Wednesday, June 10, 2009

Australia Lost Fewer-Than-Estimated 1,700 Jobs in May (Update2)

By Jacob Greber

June 11 (Bloomberg) -- Australian employers cut fewer workers than estimated in May, adding to signs the economy may recover faster than other developed nations.

The number of people employed fell 1,700 from April, when it climbed a revised 25,400, the statistics bureau said in Sydney today. The median estimate of 20 analysts surveyed by Bloomberg News was for a 30,000 decline. The jobless rate rose to 5.7 percent from a revised 5.5 percent.

Australia’s dollar increased on speculation a strengthening economy will prompt central bank Governor Glenn Stevens to raise borrowing costs from a 49-year low. Consumer confidence jumped by the most in 22 years, business sentiment posted the biggest gain since 2001 in May and home loans rose for a seventh month as government stimulus and rate cuts began to revive domestic demand, reports showed this week.

“With the global economy on the mend and recession avoided in Australia, businesses will be back hiring again later this year,” said Craig James, a senior economist at Commonwealth Bank of Australia in Sydney. “Unemployment has hit double digits in countries around the globe, yet in Australia unemployment continues to just creep up.”

The number of full-time jobs dropped 26,200 in May and part-time positions increased 24,500, today’s report showed.

Australia’s unemployment contrasts with the U.S.’s jobless rate, which is at a 25-year high of 9.4 percent, Ireland’s 11.8 percent rate and Spain’s 17.4 percent.

Currency, Shares Rise

The Australian dollar climbed to 81 U.S. cents at 12:40 p.m. in Sydney from 80.49 cents just before the report was released. The two-year government bond yield rose 11 basis points, or 0.11 percentage point, to 4.08 percent.

The benchmark S&P/ASX 200 stock index advanced 0.5 percent to 4,044.10, extending its increase since March 6 to 29 percent. Shares in retailer David Jones Ltd. gained 3.2 percent.

“Once again the employment numbers have continued to defy expectations of carnage in the jobs market,” said David de Garis, a senior economist at National Australia Bank Ltd. in Sydney. “A lot of the anxiety on the economy has dissipated, so employers are saying we’re not going to shed large numbers.”

To spur domestic demand, the government unveiled plans in May to embark on an unprecedented A$22 billion ($18 billion) program to build schools, roads and railways. Reserve Bank of Australia policy makers cut its key rate between September and April by a record 4.25 percentage points to 3 percent.

Rate Expectations

Signs of a pickup in the economy have prompted investors to increase bets that Australia’s benchmark rate will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the key rate will be 79 basis points higher in a year, the index showed at 12:16 p.m. in Sydney. Late yesterday they tipped 60 basis points of gains and at the start of June, they tipped 3 basis points of cuts.

A report last week showed Australia joined India and China as one of the few major economies that expanded last quarter. Gross domestic product grew 0.4 percent in the first quarter from the previous three months as consumer spending gained.

Retailer JB Hi-Fi Ltd. raised its earnings forecast this week after opening new stores and boosting sales. It also increased its target for new store openings, with 160 outlets planned compared with its previous forecast of 150.

Germany-based retailer Aldi will spend A$1 billion over the next three years to expand its network of Australian stores to as many as 600 from 205, the Australian Financial Review reported today, citing Managing Director Michael Kloeters.

Job Cuts

In contrast, mining companies such as BHP Billiton Ltd. and Rio Tinto Group that are reliant on overseas demand are reducing production and labor. Rio Tinto has slashed its global spending by more than half to $4 billion this year and BHP shut its $2.2 billion Ravensthorpe nickel mine in Western Australia.

Qantas Airways Ltd., Australia’s largest carrier, said in April it will cut 1,750 jobs as demand for premium travel wanes.

“Australia is experiencing, so far, a smaller downturn than most countries,” Governor Stevens said in a speech on June 4. “The economy will be well placed” to benefit from a global recovery later this year, he added.

The participation rate, which measures the labor force as a percentage of the population aged over 15, rose to 65.5 percent in May from 65.4 percent.

