Jobless Claims: Market Expected 620k / Actual 627k…PPI was up .8% on Headline / Core was up.4 % / YOY PPI is Down 1% / YOY on Core PPI is up 4.2%….Futures relax a little, but so does bonds. Dollar remaind down .82

Fun times

Taiwan’s economy slumped 8.36 percent during the last three months of 2008, the government said Wednesday.

The island’s economy spiraled into recession with its second straight quarter of economic losses. For the third quarter of 2008, Taiwan’s real gross domestic product (GDP), adjusted for inflation, slipped about 1 percent, according to the Directorate General of Budget, Accounting and Statistics.

Behind the dismal economic numbers is a global recession that is sapping demand for the products Taiwan makes.

“The types of exports that Taiwan ships to the West — electronics — are very severely affected, very sensitive to changes in Western consumer sentiment,” said Frederic Neumann, a senior Asian economist for HSBC.

The GDP numbers are the broadest measure of Taiwan’s economic activity. A recession is defined as two consecutive quarters of falling GDP.

Taiwan’s central bank, in a move to boost the economy, on Wednesday dropped its key interest rate one-quarter point, to 1.25 percent.

Transparency is a good thing right ?

(CNN) — In keeping with President Obama’s pledge of an administration that is “transparent and accountable,” the White House has launched a site that promises to show taxpayers where their stimulus-package dollars are being spent.

The site, Recovery.gov, allows visitors to track efforts to jump-start a teetering economy in the midst of a slumping housing market and massive job losses.

It breaks down the $787 billion package by category: $288 billion for tax relief, $59 billion for health care, and so on. The site promises that more detailed spending information will be posted once federal agencies decide how they are going to allocate the money.

This one is to keep the federal government operational with shrimp cocktail to boot

After passing President Obama’s $787 billion stimulus bill in record time, Congress barely gets time to catch its breath before debating another massive spending bill.

When lawmakers return Monday from a weeklong Presidents Day recess, they will have only two weeks to pass a $410 billion spending bill designed to keep most of the federal government operating for the rest of the fiscal year.

Lawmakers delayed voting on spending bills for the fiscal year that began Oct. 1 because then-President Bush indicated that he would veto most of them.

So lawmakers only approved full-year bills to run the Pentagon and the Department of Homeland Security and legislation designed to improve military quality of life to 2009 levels. All of the other departments are operating at 2008 funding levels based on a giant stopgap package, which expires in March 6.

If Congress approves the new omnibus package containing the nine remaining fiscal 2009 appropriations bills, it will fund the government through the end of September.

But memories of the partisan struggle over the stimulus bill are fresh; only three Republicans offered their support.

“I honestly don’t think there’s going to be a big problem,” said Craig Jennings, a federal fiscal policy analyst at OMB Watch, a government watchdog. “Congress tends to hem and haw and nibble around the edges on certain things and that tends to delay action on any bill.”

But Jennings said he doesn’t anticipate Republicans making much noise about the spending package and even if they did it wouldn’t matter because Democrats have enough power to get it passed without their support.

President Obama is expected to introduce his budget for 2010 in early March.

Congress rarely meets its self-imposed October deadline to approve all of the spending bills to keep the government open.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said the challenge of passing a spending bill is easier than the stimulus measure because lawmakers aren’t starting fresh.

“This is an entirely different exercise,” she said.

Democratic leaders in Congress already have drawn up a blueprint for how they’d like to see the $410 billion spent. If lawmakers follow the lead of the House Budget Committee, then this is what some of the departments will get:

# Labor, Health and Education: $153.1 billion
# State Department and foreign operations: $36.6 billion
# Agriculture Department: $20.6 billion
# Commerce, Justice and Science: $56.9 billion
# Energy and Water: $33.3 billion

Telling the truth for once deserves applause

WASHINGTON – The Federal Reserve warned Wednesday that the nation’s crippled economy is even worse than thought and predicted it would deteriorate throughout 2009, with no sign that the housing market will stabilize.

The Fed’s bleak estimates indicated that unemployment could climb as high as 8.8 percent this year and that the economy would contract for a full calendar year for the first time since 1991.

The central bank’s latest projections came hours after a separate report showed that new home construction and applications for future projects both fell to record lows last month.

Still, some economists saw a silver lining in the otherwise dismal housing report: Scaled-back building should reduce the number of unsold homes and contribute to an eventual housing recovery.

The reports raise the stakes for the plan President Barack Obama announced Wednesday to curb foreclosures and ease the broader U.S. housing slump that sent the economy into recession.

The Fed’s latest forecast says the unemployment rate will climb to between 8.5 and 8.8 percent this year. The old prediction, issued in mid-November, estimated that the jobless rate would rise to between 7.1 and 7.6 percent.

Many private economists believe the current 7.6 percent jobless rate — the highest in more than 16 years — will hit at least 9 percent by early next year even with the $787 billion stimulus package signed into law Tuesday by Obama.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent.

The last time the economy registered a contraction for a full year was in 1991, by 0.2 percent. If the Fed’s new predictions prove correct, it would mark the weakest showing since a 1.9 percent drop in 1982, when the country had suffered through a severe recession.

The grim outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

“Given the strength of the forces currently weighing on the economy,” Fed officials “generally expected that the recovery would be unusually gradual and prolonged,” according to documents on the Fed’s updated economic outlook.

In another sign of the troubled economy, production at the nation’s factories, mines and utilities fell 1.8 percent last month, more than economists expected. That figure, the third monthly drop in a row, was dragged down by a 23 percent drop in production at auto plants and their suppliers.

Meanwhile, construction of new homes and apartments plummeted 16.8 percent in January from the previous month, the Commerce Department said, falling to a seasonally adjusted annual rate of 466,000 units, a record low. Analysts expected a pace of 530,000 housing units.

