Finance Blog number 1

Stimulus may have created or saved 640,000 jobs so far, but many of those positions were never intended to last.

The American Recovery and Reinvestment Act was designed to put millions of people to work, mainly for "shovel-ready" projects. By their very nature, most of those projects last only until the work is completed or the funding runs out.

That means millions of workers hired with stimulus funding are left looking for a job after the stimulus-funded program is completed.

Of the nearly $500 billion in stimulus funds allocated to stimulus projects, $100 billion is set to go towards long-term programs, like health research and green energy projects, according Elizabeth Oxhorn, spokeswoman for the Obama administration Recovery Act. But the vast majority of that funding — the other $400 billion — will go to short-term contracts.

A prime example was the work needed by the Federal Communications Commission to help the nation transition to digital television last spring. Congress allowed the FCC to extend the deadline for the transition by five months to help some 3 million people make the switch.

An FCC spokeswoman said there were hundreds of thousands of consumers’ calls coming in as the original deadline approached, overwhelming their in-house call center. The agency decided to outsource its call center for the second go-around and awarded a stimulus-funded contract to TeleTech (TTEC), a call-center company based out of Englewood, Colo.

Over the course of the five-month contract, TeleTech hired and trained 4,231 people in call centers across nine states. More than 1.2 million consumer calls were handled by those workers in centers in Arizona, Alabama, California, Colorado, Florida, Kentucky, New York, Pennsylvania, and West Virginia.

TeleTech ramped up its hiring as the June deadline approached, so most of those 4,231 jobs lasted for just a month or less, said TeleTech spokesman Bob Livingstone. The company began winding down the call-centers after June, and when the contract ended in August, all of the jobs that TeleTech created were terminated.

Livingstone said all of the temporary employees who were hired for the DTV contract were eligible for rehire at TeleTech, and a small handful remain with the company after applying for work on other projects. Because the jobs were so spread out geographically, Livingstone said the company was unable to determine which current employees had actually worked on the DTV contract.

Though none of those stimulus-created jobs exist anymore, TeleTech reported that it had created 635 full-time jobs — a number it reached based on a government formula for reporting stimulus jobs creation. The formula calculates the economic impact of jobs saved or created based on hours worked at an annualized rate. A spokeswoman for the FCC confirmed that the number was reported correctly.

Stop-gap or big bet? The DTV stimulus jobs example underscores the difficulty in both reporting the number of jobs created and the ability to create long-lasting, high-impact jobs during an economic downturn.

Economists say that a majority of the jobs created by stimulus projects are likely to end the same way that the DTV call center positions did, lasting only as long as the funding.

"The bottom line is these are meant to be stop-gap measures," said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. "This is fairly typical in stimulus plans. It’s the same as it was in the 1930s: to put people back to work, the government looks at all of the stuff that was on its to-do list."

Roberts said the idea behind temporary, "shovel-ready" stimulus jobs, is to help the labor market ride out the storm: When the money runs out, hopefully the economy will have bounced back, and those temporary workers will be able to find full-time employment.

But others say the economy won’t be healthy enough to support job growth when stimulus funding runs out, and most businesses have indicated that they will not be hiring in the coming quarters.

"Unless they pass another stimulus bill, you’ll get an economic uptick, but not much job growth, and then another downturn," said Al Angrisani, head of hiring consultancy Angrisani Turnarounds and former assistant secretary of labor under President Reagan. "Hoping that jobs will be there when the money runs out is like betting on animal spirits. The businesses that they’re betting on are all deleveraging."

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Sales of existing U.S. homes probably climbed in September to the highest level in two years as buyers rushed to take advantage of a government tax credit before it runs out, economists said before a report today.

Purchases rose 4.9 percent to a 5.35 million annual rate, according to the median forecast of 76 economists surveyed by Bloomberg News. A gain would be the fifth in six months.

