Thursday PM July 8th, 2010
by: Ed Mayberry, July 8, 2010 9:07:00 pm
Rough weather forecast in the Gulf of Mexico could force BP and Obama administration officials to speed up plans to connect a third containment vessel to the blown-out undersea oil well. Workers had planned to replace the current "top cap" with a "sealing cap" first, then connect a containment vessel that could collect 25,000 barrels of oil per day. Officials are now considering a plan to replace the cap and hook up the containment vessel simultaneously. This would temporarily decrease the amount of oil being contained. Senior administration officials say national incident commander Thad Allen sent BP a letter, asking about contingency plans in the event they have to proceed with the simultaneous maneuver. The oil company has 24 hours to respond.
The leader of the oil spill relief effort says it's possible a well being drilled to contain the gusher in the Gulf could be completed ahead of schedule. But a lot of things would have to go right. National Incident Commander Thad Allen said in Alabama that crews expect to reach the existing well and drill into its outer casing in seven to ten days. If the oil is coming up through all the different rings of the well, then it will likely take until the middle of August to stanch the flow with mud and cement. If it's only coming up the well's center pipe, it could be sooner. BP spokesman Scott Dean says late July has been suggested as an ideal completion time, but a single major storm is enough to cause delays. That's why the company is sticking with mid-August.
New claims for unemployment benefits dropped sharply last week, but they have yet to reach levels that most economists say would signal strong job creation. The Labor Department says that requests for jobless aid dropped by 21,000 to a seasonally adjusted 454,000. Economists polled by Thomson Reuters predicted a smaller drop. The decline takes claims to their lowest level since early May, erasing the increases of the last two months. But claims have fluctuated in recent weeks, establishing no clear trend. They have remained stuck near 450,000 all year, after dropping steadily last year from a peak of 651,000 in march 2009. The tally of people continuing to claim benefits plunged by 224,000 to 4.4 million.
Consumer borrowing fell again in May, more evidence that Americans remain jittery over their finances and the durability of the economic recovery. The Federal Reserve says borrowing dropped by $9.1 billion in May. It also says borrowing declined by $14.9 billion in April, revising an initial estimate that showed a gain for the month. Consumer borrowing has fallen in 15 of the past 16 months as households have struggled with uncertain job prospects and battered finances following a deep recession.
Early reports from retailers show sluggish June sales and shoppers buying mostly deeply discounted clothing amid escalating job worries. June's lackluster revenue performance is raising concerns about back-to-school shopping and the health of the economic recovery. As merchants report their results, Target says sales were "relatively soft" in June. Revenue in stores open at least one year rose 1.7 percent. That’s short of the 2.7 percent rise analysts expected. Costco posted a solid revenue gain, but it was fueled by its international business. Many teen merchants including Buckle, Hot Topic and the Wet Seal are reporting decreases in revenue. Limited Brands, which owns Victoria's Secret and Bath & Body Works, is among the bright spots. The figures are based on revenue at stores open at least a year and are a key indicator of retailers' health.
New data shows affluent Americans tightened their belts in June in a possible indication of trouble for the overall economy. Mastercard Advisor's SpendingPulse reported that luxury spending dropped 3.9 percent in June from a year earlier, the first decline since November. Other figures from SpendingPulse, which tracks all transactions including cash, were mixed, though online spending remained a bright spot. The well-heeled — households with annual incomes in the top 20 percent, about $158,000 on average — account for almost 40 percent of overall consumer spending. So indications that they are pulling back are particularly worrisome.
Wells Fargo has announced that it's laying off 3,800 employees over the next year. It’s restructuring its consumer finance unit. The San Francisco-based bank is consolidating Wells Fargo Financial into its community banking network. The company says 638 independent consumer finance offices will be closed as a result. In addition, Wells Fargo said it will longer originate non-prime mortgage loans. The layoffs represent about 27 percent of Wells Fargo Financial's 14,000 employees. The company says 2,800 positions will be eliminated in the next two months, and another 1,000 positions will be cut in the next year. Wells Fargo has more than 278,000 employees.
