By Timothy R. Homan
Sept. 4 (Bloomberg) — The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs, reinforcing concern that consumer spending will slow even as the economy stabilizes.
The increase in the unemployment rate from 9.4 percent exceeded forecasts. The smaller-than-anticipated drop in payrolls was the least in a year, and followed a decrease of 276,000 in July that was larger than previously reported, Labor Department data showed today in Washington.
Rising joblessness underscores Treasury Secretary Timothy Geithner’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy. AMR Corp. and Whirlpool Corp. are among the companies continuing to cut staff to lower costs and revive profits in the aftermath of the deepest recession since the 1930s.
“The labor market’s healing process is agonizingly slow,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. “We expect the improvement to remain a very slow one, and therefore for the household sector to be contending with a weak labor market for some time.”
Stock Futures
Stock-index futures erased gains immediately after the report, then climbed. Contracts on the Standard & Poor’s 500 Stock Index rose 0.7 percent to 1,008.30 at 8:38 a.m. in New York. Treasuries were down, with benchmark 10-year notes yielding 3.39 percent, from 3.35 percent late yesterday.
Revisions subtracted 49,000 from payroll figures previously reported for July and June.
The report comes hours before Geithner meets in London with finance ministers and central bankers from the Group of 20 emerging and developed nations.
While the G-20 gathering will discuss how policy makers plan to exit from their fiscal and monetary stimulus efforts, now isn’t the time to start pulling back, Geithner told reporters in Washington this week. “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”
Federal Reserve policy makers waited at least a year after unemployment peaked before raising interest rates in the aftermath of the previous two recessions.
6.9 Million
The latest numbers brought total jobs lost since the recession began in December 2007 to 6.9 million, the biggest decline in any post-World War II economic slump.
Payrolls were forecast to drop 230,000 after a 247,000 decline initially reported for July, according to the median of 79 economists surveyed by Bloomberg News. Estimates ranged from decreases of 365,000 to 100,000. Job losses peaked at 741,000 in January, the most since 1949.
The jobless rate was projected to rise to 9.5 percent. Forecasts ranged from 9.3 percent to 9.8 percent. Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by early 2010 and average 9.8 percent for all of next year.
Adjusted for part-time employees that would rather have a full-time job and for discouraged workers that are no longer looking for a job but would take one if it were available, the jobless rate jumped to 16.8 percent in August from 16.3 percent.
A rising jobless rate, stagnant wages and falling home values signal a lack of consumer spending may curb an economic recovery.
Factory Jobs
Today’s report showed factory payrolls fell by 63,000 after decreasing 43,000 in the prior month. Economists forecast a drop of 60,000. The decrease included a loss of 15,000 jobs in auto manufacturing and parts industries.
Announcements of staff reductions continued last month. Whirlpool, the world’s largest appliance maker, said Aug. 28 that it will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs, or 1.6 percent of the company’s workforce.
Payrolls at builders declined by 65,000 after decreasing 73,000. Financial firms decreased payrolls by 28,000, after a 17,000 loss the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 80,000 workers after falling 154,000. Retail payrolls decreased by 9,600 after a 43,200 drop.
American Airlines
Fort Worth, Texas-based American Airlines, a unit of AMR, said this week it will furlough 228 flight attendants and put 244 more on involuntary leave as part of the 1,600 job cuts it announced in June.
Government payrolls decreased by 18,000 after falling 28,000 the prior month.
Today’s report also showed the average work week held at 33.1 hours in August. Average weekly hours worked by production workers remained unchanged from the month before, at 39.8 hours, while overtime also held at 2.9 hours. That brought the average weekly earnings up to $617.32 from $615.33.
“We’re still going to see some months of job cuts,” Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “There is a whole range of options, like adding shifts or hours, that companies can put in place until it becomes necessary to hire people back.”
Workers’ average hourly wages rose 6 cents, or 0.3 percent, to $18.65 from the prior month. Hourly earnings were 2.6 percent higher than August 2008. Economists surveyed by Bloomberg had forecast a 0.1 percent increase from the prior month and a 2.2 percent gain for the 12-month period.
The U.S. recession “is bottoming out” and the economy is poised for “a slow return,” Alcoa Inc. Chief Executive Officer Klaus Kleinfeld said in a Sept. 2 interview. The head of the largest U.S. aluminum producer said government stimulus in the U.S. and China will affect the New York-based company’s earnings “positively” this year.
