Finance Blog number 1

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For the first time in a year, Americans have stopped spending more.

Consumer spending failed to budge from April to May, evidence that high gas prices and unemployment are squeezing household budgets. When adjusted for inflation, spending actually dropped 0.1 percent last month, the Commerce Department reported Monday.

April’s consumer spending figures were revised to show a similar decline when adjusting for inflation. It marked the first decline in inflation-adjusted spending since January 2010.

Incomes rose 0.3 percent for the second straight month. But adjusted for inflation, after-tax incomes increased only 0.1 percent in May, after falling by the same amount in the previous month.

Neil Dutta, an economist at Bank of America Merrill Lynch, pointed out that inflation-adjusted, after-tax income is now slightly lower than it was in January.

“It was a very poor report all around,” he said. “I think it’s clear that higher gasoline prices are taking a bite out of consumer spending.”

Wall Street took the dismal consumer spending report in stride. Investors seemed more focused on encouraging news on Europe’s debt crisis _ French banks agreed to let Greece repay some of its debt more slowly.

The Dow Jones industrial average gained more than 75 points in the morning trading. Broader indexes also increased.

Consumer spending is important because it accounts for 70 percent of economic activity. The spike in gas prices has forced many consumers to cut back on discretionary purchases, such as furniture and vacations, which help boost growth.

Fewer jobs and high unemployment have left workers with little leverage to ask for raises. And slow wage growth hurts the broader economy because consumers have less money to spend.

Hiring slowed considerably this spring after a strong start at the beginning of the year. The economy created only 54,000 jobs in May, the lowest amount in eight months. That followed three months in which employers hired an average of 220,000 net new workers each month guaranteed online personal loans. The unemployment rate rose to 9.1 percent last month.

The economy expanded at an annual rate of 1.9 percent in the January-March period. Many economists believe that growth is only slightly better in the current April-June period.

An Associated Press survey of 38 top economists predicts that the growth rate will be about 2.3 percent in the current quarter. Economists are more optimistic for the second half of the year, saying growth should pick up to a 3.2 percent pace.

Gas prices have eased since peaking in early May at a national average of nearly $4 per gallon. In the past two months they have dropped to a national average of $3.57 per gallon, according to AAA’s daily fuel gauge.

And U.S. factories are expected to begin producing more once Japan’s factories resume more normal operations. The March 11 earthquake and tsunami in that country has led to a parts shortage, particularly for auto and electronics manufacturers.

Still, growth must be stronger to significantly lower the unemployment rate. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.

The consumer spending report also showed that prices are increasing across many goods and services. A key inflation gauge followed by the Federal Reserve rose 0.2 percent in May, after increasing 0.3 percent or higher in each of the previous five months.

But excluding the volatile food and energy categories, inflation rose 0.3 percent in May, the most since October 2009.

Americans boosted their savings a bit in May, keeping 5 percent of their after-tax income. That is up from 4.9 percent in April.

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The banks that are most important to global financial stability will be required to hold extra capital on their balance sheets to protect them _ and the global economy _ from financial crises under new rules proposed Saturday.

Global central bank heads have proposed rules that would require the world’s biggest banks to hold an extra 1 percent to 2.5 percent of capital on their balance sheets, depending on their size. The goal of requiring larger cash buffers is to prevent another shock to the global financial system like the one that occurred in 2008 when Lehman Brothers collapsed.

The rules were proposed by the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision. The committee is part of the Bank for International Settlements, an umbrella organization for the world’s central banks.

The cash buffers that giant global banks would have to hold would be in addition to an existing requirement that all banks hold 7 percent of their assets in reserve.

The Group of Governors said in a statement Saturday that the proposed requirements would discourage banks from becoming so big that their failure could destabilize the global financial system.

“This will contribute to enhancing the resiliency of the banking system and help mitigate the wider spill-over risks of global systemically important banks,” Jean-Claude Trichet, President of the European Central Bank and chairman of the Group of Governors, said in a statement.

Banks would have three years, from the beginning of 2016 until the end of 2018, to meet the new requirements.

