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The Federal Reserve has 50 new rules to write, the Federal Deposit Insurance Corp. has 44 new rules to write. The Securities and Exchange Commission has 100 rules and 20 studies on its plate. And Treasury has two new agencies and an oversight council to set up.
A panel of top U.S. financial regulators updated a Senate Banking panel Thursday on the progress their agencies have made attacking a long to-do list to enact new laws ushered in with Wall Street reforms, at a hearing on the Dodd-Frank Act.
"The Dodd-Frank Act is an important step forward for financial regulation in the United States, and it is essential that the act be carried out expeditiously and effectively," said Federal Reserve Chair Ben Bernanke at the hearing.
Bernanke explained that the Fed was ensuring that their rule-making is transparent and that they are posting on a website all correspondence on rules. He also talked about the Fed's advisory role helping the Treasury set up various panels and agencies -- for example, as the Fed hands over its consumer regulatory duties to the new consumer financial protection bureau.
"The Federal Reserve will work closely with our fellow regulators, the Congress, and the Administration to ensure that the law is implemented in a manner that best protects the stability of our financial system and strengthens the U.S. economy."
Deputy Treasury Secretary Neal Wolin explained that Treasury had created a bunch of different teams, each with a different task, ranging from setting up the new Financial Stability Oversight Council, a panel of regulators in charge of keeping an eye out for risk in the financial system, to launching the Consumer Financial Protection Bureau, which is charged with regulating financial products like mortgages and credit cards.
"Implementing the Dodd-Frank Act is a complex undertaking," Wolin said.
0:00 /4:03Risks of financial reform
Federal Deposit Insurance Corp. (FDIC) Chair Sheila Bair said that her agency is working on releasing a draft of new rules about the new liquidation process for large complex financial firms. The FDIC was expected to release those new rules earlier this week, but delayed the release for further review, the FDIC's board said Monday.
"We are well on our way to putting this badly needed Dodd-Frank Act into effect," Bair said.
The Securities and Exchange Commission is one of the few financial regulators that has gone beyond fact-finding and actually implemented a rule required by the Wall Street reform. The SEC's new rule allows shareholders who own 3% of company stock for at least three years to nominate candidates for director on the annual proxy ballot, which gets sent to shareholders for a vote.
That rule has also been challenged, in a lawsuit filed by the U.S. Chamber of Commerce and the Business Roundtable.
Gold prices surged to new record highs on Thursday, continuing a rally started earlier in the week.
Gold futures for December delivery rose $5.10 to close at a record high of $1,273.80 an ounce in New York. That topped the previous all-time high closing price of $1,271.70, which came on Tuesday. Earlier in the day, contracts were trading even higher, at $1,279.50 an ounce.
Typically seen as a safe haven, gold is the ultimate currency for many investors. It involves the lowest risk because it is a tangible asset, and shows the highest upward price potential during times of stock and currency volatility.
Uncertain financial markets, weak economic conditions and the stressful political conditions of the mid-term elections are the main causes for rising prices, said Carlos Sanchez, a precious metals analyst with CPM Group.
And today's record might just be the beginning, with no sign of any of these worries easing up. Sanchez said gold prices will likely keep rising through the first quarter of next year. "The next level is $1,300 -- possibly by the end of this month. And I would not be surprised if it heads up to $1,400 by the end of this year."
Additionally, with the flood of U.S. dollars in the market and serious concerns over European countries' ability to back up debt obligations -- not only investors, but countries such as China, Russia and Egypt are buying gold.
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Stocks ended higher Friday, finding momentum at the end of a very choppy session in which concerns about global growth vied with investor willingness to scoop up shares beaten down in the recent sell-off.
But selling earlier in the week left the major gauges lower for the week, with the Dow and S&P 500 both down around 4% and the Nasdaq off around 5%.
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The Dow Jones industrial average (INDU) rose 125 points or 1.3%, after having fallen as much as 150 points earlier in the session.
The S&P 500 index (SPX) gained 16 points or 1.5% and the Nasdaq (COMP) composite gained 25 points or 1.1% after having been on both sides of breakeven throughout the session.
The CBOE Volatility index, the VIX (VIX), Wall Street's fear gauge, fell 12% to 39.88 as investor anxiety lessened. However, the VIX had fallen more substantially in the early afternoon. On Thursday, the VIX spiked to a 14-month high of 45.48.
Stocks were volatile through the session as worries about the European economy and the weak euro were countered by some buying interest now that the market is more than 10% off 2010 highs. A decline of more than 10% on a closing basis is technically considered to be a correction.
Since peaking at roughly 18-month highs in late April, the Dow had lost 10.2% and the S&P 500 had lost 12%. The Nasdaq was at a 22-month high at its peak and is down 12.9% as of Thursday's close.
Thursday's session intensified the recent wave of selling, with the three major gauges losing between 3.6% and 4.1%, making for the worst day on Wall Street since February 2009 at the height of the financial crisis. The sell-off also pushed the S&P 500 below the 200-day moving average, a key technical level traders watch.
Stocks fell again in the morning Friday, dropping below the lows from the early-May "flash crash" -- in which erroneous computer trading sent the Dow down by almost 1,000 points, before it recovered near the close.
Hitting those lows again Friday seemed to bring in some new buyers, with market pros using those earlier lows as a good point to tiptoe back into the market. But the advance Friday was never especially robust, with stocks seesawing through the session.
