Reuters: Bernanke Says Banks Stabilized, But Lending Still Weak

December 16, 2009

Federal Reserve Chairman Ben Bernanke said on Wednesday that U.S. banks have been stabilized but lending remains too weak to support a healthy recovery.

“We have told the banks very clearly that we want them to make loans to creditworthy borrowers, where there are borrowers who can repay the loans,” Bernanke said in an interview with Time magazine.

After a “near-death experience,” banks are wary of taking on the kind of risk that led to the crisis although they have rebuilt capital, he said.

The Fed has taken steps to loosen markets through programs that allow investors to invest directly in various forms of credit, such as auto loans and credit card loans.

But further steps are needed to pull the sector out of the “convalescent stage,” he said.

“We need to have extensive reform in the private sector, in the public sector, to eliminate these risks in the future,” he said.

The Fed, along with the administration and Congress, still has a lot to do to get the economy back to stability and start creating jobs again, he said.

“Even though the recession may be technically over, in a sense that the economy is growing, it’s going to feel like a recession for some time, because unemployment remains very high, about 10 percent,” he said.

Congress and the administration needs to develop “a credible medium term interest strategy for fiscal policy,” he said.

Time magazine named Bernanke its “Person of the Year” on Wednesday, a day before a U.S. Senate committee is due to vote on his renomination for Fed chairman.

PiggyPresident Barack Obama also this week urged banks to lend more to assist the U.S. economic recovery.

Bernanke said the Fed had never proposed that it become a regulator for the entire financial system, although he argued that no other agency in Washington has its expertise.

“We have a wide range of expertise that makes us the natural supervisor for these large complex firms,” he said.

Banks have yet to broadly understand the need for more restraint on pay after they were bailed out with taxpayer money, he said.

The Fed instituted policies “which we’ll be enforcing on banks” that require them to structure pay in ways that align it with performance and discourage excessive risk taking, he said.

“We are going to be looking at that as part of our supervision of banks,” he said.

The central bank’s policy-setting Federal Open Market Committee will conclude a two-day meeting later Wednesday with a statement expected at about 2.15 p.m.

Source: Reuters

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Geithner: TARP Program Extended to October

December 9, 2009

Treasury Secretary Timothy Geithner announced Wednesday that the U.S. administration will extend the government’s financial bailout program until next fall.

In a letter to House and Senate leaders, Geithner said the extension is “necessary to assist American families and stabilize financial markets.”

Money from the $700 billion taxpayer-funded bailout program has helped rescue big Wall Street firms, auto companies and others. That’s angered many Americans, who feel the government hasn’t provided them with relief from high unemployment and rising home foreclosures.

Geithner said the Troubled Asset Relief Program that Congress passed in October 2008, will be extended until Oct. 3, 2010. He has the authority to extend the TARP simply by notifying lawmakers.Mortgage

“The recovery of our financial system remains incomplete,” Geithner told lawmakers. “And, near-term shocks to that system could undermine the economic recovery we have seen to do.”

The Treasury secretary said new commitments bankrolled by the bailout fund will be limited to three areas next year.

One focus is stepping up efforts to curb record-high home foreclosures, a move necessary to stabilize the housing market and support a lasting economic recovery.

Another will be providing capital to small banks, which play a crucial role in providing credit to small businesses — normally a leading engine of job creation. But small banks have been weighed down by problem commercial real estate loans, which has made them reluctant to lend and hurt the ability of small businesses to expand and hire.

In a third area, Geithner said the government may boost its commitment to a program aimed at sparking lending to consumers and small businesses. Run by Treasury and the Federal Reserve, the Term Asset-Backed Securities Loan Facility, or TALF, started in March.

Geithner said he didn’t expect any new commitments to the TALF would result in additional costs to taxpayers.

Source: The Washington Times

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Bernanke Cautious on 2010′s Economic Growth

December 8, 2009

Although the manufacturing sector has expanded four months in a row and the unemployment rate dipped last month, Federal Reserve Chairman Ben S. Bernanke warned Monday that there still is not sufficient momentum to declare that the nascent economic recovery will be long-lasting.

