My finance view

The private sector shed jobs in August, dragged down by heavy losses in the manufacturing sector, according to a report released Thursday.

The private sector lost 33,000 jobs in August on a seasonally adjusted basis, according to payroll manager ADP. A consensus of economists surveyed by Briefing.com had expected a loss of 30,000 jobs.

"The decline in August continues the recent trend in employment that is consistent with an economy that is growing slowly but has not fallen into recession," said Joel Prakken, Chairman of Macroeconomic Advisers, in a written statement.

The August decline was lead by a drop of 78,000 jobs among goods-producing companies, the 21st monthly decline in a row, according to ADP. The service sector, however, gained 45,000 jobs in August.

Large companies, defined as those with 500 or more workers, lost 28,000 jobs in August and medium-sized companies, with between 50 and 499 employees, lost 25,000 jobs.

Small businesses, with less than 50 workers, gained 20,000 workers in August, after adding a revised 46,000 jobs in July.

The report showed a sharp drop-off from July, when the private sector gained 1,000 jobs, spurred by a boost in small business employment payday loans online. The July reading was revised down from an increase of 9,000 jobs.

The data used in the ADP National Employment Report was taken from ADP payroll data which averaged 399,000 payrolls for 24 million U.S. employees in the first six months of 2008. The data set used for this month’s report was approximately the same size.

The U.S. Department of Labor will release its August employment report Friday. A consensus of economists surveyed by Briefing.com expects the unemployment rate to hold steady at 5.7%, while nonfarm payrolls are seen declining by 75,000 after a 51,000 drop in July.

In another separate read on the labor market released Wednesday, employers said they would cut 377,325 jobs from May to August, according to employment consulting firm Challenger, Gray & Christmas, Inc. That is the highest level of summer job cut announcements since 2002 and represents nearly 30% more cuts than during the first four months of the year.  

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There are only about 1,500 hours to go before Election Day. And that’s also about how many times you’ll hear snappy sound bites about the economic proposals of John McCain and Barack Obama.

Over the next nine weeks, CNNMoney.com will help you sort through the claims. We’ll try to sort fact from fiction and truth from exaggeration - or just clue you in on what the candidates are really talking about.

The first part in the series: Just how much tax relief is McCain offering?

The claim: To hear Obama tell it, McCain isn’t proposing "one penny of tax relief to more than 100 million Americans."

The Obama campaign says it bases that number on McCain’s proposal to increase the exemption tax filers take for dependents, and adds that it is the "only middle-class tax cut" the Republican nominee has offered.

The top line: It depends on what you mean by tax relief and what you mean by "only." But Obama’s claim isn’t as far-fetched as it sounds, keeping in mind that projections about tax effects are not carved in stone.

The facts: McCain has made several tax proposals. One of them is the dependent exemption increase.

Obama gets to his "more than 100 million" charge primarily from an analysis that two Harvard researchers did for the campaign. They examined 2004 tax return data from the IRS and estimated that 101 million tax returns would not benefit from the increase to the exemption in 2009. That represents more than 140 million people. The Obama campaign claims that number is actually low because the data did not include non-filers.

The Tax Foundation, a group unaffiliated with the Obama campaign, reached a similar conclusion.

So which Americans would see no benefit from McCain’s proposal? People without dependents, of course, and those who don’t make enough money to file or to owe enough federal income tax to benefit fully from the exemption.

At the same time, the Obama camp is pushing it when it claims that the exemption increase is the "only" middle class tax break McCain offers.

Douglas Holtz-Eakin, McCain’s senior economic adviser, said some of the folks who don’t get a break from the dependent exemption could benefit from McCain’s proposal to change how money spent on health insurance is taxed.

Today, if you buy a policy on your own, you don’t get any tax break. If your employer subsidizes your premiums, that money is considered tax-free to you.

Under McCain’s plan, that subsidy would become taxable income fast cash advance. But anyone who buys insurance would receive a refundable tax credit worth $2,500 per person ($5,000 per family). That’s a dollar-for-dollar reduction of your tax bill, or, if you don’t have a tax bill, a dollar-for-dollar increase in the amount of money Uncle Sam would send your way.

