Archive for March, 2010

Consumer spending up, sign of decent recovery (AP)

Monday, March 29th, 2010 | Finance News

WASHINGTON – Consumers spent modestly last month, a sign that the economic recovery is proceeding at a decent — but not spectacular — pace.

The Commerce Department reported Monday that consumers boosted their spending by 0.3 percent in February. That was a tad slower than the 0.4 percent increase registered in January and marked the smallest increase since September. Still, the increase in spending was considered a respectable showing, especially given the snowstorms that slammed the East Coast and kept some people away from the malls. It marked the fifth straight month that consumer spending rose.

Americans' incomes, however, didn't budge.

Incomes were flat in February, following a solid 0.3 percent gain in January. It marked the weakest showing since July, when incomes actually shrank. Income growth is the fuel for future spending. February's flat-line reading suggests shoppers will be cautious in the months ahead.

Spending growth in February matched economists' expectations. The reading on income was a bit weaker than forecast.

Both the spending and income figures in Monday's report point to a modest economic recovery.

That cheered Wall Street investors. The Dow Jones industrial average gained 40 points in morning trading.

Many analysts predict the economy slowed in the first three months of this year after logging a big growth spurt at the end of 2009.

The economy will expand at only a 2.5 percent to 3 percent pace in the first quarter of this year, analysts predict. That's roughly half the 5.6 percent pace seen in the final quarter of last year.

In normal times, growth in the 3 percent range would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the 5 percent range would be needed for an entire year to drive down the unemployment rate, now 9.7 percent, by just 1 percentage point.

Unlike past recoveries, where consumer spending led the way, this one is hinging more on the spending of businesses and foreigners.

High unemployment, sluggish wage gains, hard-to-get credit and record-high home foreclosures are all expected to prevent consumers from going on a spending spree — one of the main reasons why the pace of the recovery will be more subdued than in the past.

With spending outpacing income growth, Americans' savings dipped in February.

Americans saved 3.1 percent of their disposable income, down from 3.4 percent in January. It was the lowest reading on the savings rate since October 2008.

Consumers increased their spending on "nondurable" goods, such as food and clothing, by 0.7 percent in February. That was down from a 1.7 percent increase in January. They boosted spending on services by 0.3 percent, up from a 0.2 percent rise in January. But they cut spending on "durable" goods, such as cars and appliances, by 0.4 percent, not as deep as the 1.4 percent cut in January.

Consumer spending accounts for the single-biggest slice of overall economic activity. That's why it is so closely watched by investors and economists.

So far in the current quarter, consumer spending is shaping up to be better than it was at the end of last year.

For the entire January-to-March quarter, analysts think consumer spending come clock in at a pace of around 3 percent. That would mark an improvement from the 1.6 percent growth rate logged in the final quarter of last year.

Analysts are growing more confident that consumers will keep spending sufficiently into the coming months as the job market heals.

Economists predict that employers added around 190,000 jobs in March, in what they hope will be the start of consistent payroll gains. If they are right, it would mark the biggest jobs gain in three years. The unemployment rate is expected to stay at 9.7 percent for the third straight month.

The expected turnaround in job-creation would be welcome, but many economists say it will take at least until the middle of this decade for the situation to get back to normal, meaning a jobless rate of 5.5 percent. And, it will also take years for the economy to recover the 8.4 milion jobs wiped out by the recession.


World stocks, euro rise as debt worries ease (AP)

Monday, March 29th, 2010 | Finance News

LONDON – World markets rose and the euro strengthened Monday in the wake of the announcement of a eurozone aid plan for Greece, which the debt-ridden country followed up by planning a new bond issue.

The 16-country common currency has been the main beneficiary of the deal announced at an EU summit last week, with stocks gains more modest and Greek borrowing rates slow to show a rapid improvement.

The euro was at $1.3495 in European morning trade Monday, up from $1.3401 late Friday in New York. On Thursday it had hit a 10-month low below $1.33.

Britain's FTSE 100 benchmark index was up 0.4 percent at 5,725.97, Germany's DAX rose 0.7 percent to 6,163.78 and France's CAC-40 up 0.5 percent at 4,008.70.

After gains in Asia, Wall Street was also expected to gain on the open. Dow industrials futures were up 0.3 percent at 10,850.00 while Standard & Poor's 500 futures gained 0.6 percent at 1,169.80.

"Last week's agreement on an aid package to Greece helped return a semblance of confidence to markets and the euro," said Mitul Kotecha, analyst at Credit Agricole CIB.

He warned, however, that the plan does not signal the all clear, noting that Portugal — another country with troubled finances — saw a downgrade.

"Further austerity measures, fiscal issues in other EU countries — as reflected in Portugal's ratings downgrade — and the negative impact on growth that all of this implies, suggest that Europe and the euro will be plagued by various problems for some time yet," he said.

The aid plan for Greece entails bilateral loans from willing eurozone nations — with part of it from the International Monetary Fund — but only as a last resort, if Greece is unable to raise money on markets. No money is being made available to Greece now, and analysts warn that because the bailout loans would come at market rates, the effectiveness of such a plan is unclear.

Such details were not lost on investors, who remained skeptical of Greek debt as an investment.

The interest rate gap, or spread, between Greek 10-year bonds and equivalent German issues — a key indicator of market trust — hovered at 306 basis points Monday morning, almost unchanged from the 305 basis points on Friday. The spread narrowed from 330 points in the wake of Thursday's aid announcement, but is still too high for Greece to raise cash over the longer term.

