Tuesday, May 31, 2011

Long US shutdown would hit economy: Analysts (AFP)

WASHINGTON (AFP) ? A US government shutdown of a few days would not hurt the economy, but a lockup of three weeks or more would hit growth, especially in the nation's capital, economists said Thursday.

With Congress still arm-wrestling over budget cuts as a midnight Friday deadline loomed, the country faced the imminent prospect of some 800,000 "non-essential" government workers being sent home without pay.

The shut down would spell a loss for government workers of around $2 billion each week, cash that filters through the economy via mortgage payments, grocery shopping and trips to the cinema.

Cuts in government services could cripple small entrepreneurs waiting on government aid to build, while Wall Street would be left without an all-important rudder supplied by regular economic data releases.

National parks from the Grand Canyon to Yellowstone would close, hitting the restaurants, hotels and shops that depend on their visitors.

But Gus Faucher, director of macroeconomics at Moody's Analytics, said a short lockout would not have a lasting effect.

"If this lasts a few days, a week or less, I don't think it will have much economic impact," he said.

The previous shutdown in 1995 "didn't appear to have affected the economy at all," he said.

Nomura Securities economists however calculated the three-week 1995 shutdown reduced quarterly US economic growth by 0.09-0.17 percentage points per week.

A three-week lockout of workers, according to Faucher, would begin taking a toll.

More and more businesses would be left waiting for permits and rulings and contractors would struggle to keep staff on as they go for longer without payment.

But the biggest hit could be in the very place where the budgets are decided: Washington.

Some 13.7 percent of the area's workers are directly employed by the federal government, compared to two percent nationally, according to Moody's Analytics.

Officials in Fairfax county, Virginia, just outside of Washington, were already anticipating some impact on their 1.1 million population.

Thirteen percent of Fairfax residents are employed directly by the federal government; 22,000 federal workers go to offices in the county.

The county's thousands of small and large contractors make it the largest recipient of federal procurement funds in the country.

"In general, we largely escaped the great recession, largely because of our dependence on government contracting," country supervisor Pat Herrity said.

"That could turn around and bite us."

A short shutdown would not have much overall impact, except on the smallest companies, like restaurants who serve the lunchtime crowds from government-heavy offices, he said.

"In business, uncertainty is not your friend. If you are a small vendor, do you order food for the next week?"

Roy Meyers, an budget expert at the University of Maryland-Baltimore County, points to another hidden cost.

He said that government contractors may have begun figuring a shutdown into their own work as early as January, when the newly Republican-dominated House of Representatives started work on the budget.

Some would build a risk premium into their bids; others might place a hold on hiring new people.

"The anticipatory impacts of the shutdown are just as important."

It can be small per contractor, "but it adds up," he said.


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Equitable Life: outcome not so equitable for all policyholders

The company says any policyholder who invested �10,000 into Equitable 15 years ago would now have savings worth a modest �14,000. By taking the one-off bonus this would rise to �16,000.

Equitable says it expects to pay out �40m to 30,000 policyholders during the first year, but in reality many more are likely to take advantage of the offer, having been trapped in their low-paying investments for many years.

Whilst this is good news for some people, it serves to remind us of those who were not so lucky.

Paul Weir, of the Equitable Members Action Group (Emag), said the money is a "drop in the ocean compared to the �6bn people have lost over the past two decades". The bonus has also come too late for the thousands of Equitable policyholders who have already died.

Let's just hope ministers and regulators prevent anything like this ever happening again.


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Stocks fall after another earthquake hits Japan (AP)

NEW YORK ? Stocks fell Thursday after a 7.4-magnitude earthquake struck off the coast of northern Japan. The losses moderated slightly after a tsunami warning was lifted.

The Dow Jones industrial average fell as many as 96 points in morning trading before recovering some of its losses. Japan's stock market had already closed by the time the earthquake struck.

The quake rattled investors, partly since it struck near the same area as the massive earthquake that triggered devastating tsunami on March 11. Stock indexes pared their losses after the impact of the latest quake appeared to be less than initially feared.