Certainly, the health care credit would provide a new tax break for anyone who buys insurance on their own. Whether the credit would be a boon for those who get insurance through their employer depends, among other things, on the cost of their plans, the amount their employer contributes and their income tax rate.

The Tax Policy Center, in a preliminary analysis of McCain’s health plan, said the credits are larger than the current premiums for the most generous group health plans. So initially it may be a break for many. But over time, experts say, the value of that credit will go down since it’s not likely to keep pace with the rising health care costs.

Holtz-Eakin also said that some of the households without dependents could get tax relief because of McCain’s proposal to permanently "patch" the Alternative Minimum Tax. The so-called wealth tax, left unaddressed, would hit an increasing number of middle- and upper-middle-income families. While Congress has been patching the AMT every year, McCain’s proposal would be more of a super-patch.

The Republican nominee has also proposed to make permanent the 2001 and 2003 tax cuts, which would otherwise expire by 2011. Even critics of those cuts, however, expect lawmakers to keep many in place.

The bottom line: It’s not fair to say that McCain’s dependent exemption proposal is his "only middle-class tax cut." But Obama’s claim that "more than 100 million Americans" will be left out of tax relief under McCain seems to be in the ballpark.

When the Tax Policy Center, which has analyzed both candidates’ tax plans, considered McCain’s proposals as a whole minus his health care plan, it estimated that 66 million tax "units" - or 78 million people - would still not see tax relief next year. Add their kids and Cousin Itt upstairs, and you get closer to that 100 million number Obama touts.

But one caveat: The numbers are expected to fall once researchers incorporate the effects of McCain’s health care credit, which they expect to do in the coming weeks. 

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Shares of Merrill Lynch & Co. Inc. declined in trading Tuesday even as others in the financial sector generally advanced with the broader market surge.

Shares of Merrill (MER, Fortune 500), the world’s largest brokerage firm, fell 62 cents, or 2.2%, to $27.73 in early afternoon trading.

Meanwhile, most other major banks gained. Goldman Sachs Group Inc. (GS, Fortune 500) rose $3.18, or nearly 2%, to $167.15; Citigroup (C, Fortune 500) Inc. advanced 48 cents, or 2.5%, to $19.47; Morgan Stanley (MS, Fortune 500) rose $1.01, or 2.5%, to $41.84.

Lehman Brothers Holdings Inc (LEH, Fortune 500). surged 49 cents, or 3.1%, to $16.58, lifted by Korea Development Bank’s confirmation that it is in talks with other parties about a possible acquisition of the struggling U.S. investment bank.

Merrill spokesmen weren’t immediately available to comment Tuesday. The company has been overhauling operations, selling some assets and raising fresh capital through sales of new stock in a move to clean up its balance sheet — which had eroded by billions of dollars in losses from the credit and mortgage-market crises.

Oppenheimer & Co. (OPY) analyst Meredith Whitney placed Merrill’s stock in the "Underperform" category in a research note issued Tuesday, along with Citigroup and UBS AG. (UBS) She expects those stocks to perform below that of the Standard & Poor’s 500 index over the next 12 to 18 months no fax payday loan.

Whitney noted that with the credit crunch grinding on for a year now, the financing of stock and bond deals done by Wall Street investment banks has slowed, as has volume in the stock trading that rings up fees for them.

Whitney’s 12-month target for Merrill stock is $28.35.

Banks like Merrill have taken billions of dollars in losses as the value of mortgage-backed securities and other debt has plummeted over the past year. Investors have shied away from buying all but the safest debt as mortgages increasingly defaulted last year, stoking fears that securities tied to the troubled loans would default as well.

Merrill in July reported a $4.6 billion loss for the second quarter and booked $9.4 billion in charges and write-downs from mortgage-backed securities, unprofitable hedge positions and home-loan exposure.

The New York-based bank announced Tuesday that it has hired Michael Nierenberg from JPMorgan Chase & Co. to head its global mortgages and securitized products businesses, and James De Mare from Citigroup to run mortgage trading operations. 

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Highwinds Network Group Inc. announced Wednesday it has closed on a new round of equity financing from European Founders Fund that will be used to expand their network into Europe.

