U.S. stocks ended mixed Thursday as investors digested a cautious economic outlook from the chairman of the Federal Reserve one day before a key report on the job market.
The Dow Jones industrial average () fell 11 points, or 0.1%, to end at 12,705. The S&P 500 () rose 1 points, or 0.1%, to 1,324. The Nasdaq () rose 11 points, or 0.4%, to 2,860.
"It’s a quiet day," said Paul Zemsky, head of multi-asset strategies at ING Investment Management. "The market is taking a pause before payrolls."
On Friday, the government is expected to report the U.S. economy added 130,000 jobs in January, according to economists surveyed by CNNMoney.
That would mark a sharp slowdown in hiring versus December, when 200,000 jobs were created. The unemployment rate is expected to rise to 8.6%.
Speaking before Congress Thursday, Fed chairman Ben Bernanke said the economy has shown some signs of improvement recently, but described the pace of the recovery as "frustratingly slow."
The sluggish recovery leaves the economy "vulnerable to shocks," including the debt crisis in Europe, the central bank chief added.
The comments raised speculation that the Fed is willing to take additional steps to support the economy if conditions deteriorate, said Doug Roberts, chief market strategist for Channel Capital Research.
"He’s saying that if things get worse, I’m available and we’re going to ease," said Roberts. "Clearly, he’s telling the market that if you decide to bet against me you’re going to get killed."
The Fed has purchased billions of dollars worth of Treasury bonds and other assets under its quantitative easing program. Some analysts say the Fed could hold a third round of asset purchases this year, depending on how the recovery progresses.
Europe: Where things stand
Meanwhile, investors remain on the lookout for an official agreement on a debt-reduction plan and second bailout for Greece. The deal is expected to come by the end of the week, though deadlines have been missed in the past.
U.S. stocks rose Wednesday, but closed off the highs of the day, on a combination of improved economic data and easing concerns about Europe’s debt crisis.
Economy: Initial jobless claims for the week ended Jan. 28 totaled 367,000, according to the government. They were expected to total 375,000, according to a survey of analysts by Briefing.com.
Data released Thursday morning from outplacement consulting firm Challenger, Gray & Christmas shows planned job cuts surged 28% in January to 53,486 — marking the highest total since 116,000 job cuts were announced in September.
The Challenger report follows data Wednesday from payroll processor ADP saying that the private sector added 170,000 jobs in January, down sharply from 292,000 in December.
Companies: Retailers reported better-than-expected same-store sales in January, according to data from sales-tracker Thomson Reuters.
Abercrombie & Fitch’s () stock fell 13% after the clothing retailer reported weak same-store sales for the latest quarter and lowered its earnings guidance.
Zynga () shares rallied 17% following Facebook’s IPO filing. Zynga’s gaming apps and advertising contributed about 12% of Facebook revenue last year.
Facebook IPO: Morgan Stanley is big winner
Sony () shares fell 6% after the company reported disappointing earnings and revenue.
Unilever () shares slumped 3.5% after the maker of Lipton teas, Dove soaps and other consumer products said it had difficulty passing higher raw material costs on to consumers last year, and announced a gloomy outlook for 2012.
Qualcomm (, Fortune 500), a company that sells chips used in cell phones, boosted its forecast for its 2012 performance. Shares rose 2%.
Viacom (, Fortune 500) shares fell after the media giant reported better-than-expected earnings in its fiscal first quarter, but cited ratings weakness and softness in the U.S. television advertising market. Its film division swung to an operating loss in the quarter.
Green Mountain Coffee Roasters () shares jumped 24% after the company reported its first-quarter revenue soared 102% compared to a year earlier, boosted by K-Cup sales.
World markets: European stocks closed modestly higher. Britain’s The DAX () in Germany added 0.6% and France’s CAC 40 () gained 0.3%. The FTSE 100 () in London ended little changed.
Asian markets ended higher. The Shanghai Composite () climbed 2%, the Hang Seng () in Hong Kong added 2% and Japan’s Nikkei () rose 0.8%.
Currencies and commodities: The dollar rose against the euro and the British pound, but fell versus the Japanese yen.
Oil for March delivery slipped $1.25 cents to end at $96.36 a barrel.