The jobs report “suggests Australian employment is holding up a lot better than forward-looking indicators are suggesting,” said Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “It does suggest the fiscal stimulus may be working, particularly in the retail sector, which is Australia’s largest employer.”

New Zealand Leaves Key Rate Unchanged Amid Recovery (Update4)

By Tracy Withers

June 11 (Bloomberg) -- New Zealand’s central bank kept its benchmark interest rate unchanged for the first time in a year amid signs that a pickup in the housing market may bring the worst recession in more than three decades to an end.

“We expect the New Zealand economy to begin growing again toward the end of this year, but the recovery is likely to be slow and fragile,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today after leaving the official cash rate at 2.5 percent. “It’s likely to be some time before monetary policy support can be withdrawn.”

Bollard has cut interest rates by 5.75 points since last July to help kick-start an economy that began contracting in the first quarter of 2008. House sales are rising and businesses are more optimistic about sales and profits, adding to signs the economy may return to growth before the end of the year.

“The Reserve Bank’s easing cycle is now most likely at an end, barring a further downturn in global or domestic economic indicators,” said Darren Gibbs, chief economist at Deutsche Bank AG in Auckland. “We do not expect the Reserve Bank to reverse the easing cycle any time soon.”

New Zealand’s dollar bought 63.65 U.S. cents at 2:20 p.m. in Wellington from 62.60 cents immediately before the announcement.

Bollard reiterated his expectation that he won’t raise borrowing costs until late next year.

Rate Outlook

“We expect to keep the cash rate at or below the current level through until the latter part of 2010,” he said. “The rate could still move modestly lower over the coming quarters.”

Six of 11 economists surveyed by Bloomberg News forecast today’s move. Three expected a quarter-point reduction and two predicted a half-point cut.

New Zealand’s recovery will be hampered by the currency’s 25 percent surge against the U.S. dollar in the past three months, say farmers and exporters, whose shipments make up 30 percent of the economy. Bollard agrees.

The currency is “not really contributing to the sort of external conditions we would hope would lead an export-led recovery in New Zealand,” Bollard said in an interview today with Bloomberg TV. “We really need to see a more sympathetic exchange rate.”

The central bank assumes the currency will decline, reflecting the nation’s large foreign debt and a renewed focus on the weak economic outlook. The dollar’s gains have created a “premature tightening in financial conditions” and that is one reason the cash rate will stay low until late next year, it said.

Dairy Payout

The rising currency “will badly hurt the economy now and in the future,” John Walley, chief executive of the New Zealand Manufacturers and Exporters Association, said on June 9. “It is clear that we need more than cuts to the cash rate and the same old talk.”

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said last month it will pay its New Zealand farmers 12 percent less for milk in the season ending May 31, 2010, because of weak prices and the strong currency. That would cut farm incomes by NZ$830 million ($513 million).

Bollard said he expects rate cuts since July to be passed through to consumers and businesses.

“There is room for further reductions in shorter-term lending rates,” he told a parliament select committee today.

New Zealand’s economy began contracting in the first quarter of last year amid a drought and a housing slump as Bollard pushed borrowing costs to a record high. The recession was prolonged by the global credit crisis and a slump in commodity prices that stalled exports and business investment.

Job Losses

Bollard today said the economy will probably contract in the second and third quarters before growth returns in the three months ending Dec. 31. The economy will shrink 1.3 percent in the year ending March 31, 2010, before growing 3.2 percent the next year.

The jobless rate may peak at 7.2 percent in the second quarter of next year from 5 percent in the first quarter of 2009, the central bank said. That’s less than the 8 percent peak forecast by the Treasury Department last month.

House sales rose from a year earlier for a third straight month in May, a report showed today. Home-building approvals increased for the second time in three months and immigration growth was the strongest in five years.

Confidence Rising

New Zealand businesses were optimistic in May for the first time in eight months, according to a survey by ANZ National Bank Ltd. published May 27. Consumer confidence in May was the strongest since September, according to a Roy Morgan Research poll published this week.

Globally there are signs of economic activity stabilizing, Bollard said.

