Fed's Bernanke-audit would hurt economic prospects

Dec 1, 2009
U.S. Federal Reserve Chairman Ben Bernanke said last Friday congressional proposals to audit the Fed and strip it of regulatory powers as part of post-crisis reforms could damage prospects for economic and financial health in the future.

"These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States," Bernanke wrote in a column posted on the Washington Post's website.

The rare newspaper column by a Fed chairman comes shortly before Bernanke testifies before a Senate panel on his renomination to serve a second four-year term at the helm of the central bank and answers a series of steps on Capitol Hill that could diminish the central bank's role.

Lawmakers are angry with the Fed over its emergency bailouts of major financial firms and its failure to prevent the contagion of mortgage delinquencies that crashed the financial system. A proposal to audit the Fed's monetary policy deliberations won a committee vote recently over the objections of House Financial Services Committee Chairman Barney Frank.

Frank's Senate counterpart, Banking Committee Chairman Christopher Dodd, is himself the author of a proposal to consign the Fed solely to making decisions about setting benchmark interest rates.

Bernanke, in his column, conceded the Fed had missed some of the riskiest behavior in the lead up to the crisis. But he said the Fed had helped avoid an even more damaging economic meltdown and has stepped up its policing of the financial system.

"The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution's ability to foster financial stability and to promote economic recovery without inflation," he said.

Bernanke acknowledged that lawmakers are responding to public anger over the government's response to the turmoil.

"The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis," he said.

However, the central bank has moved "aggressively" to fix the problems, Bernanke said. The Fed's knowledge of complex financial institutions is invaluable in supervising them, he said.

The Fed's ability to slash interest rates to combat a recession without fueling inflation depends on its political independence he said. Allowing audits of its monetary policy -- as proposed legislation would do -- would increase the perceived influence of Congress on interest rate decisions, he said.

That, in turn "would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation," Bernanke wrote.
Frank has said the audit provision is likely to be revisited as legislation winds through both houses of Congress.

Dodd has said his proposal is a starting point for debate.

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Black Friday sales edge up

Dec 1, 2009
SHOPPERS spent only slightly more in stores in the United States on Black Friday - the traditional post-Thanksgiving Day shopping spree - than they did last year, according to data released on Saturday by a national research firm.

Preliminary sales data from ShopperTrak RCT Corp show shoppers spent US$10.66 billion on the day after Thanksgiving - only 0.5 percent more than last year.

At the same time, other research showed fresh signs of much stronger online sales during the traditional start of the holiday shopping season, which may mean more consumers shopped from home.

Still, more than a year after the economy's collapse began rattling shoppers, industry observers said Friday's shopping sprees offered a strong start to the holiday season as large crowds of shoppers snatched up early morning deals.

"I know what they want, but I've been looking for a deal to make sure I get a good price," Jude Leeper, 49, of Hanover, Pennsylvania, said as she shopped for gifts for family members last Friday at a Maryland mall. "I'm going to buy that gift that I know is going to get used, not stuffed in a closet."

The traditional shopping spree - dubbed Black Friday because it often was the day when a surge of shoppers helped stores break into profitability for the full year - has marked the kickoff of holiday shopping for many consumers. But its importance has faded in recent years as merchants started hawking the deep sales and expanded hours usually reserved for that day well in advance.

Still, the day is often used as an important gauge of people's willingness to spend during the holidays.

This year, many of the in-store deals were also available online, causing some Websites to overload as pajama-clad shoppers tried to get deals without waiting in long lines in the cold.

Web marketing analyst Coremetrics said its data showed the average amount online shoppers spent on Black Friday rose 35 percent as shoppers spent roughly US$170.19 per order - up from US$126.04 last year.

The firm said Web shoppers also bought more items with each purchase.

Shop-by-television sales were also strong at the TV shopping network QVC, which said its Black Friday sales totaled US$32 million - up almost 60 percent from last year.

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US to pressure mortgage firms to help owners keep homes

Nov 30, 2009

The Obama administration, battling a foreclosure crisis that shows no signs of relenting, will step up pressure on US mortgage firms to do more to help people remain in their homes, officials said over the weekend.

The administration will announce its expanded program today, Treasury spokeswoman Meg Reilly said.

"We are taking additional steps to enhance transparency and accountability," Reilly said. She said the goal was to increase the rate that troubled home loans were converted into new loans with lower monthly payments.

Industry officials said the new effort would include more pressure on mortgage firms to accelerate loan modifications by highlighting firms that are lagging in that area.

The Treasury is also expected to announce that it will wait until the loan modifications are permanent before paying cash incentives to mortgage companies that lower loan payments.

Under the US$75 billion Treasury program, companies that agree to lower payments for troubled borrowers collect US$1,000 initially from the government for each loan, followed by US$1,000 annually for up to three years.

The government support, which comes from the US$700 billion financial bailout program, aims at offering cash incentives for mortgage providers to accept smaller mortgage payments rather than foreclosing on homes.

The Home Affordable Modification Program has come under heavy criticism for failing to do enough to attack a tidal wave of foreclosures. Analysts said the foreclosure crisis is likely to persist well into next year as high unemployment pushes more people out of their homes.

