By Courtney Schlisserman
July 6 (Bloomberg) -- The U.S. trade deficit probably widened and the cost of imported goods jumped, underscoring how the surge in oil prices is hurting growth and igniting inflation, economists said before reports this week.
The gap between imports and exports grew to $62.4 billion in May, the widest in almost two years, according to the median estimate of economists surveyed by Bloomberg News. The import- price index climbed 2 percent last month, the poll showed.
Increasing fuel expenses indicate companies will keep cutting payrolls and trimming equipment purchases to maintain profits. At the same time, more expensive foreign goods will open the way for U.S. businesses to also raise prices, signaling inflation may not ebb as the Federal Reserve projects.
``It is becoming untenable for policy makers to ignore the mounting threat of rising prices at home,'' Joseph Carson, director of global economic research at AllianceBernstein in New York, said in a note to clients. Inflation from overseas ``gives U.S. firms the added flexibility of passing along cost increases to consumers without undermining their competitive position.''
The Commerce Department is scheduled to release the trade report on July 11. The Labor Department will issue June import- price figures at the same time.
The price of crude oil futures has risen 50 percent this year and reached a record $145.85 a barrel on July 3.
The increase in petroleum was a primary reason for the widening of the trade gap in April. After eliminating the influence of prices, the trade deficit shrank that month to the lowest level since August 2003, as exports grew. The after- inflation trade numbers are the figures used to calculate gross domestic product.
`Elevated' Prices
``The improvement in the trade balance has been one of the few factors keeping the economy from contracting,'' said Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania. This week's data are ``going to show that inflationary pressures remain elevated.''
The U.S. economy expanded at a 1 percent annual pace in the first quarter, capping the weakest six months of growth in five years. Trade contributed 0.8 percentage point to the quarter's growth rate.
Employers cut payrolls for a sixth month in June, bringing the total number of jobs lost so far this year to 438,000, according to a Labor Department report last week. The jobless rate was 5.5 percent, matching May's reading as the highest in almost four years.
The jump in fuel costs and loss of jobs have contributed to a slump in consumer confidence that threatens to undermine spending, which accounts for more than two-thirds of the economy. A temporary boost from the government's tax rebates has helped to keep Americans shopping.
Record Rise
The import-price index is the first of three monthly inflation gauges released by the Labor Department. Economists projected the measure would be up 18.6 percent from June 2007, according to the survey median. It would be the biggest 12-month gain since records began in 1982.
The government is scheduled to report wholesale prices on July 15 and consumer prices the following day.
On June 25, Fed policy makers kept the benchmark overnight lending rate at 2 percent and warned that the risk of inflation was rising. Still, they forecast prices would ``moderate later this year.''
``Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters,'' the Federal Open Market Committee also said in a statement in Washington after its two- day meeting.
'No Easy Task'
``For the Fed, navigating through this inflationary environment will be no easy task as it seeks to balance between conflicting goals of reviving growth and restraining price pressures,'' said AllianceBernstein's Carson.
Other reports this week may signal the risks to growth aren't letting up. Pending home resales fell 2.5 percent in May, economists project a report from the National Association of Realtors on July 8 will show. The figures are based on contract signings, making them a leading indicator of actual purchases, which are tabulated when a deal is closed a month or two later.
Bloomberg Survey
================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Pending Homes MOM% 7/8 May 6.3% -2.5%
Whlsale Inv. MOM% 7/8 May 1.3% 0.7%
Cons. Credit $ Blns 7/8 May 8.9 7.5
Trade Balance $ Blns 7/11 May -60.9 -62.4
Import Prices MOM% 7/11 June 2.3% 2.0%
Import Prices YOY% 7/11 June 17.8% 18.6%
U of Mich Conf. Index 7/11 July P 56.4 55.5
Federal Budget $ Blns 7/11 June 27.5 30.0
============================================================================
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
Last Updated: July 6, 2008 00:01 EDT
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Sunday, July 6, 2008
Steel Urges Caution on Expanding Safety Net for Banks
By Rebecca Christie
July 5 (Bloomberg) -- U.S. Treasury Undersecretary Robert Steel urged caution when it comes to expanding the federal safety net to financial firms that don't take consumer deposits.
