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Sizing Up CEO Pay
50 minutes ago
In the goods-producing sector, construction employment fell by 62,000 in February after posting a gain of 28,000 in January. Unusually severe winter weather conditions in some areas of the country in February likely contributed to job losses in the industry. Employment declined in both residential (-21,000) and nonresidential (-25,000) specialty trades, and heavy construction lost 10,000 jobs. Employment in residential specialty trades has been declining since February 2006.
Manufacturing employment continued to trend down over the month (-14,000). Job losses occurred in wood products (-4,000), semiconductors and electronic components (-3,000), and textile mills (-3,000). Machinery added 5,000 jobs in February. In mining, employment rose by 4,000.
In the service-providing sector, health care employment rose by 33,000 in February, as job growth continued throughout the component industries. Over the year, health care employment has increased by 340,000.
Employment in professional and business services continued to trend up in February (+29,000) with small gains occurring in most of its component industries. Over the past 12 months, this industry has added 460,000 jobs. In February, employment in services to buildings and dwellings grew by 11,000. Temporary help services employment was little changed over the month and over the year.
Elsewhere in the service-providing sector, food services and drinking places added 21,000 jobs in February. Over the year, food services employment has risen by 348,000. Employment in the information industry was up by 13,000 in February. Within financial activities, depository credit intermediation added 4,000 jobs. Over the month, employment was essentially unchanged in both wholesale and retail trade. Air transportation lost 7,000 jobs.
In the clearest sign yet of how rapidly funding is vanishing for the risky loans that helped fuel the housing boom, nervous creditors forced New Century Financial Corp., the nation's second-largest subprime mortgage lender, to stop making new loans.
The Irvine, Calif., company, which has been plagued by rising defaults on its subprime mortgage loans -- home loans made to borrowers with weak credit -- said it has been in talks with its creditors to "identify ways to address their concerns" and obtain more funds in the near term. But it added that "there can be no assurance that these efforts will succeed."
Yesterday, people close to the matter said New Century got fresh financing from one of its biggest creditors, investment bank Morgan Stanley. Even so, the company's mounting woes intensified speculation that it may be forced to file for protection from creditors under Chapter 11 of the federal Bankruptcy Code unless it can find a suitor or sell assets soon.
Rising mortgage defaults by subprime borrowers may add more than 500,000 homes to a residential real estate market already beset by slumping prices, according to CreditSights Inc.
In January, 4.09 million new and existing homes were offered for sale, down from 4.43 million in July 2006, the National Association of Realtors and the U.S. Commerce Department said. New homes accounted for 536,000 of the January total, down from a record 573,000 in July.
A five-year housing boom that ended a year ago was fueled in part by the growth of mortgage products marketed to borrowers with poor credit histories. Now, as defaults on subprime loans surge to a seven-year high, more than 20 lenders have closed or sought buyers since the start of 2006. The survivors are raising their lending standards.
``We estimate that the effect of looser lending standards could translate into another 533,000 homes coming onto the market as borrowers default -- an unwelcome phenomenon given the existing supply surplus,'' Sarah Rowin and Frank Lee of bond research firm CreditSights wrote in a March 1 report.
February's soft showing came in the wake of solid January sales gains, lifted by a late month cold snap. As a result, retailers entered February with much of their winter goods cleared — and well stocked for spring.
But when the cold hit, shoppers didn't want spring apparel and couldn't find coats or sweaters.
"In February the last thing you wanted to buy was a spring outfit," Perkins said. "And if you were going to buy for now there wasn't much in the stores."
The month's adverse weather held down February same-store sales by at least half a percentage point, said Michael Niemira, chief economist at the International Council of Shopping Centers.
Because February typically has the year's second lowest sales volume behind January, one shouldn't extrapolate too much from the month's results, he said.
Now the housing slump is hitting yet another target: housing-related jobs, a list that includes everyone from the people who build and sell houses to makers of appliances and furnishings.
That's a sharp contrast to the height of the housing boom in 2005-06, when the industry was responsible for creating some 25,000 to 50,000 new jobs every month, according to Mark Zandi, chief economist at Moodys.com.
“In the recent months it’s been laying off workers at a pace of 25,000 to 50,000 per month,” he said. “And I think the next couple of quarters we’ll start seeing job losses of between 50,000 and 75,000 per month. ... I think the housing market is going down a whole other notch.”
