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Thursday AM June 5th, 2008

House-Senate compromise budget approved; Senator Cornyn calls for increased American energy production…ISM says service sector grew at better-than-expected pace in May…Pew Hispanic Center notes climbing unemployment among Hispanic immigrants as construction industry slumps…


The Senate has voted by a narrow margin to adopt an election-year budget blueprint that leaves to the next president the task of sorting out a host of fiscal problems. The Senate voted 48-45 to pass the House-Senate compromise measure. It would allow large near-term increases in defense and domestic programs funded by Congress each year, but also would stack decisions on Medicare and other federal benefit programs on the shoulders of future policymakers. It also predicts the federal budget will return to balance in four years, but only by permitting several of President Bush’s tax cuts to expire as scheduled at the end of 2010. It also assumes more than 20 million middle-class taxpayers will be hit by the alternative minimum tax in future years.

Senator John Cornyn of Texas has called on Congress to remove obstacles to increased American energy production. The Senate is debating a $6.7 trillion climate bill that he says would raise taxes at the pump and eliminate Texas jobs.

image of speaker, click here for audio“In my state in Texas, it has been estimated that under the Boxer climate tax legislation that as many as 334,000 jobs would be lost as a result of the increased cost associated—and taxes associated—with this bill, with a $52.2 billion in loss to the Texas economy. An $8,000 additional surcharge on each Texas household that’s over and above the $1,400 that each Texas family is paying because of Congressional inaction on oil and gas prices. Electricity cost, 145 percent higher. Gasoline, 147 percent higher.”

Cornyn told the Senate floor that an opportunity was blown when only 42 senators voted for the American Energy Production Act.

image of speaker, click here for audio“Is the Senate going to reject an opportunity to develop America’s natural resources and bring down the price of gasoline at the pump when gasoline is at $3.98 a gallon? How about when it is at $5 a gallon or $6 a gallon? Where’s the tipping point at which Congress is finally going to wake up and realize that it is the reason why Americans are paying too much at the pump?”

The Senate Commerce Committee earlier this week blamed poor regulation by federal agencies and market manipulation by investors for high oil prices. The senators also blamed deregulation and what they call the “Enron Loophole.” They suggest oil companies may be manipulating energy markets as Enron did in 2001. But Senator Cornyn says the Federal Trade Commission has investigated time after time and found no evidence to justify a charge of price gouging.

A private trade group says the service sector grew at a better-than-expected pace in May, as business at hotels, educational services and health care expanded modestly for the second month in a row. The sector’s performance may provide some hope that the current economic slowdown will not be too severe. The Institute for Supply Management said Wednesday its service sector index was 51.7 in May, following a better-than-expected reading of 52 for April. Wall Street economists had been expecting a reading of 50.3 in May. A reading above 50 indicates the sector is growing, while a reading below 50 indicates contraction.

The government reports that worker productivity increased at a faster pace in the first three months of this year than previously estimated. Wage pressures, meanwhile, moderated. The Labor Department reports that productivity rose at an annual rate of 2.6 percent in the January-March period, faster than the government’s initial estimate of 2.2 percent made a month ago. Wage pressures moderated from the final three months of last year with unit labor costs rising at an annual rate of 2.2 percent. That was a marked slowdown from a 4.7 percent surge in labor costs in the final three months of last year.

A study by a nonprofit think tank has found that unemployment among Hispanic immigrants has climbed as the construction industry slumped. The study of Census and Labor Department data by the Pew Hispanic Center shows foreign-born Hispanics have a higher jobless rate than U.S.-born Hispanics do for the first time in five years. The unemployment rate for Hispanic immigrants was 7.5 percent during the first months of this year, compared with 6.9 percent among U.S.-born Hispanics. During the same period in 2007, the rates were 5.5 percent and 6.7 percent, respectively. An overwhelming majority of jobs lost in the construction industry were held by foreign-born Hispanics. Mexican immigrants have been hardest hit. Their unemployment rate jumped from 5.5 percent last year to 8.4 percent. Foreign-born Hispanics could have entered the country legally or illegally–the report doesn’t distinguish the immigrant numbers along those lines.