Building permits, a measure of future activity, also sank to a record low pace of 521,000 units in January, a 4.8 percent drop from the prior month.

“Conditions in the market for new homes have not been this bad since the 1930s, and they continue to worsen,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Mass. He predicted that housing starts would remain depressed for months to come.

But other economists saw some glimmers of hope in the report. The sharp cuts in new home building should help reduce inventories of unsold homes, which reached record levels last year, and stabilize home prices, which have been battered by a flood of foreclosed homes on the market.

Abiel Reinhart, an economist at JPMorgan Chase & Co., said that reduced homebuilding lowers economic growth in the short run, “but it does help get inventories down to more reasonable levels.”

Builders have cut the number of new homes on the market for almost two years, Newport said, but sales have fallen even more quickly. As a result, the Commerce Department said last month that it would take 12.9 months to sell all the new homes on the market, the longest on record.

That could drop closer to five to six months by the end of this year, Reinhart said, levels that are consistent with a more stable market.

The housing sector also got a boost Wednesday from the Obama administration, which unveiled a $75 billion effort to prevent up to 9 million Americans from losing their homes.

The plan also will double the size of the lifeline the government is providing Fannie Mae and Freddie Mac to $200 billion each as a way of reassuring financial markets of the viability of both mortgage finance giants.

David Crowe, chief economist for the National Association of Home Builders, said the administration’s foreclosure program plus help for first-time home buyers included in the stimulus measure would have an impact.

“I do think we will see a bottom in 2009 and by the end of this year we will start to see the beginning of a recovery,” he said. “But it will be a slow recovery because of the significant overhang of empty houses for sale.”

The Fed was more pessimistic when it released a set of new economic projections and the minutes of its Jan. 17-19 meeting.

Members of the Fed’s open market committee “saw no indication that the housing sector was beginning to stabilize,” the minutes said.

While falling home prices and historically low mortgage rates have made homes more affordable, the Fed said, “concerns that house prices may fall further appeared to be holding back potential buyers.”

Despite the lower unemployment and overall economic projections from the Fed, Joshua Shapiro, chief U.S. economist at MRF Inc., said the growth estimates for this year and next remain “much too optimistic.”

The Fed forecast calls for the jobless rate to dip to between 8 and 8.3 percent next year, and to between 7.5 and 6.7 percent in 2011. The normal range for unemployment is around 5 percent.

Employment is usually the last piece of the economy to heal once the country is out of recession and in recovery mode. Businesses are usually reluctant to ramp up hiring until they feel confident that any recovery has staying power.

Under the Fed’s new projections, the economy should grow between 2.5 and 3.3 percent next year and by as much as 5 percent in 2011, which would be considered robust.

Shapiro is not convinced. The central bank’s forecasts are in the “‘hope springs eternal camp,'” he said.

“Man the ink sir”
“Jolly good”

The Bank of England will begin radical moves to “print money” in as little as two weeks as it embarks on an aggressive new phase of its efforts to stem the economic slump.

In a surprise acceleration of its fight against the recession, it emerged that the Bank has already written to Alistair Darling to seek his permission to begin so-called “quantitative easing”.

The step means that the Bank will begin creating new money to boost the amount of cash and credit flowing through the economy in an attempt to jump-start growth as soon as March 5, when its Monetary Policy Committee next meets to set interest rates.

With the Chancellor expected to give a rapid green light to the scheme, the modern equivalent of printing money, the MPC will deploy the cash that it plans to create to buy up company IOUs and other assets held by Britain’s banks, including gilts previously issued by the Treasury.

In turn, these measures will boost the commercial banks’ reserves held with the Bank, so improving their ability to make new loans to consumers and businesses and, it is hoped, breathe fresh life into the economy.

The MPC’s determination to press ahead rapidly with quantitative easing emerged in minutes of its meeting a fortnight ago and took the City by surprise. Amid growing fears of deflation, the minutes showed that the MPC agreed unanimously that the scale of the recession meant that the Bank’s 2 per cent inflation target was unlikely to be met solely through more cuts in interest rates that are were already lowered this month to only 1 per cent.

“The committee unanimously agreed that the Governor should write on its behalf to the Chancellor to seek authority to conduct purchases of government and other securities, financed by the creation of central bank money …” the minutes reported.

The MPC signalled that it would use the money created through its quantitative easing moves to buy gilts already held in the marketplace and corporate bonds and commercial paper.

The Treasury is expected to give a go-ahead within days in an exchange of letters between Mr Darling and Mervyn King, the Bank’s Governor.

The measures comes as details of the Bank’s latest forecasts emphasised the scale of the economy’s plight. The Bank’s central forecast is for GDP to plunge by 3 per cent this year. After factoring in the threat of a further worsening of conditions, its “risk-adjusted” forecast is for the economy to shrink by as much as 3.7 per cent.

Anxieties over the outlook were fuelled yesterday as the CBI’s latest snapshot of industry showed factories’ orders falling at the sharpest rate since 1992 and manufacturers planning to cut output at the fastest rate for almost three decades.

Doubts over whether interest rates will be cut again from their present 1 per cent were also raised by the MPC minutes, however. Members unanimously backed this month’s half-point rate cut, with David Blanchflower, the committee’s most doveish member, voting for a full-point cut to 0.5 per cent.

But the majority of the MPC were anxious that further rate cuts could do more damage than good. Still lower base rates would hit high street banks’ profitability by squeezing the gap between the cost of interest paid by them on deposits, and the interest charged for loans. That could worsen the lending drought. “There was a great deal of uncertainty about what would happen to banks’ ability and willingness to lend at low levels of interest rates,” the minutes said.