MarketWatch
Washington
-- The Federal Reserve said Tuesday that it will start buying mortgage-backed securities in early January in the central bank's latest effort to stabilize housing markets and resuscitate the U.S. economy. The Fed will only purchase fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.
The Fed said it will pay for the purchases by creating more bank reserves -- essentially printing money. This is part of a broader strategy being pursued by the Fed and the Treasury to step in as buyers in markets where private participants have pulled back in the face of massive losses. The Fed unveiled its mortgage-buying plan last month, saying it would purchase up to $500 billion of these securities during the first half of 2009. Mortgage rates dropped significantly after the announcement, sparking hope that home buyers will be lured back into the real-estate market by the cheaper borrowing costs. See full story.
December 30:
Home prices off record 18% in past year, Case-Shiller says
Source: MarketWatch
Washington
-- Home prices are back to their March 2004 levels, having dropped in 20 major U.S. cities by 2.2% in October and by a record 18% from the previous year, according to the Case-Shiller price index published Tuesday by Standard & Poor's. Prices have fallen in all 20 cities compared with both the prior month and October 2007, and 14 of the 20 metro areas showed record rates of annual declines. Also, 14 of 20 areas sustained declines of more than 10% on a year-over-year basis.
Retreating prices are likely to accelerate in coming months due to lower demand for housing, said Patrick Newport, U.S. economist at IHS Global Insight. "The main force driving house prices down are foreclosures, which are still rising," Newport wrote in a research note. "The Obama administration and the Fed are working on ways to limit the number of 'preventable foreclosures.' Unfortunately, trial and error will be part of this process." See full story.
December 29:
Holiday sales drop to force bankruptcies, closings
Source: Bloomberg
New York
-- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years. Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.
More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger. “You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.” See full story.
December 23:
U.S. GDP unrevised at a 0.5% fall for third quarter
Source: MarketWatch
Washington
-- The U.S. economy slowed sharply in the third quarter, declining at a 0.5% annual rate, unrevised from last month's estimate, the Commerce Department reported Tuesday. It's the weakest quarterly growth rate since the first quarter of 2001. The economy grew 2.8% in the second quarter. Economists now say that a recession began December 2007, based on data showing declining employment, incomes and industrial production. But it didn't really sink in until the July-September quarter.
For the current quarter, economists are predicting a sharp decline in the neighborhood of 6.0%. This would be the biggest drop since the early 1980s. Gross domestic purchases -- the total value of goods and services bought by U.S. residents -- fell 1.5% in the third quarter, experiencing downward momentum after falling only 0.1% in the second quarter. Final sales of domestic product, including exports, fell 1.3%. See full story.
December 22:
TED spread narrows to least since Lehman
Source: MarketWatch
London
-- The TED spread, a gauge of banks’ reluctance to lend, slipped below 150 basis points for the first time since before the collapse of Lehman Brothers Holdings Inc. amid speculation U.S. borrowing costs near zero and promises of further government cash will help unfreeze credit. The spread, the difference between what banks and the U.S. government pay to borrow money, narrowed as the London interbank offered rate, or Libor, for three-month dollar loans fell and Treasury borrowing costs rose. Libor dropped three basis points, or 0.03 percentage point, to 1.47 percent, the British Bankers’ Association said today.
“Libor is coming down and the first result of that is that the Ted spread is coming down,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas Securities Corp. “While Libor has come down, T-bills have not. If those yields can push moderately higher that would be a comforting sign.” Central banks are pumping money into the financial system to combat the worst economic slump since the Great Depression. Credit markets, which seized up after Lehman’s bankruptcy, remain locked amid almost $1 trillion in losses and writedowns tied to mortgage-related securities. The Federal Reserve cut its benchmark rate to as low as zero last week and said it will flood the economy with cash. See full story.
December 19:
Auto makers to get more than $17 billion in loans
Source: Marketwatch
Washington
-- Yes, Detroit, there is a Santa Claus. Ending months of roller-coaster negotiations, President Bush moved Friday to extend $13.4 billion in loans to troubled U.S. auto makers, with another $4 billion likely available in February. Bush, saying failure of the companies was not an option, cited the need to avoid "disorderly liquidation" during an already troubled economic period.