By Shani Raja
Sept. 4 (Bloomberg) — Asian stocks fluctuated, with the MSCI Asia Pacific Index set for its third weekly drop in five, as brokerage downgrades of Seven & I Holdings Co. and Hynix Semiconductor Inc. countered a rally in metal prices.
Seven & I, the world’s largest convenience store operator, fell 2.3 percent in Tokyo and Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, sank 5.7 percent in Seoul. Zijin Mining Group Co., China’s largest gold miner, climbed 2.2 percent after the metal jumped to a six-month high. Henan Yuguang Gold & Lead Co. surged 10 percent in Shanghai.
The MSCI Asia Pacific Index was little changed at 112.80 as of 7:23 p.m. in Tokyo, with about as many stocks rising as falling. The gauge has lost 1 percent this week, paring its advance from a five-year low on March 9 to 60 percent. The rally has taken the average price of stocks on the measure to 1.5 times book value, close to a 12-month high…..
By Daniela Silberstein
Sept. 4 (Bloomberg) — European stocks rose for a second day as metals gained and strategists increased their year-end forecasts for the region’s equity indexes. U.S. futures climbed before a report that may show the smallest decline in payrolls since August 2008.
Kazakhmys Plc jumped 4.6 percent as copper advanced and Morgan Stanley upgraded Kazakhstan’s biggest producer of the metal. Lonmin Plc, the world’s third-largest platinum producer, jumped 7.6 percent after Exane BNP Paribas recommended the shares. PSA Peugeot Citroen rallied 6.5 percent as the automaker signed an agreement with Mitsubishi Motors Corp. to develop electric cars.
Europe’s Dow Jones Stoxx 600 Index advanced 1.1 percent to 233.11 at 12:49 p.m. in London. The measure has fallen 1.9 percent this week on concern that a six-month surge has outpaced the prospects for earnings and economic growth. The regional gauge is valued at 44.6 times profit, near the highest level since September 2003, according to data compiled by Bloomberg.
The rally “does not mean that the market can make no further progress,” Peter Oppenheimer, a London-based strategist at Goldman Sachs Group Inc., wrote in a report, raising his year-end forecast for the Stoxx 600 to 260 from 235. “Investors may now generally require new information for the market to move higher, but we think the better news will come.”
The Stoxx 600 has surged 48 percent since March 9 as companies from L’Oreal SA to GlaxoSmithKline Plc reported higher-than-estimated profits and the German and French economies unexpectedly expanded. UBS AG strategist Nick Nelson increased his year-end target for the FTSEurofirst 300 Index to 1,100 from 1,000 today……
By Simon Kennedy
Sept. 4 (Bloomberg) — Economic policy makers are signaling they plan to leave emergency stimulus in place even as the global economy pulls out of recession, delivering what Credit Suisse Group AG and Bank of America Corp. call a “sweet spot” for financial markets.
U.S. Treasury Secretary Timothy Geithner and European Central Bank President Jean-Claude Trichet are among Group of 20 finance officials gathering in London today who say it’s too soon to declare victory over the deepest recession since World War II. While data this week confirmed the slump is easing, policy makers are unwilling to curb spending or start unwinding their record low interest rates and debt purchases.
That means stocks will benefit as growth picks up and bonds will be helped by central bankers’ reluctance to lift borrowing costs, say economists at Credit Suisse and Bank of America. The MSCI World Index of stocks has gained 55 percent since reaching a 14-year low on March 9. The Merrill Lynch & Co. Global Sovereign Broad Market Plus Index shows government debt yields are the lowest since April.
“Financial markets will probably remain in this sweet spot for some time,” said Riccardo Barbieri, London-based head of international economics at Banc of America Securities-Merrill Lynch. “While the economic data have almost uniformly surprised on the upside, the leading central banks have credibly signaled to the markets that monetary conditions are set to remain extremely accommodative.”
‘Bumpy Road’….
Japanese Companies Cut Back on Capital Expenditures
By Aki Ito and Keiko Ujikane
Sept. 4 (Bloomberg) — Japanese businesses cut spending for a ninth quarter as the global recession squeezed profits, underscoring the challenge for the incoming government to sustain a recovery from the country’s worst postwar slump.