Greece said Monday that it will issue 7-year bonds, but declined to give a size for the offering or a precise date. It needs to raise about euro20 billion ($27 billion) by the end of April and the interest rate negotiated will be crucial. Borrowing at higher rates will keep its finances under strain, neutralizing any positive effects from its painful spending cuts.

Meanwhile, economic indicators were mostly positive in Europe, with a European Commission survey showing business and consumer confidence improved in March, suggesting the recovery has not yet stalled.

In Asia, stock markets mostly rose as stronger earnings from Chinese companies helped buoy sentiment.

Chinese shares led the region after mega lender China Construction Bank and refiner Sinopec reported robust profits for 2009, supporting optimism about the world's third-largest economy and an engine for part of Asia's growth since the recession.

The Shanghai index jumped 2 percent to 3,122.15 and Hong Kong's Hang Seng rose 0.8 percent to 21,217.44. Markets in Taiwan, Australia and India also gained.

Japanese and South Korean markets were modestly lower. Japan's benchmark Nikkei 225 stock average was down 0.3 percent at 10,963.78. Japan's government said retail sales were higher for the second month in a row in February, rising 4.2 percent. In January, sales were up 2.3 percent.

But sales at larger retailers, including supermarkets and department stores, fell during the month.

The dollar rose to 92.51 yen from 92.35 yen.

The benchmark oil contract rose 78 cents to $80.78 a barrel.


China slaps Rio employees with up to 14 years jail (AP)

Monday, March 29th, 2010 | Finance News

SHANGHAI – A Chinese court slapped four employees of mining giant Rio Tinto with jail terms of seven to 14 years on bribery and commercial secrets charges, unexpectedly harsh sentences that include a decade of imprisonment for Australian Stern Hu.

The punishment for Hu was a "very tough sentence," Australia's foreign minister said after the verdict was read out Monday by the lead judge at the Shanghai People's Intermediate Court. It was unclear whether Hu or his coworkers would appeal.

The judge said the crimes committed by the four had caused major losses to the Chinese steel industry. The stiff sentences were meant "to protect market order and the normal management of business," he said. All, however, apparently received some reduction in sentence because they had pled guilty to some of the charges.

The four defendants stood impassively as their sentences were read aloud in a hearing that foreign media were allowed to watch by closed-circuit television.

Rio Tinto said the four would be sacked because the evidence in court showed beyond a doubt that they had engaged in the "deplorable behavior" of accepting bribes.

The arrests of the Rio Tinto employees last August were initially thought linked to Beijing's anger over high prices it paid for iron ore — a key commodity for China's booming economy. Rio Tinto, based in London and Melbourne, is one of the top suppliers of ore to China and a key industry negotiator in price talks with China's state-owned steel mills.

The secrets the four Rio Tinto employees were accused of obtaining were largely related to the annual price negotiations, according to the charges read out in court.

Industry analysts say that Chinese steel mills often seek to line up shipments from suppliers at preferential prices. The Rio Tinto case could herald a crackdown on that and other practices as the government seeks to rein in companies that fail to hold a united front in annual price negotiations.

This year's talks with global miners are under way, though in past years negotiations have usually run beyond the annual April 1 deadline.

Hu was sentenced to seven years on the bribery charges and five years on the commercial secrets charges but will serve 10 years. He was fined 1 million yuan ($146,000).

The longest term of 14 years was given to Wang Yong, of which 13 years was for accepting bribes. The court's charges against Wang said he received $9 million from Du Shuanghua, a steel tycoon whose company, Rizhao, has chafed at the state-dominated pricing arrangements, setting his own agreements with overseas suppliers. Wang was fined a total of 5.2 million yuan ($761,000).

The other two defendants, Ge Minqiang and Liu Caikui, were sentenced to jail terms of eight and seven years respectively.

The sentences were much tougher than had been expected in Australia, where the government had objected to the court's decision to close the hearings for the secrets charges.

The foreign minister, Stephen Smith, said the seven year sentence for Hu on bribery charges seemed to be "very harsh."

There were "serious unanswered questions" about the secrets conviction because that part of the trial was held behind closed doors, Smith said.

Rio Tinto's statement said it couldn't comment on the commercial secrets charges because it had no opportunity to consider the evidence.

The mining giant's CEO Tom Albanese said the company is now intent on protecting its Chinese business ties.

"I am determined that the unacceptable conduct of these four employees will not prevent Rio Tinto from continuing to build its important relationship with China. This is a high priority for me personally," he said.

Experts said the secrecy of part of the trial undermined hopes the Chinese legal system is becoming less opaque.

"There had been an expectation that the Chinese legal system was becoming more transparent and accountable, however on the evidence to date this trial has not met these expectations," said Ann Kent, a visiting fellow at the Australian National University College of Law.

Jin Chunqing, a lawyer defending Hu, said the defense team were gathering to discuss their next step. "We haven't decided yet if we would appeal to the higher court," Jin said. "We need to meet and discuss with Stern and his family face to face, as soon as possible."

"I think all of them were already mentally prepared to appeal both the bribery and secrets convictions, although they were very calm while hearing the sentence on the court," said Tao Wuping, the lawyer representing Liu.

Calls to lawyers for the others were not immediately answered.

All had pleaded guilty in a three-day trial held last week to the bribery charges, but had disputed the amounts they were alleged to have accepted.

The judge mentioned several companies whose employees allegedly gave bribes to the defendants in exchange for lining up preferential contracts.

Companies named included Shougang Group, Tianjin Rongcheng Steel Co. and Hebei Jingye Steel and Iron Co.


Associated Press Writer Rohan Sullivan in Sydney and Associated Press researcher Ji Chen contributed to this report.