New Problem, Old Tracks
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Forest first; Trees second.
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Retail sales spiked in February on higher auto sales and on higher gasoline sales. But other components were mostly robust. And we got a large upward revision to January. Overall retail sales surged 1.0 percent, following a revised 0.7 percent boost in January and a revised 0.6 percent increase in December. The February posting matched analysts' expectation for a 1.0 percent jump. January and December had previously been estimated to be up 0.3 percent and 0.5 percent, respectively. Excluding autos, sales advanced 0.7 percent, following a 0.6 percent gain in January. A notable part of this increase was price related on higher gasoline prices. The median market forecast called for a 0.7 percent increase. Nonetheless, sales excluding autos and gasoline improved a strong 0.6 percent, following a 0.5 percent rise in January.
The February boost in sales was led by a 2.3 percent jump in sales of motor vehicles & parts with gasoline sales up 1.4 percent. Nearly all other major components were quite robust. Other notably strong components were sporting goods, hobby, book & music stores, up 1.3 percent, and food services & drinking places, up 1.2 percent. The latter is especially encouraging as it is a very discretionary category. Even the price depressed electronics component made a 0.9 percent comeback. The weakest major category was the housing-depressed furniture & home furnishings category, down a monthly 0.8 percent.
Overall retail sales on a year-ago basis in February rose to 8.9 percent from 8.1 percent the month before. Excluding motor vehicles, sales were up a year-ago 6.0 percent, compared to 6.4 percent in January.
Despite price effects, the latest retail sales numbers reflect a strong showing by the consumer. The February numbers plus upward revisions will have economists revising their estimates for first quarter GDP but his time it will be upward. Equity markets firmed a bit on the upward revisions but remained negative over concern about the economic impact of the earthquake in Japan and ensuing tsunami.
Debit cards: $50 spending limit coming?
NEW YORK (CNNMoney) -- Declined! Your debit card may soon be denied for purchases greater than $100 -- or even as little as $50.
JPMorgan Chase, one of the nation's largest banks, is considering capping debit card transactions at either $50 or $100, according to a source with knowledge of the proposal.
Why? Because of a tricky thing called interchange fees.
Right now, every time you swipe your debit card, your bank charges the retailer an average fee of 44 cents, which it shares with its partners. Those little fees, however, add up to about $16 billion per year, according to 2009 data from the Federal Reserve.
But as part of the Wall Street reform legislation that was passed last year, these fees are being slashed. The Fed is currently proposing rules that would go into effect in July and would cap interchange fees at 12 cents.
That's a big enough cut to cost Chase (JPM, Fortune 500) more than $1 billion a year. And Chase may not be alone. Other major issuers are also projecting huge losses from the interchange fee cap.
Joe Price, president of consumer banking for Bank of America (BAC, Fortune 500), said in an e-mailed statement that the lower fee wouldn't fairly compensate the bank for the infrastructure and services it provides to retailers.
The U.S. trade deficit worsened sharply and oil had only a small role in it. But the detail in imports indicates it may be a response to healthy demand. The overall U.S. trade deficit in January widened to $46.3 billion from a revised $40.3 billion shortfall in December. The January gap came in worse than analysts' forecast for a $41.0 billion deficit. Exports gained 2.7 percent, following a 2.0 percent boost the prior month. Imports posted a huge 5.2 percent increase after rising 2.6 percent in December.
The expansion of the trade deficit was led by the nonpetroleum goods gap which grew to $32.0 billion from $27.0 billion in December. The petroleum shortfall widened moderately to $26.7 billion from $25.5 billion the prior month.
Looking at end use categories for goods, the jump in imports was led by a $4.4 billion spike in industrial supplies but only $1.7 billion came from oil imports. Notably, capital goods imports excluding autos jumped $2.1 billion while automotive imports increased $2.7 billion. The surge in these imports may be related to meeting expected demand and this actually would be a positive sign for forward momentum although for the near term, it means a downward revision to first quarter GDP growth estimates.
