Busy week -- but now it's over. Mr$. Bonddad and I are getting the house ready for the big move next week. So no pictures today.
I'll be back on Monday morning.
Monetary Rapture: The Incredible Disappearing Gold
11 minutes ago
The U.S. unemployment rate posted its sharpest one-month increase in 22 years last month, suggesting U.S. consumers already facing a housing slump and soaring gasoline prices now confront even more pressure from a weakening jobs market.
The data, which included a fifth-straight drop in nonfarm employment, should take financial-market expectations of Federal Reserve rate increases as soon as this autumn off the table.
Nonfarm payrolls, which are calculated by a survey of establishments, declined 49,000 in May, the Labor Department said. The decline was broad-based, including manufacturing, construction, retail trade and business services. Payrolls fell 28,000 in April and 88,000 in March. Both were revised to show slightly larger drops.
"The over-the-month jump in unemployment reflected additional workers who had lost their jobs as well as an upsurge in new and returning jobseekers," said Philip Rones, deputy commissioner of the Bureau of Labor Statistics. He cautioned that the household survey tends to be volatile between April and July due to an inflow of young people into the workforce.
Shoppers spending their government rebate checks helped push May retail sales higher, giving companies such as Wal-Mart Stores Inc. a bigger-than-expected lift.
The majority of the growth came at discounters, such as Wal-Mart, Costco Wholesale Corp. and BJ's Wholesale Club Inc. Most department stores' sales declined, and sales at clothing chains fell short of forecasts.
Cash-strapped consumers flocked to value-oriented retailers known for low prices on necessities like food, but they scrimped on buys at stores that sell nonessentials like clothes.
Department stores and women's apparel chains continued to struggle. Cooler weather hurt sales of summer goods, said Perkins. But consumers just were not in a mood to buy nonessentials.
"We had these ongoing macro drags like $4 gas, rising food prices and a soft job market, which are very much cutting into discretionary spending," he added.
Same-store sales fell 6.5% at specialty apparel stores and 3.5% at department stores, said Michael Niemira, chief economist at the International Council of Shopping Centers.
But overall, the consumer remains very frugal, Niemira said.
Frugality has led consumers to trade down. Middle- to upper-income households, who typically shop at Target (WMT) and elsewhere, are looking more at Wal-Mart, dollar stores and food discounters, says Frank Badillo, senior economist at TNS Retail Forward.
Federal Reserve Chairman Ben Bernanke's warning this week about the dollar's steep fall marks the latest step in a Bush administration effort that began in November to use stronger rhetoric to try to prop up the sagging U.S. currency.
The stepped-up rhetoric comes as the world's economic powers prepare to gather in Japan next week for the Group of Seven meeting. The dollar, along with the U.S. economy, is expected to be a key topic of discussion. International concerns about the dollar have been growing as Europeans, in particular, fret about the falling dollar's impact on their exports to the U.S.
The increased focus on the dollar represents somewhat of a gamble by Messrs. Paulson and Bernanke. Their bet is that as the housing crisis subsides and the Fed finishes cutting interest rates, the dollar will climb -- making their rhetoric seem like it is having an impact.
European Central Bank President Jean-Claude Trichet said Thursday that inflationary pressures in the euro zone will last longer than previously expected, with risks to price stability increasing further in the wake of robust food and oil prices.
The ECB may even raise its 4.0% interest rate, left unchanged on Thursday, at its July meeting, Trichet said. "I don't say it's certain, I say it's possible," he said.
Inflation trends have put the ECB in a state of "heightened alertness," Trichet said after the Governing Council meeting in Frankfurt.
His more hawkish slant was further underscored by the bank's new staff projections for economic growth and inflation over the next two years. Inflation in 2009 is seen at around 2.4%, Trichet said.
Any projection for inflation in 2009 above 2.3% is "an unexpectedly hawkish signal," said Holger Schmieding, an economist for Bank of America.
"A number of us (on the Governing Council) "thought there was the case for raising rates," but Thursday's decision was taken by consensus, Trichet told reporters.
