Singapore’s exports dropped the least in eight months in May, adding to signs the worst global recession since the Great Depression is easing.
Non-oil domestic exports fell 12.1 percent from a year earlier, after contracting 19.2 percent in April, the trade promotion agency said in a statement today. Economists had expected an 11.7 percent decline.
Singapore’s government said last month the nation may have “hit the bottom” of its deepest recession since independence in 1965. Factory production fell at the slowest pace in seven months in April, boosting economists’ expectations the export collapse may also ease as manufacturers start rebuilding stockpiles in anticipation of improving demand.
“We are still in the midst of a bottoming out in the global economy and there will be better visibility of a recovery towards the end of the year,” said Irvin Seah, an economist at DBS Bank Ltd. in Singapore. “We aren’t seeing very strong demand from consumers but demand from producers is significantly better on the back of restocking.”
The Bank of Japan today raised its assessment of the economy for a second month and said the situation has stopped worsening after exports improved and factory output climbed at the fastest pace in 56 years. U.S. Treasury Secretary Timothy Geithner said June 9 that the “global storm” is showing signs of receding.
A rally in world equity markets has added more than $11 trillion to the value of global stocks since this year’s low on March 9 everyone approved 1 hour payday loans.
Manufacturing Expands
Singapore’s purchasing managers’ index showed manufacturing expanded in May for the first time in nine months. Export orders climbed last month, according to a June 2 report by the Singapore Institute of Purchasing & Materials Management.
“While trade is still expected to be weak for the rest of 2009, further declines of the magnitude seen earlier this year seem unlikely,” the government said last month.
Singapore’s non-oil exports rose a seasonally adjusted 5.6 percent last month from April, when they slid a revised 1.4 percent, today’s report showed. Economists had expected a 1.4 percent increase.
Electronics shipments plunged 21.8 percent in May from a year earlier, the 28th consecutive drop, following a 25.6 percent decline in April. Sales of electronics products by companies including Chartered Semiconductor Manufacturing Ltd. were worth S$3.89 billion ($2.7 billion) last month.
Non-electronics shipments, which include petrochemicals and pharmaceuticals, fell 5.6 percent in May from a year earlier. Pharmaceutical shipments rose 40.2 percent.
Prices at the pump went up nearly 17 cents over the last two weeks, according to a survey published Sunday.
The average price of a gallon of self-serve regular is $2.66, the Lundberg Survey found. The same survey found prices an average of 16.68 cents lower two weeks ago.
The price — calculated by averaging prices at thousands of gas stations nationwide — is $1.34 lower than the average one year ago.
Last year in June, retail gas prices were nudging the $4 mark, and stayed at that level or above until late July.
The most recent increase is not a reflection of increased demand, according to survey publisher Trilby Lundberg.
"It’s a direct result of continued increases in the price of crude, with crude oil itself responding to a flight from the weaker dollar on the expectation of rising inflation from federal monetary policy," Lundberg said. "Demand is not increasing. It is shrinking loan till payday."
Lundberg said there is no reason to expect gas prices will reach the $4-plus levels of last summer but "it might certainly feel that high to many consumers, especially those who are unemployed."
The city with the lowest average price in the survey was Tucson, Arizona, at $2.41, for a gallon of self-serve regular.
The highest average was in San Francisco, California, at $2.99.
Here are the average prices in some other cities:
Houston, Texas - $2.45
St. Louis, Missouri - $2.45
Denver, Colorado - $2.49
Atlanta, Georgia - $2.52
Boston, Massachusetts - $2.63
Seattle, Washington - $2.82
Chicago, Illinois - $2.92
Ah, summer: Time to enjoy a quiet vacation. Kick back with a good book. Walk on the beach.
Not Douglas Elmendorf. He’ll spend the next two months suffering voodoo-eyes from powerful people on Capitol Hill.
Elmendorf is director of the Congressional Budget Office, the ordinarily low-profile federal agency that will estimate how much money health reform will cost or save.
