Chinese Premier Wen Jiabao said the government will focus more on bolstering growth, indicating policies may be loosened further as inflation moderates.
China will
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Ally Financial’s ResCap mortgage unit filed for a prepackaged bankruptcy protection Monday, a move that the taxpayer-owned bank says will allow it to take another step to repay Treasury.
The ResCap unit, which operates under the GMAC Mortgage brand, was once one of the nation’s leading subprime lenders. Problems with those home loans for riskier borrowers and the sharp drop in the company’s core auto finance business forced Treasury to give it a $15.8 billion bailout in 2009, as part of its efforts to rescue the troubled auto industry and housing market.
The company, which started as the finance unit of automaker General Motors (, Fortune 500) under the GMAC name, changed its name to Ally following the bailout. Besides continuing its auto finance business, it now operates an online commercial bank.
Ally also said it is looking at a possible sale or other strategic alternatives for its international business.
The company said that it expects GMAC to continue to make and service mortgage loans while the bankruptcy process is completed. The portfolio of home loans it holds, now valued at less than half its original value, will be auctioned off as part of the bankruptcy process payday loan lenders.
GMAC said it will make a so-called "stalking horse" bid of $1.6 billion for those loans, but they are expected to draw a higher bid from investors.
"The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us," said Ally Chief Executive Officer Michael A. Carpenter. "This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises."
Treasury currently owns about 74% of its outstanding stock, and Ally has paid about $5.5 billion of the bailout back to Treasury through dividends and loan repayments. The company’s statement Monday said that upon successful completion of the bankruptcy auction and disposal of its international business, it should be able to have paid back about two-thirds of the government bailout.
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Who wouldn’t want to get paid to go shopping? That’s partly the allure behind “mystery shopper” scams.
While they aren’t new, these phony “we’ll-pay-you-to-shop”-type ads sprouted like online weeds during the recession as job-hungry Americans hunted for employment.
Law enforcement and some financial institutions say they’re spotting mystery shopping scam attempts — which involve phony checks deposited into a victim’s bank account — several times a week.
“We’ve been seeing it pretty frequently since 2005,” said Vanessa Oddo, finance loss prevention manager for SAFE Federal Credit Union in North Highlands, Calif. She said 200 to 300 suspect checks get brought in to SAFE branches every year.
Similarly, the Northeast California Better Business Bureau office said it gets two or three calls a day from consumers asking about mystery shopper checks they’ve received in the mail.
The losses can be anywhere from a few hundred to several thousand dollars, depending on how much was deposited into the unsuspecting shopper’s bank account.
There are plenty of legitimate mystery shopping companies, which hire individuals to drop in unannounced at retailers, hotels, fast food outlets, restaurants and other businesses to secretly evaluate customer service.
But the fraudulent kind typically operate as fake check scams.
Making contact by mail, email or phone, a fraudster posing as a mystery shopping company “hires” an unsuspecting consumer, who is promised payment after completing a “first assignment totally free credit score.” That assignment often involves sending a phony check to the consumer’s home, with instructions to deposit it in a bank account, keep a small amount as reimbursement, then wire the remainder to Western Union, ostensibly to report on the wire company’s “customer service.”
Ultimately, the phony check bounces, leaving the victim’s bank account dinged for the total amount, as well as wire transfer charges and potential bank fees.
“You see more of these during a recession, when people are searching for jobs or ways to (make) more money. Scammers plan on that,” said Dan Denston, executive director of the North America Mystery Shopping Providers Association, or MSPA, based in Louisville, Ky.
Even legitimate companies that hire mystery shoppers are not immune from scammers. National Shopping Service in Rocklin, Calif., one of at least 16 mystery shopper firms in California, said it, too, has been victimized by scammers who used the company’s name in fake-check scams.
“The majority of people getting these letters and falling for the scams were not even our shoppers. Unfortunately, they got scammed,” said Katy Gravatt, National’s operations manager.
Billionaire Warren Buffett says his company’s purchase of his hometown newspaper last year may not be the last one even though newspapers face significant challenges.
A Berkshire Hathaway shareholder questioned whether last year’s purchase of the Omaha World-Herald in Buffett’s hometown was a personal indulgence.
Buffett defends the deal and says he believes Berkshire will profit from its ownership of the Omaha World-Herald company and the Buffalo News. It’s just that the profits won’t be as good as they used to be guaranteed payday loan.
Buffett says newspapers are usually still the primary source of local information, and that’s an advantage in places where community is important.
