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Danger sign for US economy: Job growth disappoints
WASHINGTON (AP) , The American economy may be headed for trouble again.
Employers in the U.S. added only 69,000 jobs in May, the fewest in a year and not even close to what economists expected. For the first time since June, the unemployment rate rose, to 8.2 percent from 8.1 percent.
It was the third month in a row of weak job growth and further evidence that, just as in 2010 and 2011, a winter of hope for the economy has turned to a spring of disappointment.
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Dismal job market pushes Dow into 275-point plunge
The stock market suffered its worst day of the year Friday after a surprisingly weak report about hiring and employment cast a shadow over the U.S. economy. The Dow Jones industrial average plunged 275 points.
Traders stampeded into the safety of bonds, pushing the yield on the benchmark 10-year Treasury note to a record low. Fearful investors bought gold, driving the price up by $50 an ounce, and concern about a global economic slowdown drove the price of oil to its lowest since October.
It was the Dow's steepest one-day drop since November.
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Gas prices are silver lining as economy weakens
There's some good news behind the discouraging headlines on the economy: Gas is getting cheaper. It's dropped to $2.99 in some parts of South Carolina and could soon fall below $3 in a handful of other southern states.
A plunge in oil prices has knocked more than 30 cents off the price of a gallon of gas in most parts of the U.S. since early April. The national average is now $3.61. Experts say it could drop to at least $3.40 before Labor Day.
If Americans spend less filling their tanks, they'll have more money for discretionary purchases. The downside? Lower oil and gas prices are symptoms of weakening economic conditions in the U.S. and around the globe.
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Easier credit, new models keep US auto sales solid
DETROIT (AP) , Easier credit, hot new cars and falling gas prices kept Americans buying cars at a solid pace in May despite bad economic news.
But sales could stumble in June as people weigh troubling headlines, like Friday's report that U.S. unemployment rose for the first time in 11 months.
Car sales usually hew closely to the performance of the stock market and to consumer confidence numbers. But in May, they were strong, even though confidence was wobbly and the stock market had its worst month in two years.
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Wal-Mart CEO says company committed to compliance
FAYETTEVILLE, Ark. (AP) , Wal-Mart Stores Inc. CEO Mike Duke said Friday that the retailer is committed to integrity in the wake of recent bribery allegations in Mexico.
Duke joined other executives including chairman Robson Walton, the son of founder Sam Walton, at the company's annual meeting on Friday in pledging that Wal-Mart will get to the bottom of the allegations.
This comes after the world's largest retailer said that it will overhaul its compliance program and expand its internal investigation into the accusations to other countries.
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US consumer spending up 0.3 percent in April
WASHINGTON (AP) , Consumer spending edged up modestly in April but personal income growth was the slowest in five months, raising concerns about the ability of Americans to keep spending in the future.
Consumer spending increased 0.3 percent in April following a revised 0.2 percent gain in March, the Commerce Department said Friday.
Americans' income grew 0.2 percent in April, the poorest showing since incomes fell 0.1 percent in November. The April gain was just half the 0.4 percent in March rise.
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US factory activity grew more slowly in May
WASHINGTON (AP) , U.S. manufacturing grew more slowly in May, hampered by weaker hiring and declining production. But a measure of new orders rose to a 13-month high, suggesting factory activity will pick up in June.
The Institute for Supply Management, a trade group of purchasing managers, said Friday that its index of manufacturing activity fell to 53.5 in May, down from a reading of 54.8 in April. A reading above 50 indicates expansion.
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General Motors to shift white-collar pensions to annuity
DETROIT (AP) , General Motors Co. will change the way it makes pension payments to white-collar retirees, shoring up its finances by offering buyouts and shifting liabilities to an annuity.
The moves will unload $26 billion in pension liabilities from the Detroit automaker's books, and experts say the changes are likely the start of a trend as companies with defined benefit pension plans try to cut risk and administrative costs.
GM said Friday that it will offer 42,000 retirees a lump-sum of cash if they agree to stop taking monthly benefits. For the rest of the 118,000 U.S. salaried retirees and spouses, GM will buy a group annuity that will make monthly payments starting in 2013.
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Google adds feature to help China searchers
BEIJING (AP) , Google has fired a new salvo in a censorship battle with Beijing by adding a feature that warns users in China who enter search keywords that might produce blocked results and suggests they try other terms.
Google's announcement Thursday described the change as a technical improvement and made no mention of Beijing's extensive Internet controls. But it comes after filters were tightened so severely in recent weeks that searches fail for some restaurants, universities or tourist information. Authorities were trying to stamp out talk about an embarrassing scandal over the fall of a rising Communist Party star.
Google Inc. closed its China-based search engine in 2010 because of government censorship. Mainland users can see its Chinese-language site in Hong Kong but the connection breaks if they search for sensitive terms.
