An unprecedented outflow of New Zealand citizens last year for jobs and better pay in Australia is leaving the nation
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Despite bipartisan support on Capitol Hill for extending a temporary payroll tax cut for the rest of 2012, lawmakers have yet to close the deal.
The reason? Same ol’, same ol’.
With just 28 days left before the current two-month Band-Aid version expires, the sticking point for lawmakers is how to pay for an extension — the very same reason that tripped them up when they tried to negotiate a full-year extension in December.
Douglas Elmendorf, director of the Congressional Budget Office, told the House Budget Committee on Wednesday that he estimates that extending the payroll tax cut for another 10 months will cost $100 billion.
The measure is expected to be part of a larger package that also extends emergency federal unemployment benefits and prevents a scheduled pay cut to Medicare physicians.
Bush tax cuts: The real endgame
The payroll tax cut, if extended, would affect 160 million U.S. workers. It would reduce how much they pay into Social Security, thereby increasing their take-home pay. While normally they would have to pay 6.2% on the first $110,100 of their income for this year, the measure would reduce that to 4.2%. So a person making $50,000 would pocket an extra $1,000 a year — or $83 a month — as a result.
That reduced 4.2% rate was in effect for all of 2011 but is set to expire by March 1, barring any action by lawmakers.
Not everyone in Congress is in love with the idea of extending the measure. But there seems to be less argument about how doing so could help the economy in the short run.
"Extending the payroll tax cut through the end of the year will increase output and increase employment," Elmendorf told lawmakers payday loans.
Congress = Uncertainty, Inc.
He didn’t offer specific numbers during the hearing. But in a briefing on Tuesday, he estimated that extending the payroll tax cut for 2012 could add 0.25% to the gross domestic product by the end of the year and reduce the unemployment rate by one- to two-tenths of a percent..
A similar economic effect could result from extending the unemployment benefits. Doing so could boost economic growth this year by 0.25% and create 250,000 jobs by the end of 2012, Elmendorf said.
That’s because in both cases the money would go largely to people who are likely to spend most if not all of it. That, in turn, can spur demand for products and help bolster employment.
The select group of lawmakers designated to negotiate a final payroll tax cut deal will meet for the third time on Wednesday. There’s no telling when they may conclude a deal but one constituency is hoping for some clarity soon.
As they were last year, payroll tax administrators are hoping Congress resolves the issue once and for all, according to Michael O’Toole, senior director of government relations of the American Payroll Association.
"Payroll systems and the federal payroll tax reporting scheme are not set up to accommodate more than one employee Social Security tax rate in a calendar year, let alone within the same quarter," he said.
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Builders began work on fewer houses than forecast in December, capping the worst year on record for single-family home construction and signaling recovery in the industry will take time.
Housing starts dropped 4.1 percent to a 657,000 annual rate last month, reflecting a slump in multifamily dwellings, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, were little changed.
Four years after housing helped spark the last recession, falling home prices and ongoing foreclosures are hampering an industry-wide recovery. For all of 2011, work was started on 428,600 single-family homes as construction competed with the surfeit of previously owned dwellings.
Stocks were eking out small gains Tuesday on mixed economic news. Consumer confidence surged to an eight-month high, but home prices dropped in major cities. Sears plummeted after reporting that it would close more than 100 stores around the country.
In the latest sign of a bumpy recovery in the housing market, home prices fell in 19 of the 20 cities tracked by the Standard & Poor’s/Case-Shiller index. Atlanta, Detroit and Minneapolis posted the biggest declines. Prices in Atlanta and Las Vegas fell to their lowest points since the housing crisis began.
That report dampened investors’ enthusiasm about a jump in consumer confidence to the highest level since April. The New York-based Conference Board reported that its Consumer Confidence Index rose almost 10 points to 64.5 in December. Economists watch the numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.
Henry Herrmann, chief executive officer at the investment management firm Waddell & Reed, said the increase reflected the fact that more jobs have been created in recent weeks, which will likely lead to “a more sustained” economic recovery.
“If job creation will come with wage improvement in the coming weeks, it will boost confidence further,” Herrmann said.
The Dow Jones industrial average was up 17 points at 12,311 as of noon Eastern. The S&P 500 was up less than 2 points at 1,267. The Nasdaq composite was off 7 points at 2,626.
