My finance view

When General Motors executives stopped in St. Louis last fall to meet with auto dealers, the economy was entering a free fall.

"We were right in the middle of the meltdown when we were out doing this. We just didn’t know it," said Mark LaNeve, GM vice president for sales. "I mean we thought it was a bad couple of weeks. And as it turned out, the vehicle market was collapsing, the stock market was collapsing, the banking sector (too)."

Last week, LaNeve, CEO Fritz Henderson and other GM executives met with Midwestern auto dealers in downtown St. Louis for the first time since emerging from bankruptcy last month. The automaker is going forward with fewer brands, fewer vehicle "nameplates" and, ultimately, fewer dealerships.

The launch of the nine-city dealer tour comes at a pivotal time for the American automaker. The deep recession has hurt auto sales, and consumers have been lukewarm to some of its vehicle brands.

Henderson called last week’s meeting a good opportunity to reconnect with GM dealers and get people "charged up about winning in the marketplace." To do so, the new, smaller GM has to win back the hearts and minds of U.S. consumers, he added.

"For those people who own our vehicles today, and are happy with them, we want to make sure we make them even happier," Henderson said after the meeting. "And for those that don’t want to consider us, we want to compete and get back on their consideration list."

Several area dealers were upbeat about what they heard and the prospects for the future. The fact that Henderson attended this year’s meeting was further evidence that "they mean business; that they’re serious," said attendee Greg Flotte, general manager of Don Brown Chevrolet in St. Louis.

Flotte said there already had been some signs that it wasn’t business as usual at the new GM. When the federal government was slow to reimburse dealers on Cash for Clunkers rebates, GM came up within 48 hours with a loan program to help dealers who had not been paid new car loans.

"That would not have happened under the old General Motors," Flotte said. "To have that happen that quickly and take action that was effective was something that I was very, very impressed with."

General Motors plans to put more marketing muscle behind fewer vehicle models within its core brands — Chevrolet, Buick, Cadillac and GMC, LaNeve said. "We’re going to very aggressively get our story told. That’ll kind of start in September."

Dealers said they welcomed that focused approach to advertising.

LaNeve said reducing the number of dealerships proved "an enormously emotional, painful process." The company plans to shed about 1,200 dealers nationwide under its reorganization, but GM officials would not disclose how many are in the St. Louis region or elsewhere.

It also plans to sell off Hummer, Saturn and Saab, and discontinue the Pontiac brand.

"So we’ll have a 24, 25 percent reduction in the overall number of dealers, which we did to strengthen the dealers," he said. "We’ve got to have dealers that can compete."

The weakened economy has hurt demand for GM’s full-size GMC Savana and Chevrolet Express vans built at the company’s Wentzville plant, where GM eliminated one of two production shifts. But Henderson said that the van remained an important product and that Wentzville was "the only place where we build that van."

One analyst said GM’s campaign for the hearts and minds of consumers, dealers and auto enthusiasts was not unlike a political campaign.

"A lot of it, at the end of the day, is to get votes," said Erich Merkle, president of Autoconomy in Grand Rapids, Mich. "GM wants to be elected. They want to be perceived as a cutting-edge, high-quality company."

Source

Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s.

Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, the Labor Department said Thursday. The total number of people collecting unemployment insurance fell to the lowest level since April.

Job cuts are easing as government stimulus measures help stabilize the housing and manufacturing industries. At the same time, a rebound in hiring will take longer to occur, restraining the consumer spending that accounts for 70 percent of the economy.

"We’re definitely seeing firings slowing as firms are much leaner than they were earlier," said David Semmens, an economist at Standard Chartered Bank. "Any good news in the labor market provides a floor for consumer sentiment."

Economists forecast that claims would fall to 565,000 from a previously reported 576,000.

The report showed the four-week moving average of initial applications, a less volatile measure, dropped to 566,250 last week from 571,000.

Continuing claims plunged by 119,000 in the week ended Aug. 15 to 6.13 million, the least since the week ended April 4.

Source

It’s that time again.

Home price season.

In the last few days, real estate watchers have been treated to a feast of new numbers, the very latest data on where the housing market is heading.

It comes in a flurry every month about now, reports from the National Association of Realtors, the Federal Housing Finance Agency, something called the S&P Case-Shiller Index, and a host of lesser known outfits like First American CoreLogic, Trulia and Zillow.

And it can be enough to make your head spin.

Tuesday, for instance, Case-Shiller reported that home prices nationwide were up in the second quarter by the most in three years, but they’re still down 14.9 percent from last year. FHFA, however, said prices fell in the second quarter versus the first quarter, but were down just 6.1 percent year-over-year. Earlier this month the National Association of Realtors reported median prices down 15.6 percent from last year, to $174,100.