Buffett acknowledges that newspapers face difficult competition from online news sources and have high costs, but says Berkshire’s newspaper deals should work out OK.
Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank needs to be ready to raise interest rates even if joblessness exceeds 7 percent.
Speaking in an interview today at the Bloomberg Washington Summit hosted by Bloomberg Link, he said the Fed will probably have to raise rates in mid-2013. Adding more monetary stimulus now would raise inflation risks without doing much to boost growth, he said.
Unemployment
Don’t panic yet. The government reported Friday that the economy got off to a tepid start this year, but that doesn’t foreshadow a repeat of the near-standstill that happened in 2011.
“The economy is firmly on a growth trajectory,” said Sung Won Sohn, an economics professor at California State University’s Smith School of Business. “The first-quarter slowdown will be temporary.”
Still, the January-March report was discouraging.
Economists had expected gross domestic product _ the broadest gauge of economic output _ to expand at a 2.5 percent annual rate for the first three months of the year. Instead, the Commerce Department said it was 2.2 percent, mainly because of government budget-cutting and a slowdown in business investment.
And some of the January-March growth, meager as it was, probably came at the expense of the current quarter. An unseasonably warm winter pulled car buyers into showrooms earlier than usual.
The same was true for housing construction. That’s one reason it jumped at a 19 percent pace from January through March.
Economists doubt consumers can keep spending as freely as they did in the first three months of this year: an annual pace that was 2.9 percent faster than in the previous quarter and the fastest in more than a year. They probably can’t afford to. Americans’ after-tax income rose just 0.6 percent in the first three months compared with a year earlier. That was the puniest pay increase in two years.
People spent more in part because they socked away less. The savings rate fell to 3.9 percent of after-tax income. That was down from 4.5 percent. Economists worry that people won’t keep spending more unless their income grows.
Stock prices rose Friday despite the report of weaker growth. David Rosenberg, chief economist at Gluskin Sheff, said investors might have bid up stocks because they think the Federal Reserve is more likely to pursue another round of bond buying to stimulate the economy.
Fed Chairman Ben Bernanke “has created the impression that if the economy stumbles, he’ll be there to hold your hand,” Rosenberg said.
The lackluster first-quarter growth follows government reports that hiring slowed sharply in March and the number of people seeking unemployment benefits reached a three-month high.
With 12.7 million people unemployed, today’s economy needs much faster growth to boost hiring. Growth would have to be roughly 4 percent for a full year to lower the unemployment rate, now 8.2 percent, by 1 percentage point.
In 2011, a series of setbacks struck the economy. Gas prices rose sharply. An earthquake in Japan shuttered factories there and cut off supplies to U.S. manufacturers. A standoff in Washington brought the federal government to the brink of default, rattling investors and consumer confidence. And Europe’s debt crisis threatened to diminish U.S. exports and further spook investors.
The economy slowed to an annual rate of just 0.4 percent in the first quarter of 2011. Unemployment, which had been falling, rose again last summer.
But most economists think the U.S. economy is more resilient this year.
The job market, household finances and businesses are all in better shape than they were a year ago. Supplies are flowing freely. Political bickering has eased. And the fears about Europe have subsided at least temporarily.
“People are less concerned that the eurozone crisis could engulf the whole world,” says Nigel Gault, an economist with IHS Global Insight.
A 55-cent run-up in gasoline prices (to an average $3.83 a gallon) isn’t hurting as much this year. In part, that’s because drivers are getting used to paying more. And families’ finances are sturdier after another year of paying down debts.
In addition, some factors that held back growth in the first quarter aren’t expected to last. Businesses splurged on software and equipment at the end of 2011 because of an expiring tax break. That stole economic activity, in effect, from the first quarter. Companies will probably resume spending again later this year.
And economists say government spending will probably rebound _ or at least stop falling _ because state and local governments are collecting more tax revenue as their economies slowly recover.
“Their budget holes are getting a lot smaller,” says Jay Bryson, global economist for Wells Fargo.
Most of all, the job market is stronger than it was last year. Unemployment has fallen from 9.1 percent in August to 8.2 percent in March. The economy has added nearly 1.9 million jobs over the past year. More hiring is creating more pay and more spending _ a cycle in which hiring and consumer spending reinforce each other and grow.
Economists note that Friday’s report isn’t the final word on first-quarter growth. It is just an initial estimate. The government will revise the figures in May and again in June.
Then in July, the growth figures will be tweaked yet again. That’s when the government will revise its estimates of growth from 2009 through the first quarter of this year.