Gold futures for April delivery added $9.80 to $1,759.30 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.85%.
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French President Nicolas Sarkozy secured a small boost from Moody’s rating agency Monday following a bruising downgrade last week of the way the country had been handling its economy.
Moody’s said Monday it was maintaining France with a top AAA rating and stable outlook for its debt. Rival agency Standard & Poor’s, more downbeat about the prospects for France and Europe as a whole, stripped France of its long-cherished triple A rating last Friday.
In early trading, markets appeared to brush off S&P’s decision to cut the credit ratings of nine European countries, including France. Though the downgrades late Friday had been expected, they served as a reminder that the 17 countries that use the euro as their currency still have a long way to go to get a handle on the two-year debt crisis.
Europe’s economies will likely remain the focus of attention across markets all week as a number of bond auctions are due at the same time as Greece tries to clinch a debt-reduction deal with its private investors.
Sarkozy’s budget minister Valerie Pecresse said Monday she was optimistic that S&P’s knockdown would not lead to a rise in the country’s borrowing costs. A short-term French bond auction later on that day is seen as a test of the impact of the downgrade.
In its announcement, Moody’s cited the French economy’s overall strength but said bleak growth prospects in France and the region present “risks to the French government’s fiscal consolidation plans.”
Moody’s had said in October it was putting France on review, as Sarkozy and other European leaders struggled to find solutions to Europe’s protracted debt crisis.
Moody’s said Monday it “will update the market during the first quarter of 2012 as part of the initiative to revisit the overall architecture of our sovereign ratings in the EU.”
The rating agency detailed the strengths of the French economy, but noted that the country’s debt levels have deteriorated because of the “global economic and financial crisis” and were now among the weakest of all AAA countries.
“France, like other eurozone sovereigns, may face a number of challenges in the coming months. The need to provide additional support to other European sovereigns or to its own banking system cannot be excluded no teletrack payday loan. In that case this could give rise to significant new (contingent) liabilities for the government’s balance sheet,” Moody’s warned.
Moody’s notes the government has less room to maneuver than during the 2008 meltdown. “The domestic and external economic growth outlook presents significant risks to the French government’s fiscal consolidation plans.”
Sarkozy meets later Monday with Spain’s new Prime Minister, Mariano Rajoy, whose country was also downgraded Friday by S&P.
The S&P move was especially brutal for France, one of the world’s biggest economies and a financier of bailouts for smaller, poorer eurozone countries.
Sarkozy has yet to speak publicly about the downgrade, leaving his government ministers to try to calm the public.
Pecresse said on Europe-1 radio Monday that she doesn’t expect “mechanical consequences” of the downgrade because France has “credibility” and is a “sure value.”
She noted that the United States didn’t see its borrowing costs spike after last August’s decision by Standard & Poor’s to strip it of its AAA rating. Like France, the U.S. is rated AA+.
Pecresse and the prime minister promised to continue cost-cutting reforms, despite criticism from the left _ and S&P itself _ that austerity measures alone could crimp growth.
Sarkozy’s challengers for the presidency have seized on the downgrade as what they call evidence that his policies are wrong-headed and ineffective.
Sarkozy hasn’t announced his candidacy but is near certain to seek a second term in two-round elections in April and May. He trails Socialist Francois Hollande in polls and is facing increasing pressure from far-right candidate Marine Le Pen and a centrist, Francois Bayrou.
It will be a bruising battle for Sarkozy, a dynamic leader who has a strong international profile but is widely disliked at home. Leftists say he has coddled the rich, while many of those who supported him in his 2007 campaign say he hasn’t fulfilled his promises.
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President Hugo Chavez defended his close ally Iranian leader Mahmoud Ahmadinejad on Monday and warned of “U.S. warmongering threats” amid tensions over Tehran’s nuclear program and a death sentence against an American man convicted of working for the CIA.
The two leaders met in Caracas on the first leg of a four-nation tour that will also take Ahmadinejad to Nicaragua, Cuba and Ecuador.
“We are very worried,” Chavez said of the pressures being put on Iran by the United States and its allies, which he accused of being a threat to peace.