The deal could help General Motors Corp. and closely held Chrysler LLC avoid bankruptcy. The administration said the funds are contingent on the companies showing they're financially viable and competitive by the end of March -- otherwise they must pay back the loans in full. The loans will be allocated from the $350 billion Troubled Assets Relief Program being managed by the Treasury Department, subject to approval of bank capital applications. See full story.
December 18:
U.S. economy: Leading index posts biggest annual drop
Source: Bloomberg
Washington
-- A gauge of the economy’s future performance posted its biggest annual drop since 1991 in November as the declines in housing and job markets accelerated, showing little sign the U.S. contraction will ease in early 2009. The Conference Board’s index of leading indicators dropped 0.4 percent from October, and 3.7 percent from a year before. Other reports showed first-time claims for unemployment benefits held close to a 26-year high and manufacturing in the Philadelphia region contracted for the 11th time this year.
The drop in the leading index underscores economists’ projections that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge and job losses mount. President-elect Barack Obama reiterated today that his top priority is a stimulus plan that spurs demand and creates new jobs. “There is no end to the recession in sight,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the decline in the leading index. “The economy is likely to continue to fall hard.” See full story.
December 17:
Caution ahead: Recession clouds market recovery
Source: MarketWatch
New York
-- The outlook for U.S. stocks next year is dicey as economists debate the length and depth of the recession, and when the market will recover from this year's 35% tumble. Against this backdrop, investment managers are recommending defensive plays, namely stable companies within the consumer staples and health care sectors as among the safest ways to play the stock market. But many are just sitting on the sidelines until a rebound starts to take shape.
"I'm not in any rush right now to put money to work, there's plenty of time to do that in 2009," said Marc Gross, managing member, Topos LLC, an alternative asset manager and risk advisory in Stamford, Conn. "There's still too much uncertainty and there's nobody in charge," he said. See full story.
December 16:
FOMC cuts rates to record low range of 0 to 0.25%
Source: MarketWatch
Washington
-- The Federal Reserve pulled out all the stops in its campaign to save the U.S. economy Tuesday, slashing interest rates to just about zero and promising to try an array of new economic measures to stimulate spending. The central bank's Federal Open Markets Committee established at target rate for the federal funds rate of 0 to 0.25%, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%. U.S. stocks leaped after the decision, with the Dow Jones Industrial Average up more than 200 points.
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth," the central bank pledged in its policy statement. The move was about as aggressive as the central bank could be on monetary policy, but also signaled that it has moved on to other measures beyond setting interest rates in its fight to keep the economy rolling. The Fed's move followed some of the worst economic data in decades reported in the last few days, including monthly consumer sales numbers that fell the most since 1932. See full story.
December 15:
Coming to the end of the line on rate cuts
Source: MarketWatch
Washington
-- The Federal Reserve is likely to cut the federal funds rate as low as it can go at this week's meeting, and to begin shifting its focus to nontraditional policies. "It would make the most sense for this meeting to be the last rate cut rather than dragging it out to the January meeting," wrote Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, adding that a "hallmark of the Bernanke Fed has been to move quickly and aggressively."
How does the Federal Reserve address touchy, hot-button economic terms? MarketWatch found out by speaking with Brian Sack of Washington-based Macroeconomic Advisors and a former senior Fed staffer. Rupkey's forecast calls for the Fed to cut rates by three-quarters of a percentage point to 0.25%. Most Wall Street firms expect a rate cut of a half point to .50%. "The size of the move is in large part "psychological," said the economic team at Bank of America. See full story.
December 12:
Retail sales fall 1.8% in fifth straight decline
Source: MarketWatch
Washington
-- With gasoline prices plunging and auto sales on life support, U.S. retail sales dropped 1.8% in November for their fifth straight decline, the Commerce Department reported Friday. Retail sales -- which account for about a third of final demand -- were down 7.4% compared with a year earlier. In the past three months, sales have fallen 4.7% compared with the previous three months. Read the full report.