The Group of Governors also agreed on a method for determining banks’ importance to the banking system, though it did not disclose details. The group said its package of recommendations would be announced near the end of July.

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Indoor fish farming, with a twist, appears headed to a long-vacant factory complex on the north St. Louis riverfront.

Urban farming is no longer rare in the United States, but this planned St. Louis project would employ ex-convicts who would live at the site, in a 119-year-old factory to be renovated as apartments.

Craig Heller, a downtown loft developer, is behind the $13.7 million project to put apartments, gardens and an aquaponics fish farm at the former Hammond Sheet Metal factory, at First Street and Cass Avenue.

A main feature is the aquaponics facility inside one of the old factory buildings. A city official said the project would further First Lady Michelle Obama’s efforts to encourage healthy eating.

The project is scheduled to be built in two phases, the first covering renovation of a four-story building into 56 studio apartments for ex-offenders. Phase two will include an aquaponics facility, produce gardens on vacant parts of the 4.5-acre site and a “green” industry business incubator.

“Urban agriculture is getting bigger and bigger,” Heller told members of the city’s Land Clearance for Redevelopment Authority.

He spoke Tuesday at the authority’s regular monthly meeting, where members voted to approve 15-year tax abatement for the project. The project also has from the city a $5 million allocation of federal New Markets Tax Credits, plus $920,000 in state and federal low-income housing tax credits.

Heller said after the LCRA meeting that he hopes to begin construction of the efficiency apartments within three months. His Hammond Building LLC paid $450,000 for the old factory and has owned the site since 2005, city records show fast payday loan.

Working with Heller on the project is the St. Patrick Center, which plans to select the ex-offender residents. Greg Vogelweid, the center’s chief operating officer, said his organization hopes to get a HUD grant of up to $1.5 million over three years to provide rent subsidies for the development’s residents and to provide them support services.

“The cool thing about this is the link to food production,” he said.

The aquaponics project is modeled on a fish farm that produces tilapia and perch inside a former crane factory in Milwaukee, officials said. Aquaponics is the term given to a circulating water system in which fish waste fertilizes plant growth and the plants, in turn, filter the water used to raise the fish.

Gateway Greening, a nonprofit organization that helps groups establish community gardens, will provide training for the development’s residents to produce lettuce, beets, carrots, kale and other fresh items that can be sold at farmers markets, Vogelweid said.

Heller declined this week to discuss details of the project but Vogelweid said it will provide much needed housing, training and employment for ex-offenders. He said they will be carefully screened before they are accepted as residents.

Vogelweid said the St. Patrick Center should have no trouble filling the 56 apartments, each of about 450 square feet, with qualified ex-offenders. Sex offenders will not be considered but the development’s residents could have a wide range of convictions

After two bruising trading sessions following a profit warning late last week, investors on Tuesday finally found some love for beleaguered BlackBerry maker, Research In Motion Ltd.

Shares in the Waterloo-based company rose by more than 9 per cent to $27.74 in Toronto on takeover speculation, word of job cuts and rumours that Apple Inc.’s latest iPhone may be late to market.

Click here for photos of the evolution of Blackberry

RIM last week lowered is sales and earnings forecast for the full year partly due to delays in getting its latest generation of smartphones into consumer’s hands. The warning shaved more than 25 per cent off the value of RIM shares.

The company also said it would reduce its staff of 17,500 but has withheld details, even after a Waterloo radio station said about 200 largely contract manufacturing workers were handed layoff notices on Monday. RIM has about 9,000 workers in Canada, including thousands in the southwestern Ontario city.

Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto, said bargain hunting investors may have rediscovered RIM after the stock was “vastly oversold” and emerged as a favorite target of short sellers.

He also said any takeover of RIM would likely involve a hostile pursuit, given that the company’s co-chief executives say they are more committed than ever to turning RIM around as a free-standing entity.

Other analysts said while they recognize that RIM has valuable assets, the deteriorating BlackBerry brand makes a near-term buyout unlikely.

But MKM Partners analyst Tero Kuittinen said Asian companies such as laptop maker Lenovo Group Ltd. may be interested.

