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Thursday, October 20, 2011

UAW approves new Ford contract, could bring 5,750 new workers

The United Auto Workers have approved a new contract with Ford Motor Co. that the No. 2 carmaker said will increase its labor costs by less than 1% a year.

Ford said it planned to pay for the deal by increasing efficiency at its factories and hiring new workers at lower wages.

Marty Mulloy, Ford's chief labor negotiator, told BusinessWeek the automaker's hourly labor costs, including wages and benefits, will go from $58 to $59. Ford estimates that Toyota pays $50 an hour in wages and benefits to the company's U.S. workers.

Union workers voted nearly 2-to-1 to approve the four-year deal, which clears the way for 5,750 new workers and investment of more than $6 billion in the automaker's U.S. plants.

Instead of getting annual pay raises, union members will get a $6,000 signing bonus and about $3,750 in profit sharing this year.

The agreement is likely to help Ford in the financial markets. Analysts say the contract will increase the company's chances of a credit-rating upgrade to investment grade, which would reduce borrowing costs.

Wages of top 1% rise much faster than bottom 90%

Safety tips for winter driving in warm-weather states

-- Pat Benson

Photo: AFP/Getty Images

Food prices set to rise most in 30 years, economist says

Customers may be seeing the highest prices in years in grocery stores and restaurants, according to economist Bruce Grindy.

Wholesale food prices are “on pace to post their strongest annual increase in more than three decades,” wrote Grindy, chief economist for the National Restaurant Assn. trade group in a blog post.

Based on data out Wednesday from the Bureau of Labor Statistics, the cost of food is already up 7.8% this year. The 0.6% jump from August to September was the fourth consecutive monthly increase in prices and the 13th in 15 months.

By the end of the year, prices could make their strongest gains since 1980, when costs soared 8.1%, Grindy wrote. If the trend holds, wholesale food prices will have soared 26% in five years.

Consumers will see the bulk of that price hike in grocery stores, where food items such as dairy, apples and eggs are 6.3% more expensive than they were 12 months ago. That’s the largest swell in nearly three years.

But restaurant menus are also reflecting the steep prices, which rose 2.6% over the same period.

Consumer Confidential: Store prices, student loans, bank fees

-- Tiffany Hsu

Photo: Brendan McDermid / Reuters

Average 30-year mortgage rate remains above 4%, Freddie Mac says

The typical rate for a 30-year mortgage has leveled off at a bit over 4%, a widely watched survey shows.

Lenders were offering the standard 30-year home loan at an average of 4.11% early this week, a statistically insignificant drop from 4.12% last week, Freddie Mac said Thursday.

The week before last, the survey showed the average lender offering rate at 3.94% -- the first reading under 4% in the 40-year history of the Freddie Mac survey. Not surprisingly, applications for mortgages have tailed off with the increase in the rate, a separate Mortgage Bankers Assn. report showed.

In the latest Freddie Mac rate survey, the 15-year fixed home loan averaged 3.38%, up from 3.37%. Borrowers would have paid an average 0.8% of the loan amount in fees and discount points to obtain the rates on the 15- and 30-year mortgages, Freddie said.

The survey asks lenders for popular combinations of rates and fees they are offering to borrowers who have good credit and can make at least 20% down payments or have at least 20% equity in homes they are refinancing.

RELATED:

Home starts rise

More Californians enter foreclosure

Investors demand higher rates on state bonds

--E. Scott Reckard

Photo: Freddie Mac says lenders were offering the standard 30-year home loan at an average of 4.11% early this week, a statistically insignificant drop from last week. Credit: Pablo Martinez Monsivais / Associated Press

New jobless claims continue modest decline

The number of workers filing for new unemployment benefits dipped slightly last week, a sign the job market is improving, albeit very slowly.

The Labor Department said Thursday initial jobless claims filed in the week ending Oct. 15 dropped to 403,000 from an upwardly revised 409,000 in the prior week. That’s down from the summer high of more than 430,000, but still far from comforting given that employers haven’t stepped up their hiring much.