The CBO’s estimates, the first set of which are due next week, carry a lot of weight because Congress uses them in making legislative decisions.
In an age of trillion-dollar budget deficits, the numbers will carry even more weight than usual.
"Strictly speaking, the CBO advises the budget committees, and the committees can override what CBO recommends. But they rarely do," said Robert Reischauer, who headed the CBO during the infamous health care debate during the Clinton administration.
That’s because CBO is known for providing objective analysis in a partisan town.
That doesn’t mean there won’t be serious griping and spinning on the part of lawmakers, lobbyists or the White House budget office, which makes its own estimates.
During the debate over the Clinton plan in the early 1990s, the Washington Post called Reischauer "the most powerful umpire in Washington."
Reischauer, who is now president of the Urban Institute, believed the Clinton plan would have cost more than the White House estimated. And he also would have accounted for it in such a way that it would have expanded government spending as a percentage of GDP. That was exactly what the White House didn’t want since government expansion was catnip for Republican opponents of the plan.
Spiral in health costs
Elmendorf in some ways is under even greater pressure than Reischauer, under whom he worked during the Clinton era.
The CBO today is scoring proposals in the face of a federal balance sheet with eye-popping deficits that health care reform aims to curb.
The agency estimates that the amount of money the government, businesses and individuals spend on health care this year will be about 18% of GDP. It’s on track to top 20% by 2018. And federal spending on Medicare and Medicaid will have doubled by 2019 from where it is today.
By 2035, the Government Accountability Office estimates that all federal revenue will be consumed by Medicare, Medicaid and interest on the public debt compare car insurance prices.
When Reischauer headed the CBO, "the health care challenge was ‘Don’t make the [budget] situation worse.’ Now, it’s ‘Do health care reform so we can make the budget situation better,’ " he said.
Indeed, he added, "some of the biggest pressures [Elmendorf] will face are being asserted by advocates of health reform, not opponents. They desperately want reform to succeed and their proposals to pay for it to be sufficient to cover its costs."
More art than science
Figuring out whether they can is a job the CBO will perform with more health analysts on board and more data than was at its disposal in 1994.
Despite that, the task at hand is difficult because the agency will be forecasting the effects on individuals and businesses of unprecedented changes in the health care system.
"There are a lot of proposals that we think should reduce health care costs over time. The evidence is uncertain. The impact will depend very much on details yet to be specified, and on our ability to implement them in a smooth, efficient way," Reischauer said.
Elmendorf told the National Journal his goal is to find the middle ground — neither too pessimistic nor too optimistic about how much a proposal will cost or raise.
"Our job is to be in the middle of the distribution of possible outcomes," he said.
In addition, the agency’s preliminary estimates may well have some holes in them if lawmakers don’t supply sufficient information about a measure for the CBO to score. The biggest case in point: the proposal to add a government-funded insurance plan to compete alongside private insurers. So far, its supporters haven’t specified a definitive framework for one in a bill.
Nevertheless, Democrats are still aiming to have a bipartisan health reform bill voted through both chambers by August and President Obama has said he wants a bill on his desk by October.
Whether that’s realistic or not is anyone’s guess. But one thing is certain: CBO will be running fast between now and then to keep up with every twist and turn in the legislation along the way.
Ally Bank, a lending arm of struggling car-and-house financier GMAC, has cut the rates it offers depositors after a friendly chat with regulators.
The Utah-based bank trimmed the rate it offers on a one-year certificate of deposit to 2.49% from 2.8% in the past week.
The move came after the Federal Deposit Insurance Corp. sent Ally a letter reminding it of a commitment it made last month to reduce the cost of gathering deposits.
The bank’s practice of offering above-market rates with the aid of federal funding — GMAC has taken in some $21 billion in government capital and loan guarantees, and will soon list the government as its biggest shareholder — recently drew the ire of the chief bank trade group, the American Bankers Association.