The $8,000 credit for first-time buyers, due to expire Nov. 30, probably pulled sales and construction forward, signaling housing may cool in coming months. While Congress is considering extending the incentive, factors such as lower prices and mortgage rates have also contributed to steadying a market that endured the worst slump since the Great Depression.

“Fears the tax credit will expire certainly would account for a certain amount of the run-up in the market,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Fundamentally, home sales have begun to pick up on their own outside of government help.”

The National Association of Realtors’ report is due at 10 a.m. in Washington. Bloomberg survey estimates ranged from 5 million to 5.6 million. Sales reached a 5.1 million pace in August, up from a 4.49 million pace in January that was the lowest level since comparable records began in 1999.

Combined sales of existing and new homes reached an almost two-year high in July as asset purchases by the Federal Reserve helped drive mortgage rates to all-time lows. Record foreclosures also caused prices to tumble, making houses more affordable for Americans.

Builder Shares

The Standard & Poor’s Homebuilder Supercomposite Index is up 29 percent so far this year, compared with a 21 percent gain for the broader S&P 500.

Purchases of previously owned homes, which make up more than 90 percent of the market, are tabulated when sales close and therefore reflect contracts signed a month or two earlier. Sales of newly built residences, which make up the rest, are counted when a contract is signed, and may therefore cool months before the tax credit expires.

The Commerce Department’s report on new-home purchases is due Oct. 28.

The Realtors’ group and the National Association of Home Builders are lobbying to extend the first-time homebuyers credit on concern demand will wane after it lapses. Lawmakers this week took up the call.

Need All ‘Tools’

“The work of stabilizing the housing market won’t be done” when the credit expires next month, Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said during a panel hearing. “We still need to use every tool at our disposal to fix this problem.”

Dodd and Republican Senator Johnny Isakson of Georgia, a former real estate agent, urged their colleagues to extend the credit through next June. They also proposed expanding it beyond first-time buyers to include all households up to an income cap of $300,000 for couples.

The Fed this week said its 12 district banks saw “stabilization or modest improvements” in many areas of the economy, led by housing and manufacturing. “Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle- priced houses,” the Fed said in its Beige Book of economic conditions in September and early October.

Housing-related companies are still trying to recover. USG Corp., North America’s largest maker of gypsum wallboard, posted its eighth straight net loss last quarter as sales dropped 32 percent from the same time last year.

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Australia’s economy grew last quarter at the weakest pace in eight years as household spending stalled, increasing pressure on the central bank to add to the biggest round of interest-rate cuts since a recession in 1991.

Gross domestic product rose just 0.1 percent from the second quarter, when it gained a revised 0.4 percent, the Bureau of Statistics said in Sydney today. The median estimate of 22 economists surveyed by Bloomberg was for a 0.2 percent gain. The economy grew 1.9 percent from a year earlier.

The threat of Australia’s first recession in 17 years has prompted central bank Governor Glenn Stevens to slash borrowing costs by three percentage points since early September. Consumers and businesses are reeling from a 44 percent slump in the benchmark Australian S&P/ASX 200 stock index and the biggest decline in home prices since 1978.

“A recession shouldn’t be discounted by policy makers or the general public,” said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney. “The outlook is more negative than positive.”

Exports and household spending neither added or subtracted to the change in GDP, while an increase in imports detracted 0.4 percentage point from growth in the quarter, today’s report said.

The Australian dollar traded at 64.28 U.S. cents at 12:35 p.m. in Sydney from 64.25 cents before the report was released. The two-year government bond yield was unchanged at 3.14 percent.

Interest Rates

Reserve Bank of Australia Governor Stevens cut borrowing costs to a six-year low of 4.25 percent yesterday and said monetary policy is now “expansionary.”

While Australia has been more resilient than “other advanced economies,” recent evidence indicates “a significant moderation in demand and activity has been occurring,” Stevens said.