Capital spending excluding software fell 22.2 percent in the three months ended June 30 from a year earlier, after dropping a record 25.4 percent in the previous quarter, the Finance Ministry said today in Tokyo. Profits slid 53 percent.
Sales fell 17 percent, the second-biggest drop on record, indicating global demand hasn’t recovered enough to encourage companies to buy more plant and equipment. Sanyo Electric Co. and Seven & I Holdings Co. are among businesses scaling back.
“Companies have too many resources, and until that situation changes, they won’t have to invest in more equipment and they won’t need to hire more people,” said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo.
The government will use today’s report to revise gross domestic product on Sept. 11. Preliminary figures showed the world’s second-largest economy grew an annualized 3.7 percent in the three months ended June, the first expansion in five quarters. Shiraishi said today’s numbers may result in a “slight upward revision” to the capital spending component.
The Nikkei 225 Stock Average fell 0.2 percent at the morning close in Tokyo. The yen traded at 92.63 per dollar from 92.70 before the report was published.
May Divert Stimulus…..
Lead Surges To New Highs on Panic Buying
By Glenys Sim
Sept. 4 (Bloomberg) — Lead, the best performer on the London Metal Exchange this year, surged to the highest price in almost 16 months as China vowed to shut substandard smelters after thousands of children were poisoned.
People in China are angry “that children are involved in poisoning cases, which is why the government must take harsh measures and show it is serious about punishing offenders,” said Liu Biyuan, an analyst at GF Futures Co. The country is the world’s biggest lead producer and consumer.
The metal, used in batteries, has more than doubled this year, partly on concern that production may not keep pace with rising Chinese demand. There was a “buying panic” in the London market for lead, according to Citigroup Inc. Excessive exposure may make children less intelligent, doctors say.
Lead for delivery in three months jumped as much as 4.7 percent to $2,387 a metric ton, the highest level since May 8, 2008, and traded at $2,355 at 2:38 p.m. in Singapore. The metal rose as much as 8.8 percent yesterday after the initial report of the planned environmental crackdown.
There was “an explosive move in the market,” Jiang Donglin, Shenzhen Zhongjin Lingnan Nonfemet Co.’s research department manager, wrote in an e-mail. At least 200,000 tons of lead capacity is at risk of closure, according to Jiang. China produced about 1.947 million tons in the first seven months.
Sickened Children…..
By ALEX KENNEDY p {margin:12px 0px 0px 0px;}
Benchmark crude for October delivery was up 44 cents at $68.40 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract Thursday slipped 9 cents to settle at $67.96.
Oil has traded near $68 a barrel for the last three days as traders look for clues on the strength of the U.S. economy.
The Labor Department later Friday is scheduled to announce the August jobs report, one of the most closely watched indicators by investors. Economists expect the unemployment rate to edge up to 9.5 percent from 9.4 percent, while the number of layoffs is expected to slow to 225,000 from 247,000.
“If we get a good jobs number, oil could be back up over $70,” said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. “But in the last week, the market has been ignoring a lot of the positive economic news.”
Trading will be closed in the U.S. on Monday for the Labor Day holiday.
In other Nymex trading, gasoline for October delivery was steady at $1.80 a gallon, and heating oil rose 0.55 cent to $1.74 a gallon. Natural gas fell 3.2 cents to $2.48 per 1,000 cubic feet.
In London, Brent crude was up 28 cents at $67.40.
FRANKFURT (AP) – The German services sector saw second quarter sales fall 11 percent compared with a year earlier as the economic downturn continued to hurt demand.The Wiesbaden-based Federal Statistical Office said Friday that strong declines were seen in the business services sector, which saw sales fall 13 percent, while the transport and warehousing sector saw a 12 percent drop compared to the April-June period of 2008.
The number of employed in the overall services sector decline by 2.3 percent, with business services jobs falling more than 6 percent and the transport and warehousing sector jobs dropping about 1 percent.
The office said the information and communication sector stood out with a 5.1 percent rise in sales and a 1 percent increase in the number of employed.
Compared to the first quarter of 2009, overall services sector sales were only down 1.6 percent.
By JOSEPH PEREIRA and KELLY EVANS
Retailers posted a 2.9% sales decline last month as consumers remained thrifty, but a growing number of shoppers turned up at midpriced stores.