Ally Bank’s total deposits rose 46% from a year ago in the first quarter, to $22.5 billion, as the bank offered certificate of deposit rates well above the national average.
The ABA urged the FDIC to crack down on what it deemed these "risky" deposit-gathering practices. The bankers questioned Ally’s financial health, noting that it lost $133 million in the first quarter, while arguing that Ally’s efforts to draw deposits endanger the health of the industry-funded FDIC deposit insurance fund.
Ally rejected those claims, claiming in a letter to the ABA that it was "better capitalized than many of your members." A spokeswoman for GMAC says the firm — until 2006 a unit of General Motors (GMGMQ), and still the biggest provider of financing to GM and Chrysler customers — has in its dealer network "an asset generation platform that enables us to put deposits to work profitably."
Ally’s deposit-gathering and the surge of federal funding over the past six months are helping to keep GMAC afloat as it struggles with a souring mortgage portfolio and plunging car sales.
Still, the FDIC’s letter to Ally suggests the agency shares the bankers’ concerns about the deposit fund, which has fallen below its statutory minimum balance under the weight of five dozen bank failures since the start of 2008 fast cash.
Last month, the FDIC issued rules capping the rates troubled banks can pay on deposits — an edict that didn’t apply to Ally Bank because it is well capitalized.
The letter requires Ally to report to the agency on its deposit rates and how they compare with other banks whenever it seeks to tap funds under a federal debt guarantee program.
"The FDIC is saying, show us what you’re doing," ABA spokesman Wayne Abernathy said of the FDIC letter. "There’s taxpayer money at risk here."
The FDIC’s Temporary Liquidity Guarantee Program allows financial institutions to borrow, with FDIC backing, at near-Treasury rates in exchange for a fee. The FDIC approved GMAC last month to borrow $7.4 billion under the program. The company sold $4.5 billion of FDIC-backed bonds last week.
But before GMAC sells another round of bonds under TLGP, it will have to get the FDIC’s prior written approval, the letter said. While that requirement isn’t unheard of, it isn’t a duty that all TLGP borrowers share.
Even with the recent reductions, Ally’s rates are still well above the norm. The daily overnight average for a one-year CD Thursday was 2.07%, according to Bankrate.com.
"We monitor the market and adjust rates, as appropriate," the GMAC spokeswoman said. "Ally Bank intends to continue to offer customers rates that are among the most competitive."
But the FDIC’s letter has the bankers breathing easier about the risks being taken on at Ally. "The FDIC is putting them on a pretty short tether," said Abernathy.
Home Depot Inc said earnings could be flat this year, rather than falling as it previously forecast, saying the worst of the U.S. housing correction had passed.
Shares of the world’s largest home improvement retailer, whose sales have suffered from the housing crisis and recession, rose 1.5% on Wednesday.
Home Depot expects earnings per share from continuing operations to be flat to down 7% this year, compared with its previous forecast of a 7% decline.
Based on a profit of $1.37 per share in the fiscal year that ended on Feb. 1, that means a forecast of $1.27 to $1.37, compared with the average Wall Street estimate of $1.33.
Economic indicators are signaling that the worst of the housing downturn is over, Home Depot (HD, Fortune 500) Chief Executive Frank Blake said in a meeting with analysts.
On an adjusted basis, the company expects earnings per share from continuing operations to fall by 20% to 26%, compared with its previous forecast of a 26% decline. That yields a forecast of $1.32 to $1.42 a share, compared with the analysts’ average estimate of $1.41 and last year’s profit of $1.78.
Home Depot still expects sales to fall by about 9% this year, with sales at stores open at least a year down in a high-single-digit percentage range free credit report without a credit card. It expects gross margins to be flat to slightly higher.
The company said it should be able to achieve an operating margin of about 10% and a return on invested capital of about 15% over the long term, helped by improvements in customer service, products, productivity and efficiency, and a revival in the home improvement market.
