With shopping no longer their favorite pastime, Americans appear to be spending their money in other ways, such as acquiring new skills, getting help with their finances and visiting the dentist.
This change in spending behavior is helping trade schools, accounting firms and even your neighborhood dentist survive the economic downturn better than other businesses, according to an industry report.
"Our data show that companies selling non-discretionary products and services, things that people really need, are doing pretty well," said Brian Hamilton, CEO of Sageworks Inc., a Raleigh, N.C.-based company that analyzes weekly financial data such as sales, balance sheets and income statements for privately held companies across 1,600 industries.
Hamilton said seven industries are clearly benefiting from a pickup in sales over the past 12 months.
Auto repairs, home repairs: April’s retail sales numbers showed consumers are still shunning big-ticket purchases. So instead of buying new cars or upgrading to bigger homes, they are spending money on maintaining what they already own.
Auto repair shop sales grew 2.4% over the last 12 months while car dealership sales declined by 9.7%, according to Sageworks.
As more people remodel and fix their homes instead of moving, revenue for electricians, plumbing and heating contractors has grown 4.6% in the last 12 months while home builders’ sales declined by more than 5%.
Supermarkets: Many consumers are looking to save money by eating at home more than eating out. This trend has favored grocery stores, resulting in a 6.7% sales increase for supermarkets in the last 12 months.
By comparison, Sageworks’ data showed family-style restaurants logged a slower 3 businesscards.9% sales increase.
Trade schools: With an average of 600,000 Americans losing their jobs every month, many are going back to school to learn new skills and improve their chances of rejoining the workforce when the economy rebounds.
Revenue at trade and technical schools has grown by 9.1% in the last 12 months, a faster pace than the 5.9% growth in 2007.
Dentists’ delight: Hamilton said health care has been one of the most recession-resistant sectors, since people regard it as a necessity.
Sageworks’ data showed the average dentists’ office logged sales growth of 6.9% in the last 12 months, up from 4.9% in 2007.
Looking good: Personal care extends to looking good through the recession. While Americans may be making concessions on high-end services, they are still getting regular haircuts and manicures.
Hair salons, barber shops, nail salons and spas logged sales growth of 4.5% in the last 12 months, according to Sageworks.
Help with finances: Many consumers aren’t shying away from paying for financial advice to help them make it through the recession.
Sageworks’ data showed that the accounting industry ranked among the top 10 industries in terms of revenue growth, with a 10.2% gain in the past 12 months.
"These patterns show that the recession has been lopsided," said Hamilton. "Although the economy has slumped, we’re not getting a decline across all industries. Very specific industries like real estate are creating a big drag on the broader economy."
Fannie Mae and Freddie Mac, charged with helping lead the nation out of its housing crisis, are facing "critical" financial problems, federal regulators said Monday.
The companies suffer from severe financial, operational and compliance weaknesses, the Federal Housing Finance Agency said a report to Congress detailing its annual examinations of the firms. Taken over by the government in September, Fannie and Freddie are not able to operate without federal assistance.
"With new senior management teams, each enterprise has made strides in remediating problems," the agency said. "But they still face numerous significant challenges including building and retaining staff and correcting operational and credit management weaknesses that led to conservatorship."
Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) play a vital role in the national housing market, accounting for a combined share of 73% of mortgage originations in the second half of 2008. They also serve central roles in the Obama administration’s foreclosure prevention plan.
To continue functioning, the firms have drawn down about $60 billion of their combined $400 billion lifeline from the federal government payday loans. Fannie reported a $23.2 billion quarterly loss and Freddie a $9.9 billion quarterly loss earlier this month.
One hurdle to putting Fannie and Freddie back on firm financial footing is the many vacancies in their executive ranks. Hiring has been slowed by compensation concerns, the agency said.
While the housing meltdown prompted the companies’ near collapse in 2008, this year will also be difficult. Fannie Mae will face challenges as it works with servicers to help troubled borrowers and to manage and sell a growing inventory of foreclosed properties, the agency said. Freddie Mac, meanwhile, needs to improve its internal controls and find a chief executive officer.
"The problems of the last two years in the financial markets are slowly abating, but the challenges in the housing markets continue," said James Lockhart, the agency’s director.