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Executive predicts data-only phone plans in 2 years
NEW YORK (AP) , The CEO of AT&T Inc. said Friday that cellphone plans that count only data usage are likely to come in the next two years. In that case, phone calls and texts would be considered just another form of data.
Randall Stephenson didn't say AT&T has such a plan in mind, but he suggested that someone in the industry will likely offer one.
Analysts see such plans as a logical extension of trends in wireless technology. Smartphones with data service can already be used for Internet phone calls and texting through services like Skype.
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By The Associated Press(equals)
The Dow Jones Industrial average closed down 274.88 points, or 2.2 percent, at 12,118.57. The Standard & Poor's 500 index fell 32.29 points, or 2.5 percent, to 1,278.04. The Nasdaq dropped 79.86, or 2.8 percent, to 2,747.48.
West Texas Intermediate, the benchmark for oil in the U.S, fell $3.30, or 3.7 percent, to finish at $83.23 per barrel, the lowest price since early October. Brent crude, which is used to price international oil, lost $3.44, or 3.4 percent, to end at $98.43 per barrel, its lowest price since January 2011.
Heating oil fell 7.53 cents to finish at $2.628 per gallon, gasoline futures fell 6.59 cents to end at $2.657 per gallon and natural gas dropped 9.6 cents to finish at $2.326 per 1,000 cubic feet.
Stocks sink 1.4% after 'terrible' jobs report - Click2Houston.com
Wall Street suffered its bloodiest day of the year Friday as U.S. stocks sank more than 2% following an ugly jobs report. The Dow erased all its gains for the year, and the S&P 500 and Nasdaq moved into correction territory, down more than 10% from the year's highs.
The sell-off was broad, with all 30 Dow components ending in the red, and 97% of the S&P 500 closing lower.
As jittery investors fled stocks, they plowed into the safety of U.S. government debt, pushing the yields on the 10-year Treasury note and the 30-year Treasury bond to fresh record lows.
The Dow Jones industrial average plunged 275 points, or 2.2%, the biggest one-day drop since November. The blue-chip index gave up all its gains for the year, and is now 99 points below where it finished 2011. The S&P 500 lost 32 points, or 2.5%, and the Nasdaq dropped 80 points, or 2.8%.
The S&P 500 and Nasdaq are now down more than 10% from their highs of the year, which means they are officially in what investors call a correction.
"The U.S. employment report was simply terrible," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
The May jobs report showed only 69,000 jobs were added to payrolls, less than half the 150,000 jobs forecast by economists surveyed by CNNMoney. The unemployment rate ticked higher for the first time in a year, rising to 8.2%.
The CNNMoney Fear and Greed index showed investor confidence sliding even farther into "extreme fear" territory on the news.
"The move in bond markets is even more telling," said Joe Saluzzi, co-head of equity trading at Themis Trading. "A 1.5% 10-year yield? That's fear."
Bond yields have been in record low territory for the past couple of weeks, as fears of Europe's escalating debt crisis have been building. A report on Friday showed the eurozone unemployment rate at a record high of 11%.
Concerns about slowing growth in emerging markets, including China and India, have also put investors on edge. Two reports out of China Friday morning showed that the manufacturing sector contracted more than expected in May, fueling investors' concerns that the country may be headed for a hard landing.
As global economic growth has slowed in the last year, exports to Europe -- China's largest foreign market -- have taken a hit as the debt-ridden region teeters on the brink of recession.
"We've got concerns about Europe, China, India, the United States -- this is a global problem," said Saluzzi. "Investors have no place to hide."
Given the growing fears, and fragile market and economic environment, Saluzzi said central banks around the world -- particularly the European Central Bank and the Federal Reserve -- will likely come out with plans to help stimulate the global economy.
Speculation that the Fed will launch a third round of bond buying, or QE3, which is meant to keep long-term interest rates low, has been growing, but Saluzzi is not convinced that it's the right solution.
"Interest rates are already low, and that hasn't worked," he said. "I'm sure the Fed will try something, because that's what it does, but it needs to attack from a different angle."
U.S. stocks finished in the red Thursday, ending a difficult month on a weak note. The Dow and S&P 500 dropped more than 6% in May, while the Nasdaq shed more than 7%.
Economy: Personal income and personal spending for April increased 0.2%. Analysts had expected the figure to increase by 0.3%.
The May installment of the ISM Manufacturing Index showed that U.S. manufacturing growth slowed in May. The index fell to 54.5, down from 54.8 last month and below expectations of 54. Any reading above 50 indicates growth in the sector.
April construction spending rose by 0.3%, but that was below forecasts for a 0.5% rise.
Companies: Shares of Facebook hit a fresh low of $26.83 Thursday before bouncing back, ending the day up 5% at $29.60. The stock edged higher Friday, closing up 0.1%.