Rising foreclosures depress home prices and threaten economic recovery.

A recent report from the Mortgage Bankers Association found that 14 percent of homeowners with loans were either behind on payments or in foreclosure at the end of September, a record level for the ninth straight quarter.

The Congressional Oversight Panel, a committee that monitors spending under Treasury's bailout program, said in a report last month that foreclosures are now threatening families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market.

The program "is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," the report pointed out.

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Could U.S. see a double dip recession?

Nov 30, 2009

A number of influential economists and analysts warn of a double dip recession, even as the U.S. economy slogs toward recovery.

Well-known analyst Meredith Whitney, Chief Executive Officer of the Meredith Whitney advisory group, recently expressed pessimism about the economy in an interview on CNBC, a cable TV station.

The economy may be headed for a "w" that is, another plunge after a short rebound in 2010, although it may not be as severe as last year's economic nose dive, Whitney said.

And this week Market Watch head economist Irwin Kellner wrote that the recovery seems to be losing steam and that it may take on a "w" form.

Indeed, the government on Tuesday revised third quarter growth figures down from its earlier calculation of 3.5 percent the highest in two years to 2.8 percent.

Market Watch's economists project a 2.5 percent growth rate in the next quarter, due to falling consumer spending, sluggish personal incomes and a record 14 percent of homeowners who are either in foreclosure or behind on payments.

A number of other well-known economists also warn a second drop is possible, including Nobel Prize laureate Paul Krugman.

And on his recent trip to China, U.S. President Barack Obama told Fox News that too much U.S. debt could spark a second dip, although some economists suggested the statement was simply a message to critics that he is taking seriously the skyrocketing U.S. deficit.

But while some economists point to factors that could derail recent gains such as a commercial real estate collapse, increasing unemployment or the fall of a large, multi-national bank others said a double dip is unlikely.

Michael Mussa, senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund, said: "You can't exclude that a large asteroid could hit the U.S. and cause another shock. But I don't see any reason to anticipate (a double dip) as a likely event."

The last one occurred in the early 80s and he does not expect an ear-term repeat, although a slide a few years down the road can not be ruled out, he said.

"We are clearly in the process of recovery led by Asia and spreading to the rest of the world," he said. "And that recovery will continue and we are unlikely at a global level to have anything like a double dip."

Still, Dean Baker, co-director at the Washington, D.C.-based Center for Economic and Policy Research, said the U.S. economy is not out of the woods yet. This quarter's growth, coupled with levels of unemployment not seen since the early 80s, is looking weak. That makes anything possible, including a double dip, he said.

Ben Carliner, director of research at the Washington, D.C.-based Economic Strategy Institute, said, "The greater risk of a double dip recession would be caused by the government's stimulus program ending too early."

Unemployment continues to rise, companies and consumers are still deleveraging, and interest rates remain the same, he said.

"If we do have a double dip recession, the cause will be that private sector demand is still too anemic to drive a recovery, and (the stimulus) has been unable to fill the gap," he said.

But over the next five to 10 years, the public fiscal position will need to be consolidated, although it is too early to talk about exit strategies, he said.

"While much of the recent economic data has been encouraging, the financial markets have been running well ahead of the real economy, and the recovery that we have seen is too precarious and short-lived for us to be able to declare victory at this point," he said.

Robert Johnson, associate director of economic analysis at Morningstar, an independent research provider, foresees no double dip recession, and said many factors are "stacked up over the next couple of quarters" that would prevent such a slide.

"A good year is in front of us," he said, adding that while growth may slow somewhat, it is unlikely to sink to the dismal numbers seen earlier this year. The economy shrank by 0.7 percent in the second quarter and by 6.4 percent in the first quarter.

Much of the stimulus money has yet to be spent, the auto industry is turning a corner and housing starts will improve slowly, he said.

While a fall in commercial real estate could slow economic growth, it is unlikely to derail the recovery, as it is small to mid size banks not the major banks at the heart of the financial system that are more exposed to that sector.

"Small to mid sized banks may be hurt but it won't ruin whole system," he said.

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U.S. auto makers expect gradual recovery in 2010 but challenges remain: expert

Nov 30, 2009

U.S. auto makers will see a very gradual recovery in demand in 2010 after their dramatic restructure while many challenges will still remain, a U.S. auto industrial expert said last Friday.

Bill Russo, founder and president of Synergistics Limited and senior advisor with Booz &Company, has extensive experience in the automotive and electronics industries.

When commenting on U.S. auto market in 2010, Russo predicts a slow recovery in demand in 2010 after the dramatic contraction in 2008 and 2009.

"Many U.S. auto makers have had to dramatically restructure their operations to regain a profitable footing in their domestic market. Starting in 2010, the industry will gradually recover to above 10 million units. However, it will be quite a long time before we see overall industry volumes restored to the pre-crisis levels," he further explained.

While everyone is hoping for a sustained recovery, Russo believes that 2010 will see a very gradual recovery in demand. While media attention seems to focus on the near-term sales performance and forecast, he thinks it is wise to view the market from a longer-term and "macro" perspective.

