Published: Thursday, 8 Jul 2010 | 8:34 AM ET CNBC
New U.S. claims for unemployment insurance fell more than expected last week, government data showed on Thursday, while the number of people continuing to receive benefits in the final week of June was the lowest in seven months.
Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 454,000 in the week ended July 3, the lowest level since early May, the Labor Department said.
Analysts polled by Reuters had expected claims to fall to 460,000 from the previously reported 472,000, which was revised up to 475,000 in Thursday's report.
The four-week moving average of new jobless claims, seen as a better measure of underlying labor market trends, fell 1,250 to 466,000.
Stock index futures, which had been flat earlier, jumped on the jobs news, while Treasurys prices slipped and pushed the yield on the 10-year note above 3 percent.
Although a Labor Department official said there was nothing unusual in the report, the decline in claims could have been exaggerated by the fact that General Motors is limiting its annual summer plant shutdown.
General Motors announced last month that nine of its 11 domestic assembly plants would continue operating during the June 28 to July 9 shutdown to meet demand for some models.
Automakers use the summer shutdowns to complete the annual model changeover and support maintenance operations, and analysts have cautioned that this might distort claims data over the coming weeks and make it difficult to get a clear pulse of the jobs market's health.
A sluggish labor market is blunting the economy's recovery from the longest and deepest recession since the 1930s. High unemployment is putting a damper on spending, fanning fears among investors the economy could fall back into recession.
Last month, private hiring rose by 83,000 after rising only 33,000 in May, the government said on Friday. But total non-farm employment dropped 125,000 as the government laid off 225,000 temporary census workers.
Although layoffs have abated, claims for jobless benefits have not declined significantly this year, and analysts say this implies only a gradual labor market improvement.
The number of people still receiving benefits after an initial week of aid dropped 224,000 to 4.41 million in the week ended June 26, the lowest since November last year, the Labor Department said. The level was way below market expectations for 4.60 million.
The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, fell to 3.4 percent in the week ended June 26 from 3.6 percent the prior week.
Thursday, July 8, 2010
US Consumer Credit Plunges in May
Published: Thursday, 8 Jul 2010 | 3:18 PM
CNBC
U.S. consumer credit plunged in May and was revised down sharply for the prior month, suggesting Americans are still leery of taking on new debt despite rock-bottom interest rates.
The Federal Reserve said Thursday that total outstanding consumer credit to U.S consumers fell by $9.15 billion in May.
The Federal Reserve said on Thursday total outstanding credit to U.S. consumers, everything from car loans to credit cards, fell $9.15 billion, much sharper than forecasts for a $2 billion decrease. April's reading was revised to a hefty $14.86 billion drop from the originally reported rise of $1 billion.
Consumer credit peaked around $2.58 trillion in July 2008, just before a worsening of the credit crisis brought down financial giants like Lehman Brothers and American
Revolving credit, mainly credit card accounts, was down $7.32 billion, while non-revolving loans for things like cars, boats and a college education fell $1.82 billion.
CNBC
U.S. consumer credit plunged in May and was revised down sharply for the prior month, suggesting Americans are still leery of taking on new debt despite rock-bottom interest rates.
The Federal Reserve said Thursday that total outstanding consumer credit to U.S consumers fell by $9.15 billion in May.
The Federal Reserve said on Thursday total outstanding credit to U.S. consumers, everything from car loans to credit cards, fell $9.15 billion, much sharper than forecasts for a $2 billion decrease. April's reading was revised to a hefty $14.86 billion drop from the originally reported rise of $1 billion.
Consumer credit peaked around $2.58 trillion in July 2008, just before a worsening of the credit crisis brought down financial giants like Lehman Brothers and American
Revolving credit, mainly credit card accounts, was down $7.32 billion, while non-revolving loans for things like cars, boats and a college education fell $1.82 billion.
Double Dip or a Bull Market? Earnings Could Tell the Story
Published: Thursday, 8 Jul 2010 | 5:16 PM ET
CNBC
With investors wrestling over whether the market has seen merely a normal pullback or is teetering on brink of something far worse, investors again are likely to focus far more on what companies see in their future than what happened in their past.