By end-use categories, the boost in goods exports was led by a $3.7 billion jump in industrial supplies with automotive exports advancing $1.3 billion. Capital goods exports slipped 0.4 billion-largely on lower aircraft shipments. Consumer goods exports edged down $0.6 billion while food, feeds & beverages were essentially unchanged.
On a not seasonally adjusted basis, the January figures show surpluses, in billions of dollars, with Hong Kong $2.2 ($2.2 for December), Australia $1.2 ($1.2), Singapore $0.8 ($1.3), and Egypt $0.5 ($0.7). Deficits were recorded, in billions of dollars, with China $23.3 ($20.7), OPEC $9.9 ($8.3), European Union $5.6 ($6.6), Japan $5.0 ($5.9), Mexico $4.9 ($4.7), Canada $3.7 ($3.9), Germany $3.1 ($3.3), Nigeria $2.9 ($2.5), Venezuela $2.8 ($2.0), Ireland $1.9 ($2.6), Korea $1.0 ($0.7), and Taiwan $0.9 ($0.6).
On the news, equity futures dipped on the belief that first quarter GDP is not as strong as earlier believed. Also, a rebound in initial jobless claims weighed on equity futures-though the weekly volatility led to some discounting of the rise.
A catch-up from the prior holiday week fed a 26,000 increase in initial jobless claims for the March 5 week to a higher-than-expected level of 397,000 (prior week revised 3,000 higher to 371,000). The gain follows two prior weeks of sharp decreases reflected in the four-week average which rose only slightly to 392,250. A month-ago comparison still shows significant improvement of nearly 25,000. The Labor Department noted that a school break in New England, when bus drivers and other personnel are laid off, also increased claims.
Continuing claims extended their decline, down 20,000 in data for the February 26 week to 3.771 million. Continuing claims have fallen for five of the last six weekly periods. The unemployment rate for insured workers is unchanged at 3.0 percent.
Today's report will cut short hopes for strong momentum on the jobs front but not expectations for continued meaningful improvement. Markets are showing no significant immediate reaction.
One week's data is only one week's data but the Mortgage Bankers Association believes improvement in the jobs market is "beginning to pave the way" for improvement in the housing market. MBA's purchase index, which measures volume of mortgage applications for home purchases, surged 12.5 percent in the March 4 week for its best reading of the year. Rates remain favorable, at 4.93 percent for 30-year loans. The refinancing index also revived in the week, up 17.2 percent for its best reading since mid-January.
BofA Segregates Almost Half of its Mortgages Into ‘Bad Bank’
March 8 (Bloomberg) -- Bank of America Corp., the biggest U.S. lender by assets, is segregating almost half its 13.9 million mortgages into a “bad” bank comprised of its riskiest and worst-performing “legacy” loans, said Terry Laughlin, who is running the new unit.
“We are creating a classic good bank, bad bank structure,” Laughlin told investors at a meeting in New York today. He was promoted last month to manage the costs of resolving disputes stemming from the company’s 2008 purchase of Countrywide Financial Corp. “We’re going to get after this, we’re going to do it the right way and we’re going to put it to bed in the next 36 months,” he said.
The legacy portfolio will hold 6.7 million loans with outstanding principal balance of about $1 trillion, according to a presentation to investors today. The split leaves home loan President Barbara Desoer with about half her previous portfolio, as well as new lending going forward.
Laughlin’s portfolio will include loans that are currently 60 or more days delinquent as well as riskier types of loans the bank no longer originates, such as subprime, Alt-A, interest- only and option adjustable-rate mortgages, he said. He said the portfolios will be completely split by March 31 and that his will be liquidated over time. Of the 13.9 million loans Bank of America services, about 3.5 million are held by the company on its balance sheet. The rest are owned by other investors.
“It’s a way to get investors focus on the good,” said Paul Miller, a former examiner with the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “It’s a way to talk about good things and ignore the bad.”