The stock market was closed Monday in observance of Christmas. Stocks are expected to trade within a narrow range this week as trading remains light.
The Dow average closed at a five-month high last week after a run of strong economic data in the U.S. However analysts expect any market gains to be tempered by worries over the European debt crisis.
Italy’s borrowing costs rose Tuesday, reflecting investor anxiety. The yield on the country’s ten-year bonds hit 7 percent again, a level that is considered unsustainable in the long run. Greece, Ireland and Portugal had to seek relief from their lenders after their own borrowing costs rose to that level.
Italy is the euro zone’s third-largest economy and is considered too big to bail out. Mario Monti, the country’s new premier, got parliamentary approval last week for a big austerity package that is intended to save the country from financial disaster.
Markets have grown increasingly fearful over the past few months that Italy will find it difficult to pay off its massive debts, which stand at around $2.5 trillion.
In corporate news:
_ Sears Holding Corp. plunged 23 percent to $35.04, the most in the S&P 500, after the retailer announced plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.
_ U.S. oil and gas explorer Endeavour International Corp. rose 15 percent to $7.40 after the company announced an agreement to buy ConocoPhillips’ interest in three U.K. oil fields in the Central North Sea for $330 million.
_ MetLife Inc. rose 1 percent to $31.61 after saying it will sell its U.S. retail deposit business to GE Capital as it moves away from being a bank holding company.
In an effort to modernize the Illinois electric grid, state legislators approved a controversial bill last month to jump-start more than $3 billion of investment by the two largest utilities.
Led by Chicago-based ComEd, the utilities lobbied hard for the ’smart grid” measure, which would jolt the state’s electric distribution network into the 21st century and impose sweeping regulatory changes. Environmental groups have embraced the measure. Consumer advocates have condemned parts of it as a ploy to boost profit. Gov. Pat Quinn has vowed to veto it.
Regardless of how the drama plays out in Illinois, there’s no rush to follow suit on the other side of the Mississippi River. As with electric deregulation a decade ago, the Missouri utility industry would rather watch and wait. Regulators, utility executives and consumer advocates in Missouri see peril in rushing to spend billions of dollars on new technology that may not pay immediate dividends.
“Everybody agrees we’re using way-old technology and older infrastructure, and we have to move toward upgrading and updating our electrical grid,” said Missouri Public Service Commission Chairman Kevin Gunn. But “this is the perfect example where the Show-Me state motto is the right way to go.”
The term smart grid generally refers to technological upgrades designed to improve reliability and efficiency of the nation’s power grid. Most attention has focused on new digital meters, but other infrastructure aims to minimize outages, allow for increased use of renewable energy and allow consumers to buy cheaper power during off-peak hours.
“This is a major transformation of the power grid that’s going to take a numbers of years, it’s going to occur in stages, piece by piece,” said Peter Fox-Penner, a principal at the consulting firm Brattle Group.
national backlash
Across the country, smart grid projects, especially those involving new digital smart meters, have sparked a backlash. In Texas, regulators were asked to investigate the accuracy of the new meters. In San Francisco, customers are worried about electromagnetic radiation. A few California cities have declared moratoriums on the new meters. Privacy advocates worry about what utilities will do with the data they collect on consumer energy use.
All of this provided fodder for discussion last summer as the Missouri PSC held a smart grid workshop with representatives from utilities, the Energy Department and smart grid vendors. Regulators and utilities continue to closely watch demonstration projects in Fulton and Kansas City that are paid for partly with stimulus grants.
In Illinois, it’s the debate over the regulatory framework being proposed by utilities that’s raising second thoughts payday loans in one hour. David Kolata, executive director at Citizens Utility Board, a Chicago-based utility watchdog, said the group backs the bill’s smart grid provisions. What it objects to are more sweeping changes in the legislation that could expose consumers to higher rates.
“It’s increasingly clear that we’re not going to build our way out of future energy issues” by adding new power plants, he said. “But there cannot be a blank check” for utilities.
Whatever the cost, the benefits of a smart grid could be enormous. Some say it could do for the nation’s patchwork electric grid what the Interstate highway system did for car travel, and revolutionize energy use the way the Internet changed the flow of information.
Today’s grid is a giant one-way road where electricity is pushed from a few large generating plants to millions of customers. Utilities charge the same rate for every kilowatt-hour, even though electricity costs vary widely throughout the day. And consumers have little idea how much power they’re using, and so they have little incentive to use less at peak times when electricity prices are high.