"It's not really going to be about the numbers themselves. No one's expecting a lot of top-line growth, no one's expecting blowout earnings except in rare cases," says Michael Cohn, chief investment strategist at Global Arena Investment Management in New York. "It's all about the outlook."
Indeed, expectations from the April through June reporting season are fairly muted.
The Standard & Poor's 500 [.SPX 1070.25 9.98 (+0.94%) ] components are likely to see about a 27 percent earnings growth from the same period in 2009, according to Bank of America Merrill Lynch.
But 2009 numbers provide dubious competition: The economy then remained in the throes of the deepest downturn since the Great Depression and companies were taking essentially a kitchen-sink approach to cutting expenses rather than generating revenue.
Analysts this time around are hopeful that companies will begin to show more progress that growth isn't simply on inventory rebuilding and doing more with less, but with actual increases in production and consumption.
"This isn't a double-dip, it's just a soft spot. We get one in every recovery," says Burt White, chief investment officer at LPL Financial in Boston. "We think the top line is going to definitely move forward and probably be at a post-recession post-crisis high and we're going to be moving in a very positive direction."
Though the economy continues to confront challenges from high unemployment and sovereign debt issues in Europe, White thinks the bigger picture shows a much healthier US economy.
He specifically likes the technology and consumer discretionary sectors while being more pessimistic about energy and materials.
"The bigger issue is the fact that interest rates are zero, the Fed is on the sidelines, input costs are down and employment is moving forward but at a very slow rate, which means profit margins will be very good," he says. "You mix that all together and you end up with a pretty good temperature for companies."
Despite a generally positive mood for earnings, analysts lately have been uniformly shaving both their projections for gross domestic product and employment growth.
BofA/Merrill Lynch cut its 2010 GDP projection from 3.2 to 3.0 percent and the 2011 figure from 3.3 percent to 2.6 percent, while saying its projection for the S&P above 1300 no longer stood. Standard & Poor's itself recently pulled back its projection for the 500 from 1270 to 1190.
But neither firm said the revisions would be reflected in corporate earnings.
"We have long argued that S&P 500 has limited exposure to US consumer discretionary spending and home construction," BofAML analysts said in a research note. "Hence these revisions to US GDP estimates have little impact to our S&P 500 EPS."
Nevertheless, the convergence of conflicting signals provides a tough landscape—weighing relatively good company prospects against signs in the economy that continue to scare investors and keep nearly $3 trillion on the sidelines in money market accounts.
"[E]ven though S&P equity analysts' earnings prospects are positive, our economic forecast is neutral, while our technical outlooks is decidedly negative," Sam Stovall, S&P's chief investment strategist, said in a note.
"Specifically, deteriorating technical equity and fixed-income market indicators and unfavorable historical precedents, combined with heightened volatility...increase the range of investment outcomes, in our view, and merit a more conservative investment stance," he added.
S&P remains on the high side for its earnings projections, looking for a total gain of 42 percent in the quarter and 44 percent for the year, financials, materials and energy leading the way.
Not everyone is so optimistic.
"Earnings may surprise to the upside, causing the market to bounce one more time. But the real issue is consumption and the deflationary environment," says Mike Rubino, CEO of Rubino Financial Group in Troy, Mich. "We do expect downward revisions in the second quarter, which will lead to a cascading of the market."
A number of companies have come to what is referred as the "confessional," with preannouncements to brace the market for what is ahead.
While negative preannouncements have outnumbered the positive by a 70 to 59 margin, that's actually less than the normal 2-to-1 downward ratio.
"It's called under-promise and outperform," Global Arena's Cohn says. "It's going to be tough sledding. There is a good possibility that if the worst doesn't come to fruition by the end of the third quarter, then the market could move up nicely in the fourth quarter."
CNBC
With investors wrestling over whether the market has seen merely a normal pullback or is teetering on brink of something far worse, investors again are likely to focus far more on what companies see in their future than what happened in their past.
