Slump in exports hits US economy

The US economy continued to contract in the first quarter of 2009, led by the biggest fall in exports for 40 years.

US GDP contracted at an annualised rate of 6.1% during the quarter, little improvement on the 6.3% fall in the last three months of 2008.

Exports fell by 30%, the Commerce Department said, as the global recession hit worldwide spending.

Separately, the Federal Reserve held interest rates at near zero and said the recession in the US may be easing.

The central bank kept its key rate at its current range of between zero and 0.25%, saying that while the economy is still contracting, the pace of contraction appears to be "somewhat slower".

Decline in exports

However the latest GDP figures were worse than expected. Analysts had predicted the economy would contract at a rate of 5%.

The economic decline between January and March was the third straight quarter of contraction, the longest period of continuous decline since 1975.

All major exporting nations are being hit by the slowdown in world trade, which the IMF forecasts will contract by 11% this year.

Exporters Japan and Germany are expected to suffer even bigger falls in GDP in 2009 than the US.

According to the IMF, world trade is expected to contract by 11% this year, and this has affected all the major exporting nations, with Japan and Germany projected to have an even bigger fall in GDP in 2009 than the US.

Consumer boost

In addition to the big fall in exports, the continuing decline in economic output was also caused by reduced inventory investment by firms, and lower public spending.

Business investment fell by 37%, while construction was down 38%.

However, the Commerce Department said this was "partially offset" by higher consumer spending, which rose 2.2% during the quarter, after falling 4.3% in the last three months of 2008.

House building fell to its second-lowest level on record in March

Analyst Michael Darda, chief economist at MKM Partners, said the economy was "not as bad as it looks".

"It's worth noting that consumption was positive and better than expected," he added.

"There won't be positive growth until the second half of the year probably, but the fall in the second quarter, if it's negative at all, will be far smaller."

Christina Romer, the head of the White House Council of Economic Advisors, said there was a "silver lining" to the figures.

She said that the sharp decline in inventories "could put us in a position for perhaps a less dreary number going forward."

US stock markets shrugged off the news, with the Dow Jones industrial average up by more than 1% in early trading, as investors focused on the Federal Reserve's two-day interest rate meeting.

The latest GDP figure comes after data earlier this month showed that US housing construction fell in March to its second-lowest level on record.

Demand for durable goods also continued to fall in March.

Stimulus package

In the second half of the year, the US economy may also benefit from the $787bn (£533bn)economic stimulus package which was passed by Congress in February.

Very little of that spending reached the economy in the first quarter, with the figures showing government spending actually fell 3.9% in that period.

However, the worse-than-expected economic news provides a gloomy backdrop to mark President Obama's first 100 days in office.

In recent weeks, administration officials said they were seeing "tentative signs" of economic recovery.

One sign appeared on Tuesday when consumer confidence rose to its highest level in two years.

However, unemployment is still rising by over 500,000 per month and is expected to top 10% by the end of the year.

Japan in surprise economy boost

Japan's exports have been hit by a collapse in demand

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Production rose by 1.6% in March compared with February, after months of dramatic decline.

The larger-than-expected increase is being seen as a sign that the country's plunge in production and exports may be nearing an end.

The world's second biggest economy has been hit hard by the global downturn, sliding into a sharp recession.

These are grim times for Japan's economy but the latest figures from the government show a small improvement.

But the new figures are a sign that the strategy of Japan's manufacturers - to mothball production lines, reduce shifts and lay off staff - may be working.

With stockpiles of unsold goods diminishing some factories are starting to come back to life.

Japan has been hit badly by the downturn because worldwide demand has collapsed for its cars and electronics.

The increase follows figures earlier this month showing that exports have also risen slightly, although shipments are still running at just over half the levels of a year ago.

A government survey of manufacturers showed they expect industrial production to continue to rise, by 4.3% during April and by 6.1% in May.

House prices 'fall to 2004 level'

Jeremy Leaf of the Royal Institute of Chartered Surveyors on the housing market's troubles

The average price of a UK home has fallen to levels not seen since August 2004, according to the Halifax.

Prices declined by 2.2% in December, to bring the average cost down to £159,896, the lender said.

For 2008 as a whole, prices fell 16.2%, the biggest annual decline since Halifax began keeping records in 1983.

Halifax also said homes were more affordable than at any time since April 2003, when set against earnings. But getting a mortgage is harder for many.

The figures came as data from the Bank of England showed the number of mortgage approvals fell to 27,000 in November - at least a nine-year low.

This was the lowest figure since the series began in January 1999.

The number of mortgages approved, but not yet lent, is seen as a good indicator of medium-term trends in lending.

Subdued

In monetary terms, mortgage lending rose by £740m in November, but that was still less than a 10th of the amount seen in the same month in 2007.

