White House on jobless dip: Economy healing but much work remains

WASHINGTON (Reuters) - The White House's chief economist said on Friday that a drop in the November U.S. jobless rate to 7.7 percent was proof that the economy is healing from recession but that much work remains to be done. The Labor Department reported that the jobless rate dipped from 7.9 percent with 146,000 jobs created. Many analysts had forecast an uptick in the jobless rate as a result of superstorm Sandy's impact. "While more work remains to be done, today's employment report provides further evidence that the U.S. economy is continuing to heal from the wounds inflicted by the worst downturn since the Great Depression," said Alan Krueger, chairman of the White House Council of Economic Advisers. In a statement, Krueger argued the Labor report showed the need for Congress to approve President Barack Obama's proposal to extend Bush-era tax cuts for those making less than $250,000 a year and raise them on the wealthy.

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ECB rate cut possible following "serious" debate

BRATISLAVA/FRANKFURT (Reuters) - A European Central Bank policymaker said on Friday the bank had had a "very serious" debate about cutting interest rates this week and that a cut was possible next year if the euro zone economy does not pick up. The German and Austrian central banks separately suggested such a pick up is unlikely, forecasting scant growth in their economies in 2013. The ECB kept interest rates on hold on Thursday, but Governing Council members held "a wide discussion" about cutting interest rates from their current record low of 0.75 percent. Jozef Makuch, one of the Council members, used the term "very serious" on Friday to describe the debate. "If the situation does not improve, and there is relatively a small chance there will be a significant improvement, it is possible to expect a move in interest rates next year," said Makuch, who is also the governor of Slovakia's central bank. The latest growth forecasts paint a gloomy picture. The Bundesbank expects Germany's economy to grow just 0.4 percent next year, down from a June forecast of 1.6 percent. The new projection is marked by "a high degree of uncertainty", it added, and "the balance of risks is on the downside". Austria's central bank cut its 2013 growth forecast for the country's export-dependent economy to 0.5 percent from the 1.7 percent it had expected in June, due to the global downturn, weak investment and sluggish consumer spending. The downward revisions come a day after the ECB lowered its forecasts for next year, pointing to weaker growth prospects for the bloc's core countries such as Germany, France and the Netherlands. "Given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed," the Bundesbank said. "The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff," the German central bank added. Germany has been a key growth driver of the euro zone, now in its second recession since 2009, but the country's resilience to the crisis is wearing thin and the central bank's new projections reflect this. Germany could even enter a recession -- defined as two consecutive quarters of negative growth -- the Bundesbank said: "There are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013." The euro, which had dropped earlier in the day against the dollar after the growth forecasts were published, extended its fall after Makuch's comments. Economists expect the German economy to contract in the fourth quarter but to improve as soon as in the first quarter. "The Bundesbank is quite negative about next year," said ABN Amro economist Aline Schuiling. "What we are currently seeing is more and more evidence that the global industrial cycle is bottoming out." INDUSTRY SUFFERS Industrial orders and output have dropped in recent months, with exports falling at their fastest pace since late last year. German industrial production fell by a much steeper-than-expected 2.6 percent in October, weighed down by weaker output in the construction sector and in investment goods, Economy Ministry data showed on Friday. Auto industry association VDA said on Tuesday German new car sales could fall to the second-lowest level in more than two decades next year, as demand is hit by the euro zone crisis. But some German economic data over recent weeks has been encouraging, with business morale rising for the first time in seven months and unemployment growing less than expected. In Berlin, the German government was cautiously optimistic the economy will continue to grow. "We have no doubt that we are still growing," Chancellor Angela Merkel's spokesman Steffen Seibert told reporters. "There are many indicators and they don't all point to a recession. The government is cautiously optimistic that we'll keep growing." The Bundesbank said the slowing of the global economy, as well as recessions in other euro zone countries, were dragging on the German economy. But "the Bundesbank does not see a protracted slowdown but instead anticipates a return to growth path soon", it added, forecasting 2014 growth of 1.9 percent. Austria's central bank forecast its economy would grow by 1.7 percent in 2014. Austrian central bank chief Ewald Nowotny said his bank assumed the euro zone economy would reach its nadir in the fourth quarter, but past experience had shown expectations were not always met on time. "I hope this is not the case but I cannot rule it out," Nowotny said.

