Finance Blog number 1

Hong Kong’s economy may have expanded at a 6.1 percent annual pace in the third quarter, extending a recovery under threat from asset bubbles.

The median forecast of 16 economists in a Bloomberg News survey compares with a 6.5 percent expansion in the second quarter from a year earlier. The number is scheduled for release at 4:30 p.m. local time today.

The U.S. Federal Reserve’s expansion of stimulus through bond purchases may fuel inflows of cash to Hong Kong, where a currency pegged to the dollar robs officials of an independent interest-rate policy. The city faces a heightened risk of an “asset bubble” in real estate, Norman Chan, the head of the Hong Kong Monetary Authority, said last week.

U.S. policies and low rates are fueling “overheating local asset markets,” said Irina Fan, an economist at Hang Seng Bank Ltd. in Hong Kong. At the same time, “wealth effects from soaring property prices” may aid consumer demand, she said.

The Hang Seng Index of stocks jumped 30 percent from a May low to yesterday’s close of 24,700.30.

Gross domestic product has expanded for three quarters on a year-on-year basis after a contraction that started in the final three months of 2008. In the first three months of this year, gross domestic product surged 8 percent.

Moody’s Upgrade

Growth is “stabilizing,” according to Frances Cheung, a Hong Kong-based senior strategist at Credit Agricole CIB.

Moody’s Investors Service raised yesterday Hong Kong’s debt rating to Aa1, the second-highest ranking, citing the government’s financial strength and “lessening vulnerability to external shocks.” Neighboring China’s growth will also aid the city, Moody’s said.

Retail sales grew 17.8 percent in the third quarter, according to Hang Seng Bank, as unemployment dropped to a 20- month low of 4.2 percent. Exports climbed 27.8 percent, the lender said.

“Going forward, the growth momentum for the externally oriented Hong Kong economy looks set to cool off, as the global economy is showing clear signs of moderating,” Fan said.

Home prices surged about 51 percent from the start of 2009, according to an index compiled by Centaline Property Agency Ltd, and new home sales volume more than doubled in October from September.

Cooling Measures

Since August, the government has raised down-payment ratios, stopped offering residency to foreigners who buy property in the city, and increased land auctions to boost supply. While Chan said that the government could take extra steps to cool the market, he wasn’t more specific.

Residential property prices will likely post a further 30 percent gain by the end of 2011, Credit Suisse Group AG said in a report this month. Developers from Sun Hung Kai Properties Ltd. to Henderson Land Development Co. Ltd. may benefit.

Full-year economic growth may exceed the government’s August estimate of as much as 6 percent and inflationary pressure is increasing, Financial Secretary John Tsang told lawmakers on Oct. 28. Consumer prices rose 2.6 percent in September from a year earlier.

Gross domestic product grew 0.6 percent in the third quarter from the previous three months, seasonally adjusted, according to the median estimate in a survey of 10 economists.

Hong Kong is likely to “sustain healthy growth into next year in its role as a service center for the Chinese economy, which enjoys ongoing momentum,” said David Cohen, a Singapore- based economist at Action Economics.

– With assistance from Michael Munoz. Editors: Paul Panckhurst, Cherian Thomas.

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A group representing the world’s most prominent finance ministers wrapped up a two-day meeting in Korea Saturday with a pledge to not engage in currency wars or other economically protectionist policies.

The ministers from the so-called G-20 nations, who were meeting in Gyeongju, South Korea, discussed a wide array of challenges facing the global economy. But first and foremost was the issue of currency trading.

The United States has been vocally concerned about how some emerging markets nations, most notably China, have allowed their currencies to trade at artificially low levels. The worry is that if such currency manipulation continues, it could wreak havoc on international trade.

In their statement, however, the G-20 ministers said that they would "move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies."

The ministers added that the G-20 member nations would "continue to resist all forms of protectionist measures and seek to make significant progress to further reduce barriers to trade."

The G-20 stopped short of outright banning currency manipulation though. U.S. Treasury Secretary Timothy Geithner, who attended the meeting, had urged the G-20 ministers to take strong action to make sure emerging markets nations allow their currency to appreciate in line with the free market.

This weekend’s meeting is a precursor to a larger G-20 meeting taking place in Seoul on November 11 and 12. That summit will involve the heads of state from the G-20 nations. President Obama will attend.

