Finance Blog number 1

The number of people applying for U.S. unemployment benefits ticked down last week after dropping sharply the previous week, evidence hiring could pick up this month.

Weekly applications dropped 1,000 to a seasonally adjusted 367,000 in the week ending May 5, the Labor Department said Thursday. The previous week’s figure was revised up slightly.

The four-week average, a less volatile measure, fell 5,250 to 379,000.

Applications are a measure of the pace of layoffs. When they stay consistently below 375,000, it suggests job growth is strong enough to lower the unemployment rate.

Applications are falling again after rising for most of April. The spike in applications coincided with weaker hiring in March and April. That raised fears that the job market is sputtering after a strong winter.

From December through February, employers had created an average 252,000 jobs a month. That was the best three months of job growth since the recession ended in June 2009, not counting months thrown off by the hiring of temporary census workers in 2010.

The unemployment rate has dropped a full percentage point since August _ to 8.1 percent in April.

The recent jobs picture has been clouded by an unseasonably warm winter. That allowed construction firms and other companies to hire earlier than usual, effectively stealing jobs from the spring. Economists are puzzling out how much of the slower hiring in March and April was weather-related payback and how much reflects economic weakness.

More than 500,000 Americans have left the work force since February. That’s one reason _ and not a good one _ that unemployment has continued to fall. People who are out of work but not looking for jobs aren’t counted among the unemployed.

The economy grew at a disappointing 2.2 percent from January through March, a rate consistent with less than 110,000 new jobs a month.

There’s still has a long way to go. The United States has regained only about 3.8 million, or 43 percent, of the 8.8 million jobs lost during and immediately after the recession.

The number of people receiving unemployment benefits also dropped. That is partly because extended benefit programs are winding down. More than 6.4 million people received benefits during the week that ended April 21, down nearly 175,000 from the previous week.

The government did release some good news this week: In March, employers advertised 3.74 million job openings, the most since July 2008. The increase in U.S. job openings suggests that weaker hiring gains in March and April could be temporary. It usually takes one to three months for employers to fill openings.

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U.S. job growth slumped in April for a second straight month. It pointed to a steadily growing but still sluggish economy that could tighten the presidential race.

A drop in the unemployment rate wasn’t a necessarily a healthy sign for the job market. The rate fell from 8.2 percent in March to 8.1 percent in April. But that was mainly because more people gave up looking for work.

People who aren’t looking for jobs aren’t counted as unemployed.

The 115,000 jobs added in April were fewer than the 154,000 jobs created in March, a number the government revised up from its first report a month ago of 120,000. It also marked a sharp decline from December through February, when the economy averaged 252,000 jobs per month.

The percentage of adults working or looking for work has fallen to its lowest level in more than 30 years. Many have become discouraged about their prospects.

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Here’s what The Associated Press’ reporters are finding:

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TEPID ECONOMY, TEPID HIRING

Over time, strong economic growth is vital for strong job growth.

But early this year, hiring accelerated much faster than economic growth did. Job gains averaged a strong 229,000 in the first three months. But the economy grew at a sluggish annual rate of 2.2 percent.

Economists began to wonder: Would growth catch up with hiring? Or would hiring slow to match economic growth (as measured by gross domestic product, or GDP)?

Some economists say April’s disappointing job growth suggests an answer, and it’s not a cheerful one:

“It now appears that jobs have decelerated into line with GDP, rather than GDP accelerating to catch up with jobs,” said Nigel Gault, an economist at IHS Global Insight.

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REVISING HISTORY

The job market seems to look better with hindsight.

The Labor Department has revised job growth upward for 10 straight months _ and for 18 of the past 21. Over the past 10 months, it’s added 413,000 jobs to the original estimates.

The job figures are revised twice. They’re updated in the two months after they first come out. And they’re revised again in an annual update meant to capture updated employment data from the states.

History shows that the updated totals typically follow the trend in job creation: When the economy is creating jobs consistently, the revisions tend to be positive. Months of job losses typically lead to negative revisions.

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THE POLITICAL DEBATE

A falling unemployment rate would seem to be good news for President Barack Obama’s re-election hopes. Dating to 1956, no incumbent president has lost when unemployment fell in the two years leading to an election.

On Election Day, unemployment will almost surely be less than it was two years earlier: 9.8 percent in November 2010.

But for the past two months, the rate has fallen for the wrong reason: More than 500,000 Americans have stopped looking for jobs and are no longer counted as unemployed business card. Job growth averaged a healthy 252,000 from December through February. It slowed to 135,000 in March and April.

The question is whether voters will focus more on the falling unemployment rate (good for Obama) or the modest job growth (not so good).

