Thursday 01-13-11

We are on the road to recovery...

Jobless claims jump, wholesale food costs surge
U.S. jobless claims jumped to their highest level since October last week while food and energy costs lifted producer prices in December, pointing to headwinds for an economy that has shown fresh vigor.

However, a surge in exports to their highest level in two years helped narrow the U.S. trade deficit in November, an encouraging sign for fourth-quarter economic growth.

Despite a string of recent data that had signaled a pickup in the economy's momentum, the figures on Thursday showed the job market continues to struggle.

The number of Americans filing for first-time unemployment benefits rose unexpectedly to 445,000 from 410,000 in the prior week, a Labor Department report showed. It was the biggest one-week jump in about six months and confounded analyst forecasts for a small drop to 405,000.

The jobs data weighed on U.S. stocks, which were off slightly in late morning. Government debt prices were trading little changed as concerns about Europe's debt struggles helped support the market.

"The jobless number highlights the patchy recovery we've seen in the job market and reinforces that it will be a slow process bringing down the jobless rate," said Omer Esiner, market analyst at Commonwealth Foreign Exchange in Washington.

The rebound in benefit claims came in the wake of the holidays, which may have hindered new applications and created a backlog. Claims, which peaked around 650,000 in April of 2009, had been on a downward trajectory, dipping below 400,000 for the first time in two years during the week of Christmas.

The four-week moving average of new claims, which strips out short-term volatility to provide a better sense of underlying trends, rose by 5,500 last week to 416,500.

A separate report from the Philadelphia Federal Reserve Bank showed factory activity in the U.S. Mid-Atlantic region accelerated less in December than originally reported.

FOOD GETS PRICIER

As last year drew to a close, food and energy costs were rising briskly at the wholesale level despite a tame underlying inflation trend.

U.S. producer prices climbed 1.1 percent in December after a 0.8 percent rise in November, according to another Labor Department report. Economists had been looking for a repeat of that 0.8 percent advance in December.

Inflation excluding food and energy, however, rose just 0.2 percent, in line with forecasts. That left the year-on-year gain in core producer prices at 1.3 percent, just below analyst estimates, helping tame inflation fears.

The rising prices producers receive ultimately could put upward pressure on retail prices, acting like a tax on consumers that could slow growth. Up to now, companies have not been able to pass increasing costs onto consumers because of weak demand, but that too has consequences.

"Eventually this means corporate profits could be squeezed," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.

A recent spike in global food costs has raised fears of a crisis in the poorer corners of the developing world. World food prices hit a record high last month, outstripping the levels that sparked riots in several countries in 2008, and key grains could rise further, the United Nations' food agency said recently.

On a more positive note, the U.S. trade gap narrowed to $38.3 billion in November from $38.4 billion in October, the Commerce Department reported. Analysts had expected it to widen to $40.5 billion.

November's deficit was the slimmest since January 2010. Exports totaled $159.6 billion, the highest since August 2008 -- just weeks before the bankruptcy of Lehman Brothers touched off a trade-crushing global panic.

Exports to China in November totaled a record $9.5 billion. Still, they were swamped by rising imports that pushed the politically touchy U.S. shortfall with China to $25.63 billion.

Chinese President Hu Jintao meets with President Barack Obama in Washington next week, and trade issues -- and what the United States calls China's "substantially undervalued" exchange rate -- will be high on the agenda.

TOUGH SELL

The split between weak underlying inflation and high food and energy prices makes it harder for Federal Reserve officials to argue publicly that inflation is not a threat. A fear of inflation being too low has underpinned the Fed's efforts to support the economy by purchasing government bonds.

Another key factor is the bleak jobs picture, not helped by the Labor Department data.

The number of Americans who continued to claim benefits after an initial week of aid did retreat sharply to 3.88 million from 4.13 million, offering some reason for hope.

Still, the total number of Americans on benefit rolls, including those receiving extended benefits under emergency government programs, jumped to 9.19 million from 8.77 million.

http://www.reuters.com/article/idUSTRE70A41H20110113

Growth hopes push oil within reach of $100
By Jack Farchy and Javier Blas in London

Oil has risen to within reach of $100 a barrel for the first time since the 2008 price spike amid mounting optimism that global economic growth will boost demand.

But the sharp rise has also heightened concerns about the impact of soaring commodity prices on the global economy, particularly in emerging countries, as it comes on top of high costs for agricultural commodities and metals.

The oil surge also comes on the back of supply disruptions such as this week’s outage in a pipeline in Alaska and strong investor inflows in commodities.

Traders said there was a growing consensus that the Organisation of the Petroleum Exporting Countries was comfortable with prices near at $100 a barrel. In the past, Saudi Arabia, the cartel’s de facto leader, had said it would work to keep oil prices at $70-$80.

