Global finance blog - news, jokes, life…

The Duane Morris law firm said that former U.S. Rep. Jim Saxton has joined its lobbying arm, Duane Morris Government Affairs, as a senior adviser in its Cherry Hill, N.J., and Washington offices.

Duane Morris said Saxton brings experience in the defense, energy and other business sectors.

Saxton served as a Republican in New Jersey’s 3rd Congressional District from 1984 to 2009. He was a high-ranking member of the U.S. House committees on Armed Services and Natural Resources, as well as the chairman of the U.S. Congress Joint Economic Committee for several years overnight pay day loans.

After completing graduate studies at Temple University in 1968, Saxton worked as a public school teacher and small business owner. He served as a member of the New Jersey General Assembly between 1976 and 1981 before being elected to the New Jersey State Senate in 1982. In 1984, Saxton was elected to the U.S. House of Representatives in a special election. He was re-elected to Congress 12 times before deciding to retire.

Source

Oracle Corp. President Charles Phillips admitted Friday to an affair first exposed on pricey billboards plastered throughout New York’s Times Square, San Francisco and Atlanta.

The supersize ads feature him and his mistress, beaming and canoodling. A Web address listed on the billboards, charlesphillipsandyavaughniewilkins.com, directed viewers to a site, which is no longer running, filled with photos and notes documenting a romance dating back to 2001.

"I had an 8½-year serious relationship with YaVaughnie Wilkins," Phillips said in a statement released Friday by Oracle’s public relations team. "My divorce proceedings began in 2008. The relationship with Ms. Wilkins has since ended, and we both wish each other well."

Phillips, 50, is reportedly still married to his wife Karen, and the two have a son together.

Wilkins declined to speak directly to the media, instead fielding requests through her cousin Misha Davila, who told CNN that Wilkins thought Phillips’ divorce was finalized in 2003.

Last summer, Davila said Wilkins received an anonymous e-mail tip about Phillips’ marital status. She hired and private investigator, and after learning Phillips was still married, ended the relationship last October payday loans in one hour.

Davila said Wilkins created the Web site, which apparently launched in October, as a gift from Wilkins for Phillips’ 50th birthday. She said the billboards were an attempt by Wilkins to reclaim her version of her relationship with Phillips– not an act of revenge.

Phillips, who has served on President Obama’s economic recovery advisory board since last February, joined Oracle (ORCL, Fortune 500) in 2003. Prior to joining the business software giant, he worked as a tech industry analyst at Morgan Stanley and served as a captain in the U.S. Marine Corps.

Often talked of as a potential successor to Oracle founder and CEO Larry Ellison, Phillips is one of the software company’s most senior — and highly paid — excecutives. On top of an $800,000 salary for 2009, he took home stock options and other compensation valued by Oracle at more than $18 million.

–CNN’s Mythili Rao contributed to this article. 

Source

General Electric — the last of the giant diversified conglomerates — has adopted a strategy that was once unthinkable: narrowing its focus. It’s a risky move for a company that had counted on its diversity as a hedging tool. But it’s also one that may pay off in spades.

By selling off media and entertainment division NBC Universal to Comcast (CMCSA, Fortune 500), GE is left with its core infrastructure business, which includes energy, transportation and health care units, as well as finance arm GE Capital and some consumer and industrial businesses. GE Chief Executive Jeffrey Immelt said on Thursday that the Comcast deal will allow GE to "play offense" by reinvesting in infrastructure, which performed very well during the recession.

That would mark a nice shift from GE’s defensive play, which was led by its flagging media division. NBC Universal’s profit has plunged 27% so far in 2009, compared to a 14% rise in earnings from its energy infrastructure businesses. Unlike NBC (and GE Capital for that matter), GE’s infrastructure unit helped the company weather the economic storm.

GE (GE, Fortune 500) bought NBC in 1985 for $6.3 billion to act as a hedge against its industrial businesses. With businesses in seemingly every sector, GE had counted on that part of its company to always do well no matter what the economic climate.

But analysts say holding onto NBC became too risky for GE, as the changing media landscape made it difficult to know how to invest. Internet media has soared, but it remains unclear how it will be monetized. Cash flow margins at NBC’s cable networks have been solid, but its broadcast channels have just a slim 5% margin.

"They’re getting out of a market at a good price where it is unclear whether they’re going to succeed," said Ed Zabitsky, analyst with ACI Research. "When you’re uncertain about a unit and you can sell it for a tremendous amount, you can take out a tremendous amount of risk."