"We went to the flash crash intraday lows and bounced back, which is good, but I think the mindset has changed and people are going to be selling into rallies," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
He said that the S&P 500 needs to close above the 200-day moving average within the next few sessions -- otherwise that level, around 1102, or 3% above Thursday's close, is going to become hard for the market to surpass.
What's moving: Big bank stocks sustained gains through the afternoon, with Dow components JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and American Express (AXP, Fortune 500) all rising.
A broad financial sector rally propelled the KBW Bank (BKX) sector index by 4%. Passage of the long-in-the-works Wall Street reform bill may have sparked the buying, as it removed an uncertainty hanging over the sector.
But gains on the day were broad based, with 28 of 30 Dow components ending higher. In addition to the financial shares, gainers included Boeing (BA, Fortune 500), Caterpillar (CAT, Fortune 500), Chevron (CVX, Fortune 500), IBM (IBM, Fortune 500), 3M (MMM, Fortune 500) and Exxon Mobil (XOM, Fortune 500).
In company news, Google (GOOG, Fortune 500) got the regulatory OK for its $750 million purchase of mobile advertising firm AdMob, following a six-month antitrust investigation. The Federal Trade Commission approved the deal since rival Apple (AAPL, Fortune 500) recently purchased a mobile advertising service, Quattro Wireless.
Market breadth was positive. On the New York Stock Exchange, winners beat losers three to one on volume of 2.3 billion shares. On the Nasdaq, advancers topped decliners by two to one on volume of 3.36 billion shares.
What's in the Wall Street bill?
Wall Street reform: On Thursday night, the Senate passed a far-reaching Wall Street reform bill that is part of legislation that aims to prevent another financial crisis.
The nearly 1,600-page bill establishes a new consumer regulatory agency, sheds light on complex financial products and provides a new way for the government to deal with so-called too big to fail financial firms.
The bill has to be reconciled with a similar measure the House of Representatives passed in December before it can be sent to President Obama to sign.
Company news: Dell (DELL, Fortune 500) reported higher quarterly earnings and revenue that topped expectations, after the close of trading Thursday. Strong business spending fueled the sales gain. However, the company's gross margins, a key measure of profitability, were lower than what many analysts were expecting. Dell shares fell 6.8% Friday.
Job market: More than half of all states saw lower unemployment rates last month, according to state-by-state figures released Friday morning.
Euro/dollar: The euro gained 0.7% versus the dollar, rising for the third day in a row, although investors don't seem to be taking any comfort from the modest recovery in the European currency. The euro has seesawed over the last few days after plunging to a four-year low of $1.2234 on Monday.
The dollar rose 0.4% versus the yen.
World markets: Markets in Europe cut bigger losses to close with modest declines. The British FTSE 100 fell 0.2%, the German DAX lost 0.7% and the French CAC 40 ended barely lower.
Asian markets were mixed. The Japanese Nikkei fell 2.5%, but China's Shanghai Composite turned higher, gaining 1%. Hong Kong markets were closed.
Commodities: U.S. light crude oil for July delivery fell 76 cents to settle at $70.04 a barrel on the New York Mercantile Exchange.
COMEX gold for June delivery fell $12.50 to settle at $1,176.10 an ounce.
Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.20% from 3.26% late Thursday. Treasury prices and yields move in opposite directions.
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Retail sales posted the eighth straight monthly gain in April, but increases were weak after March's data posted the biggest jump on record.
Sales tracker Thomson Reuters, which looks at monthly same-store sales for 28 chains, said Thursday that April sales increased 0.5% over last year. Thomson had expected a 1.7% increase.
Of the 28 retailers, 69% missed Thomson's expectations; 27% beat; and 4% matched.
Same-store sales, or sales at stores open at least a year, are a key indicator of retailers' performance. The data are also important to the overall recovery, since consumer spending fuels two-thirds of the economy.
The weakness in April data was in sharp contrast to the previous month. March's report showed sales increased 9.1% over last year, the biggest monthly gain since Thomson began keeping records in 2000.
0:00 /2:26Time-lapse: A day at a Walmart store
The March data got a boost from unusually warm weather, Easter shopping and improved consumer confidence, Thomson said in its report. The calendar shifted the Easter holiday to March this year.
"For year-over-year comp[arisons], it's essential to average the results of [March and April] to get a smoother representation of how the Easter months fared," the Thomson report said, noting the two-month average is a "robust" 4.8% gain.
Teen apparel stores posted the biggest misses in April. That included alternative clothing store Hot Topic (HOTT), which reported sales were down 12.5%, while Thomson expected only a 7.9% drop. The Buckle (BKE) posted a 5.7% decline, while expectations were for a 1.7% jump.
Membership warehouse club Costco (COST, Fortune 500) was among the bright spots, with an 11% gain, but it missed estimates for an increase of 11.2%.
The number of Americans filing initial claims for unemployment insurance fell for the third straight week, according to weekly government data released Thursday.
There were 444,000 initial jobless claims filed in the week ended May 1, down 7,000 from a revised 451,000 the previous week, according to the Labor Department's weekly report.
Economists surveyed by Briefing.com had expected new claims to fall to 440,000 in the latest week. The number of new claims was the lowest since the 442,000 reported in the week ended March 27.
The Labor Department also tracks the four-week moving average of initial claims, which smoothes out volatility in the measure. That number was 458,500 for the week, down 4,750 from the previous week's revised average of 463,250.
"Things are lining up for recovery, but it's slower in its evolution than we expected," said Carl Riccadonna, U.S. economist for Deutsche Bank in New York.
