Monday, January 05, 2009

Economic news of interest

Bloomberg: 2008 Job Losses Probably Worst Since 1945

The U.S. economy probably lost more jobs in 2008 than in any year since the end of World War II as firings rippled from homebuilders and automakers to banks and retailers, a government report may show this week.

Payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to the median estimate of economists surveyed by Bloomberg News ahead of Labor Department figures due Jan. 9. The unemployment rate likely jumped to the highest level since 1993.

The figures will underscore the urgency behind President- elect Barack Obama’s plan to pass a stimulus package that will create jobs and mitigate the recession, already the longest in a quarter century. Other reports may show slumps in housing, manufacturing and service industries deepened at the end of last year, setting the stage for more weakness in 2009.

“We’re continuing to lose massive amounts of jobs,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “The negative momentum carrying over into the first half of 2009 will hold down the economy regardless of policy.”

The jobless rate probably climbed to 7 percent in December from 6.7 percent the prior month, according to the survey median.

AP: US auto sales plunge whopping 36 percent in Dec

Huge rebates and zero-percent loans couldn't overcome economic uncertainty as U.S. auto sales plunged 36 percent in December, capping a dismal year that saw sales free-fall by 2.9 million vehicles from 2007.

Every major manufacturer reported drops of more than 30 percent in December.

General Motors Corp. sold 2.9 million vehicles last year, the lowest number in 49 years, Chrysler as down 53%. Toyota was down 37 percent and Honda 35 percent, compared with Ford Motor Co.'s 32 percent drop and GM's 31 percent slide. Nissan Motor Co. sales also dropped 31 percent.

Jim Lentz, president of Toyota Motor Sales USA, said Toyota is in the midst of the most difficult market it has ever faced, and the situation will be tough until at least the second half of the year. Consumer confidence remains the biggest obstacle, Lentz said.

"We have no illusions about the coming year," he said. "We're in the midst of the most challenging and volatile markets we've ever faced and it may get worse before it gets better."

Reuters: Fed buys MBS in latest unconventional move

The U.S. Federal Reserve on Monday kick-started its latest unconventional program to boost the moribund economy, this time taking aim at the heart of the slumping housing market.

The Fed plans to buy back as much as a ninth of outstanding bonds sold by housing finance companies Fannie Mae, Freddie Mac and Ginnie Mae and backed by U.S. mortgages, to drive down mortgage costs. The aim is to provide incentive for buyers to return to the housing market or cut monthly payments on existing home loans.

The New York Fed began buying mortgage-backed securities guaranteed by Fannie, Freddie and Ginnie on Monday, part of a program of as much as $500 billion.

"They seem to be committed to getting interest rates on 30-year mortgages down to 4.50 percent, which is apparently a magnet for the market," said William O'Donnell, head of U.S. rates strategy at UBS in Stamford, Connecticut.

The MBS program has already had a significant housing market impact -- mortgage rates dropped dramatically in anticipation of the purchases after they were announced on Nov. 25, and there was a record jump in mortgage applications.

The picture improved further on Monday after the purchases began, with the premium paid on mortgage debt over safe-haven U.S. government debt narrowing sharply.

But, warned O'Donnell, the government and the central bank still have more work to do to stabilize home prices.

"The problem is not getting the interest rate down, but getting the lenders to lend. It is hard to imagine the lenders lending as they once did again after all the losses they have suffered over the past 12-18 months," he said. "Once burned, twice shy."

Nicholas Strand, a manager with the mortgage strategy group at Barclays Capital in New York, noted overseas investors, historically key buyers of Fannie and Freddie debt, are still waiting on the sidelines as they gauge how the measures will work.

The MBS program is the latest in an alphabet soup of unconventional policy measures to support financial markets and the U.S. economy, with interest rates around zero.

Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday the MBS program "could provide significant support to the housing sector."

Recovery of the housing sector is widely seen as a prerequisite for a turnaround in the economy's fortunes.

Bloomberg: Banks’ ‘Catatonic Fear’ Means Consumers Don’t Get TARP Relief

As the new owner of $172.5 billion of preferred shares and warrants in 208 U.S. financial institutions, the Treasury Department hasn’t succeeded in thawing frozen credit markets, leaving taxpayers propping up an industry that won’t lend to them.

While inter-bank lending rates have fallen since Congress approved the $700 billion Troubled Asset Relief Program on Oct. 3, most bank lending to consumers remains tight and interest rates high. The average credit-card rate was 14.33 percent on Dec. 16, according to in Cleveland, almost unchanged from 14.41 percent in October 2007.

That’s prompted criticism from Alan S. Blinder, a professor of economics at Princeton University in New Jersey and a former Federal Reserve vice chairman, who says the government should take a more active role as a stakeholder in the nation’s banks.

“With the banks in a state of catatonic fear now, they’re just sitting on the capital,” Blinder said in an interview. “I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.”

Jeffrey Garten, a professor of international trade and finance at the Yale School of Management in New Haven, Connecticut, and a Commerce Department undersecretary during the Clinton administration, says banks should be forced to increase their lending or risk having taxpayer money taken away.

“The government isn’t acting aggressively enough to demand a quid pro quo,” Garten said. “The public good is the key to the private good in this case. It’s not the other way around.”

$8.5 Trillion

Although the government has committed more than $8.5 trillion to energizing the economy, and the Fed cut a key lending rate almost to zero, banks haven’t made it easier to borrow. The Fed said consumer credit fell by $6.4 billion in August, the largest drop in 65 years, and then by $3.5 billion in October, the first time since 1992 that there were two months of declines in a year.

Bloomberg: Oil Curve Steeper Than '99 Shows Possible Gain in '09

The steepest plunge in crude prices on record may be setting up oil investors for a rally this year, if history is any guide.

The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 28 percent to $60.10 a barrel by December. The curve looks almost the same as 10 years ago, after Russia’s default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand.

Crude for February delivery traded at $46.89 a barrel at 9:50 a.m. in London today, compared with $60.10 for the December 2009 contract.

The combination of central banks pumping trillions of dollars into the global financial system and OPEC’s resolve to stop the plunge in crude is making investors more bullish.

Closing Note

Tomorrow's basket of economic data/indicators will include:

Factory Orders.
10:00 AM ET

ISM Non-Mfg Index.
10:00 AM ET

Pending Home Sales Index.
10:00 AM ET

FOMC Minutes.
2:00 PM ET

Forbes: Street Gets More Data To Crunch

Analysts expect the government to report the decline in factory orders and inventories slowed in November, but recently shaky reports on manufacturing activity do not bode well for the near future.

The National Association of Realtors' pending home sales index was volatile throughout 2008, with the steepest declines coming from the West and South, and expectations are for another drop in the November reading. Also Tuesday, the Institute for Supply Management issues its December reading on the services sector, with estimates for further contraction in both activity and prices.

Investors will also have their eyes on the Federal Reserve, which will release the minutes from the central bank's Dec. 16 monetary policy meeting at 2 p.m. At that gathering, the Fed took the unprecedented step of cutting its benchmark federal funds rate to a target range of 0.0% to 0.25%. While the move ruled out further cuts, the Fed said it had other options at its disposal to promote liquidity in the financial system




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