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'Trillion Dollar Meltdown' paints scary economic picture 2008-04-02 21:14:49 By Kerry Hannon, Special for USA TODAYCharles Morris, author of The TrillionDollarMeltdown
, isn't one for sugarcoating. His analysis is dour and grim, but certainly not dull. And when read against a backdrop of an ever-weaker economy, increasingly anxious economists and a stream of gloomy predictions, it can be downright scary.Morris, a lawyer and former banker who has written 10 books, argues that the subprime mortgage crisis is only a taste of the mayhem that will play out across an array of financial assets. He lays out the likely course of write-downs and defaults on a whole gamut of assets — residential mortgages, commercial mortgages, high-yield bonds, leveraged loans, credit cards and the complex bond structures that sit atop them. It comes to about $1 trillion, according to Mor
Survey of managers shows jobs picture isn't exactly rosy 2008-04-02 21:13:27 By John Waggoner and Barbara Hansen, USA TODAYIn another sign of a stagnant economy, relatively few companies have plans to hire more workers over the next three months, according to a survey of employers released Wednesday. Just 29% of managers plan to increase hiring in the second quarter of 2008, according to an online survey for USA TODAY and CareerBuilder.com by Harris Interactive. The proportion of employers with plans for increased hiring is unchanged from the last quarterly survey.The survey, conducted Feb. 11 to March 13, involved 2,757 hiring managers and human resource professionals. CareerBuilder.com is a job-finding site jointly owned by Tribune, McClatchy, Microsoft and USA TODAY parent Gannett.The new survey follows two monthly reports from the U.S. Department of Labor showi
Bad economic news expected to pile up 2008-04-02 21:08:54 By John Waggoner and Christine Dugas, USA TODAYLast week's economic news wasn't good, and data released this week aren't going to be much better, economists say. April will probably be a particularly cruel month for retailers, as the companies reveal just how weak sales are. J.C. Penney (JCP) led the way last week by slashing its first-quarter earnings forecast by a third, to 50 cents a share.Despite soaring prices, consumers still have to buy food, gas and energy. So retailers that sell things that consumers can do without, like a new blazer or a new purse, are the ones that are likely to lose business, says Patricia Edwards, retail analyst at Wentworth Hauser and Violich. "The stores that cater to middle-income consumers are going to be the ones that are hardest hit," Edwards says. Home-
Could an economic lesson from Sweden work in the U.S.? 2008-04-02 21:06:56 By David J. Lynch, USA TODAYAs U.S. officials hunt for solutions to what many economists are calling the most serious financial crisis since the Depression, they might draw lesson
s from another painful and costly banking emergency.In the early 1990s, a massive Swedish real estate bubble burst, littering the Nordic economy with broken finance companies, failing businesses and jobless workers. It was the first systemic banking crisis in an industrialized country since the 1930s and it saw the Swedish economy actually shrink for three straight years — something that hasn't happened in the United States since the rapid demobilization after World War II.The Swedish and American crises share many traits: Both followed periods of financial deregulation, and both featured newly daring banks rely Read more:Sweden
Factory orders tumble for second month 2008-04-02 21:05:53 WASHINGTON — Orders to U.S. factories fell for a second month, a worse-than-expected performance that reinforced worries that the risk of recession is rising.The Commerce Department reported Wednesday that factory orders
dropped 1.3% in February, about double the downturn that economists had been expecting. Orders had fallen an even bigger 2.3% in January, the largest decline in five months.The falloff in demand was widespread, with steep declines in orders for motor vehicles, various types of heavy machinery and demand for iron and steel.BERNANKE: No growth possible for first half 2008Many economists believe a prolonged housing slowdown and credit crunch have already pushed the country into a recession. Federal Reserve Chairman Ben Bernanke, testifying before the Joint Economic Committe Read more:Factory
Mortgage demand drops after rocketing; key rate at 5.75% 2008-04-02 21:04:38 By Julie Haviv, ReutersNEW YORK — Mortgage
applications plunged last week, largely reflecting a drop in demand
for home refinancing loans, although 30-year fixed-rate mortgage rates remained below 6%, an industry group said Wednesday.The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 28 fell 28.7% to 688.3.The index, however, gained 48.1% the previous week.Overall mortgage applications last week were 6.0% above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 0.1% to 744.5.The U.S. housing market is currently suffering one of the worst downturns in its history. FIND MORE STORIES IN: National Ass