It did not provide a time frame for that long-term operating target.
Home Depot has been upgrading service and products in its stores to win back market share from rival Lowe’s Cos Inc (LOW, Fortune 500).
Earlier this year, Home Depot announced plans to freeze officers’ salaries and close certain specialty outlets to save money in the recession and prolonged U.S. housing slump.
The Atlanta-based company, which shed about 7,000 jobs earlier this year, cut operating expenses 16.4% in the first quarter, which ended on May 3.
Shares of Home Depot were up 1.5% at $24.72 in morning New York Stock Exchange trading, while Lowe’s rose 1.2% to $20.70.
French consumers cut spending on everything from restaurants to gambling last year as inflation and an economic slump took their toll.
Shoppers, the main contributors to the euro-region’s second-largest economy, increased spending at the slowest pace in 11 years, a report by statistics office Insee in Paris showed. They trimmed expenditure at cafes and scaled back visits to beauty salons, Insee said.
France’s economy slipped into recession in the third quarter and unemployment is the highest since 2006. While the government expects welfare payments and state aid to buoy spending, households are likely to keep to grip on consumption.
“Spending is going to suffer,” Insee’s chief forecaster Eric Dubois said in a phone interview yesterday. While he still expects consumption to increase this year, “superfluous” spending and “expenses that are the easiest to postpone” may be the first to disappear, he said.
The French government expects the economy to contract 3 percent this year before expanding 0 low fee payday advance.5 percent in 2010. It expects consumer spending to increase 0.3 percent in 2009 and 0.7 percent next. Consumers added 0.5 percent to growth in 2008, when the economy expanded 0.4 percent, Insee said.
Spending on restaurants and cafes dropped 2 percent last year, partly because of a smoking ban that started Jan. 1, Insee said. Spending at hair and beauty salons slipped 1.3 percent, according to the report.
Gambling fell 5 percent, the first drop since 1986. Lottery games were particularly hurt by the falling number of customers at cafés, where gambling is often available, Insee said.
Households’ tapped into their savings last year, helping limit the slowdown in spending. Households may instead start building up their savings this year as unemployment rises, Dubois said.
McDonald’s Corp. on Monday reported a 5.1% increase in May sales at restaurants open at least 13 months, with demand strong in Europe and Asia/Pacific.
However, the growth was down from April, when global same-store sales rose 6.9%. McDonald’s (MCD, Fortune 500) shares fell 2% in early trading.
May same-restaurant sales were up 2.8% in the United States, helped by new coffee drinks and snacks. That was significantly slower than the 6.1% growth in April.
The world’s largest hamburger chain is one of the restaurant industry’s top performers largely because its Dollar Menu has been attracting diners amid a lengthy recession that has sent unemployment sharply higher.
The stronger dollar — which lessens the dollar value of overseas sales — led to an overall 0.4% decline at worldwide McDonald’s restaurants, the company said. Sales rose 7% in constant currencies.
Fast-food restaurants generally have held up better in a tough economy than higher-priced sit-down restaurants health insurance quote.
McDonald’s May same-store sales increased 7.6% in Europe, and 6.4% in the company’s Asia/Pacific, Middle East and Africa segment. In April, same-store sales in the two regions were up 8.4% and 6.5%, respectively.
McDonald’s said the hit by the foreign exchange rates, if they remain around current levels, is expected to be 8 cents to 9 cents a share in the second quarter and about 20 cents for the year.
The company also said second-quarter results, which it is scheduled to report on July 23, are expected to include 2 cents to 3 cents a share of income due to a license deal in Indonesia and the sale of Redbox Automated Retail.
Its shares fell $2.08, or 3.3 %, to $57.80 in early trading on the New York Stock Exchange.
Michigan officials said Friday that the state is closing three prisons and five prison camps in hopes of narrowing a $1.4 billion budget gap for fiscal 2010.