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A JAB FROM ROMNEY

Mitt Romney seized on the latter. He noted that the declining number of people seeking work explains the drop in the unemployment rate.

“This is way off from what should be happening in a normal recovery,” Romney said on Fox & Friends. “You have more people dropping out of the work force than you have getting jobs.”

“This is not progress,” Romney said.

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DISAPPEARING WORKERS

The percentage of Americans 16 and older working or looking for work is now 63.6 percent, the lowest since 1981. For men, the so-called “labor force participation rate” is 70 percent. That’s the lowest since the government started keeping records in 1948.

The rate peaked at 67.3 percent in early 2000 as women poured into the workplace. Since then, it’s turned south. Demographic and social trends help explain the drop: Baby boomers are aging and retiring.

And more women, especially in upper-income families, are staying at home. The drop in participation accelerated after the economy slid into recession in late 2007. The tough job market led many to give up looking for work.

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   SOUR INVESTORS

The stock market didn’t take Friday’s news well.

The Dow Jones industrial average sank 132 points, or 1 percent, in late-morning trading. The broader Standard & Poor’s 500 index fell 1.4 percent.

   Investors were a lot happier earlier this week. They sent the Dow to its highest close since December 2007.

   Technology stocks and banks led the market lower Friday. Utility companies were the only broad category of stock in the S&P 500 index trading higher. They tend to fare well when investors grow nervous about the economy.

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NO SURPRISE TO BERNANKE

One person not likely surprised by the sluggish hiring in April: Ben Bernanke.

The Federal Reserve chairman has cautioned for months that the spike in hiring at the start of the year didn’t match the economy’s more modest growth.

His Fed colleagues probably agree. Their latest forecasts show that even under a best-case scenario, unemployment will be at least 7.3 percent in late 2013. Historically, a normal rate would range between 5 percent and 6 percent.

Most analysts expect the Fed to keep its key interest rate at a record low near zero well into 2013, if not later. But few think hiring has weakened enough to trigger a third round of bond buying to help lower long-term rates and encourage more lending.

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European Central Bank officials voted Thursday to hold interest rates steady, even as the euro area economy slides towards recession. But ECB president Mario Draghi appeared to hint that there could be rate cuts in the future.

In a widely expected move, the ECB left its main overnight lending rate at 1%, a level the bank has maintained since late last year.

The Governing Council of the Frankfurt-based ECB met in Barcelona as the economic outlook in the eurozone has deteriorated.

Speaking to reporters after the meeting, Draghi said the ECB’s policies remain "accommodative" in light of the economic data from the first quarter. But he acknowledged that more recent economic indicators highlight the uncertain outlook for the eurozone.

Draghi noted that economic activity was "stabilizing" in the first quarter but that more recent data shows "uncertainty prevailing."

While he stressed that interest rates are very low and liquidity is abundant, Draghi said several times that "any exit strategy remains premature." ECB policymakers will be "clearer in our assessment" at the council’s next policy meeting in June, he added.

"The ECB does appear to be leaving the door open to an eventual further interest rate cut," said Howard Archer, chief UK and European economist at IHS Global Insight.

But monetary policymakers will probably not act until economic conditions have deteriorated further, according to Archer. "Unfortunately that could very well happen," he added.

Europe: ‘Dark clouds on the horizon’

Meanwhile, the ECB is under pressure to intervene in financial markets as investors have been rattled by renewed concerns about the euro debt crisis.

In response to a question on the ECB’s controversial bond buying program, Draghi simply said the so-called securities market program, under which the ECB purchased billions of euros worth of government debt last year, is "an important instrument."

But he stressed that eurozone governments still need to reduce debt and take steps to increase economic competitiveness.

"These mechanisms are useful, but they cannot replace either fiscal consolidation or structural reforms as the way to go back to stability," said Draghi guaranteed personal loan approval.

The ECB has taken unprecedented steps to support the economy.

In two separate operations, the ECB funneled more than 1 trillion euros worth of ultra low-cost loans into the banking system starting late last year. The two long-term refinancing operations, or LTROs, helped prevent a credit crunch in the banking system.

The LTROs also appeared to drive down borrowing costs for troubled euro area governments including Italy and Spain. But the effects of the lending program have waned and some investors are now calling for the ECB to do more.

Spain, for example, confirmed earlier this week that it officially slipped back into recession in the first quarter. Meanwhile, unemployment in the 17-nations that use the euro edged up to 10.9% in March — the highest level since the common currency was introduced in 1999.

In addition to Spain, several other eurozone economies already struggling with recession including Italy, Ireland, Greece and Portugal.

