Treasury Secretary Timothy Geithner on Saturday stressed the necessity of keeping global economic stimulus in place until recovery is assured and opposed the utility of a tax on financial transactions as a way to dampen risky bank behavior.
Speaking at the conclusion of a two-day meeting of Group of 20 finance minister and central bankers, Geithner said there was broad agreement that “growth remains the dominant policy imperative across our economies.”
He said high U.S. unemployment, which hit a 26-1/2-year high at 10.2 percent of the civilian workforce in October, highlighted a “very tough economic environment” that will a period of sustained growth to correct.
Earlier, British Prime Minister Gordon Brown had suggested that the G20 should levy on banks — blamed for the excessive risk-taking that led the world into a now-easing financial crisis — and used the proceeds to fund future bailouts.
Geithner played down that idea, noting that the Obama administration was already pushing an overhaul of financial market rules in Congress that would ensure that banks pay the costs of their failures in future from their own pocket.
“A day-by-day financial transaction tax is not something we are prepared to support,” Geithner said in an interview with Sky News. In his concluding press conference, Geithner was asked repeatedly to say why he opposed such a tax on banks and indicated he doubted its effectiveness.
“This idea (of a bank transaction tax) has been around for a long time…I think frankly the experiences are mixed,” he said, expressing an American view that there was no widespread backing for such a tax.
Canadian Finance Minister Jim Flaherty was similarly skeptical.
“It’s one of the ideas that’s on the table, but is not particularly attractive to me as finance minister of Canada. We have been a government that has been reducing taxes,” Flaherty said.
ON DANGEROUS GROUND
Geithner’s key message was that recovery still remains on perilous ground and that it was too soon to discuss the timing for removing the massive fiscal and monetary stimulus that countries around the world have poured into their economies.
“Government policy has to provide a bridge to growth led by the private sector,” he said. “We’re now in the middle span of that bridge.”
That meant policymakers must move cautiously in trying to bring down huge budget deficits without choking off chances for growth led by consumer spending and business investment.
“If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Geithner said.
“It’s too early to start to lean against recovery.”
The Federal Reserve on Wednesday is expected to reaffirm its intention to keep U.S. interest rates at ultra-low levels for a long time to support the economy, even as signs of recovery accumulate.
The U.S. central bank cut overnight rates close to zero percent last December and it has vowed to keep them there for an “extended period.” While some analysts think the Fed could start to tip-toe away from that pledge, most say it is too soon.
“Once they start removing that, that’s a real sign that they intend, within six months, to start raising rates,” said Deutsche Bank economist Torsten Slok. “But it’s just premature, looking at the economic numbers, to arrive at that conclusion.”
The Fed will issue a statement around 2:15 p.m. EST at the conclusion of its two-day policy meeting on Wednesday. Analysts expect the Fed to nod to modestly encouraging signs suggesting the economy is gaining strength, but still expect a cautious tone on policy.
Policy makers will need to take into account the economy’s faster-than-expected 3.5 percent annualized growth rate in the third quarter, which effectively signaled the end of the most painful recession since the 1930s. Suggesting further momentum, data on Monday showed manufacturing activity hit its highest level in 3-1/2 years last month.
Improved third-quarter corporate earnings have also fed optimism that the upturn can be sustained next year even after government help has dried up.
In an act underlining rising confidence in the recovery, billionaire investor Warren Buffet on Tuesday said his company, Berkshire Hathaway Inc, agreed to purchase the nation’s largest rail company, saying it is poised to benefit from the recovery.
Fed officials in recent weeks, however, have sent the message that while the outlook has improved, the recovery is likely to be sluggish and needs continuing support.
Unemployment is expected to climb above 10 percent before the labor market improves, damping the consumer spending that accounts for around 70 percent of U.S. output. The banking system is still under pressure from loan losses, and credit remains tight.