Shares of food producer Sara Lee slipped after the company said it was spinning off its international coffee and tea business, which will pay a special dividend to existing Sara Lee shareholders. Sara Lee also announced a 1-for-5 reverse stock split.
BP said it was considering selling its 50% stake in TNK-BP, a Russian oil joint venture, after it received an unsolicited bid for the holding. Shares of BP gained ground.
Groupon shares fell. The online discount service, which has been dogged with questions about its accounting practices since its initial public offering in November, ends its lock-up period Friday, meaning that insiders who own shares will be able to sell them.
The nation's Big Three automakers -- General Motors, Ford Motor and Chrysler -- all reported a jump in car sales in May, but the results were less than expected by some analysts -- another sign that the U.S. economy, while growing, remains weaker than hoped.
Budget austerity gives financial managers a chance to shine - GovExec.com
Defense Department leaders preparing for historic budget cuts should tap the expertise of their financial management executives, who see the current challenges as their moment to “step up to the plate and shine,” stated a new survey conducted by the American Society of Military Comptrollers and Grant Thornton LLP.
The 10th annual survey, released Thursday, summarizes responses from 742 uniformed and civilian defense financial leaders and employees on their role in helping the Pentagon prepare for new military conflicts and a possible budget sequester, and adjusting to a “mind-set of less.”
With top Defense leaders preoccupied with macro issues, “now is truly a time for all [financial management] professionals to assume a leadership role in meeting the challenges of significantly reduced resources in an uncertain and dangerous world,” an analysis of the survey results said.
“We are seeing an increased need for the strategic financial management professional who combines technical finance knowledge with strong analytics and sound operational knowledge,” Al Tucker, executive director of the controllers association, said in a statement. “These professionals can craft budget-cutting solutions that assess and protect priority programs while still generating funds for investments required by the president’s new policy guidance.”
Retired Vice Adm. Lewis Crenshaw, a principal at Grant Thornton and the primary interviewer for the survey, said, “a sluggish U.S. economy, the return of troops from Iraq and Afghanistan, the specter of sequester, a gridlocked election-year Congress, and a rethinking of Defense strategy have combined to create a ‘perfect financial management storm.’ ” If the right people are in place, he added, “the financial management corps is ready to step up and shine.”
The survey showed that about two-thirds of financial managers are optimistic about their ability to bring cultural change to reflect the new austerity. But “inertia, resistance to change and entrenched interests that want to maintain the status quo all can work against these efforts,” the survey report said. The most important skills required of modern financial managers are critical thinking, analytical prowess, understanding the operational context of the programs they support, and creating and using performance measures, respondents said.
The survey showed a gap between top executives and field managers on some key questions. Asked whether pay and hiring freezes are having a significant impact on the workforce, 77 percent of executives said no, but only 39 percent of lower-level managers agreed.
Similarly, the goal of achieving auditable financial statements -- a challenge that has vexed the Pentagon for nearly two decades -- is a higher priority for top-level executives than for field managers.
The financial managers were asked which of several approaches top defense leaders likely would take. Options included shifting financial management tasks to nonspecialists; requiring managers to take a 5 percent to 10 percent across-the-board budget cut; negotiating to reduce the number of reports and services required; and outsourcing financial management operations. None of these choices is realistic, the majority of respondents said, but the most likely is an across-the-board cut to program budgets.
Bury Free Press business awards are launched - Bury Free Press
TODAY we launch the inaugural Bury Free Press Business Awards.
The 2012 awards will celebrate the very best in West Suffolk business and showcase the skills and entrepreneurs we have here.
Business in West Suffolk is thriving – and our awards will give you the chance to tell everyone what is great about the businesses you own, you work for or just simply love.
There will be awards for businesses who are contributing to the wider community, individual workers who are producing something special and for fledgling businesses. All the categories are detailed below.
The awards will culminate in a glitzy ceremony at The Apex, in Bury St Edmunds, on Friday, September 21, and will signal the culmination of the Bury St Edmunds Business Festival.
Launching the awards this week, Bury Free Press editor Barry Peters said: “I am delighted to be able to recognise the real excellence there is in business.
“Every week, the Bury Free Press spotlights stories of achievement and success in its business pages but these awards will bring together all the expertise and excellence and reward the trailblazers.”
Mark Stanford, events manager at the Bury Free Press – and organiser of the awards – said: “The Bury Free Press Business Awards will be a fitting tribute to the men and women who thrive in today’s hectic and pressured world of business.
“Winners on the night will know they have been given a real pat on the back by their peers and the award will be something to cherish for many years.”
Awards on the night will be presented by TV celebrity Paul Ross.
Details of how to enter the awards or nominate someone for one of the categories will appear in next week’s Bury Free Press along with a profile on the first two awards – Business of the Year and Business Person of the Year.