The figures are the latest indication of the extent of the housing downturn and are likely to increase pressure on the commercial banks to start to raise lending levels.

These are still subdued as a result of the financial crisis, despite efforts by the Bank of England to help the banks improve their liquidity.

The Bank's own Credit Conditions Survey - also released on Friday - said commercial banks and building societies planned to continue to cut back on lending to individuals and businesses, both in terms of mortgages and other loans.

Howard Archer of IHS Global Insight said: "This bodes ill for business activity, investment, employment, consumer spending and housing market activity".

Rate row

The Halifax said house prices were likely to continue to fall for some time, although stability was returning to market activity, "albeit at a low level".

"Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert future downward pressure on the market over the coming months," said Halifax chief economist Martin Ellis.

Mr Archer now predicts that house prices will fall by a further 15% in 2009.

He said there was "a powerful set of negative factors weighing down on the housing market", including continuing tight credit conditions, rising unemployment, and "widespread expectations that house prices are likely to fall a lot further".

The latest housing and mortgage data came as the Nationwide Building Society said it would not pass on any further cuts in UK interest rates to most of its tracker mortgage customers.

A clause in the contracts of 250,000 customers says the Nationwide does not have to lower its rates when the Bank of England's rate falls below 2.75%.

While it did not enforce this when the Bank Rate fell to 2% in December, it now says rates will fall no further.

US consumers cut their spending

Spending contracted by 0.6% in November following October's fall of 1%, according to the Commerce Department.

Orders for long-lasting US manufactured goods fell 1% in November, which was less than expected, but there was a big downgrade in October's figures.

Orders in October fell by 8.4%, down from the first estimate of 6.9%.

It makes October's fall the biggest since July 2000.

The decline in sales of these durable goods, particularly automobiles, is hitting Detroit hard, with GM, Ford and Chrysler set to receive temporary government help in the New Year.

The weekly figure for new jobless claims rose 30,000 to 586,000, which was more than had been expected, according to the Labor Department.

Rising unemployment appears to be biting, with incomes falling by a worse-than-expected 0.2% in November, following a 0.1% rise in October.

Madoff investor commits suicide

A bottle of pills was found near him, but there was no suicide note.

Mr Madoff is accused of running a $50bn (£34bn) Ponzi scheme that wiped out investors around the world.

Big funds like Mr Villehuchet's were especially hard hit.

Paris newspaper La Tribune said he spent the past week trying "day and night to find a way to recoup his investors' money".

Mr Villehuchet, who was married without children, was co-founder of money manager Access International.

Legal case

Mr Madoff's fraud has ensnared Wall Street investors and charities around the world, although the full extent of the losses is as yet unknown.

Mr Madoff is under house arrest while an investigation is underway

He is under house arrest in his Manhattan apartment, and his assets have been frozen.

Another investor who gave Mr Madoff $2m (£1.35m) to manage has taken legal action against US financial regulators.

Phyllis Molchatsky, a 61-year-old retiree from New York, is seeking $1.7m in damages from the US Securities and Exchange Commission.

It is believed to be the first attempt by an investor to recover losses from the SEC.

Pound in another record euro low

It is at the lowest level since the euro was launched in 1999.
The pound gained one cent against the US dollar, reaching $1.4967, as against 1.4827 on Wednesday.
The dollar also fell against other currencies, hitting the lowest level against the euro and the Japanese yen for the past six weeks.
Sterling was pushed lower after figures from the Confederation of British Industry confirmed a sharp downward trend in manufacturing.
The UK currency is expected to remain under broad selling pressure amid a grim outlook for the British economy.
POUND STERLING v EURO: 11 December 2008 *All Times GMT
However, some analysts have expressed doubts that the rise of the euro against the pound is a sustainable trend, particularly if European economies also continue to weaken.

"If the eurozone is being perceived to still have rates at substantially higher levels, then obviously there's a positive rate spread, but I'm not convinced that its ultimately going to be positive as the dynamics of the eurozone economy are pretty weak," Rabobank markets strategist Jeremy Stretch said.
Interest rates have been cut both in the UK and in the eurozone, but they remain higher in the 15-member euro currency area.
The Bank of England has made two sharp cuts in rates, bringing them down to 2%, and many analysts expect more in the pipeline.
Lower interest rates make it less attractive for foreigners to hold pounds.
A weaker pound is better for the UK exporters but is bad news for British holidaymakers who plan to go abroad during the Christmas season, and also makes imported goods more expensive.
Meanwhile, the dollar's weakness has been attributed to the growing difficulties of the auto industry, whose $34bn bail-out is being negotiated in Congress.

US car bail-out fails in Senate

The failure came after bipartisan talks on the rescue plan collapsed over Republican demands that the United Auto Workers union agree to swift wage cuts.