The state, which has been hammered by the auto industry meltdown, estimates that it will save $120 million by shuttering the eight facilities. None of the 4,149 prisoners in the facilities will be released early, but up to 1,000 workers may lose their jobs.
Michigan is not alone in turning to its prison system for savings. Some 25 states cut spending on corrections in fiscal 2009 and another 25 are proposing to do so in fiscal 2010, as they struggle to address massive budget shortfalls.
"It’s a trend we’ll be seeing more and more of in coming months given the dire revenue situation states are in," said Sujit CanagaRetna, senior fiscal analyst at the Council of State Governments, a research group.
The Wolverine State is targeting the correctional system because it takes up 22% of the state’s general fund budget, the largest component. (Education is funded separately.) The state must close the $1.4 billion gap before its fiscal year ends on Sept. 30.
In part because of a 5-year-old initiative to reduce recidivism, Michigan has seen its prison population decline to 47,552, down 7.3% from January 2007. It already closed two prisons and a camp earlier this fiscal year for a savings of $30 million, Cordell said. The latest downsizing eliminates 6,400 beds from the system.
"Rightsizing our prison system is the responsible thing to do," said John Cordell, a spokesman for the Michigan Department of Corrections.
The facilities being closed are Camp Cusino in Shingleton, Camp Kitwen in Painesdale, Camp Lehman in Grayling, Camp Ottawa in Iron River and Camp White Lake in White Lake.
Camps are the lowest security facilities in the system and house the lowest-risk prisoners who are within two years of release online payday advance. Camp detainees, who do public works projects for the state or local communities, will be transferred to other locations. These are the last remaining camps in the system, signaling an end to the program that has existed for more than 50 years.
The three prisons that are closing are Muskegon Correctional Facility, a medium security institution in Muskegon, Hiawatha Correctional Facility, a minimum security location in Kincheloe, and Standish Maximum Correctional Facility in Standish.
Instead, the state will put $60 million toward increased supervision of some paroled prisoners. The savings include that figure.
Dire straits
Friday’s announcement was the latest in a string of spending cuts in Michigan.
With tax revenues coming in below estimates, Gov. Jennifer Granholm last month was forced to slash spending by $350 million, including a 4% across-the-board reduction. The move comes after the governor cut $134 million from the budget in December.
"Michigan government can no longer afford to be all things to all people," Granholm said in a May 5 statement. "We expect to have to make more cuts like these in the future, which are the very type of wrenching cuts we have worked so hard to avoid in the past."
The cuts made in May mean adults on Medicaid are losing dental and vision coverage. New state trooper graduates are losing their jobs, and local communities are losing 1/3 of their remaining state revenue-sharing funds.
Like other states, Michigan is seeing its tax revenues dry up. Personal income taxes are down 22.6%, while sales taxes fell 7.6%.
Government debt prices sank Friday after a much better-than-expected monthly jobs report and as the market braced for a heavy week of new issues.
The 10-year note was down 1-4/32 to 94, with its yield rising to 3.86% from 3.71% late Thursday. The yield rose as high as 3.88%, the highest level since November, before retreating. Bond prices and yields move in opposite directions.
The 30-year bond slipped 1 to 93-22/32 and its yield rose to 4.65%.
The 2-year note fell 18/32 to 99-8/32 and its yield jumped to 1.27% from 0.98%. The yield on the 3-month was popped up to 0.19% from 0.15%.
Job losses slowed dramatically in May, according to the latest government reading. Employers cut 345,000 jobs from their payrolls in the most recent month, down from the revised 504,000-job decline in April, and much less severe than the 520,000 jobs that economists had forecast.
A recovery in the labor market is critical to a recovery in the economy, the perception of which would send Treasury prices lower.
The jobs report was a stake in the ground for the recovery for one analyst.
"This has been a long time coming, but I am starting to believe that we have turned a REAL corner here and good things are about to happen," said Kevin Giddis, managing director of fixed income sales at Morgan Keegan, in a daily research note.
