Archive for January, 2009

Jobless claims jump to record, durable orders slide (Reuters)

Thursday, January 29th, 2009 | Finance News

WASHINGTON (Reuters) –
The number of Americans claiming jobless benefits hit a record high in mid-January, while orders for long-lasting factory goods fell for a fifth month in December, according to data on Thursday that showed the economy in steep decline.

Piling on the gloom for an economy mired in recession for more than a year, sales of newly built single-family homes slumped to their lowest levels since records started in 1963.

The batch of bleak data cast doubt on whether the economy would begin to recover in the second half of the year, since stability in the housing market, the root of the worst financial crisis in more than 70 years, may be a prerequisite.

It also underlined the urgency of efforts by the Obama administration to rush a stimulus plan totaling $825 billion or more through Congress.

"I don't think we are going to see a recovery until 2010. It's possible the economy can bottom sometime in the fall or the winter, but it will be pretty rough sailing ahead, especially for the next quarter or two," said Michael Darda, chief economist at MKM Partners in Greenwich Connecticut.

The number of people staying on state jobless benefits rolls after drawing an initial week of aid jumped 159,000 to a higher-than-forecast 4.78 million in the week ended January 17, the most recent week for which data is available.

It was the highest reading on records dating to 1967.

"Never before have we seen so many people rely on their unemployment checks to help them pay for food and shelter. The message here is clear: Businesses are now in survival mode," said Bernard Baumohl, chief global economist at The Economic Outlook Group in Princeton, New Jersey.

Initial claims for unemployment insurance rose to 588,000 last week, up marginally from a week earlier.

U.S. stocks fell on the data, snapping a four-day winning streak. The Dow Jones industrial average ended down 226.44 points at 8,149.01. Government bond prices were weighed down by supply worries related to efforts underway in Washington to help the economy and a fractured banking system.

ORDERS PLUMMET

The harsh economic climate is forcing companies to lay off workers in huge numbers, further curbing demand by households already reeling from the fall in their net worth as a result of the housing and stock market crash.

New orders for long-lasting manufactured goods dropped 2.6 percent last month after plunging 3.7 percent in November, the Commerce Department said. Analysts had expected a December decline of only 2 percent.

For 2008 as a whole, orders tumbled 5.7 percent, the second biggest decline since 2001.

The report showed businesses were sharply ratcheting back their investment plans. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 2.8 percent in December, while November's figures were revised sharply lower.

"Overall we don't see much relief (for the economy) until much later this year. We are passing through the darkest part of the storm right now," Tim Quinlan, economic analyst at Wachovia Securities in Charlotte, North Carolina.

On Wednesday, the Federal Reserve said it expected the economy to gradually start recovering later this year, but cautioned the downside risks to that outlook were significant.

It left its target range for overnight interest rates at zero to 0.25 percent, but said it was prepared to buy long-term U.S. government debt if warranted to battle the credit crisis.

In a separate report on Thursday, the Commerce Department said new home sales tumbled to a 331,000 unit annual pace, the lowest since it started keeping records in 1963. November's sales were revised down to a 388,000 rate from a previously reported 407,000.

For 2008, sales totaled 482,000, the lowest since 1982 and down a record 37.9 percent from the prior year.

"Even with the recovery in 2010, this will be longest recession since the Depression and it will probably be the deepest," said MKM Partners' Darda. Darda cautioned, however, against drawing parallels to the 1930s, where the dropoff in activity much larger.

A report on U.S. gross domestic product on Friday is expected to show the economy contracted by at least a 5.4 percent annual rate in the fourth quarter, the worst since the first quarter of 1982.

(Additional reporting by Alister Bull; Editing by Chizu Nomiyama)

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Wall Street sinks as economic woes mount (Reuters)

Thursday, January 29th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks tumbled on Thursday, derailing a four-day surge in the S&P and Nasdaq as poor earnings coupled with a fresh wave of bleak labor market and housing data heightened fears of a deep recession.

A day after financials propelled Wall Street to its longest winning streak in two months, insurer Allstate (ALL.N) plunged 20.7 percent after posting a $1.1 billion quarterly loss and stirred concerns about more losses on insurers' books.

Government reports showed the amount of people filing for unemployment benefits hit a record in mid-January, while orders for long-lasting goods fell for the fifth straight month in December and new home sales slid to a record low.

Bellwethers whose profits are sensitive to economic growth, like Boeing (BA.N), down nearly 6 percent, led the broad market sell-off.

"There's no major sign of confidence for stock prices," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. "The catalysts to reverse the economic slump are not fully in place yet."

The Dow Jones industrial average (.DJI) slid 226.44 points, or 2.70 percent, to 8,149.01. The Standard & Poor's 500 Index (.SPX) tumbled 28.95 points, or 3.31 percent, to 845.14. The Nasdaq Composite Index (.IXIC) dropped 50.50 points, or 3.24 percent, to 1,507.84.