The rising visits, said analysts, show the first hints of successful retail strategies emerging from the recession. Moderately-priced chains emphasizing value and quality are seeing an uptick as sales gains slow at discounters.
Getty Images
Teen-clothing retailers suffered the biggest decline in sales last month, while midpriced and other retailers reported signs that consumers are returning. A customer browses at Abercrombie & Fitch in New York in July.
Customers are responding to “high-quality products at compelling prices and not simply to just lower prices,” said Neal Black, chief executive of Jos. A. Bank Clothiers Inc.
Sales were aided by a shift among several states including California, Texas and Florida of their annual tax-free school shopping days to August from July. Even though overall retail sales came in slightly higher than expected, consumers were still looking for bargains.
For the second month in a row, Kohl’s Corp., an operator of mid-priced department stores, posted increased sales at stores open at least a year. It reported an increase of 0.2%, better than the 1.7% decline analysts had forecast…..
Fed’s Fisher Says Economy on the Mend
By Ros Krasny
SANTA BARBARA, California (Reuters) – Dallas Federal Reserve Bank President Richard Fisher on Thursday said the United States should have a “good snap-back” from recession in the final months of 2009, but that future growth could be a “slow crawl.”
“You could have a stout third-quarter (GDP) number,” Fisher told reporters after a speech at the University of California in Santa Barbara.
“It’s encouraging and helpful and hopeful that we have a good third quarter and fourth quarter. But what is the rate of growth after that? And how do we get back to creating jobs?”
Fisher said it was too early to guess at the timing or pace of interest rate moves once the Fed starts to reverse its extremely easy monetary policy — one that has left benchmark rates near zero since December 2008.
“You have to feel it. You have to walk through a river feeling the stones underneath your feet,” he said. “We have to be forceful, or we may have to be gradual. It depends on the circumstances.”
Still, with price pressures tilted more toward deflation because of high unemployment and low capacity utilization in the United States economy, inflation should not be a problem for now, Fisher said.
NO BIG INFLATION RISK…..
By Reiji Murai and Taiga Uranaka
TOKYO/PARIS (Reuters) – Japan’s Toshiba Corp plans to bid for French nuclear group Areva’s power transmission and distribution unit, four sources with direct knowledge of the situation said, in a deal that could top $5 billion.
Toshiba, which runs a far-flung electronics conglomerate, is banking on power generation for growth as it reins in investment in its recession-hit computer chip business.
“If it manages to buy it for the right price, it would be a positive development,” Deutsche Securities analyst Takeo Miyamoto said.
But the health of Toshiba’s balance sheet is uncertain following a $5 billion capital hike in May, and its presence as the first foreign suitor for the up-for-sale business might sit uneasily with French government efforts to promote national industrial champions.
Areva has put its transmission and distribution (T&D) business on the block and is seeking to sell 15 percent of the group’s capital to fuel its nuclear expansion plans. The government will play a major role in both decision for the 91-percent state-owned firm, already a global leader in nuclear technology.
The political argument against a sale of T&D to Toshiba would be weakened if reported plans for an influx of Chinese money into the group prove correct. A Chinese sovereign fund is in talks to take a stake in the Areva, French daily Les Echos reported on Thursday.
A French industry ministry spokesman did not immediately return calls for comment on how the state would view a foreign buyer for Areva’s T&D business.
Toshiba’s shares fell 2.3 percent after news that it might bid broke…..
Prime Mortgages defaults Pick Up Steam
America’s most credit-worthy borrowers are defaulting on their loans faster than those with poor financial records, according to a report in the Wall Street Journal.
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Source: swflrealtors.com
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The number of subprime borrowers falling down on their mortgage repayments reached 25 percent in the first quarter, but has now leveled off, with only slight increases in the second quarter, the Journal said.
Prime loans make up 80 percent of US banks’ exposure to mortgages and credit cards, and so could quickly overtake subprime borrowers in causing the biggest financial headache as the recession bites, the report added.
Many of the customers with high credit scores have lost their jobs and are struggling to keep up with payments while the jobs market remains extremely weak, the report said. The total mortgage-delinquency rate, where borrowers were late for at least one payment, rose to a record high of 9.24 percent in the second quarter, according to the Mortgage Bankers Association.
