Paulson: Housing bill has faults
Treasury Sec'y Henry Paulson backs the stronger scrutiny of gov't-sponsored enterprises Fannie Mae and Freddie Mac in a housing bill before the Senate. But he had concerns about mortgage guarantees. "Some parts of the legislation are modestly helpful and others are not helpful," Paulson said. "It's a big part of my job to work to get the strongest possible housing bill on the president's desk so he can sign it."
The Economic Cycle Research Institute's leading U.S. index fell 0.2 point 15 132.8 in the week to May 23 as higher jobless claims and lower stock prices outweighed lower interest rates and improved housing data. The annualized growth rate rose 0.6 point 15 -6%, a 22-week high, but still in recessionary territory. The Reuters/Univ. of Michigan consumer sentiment fell 2.8 points in May to a 28-year low of 59.8 as inflation expectations rose to their highest since the early 1980s. The preliminary May reading was 59.5. Euro zone inflation hits record
Inflation in the 15-nation area zone rose back to a record 3.6%, far above the European Central Bank's target of just under 2%. Soaring oil, food and raw materials prices drove the rise. ECB chief Jean-Claude Trichet warned that rising prices could spur higher wages, causing inflation to spiral upward. The ECB is expected to keep rates on hold this year at 4% even as the economy slows.
German retail sales fell 3.3% in April after a 3.8% drop in March, adding to concerns about the health of Europe's largest economy. The GfK NOP index of British consumer confidence fell 5 points in May to -29, its weakest since '90, amid pessimism about the economy and personal finances. Japan jobless rate at 7-mo. high
The unemployment rate rose 0.2 point 15 4% in April amid construction layoffs, the gov't said. The ratio of job openings to applicants also fell, dimming the outlook for jobs. Meanwhile, household spending, industrial output and housing starts fell in April, adding to concerns about the economy.
COMING UP MONDAY
ISM manufacturing index for May, 10 a.m. EDT (forecast: 48). Construction spending for April, 10 a.m. EDT (forecast: -0.6%).
The Commerce Department reported Friday that consumer spending barely budged in April, rising a tiny 0.2 percent, and income growth was just as weak, increasing a similar 0.2 percent.
The growth in incomes, restrained by four straight months of job losses, would have been just 0.1 percent had it not been for the first wave of economic stimulus payments the government started sending out April 28.
The impact on incomes should be even larger in the May and June reports, reflecting the bulk of the payments. The Treasury Department reported Friday that so far, 57.4 million payments have been made totaling $50.04 billion, nearly half of the $106.7 billion that will be disbursed this year to 130 million households.
The checks are the centerpiece of a $168 billion stimulus package that Congress passed at President Bush's urging in February with the aim of jump-starting the stalled economy. Analysts said whether they keep the economy out of a recession will depend on how fast people spend the money.
"It will be impressive if consumers can manage to hold on given all the headwinds they are facing," said Mark Zandi, chief economist at Moody's
All the problems have pushed consumer confidence to recessionary levels. The Reuters/University of Michigan survey of consumer sentiment dropped for a fourth straight month in May, hitting a 28-year low of 59.8, down from a reading of 62.6 in April. The May level was the lowest since June 1980, when Jimmy Carter was in the White House and consumers were being battered by a recession and soaring gasoline prices.
On Wall Street, the Dow Jones industrial average edged down slightly Friday, falling 7.90 points to close at 12,638.32. That left the Dow up 1.27 percent for the week, a rebound from sharp losses incurred in the previous week.
Despite worries that consumers may end up using their stimulus checks to pay off credit card debt rather than spending the money to boost the economy, analysts said they believe about two-thirds of the money will get spent this year, enough to keep the overall economy in positive territory, as measured by the gross domestic product.
The government on Thursday revised its estimate of first quarter GDP growth up to a rate of 0.9 percent, slightly better than the 0.6 percent originally forecast. While many economists had believed the economy would slip into negative territory during the current April-June quarter, the modest growth in consumer spending in April and hopes of better figures going forward are causing analysts to revise their estimates upward.
"So far, the economy is proving more resilient than we gave it credit for," said David Wyss, chief economist at Standard & Poor's in New York, who said GDP growth could come in around 0.5 percent in the current quarter and then rebound to around 2 percent in the July-September quarter, as consumers spend their stimulus checks.
But Wyss and some other analysts cautioned that the boost in economic activity could be short-lived, only delaying a full-blown recession into early next year.
"There is considerable risk that the tax rebates will only put a Band-Aid over a large and growing wound to consumer sentiment with a rising possibility of a sharp pullback in spending later in 2008 or in early 2009," said Brian Bethune, chief U.S. financial economist at Global Insight.
The 0.2 percent rise in personal incomes in April was the weakest gain since a similar 0.2 percent rise in January.
Private wages and salaries fell at an annual rate of $18.2 billion in April, the biggest setback in a year. Businesses have been cutting jobs for four straight months, with analysts forecasting a fifth month of job declines when the government reports next Friday on labor market conditions in May.
The 0.2 percent rise in consumer spending followed a 0.4 percent increase in March. Increases in recent months have largely reflected the big surge in energy costs and, to a lesser extent, higher food prices. Excluding inflation, consumer spending would have been unchanged in April.
Consumer prices, measured by an inflation gauge tied to spending, rose by 0.2 percent, down from a 0.3 percent rise in March.