The dollar amount of the financing was not disclosed.

The Winter Park-based IP service and content delivery software company, earlier this year announced it invested approximately $55 million to support the buildout of its network infrastructure in Europe.

Currently, the company's RollingThunder network, a high-performance video, live events and other media content delivery system, has data centers in Brussels, Frankfurt, London, Paris and Amsterdam payday loans.

"The investment is purely strategic as we position Highwinds to establish a greater foothold in Europe," said Steve Miller, president and CEO of Highwinds Network Group in a prepared statement.

European Founders Fund, based in Germany, is an investment firm that focuses on supporting young technology companies related to the Internet and wireless markets.

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Stocks slumped Friday at the end of an upbeat August as Dell’s earnings miss, a big drop in personal income and worries about the threat of Hurricane Gustav rattled investors ahead of a long weekend.

The Dow Jones industrial average (INDU) fell 1.5%. The broader Standard & Poor’s 500 (SPX) index lost 1.4%. The Nasdaq composite (COMP) slid 1.8%.

U.S. oil for October delivery hit $118.76 per barrel on the New York Mercantile Exchange, before retreating to close at $115.49, a decline of 10 cents. Nonetheless, concerns remain about the risk of higher commodity prices in an already tough economic environment. Prices have been rising of late after tumbling more than 20% off record highs of over $147 a barrel hit in mid-July.

These worries have been amplified lately by the steady advance of Hurricane Gustav, which is expected to make landfall in the Gulf of Mexico Tuesday. Facilities in the area are responsible for roughly 25% of U.S. oil production and a disruption would drive up already high fuel costs.

"Everybody understands that there’s a tight oil market," said Kim Caughey, senior equity analyst at Fort Pitt Capital Group. "The question is what happens if we have another bubble that goes up to $150 a barrel when the consumer is already strapped."

The drop follows a Thursday rally, when the Dow and S&P 500 rose for their third straight session on lower oil prices and a surprisingly strong reading on second-quarter economic growth.

Friday also brought encouraging readings on the economy, including a spike in a key regional manufacturing index, the Chicago PMI. But the report was overshadowed by the other concerns.

Trading volume was light with many market pros checking out early ahead of the three-day holiday weekend. All financial markets are closed Monday for Labor Day.

All three major gauges managed gains in August. The Dow gained 1.5%, the S&P 500 gained 1.2% and the Nasdaq gained 1.8%.

Bond insurer MBIA was the biggest S&P 500 gainer in the month, rising nearly 173%, while Fannie Mae and Freddie Mac were the two biggest losers, falling 40.5% and 45% respectively.

Advanced Micro Devices was the second biggest gainer, rising 49%, while a variety of retailers were in the top 20, bouncing back thanks in part to the impact of government stimulus checks. J.C. Penney, Limited Brands, Dillard’s and the Gap all gained 20% in the month of August.

August is only the third up month for the S&P 500 since October of last year, when it hit an all-time high of 1565.15.

Dell and the tech sector: Dell (DELL, Fortune 500) reported earnings after the close Thursday that fell from a year ago and missed forecasts. The PC-maker also reported sales that rose from a year ago and topped predictions. Analysts said the company cut prices too aggressively in an attempt to grab market share, hurting results. (Full story).

Dell shares slumped 13.80% Friday in active Nasdaq trade, leading a tech sector selloff.

Other big tech losers included Intel (INTC, Fortune 500), Cisco Systems (CSCO, Fortune 500), Research in Motion (RIMM) and IBM (IBM, Fortune 500).

Novell (NOVL) managed gains after the business software maker reported earnings that topped forecasts, thanks to a rise in sales of the Linux operating system cash advance loan. The company also said 2008 earnings would top forecasts.

Microsoft (MSFT, Fortune 500) said it is buying a European Web-comparison shopping site and its parent company for $486 million in cash. Shares slid along with the rest of the tech sector.

Financials: After rising for six straight sessions, government-backed lenders Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) both tumbled around 14%.

The financial sector as a whole rose for three sessions in a row, before backing off Friday. Dow finance components American Express (AXP, Fortune 500) and JP Morgan Chase (JPM, Fortune 500) were among the big decliners.

