply will exceed projected demand only by a daily 2 million barrels, a relatively thin cushion.

Tanaka said that tight supplies despite a price surge that would normally lead to increased availability came as a "shock."

His comments reflected the high-level bedevilment at the meeting about what is causing prices to sizzle.

In Jeddah, Saudi Arabia, earlier this month, the kingdom said it would add 200,000 barrels per day in July to a 300,000 barrel per day production increase it first announced in May, raising total daily output to 9.7 million barrels. Production increases normally check prices, but the market has shrugged off the Saudi gesture and set several new records since.

Khelil, the OPEC president, offered no solace to consumers.

"We are very uncertain about the oil prices since it's highly volatile and we don't really know whether it is going to be stabilizing or going to lower levels," he told delegates. "But everybody agrees that oil prices are too high."

"There is a lot of uncertainty about demand," Khelil said. "Consequently there is a lot of uncertainty about the decision of investing" the tens of billions of dollars needed to make additional crude and refined supplies available.

He identified the main driver of prices as the weak U.S. dollar and the linked subprime crisis in America; geopolitical tensions, and increased emphasis on U.S. bioethanol production which he suggested diverted production of diesel and led to shortages.

Urging the world to brace for a "really big reshuffle" in energy expectations, Christophe de Margerie, CEO of French energy giant Total SA (TOT), said he expected oil production to plateau in just 12 years at 94 million barrels a day - less then 10 million barrels more than available now. And he warned the forecast was optimistic.

"We will have to fight against the natural decline of (present) oil fields," he told the same forum Khelil attended. "It will not go smoothly."

Producers and refiners in the Spanish capital are also looking to find answers not only on how to ensure stable supply, but also on doing it in a way that minimizes emissions of the greenhouse gases believed to cause global warming.

Still the primary concern at the meeting was over availability and prices that have been bouncing from record to record over the past few months - a worry echoed by de Margerie.

Consumers worldwide "expect a better environment," he said. "But they expect first access to energy."

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2008-07-01T19:42:01-06:00 Staff editor@TheRochesterDemocrat.com Business



DETROIT (AP) - General Motors Corp. (GM) (GM) outsells Toyota Motor Corp. (TM) (TM) in June to retain its traditional U.S. sales lead, even though GM says its sales dropped 18.2 percent for the month.

Toyota sales had fallen 21.4 percent for the month. Both companies were hurt by a sluggish economy and poor sales of trucks and sport utility vehicles.

GM on Tuesday reported selling 262,329 vehicles for the month, compared with Toyota's 193,234.

For the first half of the year, GM sales were down 16.3 percent compared with the year-ago period. Toyota sales were down 6.8 percent for the first six months of the year.

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2008-07-01T11:02:01-06:00 Staff editor@TheRochesterDemocrat.com Oil & Gas



BANGKOK, Thailand (AP) - Oil prices climbed to $142 a barrel Tuesday amid concerns about tensions between Iran and Israel and a weakening dollar.

"You have supply-side concerns, such as the rhetoric on Iran, that will likely keep a floor under prices," said Victor Shum, an analyst with Purvin & Gertz in Singapore. "I don't see much resistance to $150, which could happen in the coming weeks."

Late afternoon in Singapore, light, sweet crude for August delivery was up $2.00 at $142.00 a barrel in Asian electronic trading on the New York Mercantile Exchange.

On Monday, the contract soared to a record $143.67 a barrel. It later fell back to close at $140.00 on reports of weakening U.S. oil demand and end-of-the-quarter profit-taking by traders.

Oil also rose on expectations the European Central Bank will likely raise interest rates at its next meeting on Thursday, a move that would help strengthen the euro against the dollar, Shum said.

As the dollar has weakened, investors have been piling into oil contracts, betting that they will gain, thereby offsetting the dollar's decline. Since the start of the year, crude has shot up nearly 50 percent.