A lack of economic confidence could be keeping hiring managers on the sidelines, according to Riccadonna. Jobless claims at or below 400,000 could help to boost morale.
"It's not helped when you look on TV and see developments in Europe and people worried about the impact of trans-Atlantic contagion," he said.
The number of people filing continuing claims totaled 4,594,000 in the week ended April 24, the most recent data available. That figure was down 59,000 from the preceding week's revised 4,653,000 claims, and slightly below the 4,600,000 economists expected, according to Briefing.com. Continuing claims were down for the fifth straight week.
The four-week moving average for continuing claims totaled 4,649,000, up 8,000 from the preceding week's revised average of 4,641,000.
Continuing claims data exclude people whose benefits expired or those who have moved to state or federal extensions. It reflects those filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks.
In April, lawmakers in the House and Senate approved an extension of unemployment insurance until June 2. The move followed a number of tax breaks andother measures designed to spur job growth and help push the current 9.7% unemployment rate lower.
0:00 /4:50Don't ask for a state job
Although many economists say the measures are slowly working, states are still feeling the pinch and jobless claims would have to fall further, faster, before the national unemployment rate ticks lower.
There has been increasing debate over whether the decline in continuing claims is due to real job creation or people exhausting their benefits. Riccadonna says there's no easy way to tell, but that "if the pace of job creation continues to accelerate, we can be increasingly confident that the drop in continuing claims is people finding jobs and not just rolling off the books."
Jobless claims fell the most in Florida, with a dip of 2,766 in the week ended April 24, primarily due to fewer layoffs in the construction, service, and manufacturing industries.
North Carolina and New York also saw dips in the 2,600 range. California, Massachusetts and Oregon topped the list of states with the largest increases in initial claims.
Job reports paint a brighter picture
The report follows a spate of upbeat economic data in recent weeks. But that has been overshadowed by fears that Greece's debt crisis could spread throughout Europe.
Riccadonna said that he is not overly concerned about the impact on the United States in the short term, beyond some "exchange rate effect." However, a significant decline in the euro to $1.15 could hurt the competitiveness of U.S. exports, which he says has been a key driver in the recovery so far.
Three separate reports on Wednesday pointed to strong signs of jobs growth when the Bureau of Labor Statistics releases its official read of the unemployment situation on Friday. Economists surveyed by Briefing.com forecast that the U.S. added 187,000 jobs in April, compared to a gain of 162,000 in the prior month.
Still, total hiring would need to be 200,000 or more a month to push the rate down significantly, he said. Given recent economic data, he thinks the "big one" could come as early as May.
Although the nation is expected to have added jobs last month, many economists forecast the unemployment rate, also due Friday, to remain unchanged at 9.7%. Riccadonna is a bit more optimistic, forecasting a slight tick down to 9.6%.
"Really substantial gains in excess of 300,000 should be sufficiently jarring enough to wake up hiring managers and also the financial markets," said Riccadonna. "We're turning the corner. The question is how fast?"
House lawmakers on Thursday approved a $6 billion measure that aims to provide rebates to homeowners who invest in energy efficiency improvements -- but not without a fight from Republicans.
The bill, officially known as the Home Star Energy Retrofit Act but better known as "cash for caulkers," has been touted by President Obama since December as one of the signature pieces of his administration's larger job-creation strategy.
The act "is a common-sense bill that will create jobs, save consumers money, and strengthen our economy," President Obama said after the House passed the measure. "We have workers eager to do new installations and renovations, and factories ready to produce new energy-efficient building supplies."
House Speaker Nancy Pelosi, D-Calif., estimates that the legislation will create nearly 168,000 jobs in construction, manufacturing, and retail.
The House vote of 246-161 went through with support from the Democrats and overwhelming rejection from the Republicans. The vote simply authorizes the creation of the program; it does not appropriate the funds needed to run it.
The Senate is expected to take up the legislation this summer and determine how to pay for the program, which is likely to be controversial.
How will homeowners cash in?
The bill would fund rebates of as much as 50%, up to $3,000, for energy-saving efforts such as insulation improvements and the replacement of windows, doors, heating and cooling systems. The installations will have to be completed by qualified contractors.
Homeowners that choose to make improvements on their own will receive rebates of up to 50%, to a maximum of $250, on air sealing and insulation products.
The bill also includes reimbursements for those who conduct comprehensive energy audits and reduce their home's total consumption. Homeowners who trim their energy usage by at least 20% can receive up to $8,000 in rebates.
Pelosi said that the bill will cut energy bills by up to $500 a year for some 3 million families.
The bill will also distribute $600 million to states for grants to help mobile homeowners replace pre-1976 models with energy-efficient ones.
Political wrangling
Through a motion to recommit, a political maneuver used by lawmakers to send a bill back to the committee that drafted it, House Republicans added their own conditions to the legislation.
They incorporated language that forbids the program's financing from expanding the federal deficit and bars the bill's funds from being allocated to contractors who have sex offenders as employees.
The Republican stipulations also disqualify from the program homeowners with an annual income of more than $250,000 from the program and require that the rebates be sent directly to homeowners instead of being provided through stores, contractors or other parties.
House Energy and Commerce committee Chairman Henry Waxman, D-Calif., accepted the changes so that the bill can move forward for a vote in the Senate.
Pelosi called the Republican changes a "poison pill" and said House members would "work with the Senate to fix this flawed language."
Between the new Medicare tax on investment income and a rise in capital gains and dividend taxes, investors will face higher costs. But the overall effect on stock returns is not as cut and dry.