“Many of them have been unable to craft a credible smartphone strategy,” said Kuittinen, who added that RIM’s streamlining announcement was a signal to investors that it wants to conserve cash.

“They want to convince people that they are not going to start burning cash even if they’re going through a rough period. That’s what they really want to make sure that Wall Street knows.”

Analysts speculated in research notes this week that tech companies including Microsoft Corp., Apple, Dell Inc. and Oracle Corp. could take a run at all or part of RIM given that it is debt free, has a strong cash position, expects about $6 (U.S.) in per share profit this year — and because of the value of its unique and highly encrypted email messaging system that remains the standard for many corporations and governments.

But analysts also pointed out that most of the companies cited are facing their own challenges, with Microsoft, for example, rumoured to announce layoffs with its earnings report in late July amid a tepid stock performance. PC maker Dell is a revenue-generating machine but the company carries more than $7 billion in long-term debt, while Apple may be facing headwinds in launching the next iPhone.

Oppenheimer & Co. analyst Ittai Kidron cut his price target on Apple Tuesday and said the company may not release the next model until late September or October, which would lead to slower September sales.

Kidron, who maintained his “outperform” rating on Apple, reduced his 12 to 18 month target on the stock to $420 from $450 and his expectations for iPhone sales in the quarter ending in September to 19 million units from 20.5 million units.

On Thursday, as it announced fiscal first-quarter earnings, RIM cut 2012 earnings projections amid a loss of market share in the U.S. and as competition lowers prices for its devices in fast-growing Asian and Latin American markets.

RIM blamed product release delays partly on difficulties in obtaining carrier certification for its new phones.

As well, said co–chief executive Mike Lazaridis, “the features and performance arms race demanded that we upgrade the chipset and port BlackBerry to a higher-performance platform. This was an engineering change that affected hardware and software timelines and pushed out entry into carrier certification labs.”

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OTTAWA

European stocks were helped Friday by an easing in tensions over Greece’s debt crisis after a big Cabinet reshuffle and suggestions that Germany has softened its stance over the need for private creditors to shoulder a part of a second Greek bailout.

The centerpiece of Prime Minister George Papandreou’s wide-ranging Cabinet reshuffle was the appointment of long-time rival Evangelos Venizelos to finance minister and deputy prime minister.

Papandreou will be hoping that the move brings an end to a damaging 48-hour political crisis that raised fears that Greece could run out of money in less than a month.

The reshuffle came after a seven-hour meeting between Socialist lawmakers and Papandreou on Thursday, at which they demanded that the prime minister remove inexperienced loyalists from the Cabinet and replace them with more experienced party veterans, mostly in their late-50s.

The hope in the markets is that Papandreou has done enough to get austerity measures through Parliament, which are necessary for the country to get more bailout funds.

Further relief came from news that Germany may be backing off from its tough stance to get private creditors to take their share of any future second bailout of Greece.

In a press conference with French President Nicolas Sarkozy, Germany Chancellor Angela Merkel agreed that private investors should be part of the solution but that their participation had to be on a “voluntary” basis.

“Markets are currently taking this as a positive step,” said UBS analyst Chris Walker.

In Europe, the FTSE 100 index of leading British shares was up 0.3 percent at 5,713 while Germany’s DAX rose 0.7 percent to 7,156. The CAC-40 in France was 1.1 percent higher at 3,835.

Greek stocks were doing particularly well, with the main ATHEX index up 3.6 percent.

Wall Street was poised for a solid opening, too _ Dow futures were up 0.7 percent at 11,976 while the broader Standard & Poor’s 500 futures rose 0 personal loans for people with bad credit.8 percent to 1,273.

The euro was also a big gainer, climbing 0.5 percent on the day to $1.4284. On Thursday, it had fallen below $1.41 for the first time in three weeks as investors fretted about a possible Greek debt default.

Greece’s debt crisis has been the main driver in markets this week, but with a seemingly calmer mood Friday, investors may turn to U.S. economic data later for more direction. A run of weak U.S. economic news has weighed on stock markets over the past few years.