Dialing back risk, dialing up growth. Many say GE has taken on enough risk by holding onto its finance unit, GE Capital. Once a driver of 40% of GE’s operating profit, GE Capital has gotten slammed by the subprime mortgage crisis and now contributes just more than 14% of GE’s earnings.

Analysts say that the main reason GE isn’t shopping GE Capital around is that GE won’t be able to get top dollar for the unit because of the lingering effects of the credit crisis.

Also, unlike NBC, GE Capital actually has some synergies with its core business. In addition to its mortgage and lending business, GE Capital finances the parent company’s infrastructure purchases, and it offers financing to GE’s vendors as well no fax payday loans.

Even in its heyday in the 1990s, when NBC was making upwards of $400 million a year for GE, the media company had no other synergies with GE’s other businesses. Now that NBC is slumping, GE decided it was the right time to unload it.

"As management reshapes GE, there’s clearly going to be a focus on the classic infrastructure businesses that have been its cash cows, namely energy, transportation, health care," said Nick Heymann, analyst at Sterne Agee & Leach. "Everything else that’s left will be a facilitator for one of those core businesses."

Heymann said the businesses that GE will decide to hold onto will all be focused on growth. GE believes that its infrastructure and related businesses have the best chance to succeed because of those units’ strong positions in the fast-growing emerging markets.

"This deal gives us tremendous flexibility at exactly the right moment and time," said Immelt on a conference call with investors. "There are lots of global opportunities in infrastructure as we think about the company going forward."

The death of the conglomerate. Experts say GE’s decision to unload risk and focus on what it does best puts a nail in the coffin of the conglomerate idea.

"The whole idea of conglomerate is really lousy," said Peter Cohan, a venture capitalist, management consultant and GE shareholder. "You can’t hedge cash flows of one business from another, because they can’t predict how they’ll interact."

Cohan said that over time, companies found the notion that they could offset risk from one industry by owning a business in another was overly simplistic, as there is no way to ensure that one business will succeed when another fails.

Instead, according to Zabitsky, GE and other companies are now opting to increase their capital reserves to offset risk instead of making non-core acquisitions.

But not everyone agrees that GE’s strategy is the best.

"GE had enough balance in its business that if something got disrupted, there would be something else there to save the day," said Rick Munarriz, senior analyst at The Motley Fool. "I don’t necessarily agree with its decision to trim down and focus on its core. This isn’t the time to shrink, this is the time to take advantage of everyone else shrinking." 

Source

In a surprise move, General Motors chief executive Fritz Henderson resigned Tuesday, giving the battered government-owned automaker its third boss in less than a year.

The move was announced by GM Chairman Ed Whitacre following what he described as a "hectic" meeting of the company’s board of directors, which had been put in place with government oversight after the company’s trip through bankruptcy earlier this year.

Whitacre said he will take over as CEO of the nation’s largest automaker until a replacement is found, and that a search for a new president and CEO would start immediately.

The Treasury Department, which owns 61% of GM stock, was informed of the move but not consulted in advance, according to GM spokesman Chris Preuss.

An administration official said the decision "was made by the board of directors alone" and that the administration was not involved in the decision.

Henderson, 51, a career GM employee, took over as CEO after Rick Wagoner was forced out in March by the Obama administration as part of GM’s government-supervised restructuring.

Whitacre did not answer any questions about the change or the reasons behind them.

"While momentum has been building over the past several months, all involved agree that changes needed to be made," he said.

At the time of his appointment as CEO, many analysts questioned whether Henderson, who has worked at GM for 25 years since graduating from business school, was the right executive to change GM’s insular culture.

Others have said, however, that bringing in an outsider would have been risky given the size and scope of GM and the complexity of its problems.

Steven Rattner, the former head of a Treasury task force that led the government takeover, wrote in Fortune in October that Henderson was originally offered the title of interim CEO but asked not to have the "interim" attached to his title because he didn’t want his authority undercut.

For his part, Henderson had pointed out that the board could fire him at any time.

Whitacre said Tuesday that he and the board are convinced that GM is moving in the right direction.

But GM recently reported a loss of $1.2 billion since its emergence from bankruptcy on July 10 through Sept. 30. Meanwhile, rivals Toyota Motor (TM) and Ford Motor (F, Fortune 500) reported surprise profits in the period due to the spike in sales from the Cash for Clunkers program.