"The U.S. auto makers have been in decline for almost 40 years, and have not yet addressed the structural weakness that has caused them to lose the loyalty and market share loss that began in the 1970's when the oil crisis caused Americans to seek smaller, more fuel-efficient cars from foreign car makers," he said.

He warned that until U.S. auto makers begin to reverse this trend, their long-term viability is questionable.

When asked about the biggest challenge the U.S. auto makers are facing, Russo said that like all global auto makers, they need to know how to deliver to the market the right products with a proper combination of value, quality and innovation to allow for sustained performance and growth.

"They must also conceive of ways of leveraging their global businesses in order to improve the products and technology offerings for the American consumer. While Ford and GM are challenged to grow domestically, they have been able to enjoy strong growth in China," he said.

"They must find a way to reinvest the proceeds from their global businesses in order to gain competitiveness in the U.S. market. They can achieve this by leveraging the cost structure and scale of their global operations when presenting products to the U.S. market," he added.

When talking about the effect of the U.S. government incentive programs such as cash-for-clunkers, Russo thinks that they did provide some short-term relief, but they only buy time, because they do not provide a sustainable solution that addresses the root cause of the problem.

"They prolong the problem and help sustain companies and brands that would have otherwise been dissolved. Consolidation is often a necessary step that allows the surviving industry players to emerge even stronger," he said.

Regarding the role of the U.S. government in the auto industry, Russo said "Ultimately, market forces should prevail and the U.S. government should be careful not to intervene too directly in the business, or they risk becoming a 'benevolent crutch,' without which the Big 3 can no longer walk."

He suggested that the government must stop injecting cash either directly into these companies or into the market as incentives. Instead, government incentives should be redirected toward the root causes of the problem.

"Mainly, the government should encourage the auto makers to develop cars that meet current and future consumer demand. They must also reduce the burden placed on manufacturers in the development of the next-generation green technologies," he said.

Russo believes that the government can help fund research in the area of development of green technologies and create a vision for transition from an oil-based infrastructure to a "new energy" infrastructure, and must encourage consumers to migrate in this direction.

When asked about his advice to the U.S. government, Russo believes they should accelerate their efforts to address the root causes of the problems noted earlier.

"U.S. auto makers must eliminate underperforming assets and reallocate capacities away from segments and products which are no longer wanted in the marketplace. While this macro re-adjustment may take several years, they must avoid the temptation of relying on artificial incentives or they may not get an accurate understanding of true market demand," he said.

Russo advised that the U.S. auto makers must leverage their global businesses and partnerships in order to more efficiently address the opportunities in the American market.

Russo has more than 25 years of experience at driving strategy and performance improvement in Fortune 500 environments. In his role as the first vice president of North East Asia automotive operations for Chrysler, Russo successfully negotiated and secured government approval for six vehicle programs within a 3-year time period with three different Asian partners. He also oversaw the industrialization of the first Chrysler and Dodge-branded vehicles in Asia.

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IMF's crisis loan fund gets US$100b rise

Nov 26, 2009
PARTICIPANTS in the International Monetary Fund's crisis credit facility agreed to expand it by up to US$100 billion, add new contributing countries and make the facility more flexible, the IMF said on Tuesday.

At a meeting in Washington, the 26 participants in the New Arrangements to Borrow, a standing loan fund for use in times of financial crisis, agreed to raise the credit arrangements to up to US$600 billion from a previous pledge of up to US$500 billion.

The NAB members also agreed to add an unspecified number of new members from a pool of 13 potential new participants.

A formal decision on expanding the NAB is expected to be taken by the IMF's executive board in coming weeks.

"Current and potential NAB participants agreed to work quickly to take the necessary measures to make the new enhanced NAB effective as soon as possible," Japan NAB Chairman Daisuke Kotegawa said in a statement.

For the first time ever this year, emerging market countries such as China, Russia, India and Brazil contributed toward the NAB facility.

But they have made it clear that any future lending would depend on them acquiring a bigger stake in the way the IMF is run - a move that would shift power away from over-represented countries mainly in the industrialized world. The emerging economies also want more say over how the resources in the NAB are spent.

Kotegawa said the next review of the NAB facility would be conducted following the next review of quotas, or voting rights, in the IMF. The quota review is due to be completed by January 2011.

Leaders of the Group of 20 industrial and emerging economies in April pledged financing of US$250 billion toward a US$500 billion increase in NAB resources.

The enlarged NAB deal marked a vital moment for multilateralism and the IMF, said Managing Director Dominique Strauss-Kahn.

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Dollar hits 14-year low against yen

Nov 26, 2009

The dollar hit its lowest mark against the yen since 1995 on Thursday, fetching 86.72-75 yen in early afternoon trading.

Finance minister Hirohisa Fujii said that he would keep "a close eye" on the currency market, and that the government would take "appropriate measures" if there was abnormal activity in the markets.

Earlier in the day, Senior Vice Finance Minister Yoshihiko Noda ruled out buying dollars to slow the rise of the yen, saying, "we are not thinking about intervention at the moment."

The fall of the dollar has been blamed on speculation that the Federal Reserve will keep rates low as it attempts to keep a tentative economic recovery on track.

The dollar has also fell against a range of currencies in recent days, including the euro, the Thai baht, Swiss franc and the Philippine peso.