All 30 Dow components slid, including General Motors (GM, Fortune 500), which said it is recalling 944,000 vehicles due to a fire hazard.

Market breadth was negative while volume was light. On the New York Stock Exchange, losers beat winners three to two on volume of 960 million shares. On the Nasdaq, decliners topped advancers by nine to five on volume of 1.61 billion shares.

Personal income and spending: Income plunged in July as the impact of the $90 billion economic stimulus plan wore out. The drop was the biggest monthly decline in nearly 3 years. But spending rose in line with expectations, due to higher prices.

Personal income fell 0.7% in July after rising 0.1% in June. Economists thought it would fall by 0.2%. Personal spending increased by 0.2%, which was in line with forecasts. Spending rose 0.6% in June thanks in part to higher prices. (Full story)

Economy: Other morning reports showed improvements in manufacturing and in consumer sentiment.

The Chicago PMI, a regional read on manufacturing, rose to 57.9 from 50.8 in the previous month. Economists thought it would dip to 50.0.

The University of Michigan’s consumer sentiment index was revised higher than expected in August.

Other markets: Retail gas prices rose overnight for the first time in more than a month, according to a survey of gas station credit-card activity. Gas prices are down nearly 11% from all-time highs hit in mid-July, but remain 33% above last summer’s levels. (Full story.)

In the bond market, Treasury prices fell, raising the yield on the benchmark 10-year note to 3.82% from 3.78% late Thursday. Prices and yields move in opposite directions.

The dollar rose versus the euro and fell against the yen.

COMEX gold for November delivery fell $2 to settle at $833.20 an ounce.

In global trading, Asian and European markets ended higher. 

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Japan should change its weak-yen policy because a stronger exchange rate would help the nation import raw materials and increase investment overseas, said Eisuke Sakakibara, a former top currency-policy official.

“Japan is facing a paradigm shift and needs to change its currency and monetary policy,'' Sakakibara said in a speech at a seminar in Tokyo. “In the past, Japan's focus was on selling products overseas. Now it must focus more on securing raw materials and commodities, so a stronger yen is clearly in Japan's interest.''

Sakakibara, 67, currently a professor at Tokyo's Waseda University, was dubbed “Mr. Yen'' because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at the Finance Ministry.

Rapid economic growth in China, India, Brazil and Russia is increasing prices of commodities and leading to greater competition in developing resources overseas, Sakakibara said. The price of oil, gold, corn and rice have all risen to records this year.

Japan lacks companies such as Rio Tinto Group, which is listed in Australia and the U.K., or China National Offshore Oil Corp. that can secure raw materials on a large scale, Sakakibara said. A stronger yen would help Japanese firms invest in mines and raw materials projects in Africa and Brazil, he said.

“Japan needs to change its mindset to a country focused on buying commodities and ensuring there's a stable supply of raw materials,'' Sakakibara said. “Right now, such a structure is not in place.''

Currency Intervention

The yen is “extremely'' weak because the Japanese government has regularly intervened by selling the currency to bolster exports and because the Bank of Japan has kept interest rates very low, he said quick payday. Japanese authorities sold the currency on all four occasions since 1995 when the yen approached 100 per dollar. Since the BOJ ended its policy of flooding the money market with cash in 2006, it has raised rates twice to 0.5 percent.

The yen rose to 107.66 against the dollar as of 11:03 a.m. in London, from 108.80 late in New York on Aug. 29. It traded at 157.84 yen versus the euro from 159.65. The yen fell to a four- year low versus the dollar and a record low against the euro in June 2007.

Japan's currency is likely to trade in a range of 105 to 110 against the dollar for the time being, Sakakibara said, adding that it may fall as low as 115 if the nation's economy weakens.

Japan should consider selling the euro to try to strengthen the yen, Sakakibara said. That would be easier than selling the dollar as U.S. officials don't want their currency to weaken while the economy struggles with fallout from the collapse of the subprime-mortgage market, he said.

The BOJ should also raise borrowing costs to boost the currency and keep capital from flowing overseas, he said.

Sakakibara is a member of the Asia-Pacific advisory board of Bloomberg LP, the parent of Bloomberg News.

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