“They present us as aggressors,” he said during an earlier break in his talks with his Iranian counterpart at the presidential palace.
“Iran hasn’t invaded anyone,” he added. “Who has dropped thousands and thousands of bombs … including atomic bombs?”
Ahmadinejad’s visit comes after the U.S. imposed tougher sanctions against Iran over its nuclear program, which Washington believes Tehran is using to develop atomic weapons. Chavez and his allies back Iran in arguing the nuclear program is purely for peaceful purposes.
Adding to the tensions, Iranian state radio reported on Monday that a court in Iran has convicted dual U.S.-Iranian citizen Amir Mirzaei Hekmati of working for the CIA and sentenced him to death.
Both leaders joked that their relationship shouldn’t cause any concern.
Ahmadinejad said if they were together building anything like a bomb, “the fuel of that bomb is love.”
Chavez played on the same theme in his remarks: “We’s going to work a lot for some bombs, for some missiles, to keep the war going. Our war is against poverty, hunger and underdevelopment.”
The Venezuelan leader said in his nationally broadcast speech that Iranians assistance has helped the South American country build 14,000 homes as well as factories that produce food, tractors and vehicles.
“We will always be together,” Ahmadinejad said through an interpreter. Smiling as he put his hand on Chavez’s arm, the Iranian leader called the Venezuelan president “the champion of fighting against imperialism.”
Later during the leaders’ meeting, two memorandums were signed on promoting cooperation between the two nations in industrial matters and in worker training, officials said.
Iran finds itself under increasing pressure in the standoff over its nuclear program, and in response to the latest U.S. sanctions has threatened to blockade the Strait of Hormuz, an important transit route for oil tanker shipments.
Diplomats on Monday confirmed a report that Iran has begun uranium enrichment at an underground bunker, a development that increases fears among U.S. and European officials about Iran’s nuclear ambitions. Two diplomats spoke to The Associated Press on condition of anonymity because their information was confidential and based on an inspection by the International Atomic Energy Agency.
Chavez’s long-running confrontation with Washington also looks set to grow more antagonistic after the U.S Payday advance. State Department announced, just hours before Ahmadinejad’s arrival, that it was expelling Venezuela’s consul general in Miami, Livia Acosta Noguera, due to allegations that she discussed a possible cyber-attack against the U.S. government.
The expulsion followed an FBI investigation into accusations contained in a documentary aired by the Spanish-language broadcaster Univision last month. According to the documentary, Acosta discussed the possible cyber-attack while she was previously assigned as a diplomat in Mexico. The documentary was based on recordings of conversations with her and other officials, and also alleged that Cuban and Iranian diplomatic missions were involved.
Venezuela’s government had not responded Monday.
Beyond voicing strong criticism of the U.S., Ahmadinejad is also likely to look for ways to use his Latin American alliances to diminish the impact of sanctions on Iran’s oil industry, said Diego Moya-Ocampos, an analyst with consulting firm IHS Global Insight in London.
However, Moya-Ocampos predicted that “Venezuela is going to be very careful not to push its relationship with Iran beyond the U.S. tolerance limits,” so as not to risk being hit with more U.S. sanctions. Last year, the U.S. imposed sanctions on state oil company Petroleos de Venezuela SA for delivering at least two cargoes of oil products to Iran.
The U.S. government has also repeatedly accused Iran of sponsoring terrorism, and growing Iranian diplomatic ties with some Latin American countries have generated worries in Washington.
In Quito, Ecuador, Foreign Minister Ricardo Patino told reporters that Ecuador’s government “has no reason to stop having relations with Iran” and said his country recognizes Iran’s “right to the peaceful use of nuclear energy.”
Argentina, which has good relations with Venezuela, also has warrants out for the arrests of Iran’s defense minister and other officials suspected of involvement in the 1994 bombing of a Jewish center in Buenos Aires that killed 85 people.
The Simon Wiesenthal Center, a Jewish human rights organization based in Los Angeles, urged Ahmadinejad’s hosts to tell Iran that they support Argentina’s demands for the extradition of those implicated in the attack. The organization also condemned Ahmadinejad for threatening Israel, saying in a statement on Monday that “honoring that trafficker of hatred with impunity involves his hosts as accomplices.”