“We have to think about our exit policy and are looking at it very carefully, but at the moment, that’s not our first order concern. At the moment, it’s policy accommodation,” Chicago Federal Reserve Bank President Charles Evans, a voter on the Fed’s policy-setting panel, said on October 22.
Other central banks are also wrestling with how best to spur growth and when to withdraw extraordinary measures to support their economies.
The European Central Bank is expected to keep rates on hold at a record-low 1 percent on Thursday, while there is a good chance the Bank of England will expand its large asset purchase program at a meeting the same day.
Most analysts at top U.S. banks expect the Fed to keep interest rates on hold until mid-2010 or later, although interest rate futures markets are pricing in an increase earlier in 2010.
(Editing by Leslie Adler)
Health insurer WellPoint Inc is weighing more job cuts as it grapples with enrollment declines stemming from the weak U.S. economy, and looks to operate more efficiently next year.
WellPoint Chief Executive Officer Angela Braly said enrollment is not expected to increase in 2010, following significant declines this year, according to an internal company memo obtained by Reuters.
WellPoint, the largest U.S. health insurer by membership, has seen its enrollment pressured as its employer customers lay off workers. It previously said it would struggle to increase profits next year.
In the memo to WellPoint managers, Braly said the company periodically needs to adjust its size to align with membership and that it planned “to make these reductions thoughtfully and respectfully, but with appropriate speed.
“Discretionary spending, of course, will get special scrutiny, but staffing levels also must decline if we are to succeed in these tough economic times.”
A company spokeswoman, Kristin Binns, told Reuters the company reviews the size and skills of its workforce as the economic environment changes.
“We are examining ways we can operate more efficiently in 2010, which we believe is essential to allow us to invest for the longer term and to innovate for the benefit of our customers and members,” Binns said.
The memo did not specify how many job cuts WellPoint was considering and Binns did not elaborate. WellPoint employs about 42,000 workers.
In addition to possible job cuts, Braly in the memo said she asked her executive leadership team to examine the company’s structure.
Braly also said internal initiatives designed to improve efficiency, such as how the company processes claims and operates call centers, would produce “measurable results” as soon as 2010. WellPoint is also planning a broader push to use technology to improve its business, the memo said.
The Indianapolis-based company had said in January that it would eliminate about 1,500 positions, following large rivals that also had cut jobs in the face of the weakening economy.
In July, WellPoint projected it would end 2009 with about 33.6 million members, which would be a decline of about 1.4 million, or 4 percent, from the end of 2008.
Second-quarter results topped analysts’ estimates, but the company did not raise its 2009 profit forecast.
Chief Financial Officer Wayne DeVeydt told analysts on the company’s second-quarter conference call in July that he “would not expect operating earnings growth next year in this environment.”
High unemployment along with slimmer margins with Medicare Advantage plans for the elderly are likely to weigh on earnings, the company said then.
St. Louis’ economy shrank faster than almost any other region in the country in the second quarter, according to a new report out today from the Brookings Institution.
Only beleaguered Detroit saw its economic output fall faster than St. Louis’ in the three months ending in June, a time when Chrysler’s Fenton truck plant limped into shutdown and U.S. Steel’s massive Granite City Works sat quiet.
Those sort of cuts contrasted with a relatively stable housing sector and a job market that’s less gruesome than some, keeping St. Louis mired in the middle of the pack among 100 large metropolitan areas that Brookings has been tracking through the recession. It’s better off than housing crisis hot spots like Las Vegas or factory towns like Dayton, Ohio, but worse off than energy hubs in Houston and Dallas, the same as it was three months ago.
With its broad base of industries, St. Louis’ $120 billion regional economy tends to track the nation as a whole. But this spring’s factory cuts took an outsized toll here because they eliminated jobs with better-than-average wages, said Jason Kunkel, an economist who tracks St. Louis for Moody’s Economy.com. That translated into a 1.5 percent decline in output, though that figure may be revised upward a bit. Since the recession began, output is off 6.1 percent.
"The manufacturing sector there has been hit very hard," he said. "That certainly has a big effect on why (output) in the first half of 2009 will be worse than average."