If you’re taking a nonstop flight to summer vacation, you’re noting that in many cases, major carriers have more than doubled or even tripled their cheapest U.S. fares from last summer’s fares. That’s on top of the new fees for checking luggage and other services. Tom Parsons is chief executive of the Arlington-based discount travel site He looked at the lowest fares for nonstop travel in July–the kind of tickets that usually must be bought long in advance and therefore appeal mostly to vacationers, not business travelers. Parsons says that where major carriers offer nonstop flights and low-fare competitors offer only one-stop service, fares are up to 365 percent higher than a year ago. He says Fort Worth-based American Airlines offered fares last year as low as $238 for July travel between Phoenix and Miami. This year, he says the lowest fare is $660. In all the cases, Parsons said, low-cost carriers such as Dallas-based Southwest Airlines offer only one-stop or slower service.

Federal data shows domestic airlines’ on-time arrival rate improved in April. That’s despite more than 3,900 flights cancellations by American Airlines. The U.S. Department of Transportation says more than 22 percent of commercial flights in the United States arrived late, were canceled or diverted in April. That’s down from more than 24 percent in the same month last year and over 28 percent in March. The drop in delays was accompanied by declines in mishandled baggage and customer complaints. It comes despite the fact many carriers were forced to ground flights in April amid unprecedented government scrutiny of maintenance issues. Fort Worth-based American is the nation’s largest carrier. It canceled 7.6 percent of its flights in April, compared with an industry average of 1.7 percent. American and other airlines had to ground MD-80 jetliners to inspect or redo wiring as the feds demanded. Those inspections were supposed to have been completed in March and followed revelations of a too-cozy relationship between the industry and regulators.

Discount carrier Spirit Airlines says it may lay off or move up to 60 percent of its flight attendants and 45 percent of its pilots. It’s looking to cut costs in response to soaring fuel prices. The Miramar, Florida-based carrier told its unions it plans to close its crew bases in New York’s Laguardia Airport and San Juan, Puerto Rico, and shrink its main Fort Lauderdale crew base by August according to letters released by union leaders. The airline is also closing its Detroit base for flight attendants. Spirit, which is privately owned, flies to 36 cities in the U.S., Latin America and the Caribbean. The carrier employs about 2,200 people and has flight hubs in Detroit and Fort Lauderdale. The exact number of jobs that may be cut has not been decided.

The United States and China will hold the fourth round of high-level economic talks on June 17th and 18th in Annapolis, Maryland. The Treasury Department announced that the discussions will take place at the U.S. Naval Academy. The U.S. delegation will be led by Treasury Secretary Henry Paulson, who has used previous sessions to press the Chinese to move more quickly to allow their currency to rise in value against the dollar. American manufacturers have complained that the Chinese currency is undervalued by as much as 40 percent, giving Chinese producers a huge price advantage against American companies.

British contractor BAE Systems has acquired a $1.7 billion contract from the Pentagon to supply the U.S. Army with up to 10,000 tactical vehicles. The trucks will be built at the company’s Sealy plant. The deal could grow to as much as $2.2 billion.

KBR has a new four-year, worldwide contract with BP to engineering and project management services for future offshore developments, according to the Houston Business Journal. No dollar amount for the contract was announced.

Renewable Energy Group announced an $80 million deal to acquire the largest assets of U.S. Biodiesel Group. The purchase by Iowa-based REG will include a biodiesel plant near Houston and a liquid storage terminal in California. The biodiesel plant is in Seabrook. The transaction needs regulatory approval. It’s expected to close in late June. Acquisition of the 35 million gallon per year biodiesel plant in Texas and the Stockton, California, storage terminal provides REG access to strategic locations to pipelines and railways. Ames-based REG has seven plants in production with combined capacity of more than 220 million gallons annually.

Illinois-based Walgreen’s has agreed to pay $35 million to settle a federal whistleblower lawsuit. Officials say 42 states–including Texas–and Puerto Rico will share the $35 million. The lawsuit accused the drug store chain of boosting the price for prescriptions paid by Medicaid by switching from capsules to tablets or vice versa depending on which was most expensive. Federal officials say the practice of switching dramatically increased the amount of taxpayer money that Walgreen charged to the Medicaid program. Walgreen denies any wrongdoing in connection with the settlement and says it reached the agreement to avoid the expense and uncertainty of a trial.