“Though we have seen some improvement in economic activity,” Mr. Bernanke told the Economic Club of Washington, “we still have some way to go before we can be assured that the recovery will be self-sustaining.”Bernanke

The Fed chairman noted the “encouraging” development of “stronger demand for homes and consumer goods and service.” And he pointed to evidence that housing prices “have firmed a bit.”

Most economists think the recession ended in the summer, probably in July or August. During the third quarter, the U.S. economy expanded at an annual rate of 2.8 percent, the first advance in five quarters.

On the employment front, the nation’s jobless rate declined from 10.2 percent in October to 10 percent in November, the Labor Department reported Friday. Much more startling was the fact that only 11,000 jobs were lost last month, much fewer than the 140,000 or so that many economists were forecasting. Also, job losses for September and October were revised sharply downward.

However,Mr. Bernanke was cautious about future improvement in the labor market.

“At issue is whether the recovery will be strong enough to create the large number of jobs that will be needed to materially bring down the unemployment rate,” he said.

“My best guess at this point is that we will continue to see modest economic growth next year – sufficient to bring down the unemployment rate, but at a pace slower than we would like,” Mr. Bernanke said.

In its last forecast, the Fed estimated the jobless rate would hover between 9.3 percent and 9.7 percent during the fourth quarter of 2010. But many private economists, including Moody’s Economy.com and Wells Fargo & Co., expect the unemployment rate to remain above 10 percent through the end of next year.

To unclog the nation’s credit markets and to battle a plunging economy, the Fed lowered its target overnight interest rate to between 0 percent and 0.25 percent last December. After its policy meeting in early November, the Fed announced its intention to keep short-term interest rates at “exceptionally low levels” for “an extended period.”

On Monday, Mr. Bernanke repeated his view that the Fed’s expansionary monetary policy will not lead to higher inflation.

“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road?” he asked rhetorically.

“The answer is ‘no,’ ” he said, adding, “The Federal Reserve is committed to keeping inflation low and will be able to do so.”

Consumer prices have actually declined 0.2 percent over the past 12 months, but some analysts fear that the Fed’s extraordinary actions to battle the worst financial crisis and deepest downturn since the Great Depression could sow the seeds of inflation.

Mr. Bernanke, who has been nominated for a second four-year term as Fed chairman, has been arguing for months that the Fed’s “exit strategy” would prevent a burst of inflation.

Source: The Washington Times

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Fed Officials See Choppy Recovery for U.S. Economy

November 11, 2009

High unemployment and reluctant consumers will likely make an incipient U.S. economic recovery weak and erratic, top Federal Reserve officials said in a string of speeches across the country on Tuesday.

That means interest rates, currently at historic lows close to zero, should remain near that floor for the foreseeable future, the policymakers said.graph

“The strength and durability of the expansion is in question,” said Janet Yellen president of the Federal Reserve Bank of San Francisco, in Phoenix, Arizona. “High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery.”

Echoing her remarks, Richard Fisher, head of the Dallas Fed, flagged commercial real estate and a heavy reliance on government stimulus as other key risks.

“The more demand you steal from the future, the less future demand there is for you to steal,” Fisher told the Austin Headliners’ Club, a group of Texas business executives, lobbyists and politicians.

The U.S. economy grew 3.5 percent in the third quarter, unofficially emerging from its worst recession in generations. But the jobs picture remains dismal, with the unemployment rate surging to 10.2 percent in October, its highest level since 1983. A Reuters poll on Tuesday showed economists expect it to hit 10.5 percent in mid-2010 before subsiding.

Source: Reuters

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Pending Home Sales Rise for Record 8 Straight Months

November 3, 2009

Pending home sales rose again, marking eight consecutive monthly gains–the longest streak since measurement began in 2001, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September 2009, rose 6.1% to 110.1 from a reading of 103.8 in August, and is 21.2% higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8.Recession

Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

NAR estimates approximately 3 million renters are now financially well-qualified to buy a median-priced home. “As long as buyers do not overstretch and stay well within their budget, a sizable pent-up demand can be tapped among financially qualified potential buyers,” Yun said. “Although the tax credit is greatly reviving the existing home market, new-home sales may continue to struggle as home builders hold back production to drive down inventory. In addition, there remains an ongoing credit crunch for construction loans.”