The dollar fell to 105.44 yen from 106.10 yen late Monday, while the euro rose to $1.5771 from $1.5757.

Traders were still anxious about tension in the Mideast after the commander of Iran's Revolutionary Guards warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles and that it would control a key oil route in the Gulf.

Those comments, reported Saturday in Iran's conservative Jam-e-Jam newspaper, came after Israeli military exercise over the Mediterranean Sea that was seen as sending a message to Iran to curb its nuclear ambitions.

Iran is the world's fourth-largest oil exporter and OPEC's second-largest exporter. About 40 percent of world oil exports pass through the Gulf.

Traders were also digesting news from the Energy Information Administration, which reported Monday that U.S. oil usage in April was lower than previously estimated, falling to 4.2 percent to 19.768 million barrels per day from 20.631 million. That was 3.9 percent lower than in April 2007 and the lowest level for the month in six years.

"We're starting to see demand destruction in the U.S., but in China and other developing countries, we still see demand growth," Shum said. "It could take several months before recent fuel price hikes in developing countries start to slow oil demand in those places."

In other Nymex trading, heating oil futures rose 5.06 cents to $3.96006 a gallon while gasoline prices rose 3.84 cents to $3.5375 a gallon. Natural gas futures increased 3.2 cents to $13.385 per 1,000 cubic feet.

In London, Brent crude futures were up $2.17 at $142.00 on the ICE Futures exchange in London.


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2008-06-27T11:32:00-06:00 Staff editor@TheRochesterDemocrat.com Oil & Gas



SINGAPORE (AP) - Oil prices climbed to a record above $141 a barrel in Asian trading Friday as the dollar's protracted slump prompted investors to flock to oil as a hedge against inflation.

Prices were also lifted Thursday after OPEC's president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production.

Light, sweet crude for August delivery rose as high as $141.71 a barrel before pulling back to $141.10, up $1.46 in Asian electronic trading on the New York Mercantile Exchange, midafternoon in Singapore. The contract Thursday rose $5.09 to settle at a record $139.64.

The previous trading record for a front-month contract was $139.89, set on June 16.

On Thursday, the dollar slipped against key currencies as U.S. data showed sluggish economic growth and pointed to a struggling labor market. Oil is priced in dollars, and some investors buy oil contracts to protect the value of their assets against accelerating inflation when the dollar falls.

"The dollar movements caused the surge in oil pricing and the bullish trend remains intact," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The oil market is subject to further spikes in the coming weeks."

On Friday, the dollar slipped to 106.42 yen from 106.91 yen Thursday; the euro was trading at $1.5738, down from $1.5751.

Crude futures were also driven higher after Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, said he believes oil prices could rise to between $150 and $170 a barrel this summer. Khelil also said prices will decline later in the year, and aren't likely to reach $200 a barrel.

Khelil joined a long list of forecasters who have made bold oil price predictions this year. Each new forecast - such as Goldman Sachs' recent prediction that prices could rise as high as $200 - causes a jump in prices as speculative buyers are drawn into the market.

Meanwhile, the head of Libya's national oil company said the country may cut crude production because the oil market is well supplied, according to news reports.

Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut, said in a research note that Shokri Ghanem, the nation's top oil official, has declined to say when a decision would be made on whether to lower production, or give any indication of the size of the cut under consideration.

But analysts expressed skepticism over the comments out of Libya, saying the current level of oil prices provides an incentive for producers not to cut output.

"I doubt that any real effort in cutting output would be forthcoming, considering that pricing continues to hit new records," Shum said. "There's no economic reason to cut output at this time so it's just talk."

Oil prices have more than doubled over the past year on concerns about rising demand in fast-growing economies such as China and India, and supply disruptions in the Middle East and Nigeria.

Analysts have also attributed oil's rapid climb to speculative buying, with traders jumping into the market purely on the expectation that futures will continue to rise.