The dollar has declined in value against other currencies dramatically since the credit crisis started last summer, pushing prices for imported goods up in the United States.

On Wednesday, data showed exports from Japan to the United States had fallen by 27.6 percent in October.

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Dollar falls on strong economic reports

Nov 26, 2009

The dollar fell across the board on Wednesday as U.S. consumer spending and new home sales improved significantly, and the Federal Reserve was not overly concerned about the dollar's depreciation.

Trade volume was thin ahead of the Thanksgiving holiday, which exaggerated movements of currencies.

U.S. consumer spending rose 0.7 percent in October, according to the Commerce Department. Real consumer spending after inflation increased 0.4 percent, partly reversing September's 0.7 percent decline.

The news on income remains poor, though. Although overall personal income did rise 0.2 percent, wages and salaries were flat as the labor market continues to deteriorate. Excluding transfer payments, and allowing for inflation, personal income was down slightly in real terms.

The Commerce Department also reported that new home sales jumped 6.2 percent in October to a seasonally adjusted annualized rate of 430,000 units.

The number of unsold new homes fell for the 30th consecutive month to its lowest level since May 1971. The inventory yardstick, the months' supply of new homes at current sales rates, fell from 7.4 to 6.7 months.

The Labor Department reported that initial claims for jobless benefits fell 35,000 to 466,000 last week, a 14-month low. The four-week average of jobless claims fell to the lowest level since November 2008.

The decline of initial claims is a genuine improvement and not the result of one-time seasonal distortions, said analysts of Nomura Economics Research. It was expected that consensus forecasts for non-farm payrolls will shift higher.

The Fed released minutes on Tuesday for its latest monetary policy meeting held earlier in November. The minutes showed that Fed policymakers expect the economy to expand at a slow rate while unemployment remains high.

Fed officials thought the recent fall in the foreign exchange value of the dollar had been orderly. The central bank is expected to keep benchmark rates at ultra-low levels for an extended period.

The euro bought 1.5139 dollars in late New York trading compared with 1.4975 dollars it bought late Tuesday. The pound rose to 1.6716 dollars from 1.6593 dollars.

The dollar fell to 1.0457 Canadian dollars from 1.0577 Canadian dollars, and fell to 0.9986 Swiss francs from 1.0082 Swiss francs. It fell to 87.40 Japanese yen from 88.56 Japanese yen.

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U.S. retailers brace for online holiday sales war

Nov 25, 2009

Days before the start of the traditional holiday shopping season, retailers in the United States are gearing up to entice online bargain hunters with promotions, free shipping offers and new marketing tools.

Amazon.com, the country's largest online retailer, launched its Black Friday deals page Monday, saying it is offering customers "huge savings on thousands of hot holiday products."

Black Friday is the day after Thanksgiving, which falls on Nov. 26 this year, when major retailers in the United States traditionally offer big discounts to help kick off the holiday shopping season.

Retail giant Walmart, which has been waging an online price war with Amazon.com recently, on Monday announced that it will offer nearly 50 online-only specials on Thanksgiving Day including electronics, video games and toys, with savings up to 40 percent.

New survey also showed that online retailers in the country are planning to increase their promotions for Cyber Monday, a term referring to the Monday after Thanksgiving when consumers rush to make purchases online that they are not able to make in stores.

Nearly nine in 10 U.S. retailers will have a special promotion for Cyber Monday this year, up from 83.7 percent last year and 72.2 percent in 2007, according to survey results released Monday by Shop.org, a division of the U.S. National Retail Federation.

The most popular promotions are expected to be specific deals, one-day sales and free shipping on all purchases, the survey found.

An earlier study released in October by Shop.org indicated that in addition to promotions such as free shipping, online retailers are turning to social networking tools such as Facebook and Twitter as a more cost-effective alternative to traditional advertising.

About 47.1 percent of retailers surveyed by the study said they will be increasing their use of social networking tools this holiday season and more than half of retailers said they have added or improved their Facebook and Twitter pages.

"Retailers know that times are tough so they have created promotions and incentives to help Americans save money this holiday season," Scott Silverman, executive director of Shop.org, said.

"From free shipping to Facebook, online retailers are combining new initiatives with tried-and-true tactics to make their companies stand out," Silverman added.

Online sales are projected to be a bright spot for the U.S. retail industry in this holiday season.

The U.S. National Retail Federation has predicted that holiday retail industry sales will drop 1 percent this year to 437.6 billion U.S. dollars.

Online sales, though accounting for a small percentage of total holiday retail sales, are expected to perform better than previous year.

U.S. online retail spending for the November and December period this year will reach 28.8 billion dollars, up 3 percent from a year ago, market research firm comScore said in a report on Tuesday.

The modest growth rate represents an improvement compared to last season's 3-percent decline, but remains well below the growth rates of 20 percent or higher seen in previous years, comScore noted.

"The beginning of the online holiday shopping season has gotten off to a positive start, which is a nice improvement over the slightly negative growth rates we've experienced through much of 2009," comScore Chairman Gian Fulgoni said in a statement.