Tensions about currency and trade are likely to be high at that meeting as well. The G-20 acknowledged in Saturday’s statement that the global economic recovery is currently advancing, but it was doing so in "a fragile and uneven way."

The ministers added that "growth has been strong in many emerging market economies, but the pace of activity remains modest in many advanced economies."

As further evidence of that, China announced earlier this week that its gross domestic product for the third-quarter rose at an annual rate of 9.6%. While that’s slower than in previous quarters, it is still far higher than the growth rates of the United States, Japan and nations in Europe.

China’s central bank also announced earlier this week that it was raising a key interest rate for the first time in nearly three years. That comes at a time when many expect the Federal Reserve to soon announce more details about how it intends to further ease its own monetary policies.

In a nod to the increased economic clout of China and other emerging markets, such as Brazil, India and Russia, the G-20 ministers also announced a deal Saturday that would give emerging markets countries more seats on the board of the International Monetary Fund. 

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Long-term care provider Assisted Living Concepts Inc. of Menomonee Falls continued to boost revenue in the second quarter by increasing occupancy at its assisted living homes by more profitable private-pay residents.

Total revenue increased to $58.3 million from $56.7 million over the second quarter of 2009.

Assisted Living Concepts (NYSE: ALC) reported a decline, however, in net income for the quarter with $2.9 million, or 25 cents per share, compared with $3.9 million, or 33 cents per share, in the same period the year before.

The decline is the result of one-time charges totaling $1.7 million related to income tax benefits and expenses associated with the realignment of divisions, said John Buono, senior vice president and chief financial officer.

Net income would have been $4.6 million, or 39 cents per share, without those one-time charges, Buono said during a conference call Tuesday with investors.

Staffing needs have decreased because of the lower number of Medicaid residents the company is accepting and general economic conditions have allowed Assisted Living to hire employees at lower wage rates, Buono said.

At the same time, general administrative costs increased $800,000 compared with the last year.

Assisted Living increased average private-pay occupancy by 122 and eight units over the second quarter of 2009 and the first quarter of 2010, respectively payday loan.

The company does not expect to renew Medicaid contracts in 2010, which will reduce Medicaid occupancy by about 40 people in the third quarter of 2010, Laurie Bebo, president and CEO, said in a conference call.

Assisted Living gets less money in reimbursements from Medicaid residents than it does from private-pay residents and has made a conscious decision to decrease the number of Medicaid residents and replace them with private-pay residents.

The company has been offering discounts such as no new residency fees or one-month free after six months to make its facilities more attractive to private-pay residents, Bebo said.

Private-pay residents increased from 92.3 percent in 2009 to 97.1 percent in 2010. Revenues from those residents increased from 93 percent to 98 percent in 2010.

“Our strategy of reducing our reliance on government funding continues to increase our margins,” Bebo said.

Assisted Living Concepts and its subsidiaries operate 211 senior living residences comprising 9,280 residents in 20 states.

The company is looking at the acquisition of other properties, but was not ready to discuss details, Buono said.

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The leaders of the Group of Eight global economic powers pledged Saturday to continue working together as the world "begins a fragile recovery from the greatest economic crisis in generations."

In a statement concluding the two-day summit in Muskoka, Canada, the leaders said they were committed to open trade and that they would "resist protectionist pressures."

In addition to the United States, the summit included Canada, France, Germany, Italy, Japan, Russia and the United Kingdom.

The summit immediately preceded a gathering in Toronto of the G-20, which includes the leaders of other important economies, most notably China.

In the run-up to the meetings, President Obama had stressed the need to keep economic stimulus measures in place to prevent a global slowdown. But European nations have been moving toward more conservative fiscal policies as the region grapples with an ongoing debt crisis.

In a letter to G-20 leaders sent earlier this week, the president wrote that safeguarding and strengthening the economic recovery should be "our highest priority in Toronto."

"In fact, should confidence in the strength of our recoveries diminish, we should be prepared to respond again as quickly and as forcefully as needed to avert a slowdown in economic activity," he wrote.

Meanwhile, European nations have been cutting back on public spending and raising taxes to cope with massive budget deficits.

Since Obama issued his call to focus on growth, German Chancellor Angela Merkel called budget cuts "urgently necessary," and European Central Bank President Jean-Claude Trichet said stronger public finances are part of a "policy which we would call confidence-building."