Stocks fell Friday at the end of a down week on Wall Street, the first weekly decline in all three major indexes in 10 weeks, as investors reacted to economic news and word of General Motors’ dealership closings.
The Dow Jones industrial average (INDU) lost 63 points, or 0.8%. The S&P 500 (SPX) index lost 10 points, or 1.1%. The Nasdaq composite (COMP) lost 9 points or 0.5%.
"I think we needed a technical correction after the previous nine weeks," said Tom Schrader, managing director at Stifel Nicolaus.
"We came pretty far pretty fast and this week has been about taking a breather," he said. "We may see a few more weeks of this, especially now that earnings are over, as we wait for the next catalyst."
Since hitting what many see as a bottom on March 9, stocks have been on a tear. The Dow and S&P 500 rose for eight of the nine previous weeks and the Nasdaq advanced for nine in a row.
But this week was different. Bets that the economy is closer to stabilizing have boosted equities, but worse-than-expected reports on retail sales, housing and employment this week have raised worries that the market has gotten ahead of itself.
Declines were broad based Friday, with 24 of 30 Dow components sliding, led by Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500), Boeing (BA, Fortune 500), Caterpillar (CAT, Fortune 500), Merck (MRK, Fortune 500) and Wal-Mart Stores (WMT, Fortune 500).
Automakers: General Motors (GM, Fortune 500) said it is notifying 1,100 U.S. dealers that their contracts will be ending. The company has implied it will eliminate up to 2,600 dealers, or 42% of the total, over the next year. GM shares lost 5%.
On Thursday, bankrupt automaker Chrysler informed 789 dealers, or roughly 25% of the total, that it was ending their contracts.
Economy: Friday brought reports on consumer inflation, manufacturing and consumer sentiment, among others.
The Consumer Price index (CPI), fell 0.7% in April versus a year ago, the largest annual drop since June 1955, the Labor Department reported. CPI was flat versus March, meeting forecasts cash advances pay day loan. CPI fell 0.1% in the previous month.
The so-called core CPI, which strips out volatile food and energy prices, rose 0.3% after climbing 0.2% in the previous month. Economists surveyed by Briefing.com thought it would rise 0.1%.
The Empire State index, a measure of manufacturing in the New York area, improved to negative 4.6 in May from a reading of negative 14.7 in April. Economists thought it would improve to negative 12.
The University of Michigan’s consumer sentiment index rose to 67.9 in May from 65.1 in April, versus forecasts for a rise to 67.
Company news: Six life insurers can now access the government’s bailout money, Treasury said late Thursday. The companies are Allstate (ALL, Fortune 500), Ameriprise Financial (AMP, Fortune 500), Hartford Financial Services Group Inc. (HIG, Fortune 500), Lincoln National Corp. (LNC, Fortune 500), Principal Financial (PFG, Fortune 500) and Prudential Financial (PRU, Fortune 500).
JC Penney (JCP, Fortune 500) said Friday that first-quarter profit plunged 79% from a year earlier. However, sales excluding items topped analysts’ forecasts. The retailer also forecast full-year earnings in a range that is short of analysts’ estimates.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.48 billion shares. On the Nasdaq, decliners topped advancers eight to five on volume of 2.12 billion shares.
Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.13% from 3.10% Thursday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, Asian markets rallied and European markets were mixed.
In currency trading, the dollar gained versus the euro and fell against the yen.
U.S. light crude oil for June delivery fell $2.28 to settle at $56.34 a barrel on the New York Mercantile Exchange.
COMEX gold for June delivery rose $2.90 to settle at $931.30 an ounce.
At least four U.S. insurers won approval on Thursday to raise billions of dollars through the government’s bank bailout plan, the U.S. Treasury Department said.
Hartford Financial (HIG, Fortune 500), the No. 4 U.S. insurer beset by worries about capital, got preliminary approval to raise $3.4 billion via the Troubled Assets Relief Program, known as TARP.
Three other insurers that also secured a greenlight included Prudential Financial Inc. (PRU, Fortune 500), Lincoln National Corp. (LNC, Fortune 500), and the Principal Financial Group (PFG, Fortune 500), a Treasury spokesman said.