Even as the Obama administration pushes ahead with plans to jolt the economy out of recession, investors feared that mounting layoffs, a poor earnings outlook and persistent uncertainty about the financial sector's health would continue to sap confidence.

Stocks' inability to sustain their recent rally marks a major hurdle in the market's attempt to reverse its year-to-date losses, with the benchmark S&P 500 index down more than 6 percent, the Dow off 7.2 percent, and the Nasdaq off more than 4 percent.

Of the Dow's 30 components, only three finished higher -- diversified manufacturer 3M (MMM.N), up 2 percent at $56.55; drug maker Merck & Co (MRK.N), up 0.6 percent at $28.94, and Procter & Gamble (PG.N) , up 0.1 percent at $58.22. Both Merck and P&G are among stocks traditionally deemed as a defensive play in a downbeat economy.

Boeing's stock lost 5.9 percent to $40.71 and ranked as the second-heaviest weight on the Dow industrials, behind Chevron (CVX.N), a day after the jet plane maker posted a disappointing outlook and announced an order cancellation.

Allstate tumbled 20.7 percent to $23.50 and contributed to an 8.4 percent drop in the S&P financial index (.GSPF). Among bank stocks, JPMorgan (JPM.N) slid 8.1 percent to $25.43.

In the last half hour of trading, bank stocks added losses after U.S. President Barack Obama said large bonuses doled out to Wall Street executives last year were "shameful," and noted he would tell the executives to show restraint.

The energy sector was another big drag as Exxon Mobil (XOM.N) shares shed 3.1 percent to $76.80 after Goldman Sachs removed the company from its Americas Buy list, a day before the major oil company reports earnings. Shares of rival Chevron slid 4.3 percent to $70.62 after the company said its 2009 capital spending program will be unchanged from 2008.

Among home builders, shares of Hovnanian Enterprises (HOV.N) slid 10.5 percent to $1.71 and Toll Brothers (TOL.N) fell 7.5 percent to $17.85. The Dow Jones home construction index (.DJUSHB) tumbled 8 percent after sales of new homes fell in December to the lowest annual pace since the Commerce Department started keeping records in 1963.

Tool and home appliance maker Black & Decker (BDK.N) posted a better-than-expected quarterly profit, but warned it sees a very weak 2009, and its stock slid almost 21 percent to $30.65.

According to Thomson Reuters proprietary research, fourth-quarter earnings will slide 35.1 percent from a year ago, marking the largest drop in at least a decade.

Worries that President Obama's $825 billion economic stimulus package could still face a bumpy road also weighed on sentiment after the U.S. House of Representatives passed it late on Wednesday although every Republican who voted opposed it. The Senate begins debate next week.

Qualcomm Inc (QCOM.O) was the biggest drag on Nasdaq after it cut its full-year revenue target on weak demand for cell- phone chips. Its stock fell 4.6 percent to $35.13.

Before Friday's opening bell, investors will scrutinize the government's first snapshot of fourth-quarter gross domestic product, which measures all goods and services produced within U.S. borders.

The GDP report, due at 8:30 a.m. (1330 GMT), is expected to show the economy contracted by at least a 5.4 percent annual rate in the fourth quarter -- the worst since the first quarter of 1982.

(Reporting by Ellis Mnyandu; Editing by Jan Paschal)

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U.S. life insurers denied looser capital requirements (Reuters)

Thursday, January 29th, 2009 | Finance News

NEW YORK (Reuters) –
State insurance regulators voted against a proposal to loosen capital requirements for the battered life insurance industry.

The National Association of Insurance Commissioners (NAIC), a group representing regulators in all U.S. states and territories, reached the decision on Thursday after weighing the proposal over nearly three months. It did not rule out taking up the matter again in the future.

"You need to be conscious of the message this will send to consumers," said NAIC president Roger Sevigny, ahead of a vote on the matter.

Many commissioners voted against easing capital rules, citing consumer rights, and that more time should be taken to consider such changes with financial regulation already under a microscope given the global credit crisis.

"The headline still will be that we diluted capital systemwide," said Eric Dinallo, New York insurance superintendent.

A group of regulators had voted earlier this week to recommend six of nine measures be approved, which could have given companies such as Prudential Financial (PRU.N), Hartford Financial (HIG.N) and Lincoln National (LNC.N) a boost at a time when credit is tight.

State regulators impose capital requirements on insurers to make sure money is set aside when policyholders have claims.

The changes had been called for by the American Council of Life Insurers (ACLI), a trade group, to revamp life insurers' regulatory capital requirements to eliminate redundancies in reserve requirements. The changes could have, based on ACLI's estimate, freed up about $25 billion to $30 billion in capital, or up to 7 percent of life insurers total adjusted capital in 2007.

(Reporting by Lilla Zuill; Editing by Tim Dobbyn)

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