Eurozone unemployment hits record 10.9%

Overall, the eurozone economy is widely expected to suffer a mild recession this year as austerity — budget cuts and tax hikes — take a toll on growth.

The bleak economic climate has raised concerns that austerity is doing more harm than good, and a growing number of policymakers have been calling for reforms to boost economic growth.

For his part, Draghi seemed to suggest that policymakers need to do both.

"We have to put growth back at center of agenda without any contradiction to the need to preserver in fiscal consolidation," said Draghi.

He supported calls for a "growth pact" to compliment the "fiscal pact" that euro area leaders signed late last year.

Draghi said the growth pact should emphasize polices aimed at opening up eurozone labor and product markets to increased competition. At the same time, Draghi said targeted spending on infrastructure projects will help create jobs in the public sector.

"We need a common European discipline in doing these reforms," he said.  

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Switzerland’s biggest bank UBS AG reported a 54 percent drop in first-quarter net profit for 2012 that it blamed Wednesday on a loss at the investment bank, an accounting charge on its debt and difficult market conditions.

First-quarter net profit fell to 827 million francs ($910 million) from 1.81 billion francs in the same period last year, the bank reported before trading opened in Zurich. The results did not meet analysts’ average estimate for a net profit of 1.2 billion Swiss francs ($1.32 billion).

UBS also offered a somewhat grim outlook for the second quarter of 2012, owing to Europe’s sovereign debt crisis, the U.S. federal deficit and continuing global uncertainties.

“Failure to make progress on these key issues would make further improvements in prevailing market conditions unlikely and would have the potential to continue the headwinds for revenue growth, net interest margins and net new money,” the bank reported.

Chief Executive Officer Sergio P. Ermotti said despite the “challenging market conditions” the bank had performed well.

“We improved operational performance across all our businesses, strengthened our leading capital ratios further, reduced risk-weighted assets and remained vigilant on costs,” he said in a statement. “The strong net new money inflows in our wealth management businesses provide further clear evidence of the trust our clients place in UBS.”

It was just the second quarter for the bank under the leadership of Ermotti, who took over in September with the aim of restoring clients’ trust following a case of alleged rogue trading in its investment bank that cost UBS $2 billion. Ermotti pledged to tighten oversight at UBS and restructure the ailing investment banking unit where the trading scandal occurred.

Last month, the specter of a damaging tax evasion case rose again. After resolving a long-running tax probe in the United States with a $780 million fine and the handover of thousands of client files, UBS now faces allegations by former staff in France that it also helped French clients cheat on their taxes.

The bank strenuously denies the allegations and says it will defend itself using “appropriate legal means.”

The first-quarter results for 2012 also were a turnaround from the last quarter of 2011 when the bank, Switzerland’s biggest by market capitalization, posted a net profit of 319 million francs.

Rival Credit Suisse reported a 95 percent drop in first-quarter net profit last week due to writedowns, staff severance costs, bonus payments and the strong Swiss franc.

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Apple Inc. risks losing the right to use the iPad trademark in China, a senior official suggested Tuesday, as a Chinese court was seeking to mediate a settlement between the technology giant and a local company challenging its use of the iPad name.

Yan Xiaohong, deputy director of the National Copyright Administration, told reporters in Beijing that the government regards Shenzhen Proview Technology as the rightful owner of the trademark for the popular tablet computers. His remarks could add to pressure on Apple to find a solution to the standoff.

Yan’s comments followed news that the Guangdong High Court in southern China is seeking to arrange a settlement in the case. In late February, the court began hearing Apple’s appeal of a lower court ruling that favored Proview in the trademark dispute.

“The dispute between Apple and Shenzhen Proview concerning the iPad trademark is going through the judicial process,” Yan said in a news conference carried on the Internet.

But he added that “according to our government’s laws, Shenzhen Proview is still the lawful representative and user of the trademark.”

China has sought to showcase its determination to protect trademarks and other intellectual property, but with hundreds of thousands employed in the assembly of Apple’s iPhones and iPads is unlikely to want to disrupt the company’s production and marketing in China.

Ma Dongxiao, a lawyer for Proview said the company had expected all along to settle with Apple, with the key sticking point being the amount of money involved.

“It is likely that we will settle out of court. The Guangdong High Court is helping to arrange it and the court also expects to do so,” Ma said in a phone interview.

Court officials contacted by phone said they were not authorized to comment on the issue to foreign media.

“Given the wide implications of this case we need to wait to see the final ruling of the court, which will decide the ownership rights for the trademark,” Yan said. “We will proceed with the case in a prudent manner.”