GM also suffered setbacks in its reorganization effort.

The announced sale of its Saturn brand to the Penske Automotive Group (PAG, Fortune 500) fell through earlier this summer. Last week a Swedish buyer for its Saab brand backed out, citing delays in GM closing the sale.

The failed deals forced GM to announce plans to close Saturn and look for an alternative buyer for Saab. GM said Tuesday that it would weigh various offers for Saab for another month, but that closing it was an option.

GM also has not been able to finalize the sale of its Hummer brand to a Chinese manufacturer on the announced timetable.

Finally, last month GM said that it had decided not to sell a majority stake in its main European brand Opel to a group led by Canadian parts supplier Magna International (MGA). It is now seeking help from European governments to restructure that business to end losses there.

David Cole, chairman of the Center for Automotive Research, a Michigan think tank, said he believes that Henderson and the board were on the same page on the Opel deal. He said he doesn’t believe the Saab deal was big enough to spark a falling out, but that it’s possible it was seen as a sign by the board that Henderson was not able to execute the company’s plans.

"My guess is it is something that materialized very quickly," Cole said. "This is not something that was brewing for some time."

Still others say they saw the writing on the wall.

"This does not come entirely as a shock," commented Edmunds.com Senior Analyst Michelle Krebs. "Ed Whitacre was the government’s choice to lead the company and the Automotive Task Force always appeared lukewarm about the idea of Fritz staying in the top job," she said.

"In recent months, the board and Henderson appeared as if they were not on the same page," added Krebs.

Tom Libby, president of the Society of Automotive Analysts, said he had heard rumors recently that Vice Chairman Bob Lutz would replace Henderson. Libby believes that Lutz is still in the running.

Lutz, 77, is credited with helping to change GM’s slow-moving insular culture and with greatly improving its product lineup in his recent role as global head of product development. Lutz now heads GM’s marketing efforts.

"It’s indisputable that, as a product person, he’s been very successful, but this is a very different situation," Libby said.

Cole said he’d be surprised if GM went with an insider to be the new CEO. The job should be attractive to outside candidates even with wage limits imposed by government ownership.

"With the reorganization, they’ve take a lot of costs out of each vehicle," Cole said. "When industrywide sales start to improve, they should get very profitable very fast."

But industrywide sales have yet to show much improvement. On Tuesday industrywide sales for November came in little changed from the weak sales levels of a year ago for the second straight month.

Henderson announced last month that GM would start to repay its $6.7 billion loan to Treasury and make a $1 billion payment by the end of the year. But the government’s ability to recover most of the $50 billion it sunk into the reorganization of GM will depend on its ability to sell stock to the public at an improved price.

GM, because of the bankruptcy, has not disclosed Henderson’s 2009 pay. Treasury Department records show that the company’s top executive salary this year is $950,000 in cash and total compensation of $5.4 million. 

Source

When CIT Group filed for bankruptcy Sunday, it wasn’t much of a surprise. The once-dominant small business lender has been largely sidelined for more than a year.

CIT Group was historically a major player in two key markets: lending to new and expanding businesses, especially franchises, and providing short-term financing for retail suppliers. On the retail side, CIT has stayed active, but its traditional lending has come to a near standstill.

Last year, CIT Group made more than 1,200 loans through the Small Business Administration’s primary lending program, totaling $771 million. But in the 2009 fiscal year, which ended Sept. 30, its loan volume fell 88%. CIT Group made just 142 loans, totaling $105 million.

That sharp drop-off has left CIT’s usual borrowers scrambling to find new financers.

"In the past, CIT has been an important lender to the franchise businesses," said Alisa Harrison, a spokeswoman for the International Franchise Association. "However, earlier this year they dramatically reduced their lending to the industry as a result of their financial problems, prompting franchise companies to seek alternative capital sources to replace CIT."

One popular franchise, Dunkin’ Donuts, relied on CIT for years as one of its preferred lenders. But CIT’s lending dried up as the economy deteriorated. "Lending volumes by CIT with our franchisees are certainly lower in 2009 than in previous years," said Andrew Mastrangelo, a Dunkin’ Donuts spokesman.

Dunkin’ Donuts insists that CIT’s precarious financial state isn’t hindering the company. "CIT’s bankruptcy filing in no way affects our stores, their ability to grow or our ability to meet consumer demand," Mastrangelo said.