The Dow fell 56 points, or 0.4 percent, to 12,367 in afternoon trading. The broader S&P 500 fell 5, or 0.4 percent, to 1,330. The Nasdaq composite index fell 5, or 0.2 percent, to 2,795.

In the U.S., economic news was mostly positive. The Commerce Department said 382,000 people applied for unemployment for the first time last week. That was the third drop in four weeks. The decline in applications suggests layoffs are slowing.

Major retailers also reported better-than-expected sales for March at stores that have been open at least a year. Analysts had predicted declines because of cold weather and higher gas prices.

Costco Wholesale Corp. rose 4 percent after reporting a 13 percent gain in sales. Limited Brands Inc. rose 1 percent after it said its revenue increased 14 percent because of strong sales at its Victoria's Secret stores. Nordstrom Inc. and Macy's Inc. also rose about 1 percent.

Bed Bath & Beyond Inc. rose 11 percent, the most of any stock in the Standard & Poor's 500 index. The home furnishings retailer posted strong results late Wednesday and said it expected earnings to rise 10 percent to 15 percent this year.

Constellation Brands Inc. rose 6 percent. The maker of Robert Mondavi wine and Svedka vodka recovered from a loss in the same quarter a year ago and reported a double-digit increase in wine sales in North America.

KLA-Tencor fell 5 percent, the most out of any company in the S&P 500. The chip manufacturer gets 14 percent of its revenues from Japan.

Netflix, Inc. also fell, dropping 3 percent a day after the home-entertainment company announced its decision to pay nearly $1 million per episode to stream the TV series "Mad Men." Dish Network Corp. emerged as a new competitor after announcing it would buy Blockbuster Inc. out of bankruptcy.

Bond prices rose, sending their yields lower. The yield on the 10-year Treasury note fell to 3.54 percent from 3.55 percent late Wednesday.

The European Central Bank raised its main interest rate by a quarter point to 1.25 percent, a day after Portugal asked for a bailout. The Bank of England kept its main interest rate unchanged at 0.5 percent.


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FTSE down 0.56% at close (AFP)

LONDON (AFP) ? London stocks closed lower on Thursday, with traders edgy after the White House failed to resolve a budget crisis and news came of a fresh earthquake in Japan.

Obama is to meet again with congressional leaders at 1700GMT (1800 BST) as he desperately seeks to broker an 11th-hour budget deal amid a looming government shutdown.

A 7.1-magnitude quake hit north-east Japan at 1432 GMT prompting Japanese authorities to issue a localised tsunami alert, which has now been lifted.

Meanwhile, the Bank of England has announced that it is keeping its key lending rate at a record-low 0.50 percent.

London's FTSE 100 index of leading shares slipped 0.56 percent to 6,007.37 points.

Lloyds Banking Group was the most-traded stock of the day, with 124 million shares traded, followed by Royal Bank of Scotland with 74.5 million shares changing hands.

Equipment hire firm Aggreko made the day's biggest gains, adding 22 pence -- 1.31 percent -- to finish at 1696.

It was followed by HSBC which gained 6.8 pence -- 1.03 percent -- to close at 667.2.

Meanwhile engineering group GKN made the sharpest losses of the day, shedding 9.3 pence -- 4.45 percent -- to finish at 199.9.

It was followed by ITV which lost 2.75 pence, or 3.5 percent, to finish at 75.85.

On the currency markets, a pound was worth $1.6303, or 1.1410 euros, at 1724 BST.


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Monday, May 30, 2011

Go, nogo debate still on: MoEF to review policy

The environment ministry will review the go, no-go policy for mining. Sources tell CNBC-TV18 that the MoEF will make a presentation of reviewed areas in the next GoM. However, the areas under tiger reserves wont be touched. Moreover, projects with have Stage 1 nod will get approval for the next stage as well.

According to No-Go policy, the areas with over 30% gross forest cover are not allowed for coal mining. Similarly, areas that are 10% or more in weighted forest cover are out of bounds for coal mining.