He said commercial authorities that had received complaints about Apple’s use of the iPad trademark were collecting evidence.

“Once the ruling emerges we will handle the case according to the evidence we have,” he said.

Chinese courts often try to mediate agreements out of court. But it is unclear whether Apple is open to that option.

Proview, a financially troubled maker of computer displays and LED lights, says it registered the iPad trademark more than a decade ago. Apple says Proview sold it worldwide rights to the iPad trademark in 2009, though the registration was never transferred for China.

Proview’s other worldwide trademarks for the iPad name were owned by another subsidiary of the Proview Group, Taiwan-based Proview Electronics. But the mainland China trademark was registered by Shenzhen Proview.

An Apple spokeswoman, Carolyn Wu, said the company had no new comment on the possibility of a settlement with Proview.

In a statement, Apple reiterated its earlier insistence that it would never “knowingly abuse someone else’s trademarks.”

The statement adds that Proview “still owe a lot of people a lot of money, they are now unfairly trying to get more from Apple for a trademark we already paid for.”

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Researcher Fu Ting contributed to this report.

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The chairman and chief executive of American Express Co. received a compensation package valued at $22.5 million for 2011, a 38 percent increase from a year earlier, according to an Associated Press analysis of a regulatory filing.

The company credited Kenneth Chenault and his management team for delivering revenue and profit growth, and gaining market share over the past two years.

The executive, who has been chairman and CEO since 2001, received $16.3 million in compensation in 2010.

Chenault, 60, received a base salary of $2 million, up 3 percent from the previous year, according to documents filed Friday with the Securities and Exchange Commission.

The executive also received a cash bonus of $2 million, unchanged from 2010.

But the bulk of Chenault’s compensation hike came in the form of stock awards, which were worth about $15.3 million at the time they were granted _ a sevenfold increase from $2.1 million worth of stock awards the year before.

Chenault also received option awards valued at about $2.2 million on the day they were granted, down 76 percent from $9.2 million a year earlier.

His other compensation declined 7 percent to about $1.02 million, and included $570,000 in company contributions to Chenault’s defined contribution plans; $395,439 for perks and other personal benefits; $53,458 in dividends and equivalents; and, $3,939 in life insurance.

Even with high unemployment and continued doubts about the strength of the economy, credit card use has been on the rise.

New York-based American Express, which caters to a more affluent customer than its peers, saw its 2011 profit climb to $4.94 billion, an increase of 22 percent from the year before. Full-year revenue rose 9 percent to $29.96 billion.

Shareholders saw the company’s stock price rise about 10 percent last year. The stock closed Friday at $52.99.

The Associated Press formula calculates an executive’s total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.

The value that a company assigned to an executive’s stock and option awards for 2011 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company’s stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.

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Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk

Consumer prices rose modestly in January on higher costs for food, gas, rent and clothing.

But economists downplayed the increase, saying inflation will likely ease in the coming months as prices for raw materials level off.

Separately, a gauge of future economic activity rose in January for the fourth straight month, adding to evidence that the economy has strengthened in the new year.

The consumer price index increased 0.2 percent last month, after a flat reading in December, the Labor Department said Friday.

Excluding volatile food and energy, so-called core prices ticked up 0.2 percent. A big reason for the increase was that clothing prices jumped 0.9 percent. Medical care, rent and tobacco prices also increased.

Car prices were unchanged, and airfares fell.

Core inflation over the past 12 months moved up to 2.3 percent — its highest point in more than three years. A steady rise in core prices could limit the Federal Reserve’s ability to take steps to boost the economy.

Still, economists said inflation is likely leveling off. For example, clothing prices are higher because of a spike last year in the cost of cotton. When the impact of the cotton hike fades, clothing costs should ease.

Guy LeBas, fixed income strategist at Janney Montgomery Scott, said the rise in the core reflected a delayed response to those soaring commodity prices.

The report “points to a benign path for inflation for 2012,” LeBas said. “Consumer demand is fairly anemic right now … firms can’t raise prices when nobody’s buying.”

Separately, the Conference Board said its index of leading economic indicators rose 0.4 percent last month to its highest point since July 2008. The steady rise has coincided with other positive data that suggest the recovery is picking up.

The unemployment rate fell to 8.3 percent, the lowest in nearly three years, after employers added 243,000 net jobs — the most in nine months. Auto sales are up, unemployment aid applications are down and factories are cranking out goods at a healthy pace.

The Fed is forecasting that inflation will remain in check this year. It expects that the inflation gauge it follows will increase by about 1.6 percent in 2012. That’s below the Fed’s target for inflation of 2 percent. Low inflation was one of the reasons the Fed last month said it plans to hold its benchmark interest rate at a record low near zero until late 2014.