The recovery in the economy will encourage investors to seek more risk. "The flip side is that Treasury yields are probably going to rise," said Giddis. Demand for Treasurys falls in times of growth, pushing prices lower and yields higher custom business cards.
There is a downside to rising yields, however, because mortgage rates move in tandem with the benchmark yield.
"This isn’t great news for the Fed who has been buying Treasurys in an effort to keep mortgage rates low so those that need to refinance or want to buy a home have the ability to do so," added Giddis.
Meanwhile, a flood of debt supply was also weighing down prices.
As the government has been spending at historic rates to pull the economy out of the recession, it has also had to issue a tremendous volume of debt to fund its efforts.
On Thursday, the Treasury announced the auction of $65 billion in debt next week. The government will sell $35 billion in 3-year notes Tuesday, $19 billion in the reopening of a 10-year note Wednesday, and then $11 billion in the reopening of the 30-year bond Thursday.
Lending rates: One key bank-to-bank was little changed Friday, hovering near a record low.
The 3-month Libor held at 0.63 Friday, nearly even with the day prior, according to Bloomberg.com. The overnight Libor rate was unchanged, holding steady at 0.26%.
Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London. The closely watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
Australian central bank Governor Glenn Stevens said policy makers must be cautious about cutting interest rates too far because that may encourage some borrowers into debt they can’t afford.
“It is the intention of current monetary policy settings to lower debt-servicing costs, assist efforts to reduce leverage and support demand,” Stevens told a conference in Townsville, Australia, today. “It would be counterproductive, though, if further reductions in interest rates induced a large number of marginal borrowers into debts they could service only at unusually low interest rates.”
Stevens, who said the bank has scope to cut rates if needed, added that “picking cyclical turning points is notoriously hard.” The governor left the benchmark rate unchanged at a 49- year low of 3 percent this week ahead of a report that showed Australia’s economy is one of only a few, including China and India, that grew in the first quarter.
“There’s a warning tone that they are reluctant to cut rates much further,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney.
Australia’s “smaller downturn than most countries” reflects the nation’s limited exposure to “financial excesses that have been the problem in some other countries, as well as the good fortune of our position in relation to China,” Stevens said.
Economy ‘Subdued’
Gross domestic product unexpectedly rose 0.4 percent in the first quarter from the previous three months as consumer spending and exports helped it skirt a recession, a report showed yesterday.
There are signs that the economy has remained “subdued” during the current quarter amid a rapid decline in business spending, Stevens said.
A report last month showed business investment tumbled last quarter at the fastest pace on record.
“The rapid decline in business investment is almost certainly continuing,” Stevens said Low fee payday loans.
And while consumer spending has “held up quite well so far,” it may weaken in coming months as rising unemployment “starts to weigh on incomes and willingness to spend,” he added.
‘Well Placed’
“On the other hand, we are likely to see significant growth in public spending over the year ahead, reflecting fiscal policy decisions.
“Overall, then, our expectation remains that the economy will be well placed for expansion towards the end of this year.”
To spur an economy that unexpectedly contracted in the fourth quarter for the first time in eight years, Stevens cut borrowing costs by a record 4.25 percentage points between September and April.
Stevens today reiterated that weaker growth and slower inflation give policy makers “some scope” to reduce borrowing costs further if it helps secure “a durable upswing.”
“The emphasis on ‘durable’ is important,” he said.
Australia’s dollar was little changed after Stevens speech, after dropping yesterday by the most in six weeks. The currency traded at 80.11 U.S. cents as of 1:03 p.m. in Sydney from 80.08 cents in New York yesterday, when it touched 79.33 cents in the biggest slide since April 20.
Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.
Traders forecast the benchmark will be 16 basis points higher in 12 months, the index showed at 1:01 p.m. in Sydney. At the start of May, they tipped a 37 basis points of cuts.
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