"Even though we have continued to see weakening demand in the U.S., other markets in the developing world still show growth," Shum said. "The tight market has empowered speculators to invest in oil and the oil market is subject to further spikes in the coming weeks."

In other Nymex trading, heating oil futures rose 0.71 cent to $3.8905 a gallon while gasoline prices lost 0.68 cent to $3.5045 a gallon. Natural gas futures declined 1.7 cents to $13.231 per 1,000 cubic feet.

Brent crude futures rose 17 cents to $140 a barrel on the ICE Futures exchange in London.

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2008-06-26T14:28:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Economy




WASHINGTON (AP) - The economy turned in a better - but still subpar - performance in the first three months of this year, mostly spurred by stronger sales of U.S. products overseas.

The 1 percent annualized increase in gross domestic product, announced by the Commerce Department on Thursday, marked a slight improvement from the government's previous estimate of 0.9 percent growth for the January-to-March quarter. And, it showed the economy logging stronger growth than the feeble 0.6 percent pace registered in the final three months of last year.

Still, the first quarter's performance pointed to a fragile economy, shaken by housing, credit and financial debacles. That has made people and businesses more cautious in their spending and investment, restraining overall economic activity. More normal growth would be along the lines of a 2.5 percent to 3 percent pace, analysts said.

Gross domestic product, or GDP, measures the value of all goods and services produced within the United States and is the best barometer of the nation's economic fitness. The latest GDP reading matched economists' forecasts.

With inflation concerns growing, the Federal Reserve on Wednesday ended a nearly yearlong string of interest rate reductions to bolster the economy.

Fed policymakers expressed hope that its powerful series of rate reductions will spur better growth over time. They noted that economic activity was continuing to expand, partly reflecting "some firming in household spending."

The government's tax rebates, the centerpiece of a $168 billion stimulus package, have helped to energize consumer spending in recent months.

If lucky, the Fed will be able to leave rates where they are for a while so that the economy can gain traction. However, some believe the Fed might be forced to boost rates later this year to fend off inflation.

Others think the Fed won't start to push up rates until next year. Either way, the Fed's next move on rates is likely to be up - not down, analysts said. The timing will hinge on how energy and food prices, as well as other inflation barometers, behave in the months ahead.

There's been a lot of talk about whether the country has fallen into a recession. The new GDP statistics did not meet what analysts consider one definition of a recession - two straight quarters of shrinking economic activity. But that didn't happen in the last recession in 2001, either. And other barometers - nationwide job losses and shriveling paychecks - have pointed to a possible downturn.

Some analysts believe the economy in the current April-to-June quarter is growing at a pace of just over 1 percent. With consumers recently showing an improved appetite to spend, some analysts now think the second quarter will perform better than earlier estimates for little, if any, growth for the quarter. At one point, some thought the economy might actually contract.

Fallout from the housing crisis continued to be a big drag on overall economic growth: builders slashed spending on housing projects in the first quarter by 24.6 percent on an annualized basis. That wasn't as deep, though, as the 25.2 percent annualized cut made in the fourth quarter.

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2008-06-26T11:40:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Economy Over the last couple of weeks it's become clear that we are entering a new period of staglation, that horrible condition of low growth and rising inflation that characterized much of the 70s.


Sam Cass
BestCashCow.com
Submitted: Nov 8, 2007


Over the last couple of weeks it's become clear that we are entering a new period of staglation, that horrible condition of low growth and high inflation that characterized much of the 70s.

Now, many of you will point to the government's numbers and say that inflation isn't that bad. As I wrote in a previous article : American Standard of Living in Decline the cost of purchasing real products and services has increase dramatically over the last five years. At the same time, most salaries have remained stagnant. Companies still pass on salary increases of 3% while healthcare costs increase by 7-12% per year alone. Clearly, the average paycheck isn't going as far.

