Worst of recession upon US

After several months of a relatively mild contraction, the U.S. economy has now fallen into a really nasty recession, according to top forecasters at IHS Global Insight.



"We are in the worst part of the recession now," said Brian Bethune, an economist for Global Insight. Bethune and his colleague Nigel Gault have won their second consecutive Forecaster of the Month award from MarketWatch, based on their predictions on 10 key economic indicators in November.

The economy has gotten much worse in the past few months, Gault said. The November payrolls report released last Friday "was a truly awful report," he said. The news was twice as bad as it looked, because not only did payrolls shrink by 533,000 in November, "but things were an awful lot worse in September and October than we thought."

"You can't find any rays of hope" in the November report, Gault said.
In winning the November contest, Gault and Bethune had the most accurate forecasts on two of the 10 indicators, and were among the 10 most accurate forecasters on five others. They bested 43 other economists.

They accurately predicted the big drop in payrolls and the stunning decline in the Institute for Supply Management index. They also nailed the big decline in durable-goods orders and the 16-year low in new-home sales.

Looking ahead, the pair of economists thinks the December payrolls report will probably be "another very bad number," although no one's predicting another 500,000 job loss. "We've got to anticipate that firms are struggling to cut back staffing as rapidly as possible," Gault said.

The job losses are coming from everywhere, from construction and manufacturing, and from financial services and retailing. "The shakeout in financial services will take several more months," Bethune said. The people losing jobs in financial services industries may have never been laid off before, he said, and many of them don't have the ability to quickly adapt to the informal sector.

Construction workers may be able to get work that's paid under the table, or to barter their services, but no one needs the services of an investment banker in exchange for a haircut or a tune-up.

Those investment bankers will have to think of something, however, because the industry is "permanently downsizing," Bethune said.

Bethune said it's important for the Federal Reserve to keep lowering rates and flooding the economy with money. With the economy weakening so rapidly no, "there's no use leaving any ammunition in the bunker."

"The lower they can go on short-term rates, the better," Bethune said. The Fed also needs to keep up the quantitative easing as well. "You're in a classic liquidity trap," he said, so "the Fed has to use every tool" at its disposal, including buying Treasury and agency bonds.

The runners-up in the November contest were Maury Harris and Jim O'Sullivan of UBS, independent consultant Brian Jones, RBS Greenwich Capital chief economist Stephen Stanley, and Dean Maki and Ethan Harris of Barclays Capital Management.

Bethune and Gault have dominated the MarketWatch contest over the past three months, winning twice and finishing second in September. But they aren't alone. Over the past three months, the UBS team has finished first, second and third; Jones has finished second and third; Stanley of RBS Greenwich has finished third and fourth; and Barclays' team has finished fifth twice.

Most of that group has been near the top of the charts all year long.
The median forecasts that MarketWatch publishes each week in the Economic Calendar come from the forecasts of the 10 economists who've scored the highest in our contest over the past 12 months, as well as the forecasts of the most recent winner and the forecasts of MarketWatch chief economist Irwin Kellner. See Economic Calendar.

Over the past 12 months, the top economists are, in order: Stanley of RBS Greenwich Capital; Gault and Bethune of Global Insight, Harris and O'Sullivan of UBS; Maki and Harris's team at Barclays Capital; David Greenlaw and Ted Wieseman of Morgan Stanley; Michael Feroli at J.P. Morgan; Jan Hatzius's team at Goldman Sachs; Stephen Gallagher of Societe Generale; Neal Soss's team at Credit Suisse; and Avery Shenfeld's team at CIBC World Markets.

US Treasury 3-month bill yield below zero for first time

The yield on the three-month US Treasury bill Tuesday fell below zero for the first time as worried investors snapped up government bonds in search of shelter from the global financial firestorm.

The yield on the three-month T-bill fell as low as negative 0.051 percent around 1500 GMT, and three hours later stood at negative 0.001 percent.

In another historic first, the US government borrowed 30 billion dollars interest-free for 28 days on the bond market.

All the buyers of the 28-day obligations agreed to the zero rate offered in a sale where demand was four times higher than supply, the Treasury said on its website.

The previous record low was reached five days earlier, when the Treasury sold 36 billion dollars' worth of 29-day bills at a rate of 0.04 percent.

Other Treasury bonds Tuesday held slim positive yields, including the four-week bill at 0.010 percent at 1800 GMT.

Bond yields and prices move in opposite directions. The low yields reflect a surge in demand for these instruments, seen as the safest in the world during times of turmoil.

Analysts say the fear factor has pushed up demand for Treasuries, since investors are virtually certain the US government will not default.