"Nonetheless, online spending this holiday season will likely be tempered by the stark reality of 10-percent unemployment and less disposable income in many consumers' wallets," Fulgoni cautioned.

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Global PC shipments to rise 2.8% in 2009: U.S. research company

Nov 25, 2009

Worldwide personal computer (PC) shipments are expected to increase 2.8 percent in 2009 from last year to total 298.9 million units, showing the market is noticeably improving, U.S. information technology research firm Gartner said Monday.

"Shipments in the third quarter of 2009 were much stronger than we expected, and that alone virtually guaranteed we would see positive growth this year," George Shiffler, research director at Gartner, said in a statement.

According to Gartner, global PC shipments are projected to reach 336.6 million units in 2010, up 12.6 percent from 2009.

But Gartner also cautioned that despite the forecast growth of PC shipments, the market value is expected to drop 10.7 percent from last year to 217 billion U.S. dollars.

"Blame this year's drop in market value on the unprecedented declines in PC average selling prices we've seen this year," said Shiffler.

The decline of PC average selling prices is expected to slow as the market recovers, but given the market's competitive dynamic, PC average selling prices may not rise any time soon, he noted.

"As a result, growth in the market value of shipments will significantly lag shipment growth next year and beyond," Shiffler concluded.

For 2010, Gartner projected the market value of PC shipments to reach 222.9 billion dollars, a 2.6-percent increase over 2009.

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U.S. dollar mixed against major currencies

Nov 25, 2009

The U.S. dollar was mixed against major currencies on Tuesday as latest economic data suggested a slow recovery.

U.S. third-quarter GDP growth was revised down to an annualized rate of 2.8 percent from 3.5 percent previously estimated, roughly in line with consensus expectations, the Commerce Department reported on Tuesday.

The major reasons for the downward revision were weaker growth in consumer spending, a bigger decline in non-residential construction, and a larger upward revision in imports compared with exports.

The Conference Board's consumer confidence index rose to 49.5 in November from 48.7 in October. Consumers' appraisal of present-day conditions was virtually unchanged in November. Short-term outlook improved slightly, with the expectations index edged up by1.5 points to 65.7.

The Standard &Poor's/Case-Shiller home price index, a closely watched measure of 20 metropolitan areas, increased for the fourth consecutive month by 0.3 percent on a seasonally adjusted basis in September. The index are up about 3.5 percent from their May low.

Also released Tuesday, the S&P/Case-Shiller National Home Price Index for the third quarter declined 8.9 percent from the same period in 2008, a significant improvement over the 14.7 percent decline of the second quarter.

The U.S. Federal Reserve released minutes for its latest monetary policy meeting held earlier in November. The minutes showed that Fed policymakers expect the economy to expand at a slow rate while unemployment remains high.

The euro bought 1.4975 U.S. dollars in late New York trading compared with 1.4973 dollars it bought late Monday. The pound fell to 1.6593 dollars from 1.6621 dollars.

The dollar rose to 1.0577 Canadian dollars from 1.0553 Canadian dollars, and fell to 1.0082 Swiss francs from 1.0093 Swiss francs. It fell to 88.56 Japanese yen from 89.02 Japanese yen.

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US growth looks better

Nov 24, 2009
A GROUP of United States business economists boosted its forecast for the country's economic growth over the next year but said the jobless rate would remain stubbornly high, a survey released yesterday showed.

The National Association for Business Economists predicted real growth in gross domestic product for 2010 would be 2.9 percent, up from its October forecast for 2.6 percent growth.

"Real GDP growth should also be enough to recover losses from the recession and return output to an all-time high by the end of 2010," the business group said.

For all of 2009, the business group predicted the economy would contract by 2.4 percent, slightly improved from its October forecast for contraction of 2.5 percent.

The survey reflected a poll of 48 NABE members from October 24 to November 5.

The group saw the jobless rate holding at an average 10 percent from the fourth quarter of 2009 to the second quarter of 2010 before dropping to 9.6 percent by the end of 2010.

"While the recovery has been jobless so far, that should soon change," said NABE President Lynn Reaser. "Within the next few months, companies should be adding instead of cutting jobs."

Employers have shed 7.3 million jobs since December 2007 when the recession began. The jobless rate last month jumped to 10.2 percent, a 26-and-a-half-year high.

The survey found that most of the group's economists were mostly optimistic that the Federal Reserve's polices will not lead to higher inflation. Inflation will remain low mostly because of substantial labor slack, and further productivity gains will reduce labor costs, the business group said.

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Weak dollar, home sales data carry stocks higher

Nov 24, 2009
INVESTORS halted a three-day losing streak on the stock market yesterday, sending prices broadly higher on a weaker dollar and better-than-expected home sales numbers.

Major stock indexes soared more than 1 percent, including the Dow Jones industrials, which rose 133 points to a 13-month high. Volume was thin ahead of the Thanksgiving holiday, which can exaggerate the size of swings in the market.

Investors found plenty reasons to buy as the day's developments pointed to two trends: an improving economy and interest rates that are expected to stay low.

- The National Association of Realtors reported that October home sales rose more than 10 percent revived investors' optimism after disappointing data on the housing industry last week raised concerns about the strength of the economic recovery.