U.S. payrolls fell in May by the smallest amount in eight months, reinforcing signs the recession is starting to abate.

Australia’s economy unexpectedly grew in the first quarter, allowing the nation to avoid a recession. The Reserve Bank of Australia kept its benchmark interest rate unchanged at 3 percent on June 2 for a second month. The European Central Bank kept its refinancing rate unchanged at 1 percent on June 4.

Thursday, June 4, 2009

U.S. Initial Jobless Claims Fall 4,000 to 621,000 (Update1)

By Shobhana Chandra

June 4 (Bloomberg) -- Fewer Americans filed claims for unemployment benefits last week, signaling the most acute phase of job losses may be over even as hiring has yet to pick up.

Initial jobless claims fell by 4,000 to 621,000 in the week ended May 30, in line with forecasts, from a revised 625,000 the prior week, the Labor Department said today in Washington. The number of people collecting unemployment insurance fell for the first time in almost five months, breaking a string of 17 consecutive records.

Fewer job losses lower the risk that consumer spending, the biggest part of the economy, will again retrench and delay an economic recovery later this year. Still, a report tomorrow may show unemployment topped 9 percent for the first time in more than 25 years, a sign the labor market will be one of the last areas to emerge from the slump.

“The downward trend we saw in claims in mid-March is holding solid,” Ellen Zentner, a Bank of Tokyo-Mitsubishi UFJ Ltd. senior economist in New York, said in a Bloomberg Television interview. “We’re on the cusp of a recovery in the U.S. economy.”

Jobless claims were projected to fall to 620,000 from 623,000 initially reported for the prior week, according to the median forecast of 43 economists in a Bloomberg News survey. Estimates ranged from 600,000 to 665,000.

Another report from Labor showed worker productivity rose more in the first quarter than previously estimated as the worst recession in at least half a century prompted companies to cut costs by extracting more output from remaining employees.

Stock-index futures rose after the reports. The contract on the Standard & Poor’s 500 index was up 0.4 percent at 935.3 as of 8:36 a.m. in New York. The yield on benchmark 10-year Treasury notes rose 7 basis points to 3.61 percent.

Productivity Gain

Productivity, a measure of employee output per hour, rose at a 1.6 percent annual rate, more than forecast, double the 0.8 percent gain estimated last month, revised figures from the Labor Department showed today. Labor costs increased at a 3 percent pace after climbing 5.1 percent at the end of 2008.

The four-week moving average of initial claims, a less volatile measure, climbed to 631,250 from 627,250.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 5 percent in the week ended May 23 after the prior week was revised down from 5.1 percent.

Twenty-five states and territories reported an increase in new claims for the week ended May 23, while 28 reported a decrease. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly non-farm payrolls report -- slows.

Employment Slump

The Labor Department’s payrolls report tomorrow may show employers cut more than 500,000 workers in May, according to the Bloomberg survey median, bringing total job losses since the recession began in December 2007, to 6.2 million. The unemployment rate probably jumped to 9.2 percent. The employment slump is the worst of any downturn in the post World War II era.

The bankruptcies of General Motors Corp. and Chrysler LLC are likely to ripple through the job market and the economy for months to come. GM this week said it’ll close 12 more plants by the end of 2011 under an accelerated plan to shut 30 percent of U.S. factories.

Sales have still not improved enough to prevent more firings. Deere & Co., the world’s largest maker of agricultural equipment, said this week it will furlough 494 workers at its operations in Ottumwa, Iowa, until demand improves.

The indefinite layoffs start June 29, and the remaining 195 workers will face periodic furloughs during the next several months, depending on market conditions, the Moline, Illinois- based Deere said.

“We have had to continue reducing employment and I’d say we will probably not be in a position to rehire until mid next year,” Jim Owens, chief executive officer of Caterpillar Inc. said in a May 31 interview on NBC’s “Meet the Press.” Caterpillar is the world’s largest maker of bulldozers and excavators.