Chavez accuses the U.S. and its allies of wrongly demonizing Iran. On Sunday, he rebuffed calls by U.S. officials for countries to insist that Iran stop defying international efforts to assess its nuclear program.
“What the empire does is make you laugh, in its desperation to do something they won’t be able to do: dominate this world,” Chavez said on television before Ahmadinejad arrived.
Exxon Mobil Corp. and the Norwegian oil producer Statoil have reached an agreement with the federal government that will allow the companies to continue developing a potentially lucrative oil discovery in the Gulf of Mexico.
The government will get more money from Exxon and Statoil as part of the agreement to settle federal lawsuits over their leases in the oil field known as Julia, which is about 250 miles southwest of New Orleans. The proposed settlement was filed in federal court Friday but still must be approved by a judge.
Exxon spokesman Patrick McGinn said Saturday that the settlement will allow the company to develop the resource as quickly as possible. The initial phase of the project is expected to produce more than 175 million barrels of oil from six wells.
Exxon has estimated that the oil field may hold billions of barrels of oil and gas equivalent but it is remote and technically challenging to develop.
Exxon and Statoil have five leases in the field; three signed in 1998 and two in 2003. Each company owns 50 percent interest in the leases.
The dispute began in October 2008, when Exxon applied to extend the leases but the government refused low fee payday loans. It said the company didn’t present a specific production plan. Exxon and Statoil sued the government after losing several appeals.
Under the settlement, the two companies will develop their leases in phases as initially planned with the goal of starting initial production by June 2016.
They also will pay more to the government in exchange for the lease extensions. For example, the companies will pay $11.2 million each year until the three original leases reach at least 87.5 million barrels of total production, McGinn said in an emailed statement.
The agreement also raises the royalty rate on those three leases to 18.75 percent from 12.5 percent, he said. Annual rent on those three leases rose to $11 per acre from $7.50 per acre. The royalty rate for the other two leases is 12.5 percent.
If Exxon and Statoil had lost the lawsuit, the leases would have reverted to the government.
The Kansas City Federal Reserve Bank promoted its information technology chief to the bank’s No. 2 post under the institution’s new president, Esther George.
Kelly Dubbert, who has worked at the Kansas City Fed since 1986, will be first vice president at the institution and its chief operating officer, the bank said in a statement on Tuesday.
George took the reins at the bank in October after long-time hawk Thomas Hoenig retired. George’s personal views on monetary policy are not widely known.
Dubbert would participate in discussions at the Federal Reserve’s policy-setting Federal Open Market Committee if George were absent business card design.
Dubbert has a bachelor’s degree from Kansas State University and is a graduate of Harvard University’s Advanced Management Program and the Wisconsin Graduate School of Banking. He had headed the Kansas City Fed’s information technology division since 2006.
World stocks were mostly lower Wednesday after the Federal Reserve refrained from offering new initiatives to help a slowly recovering U.S. economy.
Benchmark oil hovered below $100 per barrel while the dollar fell against the euro and the yen.
European stocks were mixed in early trading. Britain’s FTSE 100 rose 0.4 percent to 5,447.88. But Germany’s DAX lost 0.9 percent to 5,719.42 and France’s CAC-40 fell 1.1 percent to 3,043.60. Wall Street appeared headed higher, with Dow Jones industrial futures up 0.3 percent to 11,938 and S&P 500 futures rising 0.5 percent to 1,225.80.
Asian shares closed lower. Japan’s Nikkei 225 index fell 0.4 percent to end at 8,519.13, its lowest close in two weeks. South Korea’s Kospi lost 0.3 percent at 1,857.75 and Hong Kong’s Hang Seng shed 0.5 percent to 18,354.43. Australia’s S&P/ASX 200 was flat at 4,190.50.
On mainland China, the benchmark Shanghai Composite Index fell 0.9 percent to 2,228.53, the lowest closing since March 2009. Benchmarks in Singapore, India and Indonesia fell while Taiwan and the Philippines rose.
The Fed on Tuesday said that the U.S. economy, while improving, is still weak. Unemployment remains high, and it remains vulnerable to the European debt crisis, which could push the continent into a recession and slow U.S. growth.