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Earnings from McDonald's, Microsoft sink stocks

NEW YORK (AP) -- Poor earnings reports from three companies in the Dow Jones industrial average — Microsoft, General Electric and McDonalds — sent indexes down sharply Friday, marking a sour end to an otherwise strong week in the stock market. McDonald's led a broad drop in the Dow, falling 3 percent. The Dow was down 151 points at 13,397 shortly after noon. "I'm concerned about corporate earnings, but I'm not alarmed yet," said Doug Cote, chief market strategist at ING Investment Management in New York. Cote cautions that it's still early in reporting season, but what's worrying is that companies have reported an overall drop in earnings so far. "And once you get one quarter of negative earnings, it's a precursor," he said. "It's the cockroach theory: if you find one, there's probably many more." The Standard & Poor's 500 sank 17 points to 1,440 and the Nasdaq composite dropped 52 points to 3,020. All 10 industry groups in the S&P 500 fell, led by materials and technology stocks. McDonald's profit sank as a strong dollar hurt international results, which account for two-thirds of its business. The fast-food giant's stock lost $3.51 to $89.35. Microsoft's income fell 22 percent as PC sales took a dive and as troubles in Europe took their toll. Its stock lost 67 cents to $28.82. General Electric, another economic bellwether, fell 3 percent. The company reported stronger profits early Friday but its revenue missed Wall Street's expectations. Orders for new equipment and services sank, mainly because wind turbine orders have fallen because a key U.S. federal subsidy for wind power expires at the end of the year. GE's stock lost 60 cents to $22.21. Analysts currently expect companies in the S&P 500 to post their worst earnings results since the third quarter of 2009, according to S&P Capital IQ. Banks and consumer discretionary companies are projected to report the best growth. Analysts expect companies dealing in metals and other materials to report the worst results, followed by energy companies. But it's technology companies like IBM, Intel and Google whose weak results have grabbed the most attention so far. Weak earnings from Google and a rise in claims for unemployment benefits helped pull the stock market lower Thursday. That snapped a four-day run of gains for the Dow. Google fell again Friday, giving up $14.14 to $680.86. The Dow is still up 0.6 percent for the week. The S&P 500 up is up 0.8 percent. In other Friday trading, the yield on the 10-year Treasury note slipped to 1.77 percent from 1.83 percent late Thursday. Among other stocks making big moves, Chipotle Mexican Grill plunged 14 percent after the burrito chain forecast that revenue growth would slow sharply next year. The stock had been a favorite among investors thanks to super-fast growth in recent years. The stock fell $41.32 to $244.61.

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Who Owns America’s Debt?

As the U.S. continues to rack up more than $1 trillion of new debt every year, Americans are beginning to worry about who we owe this money to and how much power our creditors have over us. According to Barry P. Bosworth, a senior fellow at the Brookings Institution, our two biggest foreign creditors are Japan and China. Although it may seem as though our debt to these countries renders us a puppet on strings, Bosworth says this fear is overblown. The U.S. market is very important to China's economy, so China would be loathe to do anything that might exacerbate tensions or disrupt trade between the two countries. And the same can be said for Japan. China owns $1.15 trillion of U.S. government debt -- more than any other country -- but U.S. taxpayers actually owe less money to China compared to recent years. China holds 10% of U.S. Treasuries, down from 12% two years ago. Related: China's Slow Growth 'Marks An End of an Era' But No Hard Landing And what about all the anti-China rhetoric that we hear about on the campaign trail? Republican Presidential Nominee Mitt Romney has been promising the country that he will declare China a "currency manipulator" on the first day of his presidency--and then enact tariffs as necessary until he forces China to level the trading playing field. Is that something that Romney is actually likely to do if he gets elected? No, says Bosworth. Tough talk with respect to China has become standard rhetoric for any presidential challenger. If and when Romney becomes president, his position will likely mellow. Bosworth also says that the problem with the U.S.-China trade relationship is not, as is commonly believed, that China doesn't play fair. China has actually addressed lots of its unfair practices over the past decade, Bosworth says, while the U.S. is still pursuing the same old self-destructive habits. Until we stop consuming so much and start producing more, Bosworth says, we're in no position to demand anything.