Falling energy and food costs kept wholesale prices in check last month, the Labor Department said Thursday. The producer price index rose 0.1 percent in January, after dropping the same amount the previous month.

Wholesale gas costs rose, but that was more than offset by steep drops in natural gas, home heating oil and electricity prices.

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Drug maker AstraZeneca PLC said it will cut another 7,300 jobs as it warned Thursday of a tough year ahead, due to government spending cuts on healthcare and stiff competition, even as it reported a 24 percent increase in 2011 profits.

The Anglo-Swedish company said its full-year profit was $10 billion, up from $8.1 billion a year earlier. The profit advance was helped heavily by a $1.5 billion gain from the sale of its dental subsidiary, Astra Tech.

The company said revenue this year will be hit by government interventions on prices, generic competition and the loss of exclusivity for Seroquel IR, a drug for the treatment of depression, and hypertension drug Atacand in global markets.

Job cuts and restructuring are expected to save $1.6 billion a year by 2014, the company said. AstraZeneca said it would shortly begin consultations with affected employees.

AstraZeneca shares were down 4.2 percent at 2,960 pence just before noon in London.

Generic competition cut revenue by $2 billion in 2011 while price interventions cost another $1 billion, AstraZeneca said.

Despite its concerns over the year ahead, AstraZeneca raised its full-year dividend by 10 percent to $2.80 a share10 percent, and announced a $4.5 billion share buyback program.

The company reported double-digit sales gains for cholesterol drug Crestor, Symbicort for asthma and Seroquel XR freecreditscore.

U.S. revenues were up 5 percent despite the negative impact of health care reform, while revenue in the rest of the world was down 3 percent, including a 15 percent slide in Europe.

AstraZeneca said it was reshaping its research and development activity to focus on neuroscience, employing 40 to 50 scientists in a new Innovative Medicines unit based in Boston in the United States and Cambridge in England.

The company will close its facility in Montreal and lay off some staff in Soedertaelje in Sweden.

“We’ve made an active choice to stay in neuroscience though we will work very differently to share cost, risk and reward with partners,” said Martin Mackay, the company’s president of research and development.

Linda McCulloch, a national officer for Britain’s Unite union, said the cuts were a blow to the research and development base.

“If the company can afford a 10 percent hike in its dividends, then it can afford to retain these roles,” McCulloch said.

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Greece and its private investors are close to a deal that will significantly reduce the country’s debt and pave the way for it to receive a much-needed euro130 billion bailout.

Negotiators for the investors announced the tentative agreement Saturday and said it could become final next week.

Under the agreement, the investors would take a hit of more than 60 percent on the euro206 billion of Greek debt they own.

Here’s how it would work: private investors would receive new bonds whose face value is half of the existing bonds. The new bonds would have a longer maturity and pay an average interest rate of slightly less than 4 percent (compared with an estimated 5 percent on the existing bonds).

Without the deal, which would reduce Greece’s debt load by at least euro120 billion, the private investors’ bonds would likely become worthless. Many of these investors also hold debt from other eurozone countries, which could also lose value in the event of a Greek default.

The agreement taking shape is a key step before Greece can get a second, euro130 billion bailout from its European Union partners and the International Monetary Fund, although there are other issues involved before Greece can get that aid. This would be Greece’s second bailout. The EU and the IMF signed off on a euro110 billion aid package for Greece in May 2010, most of which has already been disbursed.

Greece faces a euro14.5 billion bond repayment on March 20, which it cannot afford without additional help.

Private investors hold roughly two-thirds of Greece’s debt, which has reached an unsustainable level _ nearly 200 percent of the country’s economic output. By restructuring the debt held by private investors, Greece and its EU partners are hoping to bring that ratio closer to 120 percent by the end of this decade.

In return for the first bailout, Greece’s public creditors _ the International Monetary Fund, the European Union and the European Central Bank _ have unprecedented powers over Greek spending. However, austerity alone will not fix Greece’s problem. The country must also find ways boost its economic output, which at the moment is shrinking.

If no debt-exchange deal is reached with private creditors and Greece is forced to default, it would very likely spook Europe’s _ and possibly the world’s _ financial markets. It could even lead Greece to withdraw from the euro.

The banks, insurance companies and other private holders of Greek bonds are being represented by Charles Dallara, managing director of the Washington-based Institute of International Finance, and Jean Lemierre, senior adviser to the chairman of the French bank BNP Paribas.

The main creditor negotiators will leave Greece on Sunday and will remain in close consultation with Greek and other authorities.

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