- Charles Evans, head of the Federal Reserve Bank of Chicago, was quoted as saying he saw little risk that the economy would slide back into recession, although unemployment is unlikely to fall until next summer. And James Bullard, president of the Federal Reserve Bank in St. Louis, said the U.S. Fed should continue to buy mortgage-backed securities after the program is supposed to expire in March. That would continue to keep interest rates low.

- The dollar, a key factor in stock trading in recent months, extended its pullback, sending prices for commodities including gold and oil higher and in turn, the stocks of companies that produce them.

Meanwhile, bond prices retreated as investors regained their appetite for risk.

Low interest rates and a resulting slide in the dollar have been big drivers behind the stock market's eight-month rally. Low interest rates enable investors to borrow cheaply and buy assets like stocks and commodities that have the potential to earn higher yields than cash.

Investors were buying yesterday on somewhat contradictory forces in the market. The strength in housing is a sign of an improving economy, which could argue in favor of raising rates, while the dollar's weakness points to rates remaining low. Analysts say investors who still have plenty of available cash are primed to buy, and so the market may also be rising on its own momentum.

"There's still US$2 trillion of cash that needs to find its way into the stock market," said Phil Orlando, chief equity market strategist at Federated Investors.

Orlando said investors will continue to look for dips in the rally as a way to get into the market, not wanting to end the year without participating in some of the big gains stocks have made.

"Bearish managers are sweating bullets that they're not going to be able to get that cash in the market and they need to do that," he said. "That is why any pullback we've seen this year has been met with a wave of cash that has pushed stocks up higher."

At the same time, many portfolio managers have cooled their buying, not wanting to risk losing the big returns they've made since stocks began rallying in March. Those opposing forces are likely to result in choppy trading over the next few weeks, analysts said, which will be exacerbated by light volume as the holidays approach.

The Dow rose 132.79, or 1.3 percent, to 10,450.95, after losing 120 points over the previous three days. The Dow rose as much as 177 points to a 13-month trading high of 10,495.61.

The Standard & Poor's 500 index rose 14.86, or 1.4 percent, to 1,106.24, while the Nasdaq composite index rose 29.97, or 1.4 percent, to 2,176.01.

Four stocks rose for every one that fell on the New York Stock Exchange, where volume came to a low 979.9 million shares, compared with 1.1 billion Friday. Many traders were already on vacation for Thanksgiving, and the decreased volume can contribute to price swings.

The ICE Futures U.S. dollar index, a widely used measure of the dollar against other currencies, fell 0.7 percent. As the dollar fell, gold prices surged to a new high of US$1,174 an ounce. Oil rose 9 cents to US$77.56 a barrel on the New York Mercantile Exchange.

The spike in commodities lifted the shares of energy companies and materials producers. Chevron Corp. rose US$1.97, or 2.6 percent, to US$78.74. Weyerhaeuser Co. gained US$1.25, or 3.3 percent, to US$39.11.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.36 percent from 3.37 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent.

The yield on the three-month bill briefly dipped into negative territory last week as worries about the economy took hold and investors retreated to safe havens like the dollar and government debt as they sold stocks.

Investors wanting to lock in profits as the year comes to a close are willing to earn very little to park their cash in a safe place.

"It's not a time for taking chances," said Quincy Krosby, market strategist at Prudential Financial.

The National Association of Realtors said home sales rose 10.1 percent in October to the highest level in two and a half years, spurred by a tax credit for first-time homebuyers. Analysts had been expecting a 1.4 percent increase in sales. The credit, due to end at the end of the month, has been extended into 2010.

"You could be completely cynical and say this market is moving up today because volume is low and the dollar is weak, but I would have to add that we're getting confirmation on the sustainability of the economic recovery by the actual fundamentals," Krosby said, referring to the housing report.

In other trading, the Russell 2000 index of smaller companies rose 10.13, or 1.7 percent, to 594.81.

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IMF chief warns that the worst may not be over

Nov 24, 2009
The global economy is in a holding pattern and vulnerable to more upheaval, the head of the International Monetary Fund said yesterday, adding that a lasting recovery will depend on policy makers taking the proper steps in the coming months.

Dominique Strauss-Kahn, the IMF's managing director, said the top priority in rich countries should be making plans to clean up the fiscal mess left by more than a year of crisis-fighting efforts, although he thought it was still too early to remove such emergency supports.

"We recommend erring on the side of caution, as exiting too early is costlier than exiting too late," Strauss-Kahn said in remarks prepared for delivery to the Confederation of British Industry's annual conference in London.

Since the financial crisis intensified following the messy collapse of Lehman Brothers in September 2008, governments and central banks have committed trillions of dollars in stimulus money and financial sector guarantees as well as cut interest rates to record lows in most advanced economies. Those efforts helped to stem the crisis, he said.

"So, we stand at a critical juncture," Strauss-Kahn said. "The sustainability of this recovery will depend on the decisions taken by policy makers in the months to come." He cautioned that the sense of global policy unity forged during the darkest days of the financial crisis might dissolve and urged close cooperation even though exit strategies differ from country to country.

For advanced economies, where debt burdens have grown sharply over the past year, the IMF wants governments to design and communicate plans to get their respective finances back in order.