Last week, the United Kingdom unveiled one of its harshest budgets in decades payday loans.

In a statement Saturday, U.S. Treasury Secretary Tim Geithner acknowledged the differences, while again stressing the need for pro-growth policies: "We all need to act to strengthen the prospects for growth. This will require different strategies in different countries. We are coming out of the crisis at different speeds." Geithner added, "We need to act together to strengthen the recovery and finish the job of repairing the damage of the crisis." (See ‘The great spending debate’)

Also expected to be discussed at the G-20 meeting will be China’s currency, the yuan. China moved last week to begin letting it trade freely against the U.S. dollar, but the move may have been too little to head off debate. Since 2008, China has pegged its currency to the dollar, and many think it is artificially cheap, making it harder for U.S. companies to compete.

The yuan has risen only slightly against the dollar in the past week.

Still, Geithner praised China’s move: "China is acting to allow its exchange rate to appreciate in response to market forces. This is an important step toward helping China better meet its own challenges and providing a more level playing field for all its trading partners."

Separately, President Obama met with the president of South Korea. Obama hopes to complete a free trade agreement with South Korea later this year, according to a senior White House official.

The plan is to double U.S. exports over the next five years, he said. The United States already exports $50 billion worth of goods and services to South Korea, which is the world’s 14th largest economy. 

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They’ve never seen a CEO at General Motors Co. quite like Ed Whitacre.

He wanders into small meetings unannounced and, before leaving, asks in stark terms what people can do to sell more cars. He urges them to take risks by making decisions; ask him whether he means it and he’ll probably say, yes, he means it.

Wearing jeans and a sweatshirt, he shows up unannounced at assembly plants — Lansing and Lordstown, Fairfax and Flint — and walks the line, stopping to talk with ordinary auto workers.

”My first impression was kinda ‘wow,’ ” says Ben Strickland, shop chairman for UAW Local 1112 in Lordstown, Ohio, home to the new Chevrolet Cruze compact. ”He definitely left the impression that he was no different than anyone else in that plant. And that went miles.”

Except that Whitacre, appointed chairman of GM’s board by President Barack Obama’s automotive task force, is different from everyone else — which is the point. In interviews with senior executives, union officials and midlevel managers, the CEO emerges as the antithetical GM boss: a serial delegator who loathes process and PowerPoints, who thinks GM’s historic reliance on data can be paralyzing, who cannily meets employees on their own terms.

He grew up in the deal-making of AT&T Corp. and its precursors, not the noble decline of GM. He wants simplicity and accountability, not the contorted self-justifications and endless study of the Detroit auto business. Mindful that there are no third chances for GM, he isn’t likely to give longtime hands the benefit of the doubt that most of them have known too well.

”He can read people in five minutes,” says a ranking executive who requested, as did others, not to be identified when speaking about the boss. ”That’s one of his gifts. ”

It’s Big Ed’s GM now, a work in progress whose return to market credibility and sustainable profitability after a historic bankruptcy is by no means assured. He knows it. GM directors know it. And anyone with a stake in the company’s success should know it.

”Ed’s the first guy to tell you it’s not all figured out yet,” says another GM executive who works closely with him. ”There’s some fear in this company. People are nervous. They don’t know what it means — ‘I get to make my own decisions.’ ”

Simpler, faster answers

For a clue, look to Big Ed himself.

In a place that elevated bureaucracy and ponderous presentations to high corporate art, Whitacre is routinely moving in the other direction. Give him less data, he says, in favor of more facts, more answers and more solutions from the people closest to the problems.

It’s hard to overstate how challenging that turnabout can be to GM’s often-constipated culture, where studying something to death (products, business deals, whether to prepare for bankruptcy) too often was mistaken for actually getting things done. Not in what’s taking shape inside the GM of Whitacre, named CEO last December.

Monday meetings of his 13-member ”Executive Committee” are typically wrapped up in a couple of hours — unless Whitacre is on a tear — compared with the daylong ”Automotive Strategy Board” confabs of old that had a corporate ritual all their own.

Monthly sales reports have been simplified, and hourly updates on the final day of each month were abolished. Forward-looking production plans no longer are reported because Whitacre couldn’t understand why GM routinely aired such competitive information when many rivals did not.