Environment minister Jairam Ramesh in the last meeting of the GoM had assured the coal ministry that he will be positive towards infrastructure projects after imposing ban last year on mining in No-Go zones.�


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General Motors: We're (Almost) No. 1!

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By any standard, General Motors (NYSE: GM) had a pretty good year in 2010. The company got back on solid financial ground, it got a (we hope) real non-interim CEO, it launched several impressive new products, and it posted solid growth in its two biggest markets.

For Toyota (NYSE: TM), on the other hand, 2010 seemed like a year to forget. The company saw its U.S. sales fall sharply, lagged GM and others in China, faced big challenges in Japan, and suffered through a global PR nightmare and a long list of expensive recalls.

Yet Toyota still led GM in global sales when all was said and done. The company's 30,000-vehicle lead wasn't much in context -- each automaker booked well over 8 million sales -- but it was enough for the Japanese giant to retain the global sales crown for the third straight year.

But if GM couldn't regain the lead when Toyota was down in 2010, does it have a chance in 2011?

Roughly equal shares of the pie
As you might expect, GM's PR folks said the automaker doesn't care whether it's No. 1 or not. And it's true that GM's current management has been at pains to emphasize measures such as profitability over market share and sales totals, a welcome change from the company's sales-at-any-price past.

But sales leadership is still an important symbol, and GM is going to look to take its recovery to the next level in 2011. Although several major new products are still a year or more away, big things are expected from new global marketing chief Joel Ewanick, starting with what is rumored to be a massive ad blitz during this weekend's Super Bowl. �

Certainly, the General's lead in the U.S. seems safe for the moment, with Toyota having dropped to third place behind Ford (NYSE: F) -- something that shows no sign of changing anytime soon. And GM's outsized lead in China seems more likely to be threatened by Volkswagen than by Toyota, which, like rival Honda (NYSE: HMC), is well behind both in the local sales rankings.

But Toyota is the undisputed king of its home market, and its small-car subsidiary Daihatsu has a strong emerging-markets presence of its own, with plants in places such as Indonesia and Venezuela. Auto sales in Japan have slumped recently but are expected to pick up as the year goes on, and Toyota is likely to be the biggest beneficiary.

But really, both of these companies have the same basic problem, and the first one to solve it is likely to be 2011's global sales leader.

It's the product, stupid
Economic cycles rise and fall, and different markets have different strengths and priorities, but ultimately, automakers thrive or dive on the strength of their product line. A company with fresh new products that excite customers will see sales (and usually, profits) go up -- and conversely, a company with a product line that's starting to look a little stale will generally see sales sag.

Ford made a point of investing heavily in new products during the worst of the economic downturn, and it paid off with big sales gains for the Blue Oval during 2010. GM and Toyota, on the other hand, are offering product lines that are starting to look a little dated. A recent report from Edmunds pointed out that many car-shoppers have little product loyalty, shop mainly on features, and will tend to dismiss offerings that lack the latest technology -- a description that applies to much of Toyota's product line, at least in the U.S., as well as several key GM offerings.

As I've noted elsewhere, GM is well on the road to catching up, but the heart of GM's new-product offensive is still a year or two (or three) away. Toyota, on the other hand, has promised 11 new or updated products for the U.S. in 2011 -- and when we look back in a year's time, those new models could turn out to be the difference.

Add GM and Toyota to My Watchlist today to stay on top of all of our Foolish coverage as this global war of giants unfolds.


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FTSE edges up 0.14% at open (AFP)

LONDON (AFP) ? London shares steadied at the start of trading on Thursday, along with markets across Europe, as traders awaited a major interest rate decision by the European Central Bank and reacted to Portugal's bailout request.

The FTSE 100 index gained a modest 0.14 percent to 6,049.83 points in opening deals.

Elsewhere in Europe Frankfurt's DAX 30 dipped 0.04 percent to 7,212.46 points and in Paris the CAC 40 edged up 0.01 percent to 4,048.70.

The European Central Bank was set to raise its interest rates on Thursday for the first time since July 2008 as concern over inflation trumps fears of collateral damage to weaker eurozone economies.

The benchmark rate for the 17-nation zone has been at a record low 1.0 percent since May 2009.