Analysts said markets were disappointed that the Fed refrained from a third round of large-scale purchases of Treasury securities, dubbed quantitative easing III or QE3.
“I think QE3 would be a welcome change to the status quo. I think the market was disappointed,” said Francis Lun, managing director of Lyncean Holdings in Hong Kong.
Sentiment also remained fragile amid threats by Standard & Poor’s to downgrade the credit ratings of 15 countries that use the euro because of the region’s debt crisis.
“We are likely to continue seeing some cautious trading as the threat of S&P coming out to issue some downgrades at some stage this week looms,” said Stan Shamu of IG Markets in Melbourne, Australia payday loan lenders.
“Some would argue that this is already priced in, but it will still likely rock the boat should it happen.”
Export shares in Japan were under pressure as the yen strengthened against a shaky euro. Sharp Corp. dropped 2.9 percent while Toshiba Corp. lost 1.2 percent. Honda Motor Corp. slid 2.2 percent.
Chinese property shares dropped after the government signaled that it would maintain price curbs on real estate.
“The government has set a clear tone for reining in runaway housing prices next year,” Wang Yulin of the Ministry of Housing and Urban-Rural Development was quoted as saying by Xinhua news agency.
Hong Kong-listed China Vanke Co. fell 0.6 percent and Evergrande Real Estate Group dived 3.9 percent.
Mainland Chinese shares slumped due to fears over slower economic growth and inflation, which “will make the market unstable in the short term,” said Li Jianfeng, an analyst at Caida Securities, based in Shanghai.
Shanghai Xinhua Media Co. lost 4 percent while Jiangsu Phoenix Publishing & Media Corp. 5.9 percent.
On Tuesday, the Dow Jones industrial average fell 0.6 percent to close at 11,954.94. The Standard & Poor’s 500 index fell 0.9 percent to 1,225.73. The Nasdaq composite fell 1.3 percent to 2,579.27.
Benchmark oil for January delivery was down 16 cents to $99.98 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.37 to finish at $100.14 an ounce on the Nymex on Tuesday.
In currencies, the euro rose to $1.3047 from $1.3043 late Tuesday in New York. The dollar fell to 77.95 yen from 77.97 yen.
___
AP researcher Fu Ting contributed from Shanghai.
Australia’s ruling party voted Sunday to overturn a long-standing ban on exporting uranium to India, despite fierce opposition from critics who argued such sales are unsafe because India has not signed the Nuclear Nonproliferation Treaty.
Prime Minister Julia Gillard urged members of her center-left Labor Party during its annual conference to allow the exports in the interest of the national economy, arguing there are safeguards in place to ensure the uranium would be used for peaceful purposes.
“We need to make sure that across our regions we have the strongest possible relationships we can, including with the world’s largest democracy, India,” Gillard said. “That’s why today we should determine to change our platform and enable us, under safeguards, to sell uranium to India.”
The party’s vote to amend an executive policy does not need parliamentary approval.
Australia holds 40 percent of the world’s known uranium reserves. It does not sell uranium on the open market and bans nuclear power generation at home.
But it sells uranium only for the purpose of power generation under strict conditions banning any military applications in bilateral trade agreements with the United States, China, Taiwan, Japan, South Korea and several European countries.
Australia’s previous conservative government started negotiations with energy-hungry India on uranium sales. But the Labor government immediately ended the talks when it came to power in 2007, ruling out exports unless New Delhi signed the Nuclear Nonproliferation Treaty.
Gillard had previously noted that the U.S. lifted a “de facto international ban” on nuclear cooperation with India in 2005 when it signed a deal with New Delhi to trade uranium and work together on civil atomic power generation.
But many Labor lawmakers slammed the policy change, arguing that selling uranium to India in the wake of this year’s nuclear disaster at the Fukushima Dai-ichi power plant in Japan, the 1979 partial meltdown of the Three Mile Island reactor in the U.S. and other nuclear accidents was irresponsible and out of touch.
Labor Sen. Doug Cameron won a standing ovation from the crowd after a fiery speech in which he called the amendment “nonsense.”
“Prime Minster, you are wrong! Ministers, you are wrong!” he shouted to thunderous applause. “This is a bad move for the Labor Party, it’s a bad move for international peace.”