``I think to pull too many other institutions into that arena is a mistake,'' Steel said today during a panel discussion at an Aspen Institute conference in Colorado.
The remarks illustrate Treasury concerns about any regulation that might encourage reckless behavior as it considers proposals that would allow for an orderly dissolution of non-deposit taking financial firms that run into trouble.
Treasury Secretary Henry Paulson, in a speech earlier this week in London, called for regulatory changes in the U.S. that would allow financial firms to go out of business without threatening market stability. He identified a legal gap that leaves unspecified how to deal with failures of companies that don't take deposits, such as investment banks.
Federal Deposit Insurance Corp. Chairman Sheila Bair has urged that an agency be given power to take over and liquidate investment banks in an orderly manner. The FDIC has that power over lenders whose deposits it insures.
``If we over-prescribe regulation, we're going to reduce market discipline, which has the moral-hazard effect of encouraging people to take risk because they think they'll be bailed out,'' Steel said today.
U.S. regulators and legislators are debating plans to alleviate the yearlong credit crisis that has caused $402 billion of writedowns and credit losses worldwide. Paulson has proposed giving the Federal Reserve broader powers as a ``macro- stability regulator.''
House Testimony
Paulson and Fed Chairman Ben S. Bernanke are scheduled to testify July 10 before the House Financial Services Committee on financial-market regulation. The two officials will also respond to lawmakers' questions about the Fed's decision in March to agree to take on about $30 billion in illiquid Bear Stearns Cos. debt and open lending to investment banks.
Other speakers on today's panel said regulators should be careful about spelling out what types of institutions they will bail out and when.
``It is a good idea to have it be really unclear as to whether the Fed is going to save something or not,'' said William Mayer, who was CEO of First Boston until 1990 and is now a partner at Park Avenue Equity Partners in New York. ``The worst thing we could do is say here are the commandments, and right here is where we stop. I don't believe you'd want to do that.''
`Uneven' Progress
Steel said he expects financial markets to make ``uneven'' progress as they recover from the subprime mortgage crisis.
``My instinct is that while we'll continue to make progress from here, that not everything is functioning normally, it'll be uneven,'' he said.
Steel said so-called monoline insurance companies, which expanded their traditional business of underwriting municipal bonds to include more complex securities, underestimated the risk associated with structured credit products.
``They basically sold insurance at what looks to be too cheap a price,'' Steel said. ``The jury isn't completely out on this and the monoline insurance companies still have positive cash flow, and they're going into, basically pulling off the road and letting this unwind.''
To contact the reporters on this story: Rebecca Christie in Aspen, Colorado at Rchristie4@bloomberg.net;
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July 5 (Bloomberg) -- U.S. Treasury Undersecretary Robert Steel urged caution when it comes to expanding the federal safety net to financial firms that don't take consumer deposits.
``I think to pull too many other institutions into that arena is a mistake,'' Steel said today during a panel discussion at an Aspen Institute conference in Colorado.
The remarks illustrate Treasury concerns about any regulation that might encourage reckless behavior as it considers proposals that would allow for an orderly dissolution of non-deposit taking financial firms that run into trouble.
Treasury Secretary Henry Paulson, in a speech earlier this week in London, called for regulatory changes in the U.S. that would allow financial firms to go out of business without threatening market stability. He identified a legal gap that leaves unspecified how to deal with failures of companies that don't take deposits, such as investment banks.
Federal Deposit Insurance Corp. Chairman Sheila Bair has urged that an agency be given power to take over and liquidate investment banks in an orderly manner. The FDIC has that power over lenders whose deposits it insures.
``If we over-prescribe regulation, we're going to reduce market discipline, which has the moral-hazard effect of encouraging people to take risk because they think they'll be bailed out,'' Steel said today.