For updates on the awards, log on to our website www.buryfreepress.co.uk
The categories are:
Business of the Year – Sponsored by Suffolk Chamber
Business Person of the Year – Sponsored by Sicon
People Development – Sponsored by WS Training
Contribution to the Community – Sponsored by New Media Business Group
Independent Retailer – Sponsored by Bury Free Press
Best New Start-Up – Sponsored by Menta
Green / Environmental Award – Sponsored by West Suffolk College
Award for International Trade – Sponsored by St Edmundsbury Borough Council
Employee of the Year – Sponsor to be confirmed (please call Mark Stanford, events manager at the Bury Free Press, on 01284 757810 if you are interested in sponsoring this award)
The Bid - Customer Care – Sponsored by Bid4Bury/Our Bury St Edmunds
Business Innovation – Sponsored by Denny Bros Group
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Print this pageGerman Stocks Fall as China Output Slows; BMW Declines - Bloomberg
German stocks declined for a third day as manufacturing growth slowed in China, unemployment in the single currency area reached a record and American employers in May added the fewest workers in a year.
Bayerische Motoren Werke AG (BMW) dropped 3.9 percent after the world’s largest luxury carmaker said Germany’s car market won’t grow in 2012. Infineon Technologies AG slid 5.7 percent. MAN SE jumped 2.2 percent after its parent company, Volkswagen AG (VOW), said it was forging a truckmaking alliance.
The DAX Index (DAX) dropped 3.4 percent to 6,050.29 at the close of trade in Frankfurt. The benchmark gauge lost 7.4 percent in May amid growing concern that Greece will be forced to leave the euro area and Spanish banks will seek bailouts. The broader HDAX Index also retreated 3.3 percent.
“The weak data from China is one of the main themes of the moment,” said Mikkel Kirkegaard Petersen, a senior equity specialist at Nordea Private Bank in Copenhagen. “Today’s numbers have not made us more confident and investors are selling because of this. The biggest part of the German car industry’s growth comes from China and they will get hammered if China growth recedes.”
China’s purchasing managers’ index expanded at the weakest pace since December last month, falling to 50.4 from 53.3 in April, the statistics bureau and logistics federation said today in Beijing. This compares with the 52 median estimate in a Bloomberg News survey of 27 economists. A reading above 50 indicates expansion.
A separate gauge from HSBC Holdings Plc and Markit Economics showed a seventh straight contraction, the longest since the global financial crisis.
Euro-Area Unemployment
Euro-area unemployment reached the highest on record as a deepening economic slump and budget cuts prompted companies from Spain to Italy to cut jobs. The jobless rate was at 11 percent in April and March, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995 and in line with the median forecast of 28 economists in a Bloomberg survey. The March figure was revised up to 11 percent from 10.9 percent.
Euro-region manufacturing output contracted for a 10th month in May as the economy struggled to regain strength amid the deepening debt crisis.
A gauge of manufacturing in the 17-nation euro area fell to 45.1 from 45.9 in April, London-based Markit Economics said today. That’s the lowest since mid-2009. It had previously reported the May output indicator at 45. A reading below 50 indicates contraction.
U.S. Hiring
Employers in the world’s biggest economy added the smallest number of workers in a year in May and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce, further evidence that the labor-market recovery is stalling.
Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, U.S. Labor Department figures showed today in Washington. The median estimate called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent, while hours worked declined.
Manufacturing in the U.S. grew at a slower pace in May as factories tempered production and pared inventories in response to weakness in the global economy.
The Institute for Supply Management’s factory index fell to 53.5 after reaching a 10-month high of 54.8 in April, the Tempe, Arizona-based group reported today. Readings greater than 50 signal growth. The median projection of economists surveyed by Bloomberg News called for a decrease to 53.8 in May.
Carmakers Fall
BMW retreated 3.9 percent to 58.72 euros after it said Germany’s car market won’t grow in 2012 following a jump in 2011. “Last year was an exceptionally positive year for us in Germany,” said Karsten Engel, the carmaker’s head of sales and marketing in Germany.
Volkswagen dropped 4.1 percent to 123.75 euros. Europe’s largest carmaker will appoint a new trucks chief, add an executive to oversee China and replace three members of Audi’s board as part of a management shakeup to push forward with growth plans, according to people familiar with the matter.
Daimler AG (DAI) fell 5.1 percent to 35.52 euros after it was cut from sell to buy at Bankhaus Metzler in Frankfurt by equity analyst Juergen Pieper.
Infineon (IFX), Europe’s second-largest semiconductor maker, declined 5.7 percent to 6.03 euros, its lowest price this year.
Deutsche Bank Drops
Deutsche Bank AG (DBK) fell 4.2 percent to 27.15 euros. Germany’s largest lender borrowed 9 billion euros ($11.1 billion) from the European Central Bank through its Spanish and Italian units after saying it took only “a small amount” in a second round of emergency funding.
