Hiring was flat in January 

In short, there’s a new Congressional Budget Office report that shows unemployment likely to climb to nearly 9 percent by the election, there’s polling data showing Obama tied or trailing Mitt Romney in the most important swing states (and doing only marginally better against Ron Paul), and there is mounting evidence that the assumption of a decisive Obama fundraising advantage for the fall might be flat wrong. All of this is happening while Republicans are at their worst, with Mitt Romney and Newt Gingrich spending millions of dollars and using all of their air time explaining why the other is untrustworthy, deeply flawed and eminently beatable by Obama.

Let’s look at each:

LISBON, Portugal (AP) – In a six-room Lisbon office where until last year more than a dozen people worked, engineer Joao Paulo Lopes sits alone in silence amid dark computer screens, patiently waiting for a bankruptcy lawyer to shut the company’s doors and send him home.

Small firms with fewer than 50 workers, like the gas and water installation company where Lopes works, make up more than 99 percent of Portuguese businesses. They are the bedrock of the country’s economy. And they’re collapsing at an alarming rate.

“We’re witnessing a daily deluge of small companies going under,” says Raul Gonzalez, president of the national association of bankruptcy owners. His organization logged more than 10,000 company insolvencies last year — a startling 60 percent jump from the previous year.

Portugal’s economy appears locked in a death spiral. The debt-crippled eurozone country is choking amid grinding austerity measures enacted in return for a €78 billion ($102 billion) bailout package last April, a steep recession, an acute shortage of cash, and record unemployment.

That has put Portugal back into the crosshairs of Europe’s two-year-old debt crisis. The country looks as though it will follow Greece in needing another bailout and debt restructuring. And its ordeal could bring another spasm of financial distress for the 17-nation bloc sharing the euro.

The three major international ratings agencies have downgraded Portugal’s credit worthiness to junk status over the past year. Their decisions reflect a lack of market faith in the country’s short-term prospects. In recent days, interest rates on the country’s bonds — a weather vane of investor sentiment — have climbed to highs not seen since the European single currency was introduced.

WASHINGTON (AP) — Ben Bernanke is urging lawmakers to balance their desire to cut deficits with policies that could help boost the weak economy in the short run.

Bernanke told the House Budget Committee that he recognizes that huge budget deficits represent a serious threat to the economy.

“Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery,” Bernanke said. “Fortunately, the two goals … are fully compatible.”

The Federal Reserve chairman is testifying a week after the Fed signaled that a full recovery could take at least three more years. As a result, the Fed said it doesn’t plan to raise its benchmark interest rate from a record low before late 2014 at the earliest.

The hearing began on a contentious note. Chairman Paul Ryan, a Republican from Wisconsin, said the Fed’s policies were adding to uncertainty and raising risks of higher inflation down the road.

Ryan was critical of the Fed’s decision last week to announce that it hoped to hold interest rates at record low levels for three more years.

“I think this policy runs the great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar,” Ryan told Bernanke. “The prospect of all three is adding to uncertainty and holding our economy back.”

Bernanke is also appearing two days after the Congressional Budget Office estimated that the deficit will top $1 trillion for a fourth straight year and could stay around that level for years.

The two leaders offered contrasting views last summer over how to handle high budget deficits. Bernanke warned Republicans that threatening to block a pending increase in the nation’s borrowing limit could hurt the economy. He said the debt ceiling was the “wrong tool” for trying to push federal spending cuts through Congress.

Ryan countered at the time that using the debt-ceiling vote as leverage to win meaningful deficit reductions was a valid approach.

This time, Bernanke will likely point to some economic improvements. Factories are making more goods. Americans are buying more cars. The unemployment rate is near its lowest level in nearly three years. And employers have produced six straight months of solid hiring.

Still, growth was only modest in the final three months of last year. And consumers will likely slow their spending if hiring and pay increases don’t strengthen.

A key reason the deficit has surged in the past four years is that the government collected less tax revenue. In part, that’s because the economy has yet to regain the millions of jobs lost during the Great Recession.

And the government has had to spend more on emergency unemployment benefits and efforts to boost growth, such as the Social Security tax cut that will expire in February unless Congress extends it.

The Fed has also taken extraordinary measures during and after the recession to try to help the economy recover. In June, it completed its second round of bond buying.

At a news conference after last week’s Fed meeting, Bernanke said a third round of bond buying might be necessary. Some economists think the Fed could announce more bond buying as soon as its next meeting in March.

Also the Rock Band and video games services did poorly…

This guy never gives up on the warnings. Hopefully, things don’t turn out per his opine. …..meanwhile Asia rallies.

SOURCE: @OptionsHawk

“There are signs that the global economy, the global manufacturing cycle, is finding its feet,” said Nick Kounis, head of macro research atABN Amro in Amsterdam. “Things are no longer deteriorating. On the other hand, we’re not seeing signs of a sharp rebound. We’re not out of the woods yet in terms of the European economy at least.”

Full article

By Kathleen Madigan

U.S. consumer confidence in January gave back some of the huge gains posted in the previous two months, according to a report released Tuesday. Views on labor markets darkened.

The Conference Board, a private research group, said its index of consumer confidence retreated to 61.1 this month from a revised 64.8 in December, first reported as 64.5. The January index was far less than the 68.0 expected by economists surveyed by Dow Jones Newswires.

The fallback was concentrated in consumers’ view of the current economy. The present situation index, a gauge of consumers’ assessment of current economic conditions, dropped to 38.4 in January from a revised 46.5, originally reported as 46.7.

Consumer expectations for economic activity over the next six months slipped only slightly, to 76.2 in January from a revised 77.0, first reported as 76.4.

“Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects. Recent increases in gasoline prices may have consumers feeling a little less confident this month,” said Lynn Franco, director of the Conference Board Consumer Research Center.

Perceptions about the job markets worsened this month. The survey showed 43.5% think jobs are “hard to get” up from 41.6% saying that in December, while only 6.1% think jobs are “plentiful” down from 6.6% in December.

Read the rest here.

H/T @darrenrovell

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Via Ritholtz

Through November 2011, the S&P/Case-Shiller1 Home Price Indices declined 1.3`% for both the 10- and 20-City Composites in November over October. For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease.

Read the rest here.

Will the economy cause major downsizing; because living paycheck to paycheck must be extremely stressful.

Austerity is certainly helping to take jobs away from the mature, but the younger class is suffering horribly.

You know the usual suspects, but now we must worry over central banks not having any tools left.

A bubbling economy keeps on humming.

BRUSSELS (Reuters) – European leaders struggled to reconcile austerity with growth on Monday at a summit that approved a permanent rescue fund for the euro zone and was trying to put finishing touches to a German-driven pact for stricter budget discipline.

Officially, the half-day 27-nation summit was meant to focus on ways to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.

But disputes over the limits of austerity, and Greece’s unfinished debt restructuring negotiations with private bondholders, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis.

Leaders agreed that a 500-billion-euro European Stability Mechanism will enter into force in July, a year earlier than planned, to back heavily indebted states. But Europe is already under pressure from the United States, China, the International Monetary Fund and some of its own members to increase the size of the financial firewall.

The risk premium on southern European government bonds rose while the euro and stocks fell on concerns about a lack of tangible progress in the Greek debt talks and gloom about Europe’s economic outlook.

Highlighting those fears, Spain’s economy contracted in the last quarter of 2011 for the first time in two years and looks set to slip into a long recession.

France halved its 2012 growth forecast to a mere 0.5 percent in another potentially ominous sign for President Nicolas Sarkozy’s troubled bid for re-election in May. Prime Minister Francois Fillon said the cut would not entail further budget saving measures.

Conservative Spanish Prime Minister Mariano Rajoy, attending his first EU summit, said Madrid was clearly not going to meet its target of 2.3 percent growth this year. That has raised big doubts about whether it can cut its budget deficit from around 8 percent of economic output in 2011 to 4.4 percent by the end of this year as promised.

European Commission President Jose Manuel Barroso hinted Brussels may ease Spain’s near-unattainable 2012 deficit target after it updates EU growth forecasts on February 23.

Italy, rushing through sweeping economic reforms under new Prime Minister Mario Monti, was rewarded with a significant fall in its borrowing costs at an auction of 10- and 5-year bonds, despite double-notch downgrades of its credit rating by Standard & Poor’s and Fitch this month.

But Portugal’s slide towards becoming the next Greece – needing a second bailout to avoid chaotic bankruptcy – gathered pace as banks raised the cost of insuring government bonds against default and insisted the money be paid up front instead of over several years.

The yield spread on 10-year Portuguese bonds over safe haven German Bunds topped 15 percentage points for the first time in the euro era. It cost a record 3.9 million euros ($5.12 million) to insure 10 million euros of Portuguese debt.

OUTLAWING KEYNES?

With Britain standing aloof, most of the other 26 EU leaders were set to approve a fiscal pact to write balanced budget rules into their national law, despite economists’ doubts about the wisdom of effectively outlawing deficit spending.

“To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do,” a British official said.

European Parliament President Martin Schulz told the leaders the new fiscal treaty was unnecessary and unbalanced, because it failed to combine budget rigor with necessary investment in public works to create jobs.

The 17th summit in two years as the EU battles to resolve its sovereign debt problems was called to shift the narrative away from politically unpopular austerity and towards growth.

Negotiations between Greece and private bondholders over restructuring 200 billion euros of debt made progress over the weekend, but were not concluded before the summit.

A Greek official said Prime Minister Lucas Papademos would give the summit a brief report on the situation and meet German Chancellor Angela Merkel on the sidelines.

Until there is a deal, EU leaders cannot move forward with a second, 130-billion-euro rescue program for Athens, which they originally pledged at a summit last October.

Germany caused outrage in Greece by proposing that a European commissar take control of Greek public finances to ensure it meets fiscal targets. Greek Finance Minister Evangelos Venizelos said that to make his country choose between national dignity and financial assistance ignored the lessons of history.

The German call won cautious backing from the Dutch and Swedish prime ministers. But Merkel played down the idea of placing Greece under stewardship, saying: “We are having a debate that we shouldn’t be having. This is about how Europe can be supportive so Greece can comply, so there are targets.”

Read here:

Manufacturing activity and general business sentiment in the southwest smashed expectations, the Dallas Federal Reserve announced this morning.

The general business index surged to 15.3, topping analyst forecasts for a 1.5 reading, and above December’s -0.3.

Those expectations were steadily rising over the past several days, with the median target for the index increasing from zero on Friday, to 0.5 earlier this morning.

“Perceptions of broader economic conditions were notably more positive in January,” the Federal Reserve said in a statement. “Nearly a quarter of manufacturers noted improvement in the level of business activity, while nine percent noted a worsening. The company outlook index also increased markedly, rising from 5 to 13.5. Both indexes reached their highest readings in 10 months.”

The new orders sub-index jumped to a six month high, at 9.5, and reversed two months of negative readings.

Labor demand also increased in January, as employees saw workweeks grow longer as hiring trends perked up in the region. Twenty-one percent of firms polled by the Fed said they took on new workers, while nine percent said they initiated layoffs.

The eleventh district includes activity in Texas, northern Louisiana, and southern New Mexico. The Dallas Fed will next release manufacturing data on Feb. 27.

A look into the report reveals some worrisome facts….