But others who track small business loans see ripple effects. Lending to small businesses has been cut in half this year, according to Bob Coleman, editor of the Coleman Report, a trade publication that monitors small business lending trends.

Outgoing CIT CEO Jeffrey Peek likes to call his company "the bridge between Wall Street and Main Street." Since last year, that bridge has been collapsing.

"This is why this is so terrible for Main Street," Coleman said. "If this were a GM plant, everyone would be screaming that we need to keep this GM plant there."

We ‘dodged a bullet’

While CIT’s traditional loan business dwindled, the company has stayed active in another field it dominates: factoring, a type of financing that lets companies borrow against their customer invoices.

Factor financing is popular in the retail field, where margins are paper-thin and manufacturers can’t wait around for their customers to pay up. Selling accounts receivable to a factor, typically for 70 to 90 cents on the dollar, gives suppliers an immediate cash infusion and lets them pass on the administrative work of collecting payments from customers.

The National Retail Federation estimates that CIT providers factoring services to around 2,000 manufacturers, which in turn supply products to some 300,000 retail locations. For those suppliers, "there aren’t a whole lot of other alternatives," said J. Craig Shearman, the NRF’s vice president for government affairs. "There are a number of smaller firms that do factor financing, but not enough to pick up the slack if CIT were to drop out of factor financing all together."

CIT’s factoring volume has dropped this year, largely in response to the weak retail market payday loan in advance. In the first half of this year, it had a transaction volume of $16.5 billion, down 20% from the same period in 2008.

While CIT’s holding company is in bankruptcy, none of its operating subsidiaries are affected by the filing. That means the company’s factoring business is carrying on as usual.

Still, any trip through bankruptcy is going to leave a legacy, and those that rely on CIT are waiting to see how the situation will play out. One silver lining: CIT’s bankruptcy happened late enough that it won’t disrupt the critical holiday shopping season, when retailers typically rake in 25% to 50% of their entire year’s revenue.

"We think we have dodged a bullet," Shearman said. "Most of the merchandise for the holidays is in the distribution centers, if not in the stores themselves."

Individual customers have so far stayed out of the fray. Ray Steele has been working with CIT since the day he and his wife opened their furniture supply company, Ultimate Accents in Kernersville, N.C. They are not planning on making any changes.

"We have been with CIT for 11 years and at this point have no reason to go elsewhere, unless something changes that we can’t foresee right now," Steele said. "Since they continue to fund us uninterrupted, it is not a concern of ours right now. I mean, you fly on a plane of a company that is bankrupt, you buy a car from a company that is bankrupt."

CIT says its bankruptcy proceedings won’t affect the company’s day-to-day business. That’s good news for Steele, because finding another factor financing company to work with wouldn’t be easy. "It would be a big imposition on us, and it would affect our business — as it would 99% of the other people that would be put in that position," Steele said.

What comes next

CIT’s bankruptcy followed months of negotiations with the government and with potential investors for a desperately needed capital infusion. The company’s public struggles took a toll: The week of July 13, when CIT appeared poised to go bankrupt, customers drew down $700 million against CIT’s financing lines, twice the normal transaction volume.

Also that week, Microsoft (MSFT, Fortune 500) and tool retailer franchise Snap-On gave CIT a no-confidence vote, cancelling financing programs they had in place with the company.

CIT said it has the capital it needs to continue its day-to-day operations. Through the bankruptcy reorganization, the company hopes to shed around $10 billion in debt and position itself for a return to profitability. A judge will hear its case on Dec. 8.

It’s uncharted water. CIT’s bankruptcy is the fifth largest in U.S. history, and among those companies, only General Motors has emerged with an intact operating business.

"It is not a slam dunk," said industry observer Bob Coleman. But "it is better than the alternative. Right now, you have a company that is dead in the water and can’t do any lending."

Meanwhile, customers like Ray Steele are keeping their fingers crossed. "Everything so far seems to be fine," he said. "Hopefully it will continue to be that way." 

Source

Washington’s so-called "pay czar" Kenneth Feinberg cautioned lawmakers against extending his authority to the hundreds of other companies that accepted government bailout money.

Speaking before the House Committee on Oversight and Government Reform Wednesday, Feinberg said his recent review of executive pay packages at the seven biggest bailout firms was "justified" given the government’s massive stake in these companies.

Appointed by President Obama in June, Feinberg has spent the past five months carefully reviewing pay practices at those companies in order to both protect American taxpayers’ investment and position the firms to pay back bailout money as soon as possible.