Deutsche Bank SA Espanola, the lender’s Spanish unit, took 5.5 billion euros and Deutsche Bank SpA, the Italian arm, borrowed 3.5 billion euros in the ECB’s second longer-term refinancing operation in February, according to annual reports filed by the two divisions.
Deutsche Bank said it named a new 15-member executive committee for its investment bank after Anshu Jain, the sole head of the unit since 2010, moved up to become co-chief executive officer with Germany head Juergen Fitschen.
Commerzbank AG (CBK), Germany’s second-biggest lender, fell 2 percent to 1.31 euros.
MAN rose 2.2 percent to 79.07 euros after Volkswagen’s decision to strengthen ties with the truckmaker and Scania.
“MAN has been driven up today by the news that VW will make crucial decisions in the personnel for the integrated commercial vehicle group,” said Helena Wuestenfeld, an analyst at Bankhaus Metzler in Frankfurt.
Scania AB Chief Executive Officer Leif Oestling will join Volkswagen’s management board to help coordinate synergies between the truckmaking operations.
To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net
To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net
Stocks see worst day of the year after weak jobs report - msnbc.com
Richard Drew / AP
Trader John Panin, left, and specialist Frederick Edwards work on the floor of the New York Stock Exchange Friday. Stocks fell sharply Friday after the release of a dismal report on U.S. job creation.
A gloomy U.S. jobs report and signs of a global economic slowdown hammered Wall Street Friday, wiping out the stock market’s gains for 2012 and leaving investors wondering where to turn.
The Dow Jones industrial average sank 275 points, or 2.2 percent, chalking up its biggest one-day drop since November. The market index closed down 0.8 percent for the year and off 2.7 percent for the week.
Market participants had expected to see a mildly negative employment report Friday, but they “hadn’t discounted the kind of numbers we saw this morning,” Barton Biggs, a hedge fund manager at Traxis Partners, told CNBC Friday.
Biggs also warned that the chance of a “mild double-dip recession” is now about 40 percent.
“I’m not that bearish about the economy and the market, but am I ready to step in in a big way? No,” he said.
Friday’s jobs report from the Labor Department showed the U.S. economy created only 69,000 jobs in May, the fewest in a year, as the nation’s unemployment rate rose to 8.2 percent from 8.1 percent in April -- the first increase in 11 months.
The government also said the economy created far fewer jobs in the previous two months than first thought, revising numbers down to show 49,000 fewer jobs created.
Friday’s steep market drop spooked investors. The VIX index, a measure of investor fear, rose to levels not seen in five months. And the value of government bonds and gold soared as investors sought safe places to park their money.
The weak U.S. outlook added to a growing global sense of gloom. New data from the euro zone Friday showed unemployment in the region was 11 percent in April -- the highest level since records began in 1995. And there are signs that manufacturing in China -- a driver of global growth in the recession -- is slowing.
Many had looked to the U.S. as a bright spot of growth in the global economy, but Friday’s jobs report added more evidence to the view that growth in the U.S. is slowing, suggesting weaker corporate earnings ahead and weighing on stock prices.
Related: Recession storm clouds threaten global economy
Stocks saw their worst month in two years in May, ending more than 6 percent lower, as investors worried about Europe’s ongoing debt crisis. The downturn in the aggregate U.S. market has shaken some $1 trillion out of investors’ pockets.
Investors will have to put up with more uncertainty in June, analysts say, as the fate of the euro zone waits to see the outcome of Greece’s elections on June 17.
Greece, which unleashed the financial turmoil in the euro zone, will go to the polls for a crucial second election on June 17 that may determine whether it remains a member of the currency union. Investors are concerned about the unknown consequences of a Greek exit, fearful that it may precipitate the disintegration of the euro zone.
Despite the market downturn Friday and global economic fears, Peter Sorrentino, senior portfolio manager at Huntington Asset Management, counsels that investors can still find value in the market.
“We’re seeing stock prices back down where they were at the beginning of the year, but earnings are still there,” he told CNBC, noting that company balance sheets are very strong, as corporations have spent years paying off debt and raising cash to record levels.
Sorrentino added that, after Friday’s downturn, bargains can still be found in the agriculture and energy sectors.
Shares of Facebook continued to slide below their initial public offering price of $38, closing down 6 percent at $27.72.
Are there any bright spots in the market?
Rise in financial hardship for Hull University students - BBC News
The number of Hull University students facing financial hardship increased by 54% over the past four years, its union said.
The student union said 2,300 students had contacted its advisors for support last year compared to 1,500 in 2008.
About 22,000 students study at the university. Four years ago, there were 21,000.
The Department for Business, Innovation & Skills (BIS) said "generous packages of financial support" were available.