The Wall Street Journal reported that Allstate Corp. (ALL, Fortune 500) and Ameriprise Financial Inc. (AMP, Fortune 500) had been cleared too.
Shares in a raft of U.S. insurers soared between 3% and 6% in after-hours trade amid reports the Treasury Department had doled out approvals.
Investors have worried about the health of Hartford and other insurers since the near-collapse in September of American International Group (AIG, Fortune 500).
The four firms confirmed by the Treasury Department qualified because of their status as bank holding companies and because they applied for access before a Nov. 14, 2008, deadline, the Treasury spokesman said.
A Prudential spokesman declined to comment.
Executives at Allstate and Ameriprise were not immediately available for comment. Lincoln and Principal spokesmen did not return calls for comment.
Hartford, which in April posted its third straight quarterly loss because of dismal financial markets, said in a statement it received preliminary approval for the capital participation — subject to final negotiation and approval pay day loans.
"Applying for participation in the CPP was a prudent step for the Hartford, particularly given the continued economic uncertainty," Chief Executive Ramani Ayer said.
"These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation’s history."
Life insurers such as Hartford have endured criticism in the past year for taking reckless bets, such as "variable annuities" or policies that promised unrealistic guarantees to buyers.
Walloped also by tanking financial markets, the largest U.S. insurers have sought government aid to tide them over the financial and economic crisis.
As a condition for taking part in the Treasury Department’s Capital Purchase Program, Hartford had agreed to buy Florida-based Federal Trust Corp, a small savings and loan.
Hartford said at the time it would be eligible to sell $1.1 billion to $3.4 billion of preferred shares to the government under the Treasury Department’s $700 billion TARP.
Shares in Hartford climbed to $15.65 in after-hours trade from a $14.75 regular close. Stock in Lincoln rallied 4.6%. Principal gained more than 3%.
But Allstate, Ameriprise and Prudential, which had gained between 2.5% and 6.4% during the regular session, held steady in extended trade.
Auto industry job losses led to a surge in the number of people filing initial claims for unemployment benefits last week, according to a government report released Thursday.
And, in the most recent data available, the number of people filing claims on an ongoing basis rose to a record high for the 15th straight week.
A total of 637,000 people filed new claims for jobless benefits in the week ended May 9, the Labor Department said. That’s an increase of 32,000 from an upwardly revised 605,000 in the previous week.
The tally was higher than expected. Economists surveyed by Briefing.com had forecast 610,000 initial claims.
The majority of last week’s increase was due to layoffs and furloughs in the automotive industry, a Labor Department analyst said.
Chrysler LLC declared bankruptcy late last month and General Motors (GM, Fortune 500) is restructuring ahead of a government deadline at the end of May.
The 4-week moving average of initial claims, which smoothes out volatility in the measure, rose 6,000 to 630,500.
"It looks like we’re getting some effect from the problems in the auto industry, and I think that’s going to continue" said Michael Strauss, chief economist at Commonfund poor credit personal loans. "Away from that, the backdrop has improved."
Initial claims had trended lower in recent weeks, raising hopes that the labor situation was stabilizing and that mass layoffs were becoming less frequent.
But the weak economy continues to deter employers from hiring, as indicated by the increasing number of people filing jobless claims for multiple weeks.
In the week ended May 2, the most recent data available, 6,560,000 continuing claims were filed. That’s the highest number since the Labor Department started tracking the data in 1967 and an increase of 202,000 from the previous week.
Since the recession began in December 2007, the economy has shed about 5 million jobs. The unemployment rate now stands at a 25-year high of 8.9%.
The government ran up a $21 billion budget shortfall last month, the first April deficit in 26 years, the Treasury Department said Tuesday.
The total deficit for the first seven months of the fiscal year hit $802 billion, compared to a deficit of $153 billion in the same period a year earlier, the government said in the monthly budget report.
"This is historic," said Dan Clifton, head of policy research at Strategas Research Partners. "Our country has never seen something like this."
From October - the beginning of the fiscal year - to April, total revenue declined 19%, Clifton said. That’s the largest drop in revenue and almost double the previous record, he said.