Other factors include worries about deflation and the overall trend in interest rates, with the Federal Reserve having cut its base lending rate to a historic low of 1.0 percent, and further reductions possible.

In the case of the three-month T-bill Tuesday, investors bought the bond at a price above the face value promised if they were kept to maturity, three months after their issue.

The minus-zero yield suggests that investors were seeking greater security from a government instrument and also were betting on deflation in the coming months.

The yield decline allows the Treasury to refinance its coffers at a modest price.

On Monday the Treasury issued 27 billion dollars in three-month bills at an interest rate of 0.005 percent, which had been the lowest rate since the bonds were first issued in 1929.

Short selling must be disclosed

Ambiguous rules limiting naked short selling must be clarified, attorneys say

A top adviser to President-elect Barack Obama on securities regulation on Tuesday said he wants the Securities and Exchange Commission to require public disclosure of short selling.

"We're looking for disclosure of positions, with a small delay, after a short sale is made," said Roel Campos, a former Democratic SEC commissioner and member of Obama's transition team.

After the precipitous drop in stocks of major investment and some commercial banks including Citigroup Inc. and the collapse of Lehman Brothers in September, the agency implemented a series of short sell rules, many of which were temporary in nature. Among these, the SEC temporarily banned short sales in roughly 800 financial institutions. That ban expired on October 8.

Regulators and others argued that many short sellers -- who make bets that a stock price will decline -- contributed heavily to the financial crisis and the collapse of many financial institutions.

The next agency chairman is expected to grapple with whether the agency is doing enough to chill manipulative short selling of shares, particularly when it comes to financial institutions.

Campos is seeking to have the next SEC chairman introduce new rules requiring short sellers to publicly disclose their positions in a manner that is similar to how equity investors are required to reveal their equity stakes.

For example, to comply with the SEC's 13F rule, investors with $100 million in capital or more are required to publicly disclose their positions 45 days after every calendar quarter. Equity investors with 5% or greater stakes are also required to disclose that information to the agency in either an activist Schedule 13D or passive Schedule 13G filing.

But Campos argues that four-times-a-year public disclosure of short sell positions isn't enough. He wants to see a requirement that hedge funds and other short sellers disclose their positions publicly more quickly after stakes are made, perhaps as fast as two weeks after each position is taken.
Among the temporary regulations put into place in the fall is a requirement for confidential weekly disclosure of short positions to the agency.

According to the rule, investors with $100 million or more in capital must disclose on a weekly basis to the agency their short positions. However, these investors only must provide that position information to the agency on a confidential basis. The expiration date for the provision was extended in October to Aug. 1 of 2009.

Short seller critics argue that public disclosure will mean their proprietary strategies will be disclosed, enabling rivals to copy their approach. Campos said the delay in public disclosure is intended to protect some proprietary strategies, but that there should be some parity with equity disclosure requirements.

Other ways to rein in short selling
In addition to disclosure, securities attorneys and academics discussed other mechanisms that the SEC could impose that could reign in short selling at an event hosted by the Coalition Against Market Manipulation in Washington.

Participants argued that the agency needs stronger rules limiting illegal naked short selling, the practice of selling shares without arranging to borrow the securities up-front.

The SEC in September adopted rules requiring short sellers and their broker dealers to deliver securities within three days of a trade. Participating investors who fail to arrange to borrow shares in advance are prohibited from making future short sales in the same securities.

But securities attorneys at the event argued that there are too many qualifiers on the naked short selling rule.

Rex Staples, general counsel for the North American Securities Administrator's Association Inc., said there is a "reasonable" qualification on the delivery requirement. "To the extent you can qualify a word like reasonable, you are going to get that time after time," said Rex Staples, general counsel for the North American Securities Administrator's Association Inc.

Former SEC chairman Harvey Pitt, who participated in the discussion agreed that the SEC should eliminate ambiguity when it comes to the agency's naked short selling provision. The agency should also take steps to enforce the rules.

"The agency must make it extremely clear that any naked short selling is illegal and it has to remove the ambiguities so the rules are very clear," Pitt said.

Participants also debated bringing back the so-called up-tick rule, a regulation removed last year that allowed short sales only if a preceding trade boosted a company's stock price.

Georgetown Finance professor James Angel said he wants to see an up-tick rule that would take effect when a stock has fallen 5%. He also sought additional prohibitions when a stock price falls 10% and 15%. Staples argued that the SEC should bring back the same up-tick rule it eliminated in 2007. "It is very helpful in times of financial turmoil," Staples said.

Obama Showing Concern About the Deficit

Bush and Congress to Decide Auto Bailout

$40 a barrel of crude oil is unlikely

Oil prices, which have fallen 70 percent since July, are unlikely to fall below $40 a barrel, billionaire hedge-fund manager Boone Pickens said today.