Moody’s Investors Service said on Wednesday that it was likely to cut the top ratings of the bond insurance arms of MBIA and Ambac Financial, in a move that may cripple their ability to write new insurance.
The companies, which are No. 1 and No. 2 in the business, have been struggling to raise capital to shore up their AAA ratings, which are under pressure on concern about losses from mortgage-backed debt.
“They are in a weaker position today than they were a year ago before the mortgage crisis, and the situation doesn’t seem to be getting better in that regard,” Jack Dorer, a managing director in Moody’s financial guarantor team, said in an interview.
Plunging share prices and the high cost of accessing the debt markets are hampering the ability of both companies to raise new funds, Moody’s said.
Shares of MBIA and Ambac plunged on Moody’s action, and the cost of insuring their debt with credit default swaps jumped. Shares of MBIA closed Wednesday at $5.63, down $1.06. Shares of Ambac closed at $2.49, down 51 cents.
That came two weeks after a similar move by AMR Corp.'s American Airlines, the only U.S. carrier larger than United, which said it would slash domestic capacity 11 to 12 percent after the peak summer travel season. American already has begun eliminating flights, as have No. 3 Delta Air Lines Inc. and others.
United Airlines said Wednesday that it's cutting up to 1,100 more jobs, removing an additional 70 fuel-guzzling airplanes from its fleet and slashing domestic capacity as it tries to cope with spiraling fuel prices.
The nation's No. 2 carrier said it plans to cut an additional 900 to 1,100 salaried, contract and management employees by the end of the year, in addition to 500 previously announced job reductions. The combined reductions mean the airline is cutting nearly 3 percent of its 55,000 workers worldwide.
Officials said the "aggressive" moves are designed to the help the subsidiary of UAL Corp. weather an "unprecedented fuel environment." Crude oil futures prices peaked at a record above $135 a barrel nearly two weeks ago and airline fuel prices have been rocketing higher as well.
We've always said that you deserve open, honest and direct communication. This letter and the attached employee bulletin and Q&A are part of that commitment.
The airline industry is in a crisis. Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace. We need to make changes in response.
While there have been several successful fare increases, those increases haven't been sufficient to cover the rising cost of fuel. As fares increase, fewer customers will fly. As fewer customers fly, we will need to reduce our capacity to match the reduced demand. As we reduce our capacity, we will need fewer employees to operate the airline. Although these changes will be painful, we must adapt to the reality of today's market to successfully navigate these difficult times.
The attached employee bulletin and Q&A outline some of the steps we are taking to address this industry crisis. The situation for all airlines is serious, and the actions we are announcing today are necessary to secure our future. We regret the loss of jobs caused by this crisis, and we will do our best to minimize furloughs and involuntary terminations.
These actions will help Continental survive this crisis. You have our ongoing commitment to keep you informed as the industry evolves and adapts to these unprecedented challenges. It is important that we all keep our focus on working together during these difficult times.
U.S. mortgage delinquencies and foreclosures continued to rise in the first quarter despite efforts to calm the nation's troubled housing market.
The Mortgage Bankers Association said Thursday 6.4% of mortgages were at least 30 days delinquent in the first quarter on a seasonally adjusted basis, up 53 basis points from the fourth quarter of 2007 and 151 basis points from the first quarter of 2007. The figure was the highest recorded in the association's survey since 1979.
The number of foreclosure starts and loans somewhere in the foreclosure process also rose in the quarter to the highest levels the association has seen since 1979.
The survey found 2.5% of loans were in foreclosure during the first quarter, an increase of 43 basis points from the fourth quarter of 2007 and 119 basis points from the first quarter last year.
According to First American CoreLogic LoanPerformance data, the percentage of both subprime and prime mortgages that are severely delinquent are at record highs. In the Alt-A mortgage market, where loans were made to individuals with good credit who didn't fully document their incomes, nearly 11% of borrowers were more than 60 days behind in their payments as of March.