The University of Michigan’s monthly consumer confidence survey could well be a catalyst to how markets end the week. The consensus in the markets is that the headline index will rise modestly to 74.5 in June from the previous month’s 74.30.

“Any signs of improving demand from U.S. consumers would have wide reaching implications and the hope is that with oil prices tumbling, lower petrol costs will free up cash for discretionary spending,” said Ben Critchley, senior sales trader at IG Index.

Oil prices continued to push lower Friday, with the benchmark rate on the New York Mercantile Exchange down another $1.22 to $93.76 a barrel.

Earlier in Asia, before the reshuffle and the German comments, stocks pushed lower.

Japan’s Nikkei 225 index closed 0.6 percent lower at 9,351.40 while Hong Kong’s Hang Seng index fell 1.2 percent to 21,695.26.

Mainland Chinese shares fell to their lowest level so far this year as investors reacted to news of a rise in the rate for Chinese central bank’s three-month bills on Thursday, seen as a cue that an interest rate hike may be in the offing.

The Shanghai Composite Index fell 0.8 percent to 2,642.82, while the Shenzhen Composite Index fell 1.1 percent to 1,085.11.

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Pamela Sampson in Bangkok contributed to this report.

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ST. LOUIS

Politicians in Spain’s northeastern Catalonia region used police helicopters to get to the regional parliament to avoid some 2,000 demonstrators protesters who tried to blockade the building Wednesday to protest planned budget cuts in education and health.

A police spokeswoman said the situation was tense as the deputies arrived at Ciutadella park in central Barcelona. Regional President Artur Mas was among at least 10 politicians who arrived by helicopter.

Scuffles broke out as police pushed protesters back so the deputies who arrived on foot could get in.

The politicians were heckled and at least two were sprayed with paint, the spokeswoman said, speaking on condition of anonymity in keeping with police rules.

The spokeswoman said there were no immediate reports of injuries but Spanish daily El Pais cited unnamed medical sources saying 23 people were treated for injuries.

Some 400 police packed the Ciutadella park to ensure protesters could not enter by climbing over the railings. Outside, a riot police vans stood guard at the main park entrance.

“I think it is important to be here protesting against the spending cuts, because to cut social spending with the excuse of the crisis is a big farce,” said protester Mariela Pita.

After the politicians entered the parliament, hundreds of protestor left the area but were expected to return later in the day for when the politicians leave the building credit reports free.

The demonstration was part of nationwide protests over the past month by young and unemployed people angry at the country’s handling of the economic crisis. The highlight of the movement was a near month-long, round-the-clock makeshift protest camp in Madrid’s Puerta del Sol plaza.

The vast majority of the protests have been peaceful.

The Barcelona protest was criticized by politicians across the country.

“Aggressions and insults against politicians are aggressions and insults against the people’s representatives,” said Ramon Jauregui, spokesman for the Spanish central government.

“I can accept the protest by 2,000 people but I would remind those 2,000 people that 3.2 million people voted those deputies that were hassled,” he said.

But Gaspar Llamazares of the United Left coalition said the protests represented a “social fracture” in Spain, where the economic crisis has left close to 5 million people unemployed.

Last week hundreds of protesters gathered outside the national parliament in Madrid to demonstrate against labor reforms.

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Associated Press Writer Ciaran Giles contributed to this report from Madrid

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Mexican central banker Agustin Carstens says the next leader of the International Monetary Fund should not be European because those nations are borrowing heavily from the lending organization.

Carstens is pressing his long-shot candidacy to head the IMF. European officials have closed ranks behind French Finance Minister Christine Lagarde, who has emerged as the front-runner.

Carstens says Lagarde’s candidacy would create “conflicts of interest” because Greece, Ireland and Portugal are borrowing heavily from the Fund.

A European has traditionally headed the IMF. Carstens is unlikely to pose a serious challenge to Lagarde, who consolidated her lead over the weekend. But his speech and a meeting with Treasury Secretary Timothy Geithner should help Carstens build name recognition and position him for another top job in the future.

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