Notably, April is usually a good month for Uncle Sam because many taxpayers file their returns and send checks to the Treasury. But this year, tax receipts have fallen sharply because of the recession and the government’s response to it.
The downturn is a triple whammy to government revenue: fewer people are working and providing income tax dollars; corporation tax receipts are on the wane; and tax cuts aimed at juicing the economy reduce paycheck withholdings.
"It’s a perfect storm of every tax revenue source declining at once," Clifton said.
At the same time, government is spending massive amounts to try to recapitalize the nation’s financial system and spur economic growth car insurance quotes.
In March, the government added $191.6 billion to the deficit.
Spending: The total outlays for April were $287.1 billion, a decrease from $320.5 billion spent in March.
Spending is up 26% year-over-year, according to Clifton, who said the number is "astronomical. Even a fifth of that increase would have been a big deal."
So far this fiscal year, the government has spent $2.06 trillion and expects to spend $3.94 trillion for the full year ending Sept. 30.
Total receipts for April were $266.2 billion, bringing the total amount that the government has taken in so far this year to $1.3 trillion.
The government collected $14.5 billion in corporate income taxes in April and $136.7 billion in individual income taxes.
So far in this fiscal year, the government has collected $70.7 billion in corporate taxes, down from the $171.1 billion taken in by the same time the previous year.
About $566.4 billion in individual income taxes has been collected, down from $747.6 billion a year ago.
The government expects to take in total receipts of $2.2 trillion.
Government "stress tests" of how 19 major banks would endure a sharp downturn in the economy already appear to be helping banks gain access to private capital, a key element in economic recovery, Federal Reserve Chairman Ben Bernanke said on Monday.
Bernanke also assured a conference here that the dollar would be strong, because the U.S. central bank would keep inflation at bay by raising interest rates when the time is right.
But his talk on Jekyll Island, where top Wall Street bankers conceived of the modern U.S. central bank at a secretive meeting nearly 100 years ago, focused on last week’s crucial assessment of the health of the big U.S. banks.
"The initial indications are encouraging," Bernanke told a conference organized by the Atlanta Fed.
"Many of the banks are well ahead in finding private-sector options for increasing their common equity, and several have announced plans for new equity issues," he said.
Another positive sign in the aftermath of the tests is that several banks have announced plans to issue long-term debt not guaranteed by the Federal Deposit Insurance Corp., Bernanke said.
Even so, the Fed chairman cautioned it will be "some time" before it is possible to say whether the exams, which put banks’ portfolios through bleaker-than-expected scenarios for economic output, unemployment and house price declines, will fully restore investor confidence and assure banks’ access to private capital.
The Fed and other regulators announced last week that 10 of the 19 firms tested would need to raise an additional $74.6 billion to be adequately buffered against the worst-case economic scenario.
"We hope that in two or three years we will be able to reflect on the banking system’s return to health with a sharply diminished reliance on government capital," he said.
Turning to the U.S. economy during a question and answer session after the speech, Bernanke said the Fed would ensure the strength of the dollar by making sure that inflation did not take hold.
"I think the issue at hand is whether or not the dollar will retain its value, and I think it will faxless payday loan guaranteed. I think the dollar will be strong. I think it will be strong because the U.S. economy is strong. And it will also be strong because the Federal Reserve is committed to assuring that we have price stability," he said.
The Fed has cut interest rates to almost zero and pumped hundreds of billions of dollars into financial markets to keep them from freezing in panic over bank losses.
The dollar had strengthened somewhat in the latter part of last year as investors sought its security as a safe haven.
But as the Fed cut rates and pumped up the supply of credit, alongside projections for massive U.S. budget deficits, there have been concerns the currency might weaken.
"We are currently, of course, being very aggressive because we are trying to avoid another form of price instability, which is deflation and weakening prices and economic growth.
"But we are also committed to removing accommodation in a timely way to ensure that as we come out of this episode and we move back to sustainable recovery, we will have price stability," Bernanke said.
Fed policy-makers are also focused on ensuring that they can pull back the central bank’s unprecedented infusions of cash into the economy to prevent unwanted inflation from taking hold when the economy begins to strengthen, he said.
