Thursday PM November 5th, 2009

New unemployment claims fall, but higher unemployment rate expected from Labor Department…Gasoline prices stabilize…Chinese firm to buy two million tons of liquefied natural gas annually from ExxonMobil…

The number of newly laid-off workers filing claims for unemployment benefits falls to the lowest level in ten months, evidence that job cuts are easing as the economy slowly heals. Still, companies are reluctant to hire and economists expect the unemployment rate will tick up to 9.9 per cent when October’s figure is reported Friday. The Labor Department says first-time claims for jobless benefits fell by 20,000 to a seasonally adjusted 512,000. Economists had expected 523,000 new claims. The four-week average, which smoothes fluctuations, dropped to 523,750, its ninth straight decline. The number of people claiming benefits for more than a week fell by 68,000 to 5.75 million, above analysts’ estimates but its eighth fall in nine weeks.

surged in the third quarter at the fastest pace in six years while labor costs continued to drop sharply, a combination that will bolster companies’ profits but continue to saddle workers with stagnant incomes. The Labor Department says productivity–the amount of output per hour of work–was rising at an annual rate of 9.5 per cent in the July-September quarter, much better than the 6.4 per cent gain economists had expected. Unit labor costs fell at a 5.2 per cent rate. It’s typical for productivity to soar in the early stages of an economic recovery as businesses continue to aggressively cut costs even as output rebounds. However, the concern is that the continued squeeze on workers’ incomes will depress consumer spending in the months ahead, putting the economic recovery at risk.

Gasoline prices in Texas have stabilized, according to AAA Texas. The average statewide price for a gallon of unleaded regular is now $2.55, compared to $2.68 nationally. Houston’s average is $2.52 per gallon. AAA’s Dan Ronan says it’s because oil prices are less volatile.

“Oil prices have been the real key component here, and oil seems to, in the last four or five days, stabilized, and (is) holding steady on the NYMEX Exchange, where oil is traded. The other thing is that petroleum consumption is down pretty substantially. If you compare it to two years ago, it’s down about nine per cent, and that’s about two million barrels a day. That’s a lot of oil.”

Ed: “Maybe people are getting used to the idea of using less, I mean for it to be such a long trend.”

“Well, I think that’s the case, and what’s happening is that people are doing a better job of conserving. They know what $4 a gallon gas looks like, having experienced it last summer. And the other thing is the economy is still coming out of the gates in terms of ending the recession. Fewer people on the road, we have less economic activity, and that’s been another factor as well. But people, I think, have really gotten the message that they’re buying smaller cars that are more fuel-efficient and are doing with a little bit less.”

El Paso has the state’s highest gasoline price average at $2.69 per gallon. Galveston has the least expensive gasoline average at $2.41.

The nation’s retailers are reporting mixed sales results for October. Shoppers, enticed by cooler weather and holiday discounts, opened their wallets a bit more but were still restrained from splurging on apparel amid tight credit and a weak job market. As merchants report their figures, Costco Wholesale’s sales at stores open at least a year rose five per cent. Children’s Place and Stage Stores are reporting declines. Limited Brands is reporting a bigger-than-expected sales drop. The figures are based on sales at stores open at least a year and are considered a key indicator of a retailer’s health.

Holiday shoppers plan to spend about $543 this year on gifts and $133 more of gift cards, according to the International Council of Shopping Centers and Goldman Sachs’ holiday spending survey, as reported by the Houston Business Journal. Sixteen per cent plan to start shopping the day after Thanksgiving, compared to just ten per cent in the past two years.

Borders Group
says it will close 200 Waldenbooks stores and cut 1,500 jobs in January to make the chain smaller and more profitable. Borders, based in Ann Arbor, Michigan, said the closings would leave about 130 Waldenbooks stores still in business. The company says the closing will not affect any Borders superstores or any of its mall kiosks, including 500 Day by Day Calendar spots and other mall-based stores.