Spending within GM’s multibillion-dollar capital budget now requires fewer approvals once the overall budget is approved. Operating executives, such as North American President Mark Reuss or product development chief Tom Stephens, are encouraged to tap resources already approved in larger budgets by Whitacre and the company’s board of directors.

The goal: Move quicker, empower management, push accountability deeper into the frozen middle of the salaried ranks unsure what to make of this newfound emphasis on autonomy and risk-taking.

Even board meetings are streamlined, according to several executives familiar with the changes. Approvals of routine capital spending have been reduced, as have the number of board actions required to green-light product programs.

Gone are the two-day sessions of old, replaced by crisper, half-day meetings intended to let Whitacre and his team run the company while the directors focus appropriately on big-picture issues. Those include corporate performance and the crucial timetable to sell GM shares to investors, the first step toward extricating the U.S. Treasury from GM.

Homegrown talent works

Whitacre’s GM is not the old GM, partly because he’s nothing like his predecessors.

Until congressional inquisitions prompted GM to dump its corporate jets, former CEOs crossed time zones like most people cross town. Whitacre dislikes travel; he hasn’t yet been abroad as GM CEO, though he and the company’s directors are scheduled to hold their June board meeting in China.

He’s neither a veteran of the auto industry, nor an engineer in the mold of Ford Motor Co. CEO Alan Mulally. But Whitacre does share his rival’s obvious preference to unleash homegrown talent instead of import it — primarily in the engineering, development and building of cars and trucks.

Sure, he’s wooed former AT&T colleagues (three of them, actually) to GM, in communications and government affairs. His CFO is a veteran of Microsoft and the new treasurer is coming from Wall Street. In the guts of the operations? Reuss, son of a former GM president; Stephens, a GM engineering veteran; Nick Reilly in Europe, a longtime GM executive; and Tim Lee at GM international.

Whitacre ”is an enormous delegator,” says another executive who has worked closely with him and echoes the assessments of others. ”He doesn’t spend a lot of time in operating meetings. He puts his team in place and they are responsible for doing the work.”

And delivering the results.

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Passenger traffic at Daytona Beach International Airport increased 14 percent in March compared with the same month last year.

However, traffic for the past year was down 13 percent from the prior 12 months.

During March, the Volusia County-operated airport recorded 54,947 passengers, compared to 49,257 travelers in March 2009, according to an airport release.

The traffic increase in March is the result of more seats in the market and higher passenger loads carried by the airport’s principal carriers, Delta and U.S. Airways, said Steve Cooke, the airport’s business development director. During March, 91 percent of available seats were filled, compared to 83 percent in March last year.

The passenger increase is the fifth consecutive monthly increase over the prior year.

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CHICAGO — U.S. consumers are starting to look like a frugal, debt-fearing lot as they pay down billions of dollars in credit-card obligations. But an alarming trend is emerging: A small but growing number of people are skipping mortgage payments in favor of paying their credit card bills.

In an unprecedented shift, for some consumers having a credit card in good standing appears to have taken priority over having a roof over one’s head, experts said.

"This is not a carefree or nonchalant decision," said Ezra Becker, director of consulting and strategy at TransUnion, the credit-tracking firm. "But it really is a clear illustration of the impact this recession has had on consumer preferences and behavior."

While overall consumer debt rose unexpectedly in January, consumers continued to pay off their credit cards that month — a record 16th straight month of lower credit card debt — with such debt dropping about $1.7 billion to $864.4 billion, according to the Federal Reserve.

But a small slice of those consumers are paying down credit cards to the detriment of their mortgage loans. The number of consumers delinquent on their mortgages but current on their credit cards rose to 6.6 percent in the third quarter of 2009 from 4.3 percent in the first quarter of 2008, according to a TransUnion study of 27 million anonymous consumer records pulled randomly from its database. Meanwhile, the portion of those who fell behind on credit-card payments but paid their mortgage dropped to 3.6 percent from 4.1 percent.

TransUnion calls it the new "payment hierarchy" and first began noticing the shift in the fourth quarter of 2007. Experts thought the pattern would reverse itself once the worst of the recession passed, but TransUnion’s latest study confirms that the new behavior is becoming more prevalent and stretches across all income groups.