"It's hard to quantify the impact when stimulus, global expansion and so many other factors also drive growth," said Kelli Hill, portfolio manager at Ashfield Capital Partners.
By 2013, investment taxes for the wealthiest Americans will rise to roughly 24% from the current level of 15% -- the highest level since the Reagan era. The tax applies to roughly 1 million individuals who earn over $200,000 and 4 million couples who rake in more than $250,000.
While this group makes up just 2% of the population, it's a far bigger driver of market activity than the other 98%. In addition, the higher rates aren't tied to inflation, meaning middle-class Americans will eventually price into the group.
On the plus side, the tax hikes are spread out over several years and are just one of many factors that influence stock values, suggesting the impact on the broad market will be moderate.
In fact, markets have been known to thrive in a higher investment tax rate environment. From 1986 until 1997, when the top capital gains tax rate was at 28%, the Dow gained in all but one year, with average returns of 15%.
But this time around, the psychological impact may play a bigger role. With the U.S. economy still reeling in the aftermath of the worst recession since the 1930s, investors have more reason to show caution in the near term.
"You'll probably see more of a sideways pattern in the stock market over the next few years, but it's a little muddy as to how the higher taxes might factor in," said Linda Duessel, equity market strategist at Federated Investors.
Bracing for the tax hikes
With some of the 2003 tax cuts expiring at the end of this year, wealthy Americans will likely see a boost in long-term capital gains taxes to 20% from 15%. Starting in 2013, they'll also pay additional Medicare taxes - an extra 0.9% of their wage income and an extra 3.8% on investment income.
Duessel said that the government was giving investors time to first absorb the end of the Bush tax cuts before the Medicare tax kicks in, which should ease the blow. Additionally, tax policy could change after the mid-term elections.
The taxes would hit those whose gross income, which comprises earnings plus investments, tops $200,000 for individuals and $250,000 for couples. Investment income, also known as unearned income, refers to capital gains, dividends, interest, annuities and rent, among other things.
"Anytime you raise taxes, you provide some incentive to sell the underlying stocks, but I don't think these will have a big impact," said Douglas Elliott, fellow at the Brookings Institute and a former investment banker at JPMorgan Chase.
He said that's partly because the tax impacts all types of investments, including both stocks and bonds, so it doesn't make one more advantageous over the other from a tax perspective.
0:00 /3:09Better alternatives to 401(k)
"I think there will be some psychological impact, just like there was when capital gains tax rates came down (in 2003), but that was a short-term impact," Elliott said. "Longer term, stock returns are still driven by fundamentals."
In 2003, investors shifted assets into big caps and high dividend paying stocks after President Bush lowered the capital gains taxes.
Following that logic, Duessel said higher taxes should theoretically hurt the higher dividend paying stocks because high-income investors tend to bail out of those areas and move into tax-free areas like municipal bonds when capital gains taxes go up. Dividends have historically accounted for nearly 40% of investors' total returns.
However, the pressure on dividend-paying blue chips could be contained this time since those stocks haven't kept up with the pace of the rally that boosted the S&P 500 73% off 12-year lows hit in March of 2009.
Frontier Communications (FTR) pays one of the largest dividends in the S&P 500 index, yielding 13.4%. Its stock price is up 38% from the March 2009 lows. Dow component AT&T (T, Fortune 500) is another of the S&P 500's biggest dividend payers, with a yield of 6.5%. But the stock price has risen just 18% off the March lows.
While tax-free municipal bonds may offer more competitive yields than cash or Treasurys, they also provide greater risks that come with lending to hard-hit city and state agencies.
Tax hikes crimp savings
Some analysts are more concerned about the impact of higher taxes on savings and corporate profits.
For many investors, the rally over the last 12 months only served to cut or erase the losses they racked up in 2008's bloodletting. Having only just recovered some or all of their holdings, investors may see the threat of higher taxes as a catalyst to bail, said Ken Grant, partner at Waterstone Private Wealth Management.
"If you're thinking of selling and you know you're going to see a tax of 20% in 2011 and 15% in 2010, you're going to sell ahead of the higher rate that's coming," Grant said.
Tussle over health care law impact on companies
But for investors with a longer-term focus, ditching stock holdings for tax reasons doesn't make a lot of sense when bonds, cash and cash equivalents offer little in the way of competitive yields, he said.
The higher tax rates are more likely to impact individual stocks, as investors demand higher price-to-earnings valuations now that their after-tax rate of return will be lower. This could put pressure on companies that are already expecting to take charges related to other requirements of the new law.
But the higher taxes are not likely to change market participants' broad investing habits or dramatically impact the way they value companies, said Ashfield Capital's Hill. "From a long-term perspective, it slows investment growth, but it doesn't cut overall investing."
The United States isn't in jeopardy of losing its gold-plated credit rating, though by one measure America is closer to the ratings-downgrade danger zone than Spain.
That's according to credit rating agency Moody's. In a quarterly report about sovereign debt, Moody's analysts wrote that despite market worries about rising government debt levels, there is "no imminent rating pressure" for the United States and other big governments carrying its highest triple-A rating.
But the report added that these governments' margin for error "has in all cases substantially diminished," thanks to a weak outlook for economic growth and enormous debt loads taken on to quell the financial meltdown of 2008-2009.
Cutting back on public spending too soon risks a double-dip recession, Moody's said, while leaving stimulus measures in place too long could lead to a sharp rise in interest rates "with more abrupt rating consequences a possibility."