The smart grid would make better use of intermittent power sources such as windmills and solar arrays. New meters could make it possible for utilities to charge different rates for electricity at different times of the day, so consumers can run the dishwasher or clothes drier at night to save money. And new smart thermostats and appliances would be able to automatically adjust power use in response to changing prices.
Such improvements would help utilities avoid building expensive new power plants that run only a few hours on hot summer afternoons to help meet peak demand. They would improve air quality and cut down greenhouse gas emissions.
barriers to entry
But getting from here to there won’t be easy or cheap. The Electric Power Research Institute estimates implementation of a nationwide smart grid will require investment of as much as $476 billion.
Advancing the smart grid also requires consumers to buy in. And it has been a tough sell so far. Earlier this month, Kansas City-based Black & Veatch released results of an industry survey showing the main impediment to smart grid implementation is a lack of customer interest and knowledge.
Much of the controversy has focused on the new digital meters. Some consumer advocates, like John Coffman, an attorney for the Consumers Council of Missouri and AARP, worry the devices will prove too expensive and need replacement too quickly. Coffman also worries it could make it too easy for utilities to disconnect customers who fall behind on bills.
For now, the new meters aren’t in Ameren Missouri’s plans. The cost of smart meters
United Nations investigators on Friday headed to a soccer field in the besieged neighborhood of Yopougon in Ivory Coast’s commercial capital after new reports surfaced that it was being used as a mass grave.
Hamadoun Toure, spokesman for the U.N. mission in Ivory Coast, said by telephone that the Red Cross had received reports from residents that the field was filled with as many as 40 bodies.
“We are told that there is a vast field that is used to play soccer. It is now an open-air cemetery,” he said.
The soccer field is located in Yopougon, an area of the business capital that had voted in large numbers for strongman Laurent Gbagbo, who refused to accept his loss in last November’s presidential election. He was removed militarily in April after unleashing his security forces on the population. Hundreds of people were killed in the months before he was deposed.
His militias are believed to have taken cover in Yopougon, and the neighborhood was the scene of pitched battles until Thursday. The army now backing the country’s democratically elected leader Alassane Ouattara were able to secure the area.
Toure said it’s not clear if the dead were killed by Gbagbo’s forces, or if they are Gbagbo supporters slain in reprisal killings by forces loyal to Ouattara.
Ouattara was prevented from assuming office during the nearly five-month-long standoff with Gbagbo and had lived under 24-hour guard in a resort hotel. He is scheduled to be sworn in at a ceremony in the presidential palace later Friday.
Gbagbo is under house arrest in Korhogo, a town in the interior. His French lawyers traveled to Ivory Coast this week and are due to accompany him to an interview with the police Friday. He is facing possible charges of war crimes and crimes against humanity committed by the army in the postelection period.
Stocks ended a rough week with slight gains Friday after Libyan government forces declared a cease-fire and a group of the world’s seven largest countries announced a plan to bring the yen down from historic highs.
Financial stocks rose after JPMorgan and other large banks increased their dividends. JP Morgan said it was increasing its dividend to 25 cents a share from 5 cents. Wells Fargo and U.S. Bancorp also raised their dividends.
Japan’s currency has soared since an earthquake struck the country a week ago and caused devastating tsunami waves and damage to several nuclear plants. A stronger yen makes it more difficult for Japan’s export-driven economy to recover by making Japanese goods more expensive overseas.
“This is a bit of a relief rally,” said Paul Zemsky, head of asset allocation at ING Investment Management. “The situation in Japan looks to be stabilizing, or at least not getting any worse, and it looks like it may be solvable.”
News early Friday that Libya’s foreign minister had declared a cease-fire helped push stocks higher, but opposition forces said shelling was still occurring after the announcement and they accused the Libyan government of lying. Britain and France were taking the lead in plans to enforce a no-fly zone over Libya.
The Dow Jones industrial average gained 83.93 points, or 0.7 percent, to 11,858.52. The Standard & Poor’s 500 index rose 5.49, or 0.4 percent, to 1,279.21. The Nasdaq composite index gained 7.62, or 0.3 percent, to 2,643.67.