"It's not really going to be about the numbers themselves. No one's expecting a lot of top-line growth, no one's expecting blowout earnings except in rare cases," says Michael Cohn, chief investment strategist at Global Arena Investment Management in New York. "It's all about the outlook."
Indeed, expectations from the April through June reporting season are fairly muted.
The Standard & Poor's 500 [.SPX 1070.25 9.98 (+0.94%) ] components are likely to see about a 27 percent earnings growth from the same period in 2009, according to Bank of America Merrill Lynch.
But 2009 numbers provide dubious competition: The economy then remained in the throes of the deepest downturn since the Great Depression and companies were taking essentially a kitchen-sink approach to cutting expenses rather than generating revenue.
Analysts this time around are hopeful that companies will begin to show more progress that growth isn't simply on inventory rebuilding and doing more with less, but with actual increases in production and consumption.
"This isn't a double-dip, it's just a soft spot. We get one in every recovery," says Burt White, chief investment officer at LPL Financial in Boston. "We think the top line is going to definitely move forward and probably be at a post-recession post-crisis high and we're going to be moving in a very positive direction."
Though the economy continues to confront challenges from high unemployment and sovereign debt issues in Europe, White thinks the bigger picture shows a much healthier US economy.
He specifically likes the technology and consumer discretionary sectors while being more pessimistic about energy and materials.
"The bigger issue is the fact that interest rates are zero, the Fed is on the sidelines, input costs are down and employment is moving forward but at a very slow rate, which means profit margins will be very good," he says. "You mix that all together and you end up with a pretty good temperature for companies."
Despite a generally positive mood for earnings, analysts lately have been uniformly shaving both their projections for gross domestic product and employment growth.
BofA/Merrill Lynch cut its 2010 GDP projection from 3.2 to 3.0 percent and the 2011 figure from 3.3 percent to 2.6 percent, while saying its projection for the S&P above 1300 no longer stood. Standard & Poor's itself recently pulled back its projection for the 500 from 1270 to 1190.
But neither firm said the revisions would be reflected in corporate earnings.
"We have long argued that S&P 500 has limited exposure to US consumer discretionary spending and home construction," BofAML analysts said in a research note. "Hence these revisions to US GDP estimates have little impact to our S&P 500 EPS."
Nevertheless, the convergence of conflicting signals provides a tough landscape—weighing relatively good company prospects against signs in the economy that continue to scare investors and keep nearly $3 trillion on the sidelines in money market accounts.
"[E]ven though S&P equity analysts' earnings prospects are positive, our economic forecast is neutral, while our technical outlooks is decidedly negative," Sam Stovall, S&P's chief investment strategist, said in a note.
"Specifically, deteriorating technical equity and fixed-income market indicators and unfavorable historical precedents, combined with heightened volatility...increase the range of investment outcomes, in our view, and merit a more conservative investment stance," he added.
S&P remains on the high side for its earnings projections, looking for a total gain of 42 percent in the quarter and 44 percent for the year, financials, materials and energy leading the way.
Not everyone is so optimistic.
"Earnings may surprise to the upside, causing the market to bounce one more time. But the real issue is consumption and the deflationary environment," says Mike Rubino, CEO of Rubino Financial Group in Troy, Mich. "We do expect downward revisions in the second quarter, which will lead to a cascading of the market."
A number of companies have come to what is referred as the "confessional," with preannouncements to brace the market for what is ahead.
While negative preannouncements have outnumbered the positive by a 70 to 59 margin, that's actually less than the normal 2-to-1 downward ratio.
"It's called under-promise and outperform," Global Arena's Cohn says. "It's going to be tough sledding. There is a good possibility that if the worst doesn't come to fruition by the end of the third quarter, then the market could move up nicely in the fourth quarter."
Joblessness and housing add risks to U.S. recovery: IMF
WASHINGTON | Thu Jul 8, 2010 4:33pm EDT
WASHINGTON (Reuters) - High unemployment and a moribund housing market have increased risks to the U.S. economic recovery, while the public debt looms large and needs to be cut, the International Monetary Fund said on Thursday.