Still, he indicated that intervening in how banks and other companies that accepted money under the Treasury Department’s Troubled Asset Relief Program, or TARP, would amount to nothing more than "micromanaging."

"That is where my authority should end," Feinberg said, according a copy of his prepared remarks before lawmakers. "I do not believe it necessary or wise to broaden my jurisdiction or make my legal authority more pervasive."

That sentiment was echoed by some lawmakers Wednesday who expressed concerns by the government’s unprecedented level of oversight into how workers in the private sector are paid.

"The successes of the past in America should not, in fact, be wiped away because of the sins of a few on Wall Street who perhaps, realizing that bulls and bears were both making money, decided to become pigs," said Rep. Darrell Issa, R-Calif., the ranking member for the committee.

Last week, the pay czar issued his first in what will be a series of rulings on compensation, ordering 50% pay cuts, on average, for 136 executives at AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), General Motors, its former finance arm GMAC, as well as Chrysler and Chrysler Financial.

Feinberg now turns to the pay plans for the next 75 most-highly paid employees at each firm . He also will need to review pay plans for 2010 for all seven companies.

Last week’s ruling only applies to compensation during the months of November and December but will serve as a base for determining how these executive are paid next year.

Feinberg warned Wednesday that issues like "grandfathered" retention contracts and other guaranteed forms of compensation could be particularly thorny issue in the months ahead.

"There will undoubtedly be new compensation issues which will confront us in 2010," he said.

He also faces the tough task of sorting through some $198 million in retention payments owed to workers in AIG’s Financial Products division, the unit that led to that company’s near collapse.

Feinberg said Wednesday that this issue remained a "top priority" for him and that he hoped to resolve it through negotiations with AIG in the coming months.

More pay changes to come?

There are also signs that Feinberg’s ruling is reviving the debate over whether lawmakers need to implement their own legislative constraints on pay.

One key proposal, which has the support of President Obama, would give shareholders at public companies a so-called "say on pay" for senior management by providing them a non-binding vote on executive pay packages.

Feinberg, a long-time Washington attorney who was thrust into the public spotlight earlier this decade after overseeing compensation payments to September 11 victims, said Wednesday the issue was "worthy of consideration" by lawmakers.

One key hope, however, was that other companies on Wall Street and across corporate America, would use his pay ruling as a model for how they reward employees going forward.

"Hopefully the model that is created in my report will trickle and expand beyond these seven companies," he said. 

Source

Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.

Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s forecast, according to Commerce Department figures issued today in Washington. Other data showed orders for durable goods climbed 1 percent in September, the fourth gain in the last six months.

Stocks fell as the home-sales report reinforced concerns a recovery from the worst recession since the 1930s may cool after programs such as the $8,000 tax credit and Federal Reserve purchases of mortgage-backed securities expire. Economists say a recovery in housing is a key to rebuilding the confidence and finances of American consumers, whose spending makes up 70 percent of the world’s largest economy.

The drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Whatever you think about the economy, it’s not going to be a straight line” toward recovery.

The Standard & Poor’s 500 Index declined 1.1 percent to 1,051.86 at 11:57 a.m. in New York, extending a global slump. The S&P Homebuilder Supercomposite Index, which includes companies such as Lennar Corp. and KB Home, dropped 4.2 percent to 243.63.

New-home sales were forecast to rise to a 440,000 annual rate, according to the median forecast of 75 economists in the Bloomberg survey. Estimates ranged from 412,000 to 460,000 after an initially reported 429,000 rate the prior month.

Possible Extension

Sales of new homes, which make up less than 10 percent of the market, are tabulated when a contract is signed. Purchases of existing homes, which account for the remainder, are counted when transactions close and thus reflect contracts signed a month or two earlier.

Contracts signed last month to buy a new house may not be able to close before the tax credit expires at the end of November. A proposal to extend the credit as part of an unemployment-benefits measure has significant support, Senate Majority Leader Harry Reid said today.

Previously owned homes in September sold at a 5.57 million pace, up a record 9.4 percent from the prior month, the National Association of Realtors reported last week. The level of sales was the highest in more than two years.

Lower Prices

The median price of a new house fell to $204,800, compared with $225,200 at the same time last year. The value was up 2.5 percent from the prior month, reflecting a plunge in the share of houses selling for less than $150,000, a category that often includes first-time buyers payday advance lender.