Fed chief Bernanke defends Bear Stearns deal 2008-04-02 21:04:00 By Sue Kirchhoff, USA TODAYWASHINGTON — Federal Reserve Chairman Ben Bernanke
said Wednesday that the economy could fall into recession, as housing and financial markets remain distressed despite dramatic Fed interest rate cuts and emergency lending. "It now appears likely that (the economy) will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told the Joint Economic Committee. He expects activity to pick up into 2009 but warned that major risks remain. "We are fighting against the wind," Bernanke said. Bernanke staunchly defended the Fed's decision last month to broker JPMorgan Chase's (JPM) takeover of investment bank Bear Stearns
, (BSC) including approval of a loan backed by $30 billion of Bear Stearns assets. MORTGAGE DEMAND DROPS: In
Senate agrees on compromise to help homeowners 2008-04-02 21:03:19 WASHINGTON — Senate
leaders on Wednesday night announced a multibillion-dollar bipartisan compromise measure to aid families facing foreclosure amid the sharp housing downturn.The proposal, which could be debated as early as Thursday, contains funding to provide foreclosure counseling to beleaguered households, help local governments buy and refurbish foreclosed properties and increase the limit on loans backed by the Federal Housing Administration.But negotiators for both parties could not reach agreement on a provision that would give foreclosed homeowners more lenient treatment in bankruptcy proceedings. Lawmakers were also forced to shelve a more ambitious FHA mortgage rescue plan but promised to continue working on the issue."This is not a complete package. Obviously, there is a lot
Clinton's goals for economy? Big change 2008-04-02 21:02:38 WILKES-BARRE, Pa. — Sen. Hillary Rodham Clinton
plans, if elected president, to aggressively use federal tax and regulatory policy to promote key sectors of the U.S. economy
. She also vows to take a more skeptical view of foreign investment in companies involved in defense work.In an interview with USA TODAY, she proposed stripping tax benefits from sectors such as the oil industry and using government policies to boost industries such as automakers, wind turbine producers and steel companies. And she rejected criticism that her plans amounted to a form of industrial policy that would represent a dramatic departure from traditional U.S. practice."We subsidize the oil companies. We think it's important that we give them our tax dollars so they can go out and explore and extract and produc
Housing regulator: Freezing mortgage rates a bad idea 2008-04-01 20:24:09 WASHINGTON (Reuters) — With housing markets are showing signs of improvement, the idea of freezing mortgage rates would be a mistake, the director of the Office of Federal Housing
Enterprise Oversight said Friday."You'd really cause market dislocations," said OFHEO director James Lockhart on CNBC television, when asked about a proposal put forward by Sen. Hillary Clinton, a contender for the Democratic presidential nomination."I think we're going to let the market work and interest rates have come down dramatically and people are going to be able to refinance," Lockhart said.MORTGAGE RATES: 30-year rates average 5.85%He said lower interest rates should make it somewhat less painful for holders of adjustable-rate mortgages who face "resets" to higher rates in coming months.FIND MORE STORI Read more:Freezing
JC Penney cuts sales, earnings forecast; shares tumble 2008-04-01 20:23:15 NEW YORK (Reuters) — Department store operator J.C. Penney
(JCP) on Friday slashed its first-quarter earnings forecast, saying sales through the Easter holiday were below expectations and noting that consumer confidence is at a multi-year low.Penney's shares
fell sharply, dragging down shares of other retailers.Department store operators that cater to middle-income Americans have been hit hard by the slowdown in consumer spending as these shoppers forgo purchases of clothes, jewelry or home furnishings amid fears of a U.S. recession.But even upscale department store chains like Nordstrom (JWN) and Neiman Marcus are starting to feel the strain of the spending slowdown."J.C. Penney operates in a very challenged part of the retail sector," said Craig Johnson, president of retail consulting
Manufacturing, construction better than expected 2008-04-01 20:22:14 WASHINGTON (AP) — Two reports out Tuesday showed weakness in the economy, but both were better
than expected.• A closely watched gauge of manufacturing activity contracted for a second month in March, though at a slower pace than in February, as manufacturers grappled with weakening order books and rising prices for raw materials.The Institute for Supply Management's manufacturing index edged up to a reading of 48.6 in March. That was better than expected but still signaled that the manufacturing sector continues to shrink. A reading below 50 is a sign of contraction.Economists polled by Reuters had expected the index to drop to 47.5. Norbert Ore, chairman of ISM's manufacturing business survey committee, said that March capped "the weakest quarterly performance for the U.S. economy si Read more:Manufacturing