What's more, governments that wish to avoid credit downgrades may need to implement harsh and potentially unpopular policies. The Moody's analysts, led by London-based managing director Pierre Cailleteau, wrote that "preserving debt affordability ... will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion."
Nor can big developed countries expect to export their way to health on the back of booms in emerging markets such as India and China. "Demand from the emerging world undoubtedly provides some support, but cannot on its own compensate for weak domestic demand," Moody's said.
In the case of the United States, interest payments on general government debt -- combining the federal government with the states -- could rise above 10% of revenue by 2013, according to the report.
That's the level at which the rating agency typically considers a downgrade. Moody's said debt affordability is the key factor to consider in ratings decisions, because debt costs are apt to constrain policymakers.
0:00 /4:17Greece's debt crisis
The report notes that U.S. debt service costs could rise from around 7% in 2009 to 11% in 2013 under Moody's baseline scenario, which calls for a muted economic recovery and a moderate interest-rate shock.
In this forecast, Moody's analysts expect the yield on the five-year Treasury to be above 4% by 2012, a level it hasn't reached since the end of 2007. It was around 2.4% Monday.
U.S. debt service costs are higher in 2013 under the Moody's assumptions than in any of the other major triple-A-rated governments -- the United Kingdom, Germany, France and Spain.
Moody's cautioned that debt service costs alone don't drive the decision, and noted the key role of politics in driving longer-term fiscal policies. The analysts said it would only downgrade a triple-A government's debt if analysts "concluded that the government was unable and/or unwilling to quickly reverse the deterioration it has incurred."
Accordingly, Spain continues to carry Moody's highest rating in spite of its inclusion in a Wall Street epithet for fiscally challenged countries around Europe's periphery, the PIIGS (Portugal, Italy, Ireland, Greece, Spain). Spanish government finances have been hammered by the collapse of a major housing bubble and unemployment is near 20%.
The rating agency acknowledged that "Spain's debt affordability has already deteriorated significantly and is expected to deteriorate further," to a level near the point at which Moody's might consider a downgrade to double-A.
But it said Spanish deficit-reduction plans are "already reasonably well formulated" and the ratings firm doesn't expect to downgrade Spain's debt.
States are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call.
Federal aid to the states was among the top priorities in an early Senate job creation bill, as well as in a $154 billion measure passed by the House in December. But it has fallen off the list as Senate Democrats look to craft legislation that will attract bipartisan support.
Senate Majority Leader Harry Reid, D-Nev., on Thursday unveiled a jobs bill that does not contain state aid. A Senate Democratic aide said Reid hopes to back a state aid measure in the future. Republican support, however, remains questionable.
Experts and state officials say they need to know now whether they'll get more funds. Governors are currently crafting their budgets and, for many, it will be their third year of contending with massive deficits due to declining tax revenues.
Big budget gaps
States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them begins July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody's Economy.com.
"State and local government spending is a very important driver of the national economy, especially when the private sector is faltering," said Jon Shure, deputy director of the Center on Budget and Policy Priorities' State Fiscal Project.
To close this gap, governors and lawmakers will be forced to lay off state employees, cut services and postpone capital projects, said Michael Bird, federal affairs counsel for the National Conference of State Legislators.
0:00 /4:30Ohio town rests hope on stimulus
The cutbacks will all work against an economic recovery.
Already, states laid off 44,000 workers in the 12 months ending in January, according to federal labor statistics.
In California, for instance, Gov. Arnold Schwarzenegger is proposing deep cuts to health care, education, the state workforce and social services programs. The governor is looking to Washington D.C. for $6.9 billion for its fiscal 2011 budget, on top of the $6 billion in stimulus funds it is using.
"We believe that providing funds to states will provide the flexibility critical to jumpstart our economy and create jobs," said Eric Alborg, communications director of the California Recovery Task Force.
Massachusetts, meanwhile, is counting on $600 million in federal Medicaid funds that have yet to be approved by the Senate. The state needs the money to close a $3 billion budget gap for fiscal 2011, which comes on top of the $9 billion deficit it has closed over the past two years.
Without that money, "everything has to be on the table," said Cyndi Roy, budget spokeswoman for Gov. Deval Patrick.
Mixed support on Capitol Hill
While many Democratic lawmakers on Capitol Hill back another federal bailout of the states, Republicans have said they don't think it's the best way to create jobs.
A recent Congressional Budget Office report showed that sending money to the states for needs other than infrastructure does spur hiring, but not as much as increasing aid to the unemployed or cutting employers' payroll taxes.
Still, CBO Director Douglas Elmendorf said in testimony Friday that providing aid promptly would probably have a significant effect on employment and economic output.
"Without further aid from the federal government, many states would have to raise taxes or cut spending by more than they would if aid was provided," Elmendorf said. "Such actions would dampen spending by those government and by households in those states, and more state and private jobs would be lost."
Not only would state workers be impacted, but government contractors and suppliers would be too, Shure said. If the states curtain their spending, the companies that do business with them will likely downsize too.
Though the most recent version of the Senate jobs bill does not contain state aid, House Speaker Nancy Pelosi, D-Calif., on Friday urged her peers on Capitol Hill to take up the issue.
"We will work to ensure that critical pieces of the House-passed Jobs for Main Street Act are enacted into law -- including investments in our roads, bridges, and public transit systems, support for job training initiatives, and funding to keep police and firefighters on the streets and teachers in the classroom," Pelosi said.
When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.
Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."
Obama will travel Friday to Baltimore, where the local unemployment rate is nearly 11%, to unveil his tax-cut road map. The $5,000 per-worker tax credit he's calling for would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.
Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.
The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.
While any business would be eligible for the tax breaks, the refund would be capped at a total of $500,000 per firm, a move the White House hopes will steer the biggest benefits to the smallest companies. Firms eager for cash could claim the credits on a quarterly basis, sparing them the wait before they file their annual taxes.
Hiring tax credits have been proposed before, and shot down in part because of their vulnerability to abuse. Senior White House officials say Obama's plan includes a slew of safeguards to prevent companies from gaming the system.
For example, companies would have to show net increases in their staffing and payroll to qualify. Businesses that cut 20 workers and hire five wouldn't be eligible, nor would those that lay off a $50,000 worker and hire two $20,000 staffers.
Main Street's cash crunch: Several in Congress are already on board with the idea of tax credits for hiring. Senators Charles Schumer, D-N.Y., and Orrin Hatch, R-Utah, unveiled their plan, which has some similarities to Obama's, in an op-ed on Wednesday.
But some business owners say the idea puts the cart before the horse.
"I need money before I hire people, not after I hire them," said Jimmie Hughes, the owner of Grand America in Richardson, Texas. Hughes' 15-person company sells supplies for a range of businesses, including funeral homes and police departments.
The company's sales are growing, and Hughes would like to hire more people. But while his receivables ledger is at a record high, his cash flow is suffering. Hit by the recession, his customers are taking longer than ever to pay their bills. Hughes, who started the company at home as a sole proprietor in 2003, has maxed out half a dozen credit cards trying to keep pace with the growth.
"It all comes down to cash -- how much cash do I have to apply to what I owe my vendors?" Hughes said. His staffing decisions will be based on "my cash-flow situation, not a tax credit."
Jeff Moss, the owner of Pancho's Border Grill in Great Neck on Long Island, N.Y., had a similar reaction.
"In my line of work, the restaurant business, jobs are going to be created or deleted as a direct result of customer traffic," Moss said. "It is not like we are a Fortune 500 company, where we are going to be adding hundreds of jobs and those credits are going to be adding up. We are a small business. If we are adding one employee, the effect on the bottom line is going to be negligible."
What Moss really needs is for the economy to pick up so his customers will increase their discretionary spending. Two weeks ago, he shut down his second restaurant in another, less affluent area of Long Island.
"When the economy tanked, traffic dropped," Moss said. "That was 30 people who lost their jobs, and that was a bitter pill to swallow."
Asian stocks kicked off the week with losses Monday as investors reacted to a selloff on Wall Street, but major stocks in Europe managed slight gains.
U.S. markets are closed Monday for Martin Luther King Jr. day.
On Friday, the blue-chip Dow Jones industrial average tumbled 100 points, or 1%, as investors remained wary about corporate earnings.
Global markets: Most stocks in Asia tracked Wall Street's losses. Japan's Nikkei lost 1.2% and the Hang Seng in Hong Kong finished the session down 0.9%.
In Europe, major indexes managed slight gains. In morning trading, the FTSE 100 in the UK was up about 0.7%. France's CAC 40 and the DAX in Germany both added about 0.5%.
Oil and dollar: Oil prices edged higher. U.S. crude for February delivery rose 20 cents to $78.20 a barrel in electronic trading.
The dollar was up just a shade against the euro and flat versus the yen.
Earnings: Friday capped a volatile week for Wall Street. Despite what were overall positive results from JPMorgan (JPM, Fortune 500) and Intel (INTC, Fortune 500), investors opted to sell shares.
Investors are likely to remain on edge as they await a slew of results this week.
Overall, 57 companies in the S&P 500 are on tap to report their quarterly results this week.
Several major financial names, including Bank of America (BAC, Fortune 500), Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), are among the firms due to release their results. To top of page
Stocks were little changed early Monday as investors mulled a report showing a jump in Chinese exports, a weaker dollar and a rise in commodities.
The Dow Jones industrial average (INDU) added a few points in the early going. The S&P 500 index (SPX) gained 2 points, or 0.2%. The Nasdaq composite (COMP) was little changed.
Philip Isherwood, equities strategist at Evolution Securities in London, said traders were ignoring last week's negative payroll report and were reacting, in part, to positive data from China about the strength of its import-export economy. Also, investors have positive expectations about the fourth-quarter corporate reports, which begin later Monday with Alcoa.
"You'd expect to have a reasonable number out of them," he said, in reference to the corporate reports. "You'd obviously want to have a bit more revenue than cost cutting in that mix."
Stocks gained slightly Friday, propelled by a tech rally, as investors shrugged off a surprisingly weak jobs report amid other recent signs that the economy appears to be stabilizing.
0:00 /2:45U.S. Autos seek smoother ride in 2010
Companies: Investors will be waiting for Alcoa (AA, Fortune 500), the first of the Dow components to report fourth-quarter figures, after the market close. Analysts surveyed by Thomson Reuters expect the aluminum maker to report a profit of 6 cents a shares, compared to a loss of 28 cents a share in the final quarter of 2008.
Later this week, Intel (INTC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) post quarterly figures.
Earnings of S&P 500 companies are expected to have jumped 213% in the fourth quarter of 2009, thanks to easy comparisons to the year-earlier period, the worst quarter in the history of earnings tracker Thomson Reuters.
World markets: Asian markets ended higher and European markets gained at midday.
Commodities and the dollar: The dollar tumbled versus the euro and the yen.
Dollar-traded gold inched higher. COMEX gold for February delivery rose $15 to $1,154.90 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.