The White House said the bill had been the Big Three car makers' "best chance to avoid a disorderly bankruptcy".

The House of Representatives passed the White House-backed bill on Wednesday.

The Democrats needed some Republicans to back the bill in the Senate as they have a majority of just one, and some in their own party were expected to vote against.

'Three words away'

The BBC's Andy Gallacher in Washington says it was always going to be a battle to get the US Senate to approve the $14bn bridging loan.

The atmosphere in the Senate was tense and at times emotional, our correspondent says, as the Democrats made last minute pleas to get their Republican counterparts to vote in favour of helping America's biggest car makers - General Motors, Chrysler and Ford.

The Senate majority leader, Harry Reid, said he was "terribly disappointed" when it became clear the vote had collapsed, calling it a "a loss for the country".

"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," he said.

"Millions of Americans, not only the auto workers but people who sell cars, car dealerships, people who work on cars are going to be directly impacted and affected."

The news brought a sharp fall in share prices in Japan, Taiwan, South Korea and Australia.

Sen Reid said there had been too many differences between the Democratic and Republican representatives.

The Republicans left the closed-door meetings after refusing to give the car makers federal aid unless the United Auto Workers union agreed to cut wages next year to bring its members into line with their Japanese counterparts.

Republican Sen Bob Corker said the two sides had been very close to a deal, but that the UAW's rejection of wage concessions before 2011, when its current contract with the car makers expires, had kept them apart.

"We were about three words away from a deal," he said. "We solved everything substantively and about three words keep us from reaching a conclusion."

Alan Reuther, the UAW's legislative director, declined to comment to reporters as he left a meeting room during the negotiations, according to the Associated Press.

Our correspondent says it is clear now that there will be no Congressional action on a bail-out this year.

White House spokesman Tony Fratto said the government would evaluate its options in light of the collapse of the negotiations, but did not elaborate.

"We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable," he said.

President-elect Barack Obama had said he supported the bill.

The deal would have given the Big Three access to emergency funding to help them cope with the sharp downturn in sales because of the global financial crisis.

General Motors and Chrysler say they risk ruin without immediate aid. Ford says it may need funds in the future. The three firms called for $34bn between them when their bosses recently went before Congress to put their case.

The Big Three have all seen sales fall sharply this year in the US.

While this decline reflects an industry-wide fall that has also hit European and Japanese carmakers in the US, they have also been criticised for not offering an attractive range of vehicles.

Chinese exports drop

China has reported a fall in exports for the first time in seven years.

Chinese exports declined in November from the same period a year ago for the first time since June 2001, data shows.

But China still reported a record monthly trade surplus of $40.1bn (£26.7bn), as the fall in imports was even bigger than the fall in exports.

Exports dropped by 2.2%, while imports shrank by a massive 17.9% as Chinese consumer spending slumped - a sign of the impact of the global downturn.

October had seen China's exports rise by 19.1% and analysts had expected further growth of at least 13% in November.

However, they failed to anticipate a dramatic decline in foreign demand.

China is expected to show growth of about 9% this year. However, the World Bank has cut its China growth forecast for 2009 from 9.2% to 7.5%, the lowest since 1990.

Economists have been watching China closely, amid worries that global growth could be hit further if China follows the US into the downturn.

Weakening demand

In November, China announced a huge investment plan to kick-start its slowing economy.

About $586bn is to go into housing, infrastructure and post-earthquake reconstruction in China over the next two years.

However, it is unclear whether it will be enough to have an impact, while analysts see tough times ahead.

"It's just a start. Exports and imports will continue to fall in the coming months, probably until next June," said Zhang Shiyuan at Southwest Securities in Beijing.

"China's export sector will begin to show signs of stabilisation only with global recovery," said Jing Ulrich at JP Morgan.

The trade surplus in the 12 months till the end of November rose to $278.7bn from $265bn in a year to the end of October.

Meanwhile, Chinese aviation authorities are urging local airlines to postpone or cancel 2009 plane deliveries amid falling demand for air travel.

The move could hurt aircraft makers Boeing and Airbus, which have hoped to weather weakening demand in their home markets by relying on growth in emerging markets, such as China.

Struggling at a million-dollar horse stable

LITTLETON, Colo. - If you could put karma in the bank, Stan and Christine Penton would have a nice savings account.

As owners of one of the Denver area’s last remaining suburban equestrian stables for the past 13 years, the Pentons have offered programs for disabled riders, rescued wild mustangs and subsidized lessons and horses for the less fortunate among their generally well-to-do clientele. Leaders in their community and their church, they adopted two young children from Russia.

And good karma is mostly what they have to show for it. That and the $7,400 they can count as profit so far this year from the hundreds of thousands in revenue they have collected at their Normandy Farm and Stables