Brent crude, the global benchmark, hit an intraday high of $98.8 a barrel on Wednesday, the highest since September 2008, when oil prices were in the midst of a collapse from their $147-a-barrel record.

“Brent can hit $100 any day now. There’s a lot of upward momentum,” Michael Wittner, at Société Générale, said.

The strength in the rebound in oil consumption last year surprised many, with demand growing at a rate of 2.3m barrels a day, the second-highest in three decades. And oil traders and investors have begun the new year in bullish fettle.

“The consensus demand forecast for 2011 is creeping up day after day,” a senior trader said.

The International Energy Agency, the western countries’ oil watchdog, forecast that consumption would grow this year by a slower 1.3m b/d, but analysts and traders believe it would be much higher, with some pointing to 1.7-2.0m b/d.

But analysts cautioned that Brent could be overbought. While it is flirting with $100, West Texas Intermediate, the US benchmark, is languishing.

On Wednesday, WTI was trading more than $6.50 short of Brent prices at $92.39. The widening gap between the two benchmarks is due to a build-up of inventories at Cushing, Oklahoma, the landlocked delivery point for the WTI contract.

As Cushing has few outlets to evacuate surplus oil, a glut tends to depress the price of WTI relative to other US and international benchmarks.

http://www.ft.com/cms/s/0/8a72aba4-1e7b-11e0-87d2-00144feab49a.html

2011 to top 2010 record of 1 million foreclosures
January 13, 2011 - 1:17pm

NEW YORK (AP) - The bleakest year in the foreclosure crisis has only just begun.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.

The blistering pace of foreclosures this year will top 2010, when a record 1 million homes were lost, RealtyTrac said Thursday.

One in every 45 U.S. households received a foreclosure filing last year, a record 2.9 million of them. That's up 1.67 percent from 2009.

On Thursday, Freddie Mac reported that fixed mortgage rates dipped this week for the second straight time, extending a sliver of hope for some home owners. .

The average rate on the 30-year mortgage dropped to 4.71 percent from 4.77 percent the previous week. The rate on the 15-year loan, a popular refinance choice, slipped to 4.08 percent from 4.13 percent.

But both are a half-point higher than the lows they reached in November. The 30-year loan rate hit a 40-year low of 4.17 percent and the 15-year mortgage rate fell to 3.57 percent, the lowest level on records starting in 1991.

The dip has led more borrowers to apply for a refinance, but would-be buyers remain hesitant, according to Wednesday's mortgage indexes from the Mortgage Bankers Association. It will take more than low mortgage rates to jumpstart a housing market plagued by high unemployment, falling prices, tighter credit standards.

The glut of foreclosures has compounded the problem and while the pace moderated in the final months of 2010, that isn't expected to last.

Foreclosures are expected to remain elevated throughout the year, pushing home prices down another 5 percent nationally before finally bottoming out.

The number of homes that received at least one foreclosure-related filing in December was the lowest monthly total in 30 months. Total notices fell 1.8 percent from November and 26.3 percent from December 2009, RealtyTrac said.

Banks temporarily halted actions against borrowers severely behind on their payments after allegations of improper eviction surfaced in September.

However, most banks have since resumed foreclosures and the first quarter will likely bear that out, Sharga said.

The pain likely will be the most acute in states that have already suffered the worst. For the most part, it will be states that saw the biggest housing booms: Nevada, Arizona, Florida and California. They will be joined by states hit hardest by the economic downturn, including Michigan and Illinois.

And on Wednesday, Illinois lawmakers approved a 66 percent income-tax increase in a desperate bid to end the state's crippling budget crisis.

More than half of the country's foreclosure activity came out of five states in 2010: California, Florida, Arizona, Illinois and Michigan. Together, these states recorded almost 1.5 million households receiving a filing, despite year-over-year decreases in California, Florida and Arizona.

Nevada posted the highest foreclosure rate in 2010 for the fourth straight year, despite a 5 percent decline in activity from the year before. One in every 11 households received a foreclosure filing last year in the state. In December, foreclosure activity increased 18 percent from November with a 71 percent spike in bank repossessions.

Arizona and California also showed sharp December increases in the number of homes that banks reclaimed, at 52 percent and 47 percent, respectively. Arizona, along with Florida, finished the year at No. 2 and No. 3 for the highest foreclosure rates.

One in every 17 Arizona households got a foreclosure filing last year, while one in 18 received a notice in Florida.

California, Utah, Georgia, Michigan, Idaho, Illinois and Colorado rounded out the top ten states with the highest foreclosure rates.

RealtyTrac tracks notices for defaults, scheduled home auctions and home repossessions _ warnings that can lead up to a home eventually being lost to foreclosure.

http://wtop.com/?nid=111&sid=1863430