The coldest February since 1979 caused U.S. retailers' sales to grow at the slowest pace in 11 months as consumers delayed purchases of spring merchandise.
Wal-Mart Stores Inc., the world's biggest retailer, said sales at stores open at least 12 months rose 0.9 percent, less than the company's forecast of 1 percent to 2 percent. Luxury stores and retailers with designer clothes, including Target Corp., the second-largest U.S. discount chain, fared better, with sales surpassing analysts' estimates.
Total U.S. same-store sales rose 2.4 percent, the smallest gain since March 2006, the International Council of Shopping Centers said based on results from 51 retailers. The majority of retailers missed estimates after cold weather cut demand for shorts, dresses and spring merchandise, while a snowy Valentine's Day in the U.S. Northeast kept some shoppers home.
``We hate to hear weather as an excuse, but I think it was pretty legitimate this month,'' said Lori Wachs, who helps manage $100 billion at Philadelphia-based Delaware Investments, including retail shares. Retailers ``are going to have a lot of ground to make up in March.''
|Why is Pace University making it so hard for Chris Williams to get a union contract?|
A secret ballot sounds democratic, but workplaces aren’t democracies because employers have the power to hire and fire. That's where the potential for intimidation lies. And the only way around it is to go with a simple up-or-down vote.There are many examples of how the so-called “election process” doesn’t work. Chris Williams, an adjunct physics professor at Pace University in New Jersey, shared his story with us at the AFL-CIO. In December 2003, Williams and a majority of his co-workers signed authorization cards saying they wanted to be represented by New York State United Teachers/AFT (NYSUT/AFT). Pace University's administration then went to enormous lengths to block them from winning recognition and a contract. (A majority of workers can sign authorization cards now—but employers are not required to recognize the union. The Employee Free Choice Act would fix that.) Why would Williams, a well-educated professional, want to join a union? Says Williams:
I would starve to death if I had to rely on my wages from Pace. I'd be homeless. The average pay for an adjunct for a three-credit course is just $2,500 for a 15-week course.While a tenured professor might earn $100,000 per year, an adjunct faculty member in the next classroom with the same qualifications would earn subsistence pay of only $15,000 for the equivalent of a full-time workload. (What was that again from the Bush administration about lack of education behind the nation’s low-wage economy? We’ll address that canard in a future post.)
The intimidation is almost entirely on the side of the companies. Companies are in a position of power over workers. Co-workers are simply not in a similar power situation. Only the company is really in the kind of power position to intimidate workers.Most critically, the bill is about economic justice: Full-time workers in unions had median weekly earnings of $833 in 2006, compared with $642 for their nonunion counterparts, and are far more likely to have good health and retirement security. In March 2006, 80 percent of union workers in the private sector had jobs with employer-provided health insurance, compared with only 49 percent of nonunion workers. Union workers also are more likely to have retirement and short-term disability benefits.
America's rising economic tide has been lifting executive yachts, but leaving most working people in leaky boats. Workers need more bargaining power. They should be allowed to form a union when a majority of them wants one. As simple as that.
The report found "modest expansion in economic activity" in many districts, including the regions centered on Chicago, Minneapolis and Philadelphia. But some districts noted some slowing, including Dallas, Boston and St. Louis. It also noted continued demand for skilled workers and some pressure to increase wages
Housing markets remained weak, although there were "signs of stabilization" in some areas.
Manufacturing activity was "steady or expanding," despite the weakness in auto- and housing-related production.
Retail sales were said to be growing steadily. Auto sales were sluggish.
Inflation was "little changed." Pay increases were "moderate."
The general tone of the report was upbeat, describing continued growth in retail sales, services and demand for labor. Policy makers are alert for signs of a deeper economic slowdown after last week's global equities rout and reports showing a prolonged decline in housing.
``I still think that the underlying economic fundamentals are conducive to a pickup in growth as we move through 2007 and 2008,'' Chicago Fed President Michael Moskow said today in a speech in Chicago. ``I am not prepared to significantly change my projections.''
Policy-makers expect the economy to slowly pick up after losing steam in the fourth quarter as housing cooled. The Beige Book nodded to hopes that this sector might finally be on the mend, while softness among manufacturers remained confined to autos and products linked to residential construction.
Hedge-fund investors betting on the riskiest home-mortgage loans are learning a difficult lesson: The higher they fly, the further they fall.
Consider the volatility at Second Curve Capital -- a hedge-fund firm run by Thomas Brown, a former Wall Street research analyst -- which recently has been hammered betting on the stocks of "subprime" lenders, which cater to high-risk borrowers.