Mortgage rates fell for the second straight week to the lowest point in five decades, but it may not be enough to jump-start the housing market. Mortgage company Freddie Mac says the average rate for 30-year fixed loans dropped to 4.57 percent. That's down from the previous record of 4.58 percent set last week and the lowest since Freddie Mac began tracking rates in 1971. Rates have fallen over the past two months. Investors, concerned with the European debt crisis, have poured money into the safety of Treasury bonds. Treasury yields have fallen and so have mortgage rates, which tend to track yields on U.S. debt. However, low rates have yet to fuel home sales. The housing market has slowed since federal tax credits for homebuyers expired at the end of April.
The International Monetary Fund says the global economy is recovering faster than expected, but it's also issuing warning about the future. The IMF raised its 2010 world growth forecast to 4.6 percent from 4.2 in April. It's also raised the outlook for the U.S. more than half a point, from 2.7 percent to 3.3 percent. The funds' director of research says the numbers for economic activity have been stronger than expected and the possibility of a "double dip" recession appears "very unlikely." But the quarterly report also warns that Europe's debt crisis has sharply increased risks that could stall the global recovery. The director of the fund's Monetary and Capital Markets Department says European governments need to take "credible and decisive action" to restore confidence in its banks.
The IMF is calling for the United States to make a stronger effort to curb its budget deficits. The IMF says that in addition to cutting government spending, the Obama administration will have to consider raising taxes to get the U.S. deficit down to a manageable level. The IMF suggests a range of tax increases which would be certain to generate huge political opposition from reducing the popular tax deduction for home mortgages to instituting a national sales tax. The suggestions were contained in the IMF's annual appraisal of the U.S. economy.
Texas Attorney General Greg Abbott has told Travelers Insurance to stop airing a TV advertisement that he says is deceptive. The cease and desist letter, to the Travelers Companies, says the ad wrongly tells Texas homeowners to purchase additional vehicle insurance or risk losing their homes if they have inadequate insurance after a traffic accident. Abbott says state law already protects homeowners so "it is improper for travelers to scare Texans into buying insurance they may not need." The AG says, under the Texas Deceptive Trade Practices Act, Travelers could be liable for up to $20,000 based on each airing of the ad.
Toyota will open six new offices in North America to gather information about vehicle problems as the automaker works to recover from huge recalls that started last year. Toyota says it will open four offices in the U.S. and two in Canada over the next 12 months to collect feedback to study vehicle problems and customer complaints. The Japanese automaker has been trying to improve the safety and quality of its vehicles since recalling more than 8.5 million cars and trucks starting in October. Most of the recalls were related to unintended acceleration, a problem that the U.S. government has tied to dozens of deaths. This week, Toyota launched a recall of 270,000 of its Lexus luxury vehicles.
New leaders of the pilots' union at American Airlines are toning down the rhetoric against the company, believing that will help them win a new labor contract. They say they're going to stop using billboards and picket lines to blast the company. The newly elected union leaders said they want job-protection measures and pay raises in a new contract, although they didn't give specifics. American has long suffered from testy labor-management relations that led to two strikes in the 1990s and renewed threats of strikes this year by flight attendants and ground workers. David Bates, the new president of the Allied Pilots Association, says he wants open communication with the company, something he says hasn't happened in the last three years.
The government says there were five flights stuck on the tarmac for three hours or more in May, the first month under a new rule banning lengthy tarmac delays. That compares with 35 in May 2009. United Airlines operated four of the five flights. Overall the on-time performance of U.S. carriers declined in May from the same month a year ago. US Airways was the most successful major airline in getting travelers to their destinations on time, 85.3 percent of the time. Hawaiian and Alaska Airlines had the highest on-time rates overall in May. Comair, which operates as Delta connection, had the worst ranking in May with 67.1 percent of its flights arriving on-time.