Eurozone member Portugal has meanwhile finally decided to request financial assistance from the European Union, paving the way for a third bailout of a eurozone country after Ireland and Greece.

Analysts have said that Portugal, which requested help late on Wednesday, could require a package worth 70 billion euros (100 billion dollars), compared with 85 billion for Ireland and 110 billion for Greece.


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Portugal has been caught in the classic debt trap

Portugal is now expected to press for a package worth about ?90bn, roughly the same as Ireland and less than the ?110bn Greek bail-out. That?s equivalent to slightly more than half Portugal?s national output. Between ?20bn and ?25bn will have to be disbursed at the beginning of May, and Britain is on the hook for up to �4bn under the European Financial Stability Mechanism Alistair Darling signed in the last act before Labour lost power.

Politically, the timing is perhaps astute. The Portuguese government resigned office after the austerity measures were rejected, leaving them in a ?caretaking? role. Jose Socrates, the former prime minister and now acting prime minister, made it clear that he blames his rivals for precipitating the crisis by rejecting his reforms. The opposition, now favourite to take power, said they will support the request for a bail-out. Rescue will come with conditions ? probably the same as those already rejected, as they had been approved by the International Monetary Fund.

This time, though, it will be easier for the winner of the June 5 election to simply present the nation with the package as the fault of others and unavoidable.

The big question, however, is whether the bond markets will now turn on Spain. Three of the original PIGS are now down, will the fourth fall as well? Economists think not and the country also comfortably got a ?4.1bn bond auction away on Thursday. Spain may have a budget deficit of around 8.5pc of GDP, but its national debt at about 75pc of GDP, is on safer ground. Spain is also pushing through harsh reforms, increasing the pension age to 67, raising VAT, slashing civil servants? pay to get the deficit under control, and addressing its banking problems.

In the five months since Ireland?s rescue, Spain has moved mountains to differentiate itself from Portugal ? with some success. Spanish sovereign debt rates have stabilised over the past three months as investors have decided its public debt levels are on a sustainable path. Even with a massive ?70bn state-funded bank recapitalisation (7pc of GDP), analysts believe the country can grow its way back to health.

The differentiation is working. It needs to, because Europe cannot afford to let Spain fail.


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Sunday, May 29, 2011

Jobless claims fall, retail sales stronger (Reuters)

WASHINGTON (Reuters) ? New claims for jobless benefits fell last week and retailers racked up much stronger-than-expected sales in March, signs that high fuel prices have not knocked the economy off its growth path.

Initial claims for state unemployment aid slipped 10,000 to 382,000, the Labor Department said on Thursday, a touch below economists' expectations and firmly beneath the 400,000 level associated with steady jobs growth.

Other data showed shoppers shrugged off higher gasoline prices last month to boost sales at many retailers as improving labor market conditions encouraged discretionary spending.

Same-store retailer sales had been expected to decline for the first time since August 2009, in part because Easter falls three weeks later than last year, delaying some spending.

"The claims report is one more piece of evidence that the general labor market is improving," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

"The economy is growing and employers are no longer laying off workers because of a weakening in the general economic conditions but rather they doing so for normal business reasons."

The claims data underscored the strengthening labor market tenor and came on the heels of a report last week showing employers added 216,000 jobs in March, with the unemployment rate falling to a two-year low of 8.8 percent.

Last week, the four-week average of unemployment claims, a better measure of underlying trends, fell 5,750 to 389,500.

With the labor market conditions firming, consumers are feeling a little more confident to loosen their purse strings.

Sales at stores open at least a year rose 1.7 percent in a tally of 25 retailers, topping expectations of a 0.7 percent decline, according to Thomson Reuters.

GASOLINE TO DISTORT RETAIL SALES

The stronger-than-expected same-store sales bode well for the government's overall retail sales report for March, which is scheduled for release next week and is expected to be heavily influenced by the high gasoline prices.

They offered some relief after other data on consumer spending suggested a moderation in the pace of economic growth early in the year after a fairly brisk pace in the fourth quarter.