The picture could look brighter after the revisions. Two months ago, the government revised income and savings for the second half of last year. It showed Americans had earned and saved more than previously thought. That meant they had more money to spend.
Some economists expect a similar revision this year because job gains suggest that incomes might be higher.
This was the 11th quarter since the Great Recession officially ended in June 2009. The fastest rate of economic growth has been 3.9 percent in the first quarter of 2010. Normally, a much bigger bounce would follow a deep recession like the one the United States sank into in December 2007.
When the economy emerged from the recession of 1981-1982, for instance, growth hit an 8 percent annual pace for four straight quarters in 1983 and 1984.
The gross domestic product measures the output of all goods and services produced in the United States, from cars to electricity to manicures. GDP growth drives job creation, pay, corporate profits and stock prices.
As disappointing as the first-quarter numbers were, the U.S. economy still looks a lot stronger than most of the rest of the developed world. It’s expected to grow perhaps 2.5 percent for the full year.
By contrast, Britain’s economy will only grow 0.8 percent and Japan’s about 2 percent, according to forecasts from the International Monetary Fund. Things are even worse in Europe. The 17 countries that use the euro as their currency are expected to see growth shrink 0.3 percent.
“Growth is an increasingly rare commodity in the global economy,” says Jason Conibear of Cambridge Mercantile, which specializes in trading currencies. “But the US has got it.”
Disney movie studio boss Rich Ross is stepping down, a month after the family entertainment giant booked a huge loss on the movie “John Carter.”
Two and a half years ago, Ross took over for then-studio chair Dick Cook.
Ross said in a memo to staff Friday that the role of chairman of Walt Disney Studios was no longer the right professional fit for him.
A month ago, Disney booked a $200 million loss on “John Carter,” the sci-fi epic based on the Edgar Rice Burroughs book series cash advance loan. The loss will pull the entire studio into a loss of $80 million to $120 million in the quarter through March.
The Walt Disney Co. did not name a successor.
Spanish stocks sank and its borrowing costs rose Friday after the government released data showing the country’s banks borrowed a record (EURO)316.3 billion ($415.9 billion) from the European Central Bank in March.
Bank of Spain data showed that ECB lending to the country’s financial institutions almost doubled since February when their reliance was (EURO)169.8 billion ($223.3 billion).
Concern is mounting over Spain’s ability to cut its national debt and lift its struggling economy out of recession when unemployment is nearing 23 percent.
The ECB made some (EURO)1 trillion in emergency three-year loans to banks in two batches in Dec. and Feb., lifelines to Spain’s troubled banks that find it hard to secure short-term financing elsewhere.
The injection spurred lenders to snap up battered government debt, driving Spanish borrowing costs down. However, the effects of the cheap loans across Europe have since dissipated and Spain is taking the brunt of market distrust.
Some of that distrust is misplaced, said analyst Manuel Escudero, who added that much of Spain’s industrial sector appeared to be riding the crisis instead of heading to a major downturn in output.
“I see much of Spain’s industrial sector beginning to internationalize instead of heading toward stagnation, it has slimmed down and is looking reasonably muscular,” said Escudero who heads Deusto University business school in the northern Basque region.
Klaas Knot, a member of the European Central Bank’s governing council, also said he did not see a need for the ECB to engage in buying up Spanish bonds or launch a third program of low-rate loans to European banks to steady markets.
Knot, said last week’s spike in the interest rate of Spanish government bonds was due to “awkward communication” by its government about its plans for budget cuts.
To boost confidence in its finances, the government last month unveiled an austerity budget with (EURO)27 billion ($35.5 billion) in tax hikes and spending cuts this year.
Spain is expected to enter its second recession in three years this quarter, with the country’s central bank forecasting its economy will contract 1.7 percent this year.
The Ibex 35 stock index in Madrid was down 3.6 percent at close of trading Friday and 10-year government yields rose 0.2 percent to 5.93, according to FactSet.
Just five years ago Spain was one of Europe’s most buoyant economies, but a nose-dive started in 2008 when the international financial crisis coincided with the bursting of a real estate bubble that had buoyed the economy for over a decade.
The government ordered banks to strengthen capital levels to cover exposure to bad real estate debt. Investors fear that sustained bank weakness, coupled with rising public debt and high funding costs could force Spain to apply for European aid.
Alcoa may have given a slumping Wall Street just what it needed: a surprise profit.