The Pending Home Sales Index in the Northeast slipped 2.0% to 83.6 in September but remains 16.9% above September 2008. In the Midwest the index rose 8.1% to 98.2 in September and is 17.8% higher than a year ago. In the South, pending home sales increased 4.9% to an index of 109.7 and is 22.8% above September 2008. In the West the index jumped 10.2% to 143.8 and is 23.7% above a year ago.

Yun added that strong near-term reports should not be overstated. “We’re clearly not out of the woods because an excess of homes remains on the market despite recent improvements,” he said. “Although current inventory is getting closer to price equilibrium, foreclosures will continue to enter the pipeline. An extended and expanded tax credit would help absorb this incoming inventory.”

For more information, visit www.realtor.org.

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Housing, Price Data Points to Sluggish Recovery

October 21, 2009

Softer-than-expected U.S. housing starts last month and a drop in prices paid at the farm and factory gate pointed to an anemic economic recovery, backing views that interest rates could stay low for a while.

A Commerce Department report on Tuesday showed groundbreaking for new homes rose 0.5 percent to an annual rate of 590,000 units in September, shy of forecasts for a 610,000 unit rate. August’s figure was revised down to 587,000. For a graphic showing housing starts data, click here.

Separately, the Labor Department said its producer price index — a gauge of prices received by farms, factories and refineries — dropped 0.6 percent last month after rising 1.7 percent in August. Analysts had expected prices to hold steady.

Mortgage“The expectations are for a very tepid economic recovery. The recovery is firmly in place, but I don’t think that consumers are going to recognize this until we start to see job growth,” said John Canally, an economist and investment strategist at LPL Financial in Boston.

U.S. stocks ended down on the economic data that overshadowed yet another set of strong results from bellwethers such as Apple Inc (AAPL.O) and Caterpillar (CAT.N).

Prices for U.S. government debt rallied as investors viewed the reports as more evidence that the Federal Reserve would keep lending rates near zero for a prolonged period. The Fed has held benchmark overnight rates near zero since December.

San Francisco Fed President Janet Yellen said on Tuesday she did not anticipate the U.S. central bank would withdraw its support to the economy any time soon and adding that economic conditions would be the main deciding factor.

The rise in housing starts last month was held back by a 15.2 percent drop in groundbreaking in the volatile multifamily sector. Starts on single-family homes, often seen as a better harbinger for the direction of the market, rose 3.9 percent, partially reversing a fall in August.

Compared with September last year, housing starts were down 28.2 percent.

Source: Reuters

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New Jobless Claims Drop to 514K

October 15, 2009

The number of newly laid-off workers filing claims for unemployment insurance has fallen to the lowest level since early January, a sign the labor market is slowly improving.

And consumer price pressures remained mild in September as Americans slowly regain their appetite to shop amid a fledgling economic recovery.

JoblessThe Labor Department said Thursday that first-time claims for jobless benefits dropped to a seasonally-adjusted 514,000 from an upwardly revised 524,000 the previous week. The fifth decline in six weeks was below Wall Street economists’ forecasts of 525,000, according to Thomson Reuters.

The four-week average, which smooths fluctuations, fell for the sixth straight time to 531,500. That’s the lowest since January and about 105,000 below the peak reached in early April.

Economists closely watch initial claims, which are considered a measure of layoffs and the willingness of companies to add jobs.

The steady decline in claims indicates that companies are shedding fewer workers. Many economists expect that job losses will fall below 200,000 in October from 263,000 in September. That’s still a large amount, but would be the fewest in a year.

In a separate report, the Labor Department said consumer prices rose 0.2 percent last month, matching analysts’ expectations. Prices excluding the volatile energy and food categories also rose 0.2 percent, slightly higher than the 0.1 percent increase analysts had forecast.

Over the past 12 months, consumer prices fell 1.3 percent, reflecting a severe recession that has kept a lid on inflation across a wide range of products and services. Excluding food and energy, prices rose 1.5 percent.