Delinquency rates and losses are also rising on construction loans, some commercial loans and other consumer debt like credit cards, which will only keep lenders' purse strings tight.
More than $200 billion of complex mortgage securities called collateralized debt obligations have hit "events of default," which give some of their investors the right to force the vehicles to liquidate their holdings of mortgage-backed securities or swaps tied to them.
Some of these CDOs are selling off their assets. In a recent report, J.P. Morgan analyst Christopher Flanagan estimated that holders of the top tranches of CDOs can expect to recover just six to 46 cents on the dollar on their investments, bad news for the bond insurers that wrote guarantees on many of these vehicles.
The U.S. average retail price for regular gasoline increased for the tenth straight week. Although its upward momentum slowed, the U.S. average price still climbed another 3.9 cents to hit 397.6 cents per gallon. The average for the East Coast went up by 3.3 cents to 397 cents per gallon; but prices in the Central Atlantic and New England increased by more than 5 cents, climbing past the $4 mark to reach 400.1 and 402.8 cents per gallon, respectively. The average price in the Midwest was essentially unchanged, creeping up by only a tenth of a cent to 395.2 cents per gallon. The average price in the Gulf Coast increased by 1.7 cents to 384.6 cents per gallon and remained the lowest of any region. The price in the Rocky Mountain region went up 3.9 cents to 389 cents per gallon. The price for the West Coast extended its upward surge, jumping another 13.7 cents to strike 416.6 cents per gallon. West Coast prices have risen 28.3 cents over the past two weeks. The average price in California went up even more, shooting to 424.2 cents per gallon, an increase of 14.3 cents from the previous week.
GM said Tuesday its U.S. sales fell 28 percent in May compared with a year earlier, while Ford's sales fell 16 percent, Chrysler LLC's sales were down 25 percent and Toyota Motor Corp.'s sales slipped 4 percent.
Honda Motor Co., riding the wave of customers seeking better fuel efficiency, said its sales jumped 18 percent, led by a 36 percent increase in car sales. Nissan Motor Co. said its sales rose 8 percent, with a 19 percent increase in car sales.
The Toyota Corolla and Camry and Honda Civic and Accord sedans all outsold the F-series truck, which saw sales plummet 31 percent in May to 42,973. F-series trucks have been the best-selling trucks in the U.S. for 31 years and the best-selling vehicles overall for nearly as long. They also have been the best-selling vehicles each month since June 2005, when the Chevrolet Silverado pickup took a brief lead.
U.S. manufacturing activity contracted slightly in May, as exports kept the sector afloat and prices surged, but performed better than many economists had expected.
The Institute for Supply Management said its index of manufacturing activity rose to 49.6 in May from 48.6 in April. It was the fourth consecutive month that the index was below 50; readings below 50 signal a contraction in overall activity.
Even so, the report bolstered other recent data suggesting the economy is stagnant but not collapsing.
A separate report showed construction spending in April dropped by a seasonally adjusted 0.4% from the previous month, to $1.12 billion. Spending on private nonresidential construction, which includes hotels and office buildings, rose 1.6%, partly offsetting the slump in residential construction, which declined 2.3% in April and is down 21% from a year earlier, the Commerce Department said.
In the ISM report, exports continued to increase, extending a five-and-a-half-year trend that is helping offset slowing U.S. demand, and production expanded. New orders rose and imports grew slightly. But high commodity costs pushed prices to a four-year high, and employment and inventories contracted.
"Were it not for the weak dollar," which makes prices of U.S. goods cheaper abroad and stimulates export orders, "I really do believe we'd be looking at far lower readings," said Norbert Ore, a Georgia-Pacific Corp. executive who directs the survey. He noted that 80% of ISM member companies are exporters.
Respondents to the ISM survey noted prices are "skyrocketing" and posing "major hurdles." The prices component of the ISM survey jumped to 87 in May from 84.5 in April, and Mr. Ore noted that doesn't yet capture the full impact of rising oil prices.