The trend is more common among consumers with the lowest credit scores. The percentage of consumers with low scores who paid credit cards rather than home loans shot up to 29 percent in the third quarter of 2009 from 19.1 percent in the fourth quarter of 2007, according to TransUnion. And in that low-credit-score group, consumers falling behind on credit cards but keeping pace with mortgage payments declined to 14.5 percent in 2009 from 18.1 percent in the first quarter of 2008.

But mortgage-payment problems are moving up the credit score ladder, according to FICO, the credit score company. A recent FICO Score Trends report found that mortgage-default risk for consumers with high scores now exceeds their credit card default risk, "reversing a long historic trend."

In 2009, 0.3 percent of consumers with FICO scores between 760 and 850 fell into arrears on real estate loans, versus 0.1 percent who did on credit cards.

In 2009, credit card accounts were 1.6 times more likely to become 90 days late than were mortgages, a steep drop from 2005 when credit card accounts were more than three times likely to fall behind 90 days, according to FICO.

Although the numbers are small, the trend is disturbing, said Mark Greene, chief executive of FICO. "We’re identifying lending-industry situations in FICO Score Trends that, to our knowledge, have never been seen before," he said in the report.

You can blame those trends on a deep economic slump that’s pulled the rug out from under long-held jobs, home values and retirement accounts. And, in the wake of a new credit card law as banks tighten the screws on who gets credit and how much they get, some consumers are getting more protective of their credit cards. Plus, with the unemployment rate at a hefty 9.7 percent, people are worried about losing their jobs and perhaps needing their plastic to get by.

On top of that, home values have taken a beating, and many homeowners now find themselves underwater on their home loans, meaning the mortgage outweighs the current value of the real estate. For some, holding on to the undervalued house suddenly doesn’t look like the smartest thing to do now.

"The combination of all these things makes some consumers think that paying money on the mortgage might not be in their best interest relative to the credit card," said TransUnion’s Becker. "If I’m unemployed, I need to rely on the credit cards to get me through it till I get a job."

Another thing to consider, Becker said, is that customers get kicked off credit cards far more quickly than they get kicked out of their homes. It could take a year or longer to get thrown out on the streets; a bank can pull a credit card in default in 90 days, or even less if payments are habitually late.

The mortgage mess isn’t done yet, even as the economy hobbles its way into a recovery. Rachel Bell, FICO’s senior director of analytics, said she expected to see more consumers with high scores go into the home-foreclosure process, particularly on their second homes, as interest rates rise on adjustable-rate mortgages.

"If they have second homes, they’re more willing to walk away," she said. "But even on first mortgages, there are these strategic default decisions we’re seeing where consumers are willing to walk away from a home. If they’re under water financially, they don’t see the benefit of holding on to it."

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Although the foreclosure rate nationwide slipped 2 percent in February from the previous month, Florida continues to be dogged by an increasing number of foreclosures, according to the latest numbers from RealtyTrac.

In fact, foreclosure activity in the Sunshine State rose by nearly 15 percent in February, over the previous month, and was up more than 16 percent from the prior-year period, according to the Irvine, Calif.-based online real estate company.

Florida also continued to post the nation’s second-highest total number of foreclosures, with 54,032 properties receiving a foreclosure filing in February.

Although still up, the number of foreclosures in Broward County appears to have eased a bit in February, when there were 7,872, or one in every 102, homes in foreclosure. That was up just 2.54 percent from January, when there were 7,677 homes facing default.

Year-over-year, filings were up 48 percent in Broward. In February 2009, there were 5,318 homes in foreclosure.

The picture was even more bleak in Palm Beach County, where there were 4,490, or one in every 143, homes in foreclosure totally free credit score. That was up 62.5 percent from a month earlier, when there were 2,762 foreclosures filed, and up 68.4 percent from February 2009, when there were 2,665 foreclosure filings.

In Miami-Dade County, there were 6,671 foreclosures, or one in every 147 homes, up 44 percent from a month earlier, when there were 3,393 filings, and up 86.6 percent from a year earlier, when there were 3,575 filings.

Nationwide, California continued to lead the way in foreclosure activity, with 68,562 properties receiving a foreclosure filing in February, down nearly 5 percent form the previous month and down 15 percent from a year ago.