Sales fell 11 percent in the West and 10 percent in the South. Purchases in the Midwest jumped 34 percent and were unchanged in the Northeast.

Builders had 251,000 houses on the market last month, the fewest since November 1982. It would take 7.5 months to sell all homes at the current sales pace, the same as in August.

A report from the Commerce Department tomorrow may show the economy grew at a 3.2 percent annual pace last quarter, according to the median estimate of economists surveyed. It would be the first positive reading in more than a year and the strongest performance since the third quarter of 2007. Growth is forecast to slow to a 2.4 percent pace in the fourth quarter.

‘Temporary Factors’

“Much of the strength in the economy is due to temporary factors such as fiscal stimulus initiatives like the home- buyers credit,” said Dana Saporta, an economist at Stone & McCarthy Research in Skillman, New Jersey.

Fed policy makers meeting next week are likely to repeat their commitment to keeping interest rates low for an “extended period.” The Fed last month decided to slow purchases of $1.25 trillion in mortgage-backed securities while extending the end-date of the program by three months, to March 31.

The gain in durable goods orders illustrates how manufacturers such as Caterpillar Inc. are benefiting from $2 trillion in global stimulus spending.

The 1 percent increase in bookings for goods meant to last several years matched the median estimate of economists surveyed by Bloomberg News and followed a 2.6 percent drop the prior month.

Better Forecast

Caterpillar, the world’s largest maker of bulldozers and excavators, issued a full-year profit forecast exceeding the highest prediction from analysts. Peoria, Illinois-based Caterpillar is considered a bellwether for its ties to construction and mining and its overseas presence.

“We are seeing encouraging signs that indicate a recovery may be under way,” Chief Executive Officer Jim Owens said in a statement on Oct. 20. “We’ve already started planning for an upturn.”

Shipments for non-defense capital goods excluding aircraft, used in calculating gross domestic product, fell 0.2 percent in September. For the quarter, such shipments dropped at a 1.9 percent annual pace compared with a 14 percent plunge in the prior three months, indicating business investment stabilized after plunging over the past four quarters.

Source

Sales of existing U.S. homes surged a record 9.4 percent in September as Americans rushed to take advantage of a tax credit for first-time buyers before it expires next month.

Purchases rose to a 5.57 million annual rate, more than forecast and the highest in more than two years, the National Association of Realtors said today in Washington. The median price fell at the slowest pace in a year as the number of houses on the market shrank.

While sales may cool unless Congress decides to extend the $8,000 credit due to expire Nov. 30, lower prices and mortgage rates have also made houses more affordable and may cushion any decline. Smaller price decreases show the market is stabilizing as demand improves, easing the strain on consumer finances that deepened the worst recession since the 1930s.

“The excess supply of unsold homes has declined a lot and this reduces the downward pressure on home prices,” said Harm Bandholz, an economist at UniCredit Global Research in New York. “An improvement in house prices is an important condition for an increase in housing wealth and therefore higher willingness of households to start spending again.”

Stocks retreated, wiping out the week’s gains, as a decrease in oil prices hurt energy shares and disappointing results from the largest U.S. railroad hurt industrials. The Standard & Poor’s 500 Index closed down 1.2 percent at 1,079.60 in New York.

Record Gain

The September increase in combined sales of single-family houses and condominiums was the biggest since comparable records began in 1999.

Existing home sales were forecast to rise to a 5.35 million annual rate, according to the median forecast of 76 economists in a Bloomberg News survey. Estimates ranged from 5 million to 5.6 million, after an initially reported 5.1 million rate in August. Resales reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.

Purchases of existing homes were up 9.2 percent compared with a year earlier. The median price fell to $174,900, down 8.5 percent from a year ago and the smallest decrease in 13 months.

The number of previously owned homes on the market dropped 7.5 percent to 3.63 million in September. At the current sales pace, it would take 7.8 months to sell those houses, the lowest level since March 2007. A seven months’ supply is usually consistent with stabilization in prices, NAR chief economist Lawrence Yun said in recent months.

Distressed Sales

The share of homes sold as foreclosures or otherwise distressed properties was 29 percent in September from 31 percent in August, Yun said.

Today’s report showed sales of existing single-family homes climbed 9.4 percent, the biggest gain since 1986, to an annual rate of 4.89 million. Sales of condominiums and cooperatives increased 9.7 percent to a 680,000 rate.