"A majority of the members who made these projections just recently took 2 percent as being an appropriate number" for inflation, he said. "Somewhere between 1-1/2 to 2 percent is basically the number that our committee has individually stated is the appropriate medium-term inflation rate.
"To achieve that we need to demonstrate that we will be able to exit from the balance sheet position that we currently have, and have been working on this intensively," he said.
Ten of the nation’s 19 largest banks will need to raise a total of $74.6 billion in capital, federal officials announced Thursday, bringing an end to relentless speculation about how much more money the nation’s leading banks would need to withstand the recession.
More than two months after launching the so-called "stress test" program, leading regulators said that more than half of the banks tested would require capital to absorb additional losses if the economy weakens further.
Under the most severe economic scenario, regulators estimated losses could reach $599 billion for the group, the bulk of which coming from residential mortgages and other consumer loans such as credit cards.
Leading the list of companies that need more capital was Bank of America (BAC, Fortune 500), which faces a $33.9 billion shortfall. Following behind was Wells Fargo (WFC, Fortune 500) and struggling auto finance firm GMAC, which will need to raise $13.7 billion and $11.5 billion respectively.
Beleaguered banking giant Citigroup (C, Fortune 500), which has taken hold of approximately $50 billion in government aid to date, is being asked to raise $5 billion, regulators said. (See how much all the big banks need, as well as how much they could lose in the worst-case scenario.)
Five regional lenders — PNC, Regions Financial, SunTrust, Fifth Third and KeyCorp will also be required to raise new capital. So will Wall Street investment bank Morgan Stanley (MS, Fortune 500), which regulators said would require $1.8 billion to shore up its capital position.
Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500), American Express (AXP, Fortune 500) and Bank of New York Mellon were among the nine banks that regulators said do not need to raise more capital. The others were Capital One Financial, BB&T, U.S. Bancorp, State Street and insurer MetLife.
The completion of the stress tests and the pending capital raises by some institutions will mean that "banks can get back to the business of banking," Treasury Secretary Tim Geithner said in a conference call with reporters Thursday.
"This transparent, conservatively designed test should result in a more efficient, stronger banking system," Geithner said.
Results of the tests, which were first made known to executives at participating banks nearly two weeks ago, have steadily surfaced in media reports in recent days.
Regulators were originally slated to release the results earlier this week, but pushed the announcement back after some banks disagreed with the government’s findings.
Defending the tests
Launched at a time when fears about the underlying health of the U.S. banking sector were boiling over, the program was largely geared towards identifying which institutions might need additional support.
At the same time, regulators wanted to ensure that banks did not face a capital shortfall and scale back on lending as a result, "sucking the oxygen out of [an economic] recovery," Geithner said Thursday.
Industry regulators, including the Office of Thrift Supervision and the Federal Deposit Insurance Corporation, looked at how banks’ loan portfolios performed under two different economic scenarios, including an "adverse" situation, over the next two years.
Some critics have feared that the economic estimates used by regulators, including the unemployment rate hitting 10.3% by 2010, were perhaps not severe enough.
Economists, for example, are betting that the Labor Department will report Friday morning that the nation’s unemployment rate, which has been spiraling higher in recent months, hit 8 cash advance.9% during April.
Leading bank regulators, however, fired back Thursday, suggesting that the economic assumptions were "appropriately stressful" given banks’ incoming revenue and their existing loan loss reserves.
Comptroller of the Currency John Dugan noted that in conducting the tests, he and fellow regulators assumed that banks’ loss rates would hit 9.1% over two years — a figure that would exceed losses recognized by major banks in any two-year period since 1921, a span that includes the Great Depression.
Next step for banks
With the results of the tests now public, banks that need to raise new capital will have one month to tell regulators how they intend to do so and six months from that point to carry out their plans.
As it stands right now, banks appear to have a menu of options at their fingertips including the sale of certain businesses, ditching loans or securities through the government’s Public-Private Investment Program (PPIP), or issuing new shares. Given the surge in bank stocks over the past two months, the last option may be an appealing option for some banks.
Fully aware of their "stress test" grade, several banks preempted Thursday’s official announcement by regulators by announcing plans of their own to raise capital through stock offerings.