Normally, prices increase when the economy is doing well. People earn more, spend more, and this drives up the prices for goods and services. But that's not what's happening today. Instead our costs are being driven up by soaring energy costs as well as an aging population that is driving up healthcare. The collapse of the dollar only adds to inflation by increasing the price of good purchased from overseas.

At the same time, employers can't raise salaries because of stiff competition from China, India, and other foreign countries.

The results, which we are seeing the quarterly profit reports of companies like GM, Citicorp, etc. is falling profits for companies and less disposable income for employees.

Can staglation be beaten? Yes, but not without some structural changes to the economy. Healthcare costs have to be contained or they will continue to eat up a bigger and bigger share of our nation's output. And, we must begin to wean outselves off oil and find other alternatives that provide reliable, inexpensive sources of energy. Lastly, we must work through the consequences of one of the largest housing bubbles in the nation's history, a painful and potentially long process.

We've become accustomed to the stock market rebounding, to things getting better. But in an era of staglation, things might get much worse before they get better.

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2008-06-26T11:36:00-06:00 Staff editor@TheRochesterDemocrat.com Business



By Josh P. Hamilton and Erik Holm
Bloomberg News
June 25, 2008


Billionaire investor Warren Buffett says he's concerned about ``stagflation,'' or slowing in the U.S. economy while inflation accelerates.

``We're right in the middle of it right now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., in an interview on Bloomberg Television today. ``I think the `flation' part will heat up and I think the `stag' part will get worse.''

Buffett, the world's richest person, runs a company with a $72 billion stock portfolio and businesses ranging from candy to corporate jet leasing and insurance. He's said the U.S. housing slump has been a drag on Berkshire's earnings, adding today he's unsure when the economy will recover.

``It's not going to be tomorrow, it's not going to be next month, and may not even be next year,'' said Buffett, 77.

The U.S. economy will expand 1.4 percent in 2008, the weakest performance since 2001, according to a survey by Bloomberg. The Federal Reserve today left its benchmark interest rate at 2 percent, saying ``uncertainty about the inflation outlook remains high.'' Consumer prices rose 4.2 percent in the 12 months ended in May, the fastest pace since January.

Buffett, whose Berkshire is the second-largest shareholder of Anheuser-Busch Cos., declined to comment on InBev NV's $46.3 billion bid for the St. Louis-based brewer. He disavowed comments in the media attributed to him about whether he favors the offer.

Mistaken Identity

``I've been reported to be in St. Louis, I've been reported to be at dinner with August Busch IV,'' Buffett said referring to the chief executive officer of the brewer. ``There must be some guy in St. Louis that looks a lot like me, because I have not been in St. Louis since this started.''

Federal regulators may not need to step in to help Lehman Brothers Holdings Inc., the securities firm that lost about 62 percent of its market value this year, Buffett said.

``The fact that they intervened on Bear Stearns prevents them from needing to intervene on other large investment banks,'' Buffett said. ``The very act of the fire engine showing up when there was a fire means that other fires won't break out in this particular case.''

The second-largest underwriter of mortgage debt last year, Bear Stearns Cos. sold itself after an exodus of clients and lenders threatened to plunge the company into bankruptcy. New York-based JPMorgan Chase & Co. agreed in March to buy Bear Stearns with backing from the Fed.

Buffett also praised Barack Obama, the Democratic senator from Illinois running for president against Republican John McCain, an Arizona senator.

Charity Lunch

``He will have more concern for the people who don't get the lucky breaks in life like I've gotten,'' said Buffett, ranked the richest man by Forbes magazine.

Buffett spoke before a scheduled lunch with two money managers who paid $650,100 last year for the privilege. The money goes to San Francisco's Glide Foundation, which provides food, medical care and other services to the poor.

The foundation ``takes people who have hit bottom, and brings them back,'' said Buffett.

The ninth-annual auction for lunch with Buffett began June 22 on EBay Inc. and runs through June 27. The high bid so far is $77,100.