"There are lots of different indicators," said Richard DeKaser, president of Woodley Park Research in Washington and former chief economist at National City Corp. "And they’re not always in harmony."

These numbers matter because they influence what we think our home is worth, how much we’ll sell for and how much we’ll pay to buy one. And they matter because they’re the closest thing we have to a real-time readout on the housing market, which many say must show signs of life if the broader economy is to recover.

So how will we recognize those signs?

Actually, housing economists say, the various reports will start to look like they’re looking now, with the arrows pointing more or less upward, or at least less down.

"The housing market probably hit bottom this spring and is now in the early stages of a recovery," DeKaser said. "With each month we’ll get more data to either confirm or refute it. I’d say within a couple of months we ought to have a more firm picture."

Still, the reports all say slightly different things. Because they’re all asking slightly different questions.

The Realtors, for instance, track the median price of homes sold by their members nationwide. The median is the point at which half of homes are sold for more, and half for less, and it can be skewed by what’s on the market.

Right now, there’s a lot of homes being sold at bargain prices because of foreclosures, and a lot to first-time home buyers, who tend to spend less. Higher-end homes are moving slowly. Since cheaper homes make up more of the market, they’re pulling that median down — in the St. Louis region it’s off 10.1 percent over the last year.

The FHFA index tries to count repeat sales — how much a home that sold for, say, $250,000 in 2004 would sell for today. But it’s based on data collected from lending giants Fannie Mae and Freddie Mac, and doesn’t count so-called "jumbo loans" — anything above $417,000 in St. Louis. So, experts say, it can underestimate market shifts.

Case-Shiller also measures repeat sales, but it can have the opposite effect, overestimating swings at the high end. That’s because it weights sales by the price of the home. In its formula, a $500,000 house counts significantly more than a $250,000 one. And its 20-city index, which doesn’t include St. Louis, is skewed toward pricier coastal markets.

"In a sense they’re apples and oranges," said Kevin Kliesen, an economist at the Federal Reserve Bank of St. Louis.

Most economists recommend splitting the difference, and tracking other indicators like building permits, inventories of unsold homes and foreclosure rates.

But, real estate agents note, most homeowners don’t have that kind of time, or a Ph.D. in economics. Often, they’ll just catch a headline. Or maybe check out one of the many websites, like Realtor.com or Zillow, that try to estimate what a house is worth.

"That can set a false expectation," said Shawn Kelsey, general manager of the Kelsey Group Realtors in Chesterfield.

Indeed, Kelsey occasionally plugs his Ballwin three-bedroom into a half-dozen of those sites, just to see what they say.

Earlier this month, Realtor.com told him the house was worth $203,252. Home Gain came in nearly twice as high: $402,030. When he compared those numbers to February, three websites said his house had gained value. Three said it had lost.

"Who does the buyer choose to believe?" Kelsey said. "Who does the seller choose to believe?

"Whichever one benefits them the most."

Source

The Bank of Israel raised the benchmark interest rate by a quarter of a percentage point, the first central bank to lift rates since signs of an easing in the global recession started in the second quarter.

Governor Stanley Fischer increased the lending rate to 0.75 percent, the Jerusalem-based central bank said Monday, after keeping it at a record low since March. Two of 12 economists surveyed by Bloomberg forecast the increase, while the rest expected Fischer to hold the rate steady.

The decision "strikes a balance between the need to moderate inflation and the need to continue to support the recent recovery in economic activity," the bank said. "Setting the interest rate at the low level of 0.75 percent continues to represent an expansionary monetary policy."

Fischer has been backing away from economic stimulus measures since July 27, after the inflation rate slid into the target range for only one month before rebounding back out. The Israeli, French, German and Japanese economies all returned to growth in the second quarter, prompting Fischer to say on Friday at a meeting of bank governors at Jackson Hole, Wyo., that "the first signs of global growth have appeared."

"You can read this as the first hike in the recovery cycle," said Shahin Vallee, an emerging-markets currency strategist at BNP Paribas SA in London. "Poland could be next."

Israel posted inflation rates of 3.5 percent in July and 3.6 percent in June, above the 1 percent to 3 percent target range.

"We have a picture of economic recovery right now, which you see elsewhere in the world," said Jonathan Katz, an economist at HSBC Securities who predicted the increase. At the same time, "Israel is one of the few countries in the world where inflation is running above target at three and half percent, and Fischer’s mandate is to try and bring it down between 1 and 3 percent."

Source

WASHINGTON–President Barack Obama’s domestic policy proposals will face the reality of skyrocketing deficits tomorrow when officials release two government reports projecting huge budget shortfalls over the next decade.

The White House budget office and the Congressional Budget Office, a non-partisan arm of Congress, release updated economic forecasts and deficit estimates, providing further fiscal fodder to opponents of Obama’s nearly $1 trillion (U.S.) health-care overhaul plan.