The personal savings rate, the amount of spending compared with after-tax incomes, held steady at 0.7 percent in April, the same level as in February and March.
U.S. technology shares rose on Friday
as strong results from computer maker Dell Inc (DELL.O)
signaled that business and consumer spending was holding up,
driving the Nasdaq to end the month up 4.6 percent.
Rising oil prices, however, spurred uneasiness, limiting
Wall Street's gains, with the S&P 500 (.SPX) rising only
slightly and the Dow Jones industrial average (.DJI) falling
Since oil prices hit a record above $135 barrel last week,
investors remain concerned about the effect of soaring fuel
costs on inflation and on consumer spending, a key driver of
In addition, data on Friday showed that consumer confidence
fell to a 28-year low in May.
Still, Dell shares jumped more than 5 percent, putting the
stock among the Nasdaq composite index's top boosters, along
with chip designer Marvell Technology Group Ltd (MRVL.O), up
more than 23 percent, thanks to stronger-than-expected
The semiconductor index (.SOXX), up 2.1 percent, notched
its second straight monthly advance, capping its longest
monthly winning streak since October 2006.
"The strength of Dell's numbers was a pleasant surprise,"
said Georges Yared, founder and chief investment officer at
Yared Investment Research in Wayzata, Minnesota.
"What this demonstrates is that technology spending is very
strong globally. It may not be as strong domestically, but U.S.
weakness is being offset by global demand. So tech is probably
positioned now for a very good second quarter."
The Dow Jones industrial average (.DJI) ended down 7.90
points, or 0.06 percent, at 12,638.32. The Standard & Poor's
500 Index (.SPX) finished up 2.12 points, or 0.15 percent, at
1,400.38. The Nasdaq Composite Index (.IXIC) closed up 14.34
points, or 0.57 percent, at 2,522.66.
For the week, the Dow ended up 1.3 percent, while the
Nasdaq climbed 3.2 percent and the S&P 500 gained 1.8 percent.
The Nasdaq's 4.6 percent rise for the month of May marked
its third straight monthly advance and was its second-strongest
month this year. The Dow ended the month down 1.4 percent,
while the S&P 500 rose 1.1 percent, registering its second
straight monthly climb.
The strength in technology came a week after the tech
sector overtook financials as a leading constituent of the S&P
Dell shares finished at $23.06 on Nasdaq, while Marvell
shares rose to $17.36. Contributing most to the Nasdaq's rise
were shares of iPod and iPhone maker Apple Inc (AAPL.O), which
closed up 1.1 percent at $188.75.
Shares of Cisco Systems Inc (CSCO.O), whose routers and
other networking gear form a backbone of corporate networks,
were the top tech contributor to the S&P 500's rise, up 2
percent at $26.72 on Nasdaq.
Computer maker Hewlett-Packard Co (HPQ.N) led the Dow's
tech components with a gain of 0.3 percent to $47.06 on the New
York Stock Exchange.
Shares of American International Group Inc (AIG.N) , the
world's largest insurer, were another Dow standout, finishing
up 1.9 percent at $36.00 on the NYSE after Morgan Stanley said
the recent decline in its stock was overdone and raised its
AIG's gain bucked a downward trend across the financial
sector as investors locked in profits after Thursday's strong
Shares of Bank of America Corp (BAC.N), the No. 2 U.S.
bank, ended down 1.7 percent at $34.01 on the NYSE. Shares of
JPMorgan Chase & Co (JPM.N), the No. 3 U.S. bank, declined 1.3
percent to $43.00, also on the NYSE.
Energy shares also fell on profit taking, with Exxon Mobil
Corp (XOM.N) ending down 0.7 percent at $88.76 on the NYSE.
COSTCO DROPS, COCA-COLA LOSES FIZZ
Shares of consumer-oriented companies like retailers also
featured among the day's top drags, with shares of Costco
Wholesale Corp (COST.O), the leading U.S. warehouse club
operator, down more than 2 percent at $71.32 after Piper
Jaffray cut its rating on the stock.
Shares of Coca-Cola Co (KO.N), the world's largest
soft-drink company, declined 1.1 percent to $57.26 on the NYSE,
making the stock the Dow's biggest weight, while rival PepsiCo
Inc (PEP.N) slipped 0.8 percent to $68.30.
U.S. crude oil gained 73 cents, or 0.6 percent, to
settle at $127.35 a barrel on the New York Mercantile Exchange.
In economic news, the core personal consumption
expenditures price index -- the Federal Reserve's preferred
measure of inflation -- moderated in April from the previous
month, easing inflation fears.
But a Reuters/University of Michigan gauge of consumer
confidence fell to a 28-year low in May, keeping stock gains in
check. A separate report showed business activity in the U.S.
Midwest contracted for May for the fourth consecutive month,
but the rate of downturn moderated.
Friday's volume was tepid, as it has been throughout the
"The whole week really hasn't been a great volume week.
It's almost like a lot of people made this past Memorial Day a
five-day holiday instead of one day," said Victor Pugliese,
director of listed equity trading at Broadpoint Securities in
About 1.41 billion shares changed hands on the New York
Stock Exchange, below last year's estimated daily average of
roughly 1.90 billion, while on Nasdaq about 2.20 billion shares
traded, above last year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones by a ratio of
about 5 to 4 on the NYSE and by 6 to 5 on Nasdaq.
(Editing by Leslie Adler)