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2008-06-25T21:48:00-06:00 Staff editor@TheRochesterDemocrat.com Federal Reserve



WASHINGTON (AP) - With inflation moving higher on its worry list, the Federal Reserve held interest rates steady Wednesday, ending nearly a year of cuts to bolster the economy, and hinted that the next direction for rates could be up.

Fed Chairman Ben Bernanke and all but one of his central bank colleagues agreed that the best course was to leave a key rate alone at 2 percent, as the country slogs through the crosscurrents of plodding economic growth and zooming energy and food prices that threaten to spread inflation.

That meant the prime lending rate for millions of consumers and businesses stayed at 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

The decision brought to a close a powerful series of rate reductions that started in September and extended through late April. It was the central bank's most aggressive intervention in two decades to shore up an economy bruised by the trio of housing, credit and financial crises.

The Fed said it believes its rate cuts will "promote moderate growth over time" as they work their way through the economy. It also said risks that economic growth will falter appear to have "diminished somewhat."

At the same time, the Fed expressed heightened concern about inflation.

"Upside risks to inflation and inflation expectations have increased," the Fed said. Inflation eats into paychecks, corporate profits and erodes the value of investments. It is hard to control once it gets out of hand.

Some Wall Street investors and economists think the Fed, to fend off inflation, might be forced to start boosting rates as early as its next meeting on Aug. 5 or toward the end of this year - possibly at the Dec. 16 meeting.

Others, however, think that's a situation the Fed would like to avoid - especially given that the housing market is stuck in a deep slump, foreclosures are at record highs and jobs are harder to find. Raising rates too soon could hurt housing and deal a setback to the national economy. Those analysts believe the Fed won't start to push up rates until next year.

The Fed didn't signal that a rate increase was imminent, instead leaving the timing open.

However one member - Richard Fisher, president of the Federal Reserve Bank of Dallas, wanted to increase rates at Wednesday's meeting. Fisher, who has a reputation for being extra vigilant on inflation, was the sole dissenter.

"The needle is shifting more to greater concerns over inflation as opposed to economic growth," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group. "That means the Fed's next move in interest rates will be up but the Fed left its options open with respect to timing."

Although Fed policymakers believed the economy would eventually gain some traction, they acknowledged that conditions are delicate and the economy is not out of the woods yet.

"Labor markets have softened further and financial markets remain under considerable stress," the Fed said. "Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters."

The economy has grown at a snail's pace in recent months. And, employers have cut jobs every month so far this year. The unemployment rate jumped from 5 percent in April to 5.5 percent in May, the largest one-month increase in two decades. The unemployment rate is expected to keep on rising in the months ahead, even if economic growth improves somewhat.

Hours before the Fed's decision, the government released a report underscoring the depth of the housing slump. New-home sales fell 2.5 percent in May, while home prices were down 5.7 percent from a year earlier, the Commerce Department said.

Mortgage rates are rising - spurred by investors' concerns about inflation. Those higher rates spell yet more headaches for the flailing housing market.

In a string of speeches over the past few weeks, Bernanke and his colleagues have ramped up tough anti-inflation talk. They've done that to rein in inflation expectations of consumers, investors and businesses. If those groups think prices will keep on rising, they'll act in ways that can worsen inflation.

Bernanke, in a rare public utterance for a Fed chief, also has sounded a warning that the slide in the U.S. dollar could contribute to a rise in inflation. He has sought to use words - instead of action - to bolster the dollar and try to lessen inflation pressures.

Consumer prices in the first five months of this year have risen at an annual rate of 4 percent. That's down from a 4.1 percent increase last year - the biggest jump in 17 years - but is still too high for the Fed's liking. Gasoline prices and oil prices have set a string of record highs. Gas has topped $4 a gallon, while oil prices are at $134.55 a barrel.

The Fed said it expects inflation to moderate later this year and next but said rising prices for energy, food and other commodities are a cause of concern. Those increases have made people boost their inflation expectations. Thus, "uncertainty about the inflation outlook remains high," the Fed said.