Retail sales growth has slumped as turmoil on global financial markets deepens consumer pessimism. Sales have gained an average of 0.1 percent a month this year, according to government trend figures, down from 0.6 percent monthly growth last year.

Mark McInnes, chief executive officer of David Jones Ltd., Australia’s second-biggest department store chain, said last week the outlook for the rest of fiscal 2009 is worse than that experienced by the company in the last recession of 1990 to 1991.

‘Better Placed’

Waning domestic demand is being partially offset by exports of commodities including iron ore and coal that have stoked profits at companies including BHP Billiton Ltd free credit score. and pushed unemployment close to the lowest in more than three decades. The jobless rate was 4.3 percent in October.

“Today’s figures show we can’t completely resist the pull of international forces, but we are better placed” than other countries, Treasurer Wayne Swan told reporters in Canberra today. “This will be a long protracted global crisis.” the U.S., U.K., Europe and Japan have all slipped into recessions, he said.

Exports may slow in coming months as the global economic recession deepens. China’s central bank cut its key interest rate by the most in 11 years last week and the government said “forceful” measures were needed to arrest a faster-than- expected economic decline. China is Australia’s largest trading partner.

“The risk of weaker activity over the next 12 months is ever-present,” said Ben Dinte, an associate economist at Macquarie Group Ltd. in Sydney. “Business investment is clearly looking like slowing over coming quarters,” which will erode growth in 2009 and 2010.

Government Action

To buttress the economy, Prime Minister Kevin Rudd said last week he may allow the government’s budget to slip into deficit for the first time since 2002.

The government agreed with state leaders on Nov. 29 to spend A$15.1 billion ($9.7 billion), mainly on health and education, to generate 133,000 jobs. Rudd is also giving A$10.4 billion in cash grants to the elderly, first-home buyers and families, much of which will be paid this month.

Stevens and his board will probably cut the overnight cash rate target by the end of March to 3.5 percent, a rate last seen in the 1960s, according to Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney.

“While skirting dangerously close to a recession, there is considerable stimulus in the pipeline,” Ong added.

The chain price index, a measure of retail prices, climbed 8.8 percent in the third quarter from a year earlier, today’s report showed.

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Brown & Brown has acquired another insurance company.

In the wake of its recent acquisition of a Connecticut-based agency, the company has announced that one of its subsidiaries has acquired the assets of HBA Insurance Group Inc.

No financial details regarding the deal were disclosed in a release announcing the acquisition.

HBA is the result of a 1999 merger between the Head Beckham Agency and Amerinsurance, two South Florida firms. HBA has offices in Miami, Fort Lauderdale and Vero Beach. Its annualized revenue is approximately $18.6 million.

The company will continue operating out of its current locations as Brown & Brown profit centers but will retain the name "HBA Insurance Group."

Brown & Brown (NYSE: BRO), along with its subsidiaries, provides insurance and reinsurance products and services fast cash advance loan. The company serves business, public entity, individual, trade and professional association clients throughout the nation. It is based in Tampa and Daytona Beach.

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Mumbai: Public sector power producer National Thermal Power Corporation Ltd (NTPC) is raising Rs2,000 crore ($507 million) through a loan and a bond issuance to fund its capital expenditure.

NTPC has signed a loan agreement for Rs1,000 crore along with a bond subscription agreement for another Rs1,000 crore with state-run insurer, Life Insurance Corporation of India, according to a filing with the Bombay Stock Exchange (BSE).

NTPC said the proceeds of the loan and bond subscription with LIC would be used to finance capital expenditure of its power generation projects, coal mining business, renovation and modernisation activity as also the LNG business.

The door-to-door maturity of both the agreements is 11 years, the repayments to take place in 14 half-yearly instalments commencing after four years cash advance in one hour. The interest rate/coupon is linked to 10 year G-sec rate plus margin. The proceeds under these agreements are to be utilised before end-March 2008.

The coupon rate was at a margin above the yield on the 10-year government bond, NTPC said.

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