“I don’t think you will stay at that level very long because you are going to start shutting down a lot of projects,” he said at a press conference in New York. “It will be obvious we can’t sustain anything like that.”

Crude, which rose to a record $147.27 a barrel on July 11, dropped to $40.50 a barrel on Dec. 5, the lowest in almost four years, after a credit squeeze earlier this year sent the U.S. and Europe into recession, cutting energy demand.

Oil may rise to $100 a barrel by “this time next year” if there is an economic recovery, said Pickens, who manages funds linked to energy commodities and equities through Dallas-based BP Capital LLC.

U.S. Cuts Oil Price Forecast 19% on Demand Outlook

The U.S. reduced its forecast for oil prices next year by 19 percent as slowing economies may send global demand to its first drop in 25 years.

West Texas Intermediate crude oil, the U.S. benchmark, will average $51.17 a barrel in 2009, down from $63.50 estimated in November, the Energy Department said in its monthly Short-Term Energy Outlook, released today in Washington.

World demand will average 85.75 million barrels a day in 2008, down 50,000 barrels from 2007 and the first yearly decline since 1983, the report showed. The worsening economic outlook is the main reason for cuts in price and demand forecasts, said Tancred Lidderdale, an economist who supervises the report.

“The world economy and what that will mean for demand is the major focus,” Lidderdale said. “A decline in world oil consumption for next year is now showing up for the first time.”

The price for the West Texas crude will average $100.40 a barrel this year, down from $101.45 a barrel estimated last month, the report from the department’s Energy Information Administration showed. Oil futures in New York have dropped 71 percent to about $43 a barrel from a record $147.27 in July.

Global oil demand will average 85.3 million barrels a day next year, down 0.5 percent from 2008, according to the report. Last month the department forecast that demand would rise 40,000 barrels next year.

U.S. Consumption

U.S. oil demand will average 19.28 million barrels a day in 2009, down 200,000 barrels a day from 2008. Next year’s demand forecast was reduced by 30,000 barrels from last month. Consumption will drop 1.2 million barrels a day this year to an average 19.48 million barrels a day, the report showed.

Regular gasoline at the pump, averaged nationwide, will cost $2.03 a gallon in 2009, down 14 percent from $2.37 estimated in the November report. The fuel will average $3.27 a gallon this year, down 0.6 percent. Prices last week fell to $1.669 a gallon, the lowest since February 2004, the department said yesterday.

“The good news is that consumers will see lower prices,” Lidderdale said. “The bad news is that we still might not be able to afford them.”

The government cut its estimate of winter fuel costs from last month as prices fell. The heating season runs from October through March.

Heating oil users will spend an average $1,570 this winter, down 7.3 percent from $1,694 forecast last month and 20 percent lower than the average $1,953 spent by households last winter.

Homeowners using natural gas will see average heating costs for the season of $860, down 3.3 percent from $889 forecast in the November report. The estimate is up 0.2 percent from an average $858 last winter, the report showed.

US Unemployment Horror - 2008

US - 533,000 job lost in November 2008

WASHINGTON (MarketWatch) - U.S. nonfarm payrolls plunged by an astonishing 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday.

It's only the fourth time in the past 58 years that payrolls have fallen by more than 500,000 in a month. Since the recession began 11 months ago, a total of 1.9 million jobs have been lost. Job losses in September and October were revised much lower.

In addition to the 533,000 lost jobs, an additional 621,000 workers were pushed into part-time work and 422,000 simply dropped out of the labor force.

"This is almost indescribably terrible," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. "The pace of job losses is accelerating alarmingly."
Over the past three months, 1.26 million jobs have been lost, a pace of job destruction exceeded only once since 1945.

"The threat of a widespread depression is now real and present," said Peter Morici, a business professor at the University of Maryland.

The recession "is going to be long and drawn out," wrote Jennifer Lee, an economist for BMO Capital Markets.

The unemployment rate rose from 6.5% in October to 6.7% in November, the highest jobless rate since October 1993. Read the full report.

Job losses were widespread across industries in November. Fewer than a third of industries were hiring in November.

In services-producing industries, 370,000 jobs were lost, a record excluding one month in 1983 when nearly three-quarters of a million workers at AT&T went on strike.

The grim report could set the stage for further responses from Washington to address the recession. The Bush administration promised "aggressive" action, and pressure increased on the incoming Obama administration to craft a sizable fiscal stimulus plan. The large loss of jobs could also boost the chances for the automakers to get a loan from the federal government.

The Federal Reserve is likely to lower its interest rate target at the Dec. 16 meeting, economists said.