The two main funds at Second Curve were down 8% and 10% in January -- and at least as much last month. Hedge-fund databases show the funds' losses for February at 12.5% and 14%, though Mr. Brown contends that the performance was comparable to January.
In any case, it is a significant turnabout from 2006, when the Second Curve funds rose nearly 55%. In 2005, Mr. Brown's funds were down 2%, after soaring 60% in 2004. With $600 million under management, Mr. Brown tends to invest in highly concentrated areas of the financial world, accentuating the bumps.
"I don't think '08 is going to be a great year, but it's going to be much better than '07," CEO Don Tomnitz told the Citigroup Industrial Manufacturing Conference
He also said: "'07 is going to suck."
D.R. Horton said it may have to make further write-offs to reflect unsold homes or lower land values.
"We may have more impairments coming," Tomnitz said. "We'll know that on a quarter-by-quarter basis."
Crude-oil futures climbed Wednesday to touch a high of $62 a barrel after U.S. data showed that supplies of crude declined for the first time in three weeks and distillate and gasoline inventories have been falling for several weeks.
"Import dynamics caused surprises in inventory changes," said Jason Schenker, an economist at Wachovia Corp.
"Lower crude and gasoline imports engendered a surprise draw in crude inventories and a larger-than-expected gasoline draw," he said an in e-mailed note to clients. And "the distillate inventory draw was mitigated by increased imports."
Crude for April delivery was last up $1.16 at $61.85 a barrel on the New York Mercantile Exchange, following a climb to as high as $62.
A year after the housing slump began, the spring selling season is off to a rocky start with a glut of unsold properties and buyers like the Binghams putting off purchases, thwarting any chance of a recovery. The National Association of Home Builders in Washington now expects sales to fall for the sixth consecutive quarter after last month predicting a gain. The biggest stock market rout in four years last week, a jump in subprime mortgage failures and concerns about a possible recession are keeping consumers on edge.
Builders are bracing for another tough year after seeing 2006 sales plunge 17 percent, the most since 1990. For some, such as Toll Brothers Inc., the largest U.S. builder of luxury homes, the lackluster spring market is a surprise. Chairman and Chief Executive Officer Robert Toll told investors three months ago the market may be poised to rebound. It didn't happen.
``We're all a little more disappointed than we were two weeks ago,'' Toll said Feb. 22 on a conference call, responding to questions about February sales. ``We didn't have anywhere near the bump up that we usually see.''
The same day, Horsham, Pennsylvania-based Toll Brothers cut the number of homes it expects to build to 6,000 to 7,000, the second reduction in four months. In August, the company's estimate was 7,000 to 8,000 homes. Toll Brothers also lowered its fiscal year profit outlook on Feb. 22.
Miami-based Lennar Corp., the biggest U.S. builder by revenue, expects new home deliveries to tumble 20 percent this year. Hovnanian Enterprises Inc. of Red Bank, New Jersey, the industry's sixth-largest company, reported a fiscal first-quarter loss after the number of contracts signed slid 23 percent.
"There is an expectation that when the equity markets complete the current correction, oil will resume its upward trajectory to test the 65 usd level," noted Harris.
Turmoil in the market for bonds backed by home mortgages is starting to infect its commercial cousins: mortgage bonds backed by office towers, hotels and shopping malls.
The cost of insuring commercial-mortgage-backed securities as measured by an index known as the CMBX has jumped since late last month. The spread on the index that tracks riskier, BBB-minus-rated bonds has doubled to 1.64 percentage points this week from 0.84 percentage point on Feb 23, according to Markit Group, which administers the index.
"Moves of this magnitude and speed are uncommon in the unusually calm CMBS markets," noted analysts from Lehman Brothers in a report this week.
The U.S. economy appears less productive and more inflation-prone than suspected.
Productivity of the U.S. nonfarm business sector rose at a 1.6% annual rate in the fourth quarter, weaker than the 3.0% pace estimated a month ago. Read full government report.
Unit labor costs -- a gauge of wage push inflationary pressures - were revised higher to a 6.6% annualized gain from a 1.7% increase. Unit labor costs are the costs paid to workers to produce one "unit" of output. This is the largest quarterly gain since the first three months of 2006.
Unit labor costs have increased 3.2% in the past year, the fastest pace since 2000.