Gina Rayment, from Hull University's student union, said: "They're coming to us with quite serious problems such as possible rent arrears where they could actually lose a roof over their heads."
Food parcels"It isn't just that they need some money for a Friday night, it's actually that they need money for food, they need money to pay their bills and they need money for rent."
The union said there were a number of reasons why students were facing hardship including mismanagement of money or loss of parental incomes.
"One of the main reasons here in Hull is that there are no part-time jobs that students used to rely on to get themselves through university," said Ms Rayment.
The rise in financial hardship has also led to an increase in the number of food parcels it provides to students.
Last year the union distributed 70 food parcels to students compared to 30 in 2008, the union said.
A spokesperson from BIS said: "There is a generous package of financial support to help with living costs in the form of loans and non-repayable grants.
"Our reforms will offer more financial support and lower monthly repayments once you are in well paid work."
Amid a financial crisis, how do you thread the fiscal needle? - Lebanon Daily Star
Elections often turn on the state of the economy, especially in hard times. When growth and jobs are down, voters throw out incumbents – whether Spanish leftists, French rightists, or Dutch centrists. The United States is no exception. Three years into the Great Depression, Herbert Hoover was trounced by Franklin Delano Roosevelt. In 1980, following a severe bout of stagflation, Ronald Reagan routed Jimmy Carter.
At the same time, economic performance depends to a considerable extent on economic policy. The Great Depression was intensified by poor monetary policy, tax hikes, and protectionist trade policies. Likewise, loose U.S. monetary policy in the middle of the last decade helped to set the stage for the Great Recession by contributing significantly to an explosion of leverage and fueling the housing bubble that burst in 2007-2008.
The outcome of two related policy battles will be key to the economic and political outlook in both the United States and Europe. The first is between “austerity” and “growth” – that is, short-term deficit reduction and additional fiscal stimulus. Many on the left, on both sides of the Atlantic, argue that more, not less, government spending is required to lift their economies out of recession. Those on the right believe that governments’ top priority should be fiscal consolidation.
In Europe, large deficits and exploding debt-to-GDP ratios have alarmed creditors and provoked political tension. In particular, Germany demands more fiscal belt-tightening from heavily indebted southern European countries, whose unions (and voters) are rejecting further austerity. While the U.S. has thus far avoided the bond market’s wrath, American political leaders confront the same problem of debt and fiscal sustainability.
The second battle involves long-run structural issues: slowing the growth of government spending, reforming taxes, and increasing labor-market flexibility. In Europe, for example, raising the retirement age for public pensions and shrinking government employment would curtail welfare-state excesses.
In the United States, Reagan’s victory in 1980 appeared to signal that America would stop well short of the European social-welfare model. But President Barack Obama and his congressional allies have rejected the consensus that government should be only a last resort for those in need, in favor of greater dependence, for both individuals and firms, on entitlement programs and other public spending, targeted tax breaks, regulations and loans.
Separating the budget’s effects on the economy from those of the economy on the budget is a tricky matter. There are several cases – Ireland and Denmark in the 1980s, for example – in which fiscal consolidation helped to expand the economy in the short run, as lower interest and exchange rates boosted confidence enough to stimulate demand.
Of course, if many of the world’s economies attempt to consolidate simultaneously, with interest rates already low and some of the largest in a monetary union, such a favorable result is less likely. But the evidence on whether additional deficit-financed spending would quickly revive economic growth is mixed.
In a recent survey, “Fiscal Policy for Economic Growth,” I concluded that short-run multipliers – the total change in economic activity resulting from higher government spending – could theoretically be as large as two when the central bank has reduced its target interest rate to zero. In other words, $1 spent by the government could boost gross domestic product by $2 in the very short run.
The catch is that the multiplier turns negative by year two: extra government spending contracts, rather than expands, medium-term and long-term economic growth. Moreover, the short-run effect is lower in highly indebted countries, and can even be negative during economic expansions if households and firms, expecting higher taxes to pay for future spending, save, rather than spend, the cash.
Postponing fiscal consolidation risks aborting it, but consolidating too aggressively risks temporarily hindering growth. But those now demanding further deficit-financed stimulus must confront considerable evidence that an overhang of public debt impedes growth for a long time. In a recent paper following up on their book This Time is Different, the economists Carmen Reinhart and Kenneth Rogoff concluded that debt to GDP ratios above 90 percent tend to be associated with an annual growth slowdown of a full percentage point for 23 years. Thus, a debt overhang cumulatively costs more in lost income than a deep recession does.
Wise policy simultaneously considers short-, medium- and long-term effects. Both Europe and the United States badly need long-run reforms, for example, of public pensions and health care. Europe requires structural labor-market reform and must resolve its sovereign-debt overhang, banking crises, and the euro’s future. The United States must reform its tax code to raise revenue across a wider array of people and economic activity (half the U.S. population pays no federal income tax, and the tax code either excludes or favorably treats many income sources).