Despite a 21 percent drop in foreclosure activity from the previous month, Arizona ranked second highest among states. Florida ranked third for foreclosure activity.

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The unemployment rate in the U.S. held at 9.7 percent in February and employers cut fewer jobs than anticipated, indicating improvement in the labor market even as East Coast blizzards forced temporary closings of some businesses.

Payrolls dropped by 36,000 last month after a revised 26,000 decrease in January, a Labor Department report showed yesterday in Washington. The jobless rate, which has not increased since October, held at 9.7 percent, even as more people entered the workforce.

Stocks and the dollar rallied while Treasuries fell as investors reckoned the economy would have added jobs were it not for seasonal snowfall records in cities including Baltimore and Philadelphia. The U.S. needs employment growth to sustain a recovery from a recession that has cost 8.4 million jobs since December 2007.

“The weather effects were enough to transform what would’ve been a positive into a negative,” said David Resler, chief economist at Nomura Securities International Inc. in New York, referring to payrolls. “Job growth is happening as we speak. Companies are seeing a stabilization of demand.”

The Standard & Poor’s 500 Index rose 1.4 percent to close at 1,138.7 in New York. The dollar strengthened 1.4 percent to 90.3 yen from 89.02 the previous day. The yield on the 10-year Treasury note rose to 3.68 percent at 4:24 p.m. in New York from 3.60 percent late the prior day.

Payrolls were forecast to decrease by 68,000, according to the median estimate of 82 economists surveyed by Bloomberg News. The jobless rate was projected to increase to 9.8 percent.

Technology Services

Among companies adding workers is Accenture Plc, the world’s second-largest technology-services provider, which plans to boost payrolls by about 50,000, with as many as 9,000 jobs being added in the U.S. by the end of August.

“We are seeing a very broad uplift globally” in demand, John Campagnino, director of worldwide recruiting, said in a March 3 interview. He said the trend “brings us right back to the pre-recession” levels.

The number of temporary workers increased by 48,000 in February, the fifth straight monthly gain. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff.

Christina Romer, President Barack Obama’s chief economist, told Bloomberg Television yesterday that it’s “very realistic” to expect employment growth in the U.S. in the next few months. Even so, “anyone that goes out and talks to people across this country knows that the labor market is still very distressed.”

Factory Payrolls

Factory payrolls increased 1,000 in February after rising 20,000 in the prior month. The median forecast by economists called for a drop of 15,000. Payrolls at builders fell 64,000 after decreasing 77,000. Financial firms reduced payrolls by 10,000 after a 13,000 decline.

The labor market may be slow to recover from the biggest slump since World War II, giving the Federal Reserve scope to keep interest rates low and putting pressure on Obama and lawmakers to foster job growth.

“A lot of people are not seeing the kind of job gains or income gains that they are looking for,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said yesterday. “There is going to be a lot of dissatisfaction with politicians and that is giving rise to this political angst.”

Many companies have been reluctant to hire even after the world’s largest economy grew at a 5.9 percent annual rate in the last three months of 2009, the most in six years.

Underemployment Rate

Economists surveyed by Bloomberg last month projected the jobless rate will average 9.8 percent in 2010 and end the year at 9.5 percent.

The underemployment rate — which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking — rose to 16.8 percent from 16.5 percent. The number of part-time workers for economic reasons climbed to 8.8 million in February from 8.3 million the previous month.

Two storms blanketed parts of the country in early February, the second coming during the week that included the 12th of the month, the government’s survey week.

Yesterday’s report showed 1 million Americans said bad weather prevented them from getting to work during the survey week. About 290,000 people on average say bad weather has prevented them from getting to work, according to February figures going back three decades.

Economists at Macroeconomic Advisers LLC in St. Louis projected the weather would reduce the payroll count by anywhere from 150,000 to 220,000 workers. The drop will probably be reversed this month, they said.

January 1996

The most recent storm of similar intensity that occurred during a survey week was in January 1996. The current data for payrolls that month, which have gone through several revisions since the initial estimate, show a 19,000 drop in employment followed by a gain of 434,000 in February.

Government payrolls decreased by 18,000 in February. State and local governments reduced employment by 25,000, while the federal government added 7,000. The increase at the federal level reflected in part the hiring of 15,000 temporary workers to conduct the 2010 census.