Bear of different kind mauls 1st quarter 2008-04-01 20:21:22 By Adam Shell, USA TODAYNEW YORK — Undone by the fallout from the real estate bust, Wall Street resembled a house of pain in the first three months of 2008. When the first quarter
ends Monday, it will take its rightful place among the stock market's most treacherous periods. It will forever be linked to the collapse of investment bank Bear Stearns (BSC) after a 1930s-style run on the bank and the Federal Reserve's dramatic move to rescue the financial system.The key debate now is whether the worst is over, whether stocks reflect all the bad news, or whether the downward trend is still in force. The 9.7% first-quarter loss posted by the Standard & Poor's 500 index through Thursday is puny compared with the biggest quarterly drop ever: 39.4% in the second quarter of 1932, S&P says. If the Read more:different
Stocks' first quarter was a real downer 2008-04-01 20:20:24 By Matt Krantz, USA TODAYInvestors looking back at the first quarter
that ended Monday won't have any trouble locating the lowlights. It's the highlights that are harder to find. Hammered by the failure of Bear Stearns, oil skyrocketing to more than $110 a barrel, historic weakening of the U.S. dollar and rising inflation, the market by most accounts had a terrible first three months of 2008. The Standard & Poor's 500 fell 9.9%, marking its worst quarter in 5½ years. It has fallen five consecutive months for the first time since 1990, says S&P. "We ended up with a steady diet of bad news," says Noel Lamb, chief investment officer at Russell Investments. "Any highlights were overcome." Still, as few highlights as there were, they provided some potentially encouraging signs, including: •R Read more:Stocks
Falling dollar dents profits on imported cars 2008-04-01 20:19:26 By Chris Woodyard, USA TODAYLOS ANGELES — The falling dollar is forcing automakers to scramble for ways to maintain profit margins on cars they import from Europe, Asia and Canada.Some, like General Motors (GM), find themselves in the odd situation of limiting the number of models they bring in from overseas subsidiaries even though they might be able to sell more in the USA.Foreign makers, meanwhile, are considering producing more models at U.S. plants or building new factories. Some even are increasing production here to ship more U.S.-made cars overseas."The pressure will be for the dollar to continue falling," says Joerg Dittmer, senior industry analyst for consultants Frost & Sullivan. The result will be "more domestically made cars."Even as GM was introducing variants in its Austra Read more:profits
, imported
Income grows as consumers do little spending in Feb 2008-04-01 20:17:59 WASHINGTON (Reuters) — Consumers, jolted by a credit crisis, job cuts and soaring energy costs, turned in the weakest spending performance in 17 months in February, and consumers
' confidence weakened to the lowest in 16 years in March, fresh evidence that the risks of a recession are increasing.The Commerce Department said Friday that consumer spending edged up 0.1% last month, the poorest showing since September 2006. And if the effects of inflation are removed, spending was flat in February, the third consecutive month of sluggish activity.Personal income rose 0.5%, the report said, exceeding a forecast of 0.3%.The personal consumption expenditure price index, a key measure of inflation, rose 0.1% in February after a downwardly revised increase of 0.3% in January. Excluding volatile fo Read more:Income
, little
Fed to auction off $100B more to commercial banks 2008-04-01 20:17:02 WASHINGTON (AP) — The Federal Reserve announced Friday it will auction another $100 billion in April to cash-strapped banks
as it continues to combat the effects of a credit crisis.The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns, the nation's fifth largest investment bank.The Fed has been holding auctions every two seeks since December to provide short-te
Paulson's financial reform plan gets mixed response 2008-04-01 20:16:29 By David J. Lynch, Sue Kirchhoff and Adam Shell, USA TODAYThe Federal Reserve's role in monitoring the health of financial institutions would dramatically expand under a plan the Bush administration unveiled Monday to overhaul regulatory oversight.The plan — which critics said was sure to be modified by Congress — capped a year-long process that began with a desire to help U.S. financial players compete globally by streamlining their oversight and ended amid fear of a meltdown fed by lax regulation.FULL REPORT: Blueprint for a modernized financial regulatory structure (pdf) TEXT OF SPEECH: 'We can do a better job' of regulating, Paulson
saysTreasury Secretary Henry Paulson, who unveiled the 218-page blueprint for reform, acknowledged that the far-reaching proposal represents just the s
Fed lends $75B worth of securities to investment banks 2008-04-01 20:13:45 By Jeannine Aversa, AP Economics WriterWASHINGTON — Big investmentbanks