The largest U.S. aluminum manufacturer said Tuesday that it earned 9 cents share in the first quarter. It surpassed analyst forecasts for a small loss by selling more aluminum to a wide range of customers, including car makers and aircraft manufacturers, and operating its plants more efficiently.
Alcoa is considered a barometer for the economy. It’s also the first of the 30 companies in the Dow Jones industrial average to report results. Its stock rose 5.3 percent in after-hours trading, providing hope that the stock market might halt its longest and deepest slump of the year on Wednesday.
“It looks like they’re going to get the earnings season off on a good note,” said Argus Research analyst Bill Selesky.
Alcoa’s net income of $94 million marks a turnaround from the $191 million loss it reported for the fourth quarter. But it’s 70 percent below net income of $308 million, or 27 cents a share, posted a in the year-earlier quarter.
Revenue rose to $6 billion from $5.95 billion. Analysts predicted revenue of $5.77 billion.
Alcoa said sales rose from the fourth quarter across most of its markets, including automobiles, aerospace and other transportation, to packaging and industrial products. That offset lower realized prices for aluminum and alumina, a material used in processing aluminum.
Investors were anxiously waiting to see Alcoa’s results, scheduled for after the market closed. Fears of a bad earnings season contributed to a recent losing streak that wiped out more than half the first-quarter gain for the Dow, and more than a third for the Standard & Poor’s 500.
On Tuesday, the Dow lost more than 213 points as renewed concerns over Europe’s debt crisis, now focusing on Spain, were added to the earnings jitters.
During the first quarter, analyst expectations for earnings for companies in the Standard & Poor’s 500 index went from an increase of about 3 percent to a decline of 0.1 percent, according to FactSet.
Investors were also watching for Alcoa’s forecast for 2012 global aluminum demand cash advance america. It reaffirmed its expectation for a 7 percent increase. The company expects strong demand for aluminum used in autos, heavy trucks and trailers to remain strong in North America, which accounts for nearly 50 percent of Alcoa’s business.
In the U.S., auto sales rose 13 percent to 3.5 million cars and trucks in the first quarter, and car companies and suppliers were scrambling to meet demand. Many analysts expect the auto industry to have its best sales year since 2007. A trade group for the aluminum industry said that car and trucks made in the U.S. contain an average of 343 pounds of aluminum. That’s about 9 percent of the weight of a vehicle.
The company also expects China’s automotive market to grow as much as 7 percent this year. Demand for aluminum remains weak in Europe, which is struggling to resolve a sovereign debt crisis.
Alcoa’s upbeat earnings could be a good sign for other materials companies. The materials sector _ including metals and mining, diversified chemicals and construction materials _ was expected to show the biggest decline.
“When you look at all the cost cuts (materials) companies did during the recession, they’re a lot leaner now than they were a couple of years ago,” Selesky said. “I think it points to companies doing a bit better than originally expected just based on running a more efficient, leaner company.”
Alcoa cut some smelting and refining operations earlier this year after demand fell late in 2011 as customers became concerned about a slowing global economy. And, faced with high costs for raw materials and energy, Alcoa boosted productivity.
“It’s just a significant effort from all of our businesses and, obviously, the key factor in our earnings improvement,” Chief Financial Officer Chuck McLane told analysts during a conference call.
U.S. service companies expanded at a healthy pace last month and stepped up hiring, though growth slowed a bit from the previous month.
The Institute for Supply Management, a private trade group, said Wednesday that its index of non-manufacturing activity dropped to 56 in March, down from February’s 57.3. Any reading above 50 indicates expansion.
The trade group of purchasing managers surveys roughly 90 percent of U.S. companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care, and hotels.
A measure of employment rose as more companies said they plan to add workers.
Separately, payroll processor ADP said the economy added 209,000 private-sector jobs in March. The ADP survey does not include government jobs.
Both reports are encouraging signs ahead of the government’s report on March job growth, which will be released Friday. Economists are predicting that employers added 210,000 jobs, which would be the fourth straight month of strong hiring.
More jobs have helped service companies grow. As hiring picks up, Americans are more willing to spend. Consumer spending jumped in February by the most in seven months, the government said last week payday loans no teletrack.
Department stores, electronics chains and other merchants are seeing more business. Retail sales increased in February by the most in four months. Department store sales rose in February by the most since November 2010.
Big job gains at service firms are necessary to reduce the unemployment rate. The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting and financial services.
The job gains have come as growth has picked up. The economy expanded at an annual rate of 3 percent in the final three months of last year.
Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.