The Census Bureau said it will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. The program may have the biggest impact on payroll figures in April through June, when the bulk of the hiring will take place, and will then subtract from the job count the following months after the work is done.

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Bets against the fiscally unfit are multiplying, and there’s no telling where they will stop.

So far, Dubai, Greece, Portugal and Spain have come under attack as investors demand higher interest rates on bonds sold by cash-strapped nations. For now, few observers expect to see defaults. But rising borrowing costs alone could exact a toll on already tepid economic recoveries.

What’s more, even deeper-pocketed issuers such as the U.S. and the U.K. could be paying much higher yields by next year, as they struggle with political squabbles about rising deficits fueled by a massive price tag for bailouts and stimulus.

"It all depends on growth," said Jan Randolph, director of sovereign risk analysis at forecasting firm IHS Global Insight. "Economic growth is the great redeemer in these sorts of situations, but it’s not at all clear that we can count on seeing enough growth in a lot of the heavily indebted countries."

Borrowing costs have soared over the past two months in Greece, and this week the deficit hawks have swooped down on two other southern European nations, Portugal and Spain.

Interest-rate spreads between these countries’ bonds and those issued by Germany have widened this year, hitting record levels in Greece.

The tremors come as officials in rich countries struggle with pressures once associated with so-called emerging markets: investors demanding that governments slash spending at a time of falling tax collections, soaring debts and, in many cases, growing public unrest.

The worries in Greece, Spain and Portugal stem in part from the benefits the southern European nations derived earlier this decade from using Europe’s common currency, the euro.

Their ability to issue cheap debt, thanks to the euro’s association with Germany’s sound-money policies, allowed them to borrow more than they could afford and sparked a boom in consumer spending, Randolph said. This also helped the high-saving, export-oriented economies of Northern Europe, by creating a bigger market for their goods.

"In a sense, the euro worked too well," he said. "The benefits masked the fact that these countries were losing competitiveness in terms of labor costs, and now that gap can’t be avoided."

In response, Greece recently promised to sharply cut its budget deficit, from a current level of 12.9% to 3% by 2012. Spain, already facing 19% unemployment after the collapse of a massive housing bubble, says it will cut spending by $70 billion over several years.

But given the scale of the problems and the massive borrowing needs of nations around the globe, it’s little surprise that default fears have failed to go away.

"There’s nothing so far to show they’ve fixed anything," said Tim Backshall, chief strategist for Credit Derivatives Research. "What we’ve seen is a dramatic selloff as investors start to adjust to the lower expectations for the euro area."

While Backshall said he believes most of the selling in government bond markets has come from so-called real money investors who hold securities for the long term, the past week has brought an uptick of traders playing what’s known as sovereign risk.

"Many hedge funds have spotted an opportunity in government debt markets where public finances have been under great stress," Randolph wrote in a recent note to clients. This trade involves "shorting the weaker credits against the stronger, playing on market fears and heightened uncertainty, while making money in the ensuing volatility."

That said, he thinks uncertainty will have to get much greater before there is a real risk of default in Greece, let alone Portugal, Spain or fiscally challenged Ireland. (Those noting the debt worries refer to Portugal, Ireland, Greece and Spain as Europe’s PIGS, and to that group plus Italy as the PIIGS.) Randolph notes that during the 1980s, Ireland’s bonds traded at similar spreads to Greece’s now, without any default.

What’s more, any possible default would deal a blow to the credibility of the euro itself. Economists don’t expect the European Central Bank to stand idly by while a monetary union that took years to assemble disintegrates.

"I believe the EU cannot let either Greece or Spain default, any more than Canada would allow one of its provinces to default," said Maurice Levi, a professor at the University of British Columbia in Vancouver.

But then, few in February 2008 would have predicted the scale of devastation in the financial sector before governments finally stepped in. And even if sovereign defaults still look like a long shot, higher rates and stability worries alone can do their damage when economies are in a weakened state.

That point was driven home Thursday by a stock market selloff led by banks. Spanish banks BBVA (BBVA) and Santander (STD) each plunged more than 9%. Falling spending and higher unemployment can wreak havoc on bank balance sheets, further impeding growth.

"The fundamentals in a lot of these places look pretty ugly," said Backshall. "There’s a sense this probably isn’t the end of this trade." 

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