U.S. light crude oil for February delivery rose 50 cents to $83.25 a barrel on the New York Mercantile Exchange.
Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.80% from 3.83% late Friday. Treasury prices and yields move in opposite directions.
he number of Americans filing first-time claims for unemployment insurance fell sharply last week to the lowest level in 17 months, the government said Thursday. Analysts had expected an increase.
There were 432,000 initial jobless claims filed in the week ended Dec. 26, down 22,000 from the previous week's revised 454,000, the Labor Department said. The figure is the lowest since July 19, 2008, when there were 413,000 claims filed.
A consensus estimate of economists surveyed by Briefing.com expected claims to jump to 460,000.
The 4-week moving average of initial claims totaled 460,250, down 5,500 from the previous week's revised average of 465,750.
"It's encouraging to see that we're continuing to move in the right direction toward 400,000 claims," said Tim Quinlan, economic analyst at Wells Fargo. "We're certainly off the highs we saw earlier this year.
Jobless claims have been trending downward since the end of March, when they peaked at 674,000, the highest figure since 1982.
Continuing claims: The government said 4,981,000 people filed continuing claims in the week ended Dec. 19, the most recent data available. That's 57,000 down from the preceding week's revised 5,038,000 claims.
The 4-week moving average for ongoing claims fell by 122,250 to 5,101,250 from the previous week's revised 5,223,250.
But the slide may signal that more filers are dropping off those rolls into extended benefits.
Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, or people whose benefits have expired.
Congress passed legislation last month to extend federally paid benefits up to 99 weeks, depending on the state, but the law only helps those who exhaust their federal unemployment lifelines by the year's end.
Lawmakers in the House and the Senate recently passed measures to extend the filing deadline through the end of February. The President is expected to sign the legislation soon.
Both chambers initially introduced bills to push the deadline to apply for benefits through 2010 or beyond, but Democratic leaders in the House scaled back the effort in hopes of getting the bill through the Senate more quickly.
State-by-state: Jobless claims in 10 states declined by more than 1,000 for the week ended Dec. 19, the most recent data available. Claims in Tennessee dropped the most, by 2,972.
A total of 12 states said claims increased by more than 1,000. Claims in New York jumped the most by 1,155. A state-supplied comment attributed the increase to layoffs in the construction, service and real estate industries.
Outlook: The employment picture will continue to improve as jobless claims continue to fall, but Quinlan said they will need to drop near 350,000 for positive job growth.
He expects nonfram payrolls to return to positive territory by the second quarter of 2010, and for the unemployment rate to fall by the end of the year.
Is that really the name Steve Jobs has chosen for his next computing device?
MacRumors Arnold Kim and TechCrunch's Robin Wauters did some serious detective work over the Christmas holiday.
Working independently, they have made a strong — but not definitive — case that Apple (AAPL) is preparing to name its long-awaited tablet computer the "iSlate."
The evidence, should you care to follow its twists and turns, is here, here and here.
All this really means is that if Steve Jobs decides he likes the name iSlate, it's his to use. It doesn't necessarily mean he's ruled out iPad, iTab, iTablet, iPod tablet, iBook, MacBook touch, or any of the other suggestions put forward over the past year or so.
Why does anybody care? Because, as TechCrunch's MG Siegler suggested Friday in The Wonder of Apple's Tablet, what Jobs is performing is a high-wire act that you can't help watching, especially if you think he might fall. As Siegler puts it:
"Apple commands attention in the consumer space because more often than not, they nail it. Going deeper, Apple is not afraid to step outside of the traditional comfort zones to try to create a new product — even if others have failed there before, as is the case with tablets. While this stirs skepticism in some, in many more people, it creates a sense of wonder. What if Apple can do it right this time? It’s exciting partially because it’s no sure thing. It’s exciting because the payoff is potentially huge. By this time next year, we may have a whole new genre of computing. It’s an undiscovered country."
As Chrysler and General Motors get ready to sit down and talk with owners of some of the nearly 2,000 dealerships given death sentences, dealers are rolling up their sleeves and preparing to fight for their businesses' lives.
"I was very proud -- very proud -- of what I sold and what I did for a living," said Andrew Reixinger, the owner of Barry's Auto Center in Brockport, N.Y., which sold Chrysler, Dodge and Jeep vehicles. "I would love to have my franchise back."
Reixinger lives his brand. He took the 30-year-old business over from his father, who spent decades selling Chrysler cars to residents of his rural town. The whole Reixinger family drives Dodge Ram pickup trucks, and Andrew's red 2007 model features a giant handpainted Ram's head logo. But in May, Reixinger was one of 789 dealers given termination notices. He had less than a month to wind down the business.
Without a valid dealer license, Reixinger wasn't allowed to sell his cars to customers any more. He had to unload his vehicles to other dealers, barely breaking even on the transaction. His inventory of parts went for pennies on the dollar. The Chrysler Financial credit line that financed his business vanished.
"Going from having a large floor plan line of credit to nothing changes the game," he said. Reixinger is financing his entire inventory with his own money: "Right now, I have 47 cars and I own them all."
Credit lines dry up for auto dealers
Barry's Auto Center is still open for business, but for now, it deals exclusively in used cars. None of the seven banks Reixinger has approached for a loan are willing to work with the dealership -- even though he has solid credit and a fully paid off commercial property to put up as collateral. His staff of 12 employees has dropped to 10.
Customers comment on the Ram that still festoons his truck. "People ask me, 'Aren't you going to get rid of it, since what they did to you?'" he said. "I chose not to because I love the truck."