The big drop was roughly in line with expectations by economists for a 2.1% decline. But the extent of the decline was exaggerated by a historic drop in retail gasoline prices in November. Excluding the record 14.7% fall in sales at gas stations, retail sales fell just 0.2%. "Although consumers are getting significant relief from lower gasoline prices, at this point they appear to be saving rather than spending the drop in their energy bills," said John Ryding and Conrad DeQuadros of RDQ Economics. See full story.
December 11:
Jobless claims jump to 573,000, a 26-year high
Source: MarketWatch
Washington
-- The U.S. labor market weakened further last week, with the number of first-time filings for state unemployment benefits jumping by 58,000 to a 26-year high of 573,000, the Labor Department reported Thursday. The number of people collecting unemployment benefits rose by 338,000 to stand at 4.43 million, also the highest since late 1982. The increase in continuing claims in the week ended Nov. 29 was the most since 1974.
The jobless claims report shows businesses are laying off workers at a rapid pace, and finding employment is ever harder for those who've lost their jobs. Compared with the same week a year ago, new jobless claims are up about 59%, while continuing claims are up 58%. Technical factors aside, the report shows a marked deterioration in the labor market. The four-week moving average of new claims -- which tends to smooth out the impact of any special factors -- rose by 14,250 to 540,500, also the highest since late 1982. See full story.
December 10:
Worsening spending slump paces ‘scary’ U.S. recession
Source: Bloomberg
Washington
-- The biggest slump in U.S. consumer spending since 1942 will extend the recession and push the jobless rate to the highest level in a quarter century, according to economists surveyed by Bloomberg News. Household spending will drop 1 percent in 2009, the biggest decline since after the attack on Pearl Harbor, according to the median estimate of 51 economists surveyed Dec. 4 through Dec. 9. By the middle of next year, the economy will have shrunk for a record four consecutive quarters, the survey showed.
“That sounds scary enough to me,” said Jeffrey Frankel, an economics professor at Harvard University and a member of the group that determined the start of the recession. “Consumers have carried the weight of expanding demand for a long time at the expense of a serious deterioration of their balance sheets.” A drop in spending has brought the auto industry to the brink of collapse, and mounting unemployment, a lack of credit, and falling property and stock values will prompt Americans to turn even more frugal. President-elect Barack Obama has pledged to pursue the biggest public-works plan since the 1950s to stem the already year-old economic slump. See full story.
December 9:
U.S. hiring plans near 5-year low, Manpower says
Source: Bloomberg
Washington
-- Hiring plans by U.S. employers for the first quarter of next year held near a five-year low, signaling a weak labor market will persist into 2009, according to a private survey. Manpower Inc., the world’s second-largest provider of temporary workers, said its employment gauge for January through March climbed to 10 from a reading of 9 in the last three months of this year, the lowest since 2003.
The highest jobless rate in 15 years, falling property values and the credit crunch signal companies are unlikely to expand. Cutbacks in consumer spending are pushing the U.S. economy deeper into what may become the longest recession in seven decades. “A majority of employers are carefully monitoring the uncertain economic environment prior to making any additional employment decisions,” Jeffrey Joerres, chief executive officer of Milwaukee-based Manpower, said in a statement. See full story.
December 8:
Retail sales dropping like a rock
Source: MarketWatch
Washington
-- Consumer spending, the backbone of the U.S. economy, has been battered, if not broken. The worsening recession is now in a self-reinforcing downward spiral, as the weak economy leads to reduced spending and tighter credit, leading to further job losses and even less spending. "Weakness has spread from housing to Wall Street to Main Street," wrote economists for UBS. "It is now effectively feeding on itself."
"The sharp slide in economic activity that began in October looks to have deepened in November," wrote Seamus Smyth, an economist for Goldman Sachs. Economists have been lowering their forecasts for growth in light of the sharp drop off in November. The median forecast for fourth-quarter growth is now negative 4.1%, with negative 2.9% expected for the first quarter. Most economists don't see a rebound in growth until next summer. See full story.