The good news, said Howard Wial, who co-authored the Brookings report, is that things appear to be getting a little better. The pace of job cuts is slowing. Auto sales have leveled off, a good sign for the car-making that remains here. The big plant in Granite City is pumping out steel again.
"You can see the light at the end of the tunnel," he said. "But you’re not there yet."
The nation’s economy started to turn around after the passage of President Obama’s $787 billion stimulus package in February, his chief economic adviser said Thursday.
The American Recovery and Reinvestment Act created or saved slightly more than 1 million jobs through August, according to the president’s Council of Economic Advisers.
The stimulus plan also boosted the nation’s gross domestic product by 2.3 percentage points in the second quarter, the council said in its first quarterly stimulus report to Congress.
"We have absolutely seen a change in trajectory," said Christine Romer, the council’s chairwoman. "An economy that was in free fall with a tremendous amount of downward momentum has certainly seen something very different."
Not everyone, however, is buying that stimulus is helping improve the country’s fiscal picture.
"The White House can concoct whatever number they want, but the reality is 3 million American jobs have been lost since the start of the year and the unemployment number continues to rise," said Dave Camp, R-Mich., top Republican on the House Ways and Means Committee.
Stimulus on the streets
The federal government distributed $151.4 billion in stimulus funds or tax relief by the end of August. Another $128.2 billion was made available for recipients to claim. Much of the money spent went to individual tax cuts, state fiscal relief and aid to the most vulnerable.
Economists have differed over whether the stimulus package indeed improved economic activity in the second quarter, though most say it will have an impact in the current period. The GDP contracted at an annual rate of 1% in the second quarter, a significantly slower decline than in the previous two periods.
The latest Blue Chip consensus economic forecast for the third quarter is a 3% expansion, Romer said. Stimulus spending accounts for 2.7% of that bump.
The unemployment rate, however, remains a weak point in the Obama administration’s portrayal of stimulus gains totally free credit score. The rate continues to increase, rising to 9.7% in August, though the pace of job loss has moderated. Congressional Republicans are pointing to the rising rate as evidence that the stimulus package is a failure.
"The Democrats’ bloated ’stimulus’ isn’t working, and we can’t afford another trillion-dollar mistake on the backs of our children and small businesses," said Rep. John Boehner, R-Ohio, after the latest job figures were released Friday.
The return to job growth depends on private industry, said Romer, adding the recovery act is still on track to save or create 3.5 million jobs.
"One of the big issues is, does the private sector come back?" Romer said.
So far, stimulus funding has helped boost employment in manufacturing, construction, retail trade and temporary employment services, the council said.
The administration has been on the defensive lately when it comes to the recovery act. Last week, Vice President Joe Biden gave a lengthy speech detailing how the stimulus package is meeting its goals to pull the country out of its economic doldrums.
"Two hundred days in, the recovery act is doing more, faster and more efficiently and more effectively than most people expected," Biden said.
Still, even some of the president’s supporters say more needs to be done to help Americans during the recession.
Sen. Joe Lieberman, I-Conn., called on the administration on Wednesday to speed up the pace of stimulus spending, particularly on construction jobs.
"We must do everything possible to put those and all stimulus dollars to work as quickly as possible to blunt the heavy toll the recession continues to take on far too many of our citizens," Lieberman said.
World Trade Organization judges will rule on Friday for the first time on whether the European Union handed out illegal subsidies to Airbus in a verdict that could affect planemakers worldwide.
The three-member WTO panel is widely expected to agree with complainant Washington that the billions of euros in “launch aid” Airbus received to build the A380 and other top-selling planes was anti-competitive and violated trade laws.
Their findings, to be distributed to U.S. and European diplomats at about 1400 GMT (10 a.m. EDT), will set the markers for acceptable government funding in civil aviation and also color transatlantic relations at a sensitive time for the global economy and multilateral trade talks.