Others argued that India was too important an economic power to ignore.
“India, like China, is a rising superpower and it has to be upfront and center in our foreign policy and our foreign trade,” said Labor member Richard Marles. “(This amendment) will pave the way for our two countries to fulfill our shared destiny as nations and friends.”
The motion passed by a vote of 206 to 185.
Lawmakers, responding to pleas from industry and foreign governments, have tentatively agreed to block the Obama administration from requiring that lithium batteries be treated as hazardous cargo because of the danger of fires during flight.
The deal came in talks on a long-term funding bill for the Federal Aviation Administration, Rep. Nick Rahall, D-W.Va., told The Associated Press. The bill will effectively block new battery-shipment rules by insisting the U.S. follow international standards, which are less stringent, said Rahall, top Democrat on the House Transportation and Infrastructure Committee.
Pilot unions said the international standards don’t provide enough safety and are weaker than rules the administration proposed nearly two years ago but never made final. The unions and the National Transportation Safety Board for several years have sought new rules on air shipments of the batteries to prevent fires that can cause air crashes and deaths.
“We’re very concerned that unless this issue is addressed we’ll continue to see accidents and we’ll continue to see fatalities,” said Mark Rogers, who heads the Air Line Pilots Association’s committee on hazardous cargo.
The U.S. shouldn’t “adopt an existing international standard on lithium batteries that’s generally recognized as inadequate,” Robert Travis, president of Independent Pilots Association, which represents UPS pilots, said in a statement.
The FAA bill “is an opportunity for the U.S. to lead by setting a higher standard on the carriage of lithium batteries,” Travis said.
A fire broke out five years ago in cargo containing lithium batteries and other goods on a United Parcel Service plane, forcing an emergency landing in Philadelphia. No one was killed, but one of the pilots said he was able to escape with seconds to spare. The cause of the fire wasn’t conclusively determined, but batteries were suspected.
Last year, another UPS plane with a fire raging on board, and carrying thousands of lithium batteries, crashed near Dubai in the United Arab Emirates, killing both pilots. The accident is still under investigation, but preliminary reports indicate investigators have focused much of their attention on the batteries.
The use of rechargeable lithium-ion and non-rechargeable lithium-metal batteries has soared since the late 1990s. Millions of products from laptops to cellphones to watches contain the batteries. And, in an age of increasing globalization of trade, those products are often shipped by air to and from the United States and other countries.
But the batteries can catch fire if they are damaged, exposed to high temperatures or packaged incorrectly. Lithium-ion battery fires can reach 1,100 degrees, close to the melting point of aluminum, a key material in airplane construction. Lithium-metal battery fires are far hotter, capable of reaching 4,000 degrees.
The administration proposed regulations that would have threated lithium batteries and goods containing the batteries as hazardous materials requiring special labeling and training of workers who package and handle them.
But they were opposed by a broad swath of powerful industries, including battery-makers, electronics manufacturers and retailers, cargo airlines, and at least a half dozen foreign governments who said they would disrupt international trade. The opponents said the regulations would cost them hundreds of millions of dollars in added packaging, paperwork and employee training. The rechargeable battery industry alone says the rules would cost more than $1 billion in the first year.
Opponents of the proposed rules turned for help to Congress, where House Republicans passed an FAA funding bill that requires the U.S. to follow standards set by the International Civil Aviation Organization, a UN agency, effectively blocking the rules. The Senate did not include the measure in its version of the funding bill, but under the tentative deal reached Friday, the House-Senate compromise bill would include it.
Kara Ross, a spokeswoman for United Parcel Service, said the cargo carrier wasn’t aware of the agreement reached by lawmakers but supports the House provision.
A spokesman for PRBA-The Rechargeable Battery Association declined to comment.
Besides Rahall, the other lawmakers involved in negotiations were Rep. John Mica, chairman of the House committee, Sen. Jay Rockefeller, D-W.Va., and Kay Bailey Hutchison, senior Republican member of the Senate committee.
Fierce competition for top-tier credit card customers appears to be leading some banks to look in elsewhere for new business: borrowers with spotty credit histories.