Over the next several years – the medium term – all countries should implement difficult-to-reverse fiscal consolidation, which would persuade the private sector that a gradual or delayed adjustment, primarily on the spending side of the budget, will occur. Successful consolidation generally relies on spending cuts rather than tax increases – indeed, at a ratio of five or six to one. The U.S. in the 1980s and 1990s reduced spending by 5 percent of GDP and balanced its budget while growing strongly. Canada, in the past two decades, has decreased spending by 8 percent of GDP and prospered.
In the short run, spending flexibility is appropriate only if medium- and long-term measures are in place. That compromise – between Germany and southern Europe, and between U.S. Republicans and Democrats – should be economically and politically feasible.
With many citizens now struggling, political leaders face a daunting task: Adopt credible medium- and long-term reforms without derailing the economy in the short term. They have little economic – and perhaps even less political – margin for error.
Michael J. Boskin, chairman of President George H. W. Bush’s Council of Economic Advisers from 1989-1993, is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. THE DAILY STAR publishes this commentary in collaboration with Project Syndicate © (www.project-syndicate.org).
World stocks mixed ahead of Ireland referendum - Yahoo Finance
BANGKOK (AP) -- European stocks rose Thursday as Ireland voted on Europe's deficit-fighting treaty, casting aside fears over soaring borrowing costs for Spain and Italy that sent Asia stock markets down earlier in the day.
Results are expected Friday from a referendum that if passed will allow the Irish government to ratify the European Union's fiscal treaty, a pact designed to bind Ireland and other debt-laden nations that use the euro to tighter spending limits.
Rejection could block Ireland from tapping loans from the EU's rescue fund in 2013 when Ireland's current supply of bailout cash runs out. Polls during the campaign pointed to the treaty's approval.
Britain's FTSE 100 rose 1 percent to 5,349.32 and Germany's DAX added 0.5 percent to 6,313.30. France's CAC-40 rose 0.7 percent to 3,036.47.
U.S. futures augured a higher opening on Wall Street, with Dow Jones futures rising 0.5 percent to 12,443 and S&P 500 futures gaining 0.5 percent at 1,315.30.
Asian stocks fell earlier in the day on the heels of news that borrowing rates had risen sharply for Spain and Italy, a sign that investors are increasingly uneasy about their ability to pay off their debt.
Spain's banking system is under strain a week after Bankia, its fourth-largest bank, required $23.8 billion in government aid to cover souring real estate loans.
Investors are increasingly worried that problems might surface at other Spanish banks. Many lent heavily during the nation's real estate bubble and losses from the real estate crash might be too big for Spain's government to shoulder.
"The Spanish banks are in trouble because of real estate loans. And the hole is so big that the Spanish government will find it difficult to save the Spanish banks without blowing a big hole in its budget," said Francis Lun, managing director of Lyncean Holdings in Hong Kong.
Another negative signal came from the European Central Bank, which said Spaniards pulled billions in deposits out of their banks last month, raising concerns of a larger bank run.
Japan's Nikkei 225 index tumbled 1.1 percent to close at 8,542.73, its lowest finish since mid-January. Japanese exporters were hurt by a stronger yen that erodes the value of repatriated profits. Mazda Motor Corp. fell 3.9 percent and Ricoh Co. Ltd. lost 4.2 percent.
Hong Kong's Hang Seng lost 0.3 percent to 18,629.52 and South Korea's Kospi was down marginally at 1,843.47.
Australia's S&P/ASX 200 shed 0.4 percent to 4,076.30. Benchmarks in Singapore, Indonesia and the Philippines also fell. Taiwan and New Zealand rose and mainland Chinese shares were mixed.
Spain's woes have magnified fears of a possible debt implosion in Europe's weaker economies, starting with Greece, which will run out of money in the coming days without emergency funding from outside.
Greece's economy is being kept afloat on international loans provided by the European Union and the IMF, along with a harsh austerity package of cuts and higher taxes that is deeply unpopular with the country's electorate. The government that agreed to the loan and austerity package was voted out of office in May.
The new parties, who mainly campaigned on anti-austerity platforms — have not been able to form a government and new elections are scheduled for June 17. One of the most popular parties in Greece, the left-wing Syriza party, wants to abolish Greece's international bailout agreements, raising fears that Greece will leave the Eurozone and destabilize world markets.
Benchmark oil for July delivery was up 35 cents to $88.18 per barrel in electronic trading on the New York Mercantile Exchange. The contract slid $2.99 to close at $87.82 on the Nymex on Thursday.
In currency trading, the euro rose to $1.2422 from $1.2382 late Wednesday in New York. The dollar fell to 78.87 yen from 79.07 yen.