All three stock indexes ended the week lower after markets were battered by worries over Japan’s ability to get its nuclear crisis under control. The Dow lost 1.5 percent, the S&P 500 1.9 percent and the Nasdaq 2.6 percent.
Japan is the world’s third-largest economy after the U.S. and China and buys 10 percent of U.S. exports. Tokyo’s benchmark Nikkei index closed 2.7 percent higher after the announcement from the Group of Seven nations late Thursday.
Thousands of people have been killed in the earthquake and tsunami that followed, and hundreds of thousands are homeless. Quake damage and power cuts have forced Toyota Motor Corp. and other manufacturers to suspend production in parts of the country.
Oil prices hovered between small gains and losses after Libya’s foreign minister declared a cease-fire. The announcement came hours after the Union Nations authorized air strikes against the country.
Nike Inc. fell 9 percent after the company’s earnings came in below what analysts were expecting. Nike said rising costs would cut into its profits over the second half of the year, even as sales increased.
More than two stocks rose for every one that fell on the New York Stock Exchange. Consolidated trading volume was 5.3 billion shares.
The euro’s two-month rally against the dollar is running into renewed rifts over Europe’s sovereign debt crisis just as optimism about the U.S. economy increases.
Bolstered by the prospect of higher European Central Bank interest rates as soon as next month, the euro has climbed almost 9 percent against the dollar from this year’s low. Bets by futures traders on more strength are at levels that indicated reversals in the past. The euro has gained about half as much versus a group of nine developed-nation peers including the pound, franc and Swedish krona, Bloomberg Correlated-Weighted Currency Indexes show.
While German Chancellor Angela Merkel and French President Nicolas Sarkozy have said nothing will allow the single European currency to crumble, investor concerns are rising as European Union leaders meet this month to debate fixes to the region’s fiscal crisis. Portuguese bond yields have risen to levels that preceded last year’s bailouts of Ireland and Greece, both of which are trying to renegotiate terms of their rescues.
“The European crisis isn’t over,” said Andrew Balls, the London-based head of European portfolio management at Pacific Investment Management Co., which runs the $237 billion Total Return Fund, the world’s biggest bond fund. “The euro-dollar exchange rate has been driven more by relative interest-rate outlooks, but the public statements ahead of the forthcoming meetings suggest that hopes for a grand bargain may be overdone.”
Trichet’s Rally
The euro appreciated 1.7 percent last week to $1.3987, and is up from this year’s low of $1.2867 on Jan. 10. ECB President Jean-Claude Trichet stoked the gains on March 3 after he said the central bank may boost its benchmark rate from a record low 1 percent when policy makers meet in April because of faster inflation. The Federal Reserve’s target rate for overnight loans between banks ranges from zero to 0.25 percent.
Strength in the euro has focused on the dollar as Fed Chairman Ben S. Bernanke shows no signs of raising interest rates even though the economy is strengthening.
Growth in the U.S. may total 3.2 percent this year, according to the median estimate of 66 contributors in a Bloomberg survey. The European Commission raised its growth forecast to 1.7 percent last week and said higher oil and commodity prices may keep inflation above the ECB’s 2 percent limit for most of the year.
Correlation Performance
Bloomberg Correlation-Weighted Currency Indexes show the euro has appreciated 4.6 percent from its low this year against a basket of the most-widely traded currencies. It’s up 3.8 percent versus the pound, 4.2 percent against the franc and 2 percent versus the krona.
“I’m a big buyer of the U.S. dollar” because of Europe’s debt crisis, Laurence Fink, chief executive officer of New York- based BlackRock Inc., said in an interview with Bloomberg Television’s Erik Schatzker on March 3. BlackRock is the world’s largest asset manager, overseeing $3.56 trillion.
Bank of America Corp. strategists led by David Woo in New York said March 2 that the euro would likely weaken more than 14 percent to $1.20 by the end of the second quarter as Europe’s fiscal situation worsens, even as the bank raised its longer- term forecasts for the 17-nation currency.
A day later, Commerzbank AG strategist Ulrich Leuchtmann in Frankfurt said the currency’s gains may end amid investor pessimism that the EU’s leaders will solve the region’s debt crisis. Last week’s rally isn’t the beginning of an “uptrend,” Bilal Hafeez, the London-based head of foreign-exchange strategy at Deutsche Bank AG, said in an investor note on March 4.