That's why he plans to appeal. "If I could be a franchise dealer again, great," he said. "What they did to us was beyond wrong, but what are you going to do? I like the product."
Political pressures mount
GM and Chrysler's decision to introduce an appeal process came after months of intensifying backlash. Each company collected billions of taxpayer dollars through bailouts, and dealers are irate at the prospect of government-backed companies turning around and dropping a guillotine on small, locally owned businesses. Their lobbying prompted Congress to intervene.
"Profitable dealerships that were closed for possibly unfair reasons deserve the opportunity to hear why they were closed and discuss the merits of reopening with an independent arbitrator who can make a binding decision," said House Majority Leader Steny Hoyer, D-Md.
The appeal process GM and Chrysler initially mapped out this month pleased no one. "Under their plans, a car dealer would have had a better change at winning the Powerball lottery than getting back in business," the Committee to Restore Dealers Rights fired back in a statement.
The House of Representatives weighed in Thursday by passing a bill that places additional demands on the arbitration process the auto companies plan to use to field appeals. The Senate will soon take up the legislation.
Both GM and Chrysler say they need to shed dealerships to increase their profitability. The almost 800 dealers Chrysler cut represented 25% of the company's dealership network but accounted for only 14% of its sales, according to the company. Having underperforming or ill-maintained dealerships around tarnishes the brand, the auto makers contend.
Behind-the-scenes negotiations have already saved some dealerships from the scrap heap. GM warned at least 1,100 of its 6,000 dealers that their contracts would not be renewed in October 2010. Complaints and pleadings flooded in, and GM took some to heart. So far, 80 dealerships have been reinstated, a company spokesman confirmed.
Fighting for survival
The GM dealers on death watch were given a year to wind down their operations, but Chrysler's dealers suffered a particularly brutal and sudden cut. Their licenses were pulled in June, less than a month after termination notices went out.
But a surprisingly high number may choose to appeal. Neil Miller, president of is the Bell McCall Company in Hamilton, Mont., says he'll definitely give it a try. "From a dealer's standpoint, we don't understand what they gain from closing us down," Miller said.
Miller's new and used car business specialized in Ford and Chrysler brands; now, it's only licensed with Ford. Taking care of his customers has become a big challenge. "We sold to the customers with the idea that we were going to be here to deal with their warranty problems," Miller said. "Now we can't. Depending on where they live in this area, they now have to go between 50 to 80 miles to get to the nearest dealer in the area."
The warranty issue is a pervasive complaint. Jeff Duvall, who had his Chrysler dealership in Clayton, Ga., closed down, has been continuing to honor his customer's warranties, either by paying out of pocket for the repair at one of his other two car dealerships (which sell Ford and Chevrolet vehicles) or by hauling the customer's car to the closest Chrysler dealership still in operation.
"When a customer buys a car from me, I take care of them, through thick and thin," said Duvall, who has owned dealerships in the neighborhood for more than 50 years. Right now, he has a staff of 65 working at his three dealerships.
"I need to terminate around 15 people, but I am doing everything possible to keep them working, so currently I have absorbed all the excess Chrysler people into the other franchises," he said. "I will not be able to keep them very much longer unless we get reinstated."
GM dealers, too, are ready to go to the mat to stay open.
Jim Brown, the president of Classic Auto Group in Mentor, Ohio, has been selling GM cars for 44 years. His Cadillac showroom got a termination notice. It's an ironic twist: Thirty years ago, General Motors loaned him the money to open his first dealership.
"Without their program, I never could have done it," Brown said. He currently owns 20 car dealerships. "I am where I am today because of the help I got from GM." Despite getting the axe, he's not angry with the company -- his loyalty runs deep.
Loyalty is also motivating Scott Adams to fight to retain his GM license. "My first dealership was a Chevrolet dealership -- I got it on my 28th birthday," he recalls. Since then, he's run as many as 11 different car shops, three of which he currently operates. His Ray Adams Chevrolet dealership in Belton, Mo., is on the chopping block. But Adams can't imagine life without Chevy.
"I drive a Chevrolet, my family drives a Chevrolet," he said. "I would prefer to be a Chevrolet dealer for a long, long time."
The Obama administration's pay czar will outline Friday another round of curbs on executive compensation for companies that took exceptional assistance from the government, but Bank of America won't be one of them.
BofA had been one of the seven companies under the purview of Kenneth Feinberg, the Treasury Department's special master for executive compensation, who is charged with determining appropriate pay packages for the top 100 employees at the most heavily bailed out companies.
But the nation's largest lender announced Wednesday that it had sent a check to the government to repay the $45 billion in aid it had received from the Troubled Asset Relief Program (TARP).
A Treasury Department official confirmed Thursday that BofA is no longer subject to the special master's authority.
That leaves Feinberg with six other companies to oversee, including: AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), General Motors, Chrysler, Chrysler Financial and GMAC.
In October, the pay czar cut total compensation for the top 25 executives at the seven firms by about half, scaling back salaries by 90% and transferring bonus payments into performance-based, longer-term stock options.
On Friday, Feinberg will present his determinations for the pay structures of the next 75.
Since most executives take home a majority of their annual pay in the form of end-of-year bonus checks, adjusting pay packages so late in the year will likely have a sizeable impact on employees' 2009 pay. And as executives get their pay trimmed, the affected companies are raising concerns that top talent will walk out the door.
Some of the firms have said they are already on the brink and can't afford to lose their key employees. That's something Feinberg says he is acutely aware of.