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Google filing error shocks investors, exposes process

SAN FRANCISCO/NEW YORK (Reuters) - R.R. Donnelley & Sons Co handles thousands of securities filings a year for corporate clients in a routine process that is invisible to most investors. On Thursday Google and its shareholders found out just what happens when that process goes wrong. Google issued a statement blaming Donnelley, its filing agent, after the Internet search company's quarterly results were released by the U.S. Securities and Exchange Commission hours ahead of schedule. Earnings were far less than analysts expected and Google shares immediately plunged as much as 10.5 percent, knocking $26 billion off its market capitalization - the equivalent, as it happens, of about 13 R.R. Donnelleys. It was quickly obvious that a mistake had been made -- the second paragraph of the filing said "PENDING LARRY QUOTE" instead of an actual quote from Google CEO Larry Page -- but it was not clear why. Within minutes, though, an unknown prankster set up a "PendingLarry" Twitter feed to hypothesize what the missing quote might be. Among the highlights: "Man, our privacy was WAY violated today." Donnelley shares lost more than 5 percent after Google started pointing the finger, though they recovered later in the day. The company did not respond to a call for comment, but issued a statement to CNBC in which it said it was investigating the circumstances of the release. Best known as a provider of printing services, Donnelley is also the top SEC filing agent in the country, handling more than 75,000 submissions this year as of mid-October, according to SECInfo.com. Filing agents like Donnelley take paper documents and convert them for submission to the SEC in the appropriate format. The company also owns the filing portal EDGAR Online. WHO GOOFED? It is far from the first time a company's earnings have somehow gotten out early. In late 2010 and early 2011, inadvertent releases - usually by a misplaced release on a website - plagued companies like Walt Disney Co (NYS:DIS) and Microsoft Corp (NSQ:MSFT). The common thread in all of those cases is that investors who are not in the right place at the right time to see the news may suffer for it. "Some who didn't get a chance to sell will try to, and others will be looking for bargains. I'm sure a lot of Google owners were caught off guard," said Randy Frederick, managing director of active trading and derivatives for Charles Schwab in Austin, Texas. After the first question of "who goofed?" was sorted out Thursday afternoon, the second one being asked by investors was "can we sue?" "Everyone is trying to figure out if there's any legal issue with respect to R.R. Donnelley. Google is halted, Donnelley is down big-time on the news since they're allegedly not supposed to have released the information," said Michael Matousek, senior trader at U.S. Global Investors in San Antonio. But one plaintiffs lawyer who sues companies on behalf of investors said shareholders would not have a claim against either Google or R.R. Donnelley because the earnings disclosure was likely a mistake. "There's no fraudulent intent here," said Reed Kathrein with Hagens Berman. R.R. Donnelley may not be entirely off the hook with Google, however. The company could have a negligence claim to recover any additional costs it incurred in responding to the incident, Kathrein said. Any potential damages against R.R. Donnelley could be limited, though, by the contract between the two companies. Late Thursday, Google filed an amended press release with the missing quote and a confirmation that the figures in the original were accurate. R.R. Donnelley shares were up 2 cents at $10.87 in late trading. Google was down 8.1 percent to $693.94 after trading resumed.

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US housing construction up 15 percent in September

WASHINGTON (AP) -- U.S. builders started construction on single-family homes and apartments in September at the fastest rate since July 2008, a further indication that the housing recovery is strengthening. The Commerce Department said Wednesday that builders broke ground on homes at a seasonally adjusted annual rate of 872,000 in September. That's an increase of 15 percent from the August level. Applications for building permits, a good sign of future construction, jumped nearly 12 percent to an annual rate of 894,000, also the highest since July 2008. [Click here to see home loan rates in your area.] The strength in September came from both single-family construction, which rose 11 percent, and apartments, which increased 25.1 percent. Construction activity is now 82.5 percent higher than the recession low hit in April 2009. Activity is still well below the roughly 1.5 million rate that is consistent with healthier markets. Still, the surge in construction suggests builders believe the housing rebound is durable. Builder confidence reached at a six-year high this month, according to a survey by the National Association of Home Builders. The group's index of builder sentiment rose to a reading of 41. While that's still below the level of 50 that signals a healthy market, it has steadily climbed over the past year from a reading of 17. Sales of new and previously owned homes have been slowly improving this year, and home prices are starting to show consistent gains. Record-low mortgage have encouraged more people to buy. And the Federal Reserve's aggressive policies could push long-term interest rates even lower, making home-buying affordable for the foreseeable future. Housing is expected to keep improving next year. But many economists say economic growth will stay muted until companies step up hiring and consumers start spending more. Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the home builders group.