That means ensuring stimulus measures are temporary and putting entitlement programs on a sustainable path. Eventually, more drastic measures will be necessary, Strauss-Kahn said, including spending cuts and in some cases tax hikes.

"I see fewer problems with monetary policy," he said, adding that central banks had the proper tools to unwind the emergency lending programs they cobbled together in the midst of the financial panic.

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Oil prices drop below US$77 on economic doubt

Nov 23, 2009

Oil prices fell below US$77 a barrel yesterday on a stronger dollar and amid concern about the strength of the global economic recovery.

Benchmark crude gave up 74 cents to settle at US$76.72 a barrel on the last trading day for the December contract. Crude prices for January delivery lost 58 cents to settle at US$77.47.

Crude prices were dragged down by uncertainty about the economic outlook, including concerns about deflation and a possible double-dip recession.

Oil has seesawed between US$76 a barrel and US$82 for about a month as the dollar - whose fall this year has help boost crude prices from US$32 in December - stabilized somewhat during the last few weeks. Investors often buy commodities such as oil as a hedge against a weaker dollar and inflation.

Wall Street stocks dropped for a third straight day yesterday as investors grew increasingly uneasy about a rising dollar and spiking demand for the safest government debt.

A strengthening dollar curtails foreign demand for commodities, which are often traded in dollars. It also can depress U.S. exports, which become more expensive as the dollar rises.

On Thursday, the Labor Department said employers are still shedding jobs, and the Mortgage Bankers Association reported a surge in foreclosures. However, some analysts expect Asian economic growth, led by China, to help offset a sluggish recovery in developed countries.

In other Nymex trading, heating oil fell 2.08 cents to settle at US$1.9756 a gallon. Gasoline for December delivery added 1.11 cents to settle at US$1.9806 a gallon. Natural gas added 8.2 cents to settle at 4.424 cents per 1,000 cubic feet.

In London, Brent crude for December delivery fell 42 cents to US$77.22 on the ICE Futures exchange.

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Strong turnout seen for Black Friday retail sales

Nov 23, 2009

When the United States holiday shopping season kicks off on the day after Thanksgiving, retailers can expect to see millions of less frightened but even more bargain hungry customers cross their thresholds.

Industry experts expect a strong turnout on Black Friday, which falls on November 27 this year, as deep discounts lure shoppers after more than a year of subdued spending. But they caution it will not mean a bumper holiday season in the weeks leading up to Christmas since consumers still remain cautious.

"Given what we know about consumer shopping patterns, even this month, I would suspect it will turn out to be a very strong performance," said Michael Niemira, chief economist of the International Council of Shopping Centers.

Special promotion days have been big drivers of sales, he said, pointing to the lift retailers saw on the November 11 Veteran's Day holiday.

Retailers and Websites dedicated to Black Friday deals have leaked sales plans earlier than usual, in the hopes of sparking demand for flat panel televisions, toys and other goods after the worst holiday season in decades in 2008.

While the economy remains weak and unemployment has risen, American shoppers have had more than a year to adjust their spending and digest the bad news. In 2008, holiday shopping started just weeks after the global financial crisis erupted.

"Certainly last year was a year of tremendous uncertainty going into Black Friday because we were right in the middle of the storm," said Chris Donnelly, a partner in Accenture's retail practice. "There is much less panic, I would say, or much less uncertainty, as we go into the season."

Even so, more than 172 million shoppers visited stores and Websites from Thanksgiving Day through Sunday last year, up from 147 million in 2007, according to the National Retail Federation. The average amount of money spent by shoppers over that weekend rose 7.2 percent to US$372.57 per person.

Those numbers, however, did not prevent a sales drop of 2.8 percent for the entire shopping season last year, the first decline since the NRF began tracking such data in 1995.

While the NRF has not issued a Black Friday forecast, it expects 2009 holiday season sales to expand 1 percent.

The ICSC, meanwhile, forecast an increase of 1 percent to 2 percent.

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U.S. economic leading indicator increases in October

Nov 21, 2009

The Conference Board, an economic research group, said Thursday that its leading economic index (LEI)for the United States increased 0.3 percent for the seventh consecutive month in October.

The LEI for the UnitedStates increased 0.3 percent in October, following a 1.0 percent gain in September, and a 0.4 percent rise in August, said the Conference Board in a report.

"After half a year of consecutive increases, the month-to-month growth of the LEI is stabilizing and the gains continue to be broad-based," said Ataman Ozyildirim, economist at the Conference Board.

"Meanwhile, the coincident economic index has been essentially flat since June, after declining since November 2007. The composite indexes suggest the recovery is unfolding and economic activity should continue improving in the near term," he added.

"The data indicate that economic recovery is finally setting in. We can expect slow growth through the first half of 2010. The pace of growth, however, will depend critically on how much demand picks up, and how soon," said Ken Goldstein, economist at the Conference Board.

The Conference Board coincident economic index for the United States was unchanged in October, following a 0.1 percent decline in September, and a 0.1 percent increase in August.

The Conference Board lagging economic index declined 0.2 percent in October, following a 0.5 percent decline in September, and a 0.4 percent decline in August.