In a statement after annual consultations with U.S. authorities, the IMF raised its U.S. growth forecasts slightly to 3.3 percent for 2010 and 2.9 percent for 2011, but said unemployment would remain above 9 percent for both years.
The lofty jobless rate, coupled with a large backlog of home foreclosures and high levels of negative home equity, posed risks of a "double dip" in the housing market, it said. But the IMF said it did not think a renewed recession was likely.
"The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending," the Fund said.
The IMF also said commercial real estate continued to deteriorate, posing risks for smaller banks. Further tipping the balance of risks to the downside, it said Europe's sovereign debt crisis could worsen financial market conditions and hurt trade.
David Robinson, the IMF's Western Hemisphere deputy director, conceded in a news briefing that recent data had come in on the weak side since the report was completed on June 21. If the weakness continued, the Fund may have to revise its forecasts downward, he said.
In a separate report on the world economy, the IMF raised its 2010 global growth forecast to 4.6 percent from the 4.2 percent it had projected in April.
DEBT BURDEN
Apart from dealing with economic risks, the IMF said the key challenge for the United States was to develop a credible strategy to put its budget on a sustainable path without jeopardizing the recovery.
The fund said U.S. federal debt as a percentage of gross domestic product would rise from 64 percent in 2010 to 72.4 percent by 2012, 96.3 percent by 2020 and 135 percent by 2030.
It welcomed commitments by the Obama administration to stabilize this at just over 70 percent of GDP by 2015 but called for a downward path after that, a step that would require both spending cuts and increased revenues.
The IMF said the biggest contribution the United States could make to global growth and stability would be to increase its domestic savings -- particularly by reducing deficits.
"The U.S. is no longer going to be the global consumer of last resort and therefore other countries, especially those with current account surpluses, will need to take up the slack," Robinson said.
"With our assessment that the dollar is now somewhat overvalued from a medium-term perspective, I emphasize medium-term, this will also need to be accompanied by greater exchange rate flexibility and appreciation elsewhere," he added.
Robinson said he believed the dollar's value would decline moderately over the next five years based on economic fundamentals. The dollar's rise in recent months was "not helpful" in sustaining global recovery but was not a "deal breaker" either, he said.
The Fund said the Federal Reserve's pledge to keep interest rates exceptionally low was appropriate to fight deflation and the drag on the economy from reduced government spending, but said the U.S. central bank must clearly communicate its plans for exiting its supportive policies.
The IMF also said that while the United States has made considerable progress in restoring financial stability, more capital will be needed in the banking system to support additional lending -- particularly if securitization markets remain impaired.
It said U.S. financial reform legislation would reduce systemic risks in the financial system, but noted that Congress missed an opportunity to consolidate bank regulators, maintaining a burden on agencies to cooperate and avoid gaps in supervision.
WASHINGTON (Reuters) - High unemployment and a moribund housing market have increased risks to the U.S. economic recovery, while the public debt looms large and needs to be cut, the International Monetary Fund said on Thursday.
In a statement after annual consultations with U.S. authorities, the IMF raised its U.S. growth forecasts slightly to 3.3 percent for 2010 and 2.9 percent for 2011, but said unemployment would remain above 9 percent for both years.
The lofty jobless rate, coupled with a large backlog of home foreclosures and high levels of negative home equity, posed risks of a "double dip" in the housing market, it said. But the IMF said it did not think a renewed recession was likely.
"The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending," the Fund said.
The IMF also said commercial real estate continued to deteriorate, posing risks for smaller banks. Further tipping the balance of risks to the downside, it said Europe's sovereign debt crisis could worsen financial market conditions and hurt trade.
David Robinson, the IMF's Western Hemisphere deputy director, conceded in a news briefing that recent data had come in on the weak side since the report was completed on June 21. If the weakness continued, the Fund may have to revise its forecasts downward, he said.
In a separate report on the world economy, the IMF raised its 2010 global growth forecast to 4.6 percent from the 4.2 percent it had projected in April.
DEBT BURDEN
Apart from dealing with economic risks, the IMF said the key challenge for the United States was to develop a credible strategy to put its budget on a sustainable path without jeopardizing the recovery.