ECB Keeps Key Rate at Record-Low 1% as Signs of Recovery Emerge

By Christian Vits

June 4 (Bloomberg) -- The European Central Bank kept its benchmark interest rate at a record low of 1 percent today after first signs of an economic recovery emerged.

The Frankfurt-based ECB will also reveal details of its asset-purchase plan, and economists say it is unlikely to signal it will buy more than the 60 billion euros ($85 billion) of covered bonds already announced. President Jean-Claude Trichet, who is trying to heal a rift among policy makers, holds a press conference at 2:30 p.m.

“The reality is that the ECB are done cutting rates and will not be announcing any further policy initiatives,” said James Nixon, an economist at Societe Generale SA in London. Still, “I’m very concerned that much more has to be done to stimulate the economy from here.”

The 22-member Governing Council has been split over whether to follow the Federal Reserve and Bank of England, which have cut their key rates close to zero and are buying government and corporate bonds to tackle the worst recession in six decades. The debate over how far the ECB should go reached the highest level of European government this week, with German Chancellor Angela Merkel backing the Bundesbank’s view that asset purchases are a step too far.

Clash of Views

Bundesbank President Axel Weber argues there is no real risk of deflation and buying assets to flood the economy with money is an unnecessary risk that could sow the seeds of future crises. Officials from smaller nations such as Slovenia’s Marko Kranjec and Cyprus’s Athanasios Orphanides are less certain and have indicated the ECB could buy a broader range of assets to fight the recession.

The Bank of England today kept its key rate at 0.5 percent and reiterated its plan to buy 125 billion pounds ($206 billion) of government and corporate bonds.

Investors will be looking for information from Trichet on the types of covered bonds the ECB will purchase, whether they will be bought on the primary or secondary markets, and whether national central banks will conduct the operations.

The ECB’s plan is worth 0.6 percent of euro-region gross domestic product. By contrast, the asset-purchase programs of the Fed and Bank of England amount to about 12 percent and 10 percent of their respective economies.

Green Shoots

ECB purchases are “no more than a gesture,” said Thomas Mayer, chief European economist at Deutsche Bank AG in London. “The economy is on its way to stabilizing and I would expect growth to turn positive later this year.”

Evidence is mounting that the worst of the financial crisis may have passed. The contraction in Europe’s manufacturing and service industries is easing and European confidence in the economic outlook rose to a six-month high in April. In Germany, Europe’s largest economy, business sentiment increased for a second month in May.

Praktiker AG, Germany’s second-biggest home-improvement retailer, said on May 27 that revenue has rebounded in its domestic market since the end of March.

Merkel on June 2 scolded the Fed and Bank of England for pumping too much money into their economies and said that by deciding to buy covered bonds, the ECB had “bowed somewhat to international pressure.” She urged a return to a “policy of reason.”

Original Package

At its May 7 meeting, the ECB debated a package of asset purchases worth about 125 billion euros that included commercial paper and corporate bonds, before agreeing to buy only covered bonds, people briefed on the talks have said. Covered bonds are low-risk securities backed by mortgages or public-sector loans.

Weber may have been instrumental in having the package reduced. He said on May 12: “Note well: It’s not our goal simply to print money. I currently don’t see the need for outright purchases of further private debt obligations.”

Others want to keep that option open. Kranjec said in a May 13 interview that the ECB hadn’t ruled out purchasing a wider range of assets and was “very likely” to spend more than 60 billion euros.

Austria’s Ewald Nowotny, in a May 29 letter to hoteliers obtained by Bloomberg, said the ECB can buy commercial paper and bonds to help lower long-term interest rates.

The euro-region economy will shrink 4.2 percent this year, according to the International Monetary Fund. That’s more than the projected 2.8 percent contraction in the U.S. and 4.1 percent slump in the U.K. Trichet said last month that the ECB’s latest staff projections, due today, are likely to be in line with those of the IMF.

The ECB will keep the door “wide open” for additional policy action, said Holger Schmieding, chief European economist at Bank of America-Merrill Lynch in London. “Apparently there’s no consensus in the Governing Council, so there’s a chance the ECB will come up with a surprise.”