Based partly on this latest count of new-jobless claims, Barclays Capital Research said it was now looking for 100,000 net new jobs to be added this month, or about the same as in September. That’s a little less than what’s needed to keep pace with the growth of the working-age population. And that means the unemployment rate will most likely remain stuck at 9.1%.

Diane Swonk, chief economist at Mesirow Financial, observed another trouble spot in the latest labor market indicator: rising ranks of unemployed civilian and military federal workers.

“Those who want smaller government are getting it in droves,” she said in a note to clients. “The problem, especially for returning veterans, is that we don’t seem to have jobs for them when they return home.”

From week to week, the initial jobless claims data can be quite volatile. But averaging the last four weeks and comparing that with prior four-week periods also shows a steadily improving trend since summer. In the latest week, Wisconsin led the states reporting decreasing new-unemployment claims. California, New York and Texas showed the biggest increases in filings.

-- Don Lee

Sedan again as Germany imposes terms

Bismarck conversing with Napoleon III after the Battle of Sedan, 1870

German victory. Defeat for France, Spain, Italy, and the Greco-Latin sphere.

My instant impression from the leaked EU summit draft - obtained by our indefatigable Brussels correspondent Bruno Waterfield – is that the accord is minimalist, and largely a German Diktat. It has the makings of a diplomatic Sedan 1870.

If this is what landed on Nicolas Sarkozy’s desk at the Elysee yesterday, one starts to grasp, sort of, why he left Carla Bruni to labour alone as he dashed to Frankfurt to meet the two other women in his life, Chancellor Angela Merkel and IMF chief Christine Lagarde, as well as the European Central Bank’s old and new chiefs.

This document is not final, of course. Mr Sarkozy knows how go full-throttle histrionic, throw a fit, play the war guilt card, scream, shout, and even threaten to walk out of Emu (as he did in the May 2010 summit). He is so mercurial and impetuous that he might actually do something shocking if Germany refuses to meet him half way.

The text may well be very different by Sunday. It had better be.

1) There will be no change to the mandate or role of the ECB. The doctrine of "Price Stability" is upheld. (That is not the historic role of central banks, by the way. They were created in the 17th century to be lenders of last resort, as was the Fed before World War One. The idea that their chief task is to manipulate a single variable – the price level – is both new and misguided.)

There is no hint that the full firepower of the ECB will be harnessed to solve this crisis, as demanded by France, the US Treasury, the IMF, and much of the City. In my view this refusal to deploy the ECB is a colossal error, and will doom the summit outcome to failure.

2) There will be no move to fiscal union in the way we all understand it: no eurobonds, fiscal pooling, no big transfers. Zilch, as expected.

The so-called "Six Pack" of proposals for closer EU economic government relate to the policing of budgets, and such like. They are a means of imposing austerity, not sharing debts. This is what Germany means by "Fiskalunion". It is a loss of sovereignty for one purpose only.

The deflationary bias of the EMU system remains in place.

3) The permanent bail-out fund (ESM) will be brought forward from June 2013, but there is no date. The purpose of this trick is to allow the existing €440bn EFSF and ESM to operate at the same time, giving the rescue machinery greater fire power. OK, but rating agencies might notice. So will investors. Surely double-edged?

4) 5) 6) are kicked into touch until finance ministers gather on Friday. These cover the leverage of the EFSF, the scale of haircut for Greek bondholders, and the scale of bank recapitalization ( apparently now just €80bn, which is not going to do the trick).

There is an "unequivocal commitment" that haircuts will be confined to Greece alone. If you believe that, I have some ocean-front property to sell you in Alsace.

Fresh details soon.

Wednesday, October 19, 2011

California boosts yields on muni bond sale to lure investors

California was forced to boost interest rates on a sale of $1.8 billion in tax-free muni bonds on Wednesday, as institutional investors demanded higher yields to close the deal.