The fund said U.S. federal debt as a percentage of gross domestic product would rise from 64 percent in 2010 to 72.4 percent by 2012, 96.3 percent by 2020 and 135 percent by 2030.
It welcomed commitments by the Obama administration to stabilize this at just over 70 percent of GDP by 2015 but called for a downward path after that, a step that would require both spending cuts and increased revenues.
The IMF said the biggest contribution the United States could make to global growth and stability would be to increase its domestic savings -- particularly by reducing deficits.
"The U.S. is no longer going to be the global consumer of last resort and therefore other countries, especially those with current account surpluses, will need to take up the slack," Robinson said.
"With our assessment that the dollar is now somewhat overvalued from a medium-term perspective, I emphasize medium-term, this will also need to be accompanied by greater exchange rate flexibility and appreciation elsewhere," he added.
Robinson said he believed the dollar's value would decline moderately over the next five years based on economic fundamentals. The dollar's rise in recent months was "not helpful" in sustaining global recovery but was not a "deal breaker" either, he said.
The Fund said the Federal Reserve's pledge to keep interest rates exceptionally low was appropriate to fight deflation and the drag on the economy from reduced government spending, but said the U.S. central bank must clearly communicate its plans for exiting its supportive policies.
The IMF also said that while the United States has made considerable progress in restoring financial stability, more capital will be needed in the banking system to support additional lending -- particularly if securitization markets remain impaired.
It said U.S. financial reform legislation would reduce systemic risks in the financial system, but noted that Congress missed an opportunity to consolidate bank regulators, maintaining a burden on agencies to cooperate and avoid gaps in supervision.
Tuesday, April 6, 2010
U.S. Stocks Advance as Fed Signals Plans to Leave Rates Low
April 6 (Bloomberg) -- U.S. stocks rose for a third day as the Federal Reserve suggested it plans to leave its benchmark interest rate at a record low to safeguard the economic recovery and banks rallied on analyst upgrades.
SunTrust Banks Inc. rose 3.6 percent as Credit Suisse Group AG said the lender may be a takeover target, while Regions Financial Corp. jumped 6.1 percent as its share-price estimate was lifted. Massey Energy Co. fell 11 percent after an explosion at a coal mine in West Virginia killed 25 workers and left four missing. Benchmark indexes climbed to their highs of the day after minutes from the last Fed policy meeting showed some policy makers warned of raising rates too soon.
“Overall, the momentum remains positive,” said Alan Gayle, a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “The economic data of late is surprising to the upside and April tends to be a fairly good month from a seasonal perspective.”
The Standard & Poor’s 500 Index increased 0.3 percent to 1,191.43 at 2:45 p.m. in New York after erasing a 0.4 percent slide. The Dow Jones Industrial Average rose 10.27 points, or 0.1 percent, to 10,983.82 after falling as much as 46 points earlier.
U.S. equities opened lower on concern a yearlong rally left the S&P 500 too expensive after the benchmark gauge closed at an 18-month high yesterday. The index is trading at 19 times the reported operating profits of its companies, the highest price- earnings ratio this year, according to Bloomberg data.
Stocks turned higher as the minutes from the Fed’s March meeting showed officials saw signs of a strengthening recovery while warning it could be hobbled by high unemployment and tight credit.
“While recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth,” minutes of the March 16 Federal Open Market Committee released today in Washington showed.
Stocks rose yesterday after a report April 2 showed the biggest increase in jobs in three years. Releases on April 5 showing growth in service industries and home sales boosted optimism an economic recovery may be gathering steam.
Regional banks climbed after Credit Suisse said SunTrust may be a target for overseas financial companies. The firm also increased its price estimate for Regions Financial Corp. to $8 from $7. SunTrust climbed 3.6 percent. Regions rallied the most in the S&P 500, adding 6.1 percent to $8.69.
Financial companies gained the most in the S&P 500 among 10 groups, led by bank stocks. Eight industry groups in the benchmark index declined, while two advanced.