U.S. regulators and legislators are debating plans to alleviate the yearlong credit crisis that has caused $402 billion of writedowns and credit losses worldwide. Paulson has proposed giving the Federal Reserve broader powers as a ``macro- stability regulator.''
House Testimony
Paulson and Fed Chairman Ben S. Bernanke are scheduled to testify July 10 before the House Financial Services Committee on financial-market regulation. The two officials will also respond to lawmakers' questions about the Fed's decision in March to agree to take on about $30 billion in illiquid Bear Stearns Cos. debt and open lending to investment banks.
Other speakers on today's panel said regulators should be careful about spelling out what types of institutions they will bail out and when.
``It is a good idea to have it be really unclear as to whether the Fed is going to save something or not,'' said William Mayer, who was CEO of First Boston until 1990 and is now a partner at Park Avenue Equity Partners in New York. ``The worst thing we could do is say here are the commandments, and right here is where we stop. I don't believe you'd want to do that.''
`Uneven' Progress
Steel said he expects financial markets to make ``uneven'' progress as they recover from the subprime mortgage crisis.
``My instinct is that while we'll continue to make progress from here, that not everything is functioning normally, it'll be uneven,'' he said.
Steel said so-called monoline insurance companies, which expanded their traditional business of underwriting municipal bonds to include more complex securities, underestimated the risk associated with structured credit products.
``They basically sold insurance at what looks to be too cheap a price,'' Steel said. ``The jury isn't completely out on this and the monoline insurance companies still have positive cash flow, and they're going into, basically pulling off the road and letting this unwind.''
To contact the reporters on this story: Rebecca Christie in Aspen, Colorado at Rchristie4@bloomberg.net;
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Ukraine Lifts Inflation Forecast; Economic Growth Behind Target
By Kateryna Choursina
July 5 (Bloomberg) -- Ukraine increased its forecast of inflation for 2008 and said the country's economic growth in the first half lagged behind its projection for the year.
The inflation rate will be 15.9 percent at the end of the year, more than a previous forecast of 15.3 percent, Justice Minister Mykola Onishchuk told journalists today after a government meeting to approve changes to the 2008 state budget.
Ukraine's cabinet has rejected demands by President Viktor Yushchenko to trim this year's budget deficit to tackle inflation, which was 31.1 percent in May. Yushchenko disagrees with Prime Minister Yulia Timoshenko on policies including how to fight inflation and the sale of state assets.
The country's economy grew 6.4 percent in the first half of 2008, Timoshenko said before today's meeting, which was held to ensure that the legislature adopts the 2008 budget before its summer recess, which starts on July 14. The cabinet has forecast growth of 6.8 percent in gross domestic product for the year.
Timoshenko said today that a ``significant'' amount of this year's 30.4 billion hryvnia ($6.61 billion) budget surplus will be used to develop the agricultural and energy industries, shipbuilding, aviation and the upgrading of roads.
The government will continue with planned social spending and increase financing to prepare for the Euro 2012 soccer tournament, which will be co-hosted by Ukraine, Timoshenko said.
Yushchenko had invited Timoshenko, the head of central bank and the Ukrainian parliament speaker to meet on July 7 to agree on budget changes.
To contact the reporter on this story: Kateryna Choursina in Kiev at kchoursina@bloomberg.net.
Last Updated: July 5, 2008 11:40 EDT
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July 5 (Bloomberg) -- Ukraine increased its forecast of inflation for 2008 and said the country's economic growth in the first half lagged behind its projection for the year.
The inflation rate will be 15.9 percent at the end of the year, more than a previous forecast of 15.3 percent, Justice Minister Mykola Onishchuk told journalists today after a government meeting to approve changes to the 2008 state budget.
Ukraine's cabinet has rejected demands by President Viktor Yushchenko to trim this year's budget deficit to tackle inflation, which was 31.1 percent in May. Yushchenko disagrees with Prime Minister Yulia Timoshenko on policies including how to fight inflation and the sale of state assets.