State-owned Sinopec announced a preliminary agreement with ExxonMobil to buy two million tons of liquefied natural gas annually. The gas is expected to come from a project under development in Papua New Guinea. The deal comes amid a flurry of agreements by Chinese state-owned energy companies to secure foreign oil and gas supplies for the country’s booming economy. Sinopec, also known as China Petroleum & Chemical, said it would build a terminal in the eastern Chinese port of Qingdao to receive the gas. Irving-based ExxonMobil is developing gas fields in Papua New Guinea’s central highlands and a pipeline to carry supplies to the coast of the South Pacific island nation. Sinopec is Asia’s biggest oil refiner by volume.

Congress is sending the president legislation to expand a popular homebuyer’s tax credit and extend unemployment benefits. President Obama will sign the legislation into law tomorrow morning. With an overwhelming House vote, Congress has completed work on the $24 billion economic package that seeks both to propel a sluggish economic recovery and help out the millions who have lost jobs and have been unable to rejoin the workforce. Under the measure, the $8,000 tax credit for first-time homebuyers would be extended for seven months and expanded with a $6,500 credit for some prospective homebuyers who already own homes. The nearly two million people who have lost or are in danger of exhausting unemployment benefits before the end of the year would receive up to 20 weeks in additional benefits.

Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae. Through a new program, the government controlled company will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that. The effort is likely to affect a relatively small number of homeowners. In the first half of the year, Fannie Mae took back about 1,200 properties through this process, known as a deed-in-lieu of foreclosure. That pales in comparison to the 57,000 foreclosed properties the company repossessed in the period. While neither option is particularly attractive for the homeowner, a deed-in-lieu does less harm to the borrower’s credit record. The rental program is designed to help homeowners who don’t qualify for a loan modification under the Obama administration’s plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period.

A Democratic Senator is calling on the Obama administration to reject an expected request for economic stimulus money for a $1.5 billion West Texas wind energy project. The joint venture between U.S. and Chinese energy companies will be financed largely by China’s export-import bank. But Senator Charles Schumer of New York says the project organizers reportedly are planning to ask for 30 per cent financing–or $450 million–from the federal stimulus program designed to produce U.S. jobs. Yet, all of the 240 wind turbines on 36,000 acres in West Texas will be made in a plant in China, producing Chinese jobs. So, Schumer is writing Energy secretary Steven Chu, urging the administration to reject a request for a federal grant should one arrive.

Fitch Ratings is warning that Berkshire Hathaway’s deal for Burlington Northern Santa Fe could overexpose Warren Buffett’s company to weaknesses in the economy at the expense of its more durable investments. The agency put Berkshire Hathaway rating’s under review for a possible downgrade in the wake of its announcement Tuesday that it will buy the rest of the railroad company based in Texas for $26.3 billion. Standard & Poor’s did the same on Wednesday. Fitch says the acquisition and Berkshire Hathaway’s investments in utilities, energy and finance companies are shifting its asset profile toward businesses that use more financial leverage. It says those investments are more sensitive to the economy than investments in insurance and holding companies. Berkshire Hathaway did not immediately respond to an e-mail seeking comment.

Flight attendants at American Airlines say they will hold mock strikes around the country this month and could seek permission for real strikes early next year. The union is protesting stalled contract talks with American, the nation’s second largest airline. The Association of Professional Flight Attendants said that the November 18th protests at airports around the country would show that some flights wouldn’t operate during an actual strike. “This is only a symbolic demonstration to show management that flight attendants are willing and able to do whatever is necessary to get a fair contract,” said union president Laura Glading. The union, which represents about 18,000 workers, said it would not disrupt service during the holidays.

JDA Software Group, which makes inventory management software for retailers, says it has agreed to buy rival i2 Technologies for about $434 million. JDA Software says the deal for i2 Technologies will help it expand its business. I2 technologies makes supply chain management software used by manufacturers as they deal with customers and suppliers. JDA, which is based in Scottsdale, Arizona, is offering cash and stock valued at $18 a share for i2 Technologies, which is based in Dallas. That is a nine per cent premium over it’s closing price on Wednesday.