The White House has confirmed that its deficit estimate for the 2009 fiscal year, which ends Sept. 30, will inch down to $1.58 trillion from $1.84 trillion after eliminating billions of dollars originally set aside for bank rescues.

Looking forward, an administration official said the 10-year budget deficit projection will jump by about $2 trillion to roughly $9 trillion from an original forecast of $7.1 trillion.

"One message the numbers will send is that the medium- and long-term deficits need to be addressed," said Chuck Marr, director of federal tax policy at the Washington-based Center on Budget and Policy Priorities, an analysis and research organization.

Obama has promised to do that. The president, a Democrat, says he will cut the deficit in half by the end of his four-year term, and he sees lowering health-care costs as a key ingredient toward achieving long-term deficit reduction.

The CBO had previously forecast that deficits between 2010 and 2019 would total $9.1 trillion, generating heat for the White House, which stuck to its original $7.1 trillion forecast earlier this year. The new number will bring White House projections into line with the CBO, the official said.

Many economists think it is unlikely that the government can curtail spending, which means taxes would have to rise to cover the increasing costs of providing retirement benefits and health care to older people. That could slow economic growth.

Stanford University economics professor John Taylor said the U.S. budget deficit poses a greater risk to the financial system than the collapse in commercial real estate prices.

Reuters News Agency

Source

Whether it’s a matter of ignorance or greed, people are still buying General Motors stock, even though the government has warned that the shares will someday be worthless.

On Thursday, investors traded 13.9 million shares. Analysts and regulators say two groups are buying: people who think they are getting shares of the new GM for cheap, and day traders or institutional investors hoping for short-term gains as others buy the stock free credit report and score.

GM and federal regulators say they have done all they can to warn investors, giving old GM the appropriate moniker of Motors Liquidation Co., and issuing multiple public warnings.

The Associated Press

Source

Canada's annual inflation rate fell into negative territory again last month, marking this country's lowest inflation rate since 1953.

Statistics Canada said today that consumer prices slid 0.9 per cent in July versus the same month last year, attributing the bulk of that decline to tumbling energy prices.

While July's Consumer Price Index marked the second consecutive month of technical deflation, economists gave assurances that a larger deflationary spiral was unlikely to take hold in Canada.

Sal Guatieri, an economist with BMO Capital Markets, said July's inflation reading could well signal “the nadir in this cycle,” suggesting that inflation was poised to “turn positive” later this year.

“Core inflation will likely drift further below the central bank's target in the year ahead, though deflation is far from a major concern with gasoline prices now on the rise,” Guatieri wrote in a note to clients.

Core CPI, which excludes volatile energy prices, rose by an annual rate of 1.8 per cent last month. Guatieri noted that is “slightly below the average of the previous six months though above the Bank of Canada's 1.6 per cent estimate” for the third quarter.

Still, Erin Weir an economist with the United Steelworkers union, called the decline in headline inflation “troubling” because it eclipsed June's 0.3 per cent decrease.

“Price declines were more widespread in July than in previous months,” Weir wrote in a report. “Month-over-month, four of eight Consumer Price Index components were in negative territory.”

On a year-over-year basis, however, three of the eight major CPI components notched declines in July, including transportation, shelter and clothing and footwear affordable car insurance. Transportation, in particular, lost traction mainly because of falling gasoline and auto vehicle prices.

“Nationally, gasoline prices fell 28.3 per cent between July 2008 and July 2009, following a 12-month decline of 24.3 per cent in June,” Statistics Canada said in its report.

“Regular unleaded gasoline prices at self-service stations averaged 97.4 cents per litre in July 2009 compared with a record high of 136.6 cents per litre in July 2008.”

Consumers, however, did experience a notable increase in the food category, which includes both store-bought and restaurant-purchased items. Overall, food prices increased 5 per cent between July 2008 and July 2009, the federal agency said.

“Growth in food prices has been slowing since reaching a peak of 7.9 per cent in March 2009, due to the slowdown of price increases for fresh fruit and vegetables and meat,” the report said.

The main culprit for July's increase was higher costs associated with food purchased from stores, which jumped by 5.6 per cent in July. As a point of comparison, June's increase for groceries was 6.4 per cent.

“Recently-reported grocery price wars, together with weak pricing power and soft import costs, should reduce the core rate further to 1.4 per cent later this year,” Guatieri added.

“A convincing move away from the 2 per cent target will reinforce the Bank of Canada's conditional pledge to keep overnight rates low until mid-2010, despite a recovering economy.”

Source

A gauge of the New York state factory sector showed growth for the first time since April 2008, signaling manufacturers could lead the U.S. economy out of the worst downturn in 70 years.