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Follow Pamela Sampson on Twitter at http://twitter.com/pamelasampson
Stocks Log Worst Day in 2012; Vix Soars 10% - CNBC
Stocks suffered their worst day of the year, with the Dow tumbling into negative territory for 2012, after a disappointing jobs report in addition to dismal data from China and Europe fueled fears over the health of the global economy.
Whether the stock selloff continues through the summer "really depends on the government," said Doug Roberts, managing partner at Channel Capital Research. "If [the Fed] starts making news about QE3, than you can start to see this [selloff] is going to be relatively short-lived."
The Dow Jones Industrial Average plunged 274.88 points, or 2.22 percent, to end at 12,118.57, led by H-P [HPQ Loading... () 
] and AmEx [AXP Loading... () ].
The S&P 500 tumbled 32.29 points, or 2.46 percent, to finish at 1,278.04. The Nasdaq plummeted 79.86 points, or 2.82 percent, to close at 2,747.48. Both the S&P and Nasdaq entered correction territory from their 2012 highs.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged more than 10 percent to close above 26.
For the week, the Dow dropped 2.70 percent, the S&P 500 declined 3.02 percent, and the Nasdaq erased 3.17 percent.
All 10 S&P sectors finished negative for the week, led by energy.
The U.S. added just 69,000 new jobs in May while the unemployment rate grew to 8.2 percent, fueling speculation that the Fed might be prompted to intervene with another round of quantitative easing. Economists polled by Reuters had expected nonfarm payrolls to increase 150,000 and the jobless rate to hold steady at 8.1 percent.
"It's painfully obvious the economic recovery in the U.S. isn't just slowing down, it's pulling up the emergency brake," said Todd Schoenberger, managing principal The BlackBay Group.
Also on the economic front, construction spending rose a less-than-expected 0.3 percent and the Institute for Supply Management's manufacturing index also came in light at 53.5—still in expansion territory but reflective of a slowdown.
"We think it is increasingly likely the Fed will announce another round of QE at the Aug. 1 or Sept. 13 meeting," Michelle Meyer, senior economist at Bank of America Merrill Lynch, told clients in a note. "The Fed will not sit idle as the economy slows." (Read More: Why More Fed Easing Might Not Help Much Now)
Bond yields found new historic depths, with the 10-year Treasury note yield dropping below 1.5 percent and the 30-year bond touching its all-time low, while energy prices hit three-year lows as well and metals including gold surged.
Adding to woes, China's slowdown worsened in May as its factories saw a further deterioration in demand at home and abroad. The darkening outlook was underlined by data showing the fourth monthly decline this year in exports from South Korea, as shipments to the United States, Europe and China all fell.
Oil prices fell to their lowest since October 2011, while gold surged more than 4 percent to trade above $1,620 an ounce, logging its biggest one-day gain in more than two years as investors rushed to the yellow metal as a safe-haven.
Gold mining stocks were sharply higher, with Barrick Gold [ABX Loading... () ] leading the way and Newmont Mining [NEM Loading... () ] topping the S&P 500 performers.
European shares finished sharply lower amid lingering fears over the debt-ridden economies of Greece and Spain.
This comes after Spain unveiled Thursday that almost 100 billion euros ($123.25 billion) had left the country in the first three months of the year and the head of the European Central Bank (ECB) lambasted its handling of Bankia, the nation's troubled lender.
Meanwhile, Facebook [FB Loading... () ] tumbled to finish in negative territory, plummeting nearly 27 percent from its market debut of $38 a share. The social networking giant posted the biggest two-week loss of any IPO deal worth over $1 billion since 1995.
Groupon [GRPN Loading... () ]
Beacon Federal Bancorp [BFED Loading... () ] was also a rare stock trading in positive territory, after the company said it will be acquired by Berkshire Hills Bancorp [BHLB Loading... () ] for $132 million.
And Hughes Telematics [HUTC Loading... () ] soared on news that Verizon [VZ Loading... () ] would buy the company for $612 million in cash, or $12 a share to beef up its enterprise business.
—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
On Tap Next Week:
MONDAY: Factory orders; Earnings from Dollar General
TUESDAY: ISM non-mfg index; earnings from Hovnanian
WEDNESDAY: Weekly mortgage apps, ECB announcement, productivity and costs, oil inventories, Fed's Beige Book, Fed's Lockhart speaks, Fed's Lockhart speaks, Fed Basel III vote
THURSDAY: Bank of England announcement, jobless claims, Bernanke speaks, quarterly services survey, Fed's Lockhart speaks, Fed's Kocherlakota speaks, consumer credit; Earnings from Lululemon Athletica, JM Smucker
FRIDAY: International trade, wholesale trade, Fed's Kocherlakota speaks, Chesapeake annual meeting
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