‘Like Arthritis’
The median estimate of 44 strategists and economists surveyed by Bloomberg is for it to weaken to $1.34 by year-end.
Europe’s debt “problem is like arthritis,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “It doesn’t always hurt you, but it can flare up.”
Greece had to seek a bailout after its debt reached 127 percent of gross domestic product in 2009. Ireland was next after the economy was devastated by the collapse of a decade- long real estate boom and the demise of its financial system, which forced the government to take over some of the nation’s biggest banks. The EU created the 440 billion-euro ($615 billion) European Financial Stability Facility last year, committing part of the money to finance the Irish program.
Now, austerity measures imposed by the bailout programs are clashing with demands by the citizens of Greece and Ireland to avoid cutting public services Faxless payday loans. Enda Kenny, Ireland’s next prime minister, has asked for an extension on the rescue loans, while repeating a call for lower interest rates on aid that was granted in November.
Too Bullish
Speculators have become so bullish on the euro that past trading trends suggest they may start reversing those bets. The number of contracts that hedge funds and other large speculators hold at the Chicago Mercantile Exchange anticipating a gain in the single currency jumped to 51,308 as of March 4, according to the latest data from the Washington-based Commodity Futures Trading Commission.
The last time so-called net longs exceeded 45,000 contracts was in October. The following month the euro depreciated 6.9 percent against the dollar. They also topped the 45,000 mark a year earlier, just before the currency began about a six-month, 21 percent decline.
‘Whatever is Needed’
Two-year German notes yield 108 basis points more than equivalent U.S. debt, the most since December 2008. The ASE Index of Greek stocks has risen 12 percent in 2011. The Standard & Poor’s 500 Index advanced 5.1 percent.
“I would rather buy euro assets,” said Adrian Lee, who oversees $8.5 billion as chief investment officer at Lee Overlay Partners in Dublin.
Merkel has said she will do “whatever is needed to support the euro,” and promised that meetings scheduled for March 11 and then on March 24 and 25 will produce a “comprehensive” solution to the crisis. Sarkozy said the monetary union is so important “that we will be there whenever it needs to be defended.”
Merkel’s task may have been complicated after Finance Minister Wolfgang Schaeuble said Feb. 28 that Germany won’t budge on the conditions for euro-area bailouts, rebuffing calls by Ireland and Greece for easier terms.
Position Hardened
The cost of insuring Greek, Portuguese and Spanish bonds against losses using credit-default swaps rose last month, pushing the Markit iTraxx SovX Western Europe Index of 15 governments to 188 basis points on Feb. 24, the highest in five weeks. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a swap protecting $10 million of debt.
Merkel’s position has hardened as her Christian Democratic Union party woos voters wary of supporting the monetary union. Seven German state elections are scheduled this year, including one before and one just after this month’s summit. Her party lost power in Hamburg for the first time in a decade in a Feb. 20 vote she described as a “stinging defeat.”
Resolving the crisis was also complicated when the Irish Fianna Fail government that negotiated the nation’s bailout was ousted in favor of the Fine Gael party on Feb. 25. The new leaders vowed to lower the 5.8 percent rate on the rescue loans.
“Our overall requirement is that there be a reduction in the cost of the package,” Kenny said on March 4 in Helsinki.
Rising Bond Yields
Investors have been driving up Portugal’s borrowing costs. The nation’s 10-year bond yield has closed above 7 percent since Feb. 4. Greece needed a rescue within 17 days of its 10-year yield breaching 7 percent on April 6, while Ireland sought aid about a month after it cracked that level in October.
The gap, or spread, between yields on Portuguese 10-year debt and similar-maturity German bunds was 420 basis points, or 4.20 percentage points, last week, compared with a mean of 53 basis points since the euro started.
The spread illustrates the widening fissures in the euro- region economy. German gross domestic product will expand 2.6 percent this year, trailed by 1.7 percent in France, 0.6 percent in Spain and a contraction of almost 1 percent in Portugal, Bloomberg surveys show.
Any rise in interest rates may increase Europe’s disparities and investor concern about the euro, rather than highlight the region’s strengths, according to Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London.
“Normally, when interest rates go up the currency starts to strengthen,” he said in an interview on March 4. “If policy makers don’t come up with a solid solution, the periphery may not be insulated from rate rises and then hikes by the ECB may start to be viewed as a euro negative.”
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