The country's economy grew 6.4 percent in the first half of 2008, Timoshenko said before today's meeting, which was held to ensure that the legislature adopts the 2008 budget before its summer recess, which starts on July 14. The cabinet has forecast growth of 6.8 percent in gross domestic product for the year.
Timoshenko said today that a ``significant'' amount of this year's 30.4 billion hryvnia ($6.61 billion) budget surplus will be used to develop the agricultural and energy industries, shipbuilding, aviation and the upgrading of roads.
The government will continue with planned social spending and increase financing to prepare for the Euro 2012 soccer tournament, which will be co-hosted by Ukraine, Timoshenko said.
Yushchenko had invited Timoshenko, the head of central bank and the Ukrainian parliament speaker to meet on July 7 to agree on budget changes.
To contact the reporter on this story: Kateryna Choursina in Kiev at kchoursina@bloomberg.net.
Last Updated: July 5, 2008 11:40 EDT
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France's Sarkozy Questions If ECB Rate Increase `Reasonable'
By Simon Kennedy
July 5 (Bloomberg) -- French President Nicolas Sarkozy recommenced his criticism of the European Central Bank today, asking it was ``reasonable'' for it to have raised the region's key interest rate this past week.
The ECB lifted its benchmark rate to 4.25 percent, its highest in seven years, on July 3 after inflation accelerated to a 16 year high in the 15 nations that use the euro.
Sarkozy, who has repeatedly attacked the Frankfurt-based bank for focusing too much on inflation and not enough on growth, asked delegates at a Paris meeting of his Union for a Popular Movement party ``if it was reasonable to raise rates, while the Americans have rates at 2 percent.''
The U.S. Federal Reserve has cut its key rate seven times since September to 2 percent in a bid to avert recession, while the ECB left its unchanged until the past week amid surging consumer prices.
Sarkozy's comments carry greater weight after France on July 1 became the president of the 27-nation European Union, meaning it will help shape the EU's agenda and policies for the rest of this year. ECB President Jean-Claude Trichet has brushed aside the criticism, telling reporters on July 3 that his central bank is ``an independent institution.''
The French president repeated his call for the Group of Eight nations to increase its ranks to include China and India. He and other leaders from the group are scheduled to meet in the coming week for their annual summit, this year in Japan.
``It's not reasonable to continue to meet as eight to solve the big questions of the world,'' he said.
To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net.
Last Updated: July 5, 2008 14:01 EDT
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July 5 (Bloomberg) -- French President Nicolas Sarkozy recommenced his criticism of the European Central Bank today, asking it was ``reasonable'' for it to have raised the region's key interest rate this past week.
The ECB lifted its benchmark rate to 4.25 percent, its highest in seven years, on July 3 after inflation accelerated to a 16 year high in the 15 nations that use the euro.
Sarkozy, who has repeatedly attacked the Frankfurt-based bank for focusing too much on inflation and not enough on growth, asked delegates at a Paris meeting of his Union for a Popular Movement party ``if it was reasonable to raise rates, while the Americans have rates at 2 percent.''
The U.S. Federal Reserve has cut its key rate seven times since September to 2 percent in a bid to avert recession, while the ECB left its unchanged until the past week amid surging consumer prices.
Sarkozy's comments carry greater weight after France on July 1 became the president of the 27-nation European Union, meaning it will help shape the EU's agenda and policies for the rest of this year. ECB President Jean-Claude Trichet has brushed aside the criticism, telling reporters on July 3 that his central bank is ``an independent institution.''
The French president repeated his call for the Group of Eight nations to increase its ranks to include China and India. He and other leaders from the group are scheduled to meet in the coming week for their annual summit, this year in Japan.
``It's not reasonable to continue to meet as eight to solve the big questions of the world,'' he said.
To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net.
Last Updated: July 5, 2008 14:01 EDT
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