The most common deals under the government’s $3 billion cash for clunkers program replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage. That’s according to an analysis of new federal data by the Associated Press. The program was aimed at putting more fuel-efficient cars on the road. But the single most common swap involved Ford 150 pickup owners who traded their old trucks for new Ford 150s. They were 17 times more likely to buy a new F150 than, say, a Toyota Prius. The fuel economy for the new trucks ranged from 15 to 17 mpg based on engine size and other factors, an improvement of just one to three mpg over the clunkers. A driver in West, Texas, earned $4,500 in July in exchange for a 1989 Chevrolet Suburban SUV that got 14 miles per gallon. He bought a 2009 suburban that weighed 5,900 pounds and got 16 mpg. Across Texas, seven of the ten most common transactions involved drivers trading old pickups for new ones.

Banks borrowed slightly more from the Federal Reserve’s emergency lending program over the past week, while reducing their use of other credit programs designed to ease the financial crisis. The Fed says commercial banks averaged $22.6 billion in daily borrowing over the week that ended Wednesday. That’s up $32 million from the week ended October 28th, but is far less than the $110 billion they borrowed a year ago at the height of the financial crisis. The identities of the financial institutions are not released. They pay just 0.50 per cent in interest for the emergency, overnight loans. The limited borrowing shows banks are having a slightly easier time getting short-term loans in private markets.

The Battleship Texas Foundation has donated $2 million to the Texas Parks and Wildlife Department toward constructing a dry berth at the San Jacinto Battleground State Historic Site in LaPorte. It’s part of a foundation pledge of $4 million in private funds to match $25 million in Proposition 4 voter-approved bonds in 2007 to dry berth the Battleship Texas. The ship, launched in 1912, is the only surviving U.S. warship that saw action in both world wars and was the nation’s first battleship memorial museum. Saltwater is slows corroding the aging steel hull. An average of nine tons of water must be pumped out of the hull each day.

A job fair is set for tomorrow at the United Way of Greater Houston offices on Waugh. It’s sponsored by SER Jobs for Progress-Houston and AVANCE-Houston. More than 30 nonprofit organizations will be recruiting for job positions, as well as for volunteer and internship opportunities. Many positions are covered by the American Recovery and Reinvestment Act. Pre-registration is required by email at or by calling 7123-773-6000 extension 140.

Toyota has reported a surprise profit, cutting its projected red ink for the year by half. That’s adding to growing evidence that carmakers are starting to recover from the deepest industry downturn in years. Although far from a full-fledged turnaround, Toyota’s results show the healing effects of government stimulus measures to spur sales of environmentally friendly cars and other vehicles. There’s also soaring demand in emerging markets like China. Rivals Honda and Nissan have also issued healthier reports and outlooks recently. For the July-September quarter Toyota, the world’s largest car company, posted better-than-expected profit of $242 million after three straight losing quarters, defying some expectations of another loss.

is posting a second straight big loss as it continues to write down the value of plants that it’s selling as part of a deal to bolster finances. Dynegy said that it recorded a loss of $212 million. A year ago in the third quarter, Dynegy made $605 million, driven by a $542 million gain that reflected an updated estimate of what investments are worth based on current market values. The Houston company said in August that it plans to sell about a quarter of its generation–eight plants plus another under development–to former development partner LS Power Associates for about $1 billion in cash and $500 million in stock.

Shares of Whole Foods Market were falling in after-hours trading. That was after saying that its business has turned the corner as sales and profit grew in the fourth quarter, but investors zeroed in on a weak outlook for the next year. After five quarters of declines, the company said sales at stores open at least a year grew 1.6 per cent for the latest quarter. Whole Foods said it expects sales for 2010 to grow up to right per cent for the year. The earnings guidance was below analyst expectations.

reports its third-quarter sales fell about seven per cent due to challenging economic conditions. But the regional electronics and appliance retailer also said it boosted market share during the three months ended in October. Third-quarter revenue fell to $161.4 million, down from the year-earlier level of $173.9 million. Analysts polled by Thomson Reuters expected, on average, revenue of $197.8 million. Conn’s, which operates in Texas, Louisiana and Oklahoma, will report full third-quarter results November 27th.

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