The absence of price pressures has been good news for cash-strapped households, but it means no cost-of-living increase next year for the more than 57 million Americans receiving Social Security and other government benefits, the first time that’s happened in over 30 years.

Source: The Washington Times

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Bankruptcies’ Slowdown a Good Sign, But Is It Good Enough?

October 14, 2009

In another promising sign of economic recovery, the torrid pace of personal and business bankruptcies slowed during the third quarter of 2009.

BankruptIn the first quarterly decline since the overhaul of bankruptcy laws in 2005, commercial, or business, bankruptcy filings fell 4.5% to 22,710 in the third quarter from 23,782 in the second quarter, according to data compiled by Automated Access to Court Electronic Records, an Oklahoma City bankruptcy management and data company.

The 7,405 business petitions filed in August 2009 and the 7,215 in September 2009 were the first back-to-back monthly declines since November and December of 2006, AACER data show.

According to AACER, consumer bankruptcy filings from July to September continued a streak of 15 consecutive quarterly increases dating back to enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act in October 2005.

However, the third-quarter increase — up 2% from the second quarter — was smaller than the 15.4% spike from the first quarter to the second quarter of 2009. The third-quarter increase also was the smallest quarterly increase since AACER began tracking the data in 2006.

The ebb in filings doesn’t mark an end to the recession — not with unemployment approaching 10%, commercial credit still tight, a new round of adjustable-rate mortgages that reset next year and tepid consumer spending amid continuing job losses. When coupled with rising home mortgage applications and a slowdown in new jobless benefit claims, however, the bankruptcy slowdown offers more hope that the economy is starting to stabilize.

“It’s certainly not bad news that they’re leveling off,” said Robert Lawless, a law professor at the University of Illinois and a bankruptcy expert. “When filings are going down it’s an indication that things are probably doing better. But if you want to use bankruptcy filings as an indicator of the economy, we have to recognize they’re a weak indicator and a lagging indicator at that.” Lawless said the moderation in third-quarter filings was less impressive because the filing rate for all bankruptcies still hovers at about 6,000 a day. That rate has held fairly steady since March 2009.

Personal bankruptcies, which topped 1 million for the year in September, dominate the filings; commercial bankruptcies account for only about 350 filings a day. For the first nine months of the year, personal bankruptcies are up more than 34% over 2008.

Along with the credit squeeze and tight economy, Lawless said this year’s higher bankruptcy rates stem from the 2005 law, which made it harder for people to write off their debt. That law led to a rush of filings in 2005, which artificially depressed filing rates in 2006 and 2007. “The story since then has been that bankruptcy filings have been going back to their natural level before the law was enacted,” Lawless said. Lawless and other experts expect more than 1.4 million personal and commercial filings this year, which is about the same level as it was in the late 1990s and prior to the 2005 law, he said.

For the year, commercial bankruptcy filings are up 45%, from 46,122 filings in 2008 to 66,967 through September, AACER data show. The business bankruptcy filings reported by AACER are typically higher than official government figures.

AACER President Mike Bickford said his company records any filing as a commercial bankruptcy if, instead of a Social Security number, the petition is filed with a taxpayer identification number or with some other indication that it’s a commercial case, such as the phrase “doing business as.” Included in these filings are many sole proprietors whose bankruptcy petitions wouldn’t be considered business filings under government tallies.

Thirteen states showed a decline in total filings from August to September, led by North Dakota and Texas, down 17% and 16% respectively. Georgia followed with an 11% reduction, and Nevada’s September filings dipped 8% from August. Nevada led the nation in filings per capita, at more than 11 per 1,000 residents. Tennessee was next with nearly eight, while Georgia, Indiana and Alabama averaged more than 7 per 1,000 residents. Nevada also had the greatest year-to-year increase in per-capita filings, followed by Arizona, California, Utah and Michigan. Alaska had the lowest filing rate: just over one per 1,000 residents. The District of Columbia was next at nearly two per 1,000. South Carolina, Texas and South Dakota averaged just over two filings per 1,000. Arizona led the nation with a 72% increase in average filings per month from a year earlier. Nevada was next, up 59%, followed by Wyoming’s 57% increase. Utah and California were next with increases of 54% and 53% respectively.

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