It also stands to impact Airbus’ strategy as it develops its next airliner, the wide-body A350 due in the next decade.
“This will likely be a fairly significant document,” said Brendan McGivern, a partner with the law firm White and Case in Geneva, which has not been involved in either the Airbus case or a counter-suit by Brussels against U.S. rival Boeing whose findings are due out in six months.
Trade lawyers expect Washington to lose that parallel case. That would leave both sides bruised as a result of the biggest and most commercially significant arbitration in WTO history.
The extent to which Airbus or Boeing come out cleaner than the other in the twin preliminary rulings will affect the dynamics of negotiations to settle their differences privately, which both sides have said they eventually want.
BUSINESS IMPACT
Friday’s preliminary Airbus report — expected to run to 1,000 pages or more — will not be made public for several months to give both sides the chance to review it. WTO panels virtually never change the substance of their reports before they are circulated to the public as final versions.
The WTO declined to speak about the size of the aircraft dispute or the number of staff assigned to work on it. “We never comment on specific disputes,” spokesman Keith Rockwell said.
McGivern said the Airbus ruling would build on years of litigation on aircraft subsidies between Canada’s Bombardier and Brazil’s Embraer, companies that will be looking to the latest WTO findings with interest.
Upcoming industry players in China, Russia and Japan are also expected to pore over the complex ruling to inform their own decisions about how to finance their aircraft market expansion.
“This is a make-or-break case because it will set the standard for everyone who wants to be involved in free trade and develop and export aircraft without tariffs,” said Doug McVitie, founder of the aerospace consultancy Arran Aerospace.
Boeing spokesman Tim Neale also said the report should have a direct impact on how planemakers do business.
“A strong, clear ruling on launch aid and other subsidies not only will ensure a fair and level playing field for Boeing and Airbus, but for all governments and companies that want to compete in the global commercial airplane market,” he said.
The U.S. economy took a first step toward recovering from the worst recession since the 1930s in the second quarter as companies reduced inventories, spending started to climb and profits grew.
Gross domestic product shrank at a 1 percent annual rate from April to June, less than the 1.5 percent decline projected by economists in a Bloomberg News survey, a Commerce Department report showed Thursday in Washington. Corporate earnings rose by the most in four years, the department also said.
Government programs, including "Cash for Clunkers" and first-time homebuyer incentives, are boosting manufacturing and housing, indicating the gain in sales that began last quarter will be sustained in the second half of the year.
"We’re on a pretty decent recovery path," said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. "There was a better mix last quarter with almost every major component of final demand being revised up and inventories being revised down. That puts us in a pretty decent position going into the third quarter."
Corporate profits, not included in the advance GDP estimate released in July, rose 5.7 percent from the first three months of the year, the biggest increase since the first quarter of 2005.
The median GDP forecast was based on a Bloomberg survey of 75 economists. Estimates ranged from declines of 1.8 percent to 0.8 percent. Thursday’s reading matched the government’s initial calculation issued last month and followed a 6.4 percent pace of contraction in the first three months of the year.
The drop in GDP was the fourth in a row, the longest contraction since quarterly records began in 1947. The world’s largest economy has shrunk 3.9 percent since last year’s second quarter, making this the deepest recession since the Great Depression.
Thursday’s report is the second of three estimates on second-quarter growth. The figures will be revised again in September as more information becomes available.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace, less than anticipated, following a 0.6 percent increase in the prior quarter. Purchases were forecast to drop 1.3 percent.
Car dealers had a few more hours to get reimbursed for their Cash for Clunkers deals after the government extended the deadline for filing applications for the $3 billion government incentives into Tuesday evening.
All sales under the program ended Monday. But after already pushing back the deadline to submit records for the car rebate deals to noon Tuesday, the Transportation Department said the deadline would be extended to 7 p.m. St. Louis time.