Purchases increased in all four regions, led by a 13 percent surge in the West. Purchases climbed 9.6 percent in the Midwest, 9 percent in the South and 4.4 percent in the Northeast.

Purchases of previously owned homes, which make up more than 90 percent of the market, are tabulated when sales close and therefore reflect contracts signed a month or two earlier. Sales of newly built residences, which make up the rest, are counted when a contract is signed, and may therefore cool months before the tax credit expires. Buyers must close before the Nov. 30 deadline to be eligible for the tax credit.

Extend Credit

Last month’s sales were “heavily dependent” on the tax credit, the NAR’s Yun said in a press conference.

The Realtors’ group and the National Association of Home Builders are lobbying to extend the first-time homebuyers credit on concern demand will wane after it lapses. Lawmakers this week took up the call.

“The work of stabilizing the housing market won’t be done” when the credit expires next month, Senate Banking Committee Chairman Christopher Dodd said during a panel hearing. “We still need to use every tool at our disposal to fix this problem.”

Dodd, a Democrat from Connecticut, and Republican Senator Johnny Isakson of Georgia, a former real estate agent, urged their colleagues to extend the credit through next June.

The Federal Reserve this week said its 12 district banks saw “stabilization or modest improvements” in many areas of the economy, led by housing and manufacturing. “Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said in its Beige Book of economic conditions in September and early October.

Housing-related companies are still trying to recover. USG Corp., North America’s largest maker of gypsum wallboard, posted its eighth straight net loss last quarter as sales dropped 32 percent from the same time last year.

“The residential housing market appears to have stabilized, but it has done so at a very low level,” Chief Executive Officer William Foote said Oct. 21 on a conference call with analysts.

Source

U.S. service industries expanded in September for the first time in a year as the emerging recovery spread from housing and factories to the broader economy.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, higher than forecast, from 48.4 in August, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.

“We should continue to see broad improvement in the economy,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Even so, she said, “hurdles remain within the side of the economy that creates jobs. It’s going to be growth, but weak growth.”

The index was projected to increase to 50, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from 45 to 52.1. Before today’s report, the gauge had shown contraction in every month since October 2008, just after Lehman Brothers Holdings Inc. filed for bankruptcy.

Stocks Higher

Stocks rose after the report, rebounding from the first two-week decline since July and led by financial shares as Goldman Sachs Group Inc. said big banks will outperform regional lenders. The Standard & Poor’s 500 Index closed up 1.5 percent at 1,040.46 in New York. Treasury securities were little changed from Oct. 2.

The ISM non-manufacturing gauge of new orders rose to the highest since October 2007, and the index of employment gained to 44.3, the highest since August 2008 and signaling job cuts were decelerating.

Employers unexpectedly cut more jobs last month than in August and unemployment climbed to the highest level since 1983, Labor Department data showed on Oct. 2. Payrolls fell by 263,000 following a 201,000 drop the prior month, while the jobless rate rose to 9.8 percent from 9.7 percent. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

Job losses are a “concern,” Anthony Nieves, chairman of the ISM’s non-manufacturing survey, said on a conference call. “Until we see employment come back, we are not going to see dramatic growth in the economy.”

Employment Trends

A measure of U.S. job prospects improved in September for the first time in more than a year, a sign job losses may not keep accelerating, a private survey showed. The Conference Board’s Employment Trends Index rose 0.3 to 88.5, the first increase since January 2008 and the highest level since April, the New York-based private research group said today.

Economic growth next year probably won’t be strong enough to “substantially” bring down unemployment, which may remain above 9 percent at the end of 2010, Fed Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Five of 18 industries in the ISM services survey including utilities, health care, housing, retailing and construction, expanded last month, today’s report showed.

ISM’s factory index on Oct. 1 showed manufacturing, which accounts for about 12 percent of the economy, expanded less than economists anticipated in September. The measure slipped to 52.6, the first drop this year, from 52.9 in August.

Economy Growing

Recent data signal growth resumed in the third quarter after the economy shrank in the first half of 2009. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, led by the government’s $3 billion incentive program to trade in older, less fuel-efficient cars.

Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as steadier demand trims the property glut. The number of contracts to buy previously owned homes rose in August for a seventh month, lifted by the first- time buyer credits, data from the National Association of Realtors showed last week.

Macy’s Inc., the second-largest U.S. department store chain, is among retailers that are seeing more stable sales and planning to hire staff for the holiday season.