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2008-06-25T12:03:00-06:00 Staff editor@TheRochesterDemocrat.com Federal Reserve, Recession




WASHINGTON (AP) - Federal Reserve Chairman Ben Bernanke and his colleagues are updating Teddy Roosevelt's admonition to speak softly and carry a big stick. The Fed policymakers are starting to raise their voices while brandishing the stick even though they don't appear ready to use it.

When the Fed concludes a two-day meeting on Wednesday, it is widely expected that the central bank will express more concerns about inflation and in that way signal that rate increases could be on the way.

However, at the same time, private economists are widely in agreement that the Fed will not actually start raising interest rates, given how weak the economy is at the moment.

"The Fed is caught between a rock and a hard place," said Sung Won Sohn, an economics professor at California State University. "The economy seems to be slipping into a recession at the same time that inflation is getting worse."

There was more bad news Tuesday when the Conference Board reported that its gauge of consumer sentiment dropped in June to the lowest reading in 16 years as soaring gas prices, rising unemployment and sinking home values continued to batter Americans.

The opposing forces of weak growth and recession put the central bank in a bind. Its main policy tool - changes in interest rates - can only address one of those problems at a time. The Fed can cut interest rates to spur consumer and business spending and economic growth or it can raise interest rates to slow spending and growth and ease inflation pressures.

From September through April, the Fed aggressively cut interest rates seven times in an effort to keep a severe credit crunch and prolonged housing slump from pushing the country into a deep recession.

However, after a series of sizable rate cuts as the credit crisis was roiling global financial markets at the beginning of this year, the Fed at its last meeting in April reduced rates by a more modest quarter-point. That pushed the federal funds rate, the interest that banks charge each other, down to 2 percent. The funds rate had been at 5.25 percent before the central bank began cutting rates on Sept. 18.

If the Fed leaves the funds rate unchanged, it will mean that commercial banks' prime lending rate, the benchmark for millions of business and consumer loans, will remain unchanged as well at 5 percent, the lowest it has been since late 2004. It will be the first Fed meeting without any change in interest rates since August.

While a stand-pat rate decision is widely anticipated, financial markets will be closely watching exactly how Bernanke and his colleagues explain their views about economic conditions. Investors will be searching for clues on whether the Fed is feeling increasing pressure to start raising interest rates in light of soaring prices for oil, food and other commodities.

In a speech on June 9, Bernanke took a tough line on inflation, saying that the Fed would "strongly resist an erosion of longer-term inflation expectations." Those comments and tough talk from other Fed officials unnerved investors who went from thinking the Fed might leave rates unchanged for most of this year to starting to worry that rate hikes could begin this summer.

It also left some economists grumbling that once again the Bernanke Fed was unnecessarily roiling markets.

"When it comes to clearly communicating policy intentions to financial markets, the Bernanke Fed has been the gang that can't shoot straight," said Stephen Stanley, chief economist at RBS Greenwich Capital.

Other analysts, however, said it might have been Bernanke's intent to send out a strong anti-inflation warning, especially since it was coupled with a comment in an earlier speech about the Fed chief's concerns that the weak dollar was adding to U.S. inflation problems. The remarks taken together had the impact of bolstering the dollar, which had been tumbling.

Bernanke was assisted in his efforts to talk up the value of the dollar by President Bush and Treasury Secretary Henry Paulson as the administration has grown worried that the dollar's weakness has contributed to the big jump in oil prices, which are priced in dollars.

Some economists saw the comments by Bernanke and his colleagues as an effort to convince the markets that the central bank is serious about fighting inflation without having to start raising interest rates at a time when the economy remains very weak.

"It is a tricky thing that the Fed is trying to pull off here, trying to keep rates low enough to help the economy while not igniting rising inflation expectations," said Mark Zandi, chief economist at Moody's Economy.com.