Data shows that more new cards went to consumers with less-than-stellar credit scores in the third quarter, while fewer new cards went to those with the best scores.
In the three months ended Sept. 30, credit reporting agency TransUnion found that 25.2 percent of the new card accounts went to consumers with a score below 700.
That was up from 23 percent of cards going to riskier borrowers in the same quarter of 2010.
That translates into almost a quarter million more cards going to consumers who have had some trouble with credit in the past, according to Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.
And since TransUnion found that the overall number of cards opened during the quarter was essentially flat from a year ago, that means those were cards that did not go to more creditworthy consumers. In fact, the number of new card accounts opened by borrowers with scores of 800 or better slipped to 45.9 percent, from 49.7 percent a year ago.
The findings were based on the VantageScore system for measuring creditworthiness developed by TransUnion and its peers Experian and Equifax as an alternative to the better-known FICO score. VantageScore says its system, which uses a scale of 501 to 990 and awards higher scores to the least risky borrowers, is used by the top five credit card issuers in the country.
Like FICO, VantageScore’s ratings are based a number of factors regarding an individual’s past use of credit, including their history of making on-time payments, keeping balances below credit limits and the length of their credit history.
Scores around 700 would merit a “C” on the VantageScore scale, which implies that those borrowers had some problems making payments or ran up balances in the past.
Opening up new credit to struggling consumers is an important step. A year ago, TransUnion said about 8 million people had left the credit card market in the prior 12 months, either by choice or because their cards were shut down.
The uptick in lending to consumers who have had trouble with payments in the past “counteracts everything that’s been happening in the last few years,” said Bill Hardekopf, CEO of the card comparison site LowCards.com. He noted that demand is high for consumers in that group because of the dearth of available credit in recent years.
Meanwhile, card companies have been pushing ever-more-enticing offers to consumers with the best scores _ beefing up rewards, trimming interest rates and lengthening the time for no- or low-interest balance transfers. About 80 percent of all new card offers go to those with the top credit scores, according to market research firm Synovate.
But those same top-tier borrowers aren’t trying to open as many new accounts or increase their balances faxless payday advance. “They have plenty of credit available to them,” Becker said, noting that card users have been paying down their balances. In the third quarter, TransUnion found the average combined balance on bank-issued credit cards _ MasterCard, Visa, American Express and Discover_ fell 4.1 percent to $4,762, from $4,964 last year.
Data from credit card companies also shows that while the most affluent consumers are using their cards more, they’re also paying off their balances in full each month.
That means that to increase profits in their card businesses, banks need to find new borrowers who will pay higher interest rates and are more likely to carry balances each month.
“If financial institutions are going to grow, eventually they’re going to have to dip their toes into the water of riskier borrowers,” said Greg McBride, senior financial analyst for Bankrate.com, which tracks credit offers.
Another factor that’s likely playing into more willingness to lend to consumers with lower scores is that there are more individuals on the riskier end of the scale due to the lengthy economic downturn, high unemployment and ongoing foreclosure crisis, noted Bruce McClary, a spokesman for ClearPoint Credit Counseling Solutions. “Sooner or later the people who got bumped out of the credit world have to start re-establishing credit,” he said.
One problem is that the increase in higher-risk borrowers also had an immediate impact on the rate of late payments during the quarter.
TransUnion found that the rate of payments late by 90 days or more _ known in the industry as the delinquency rate _ rose to 0.71 percent, from 0.60 percent in the second quarter.
That’s still down from 0.83 percent in the third quarter a year ago, and a long way off from the 1.32 percent peak in delinquency recorded in the first quarter of 2009.
Although the delinquency rate in the third quarter was still below the historical norm _ the second-quarter rate was the lowest seen since 1994 _ it marks the first quarter-over-quarter increase in almost two years.
“When you have such low delinquency, there’s generally only one direction you can go,” Becker observed. Plus, lenders must take risks if they want to earn anything. If lenders wanted to achieve zero delinquency, he said, they would have to stop lending.
The expansion of new card offers to riskier borrowers also present an interesting bit of timing for the industry, notes Hardekopf.
Card companies “want to get these cards in their hands so they have the ability to use them during the holiday season,” he said. “The time when we all put more on our cards is the fourth quarter.”