took the Federal Reserve up on its first-time offer Thursday to let them borrow Treasury securities, the latest effort to ease a painful credit crisis.The Federal Reserve auctioned $75 billion worth of Treasury securities. Bidders paid an interest rate of 0.33%. Demand was high. The Fed received bids of $86.1 billion worth of the securities.FED: Tighter mortgage loan rules could revive confidenceLOCKHART: It looks like the beginning of a recessionIt was the first time the Fed conducted an auction of this kind. The next one will be held April 3.The program, dubbed the Term Securities Lending Facility, was announced earlier this month by the Fed and is intended as a booster shot for financial institutions and for the
Senate agrees on compromise to help homeowners 2008-04-04 17:38:49 By Sue Kirchhoff and Kevin McCoy, USA TODAYWASHINGTON — Senate
leaders on Wednesday night announced a multibillion-dollar bipartisan compromise measure to aid families facing foreclosure amid the sharp housing downturn.The proposal, which could be debated as early as Thursday, contains funding to provide foreclosure counseling to beleaguered households, help local governments buy and refurbish foreclosed properties and increase the limit on loans backed by the Federal Housing Administration.But negotiators for both parties could not reach agreement on a provision that would give foreclosed homeowners more lenient treatment in bankruptcy proceedings. Lawmakers were also forced to shelve a more ambitious FHA mortgage rescue plan but promised to continue working on the issue."This is not a
Surge in jobless claims stokes fears about recession 2008-04-04 17:38:05 By Edward Iwata, USA TODAYIn another scary sign for the sluggish U.S. economy, the Labor Department said Thursday that initial jobless claims
last week rose 38,000 to 407,000 — the highest in three years.The surging number of first-time unemployment benefit claims is a clear signal that the U.S. economy has sunk into a recession and more workers have lost jobs, economists say. In its monthly employment report Friday, the Labor Department is expected to announce more U.S. job losses in March for the third month in a row."Our view is that the economy has slipped into a recession, and we're going to see very sluggish growth for the first half of this year," says Michelle Meyer, a Lehman Bros. economist who noted that the 407,000 claims were the most since September 2005, just after Hurrican Read more:Surge
Late payments on consumer loans at 16-year high 2008-04-04 17:37:26 NEW YORK — More Americans have fallen behind on consumer loans than at any time in nearly 16 years, as credit problems once concentrated in mortgages spread into other forms of debt.In a quarterly study, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.65% in the fourth quarter from 2.44% in the third quarter, and from 2.23% a year earlier.The rate of delinquencies was the highest since a 2.75% rate in the first quarter of 1992. It provides a fresh sign the nation's economy is slowing, and may be in recession."There's no question that the economy is weakening beyond housing, resulting in the loss of household purchasing power," said John Lonski, chief economist at Moody's Investors Service."Deterioration of household credit should continue
Economy sheds 80,000 jobs in March 2008-04-04 17:36:32 WASHINGTON (Reuters) — Employers cut payrolls for a third month in a row in March
and the unemployment rate jumped to a 2-1/2 year high, more evidence that a housing downturn and credit crisis may have pushed the economy into a recession.The Labor Department on Friday reported that March non-farm payrolls fell 80,000, biggest decline in five years.It also said the March unemployment rate jumped to 5.1% from 4.8%, highest since a matching rate in September 2005. The 5.1% rate is still relatively low by historical standards.Adding to the bleak picture, the department revised the first two months of the year's job losses to a total of 152,000 from a previous estimate of 85,000. The March job report was more bleak than expected. Economists had forecast a decline of 60,000 in non-farm payroll
Gasoline prices rise to a record $3.30 and head higher 2008-04-04 17:35:56 By John Wilen, AP Business WriterNEW YORK — Retail gasoline prices surged to a record above $3.30 a gallon Friday and appear poised to rise further in coming weeks as gasoline supplies tighten.Oil prices, meanwhile, supported the gas price rally, jumping more than $2 a barrel after a dismal employment report sent the dollar lower.At the pump, gas prices rose 1.4 cents overnight to a national average of $3.303 a gallon, according to AAA and the Oil Price Information Service. That's the latest in a series of records, and about 60 cents higher than a year ago.While oil's surge above $100 a barrel the last month has boosted gasoline prices so far this year, analysts now expect gas prices to continue rising regardless of what direction crude takes. The Energy Department expects prices to peak Read more:Gasoline
Senate agrees on compromise to help homeowners 2008-04-04 17:38:49 By Sue Kirchhoff and Kevin McCoy, USA TODAYWASHINGTON — Senate