The last thing the central bank wants is a repeat of the 1970s, when successive oil price shocks did trigger a wage-price spiral that sent inflation soaring and was only subdued when the Fed under Paul Volcker pushed interest rates to levels not seen since the Civil War.

"In the 1970s, the Fed allowed inflation expectations to get out of control. The central bank does not want that to happen again," said David Jones, head of DMJ Advisors, a Denver-based consulting firm.

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2008-06-24T15:38:00-06:00 Staff editor@TheRochesterDemocrat.com Business



NEW YORK (AP) - U.S. consumer confidence fell unexpectedly sharply in June, sinking to its lowest level in more than 16 years, according to a private industry group.

The report Tuesday also said the group's reading of consumers' expectations hit an all-time low as home prices tumbled while gasoline and food prices rose. A separate index of home prices saw the largest drop since its inception in 2000. The news sent stocks lower in morning trading.

The Conference Board's consumer confidence index fell to 50.4 this month, the lowest since February 1992. The index dropped from from 58.1 in May, a much steeper decline than economists expected. The consensus estimate of economists surveyed by Thomson/IFR was 56.5 for June.

Inflation, political flux and job insecurity have created an "uncertainty more acute, perhaps, than any time since 9-11," said William Hummer, chief economist at Wayne Hummer Investments.

"I don't think this can be purged immediately by an election or anything else," he said. "I think it's endemic, deep-rooted and likely to persist."

The reading, based on a survey of 5,000 representative U.S. households, suggests "the economy remains stuck in low gear," said Lynn Franco, the Conference Board's director of consumer research.

Separately, prices in all 20 cities tracked by the Standard & Poor's/Case-Shiller home price index posted annual declines, hitting levels not seen since August 2004. The narrower 10-city index declined 16.3 percent in April, the largest decline in its more than two-decade history.

Stocks fell in morning trading on the data, as well as a profit warning from shipper UPS Inc., which said an "anemic" economy and high fuel costs had led to a decline in package volume.

The Dow Jones industrial average was down 85.82, or 0.72 percent, at 11,756.54 in morning trading. The Standard & Poor's 500 was down 9.75, or 0.74 percent, at 1,308.25 and the Nasdaq composite was down 30.25, or 1.27 percent, at 2,355.49.


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2008-06-17T14:04:00-06:00 Staff editor@TheRochesterDemocrat.com U.S. Treasury



OSAKA (AFP) - US Treasury Secretary Henry Paulson said Saturday a strong dollar was in his nation's interests and solid US economic fundamentals would support the currency in the long term.

"With regard to the dollar, my view has not changed: a strong dollar is in our nation's interest," he told a press conference after a meeting of Group of Eight finance ministers here.

Traders say that Washington appears to have been ratcheting up the rhetoric recently to talk up the US currency so as to keep a lid on inflation and limit the need for higher interest rate hikes that could stifle economic growth.

"Our economy is going through a tough period right now but that we've got strong long-term fundamentals. I believe that those fundamentals will be reflected in the currency," Paulson said.

He said the G8 had discussed foreign exchange rates during their talks but did not give details. With central bank chiefs absent from the meeting, currencies were not mentioned in the G8's final joint statement.

There has been speculation among currency traders that the G8 may consider a foray onto the market to prop up the dollar if it comes under renewed selling pressure, but Paulson sidestepped a question about possible intervention.

He said the US economy still faced challenges.

"With regard to housing, this is still the biggest risk to the downside in our economy. We're making progress working through the correction but I believe it's very likely that this will spill over into next year," he said.

US capital markets were "still under stress and as I said before we're making progress but there are going to be bumps in the road," he added.


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2008-06-17T14:02:01-06:00 Staff editor@TheRochesterDemocrat.com Federal Reserve

By JEANNINE AVERSA,
AP Economics Writer
Mon Jun 16, 2:23 PM ET


WASHINGTON - Bolstering the performance of the U.S. health care system is one of the biggest challenges facing the country, Federal Reserve Chairman Ben Bernanke said Monday.