Who feels like a panini?
Sorry, this column isn’t about the panini you eat, rather the one you are — that is if you are a member of the sandwich generation with aging parents or other family members who need assistance and children, often into their mid to late 20s, still partially or completely dependent financially.
In 2002, Statistics Canada estimated that 2.6 million Canadians between the ages of 45 and 64 had children under 25 living with them and approximately 27 per cent of them were also providing some kind of elder care. After the financial collapse and recession the trend has accelerated.
Many of my friends are being sandwiched, as am I. My youngest daughter, nearly 26, is deaf. She’s still at college and may require financial help for some time to come. Until recently, my parents also needed considerable care. My mother died in 2009 and, fortunately, my father is relatively healthy and able to live in a nice retirement home. But now and then, the needs of daughter and father collide with my own busy life and I feel pulled in a dozen directions.
Most of those sandwiched between two generations are baby boomers, the first of whom started collecting their old-age pension in 2011. The advancing wave of this group is bringing with it a whole set of new financial challenges. “My daughter and son have student loans of $42,000 between the two of them. Despite their best efforts they’re semi-employed and living in an expensive city (Toronto),” Helen, 59, emailed recently. Helen is widowed and lives in a small northern Ontario town where jobs are limited. “I have enough to retire in a couple of years but not if I help them, especially if their situations don’t improve pretty fast. But I can’t see turning my back on them.”
The choices being forced on the sandwich generation often leave the caregivers feeling damned if they do or don’t. Should I stop RRSP contributions to help my family? Do I postpone my retirement? Will my employer let me go if I take time off to care for my parents? Should I withdraw from my savings? Do I kick out my kids so I can downsize?
Many of the difficulties facing sandwiched boomers are magnified for entrepreneurs. Even with great employees the buck stops with the boss and stepping away is rarely a satisfactory option.
Winnipeg-based bestselling tax author and president of the Knowledge Bureau, Evelyn Jacks juggled a successful business while being the primary caregiver of two ailing family members and also involved with the care of two others. All four died over an 18-month period. “Caring for the sick and the dying is difficult and exhausting and so sharing the journey with your support network is very important,” she says in retrospect.
“A strategic, consistent and all-inclusive communications plan within the family is very important. When everyone stays in the loop in an orderly way — we used email a lot to cover all the time zones — everyone can seamlessly step in as required. It also means everyone needs to work hard to stay healthy — physically and emotionally — in very stressful times.”
Being sandwiched between the needs of two and sometimes three generations isn’t a new phenomenon. My parents brought “the grannies,” as we called them, from England while I was young. One drank like a fish and gave away money to whomever asked and the other frequently wandered off only to be found settled on someone’s porch happily singing “It’s a Long Way to Tipperary”.
But the extended care-giving facing the boomers is unique because this generation is so large, our parents are living longer and our children carry a far higher student debt load than past generations. According to a 2010 Vanier Institute of the Family Study, university graduates have $18,000 in student loans, not including family debt or lines of credit.
To compound the problem young adults are also earning less relatively. Statistics Canada figures show that the wages of those 20 to 34, across all levels of education levels declined significantly in the 1980s and the trend has continued to present day, though at a slower pace.
These financial and emotional stresses prompted Credit Canada, the country’s leading not-for-profit credit counselling charity, to choose the sandwich generation as the theme for its fifth Credit Education Week — part of November’s Financial Literacy Money, which kicks off on Nov. 14.
“Credit Canada has seen more and more people trying to support their children and aging parents who don’t have the income to support themselves while struggling to pay their own bills including their children’s education,” notes executive director Laurie Campbell.
Credit Education Week Canada has published a very useful magazine, The Sandwich Generation. Among some of the do’s and don’ts to avoid being crippled emotionally and financially:
1. Set up a power of attorney
2. Update wills and ensure health-care directives are in place
3. Consolidate the debts and assets of the elderly to make management simpler
4. Don’t bleed your own savings, especially RRSPs, or increase your debt load (except in the direst circumstances) for the young or the old
5. Don’t allow unemployed kids to hang out at home doing nothing.
6. Don’t excuse siblings or other relatives from their responsibility
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