The New York Federal Reserve said its “Empire State” general business conditions index jumped to plus 12.08, the highest since November 2007, from minus 0.55 in July. Economists polled by Reuters had expected a figure of 3.00.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

The latest reading is “a clear indication that, on balance, business conditions had improved for New York State manufacturers,” the New York Fed said.

The report’s current and future components rose broadly, signaling “conditions would continue to improve in the months ahead,” the regional central bank said.

The report’s new order index rose to 13.43 in August from 5.89 in July, while the shipments reading improved to 14.11 from 10.97.

Manufacturers cited the cost of employee benefits as their most serious problem, amid the debate on healthcare reform online payday loans. A year ago they said the cost of resources posed the most serious threat.

The index of prices paid by the state’s manufacturers rose to 13.83 from 10.42 in July, while the index of prices they received moved deeper into negative territory, to minus 12.77 from minus 8.33.

On the employment front, New York factories continued to fire workers and reduce work hours, albeit at a slower pace than in July.

The index of the number of employees stood at minus 7.45 from minus 20.83 in July, and the component on the employee workweek stood at minus 6.38 from minus 19.79.

The New York Fed’s gauge of manufacturers’ six-month outlook jumped, however, to 48.22 from 33.99 in July.

(Reporting by Richard Leong; Editing by James Dalgleish)

Read more

DEARBORN, Mich. — Ford said Thursday that it will build more of its popular Focus and Escape models and boost total vehicle production later this year to help dealers restock depleted showrooms.

The automaker needs to keep up with demand for its Focus compact car and Escape crossover, both ranked as top sellers under the Cash for Clunkers program. The company also wants to roll out a reasonable number of cars and trucks following earlier production cuts. That way, dealers won’t run short on hot models in the final months of this year.

Ford Motor Co.’s overall North American vehicle production in the third quarter will be 2 percent higher than it forecast earlier, and 18 percent higher than a year ago. It also plans to boost fourth-quarter output of cars and trucks by 33 percent from a year earlier paydayloan.

Those increases, however, compare with slashed production levels from last year, primarily for pickup trucks and SUVs.

Funding for the Clunkers program is likely to run dry by September, the company said, but the additional vehicles produced in the quarter will go to replenish tight dealer stocks. Vehicles that roll off assembly lines as part of the production boost should reach showrooms by early September.

"That should give us some time to reload before 2010 begins," said George Pipas, Ford’s top sales analyst.

Source

Walmart Stores Inc posted better-than-expected quarterly earnings on Thursday as a clampdown on inventory offset falling sales, and the company forecast a full-year profit that could beat Wall Street estimates, sending its shares up 1.7 percent.

The world’s biggest retailer, which now describes itself as “Walmart”, said the hold-down on inventory helped it protect margins and avoid costly markdowns as cautious shoppers stuck to buying necessities like food.

The company’s better-than-expected profit more than outweighed its weaker-than-planned sales given the tough economy, said Peter Benedict, analyst at Robert W. Baird & Co.

“All these other stocks have had such big runs, it’s time for Walmart to play some catch up,” he said of the stock’s rise.

Net income fell slightly to $3.44 billion from $3.45 billion but earnings per share rose to 88 cents from 87 cents, as the company had fewer outstanding shares in the latest quarter. Analysts, on average, were expecting earnings of 85 cents per share, according to Reuters Estimates.

Total sales fell 1.4 percent to $100.08 billion, pressured by a stronger U.S. dollar, which cut the dollar-value of sales made outside the United States. Sales rose 2.7 percent to $104.28 billion on a constant currency basis.

The results came out on the same day as a U.S. government report showing that sales at retailers fell unexpectedly in July. Other data showed the number of workers filing new claims for jobless benefits rose in the latest week.

“Short term, we believe the economy will continue to be challenging,” said CEO Mike Duke on a recorded call personal loans. “We are accelerating our focus on reducing expenses and improving productivity in all of our operations.”

SLIPPING SALES

The retailer said sales at U.S. stores open at least a year — a key gauge known as same-store sales — fell 1.2 percent. Wall Street, on average, expected a gain of 0.85 percent.

In May, the company said it would stop posting sales on a monthly basis, leaving analysts to guess how it fared in the quarter compared with last year when it was helped by rising food and fuel prices and consumers spending tax rebate checks.

Vice Chairman Eduardo Castro-Wright said on a recorded call that the company had underestimated how much of a boost it got from shoppers spending tax rebate cash in its stores a year ago. He also said sales were hurt by falling food prices.

Chief Financial Officer Tom Schoewe told reporters that consumers were under significant pressure, preferring to pay for purchases with cash or debit cards instead credit.

Walmart is also seeing a bump in sales at the start of the month when consumers receive government aid such as food stamps, he said.

Sales at Walmart’s U.S. stores rose 0.3 percent in the second quarter to $64.21 billion, while they fell 3.2 percent to $11.91 billion in Sam’s Club warehouse locations. 

Read more