Before the extension, all the paperwork was due to be submitted by Monday night, but an influx of submissions shut down the government’s computer filing system temporarily. Transportation officials said the computer system was up and running on Tuesday. Alex Perdikis, executive vice president of the Koons Automotive Companies dealer chain, said employees weren’t able to access the claims system for about 45 minutes Tuesday afternoon. "It’s a waiting game every time you put a deal in. You cross your fingers and hope the site is up," Perdikis said.
RICHMOND HEIGHTS — There’s a new idea for this town’s long-stalled Hadley Township redevelopment area: a big-league soccer stadium.
A local developer recently filed a proposal with Richmond Heights to build an 18,500-seat arena along Hanley Road. It would be the centerpiece of a 57-acre complex of stores, offices and housing that would cost roughly $400 million.
It’s still in the early stages, but Gateway Real Estate Partners envisions the stadium as a potential home for the Major League Soccer franchise that a St. Louis-based group has been pursuing for several years.
"I’ve thought that area of the county would be an ideal spot for a soccer stadium," said Ryan Woods, who heads Gateway, which is also redeveloping the former Schnucks site nearby at the intersection of Clayton and Hanley roads.
Woods said he has discussed the plan with Jeff Cooper, the chairman of St. Louis Soccer United, but that those talks have been very preliminary.
"I have not put a plan in front of him to consider," Woods said.
Indeed, Cooper, who’s awaiting the next round of MLS expansion, said he’s focused on two other stadium sites — one in Collinsville and another at the St my credit score. Louis Soccer Park in Fenton, which his group recently acquired from Anheuser-Busch InBev.
"The Richmond Heights proposal is not one that has our attention at this time," he said in a statement.
Gateway’s proposal was the only one Richmond Heights received for Hadley Township this spring, when the city sought new ideas for the site after three years of negotiations with another developer fell apart.
The idea for the stadium plus two hotels, office and retail space and housing was cobbled together quickly to meet the deadline in late May, Woods said. Now it is "very much in flux" as Gateway bores down on financing, traffic issues and the right mix of potential uses.
"We’re working on a more serious plan to put in front of the city," he said.
That plan is due by October, and until then, said Richmond Heights City Administrator Amy Hamilton, the city will take a wait-and-see approach.
Monsanto Co. and Dow AgroSciences said it won approval from U.S. and Canadian regulators to begin selling a new biotech corn to help farmers ward off weeds and bugs.
So-called SmartStax corn was jointly developed by Monsanto and Dow under a 2007 agreement. The companies plan to begin commercial sales of 3 million to 4 million acres next year.
Creve Coeur-based Monsanto, the world’s largest seller of biotech seeds, sees SmartStax as a blockbuster that could eventually be planted on 50 million to 65 million acres in the U.S., Chief Technology Officer Robb Fraley said Monday on a conference call with analysts. This year, 87 million corn acres were planted.
It represents Monsanto’s second major product in as many years and the platform for future genetic improvements in corn, the company said. Earlier this year, Monsanto began selling higher-yielding Roundup Ready2Yield soybeans.
Monsanto shares rose $4.20, or 5.5 percent, to $80.76 at 5 p.m. Monday in after-hours trading.
SmartStax is the first genetically modified corn that combines eight herbicide-tolerance and insect-protection genes instant cash.
Because the companies are integrating already-developed traits, the companies will be able to "put SmartStax on a fast-track," said Jerome Peribere, CEO of Indianapolis-based DowAgroSciences, a unit of Dow Chemical Co.
The approval by the Environmental Protection Agency and Canadian Food Inspection Agency is especially noteworthy because regulators agreed to reduce the "refuge area" for SmartStax.
The EPA currently prohibits farmers in the U.S. Corn Belt from planting insect-resistant corn on 20 percent of their acres (50 percent in the Cotton Belt) to guard against developing pesticide tolerance in bugs.
Shrinking the refuge area for SmartStax allows farmers to cut pesticide use and grow higher-yielding corn on more land, improving "whole-farm yield" by 5 percent to 10 percent, Fraley said.
Bloomberg News contributed to this report.
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