The state set a yield of 3.70% on the 10-year bonds in the offering, up from a preliminary estimate of 3.51% on Monday. The five-year bonds in the sale will pay a yield of 2.28%, up from an initial estimate of 2.10%. The bonds were sold in maturities of three to 30 years.

Interest on the bonds is exempt from state and federal income taxes for California residents. The proceeds from the sale will fund voter-approved infrastructure projects.

Treasurer Bill Lockyer had to pay higher yields after the bonds got a lukewarm reception from individual investors on Monday and Tuesday. Those investors put in orders for $387 million of the debt, or about 21.5% of the total deal.

By contrast, individual investors ordered almost 28% of the $2.37-billion bond offering the state sold on Sept. 20. And at the sale before that, last November, individuals sought nearly 80% of the deal -- when yields were substantially higher. The 10-year bond in that offering paid 4.23%.

The relatively low level of demand from individuals this time around meant that institutional investors, such as mutual funds, had more leverage to push for higher returns when the state took their orders on Wednesday. That will benefit individuals who ordered the bonds on Monday and Tuesday, because all buyers get the same final yields.

It also means taxpayers will foot a bigger bill for interest costs than Lockyer had hoped.

Some muni bond market analysts say individual investors balked at the offering because they’re unhappy with the relatively low interest rates on tax-free bonds in general, even though yields have risen over the last few weeks.

“Retail investors are deeply ambivalent about bonds at these yields,” said Matt Fabian, an analyst at research firm Municipal Market Advisors in Concord, Mass.

Interest rates on high-quality bonds have dropped across the board this year as the Federal Reserve has tried to put more downward pressure on all rates to help the economy.

The tax exemption on muni bonds means their returns are more attractive than yields on many taxable securities. A five-year U.S. T-note pays just 1.04%, and that interest is federally taxable.

Still, many investors are put off by the low nominal returns on munis compared with what they remember in recent years, said Marilyn Cohen, head of money management firm Envision Capital Management in Los Angeles.

“Given the market we confronted, we’re satisfied with the results,” said Tom Dresslar, a spokesman for Lockyer in Sacramento. “We’re confident we got the best deal possible for taxpayers.”

Besides the $1.8 billion in tax-free bonds, the state also sold $205 million in taxable bonds Wednesday.

California sells out $5.4-billion short-term note sale

California sells $2.4 billion in bonds as yields fall

Investing: Is the bond market at a crossroads?

-- Tom Petruno

Follow me on Twitter: Twitter.com/tpetruno

Photo credit: Makaristos

Airlines worldwide expected to collect $32.5 billion in fees in 2011

The worldwide airline industry is expected to collect $32.5 billion in fees for checked bags, onboard entertainment and other extras this year, a 44% increase over 2010.

The projection for a huge revenue increase came in an annual estimate released Wednesday by IdeaWorks, an airline consultant in Wisconsin, and Amadeus IT Group, a technology company in Madrid.

IdeaWorks and Amadeus said U.S. airlines should collect the vast majority of fees worldwide, pocketing $12.5 billion this year, compared with $6.7 billion last year.

The study attributes the higher revenue to increasing passenger demand and greater efforts by airlines to push for the sale of extra services and products, such as wireless Internet access and food.

The study said that about half of the extra revenues collected by the airlines would come from the sale of frequent flier miles to credit card companies. Baggage fees make up about 20% of the fees, with charges for other onboard services and products making up the balance, according to the study.

“Whatever the model, there is no doubt that the growth of ancillary sales is here to stay," said Julia Sattel, a vice president for Amadeus.

Christmas travel spending to increase, survey says

Company that puts ads on airport bins to expand

Spending on business travel expected to slow in 2012

-- Hugo Martin

Photo: A passenger talks with an airline representative at Ontario International Airport. Credit: Los Angeles Times.