U.S. workers were less productive last quarter than initially estimated and labor costs jumped, making it harder for the Federal Reserve to reduce interest rates even as manufacturing and housing continue to slump.
Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 1.6 percent, down from the 3 percent pace reported last month, the Labor Department said today in Washington. Labor costs climbed 6.6 percent, reflecting a one-time increase in bonuses. Separately, the Commerce Department said factory orders fell in January by the most in more than six years.
The figures mean inflation may be slow to dissipate even though economic growth is tailing off, creating headaches for Fed Chairman Ben S. Bernanke as concerns about a possible 2007 recession mount. Housing, whose slump triggered the slowdown in growth, so far shows few signs of bouncing back: A report from the National Association of Realtors today showed fewer Americans signing contracts to buy previously owned homes.
New orders for manufactured goods in January, down following two consecutive monthly increases, decreased $22.9 billion or 5.6 percent to $383.1 billion, the U.S. Census Bureau reported today. This followed a 2.6 percent December increase.
Shipments, down following three consecutive monthly increases, decreased $4.6 billion or 1.2 percent to $391.2 billion. This followed a 1.3 percent December increase.
Unfilled orders, up twenty of the last twenty-one months, increased $0.6 billion or 0.1 percent to $695.2 billion. This was at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 2.3 percent December increase. The unfilled orders-to-shipments ratio was 4.78, up from 4.71 in December. Inventories, down following ten consecutive monthly increases, decreased $0.9 billion or 0.2 percent to $482.0 billion. This followed a 0.2 percent December increase. The inventories-to-shipments ratio was 1.23, up from 1.22 in December.
Orders placed with U.S. factories declined by the most in more than six years in January on lower demand for aircraft, computers and construction machinery.
Factory orders fell 5.6 percent after a 2.6 percent increase in December that was larger than previously reported, the Commerce Department said today in Washington. Excluding transportation equipment such as Boeing Co. jets, bookings fell 2.9 percent, the biggest decline since September.
Business spending on new equipment fell by the most in more than five years as declines in the auto and construction industries took a toll on manufacturing. Weaker corporate investment, together with continued efforts to reduce bloated stockpiles, are likely to be a drag on growth this quarter, economists said.
``Manufacturing had a tough January as the inventory adjustment grinds on,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Capital spending is off to a weak start in the first quarter.''
General Motors Corp., the world's largest automaker, may take a charge of almost $1 billion to cover bad mortgage loans made by its former home-lending unit, according to a Lehman Brothers Holdings Inc. analyst.
Residential Capital LLC relies on loans to people with poor or limited credit records or high debt burdens, for more than three-quarters, or $57 billion, of its loan portfolio, Lehman analyst Brian Johnson wrote in a research report. Delinquency rates on such subprime loans made last year are at a record high.
About 13 percent of the subprime loans backing bonds issued in 2006 and rated by S&P are delinquent, with 6.65 percent of the loans behind in payments by 90 days or more, according to Standard & Poor's. More than 20 lenders have closed or are seeking buyers since the beginning of 2006. Subprime mortgages typically have rates at least two or three percentage points above safer prime loans.
``Some traders are expressing their view that we're a pure mortgage market play, whether that's appropriate or not,'' Louise Herrle, ResCap's treasurer, said in an interview last week.
The recent volatility in global financial markets hit the commodities sector hard on Monday, as hedge funds and other investors scurried to reduce their risky investments.
Nickel prices tumbled 5 per cent, while copper and zinc fell almost 3 per cent and gold prices traded at levels more than 7 per cent lower than before the start of last week’s market turmoil.
This repositioning is prompting some unusual price swings and heavy trading flows, particularly in sectors that have been the focus of risk-taking over the past year, such as credit derivatives, emerging markets and commodities.
“I don’t think anything has fundamentally changed for commodity markets. I think it is just a case of investors selling their holdings to pay for losses they may have incurred elsewhere,” said Kevin Norrish, commodities analyst at Barclays Capital.
An adviser to a London-based fund of hedge funds added: “The big theme of the moment is deleveraging and derisking.”
“I don’t think anything has fundamentally changed for commodity markets. I think it is just a case of investors selling their holdings to pay for losses they may have incurred elsewhere,” said Kevin Norrish, commodities analyst at Barclays Capital.
Remember we still have China and India on-line for very strong growth rates, increasing demand for base metals.
Fremont General Corp. intends to exit its sub-prime residential real estate lending operations, the company said Friday.