U.S. large-cap bank shares were raised to “market weight” from “underweight” at Wells Fargo & Co., which said “fundamentals and economy support a more positive outlook.”
El Paso Corp. rose after winning regulatory approval for its biggest expansion project, the $3 billion conduit that will carry gas from a trading hub in Opal, Wyoming, to interconnections near Malin, Oregon. Shares of the owner of the longest U.S. natural-gas pipeline network climbed as high as $11.85, the highest intraday price since October 2008.
Massey Explosion
Massey slumped 11 percent to $48.81, its biggest intraday decline since July, after the explosion.
CA Inc., the second-largest maker of software for mainframe computers, fell 1.8 percent to $23.43 after saying 2010 profit will be at the low end of its forecast range and it will cut about 1,000 jobs.
The S&P 500 has rallied 76 percent since March 2009 through yesterday as the Federal Reserve maintained record low interest rates and the economy began to recover from the worst recession since World War II. During the first quarter the gauge rallied 4.9 percent, the biggest advance to start a year since 1998.
SunTrust Banks Inc. rose 3.6 percent as Credit Suisse Group AG said the lender may be a takeover target, while Regions Financial Corp. jumped 6.1 percent as its share-price estimate was lifted. Massey Energy Co. fell 11 percent after an explosion at a coal mine in West Virginia killed 25 workers and left four missing. Benchmark indexes climbed to their highs of the day after minutes from the last Fed policy meeting showed some policy makers warned of raising rates too soon.
“Overall, the momentum remains positive,” said Alan Gayle, a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “The economic data of late is surprising to the upside and April tends to be a fairly good month from a seasonal perspective.”
The Standard & Poor’s 500 Index increased 0.3 percent to 1,191.43 at 2:45 p.m. in New York after erasing a 0.4 percent slide. The Dow Jones Industrial Average rose 10.27 points, or 0.1 percent, to 10,983.82 after falling as much as 46 points earlier.
U.S. equities opened lower on concern a yearlong rally left the S&P 500 too expensive after the benchmark gauge closed at an 18-month high yesterday. The index is trading at 19 times the reported operating profits of its companies, the highest price- earnings ratio this year, according to Bloomberg data.
Stocks turned higher as the minutes from the Fed’s March meeting showed officials saw signs of a strengthening recovery while warning it could be hobbled by high unemployment and tight credit.
“While recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth,” minutes of the March 16 Federal Open Market Committee released today in Washington showed.
Stocks rose yesterday after a report April 2 showed the biggest increase in jobs in three years. Releases on April 5 showing growth in service industries and home sales boosted optimism an economic recovery may be gathering steam.
Regional banks climbed after Credit Suisse said SunTrust may be a target for overseas financial companies. The firm also increased its price estimate for Regions Financial Corp. to $8 from $7. SunTrust climbed 3.6 percent. Regions rallied the most in the S&P 500, adding 6.1 percent to $8.69.
Financial companies gained the most in the S&P 500 among 10 groups, led by bank stocks. Eight industry groups in the benchmark index declined, while two advanced.
U.S. large-cap bank shares were raised to “market weight” from “underweight” at Wells Fargo & Co., which said “fundamentals and economy support a more positive outlook.”
El Paso Corp. rose after winning regulatory approval for its biggest expansion project, the $3 billion conduit that will carry gas from a trading hub in Opal, Wyoming, to interconnections near Malin, Oregon. Shares of the owner of the longest U.S. natural-gas pipeline network climbed as high as $11.85, the highest intraday price since October 2008.
Massey Explosion
Massey slumped 11 percent to $48.81, its biggest intraday decline since July, after the explosion.
CA Inc., the second-largest maker of software for mainframe computers, fell 1.8 percent to $23.43 after saying 2010 profit will be at the low end of its forecast range and it will cut about 1,000 jobs.
The S&P 500 has rallied 76 percent since March 2009 through yesterday as the Federal Reserve maintained record low interest rates and the economy began to recover from the worst recession since World War II. During the first quarter the gauge rallied 4.9 percent, the biggest advance to start a year since 1998.
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