Archive for January, 2011

U.S. jobs trickle in. Whither workers?

Monday, January 3rd, 2011 | Finance News

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WASHINGTON (Reuters) – U.S. private employers have recorded 11 consecutive months of job gains, yet the number of people who are so discouraged that they have given up searching for work stands at an all-time high.

Friday's employment report is expected to show the pace of payroll growth accelerated last month after a disappointing showing in November. However, consumers' assessment of the job market deteriorated in December, according to the Conference Board's latest consumer confidence survey.

This disconnect is symptomatic of the state of the labor market. Yes, it is recovering, but at a pace that can hardly keep up with population growth, let alone quickly bring down the 9.8 percent unemployment rate.

Private employment increased by an average of 106,000 per month through November. At that rate, it would take more than 6 years just to replace the jobs lost during the latest recession.

There is reason to believe hiring will pick up in 2011.

Many economists have raised economic growth forecasts, in part because of a tax deal that keeps in place lower rates enacted under President George W. Bush, and planned job cuts are down 60 percent from a year ago.

However, that may not make job hunting much easier, said John Challenger, chief executive of job placement firm Challenger, Gray & Christmas in Chicago.

"The job market could be even more competitive as improving job prospects entice people who abandoned their job searches out of frustration to re-enter the labor pool," he said.

The labor pool looks like it has sprung a leak. In a civilian labor force 154-million strong, only 64.5 percent were either working or looking for a job in November, a rate that matched October as the lowest since the early 1980s.

If workers come pouring back into the labor market more quickly than employers want to hire, the jobless rate will rise. The Labor Department counts people as unemployed only if they are actively looking for work, so those discouraged workers -- nearly 1.3 million of them as of November -- are excluded.

A look at the gender breakdown offers some signs that the dropout rate could stay high even if hiring improves.

Nearly two-thirds of the discouraged workers were men, perhaps a reflection of sharp declines in male-dominated industries such as construction and manufacturing, where jobs are expected to remain scarce.

Ethan Harris, an economist with Bank of America-Merrill Lynch, said the economic healing process will be faster for women than for men, in part because women are more likely to go to college and obtain the skills needed to find a job.

Among 18- to 24-year-olds, about 41 percent were enrolled in college or graduate school, according to Census data. Broken down by gender, 45.3 percent of women in that age group were enrolled, compared with just 36.7 percent of men.

STALL SPEED

The slow-healing labor market arguably poses the biggest threat to U.S. economic recovery and the biggest headache for Federal Reserve Chairman Ben Bernanke.

Bernanke said in early December it would take four to five years for the unemployment rate to come down to what he called more "normal" levels of around 5 percent to 6 percent.

He is scheduled to testify on monetary and fiscal policy before the Senate Budget Committee on Friday, one hour after the employment report is released. He no doubt will face questions on what more can be done to speed up the recovery.

Bernanke and his fellow Fed officials think economic growth will come in around 3 percent to 3.6 percent in 2011, which would be a step up from 2010's expected 2.6 percent rate.

Andrew Busch, a currency and public policy strategist at BMO Capital Markets, said he remains optimistic about the U.S. economy's 2011 prospects. But he also has compiled a list of reasons why growth might fall short of expectations.

The potential trouble spots include a renewed housing slump, tax hikes from budget-pinched states and a congressional battle over whether to raise the debt ceiling to allow the Treasury Department to borrow more.

Busch's biggest concern is that the economy manages just 2.5 percent economic growth, too slow to spur much hiring, triggering a Japan-esque deflation cycle.

"If you hit stall speed at 2.5 percent (growth), you've got a major problem," Busch said.

(Editing by Dan Grebler)

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Oil rises above $92, reaching 2-year high

Monday, January 3rd, 2011 | Finance News

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Oil prices rose to two-year highs Monday, at above $92 a barrel, sparked by a weaker dollar and renewed optimism that a rebounding U.S. economy will lead an increase in the global demand for crude.

By early afternoon in Europe, benchmark oil for February delivery was up 84 cents to $92.22 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.54 to settle at $91.38 on Friday.

"The latest U.S. economic data have created optimism that economic activity is gaining momentum in ... the world's largest oil consumer," said a report from Commerzbank in Frankfurt.

Markets will be paying close attention to the U.S. non-farm payroll and unemployment figures for December, due Friday.

Oil traded in the $70 range for most of last year before jumping in December to above $92, a two-year high, on signs of strong crude demand in emerging economies such as China. Oil averaged $79.72 a barrel in 2010.

"Investors are looking for even higher prices down the road, clearly banking on the global growth story remaining intact," said Edward Meir of MF Global in New York.

Traders in recent years have also increasingly bought oil futures contracts as protection against inflation and a falling dollar. However, if higher crude prices themselves threaten to quicken inflation, hedging with oil becomes a self-fulfilling prophesy.

"Investors are using oil or other commodities futures or options to hedge against inflation, a weaker dollar, stronger precious metals prices or an economic recovery," Cameron Hanover said. "In 2010, investors just bought oil, knowing that buying would push prices higher and it seems likely to continue in 2011."

The dollar slipped against the euro and the British pound on Monday, helping boost crude prices by making the commodity cheaper for investors holding the European currencies.

The euro was up to $1.3348 from $1.3286 late Thursday in New York, while the British pound rose to $1.5494 from $1.5415.

In other Nymex trading in February contracts, heating oil gained 3.31 cents to $2.5755 a gallon and gasoline futures rose 2.31 cents to $2.4534 per gallon. February natural gas futures jumped 16.5 cents to $4.57 per 1,000 cubic feet.

In London, Brent crude rose $2.76 to $95.85 a barrel on the ICE Futures exchange.

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Associated Press writer Alex Kennedy in Singapore contributed to this report.

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BofA to take $3 billion mortgage settlement charge

Monday, January 3rd, 2011 | Finance News

NEW YORK (Reuters) – Bank of America Corp agreed to settle outstanding claims on poorly underwritten mortgages it sold to government sponsored entities Fannie Mae and Freddie Mac, and said it will put aside $3 billion in the fourth quarter related to the claims.

Shares in Bank of America climbed 3.5 percent in premarket trading. Investors were worried that the bank, like other large mortgage sellers, may have to buy back billions in mortgages it sold with faulty paperwork and other problems.

The bank made a $1.28 billion cash payment to Freddie Mac, as part of the agreement to end all claims related to mortgages sold by Countrywide, a mortgage company bought by Bank of America, through 2008.

The bank paid Fannie Mae $1.34 billion in a similar agreement that settles claims on 12,045 Countrywide loans.

Bank of America also expects to record a fourth-quarter $2 billion goodwill impairment charge in its home loans and insurance business unit.

Fannie Mae said in a statement that the agreement with Bank of America addresses about 44 percent of its $7.7 billion in outstanding repurchase requests at the end of September.

The agreement is similar, though much larger in scale, to a recent $462 million settlement Ally Financial Inc made with Fannie last month.

Charlotte, North Carolina-based Bank of America is still working through claims related to mortgages sold to private investors.

(Reporting by Elinor Comlay; Editing by Derek Caney)

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