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Battery maker A123 files for bankruptcy protection

ETROIT (AP) -- After years of struggling in the nascent market for electric cars, battery maker A123 Systems Inc. filed for bankruptcy protection Tuesday. The filing drew criticism from Republicans who claim the Obama administration has wasted millions of taxpayer dollars on alternative energy companies like A123. The company received a $249 million Department of Energy grant three years ago with high hopes that it would help foster a U.S. battery industry. At the time, the country was far behind the world leaders, Korea and China. But the technology offered by the Waltham, Mass.-based A123 Systems turned out to be ahead of its time. Americans continue to shun costly electric cars in favor of gas-powered ones. "Sometimes when you push the edge of technology, you fall over that edge," said Aaron Bragman, an automotive industry analyst at IHS Automotive near Detroit. The filing doesn't necessarily mean the end for A123 System's operations. The company sold its automotive unit to parts maker Johnson Controls Inc., which plans to keep A123 plants open and sell the company's lithium-ion battery technology. But the bankruptcy filing stoked Republican criticism of Obama's support for "green" energy companies, which have received millions in grants and loans. Almost instantly, A123 became an issue in the presidential campaign. The bankruptcy is "yet another failure for the president's disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work," Andrea Saul, spokeswoman for Republican challenger Mitt Romney, wrote in an e-mail. Obama's campaign countered, saying the investments have more than doubled renewable energy production from wind and solar sources, creating jobs and bringing manufacturing back to the country. The administration has said the "vast majority" of companies that received loans are still expected to pay them back in full, with interest. A123 joins solar panel maker Solyndra LLC as another example of companies that got government money but failed. The politically connected and now bankrupt Solyndra left taxpayers on the hook for $528 million after it failed to repay a government loan. The government also made millions in loans to electric car makers Tesla Motors and Fisker Automotive, both of which are struggling. Tesla has never made a profit but is starting to repay its loans, while Fisker is trying to raise money so it can build a car that's less expensive than its $100,000 Karma. Bragman said that although the government will lose cash, its seed money was needed to foster the electric car and battery industries. Other governments such as Japan and China, he said, play similar roles in growing new industries. "You run the risk of losing some, but you run an even bigger risk of falling behind globally if you're not ready when the technology suddenly blossoms, which it will," he said. A123's demise as an independent business reflects the problems of the electric-car industry. Americans have been slow to buy the vehicles because they're expensive, and many models have limited range and can run out of power on longer trips. Lackluster sales of EVs and batteries left A123 with huge losses and a plunging market value. Martin Zimmerman, a former Ford executive and now a professor at the University of Michigan, said electrics still cost too much and don't make financial sense when compared with efficient gas-powered cars. "This is one in a series of news stories recently that says the commercialization of this technology is not as imminent as might have been thought," he said. After the news hit, A123's already depressed stock price fell even further. The shares closed at 6 cents Tuesday. They traded for more than $20 on the day of its initial public offering in 2009. Unlike a loan, A123's government grant was never supposed to be repaid. The company had to match the money as it was used. It received $132 million of the grant. The government stimulus grant was used to help build plants in the Detroit suburbs of Livonia and Romulus. The company also got a $6 million research grant in 2007 under the Bush administration, the Energy Department said. Under Tuesday's deal, Johnson Controls will pay $125 million for A123's lithium-ion battery technology, other products and customer contacts. It will also take over A123's two Michigan factories, cathode ray factories in China and an equity interest in a Chinese battery company. Johnson Controls planned to keep the factories running but said it was too early to give details about A123 employees or customers. A123 said it expects to continue operations as it moves toward the sale to Johnson Controls. The company said it is in talks to sell its grid, commercial, government and other operations that weren't purchased by Johnson Controls. The company was to supply batteries for the new all-electric Chevrolet Spark subcompact from General Motors Co. It also has a contract with BMW AG. A123 has struggled for several years, and ran into serious trouble this spring after a costly recall of its batteries. Bragman said it wasn't able to recover from the expense. The company warned that it might not be able to stay in business unless it got more financing, and just two months ago, it announced a $450 million lifeline from Chinese auto parts maker Wanxiang Group Corp. But A123 said Tuesday that the deal has been scrapped. A123 subsidiaries outside the U.S. were not included in the bankruptcy filing.

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