leaders on Wednesday night announced a multibillion-dollar bipartisan compromise measure to aid families facing foreclosure amid the sharp housing downturn.The proposal, which could be debated as early as Thursday, contains funding to provide foreclosure counseling to beleaguered households, help local governments buy and refurbish foreclosed properties and increase the limit on loans backed by the Federal Housing Administration.But negotiators for both parties could not reach agreement on a provision that would give foreclosed homeowners more lenient treatment in bankruptcy proceedings. Lawmakers were also forced to shelve a more ambitious FHA mortgage rescue plan but promised to continue working on the issue."This is not a
Surge in jobless claims stokes fears about recession 2008-04-04 17:38:05 By Edward Iwata, USA TODAYIn another scary sign for the sluggish U.S. economy, the Labor Department said Thursday that initial jobless claims
last week rose 38,000 to 407,000 — the highest in three years.The surging number of first-time unemployment benefit claims is a clear signal that the U.S. economy has sunk into a recession and more workers have lost jobs, economists say. In its monthly employment report Friday, the Labor Department is expected to announce more U.S. job losses in March for the third month in a row."Our view is that the economy has slipped into a recession, and we're going to see very sluggish growth for the first half of this year," says Michelle Meyer, a Lehman Bros. economist who noted that the 407,000 claims were the most since September 2005, just after Hurrican Read more:Surge
Late payments on consumer loans at 16-year high 2008-04-04 17:37:26 NEW YORK — More Americans have fallen behind on consumer loans than at any time in nearly 16 years, as credit problems once concentrated in mortgages spread into other forms of debt.In a quarterly study, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.65% in the fourth quarter from 2.44% in the third quarter, and from 2.23% a year earlier.The rate of delinquencies was the highest since a 2.75% rate in the first quarter of 1992. It provides a fresh sign the nation's economy is slowing, and may be in recession."There's no question that the economy is weakening beyond housing, resulting in the loss of household purchasing power," said John Lonski, chief economist at Moody's Investors Service."Deterioration of household credit should continue
Economy sheds 80,000 jobs in March 2008-04-04 17:36:33 WASHINGTON (Reuters) — Employers cut payrolls for a third month in a row in March
and the unemployment rate jumped to a 2-1/2 year high, more evidence that a housing downturn and credit crisis may have pushed the economy into a recession.The Labor Department on Friday reported that March non-farm payrolls fell 80,000, biggest decline in five years.It also said the March unemployment rate jumped to 5.1% from 4.8%, highest since a matching rate in September 2005. The 5.1% rate is still relatively low by historical standards.Adding to the bleak picture, the department revised the first two months of the year's job losses to a total of 152,000 from a previous estimate of 85,000. The March job report was more bleak than expected. Economists had forecast a decline of 60,000 in non-farm payroll
Gasoline prices rise to a record $3.30 and head higher 2008-04-04 17:35:56 By John Wilen, AP Business WriterNEW YORK — Retail gasoline prices surged to a record above $3.30 a gallon Friday and appear poised to rise further in coming weeks as gasoline supplies tighten.Oil prices, meanwhile, supported the gas price rally, jumping more than $2 a barrel after a dismal employment report sent the dollar lower.At the pump, gas prices rose 1.4 cents overnight to a national average of $3.303 a gallon, according to AAA and the Oil Price Information Service. That's the latest in a series of records, and about 60 cents higher than a year ago.While oil's surge above $100 a barrel the last month has boosted gasoline prices so far this year, analysts now expect gas prices to continue rising regardless of what direction crude takes. The Energy Department expects prices to peak Read more:Gasoline
'Trillion Dollar Meltdown' paints scary economic picture 2008-04-02 21:14:50 By Kerry Hannon, Special for USA TODAYCharles Morris, author of The TrillionDollarMeltdown
, isn't one for sugarcoating. His analysis is dour and grim, but certainly not dull. And when read against a backdrop of an ever-weaker economy, increasingly anxious economists and a stream of gloomy predictions, it can be downright scary.Morris, a lawyer and former banker who has written 10 books, argues that the subprime mortgage crisis is only a taste of the mayhem that will play out across an array of financial assets. He lays out the likely course of write-downs and defaults on a whole gamut of assets — residential mortgages, commercial mortgages, high-yield bonds, leveraged loans, credit cards and the complex bond structures that sit atop them. It comes to about $1 trillion, according to Mor
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