Consumer spending -- which accounts for about 70 percent of U.S. economic activity -- got off to slow start in the first two months of 2011 -- held back by bad weather. Rising gasoline prices also took spending away from other sectors.

The stronger-than-expected same-store sales were little boosted by inflation, given the nature of the merchandise which economists said was less sensitive to the high energy prices.

"Consumers have held back for a long time, there is a certain amount of pent-up demand. Wage growth isn't much, but we are also seeing an increase in income because of an increase in job growth," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"Job growth also means that for those who are employed there is reduced concern about being laid off so the pent up demand is coming out."

With the latest fall, initial claims for jobless benefits are now beneath the 400,000 level, which is generally associated with steady job growth, for four weeks in a row.

The four-week average has held below that mark for the sixth straight week. Economists say both measures need to drop to about 300,000 to signal a strong labor market recovery.

Signs of improvement in the jobs market were also evident in the number of people still receiving benefits under regular state programs after an initial week of aid, which fell in the week ended March 26 to the lowest level since October 2008.

However, long-term unemployment remains a major problem.

A total of 8.52 million people were claiming unemployment benefits under all programs in the week ended March 19, the latest week for which data is available.

"While the labor market has stabilized and employment may be increasing, it's not increasing so rapidly that previously unemployed people who were claiming benefits are returning to work at a fast clip," said J.H. Cohn's O'Keefe.

(Additional reporting by Jessica Wohl in Chicago; Editing by Neil Stempleman)


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Stocks fall after another earthquake hits Japan (AP)

NEW YORK ? Stocks fell Thursday after a 7.4-magnitude earthquake struck off the coast of northern Japan. The losses moderated slightly after a tsunami warning was lifted.

The Dow Jones industrial average fell as many as 96 points in morning trading before recovering some of its losses. Japan's stock market had already closed by the time the earthquake struck.

The quake rattled investors, partly since it struck near the same area as the massive earthquake that triggered devastating tsunami on March 11. Stock indexes pared their losses after the impact of the latest quake appeared to be less than initially feared.

The Dow fell 56 points, or 0.4 percent, to 12,367 in afternoon trading. The broader S&P 500 fell 5, or 0.4 percent, to 1,330. The Nasdaq composite index fell 5, or 0.2 percent, to 2,795.

In the U.S., economic news was mostly positive. The Commerce Department said 382,000 people applied for unemployment for the first time last week. That was the third drop in four weeks. The decline in applications suggests layoffs are slowing.

Major retailers also reported better-than-expected sales for March at stores that have been open at least a year. Analysts had predicted declines because of cold weather and higher gas prices.

Costco Wholesale Corp. rose 4 percent after reporting a 13 percent gain in sales. Limited Brands Inc. rose 1 percent after it said its revenue increased 14 percent because of strong sales at its Victoria's Secret stores. Nordstrom Inc. and Macy's Inc. also rose about 1 percent.

Bed Bath & Beyond Inc. rose 11 percent, the most of any stock in the Standard & Poor's 500 index. The home furnishings retailer posted strong results late Wednesday and said it expected earnings to rise 10 percent to 15 percent this year.

Constellation Brands Inc. rose 6 percent. The maker of Robert Mondavi wine and Svedka vodka recovered from a loss in the same quarter a year ago and reported a double-digit increase in wine sales in North America.

KLA-Tencor fell 5 percent, the most out of any company in the S&P 500. The chip manufacturer gets 14 percent of its revenues from Japan.

Netflix, Inc. also fell, dropping 3 percent a day after the home-entertainment company announced its decision to pay nearly $1 million per episode to stream the TV series "Mad Men." Dish Network Corp. emerged as a new competitor after announcing it would buy Blockbuster Inc. out of bankruptcy.

Bond prices rose, sending their yields lower. The yield on the 10-year Treasury note fell to 3.54 percent from 3.55 percent late Wednesday.

The European Central Bank raised its main interest rate by a quarter point to 1.25 percent, a day after Portugal asked for a bailout. The Bank of England kept its main interest rate unchanged at 0.5 percent.


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