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Economic recovery spreads to OECD area at large

Nov 21, 2009

The Paris-based economic adviser Organization of Economic Cooperation and Development (OECD) confirmed Thursday the economic recovery has now spread to OECD area at large and forecasted a whole growth of 1.9 percent in 2010.

However, the report admitted that the OECD economy remains dragging in depression for 2009 as households and businesses need time to revive their confidence and repair their finances.

According to the report, the Untied States will bear a 2.5 percent contraction, better than the 4.0 percent decline for the euro area and 5.3 percent for Japan. The OECD will embrace a decline of 3.5 percent at large, and world trade will also decline12.5 percent for the year.

The OECD outlook report also forecasts growth in the coming years, saying that the United States will see 2.5 percent growth in gross domestic products (GDP) in 2010 and a further 2.8 percent in 2011, while the economy of the euro area and Japan will respectively increase 0.9 percent and 1.8 percent in 2010, and 1.7percent and 2.0 percent in 2011. Speaking generally, the report said, the world trade growth will stand at 6.0 percent for 2010.

The report attributes the long awaited modest growth across the OECD area to the held-back effect of stimulus policies implemented by different governments.

These stimulus packages also brought side effects. Jorgen Elmeskov, acting chief economist of the OECD, warned that government budgets had suffered badly from the global financial crisis. "The gross debt of most OECD countries could be larger than their GDP by 2011."

To strengthen the base of sustainable development, "removing stimulus measures is imperative but such action has to be carried out gradually to avoid undermining the recovery," OECD Secretary-General Angel Gurria said.

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Investors rule out U.S. Fed rate hike anytime soon, survey shows

Nov 20, 2009

A majority of investors expects the U.S. Federal Reserve to hold off from raising interest rates until the second half of 2010, according to the BofA Merrill Lynchsurvey of fund managers for November.

Asked when they think the Fed will first increase rates, more than three quarters of the panel predicted the second half of 2010or beyond, one in six respondents believes the Fed will not act before 2011, BofA Merrill Lynch Global Research said in a report Thursday.

U.S. Fed Chairman Ben S. Bernanke said Monday that the Fed would keep low interest rates for an extended period, citing uncertainties in U.S. economy, such as constrained flow of credit, weak economic activity and high unemployment, despite evidences of recovery.

"The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," said the chairman.

A total of 218 fund managers, managing assets worth of 534 billion U.S. dollars, participated in the global survey o Nov. 6-12, conducted by BofA Merrill Lynch Global Research with the help of market research company TNS.

A net 47 percent of respondents said they expect global core inflation to be higher in 12 months, up from a net 39 percent in October. Two thirds of the panel believe that the existing monetary policy is "about right."

"Investors see inflation as a greater risk than deflation and are hedging that risk with overweight positions in emerging markets and commodities, and an underweight position in the U.S. dollar," said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

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Crude prices follow world markets down

Nov 20, 2009
A GLOBAL sell-off on equity markets dragged down crude prices by nearly 3 percent yesterday, the first decline this week.

The price for a barrel of crude dropped by more than US$1 immediately when U.S. markets opened, with the Dow Jones industrials giving up more than points. Markets in Asia and Europe fell early in the day.

Also pushing oil prices lower was a strengthening dollar. Crude prices have risen steadily this year as the dollar lost value against the euro. Because oil is bought and sold largely in dollars, someone holding euros can essentially by more crude for less.

Since the beginning of February, the dollar has lost more than 16 percent of its value against the euro. On days when the dollar climbs, like yesterday when the U.S. currency gained a half cent against the euro, crude prices tend to fall.

Benchmark crude for December delivery gave up US$2.12 to settle at US$77.46 a barrel with one day remaining until the futures contract expires on the New York Mercantile Exchange. Most of the trading already moved to the January contract, which lost US$2.05 to settle at US$78.05.

Still, with oil near US$80 per barrel, consumers are starting to feel the pinch.

Leaders with the International Energy Agency in Paris, the U.S. Department of Energy, and even the Organization of Petroleum Exporting Countries have warned that rapidly rising energy prices could slow any economic rebound.

Since crude prices have soared, oil refiners have been shutting down facilities because they must pay higher prices for crude, but they can't make up those costs with higher gas prices. Demand for gasoline, jet fuel and diesel, is dismal.

That has helped to send retail gas prices higher.

"Bottom line, the race is on; between falling demand and falling production," analyst Stephen Schork said. "Regardless of the outcome, one result is almost guaranteed ... the consumer will lose. And, given that consumer spending is responsible for more than two-thirds of the U.S. economy, that does not bode well for the strength of the incipient recovery."

The Energy Information Administration also reported that natural gas stockpiles rose to a new record high last week, largely because industrial customers are using a lot less energy.

In other Nymex trading, heating oil fell 5.22 cents to settle at US$1.9964 a gallon. Gasoline for December delivery lost 4.19 cents to settle at US$1.9695 a gallon. Natural gas for December delivery added 8.8 cents to settle at US$4.342 per 1,000 cubic feet.

In London, Brent crude for January delivery gave up US$1.83 to settle at US$77.64 on the ICE Futures exchange.

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