The move was prompted by a Proposed Cease and Desist Order Fremont General received from the Federal Deposit Insurance Corp. on Feb. 27 that calls for the company to make a variety of changes to restrict the level of lending in its sub-prime residential mortgage business, among other things.
"Non-manufacturing business activity increased for the 47th consecutive month in February," Nieves said. He added, "Business Activity and New Orders increased at a slower rate in February than in January. Employment increased at a faster rate than in January. The Prices Index decreased 1.4 percentage points this month to 53.8 percent. Nine non-manufacturing industries reported increased activity in February. Members' comments in February are mixed concerning current business conditions. The overall indication in February is continued economic growth in the non-manufacturing sector, but at a slower pace than in January."
Japan's Ministry of Finance reports Q4 (ended Dec.) capital spending increased 16.8%, beating the prior quarter's reading of 12.0% and analysts' estimates of 13.0% to 14.2% (Reuters). Up to a 1.0% revision to Q4 GDP is expected. Jesper Koll, chief economist at Merrill Lynch Japan, says annualized Q4 GDP will be revised to 5.1% from 4.8%, adding that "It is a trigger point for the Bank of Japan to normalize interest rates a little more aggressively." Bloomberg quotes Koll who also says, "The crisis of the 1990s is definitely over. Japan is in the process of building a strong platform for very strong, competitive economic growth." An economist at Nikko Citigroup however, says a revised GDP is not necessarily good due to concerns over rising inventories which "may prompt adjustments in production in coming months." The yen rose 1.7% today to ¥115.6/$1 as of the market's close in Tokyo. Japanese stocks meanwhile fell for a fifth straight day, as the Nikkei 225 lost 3.3% to 16,642.
Asian stocks dropped sharply across the region, with Japanese shares declining for the fifth session in a row, while Hong Kong retreated 4%.
Japan's Nikkei 225 Index fell 3.34% to 16642.25, extending a slide for a fifth day that was sparked by last week's plunge in Chinese and U.S. stock markets. Exporters were hit hardest on the yen's recent rally. Since climbing to its highest in nearly seven years last Monday, the index has slid 1573.10 points, or 8.64%, over the last five trading sessions.
Markets in Hong Kong, Australia, the Philippines, Malaysia, India and South Korea all fell sharply Monday, continuing their declines from last week, when a 9 percent plunge in Chinese stocks on Tuesday triggered cascading selloffs on Wall Street and other global markets.
European markets also opened lower Monday, with Britain's benchmark FTSE 100 down 1.5 percent in early trading, France's CAC 40 sliding 1.8 percent and Germany's DAX sinking 2.1 percent.
HSBC Holdings PLC, reporting its 2006 results, said the cost to cover bad debts soared 36% to $10.57 billion in 2006 because of the bank's ill-fated move to buy risky subprime loans from U.S. originators.
Overall, the London bank said net income rose 4.7% to $15.79 billion in 2006 from $15.08 billion. HSBC is the world's third-largest bank ranked by market value behind Citigroup Inc. and Bank of America Corp.
In 2005 and 2006, HSBC's U.S. business, HSBC Finance Corp., increased the number of subprime mortgage loans it bought from originators. But amid increasing interest rates and slowing housing price appreciation, borrowers defaulted at record rates, including in 2006 where loans were just months old. Last month, the bank replaced the top management of its U.S. operations and acknowledged that it had made mistakes in its mortgage strategy.
Federal bank regulators, worried about a surge in defaults on high-risk home mortgages, called on lenders to exercise caution in making subprime loans and strictly evaluate borrowers' ability to repay them.
The proposed guidance issued Friday by the Federal Reserve and the other four federal agencies that regulate banks, thrifts and credit unions, comes in an increasingly troubled market for subprime mortgage loans. Home-mortgage delinquencies and foreclosures are spiking, especially for people who took out subprime mortgages -- higher-interest loans for those with blemished credit records or low incomes who are considered higher risk -- during the sizzling housing boom that waned in the second half of 2005.
The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans. The mortgage industry had hoped for less stringent guidelines.
John Robbins, chairman of the Mortgage Bankers Association, said the group was concerned that the guidelines "may restrict credit to many consumers in high-cost areas and deny credit to many deserving low-income, minority and first-time home buyers."
On Tuesday, Freddie Mac, the nation's second-largest financer of home loans, said it will stop buying those subprime mortgages that it deems most vulnerable to default or foreclosure.