The employment report was much worse than expected. Economists expected job losses of around 350,000 in November. They expected the unemployment rate to rise to 6.8%. See Economic Calendar.

"We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline," wrote Josh Shapiro, chief economist for MFR Inc.

Job losses in September and October were revised sharply lower by a total of 199,000. Over the past three months, payrolls have fallen by an average of 419,000 per month, compared with average monthly losses of 82,000 earlier in the year.

An alternative gauge of unemployment -- which includes discouraged workers and those whose hours have been cut back to part-time -- rose to 12.5% from 11.8%. The number of workers forced to work part-time rose by 621,000 to 7.3 million.

Total hours worked in the economy fell 0.9% in November and are down 2.8% in the past year. The average workweek fell to a record-low 33.5 hours in November. The decline in working hours is consistent with a 5% annualized drop in gross domestic product, wrote John Silvia, chief economist for Wachovia.

Average hourly earnings rose by 7 cents, or 0.4%, to $18.30. Average hourly wages are up 3.7% in the past year, close to the 3.8% rise in the consumer price index.

In goods-producing industries, 163,000 jobs were lost, according to a survey of work places. Manufacturing lost 85,000 workers, while construction lost 82,000.

In the services, 136,000 jobs were lost in business services, including 101,000 in employment services, such as temporary jobs. Financial services cut 34,000 jobs.

Retail shed 91,000 jobs, including 24,000 at auto dealers.

Leisure and hospitality industries cut 76,000 jobs

Health and education services industries added 52,000 jobs. Government added 7,000.

In a separate survey of households, the government found that employment fell by 673,000, the largest lost since August 2001. Unemployment rose by 251,000 to 10.3 million. Unemployment has increased 2.7 million during the recession and 2.7 million more have been forced into part-time work.

In November, the labor force fell by 422,000.

The employment-population ratio fell to 61.4% in November from 61.8%. The labor force participation rate fell to 65.8% from 66.1%.

Crude oil at record low since 2005

Oil prices tumbled to their weakest levels in nearly four years Thursday as investors fixated on mounting signs of recession in the global economy.

On the New York Mercantile Exchange, light, sweet crude for January delivery settled at 43.67 dollars a barrel, down 3.12 dollars from Wednesday's close. It was the lowest crude price since January 2005.

In London, Brent North Sea crude for delivery in January fell 3.16 dollars to settle at 42.28 dollars on the InterContinental Exchange, also at the lowest since January 2005.

In intraday trade the New York contract fell as low as 43.51 dollars and the London contract dropped to 42.04.

Oil prices have lost more than two-thirds of their value since striking record highs above 147 dollars on July 11.

"Fears of a prolonged global recession continued to weigh on sentiment," said Sucden analyst Nimit Khamar in London.

Investors worried about an increasingly marked decline in demand among the industrialized countries, and a slowdown in emerging countries like China.

Dismal economic data piling up in Europe and the United States was signaling the global downturn may be deep and prolonged.

Adding to the gloom, the European Central Bank on Thursday forecast the 15-nation eurozone would be in recession next year, contracting up to 1.0 percent, after predicting only last September 1.2 percent growth in 2009.

Wall Street bank Merrill Lynch forecast crude oil could fall to 30 dollars a barrel in New York if China sinks into the global recession and OPEC fails to cut back production to meet slowing demand.

"A temporary drop to this (30-dollar) level would be technically possible if the global recession extends to China and OPEC fails to cut output sufficiently," Merrill Lynch said in a 2009 energy market outlook report published Thursday.

"With demand vanishing across all key oil-consuming regions, a strong rebound in prices ... is unlikely" in the first half of 2009, Merrill analysts said, forecasting an average 2009 price of 50 dollars a barrel.

The jittery market shrugged off sharp interest rate cuts by four central banks in Europe, including the European Central Bank and Bank of England, aimed at reversing the economic downturn, dealers said.

"The scale of the correction so far would indicate further pain to the downside," Simon Denham of Capital Spreads said.

In the United States, the world's largest economy, telecommunications giant AT&T and other major US companies unleashed a new wave of layoffs amid a deepening recession that saw government unemployment aid swell to a 26-year high.

A US Labor Department weekly report put unemployment insurance claims at a 26-year high, an ominous figure ahead of a key November nonfarm payrolls and unemployment report due Friday, expected to show the loss of 325,000 jobs.

Oil prices began the week sharply lower after the Organization of the Petroleum Exporting Countries (OPEC) decided at a weekend meeting against cutting production and put off any decision until a December 17 meeting.

OPEC president Chakib Khelil said Wednesday there was no "floor" for the price of oil.