“We are seeing some stabilization ourselves,” Chairman and Chief Executive Officer Terry Lundgren said in a Sept. 8 interview on Bloomberg Television. “We have a much better handle now on where we are headed.”

Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, said last week that higher demand for hotel rooms in New York City may signal the U.S. is beginning to emerge from the recession.

“Occupancy is starting to come back, yes, at low rates, but if this recovery looks like a normal recovery we would see in a couple of quarters rates come back as well,” Van Paasschen said in an Oct. 1 interview. “I am just not sure if this is a normal recovery.”

Source

The U.S. recovery may be slow to develop as a gauge of business activity dropped unexpectedly and a private report showed employers cut more jobs than forecast in September.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 46.1, lower than the most pessimistic forecast, from 50 in August. Readings below 50 signal a contraction. Companies cut payrolls by 254,000 jobs in September, according to ADP Employer Services.

Stocks fell on concern a rebound may be uneven as the government winds down incentives such as the “cash-for- clunkers” program that lifted sales at automakers including Detroit-based General Motors Co. With excess capacity close to a record, companies have little reason to hire new workers or ramp up production until they see stronger gains in demand.

“The pace of improvement will probably slow,” said Rob Carnell, chief international economist at ING Financial Markets in London, whose forecast for a reading of 49.5 for the Chicago index was the lowest among 61 economists surveyed. “You strip away a lot of the stimulus and we’re not seeing a whole lot of improvement in the U.S. economy.”

The Standard & Poor’s 500 Index lost 0.4 percent to 1,056.51 at 12:42 p.m. in New York. The Dow Jones Industrial Average fell 44.58 points, 0.5 percent, to 9,697.62. More than two stocks fell for each that rose on the New York Stock Exchange.

Gross on Growth

The economic recovery will be characterized by “new normal” annual growth rates of 1 percent to 2 percent and very little inflation, Bill Gross, manager of Pacific Investment Management Co., the world’s biggest bond fund, said in an interview yesterday with Bloomberg Radio.

Gross said he’s been buying longer-maturity Treasuries in recent weeks as protection against deflation, or a broad decline in prices, and that total returns on equities will average about 5 percent annually.

Economists forecast the Chicago gauge would rise to 52, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 49.5 to 55. The ADP report was forecast to show a decline of 200,000 jobs, according to the median of 33 estimates.

A report from the Commerce Department showed the worst U.S. recession since the 1930s eased more than anticipated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, according to revised figures. Gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.

National Manufacturing

Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy.

The national Institute for Supply Management, which is not affiliated with the Chicago group, is scheduled to release its September factory report tomorrow. According to a Bloomberg survey, that measure will show manufacturing expanded at the fastest rate in more than three years.

U.S. auto sales in September probably fell to the second- lowest pace this year after the federal government ended its $3 billion incentive to trade in gas-guzzlers for more fuel- efficient vehicles. Automakers report September sales tomorrow.

Smaller inventories may contribute to a rebound in output this quarter and next as companies restock shelves. Stockpiles dropped at a record $160.2 billion annual rate in the second quarter, the Commerce Department’s GDP report showed. Automakers General Motors and Ford Motor Co. are among firms boosting production in coming months.

Unemployment Forecast

The ADP employment report comes two days before a Labor Department release forecast to show the unemployment rate rose to 9.8 percent in September, the highest since 1983, while employers cut 180,000 jobs.

ADP includes only private employment and doesn’t take into account hiring by government agencies. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.

The economy has lost 6.9 million jobs since the recession began in December 2007, the most of any economic slump since the Great Depression.

The drop in GDP, the sum of all goods and services produced, was less than the 1.2 percent median forecast in a Bloomberg survey of 78 economists. The government previously calculated the pace of contraction for last quarter at 1 percent.

Worst Recession

The world’s largest economy shrank 3.8 percent since last year’s second quarter, making this the deepest recession since the 1930s.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 0.9 percent pace last quarter, less than the government previously estimated. The median forecast of economists surveyed projected spending would be unrevised at a 1 percent drop.

The economic recovery is “slow but certain,” FedEx Corp. Chief Executive Officer Fred Smith said this week, adding he has “guarded confidence” about an improving global outlook.

“Recovery is not a straight line up, but a zig-zag with a few steps forward and backward,” Smith, the founder of the second-largest U.S. package-shipping company, said at FedEx’s annual meeting in its hometown of Memphis, Tennessee.

Source