Wells Fargo said it would raise $6 billion through the sale of common stock. Morgan Stanley revealed plans to offer $2 billion in common stock in addition to $3 billion in debt not guaranteed by the FDIC.
If banks can’t raise all the necessary capital in the next six months, the government is expected to convert preferred stock it already owns in these banks into common stock.
Even as many bank leaders appeared relieved that the tests were over and that they were deemed well capitalized, there were indications that executives at many of these financial institutions continue to remain frustrated with the government’s oversight.
During a conference call with investors, Bank of America CEO Ken Lewis maintained that his company has no plans to convert any of the government preferred share stake into common stock, but rather is focused on paying back money from the Troubled Asset Relief Program, or TARP, as quickly as possible.
"The game plan is to get the government out of our bank as quickly as possible," said Lewis.
He added that Bank of America planned to address its capital shortfall through a combination of several joint ventures and the sale of its First Republic Bank and Columbia Management divisions. The bulk of the nearly $34 billion, however, would come through an equity raise.
One pressing question that continues to swirl around Bank of America and other hard-hit institutions is the fate of their management. Regulators said over the next month, the 19 banks are also supposed to review their executive teams to ensure that they have "sufficient expertise and ability to manage the risks presented by the current economic environment," regulators said Wednesday.
Last week, Lewis was ousted from his role as chairman of Bank of America by dissatisfied shareholders. The company also indicated Thursday that it was considering making other changes to the board including its current directors.
CNNMoney.com senior writer Jennifer Liberto and Fortune.com senior writer Colin Barr contributed to this report
Don’t like your stress test results? The government may have just the tonic: the public-private investment partnerships that aim to relieve lenders of troubled assets.
The nation’s biggest financial institutions got their marching orders from federal regulators Thursday. Some big banks, such as lender JPMorgan Chase (JPM, Fortune 500) and investment bank Goldman Sachs (GS, Fortune 500), aced the tests and don’t have to raise new funds.
But policymakers told other big banks to raise capital in the next six months to ensure they can keep lending should the economic downturn persist through next year. The decision makes those firms — ranging from giants Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) to regional banks such as KeyCorp (KEY, Fortune 500) — prime candidates to sell assets.
Some banks will surely do so in private transactions. Wells Fargo (WFC, Fortune 500), for example, announced Thursday afternoon that it was proposing to sell $6 billion in common stock. Morgan Stanley followed suit with plans to sell $2 billion in stock and $3 billion in senior notes.
But others may find themselves making use of the Treasury Department’s Public-Private Investment Program (PPIP), which was rolled out alongside the stress tests in February. Investors are expecting to learn more details about the plans over the next month.
"What’s important about [the stress] tests is that people have essentially been authorized to rightsize their businesses," said John Koelmel, CEO of First Niagara Financial in Lockport, N.Y. "Banks that have to raise capital aren’t going to want to go to the capital markets as a first option. They’re going to want to strengthen their story first."
Koelmel, whose bank agreed last month to acquire 57 Pennsylvania from stress test bank PNC, has been making this case for some time. He said many of the biggest banks have gotten too big, and the regulators are now using the stress tests to give them cover to sell off some assets and otherwise trim down without appearing weak to the market.
So far this year, the 19 stress test banks have done relatively few deals of note. Aside from the PNC branch sale, regional bank Fifth Third (FITB, Fortune 500) agreed to sell a payment processing joint venture.
But Koelmel said he believes the release of stress test results will lead to a more vigorous market for asset sales.
And while some observers have criticized the terms of the stress tests as insufficiently stressful, Koelmel said he believes policymakers have made it clear to banks that they will be imposing more stringent capital guidelines going forward. The knowledge that the bar is being raised gives banks another incentive to sell assets and bulk up their buffer against further economic deterioration, he said guaranteed cash advance.
"The screws are going to get progressively tighter," Koelmel said of the capital standards being set by the Federal Reserve, FDIC and Office of the Comptroller of the Currency. "We’re well above the standards they put in the tests, and our regulators have been in our face already. So you can see where they’re going to go with this."
To PPIP or not to PPIP?