New medical technologies and treatments are allowing people to live healthier, longer and more productive lives. However, the aging of millions of baby boomers coupled with rapidly rising heath care costs are accounting for an ever-growing share of both personal and government budgets — strains that will become increasingly burdensome unless changes are made, the Fed chief warned.

Challenges, he said, fall into three major areas: improving access to health care for the 47 million Americans — or about 16 percent of the population — who lack health insurance; bolstering the quality of care; and controlling costs.

"Improving the performance of our health care system is without a doubt one of the most important challenges our nation faces," Bernanke said in remarks to a summit on health care reform organized by a Senate panel on Capitol Hill.

The Fed chief didn't talk about the Fed's next move on interest rates or the state of the U.S. economy in his speech or during a brief question and answer session afterward.

Many economists believe the Fed will hold a key interest rate steady at 2 percent, a four-year low, when it meets next week. Bernanke and other Fed officials have sent strong signals that the Fed's rate-cutting campaign, started last September to shore up the ailing economy, was probably over because of mounting concerns about inflation.

Wall Street investors and some other believe that the Fed might be forced to raise rates later this year to thwart a dangerous inflation flare-up. Others, however, still think the Fed will be able to hold rates steady through the rest of this year.

It's a difficult spot for Fed policymakers. They are trying to aid an economy that has been badly bruised by the blows of a housing, credit and financial debacles. At the same time, they don't want inflation to take off. If the Fed were to start boosting rates too soon to fend off inflation, that could deal a set back to already fragile economic growth.

On the health care front, Bernanke didn't recommend specific solutions, saying the difficult choices involved with improving access and quality, and controlling costs were best left to policymakers in Congress, the White House and elsewhere.

"Taking on these challenges will be daunting," he said. Given the complexity of health care matters, he suggested that it might be better for policymakers to consider an "eclectic approach," rather than one single set of reforms to address all concerns.

"We may need to first address the problems that seem more easily managed rather than waiting for a solution that will address all problems at once," Bernanke offered.

When policymakers contemplate changes, Bernanke urged them to "not lose what is good about our system." The system has produced innovations in basic science, in the understanding and diagnosing of disease and in advancements in medical technology, he pointed out. These advances have produced more effective treatments and significant reductions in mortality across a wide spectrum of diseases, he added.

Bernanke, once again, warned high health care costs will put an increasing strain on people's and government's budgets, unless those costs are curbed.

Spending on health care is the single-largest component of overall consumer spending — larger than spending on either housing or food, Bernanke said. For the federal government, spending on health care accounts for about one-quarter of total spending. By 2050, it will account for almost one half, Bernanke said.

"Per capita health care spending in the United States has increased at a faster rate than per capita income for a number of decades," he said. "Should that trend continue, as many economists predict it will, the share of income devoted to paying for health care will rise relentlessly," Bernanke predicted. That will make health insurance and out-of-pocket payments increasingly unaffordable, he said.

However, if the government doesn't rein in the growth of entitlement programs, such as Medicare and Social Security, those exploding costs in time will balloon the U.S. budget deficit, which would hurt the country's long-term economic vitality and could lead to higher interest rates, Bernanke said. "Certainly, it will have effects on interest rates, it will have effects on economic growth and on stability," he said.

The government, he said, needs to move ahead sooner, rather than later, because these issues "are not going to get better" and instead will only "get worse."

___

On the Net:

Federal Reserve: http://www.federalreserve.gov/


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2008-06-17T13:58:00-06:00 Staff editor@TheRochesterDemocrat.com Housing


WASHINGTON (Reuters) - U.S. housing starts slid 3.3 percent in May to their lowest level in more than 17 years, while permits for future construction also fell, signaling more weakness ahead for the battered U.S. housing sector.

The Commerce Department on Tuesday said housing starts set an annual