Jams and jellies maker J.M. Smucker has made an all-stock-bid worth nearly $3 billion for Folgers Coffee. Smucker also will assume about $350 million of Folgers’ debt in the deal with current owner Procter & Gamble. J.M. Smucker, based in Orrville, Ohio, expects the acquisition will boost profits by about nine percent, excluding costs, if it owns the brand for the entire 2009 fiscal year. The deal is expected to close in the fourth quarter.

High gas prices are forcing more people onto public transportation and some transit agencies are struggling to handle the new riders. Rail systems from Boston to Los Angeles are urging passengers to shift their travel to non-peak hours. And some seats have been removed from San Francisco’s subway cars to allow more people to cram in. Many transit systems just can’t afford to expand. A spokeswoman for Oklahoma’s Tulsa Transit says the system competes with police and fire in the city’s General Fund, and there is no money for more buses. Transit agencies’ operating costs are also going up because of the rising gas prices. In response, many transit agencies are looking at fare increases. And a spokeswoman for the American Public Transportation Association says some are even cutting service despite the higher demand.

Groundbreaking is set for this afternoon for a new building being named for former University of Houston regent Michael Cemo. He’s the retired president and CEO of AIM Distributors, and gave a $3 million gift to the C.T. Bauer College of Business. The multistory 33,000-square-foot Michael J. Cemo Hall will feature a 450-seat auditorium, three 80-seat classrooms and faculty offices. Construction begins in August, with opening set for January 2009.

CBS says Yahoo! is the latest Internet portal selected to stream the network’s television shows online. CBS says Yahoo! TV will run ads before streaming the CBS shows at no cost to viewers. Yahoo! becomes the largest member of CBS’s growing list of online distribution partners, known as the CBS Audience Network. That group includes Time Warner’s AOL, Google’s YouTube, and Microsoft’s MSN Network. Yahoo! TV also streams shows from News Corp.’s Fox Network and General Electric’s NBC unit.

A new study released by a retailer trade group says so-called organized retail crime has affected a growing number of store operators. It says 85 percent of companies surveyed have been victims of organized retail crime this year, compared to 79 percent last year. A spokesman for the group says this form of shoplifting can be as simple as someone who repeatedly steals from a store and then sells the items to friends or neighbors. It can also be more sophisticated operations involving organized crime families. Much of the stolen merchandise is said to be ending up for sale online. The survey finds that more than two-thirds of retailers have identified or recovered stolen merchandise and gift cards from an illegal reselling or fencing operation.

Wal-Mart, the world’s largest retailer, has launched an online classified advertising site called Oodle. A spokesman for Walmart’s online division says the free site allows customers to buy and sell items locally, look for local jobs and learn about events close to home. Craigslist has long been considered the leader in the online classifieds business, which has seen the number of “for sale” listings surge in the down economy as more people are looking to sell items to help them make ends meet. Oodle runs classifieds for numerous companies, including newspapers and TV stations. Terms of the arrangement with Wal-Mart were not released.

When surfing the Internet for safe Web sites, not all domains are equal. Companies that assign addresses for Web sites appear to be cutting corners on security more when they assign names in certain domains than in others. A report by antivirus software vendor McAfee says the most dangerous domains to navigate to are “.hk” (Hong Kong), “.cn” (China) and “.info” (information). More spammers, malicious code writers and other cybercriminals can establish an online presence when domain name registry businesses cut corners. The report doesn’t identify domain name registration companies McAfee believes are responsible for those lapses. Where McAfee found some of the least-risky domain names: “.gov” (government use), with 0.05 percent flagged; “.jp” (Japan), with 0.1 percent flagged and “.au” (Australia), with 0.3 percent flagged.

Panhandle wheat yields are expected to be low, and many dryland fields will not be harvested at all due to drought and virus infection. That update came from Texas Agrilife Extension Service wheat expert Brent Bean of Amarillo. Bean says most of the dryland wheat that’s harvested will likely have a yield range of ten to 20 bushels. He says the exception will be wheat planted on fallowed ground in the northeastern panhandle, because that area has extra moisture in the soil. The panhandle winter wheat crop had poor moisture in the fall.

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