The prime borrowers showed an increase of 5.8 percent in the quarter, compared to a 1.8 percent rise for subprime customers, the report said. However, the overall rate for delinquency still remains significantly lower for prime borrowers at 6.4 percent, compared to 24.4 percent for subprime borrowers, the Journal said. ….
s we reported previously, about 20 % of the 7.4 trillion Yuan in stimulus lending during H1 2009 is considered to have gone to inflate the property and stock market bubble.This was common knowledge, but apparently, despite the repeated assurances of the Chinese government that the money supply would be kept flowing as long as necessary to ensure a recovery of the economy, there are increasing signs that they are trying to deflate the stock bubble.
For starters, the suspicions of the auditors were awoken when they noticed that 23 % of the loans were given under the form of “discounted bills financing”, which is a loan given on receivable notes at a discount to their face value. This immediately available cash is thus theoretically not traceable anymore.
This news might explain some of the brutal pullbacks on the Shanghai these latter times, as the source quoted by Caijing says that “Some capital from unidentified sources fled the stock market as soon as word of the investigation spread”.
However, the companies that played in the stock market with their loans may have some worries ahead: the auditors announced that they wished to trace the larger accounts to find out who abused of these loans.
China’s National Audit Office is investigating recent lending by major commercial banks, in an effort to trace the flow of loans issued in support of the government’s economic stimulus funds, a senior executive at a major bank told Caijing.
The investigation focuses on loans that might have been diverted to stock markets.
In November, China unveiled a 4-trillion-yuan stimulus package to revive an economy badly shaken by the global downturn. The stimulus plan was facilitated by a moderately loose monetary policy, which resulted in the 7.4 trillion yuan record lending in the first half of 2009.
Concerns from regulators were aroused after about 23 percent of total first-half new lending was extended in discounted bills financing.
The authorities now suspect that much of the money was improperly diverted from the real economy to speculative investments in real estate and stocks.
Discounted bills financing is a short-term lending practice allowing companies to raise cash by surrendering receivables at a discount. But once the bills are cashed, banks can no longer monitor the capital flow, providing opportunities for the cash to be invested elsewhere.
“Some capital from unidentified sources fled the stock market as soon as word of the investigation spread,” a senior banker told Caijing.
Unlike loans issued for specific projects, capital from discounted bills is harder to trace. However, people familiar with the NAO investigation said the agency intended to trace large accounts with securities firms and track the funds back to their sources.
“The National Audit Office has the right to extend investigations to enterprises. They can possibly dig things out if they’re determined and make the effort,” said a banker from a large bank, adding that concern over the probe was one reason why capital has quickly fled the stock market.
1 yuan = 14 U.S. cents
Goldman Sachs is bullish on China. So bullish that they think the concerns regarding the recent 25% sell-off are far overdone. Following are the 8 reasons why Goldman says to buy the dip, particularly resource related names:
We see a mismatch between the recent 20% share price pullback and still robust underlying real demand. We see 8 stock-picking themes emerging:
(1) Our channel checks with a low-voltage copper transformer producer indicate demand is rising, with August shipments back to 2008 peaks.
(2) Along the value chain, we do not think the market has priced in the better-than-expected speed of economic recovery, positive for upstream commodities like coal; traders indicate positive surprise on coal demand.
(3) The magnitude of demand recovery may potentially lead to tightness in commodities (such as steel) long perceived as oversupplied; this offers potential upside in undervalued stocks. Steel traders see robust demand.
(4) Economic recovery in OECD countries (which account for about 40% of global consumption) could provide an additional boost to commodity prices, which are already buoyed by strong demand from China.
(5) China’s increasing percentage of global consumption structurally boosts the sustainability of this upcycle, reducing potential OECD “double dip” risk. Our new analysis shows a 10% increase in Chinese demand now offsets OECD weakness 2-3 times as much as it did in 2002 when China first joined the WTO.
(6) Sustainability of supply-side tightness to cushion rising raw material costs; we see copper/steel/coal as favorably positioned.
(7) Consolidation leaders such as Shenhua/Angang/Baosteel could see leverage increase for the upcycle via parent asset injection, in our view.
(8) Valuations are still around/below mid-cycle, such as steel/coal names.
Source: Goldman Sachs
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