The PPIP — which comprises a program run by the Federal Deposit Insurance Corp. to dispose of troubled bank loans and a program run by Treasury to rid banks of hard-to-sell securities — got a boost last week, when vulture investor Wilbur Ross said he might invest as much as $1 billion in existing funds in the programs.
"We strongly believe that the Public-Private Investment Program will help stimulate the mortgage market and provide individual and institutional investors globally with compelling investment opportunities," Ross’ investing partner, Atlanta-based Invesco, said in a statement.
Ross is far from alone. Treasury said April 29 it had received more than 100 applications from potential fund managers interested in the Legacy Securities program.
Still, one question that remains unresolved is how the legacy loans and securities programs will be structured for investors.
The PPIP plans have been on the drawing board for almost three months, but regulators have often changed rules on the fly in handling other financial programs. So some would-be participants are getting antsy.
"The anticipation is unbelievable," said Hal Reichwald, a partner at Los Angeles law firm Manatt Phelps & Phillips. "The big players are telling the regulators they don’t want to see any heavy-handed intervention, but they really just want to get going."
Reichwald said regulators have been slow to make the rules of the program clear to possible participants. The delay hasn’t gotten much notice amid the recovery talk and bank-stock rally of the past two months.
But that could all change if the commercial real estate market — long a source of anxiety for investors in banks and other property-related firms — is hit by a big default.
"There’s been a sense of inevitability about things getting better over time," Reichwald said. But he added that "there’s no guarantee" that big commercial real estate borrowers will be able to keep current on their mortgages.
Businesses with fewer than 500 employees collectively shed an estimated 414,000 jobs nationwide in April, according to a report released Wednesday by payroll processor ADP. The news marked the 15th consecutive month of employment declines at America’s small businesses.
"The recession continues to spread beyond manufacturing and housing-related activities to almost every area of the economy," said Joel Prakken, chairman of Macroeconomic Advisors, a research firm that works with ADP (ADP, Fortune 500) to compile the monthly report.
This month’s employment falloff is the smallest since October, but the numbers still indicate that the recession is deep and ongoing. Small companies are being hit harder right now than larger ones: Companies with more than 500 employees dropped only 77,000 jobs in April, according to ADP’s estimates.
Laying off employees is a particularly difficult decision for small business owners, who tend to have personal relationships with their staffers. But it’s also one of the most effective ways of controlling costs.
Payroll is the largest expense for Brina Bujkovsky’s Younique Boutique in San Marcos, Calif. Her store, which sells personalized gifts for weddings and other family occasions, has five employees, including her mom and her husband.
Bujkovsky grew the company organically, launching in her garage with $800 in startup capital. She continued to expand her product line and add employees for seven years. Last September she moved the company into a larger facility.
That move was a big risk - orders had already diminished by the time she set up her new shop. "Month after month, we weren’t getting the steam we had seen in past years," Bujkovsky said. "We started to cut back the perks, like no lunch on Friday for the staff free credit score online. Then we asked them to leave early on days when they finished their work early."
Bujkovsky’s employees, who are mostly young and not supporting families, complied at first. But once they saw that billing fewer hours meant losing hundreds of dollars in their paychecks, they crept back up to working their usual full schedules. Bujkovsky reminded them a second time of the need to cut costs, and doesn’t anticipate having to do so again.
"I think they want us to succeed and I think they see the light at the end of the tunnel. They know they’ll be rewarded in the end," she said. "Also, they realize there are not a lot of good jobs to be had right now."
At one point, Bujkovsky contemplated laying off one of her customer-service representatives to save money. "I can handle anything in the company," she said. "I love talking to customers, so I would have taken over customer service myself." But Bujkovsky, now seven months pregnant, wasn’t sure she’d be able to handle the extra work while taking care of a newborn. In the end, she decided to keep her entire staff intact.
While many business owners, including Bujkovsky, are optimistic that that the worst is behind them, others anticipate having to cut more costs - and employees - to stay afloat.
Economist Prakken says that despite indications that the economy is bottoming out, the employment numbers will trail any actual economic recovery.
"[They are] likely to decline for at least several months, although perhaps not as rapidly as during the last six months," he said.
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