Archive for March, 2009

US consumer spending rises after half-year drop (AFP)

Monday, March 2nd, 2009 | Finance News

US consumer spending in January ticked up for the first time in seven months as income got a boost from falling taxes in the midst of deepening recession, government data showed Monday.

The Commerce Department reported consumer spending rose a seasonally adjusted 0.6 percent in January, beating analysts' consensus forecast of a 0.4 percent gain.

Battered US consumers' revived appetite had been foreshadowed by a surprise 1.0 percent rebound in January retail sales.

In December, consumer spending, which accounts for two-thirds of US economic activity, had fallen for the sixth consecutive month, by 1.0 percent. Over the June-December period consumer spending dropped 3.5 percent.

On an annual basis, consumer spending in January was 1.6 percent lower.

Excluding price changes, consumer spending rose 0.4 percent in January, the steepest increase since December 2006, after falling 0.5 percent in December.

Personal income rose 0.4 percent in January, double the 0.2 percent gain in December but trailing the rise in spending.

In the first month of the year, Americans found more cash in their pockets as personal disposable income -- income after taxes are paid -- vaulted 1.7 percent.

But the income gains were largely due to pay raises and adjustments for the federal government's civilian and military employees and a 95 percent plunge in personal current taxes amid the sharply shrinking economy.

Excluding special factors, personal income increased 0.2 percent in January, after falling 0.3 percent in December.

Nigel Gault, chief US economist at IHS Global Insight, warned the uptick was no sign of a rebound.

"Do not be fooled by the rise in incomes and consumption this month. Household wealth continues to fall rapidly, employment is falling steeply, and consumer sentiment is at or near all-time lows," Gault said.

"These are not the ingredients of a consumer recovery," he added.

Economist Sal Guatieri at BMO Capital Markets noted that US consumers had gotten a break from lower income taxes.

"The surprisingly strong start to the year, though unlikely to be sustained in coming months, should cushion the economic downturn in the first quarter following the largest pullback since 1982," he said.

The government on Friday reported gross domestic product, the measure of goods and services produced in the country, shrank a startling 6.2 percent in the fourth quarter, the sharpest contraction since 1982.

Analysts said the stronger-than-anticipated contraction indicated the US economy entered the year far weaker than expected.

With the world's largest economy sinking into a second year of recession, Americans continued to reverse decades of intense credit-fuelled spending to save.

Personal saving -- disposable personal income less personal spending -- vaulted 5.0 percent in January after a 3.9 percent rise in December. In August, a month before the financial crisis accelerated with the collapse of Wall Street investment bank Lehman Brothers, it was 0.8 percent.

Households had not saved so much of their monthly disposable income since March 1995. The 545.5 billion dollars squirrelled away was the highest since the Commerce Department began tracking the data in 1959.

The price index linked to personal consumption expenditures (PCE), used as an inflation bellwether for Federal Reserve monetary policy, rose 0.2 percent January after three straight months of decline, including a half-point drop in December.

The PCE index, excluding volatile food and energy prices, edged up 0.1 percent after three months of stability.

On a 12-month basis, the inflation indicator fell 0.7 percent and the core number dropped 1.6 percent.


Freddie Mac CEO Moffett quits after six-month stint (Reuters)

Monday, March 2nd, 2009 | Finance News

NEW YORK (Reuters) –
Freddie Mac (FRE.P) on Monday said Chief Executive Officer David Moffett is quitting just six months after being named to the post as the government forced the No. 2 U.S. mortgage finance company into conservatorship.

Freddie Mac in a statement said Moffett wants to return to the financial services industry, where he worked from 1993 to 2007 as vice chairman and chief financial officer of U.S. Bancorp (USB.N). Before 1993, he worked at BankAmerica Corp and Security Pacific Corp.

McLean, Virginia-based Freddie Mac is facing another year of steep losses as the housing downturn accelerates, and as the government boosts its use of the company and rival Fannie Mae (FNM.P) to refinance loans and stop foreclosures. Freddie Mac and Fannie Mae have said that foreclosure prevention efforts could worsen the credit profiles of their portfolios in 2009.

Freddie Mac reiterated that it expects its regulator will ask the Treasury for $30 billion to $35 billion in capital to maintain a positive net worth after the company files its 2008 annual report with the Securities and Exchange Commission.

"Whatever the reason Mr. Moffett has determined to leave, the abrupt departure with no replacement in hand is a negative indicator for the company," Jim Vogel, a strategist at FTN Financial Capital Markets in Memphis, Tennessee.

President Barack Obama last month outlined a home refinancing and foreclosure prevention plan that relies heavily on Freddie Mac and the larger Fannie Mae. At the same time, the Obama administration doubled its capital commitment to the companies to $400 billion.

"Management dysfunction" at Freddie Mac, which holds $799 billion in mortgages and guarantees $1.8 trillion of MBS, could reach levels bothersome to investors, Vogel said. But remaining management and government protections to the company's debt securities may yet underpin Freddie Mac's debt, he said.

Risk premiums on Freddie Mac's two-year debt increased about 3 basis points on Monday to 49 basis points above similar Treasury securities, according to TradeWeb and Reuters Pricing Service data.

James Lockhart, director of the Federal Housing Finance Agency, the companies' regulator, said he would work with Freddie Mac to ensure a smooth transition in leadership.

(Editing by James Dalgleish)


Head of US mortgage giant Freddie Mac quits (AFP)

Monday, March 2nd, 2009 | Finance News

The embattled US mortgage finance giant Freddie Mac, put under government control in September to avoid collapse, said Monday its chief executive will step down this month.

Freddie Mac chief executive David Moffett notified the chairman of the board of directors that he was resigning both as CEO and as a member of the board effective no later than March 13, the company said in a statement.

"Moffett indicated that he wants to return to a role in the financial services sector," the company, formally known as the Federal Home Loan Mortgage Corporation, said.

Freddie Mac said the board was working with the Federal Housing Finance Agency (FHFA), which has control of the firm, to appoint a successor.

The company confirmed its announcement last month that it would seek an additional 30 to 35 billion dollars from the Treasury to prevent its collapse.

Freddie Mac, which along with its sister institution Fannie Mae was taken over by the government in a September rescue, had said at the time that it determined the size of the shortfall while preparing fourth-quarter and full-year 2008 results.

The funds would come from a 200-billion-dollar line of credit with the Treasury set up to keep the company at least with positive net worth. The Treasury doubled the lines of credit to Freddie and Fannie, to 200 billion dollars each, on February 18.

Freddie Mac has already received 13.8 billion dollars from the Treasury after reporting a third-quarter loss of 25.3 billion dollars amid the global financial crisis and housing slump.

It had lost 28.9 billion dollars in the second quarter.

Freddie and Fannie, both government-chartered but shareholder-owned companies designed to provide liquidity to the housing market, were placed under government control in early September in an effort to avert a meltdown in the financial system and offer a backstop for trillions of dollars in outstanding mortgage debt.

Under the plan, the two firms received government-appointed chief executives and shed their shareholder profit mission.

The companies have been working with the government and the private sector to try to stem the rise in foreclosures following the collapse of the housing market in 2006 and the related subprime mortgage implosion that triggered the financial crisis in August 2007.