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Fed Pres Signals Higher Rates MoneyNews
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Job creation was more robust than expected even as the U.S. unemployment rate for February inched up to 4.8%. Some 243,000 jobs were added to payrolls last month. Analyst consensus for payrolls was just 210,000. The job creation was mostly in health and education, construction and government, which added 47,000, 41,000 and 38,000 jobs respectively.
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The surprise jobs expansion came in the construction industry as housing markets show signs of cooling and a blizzard in the Northeast was thought to have hampered building efforts. The February unemployment rate bumped up one point due to more people entering the workforce. The improving economy attracted 335,000 more people to enter the civilian workforce. Additionally, wages improved 0.3%, or a nickel an hour in February. Over the past year, both average hourly and weekly earnings increased by 3.5%. Rising costs for health benefits may have contributed to the higher wages. Nevertheless, the Fed is sure to view this as inflationary. More jobs and better pay is a clear signal to the Fed that there is room to raise rates - perhaps more than just two more times this year. Steve Ricchuito, chief U.S. economist at ABN AMRO in New York, comments to Reuters: "You've got a healthy economy that is starting to show employment gains offsetting what you're losing from the housing industry. The Fed raises rates the next two meetings and then holds with a bias toward tightening," Today, the two-year note rose to 4.75%, compared with 4.72% yesterday. And 10-year notes were back up to 4.74%. Editor's Note:
2. Low Inventories, Better Sales Boost Economy The Census Bureau today announced that wholesale inventory levels increased by just 0.1%. Sales grew by 1% in January, up a whopping 9.3% from January 2005. The inventory-to-sales ratio fell to 1.14 months in January, meaning that it would take just 1.14 months to exhaust inventories of goods. This is the lowest level since May 2004. These numbers show that the economy is steadily improving. Slight growth in inventories shows that manufacturers are cautiously increasing production. And better sales growth demonstrates that economic growth is accelerating. Sales of automobiles and auto parts surprised the market with a 4.5% growth in sales. In fact, sales of all durable goods - products meant to last more than a year - rose 1.4%. Sales of non-durable goods, such as food and chemicals, grew slightly, up 0.6%. Most analysts expect this pace to continue through the first six months of the year. Editor's Note:
3. N.Y. Fed Pres. Signals Higher Rates New York Federal Reserve President Timothy F. Geithner hinted that the Fed may have to raise rates even more because of the growing economy. The Washington Post reports that Geithner remarked: "To the extent that these forces act to put downward pressure on interest rates and upward pressure on [stock, real estate and other asset] prices, they would contribute to more expansionary financial conditions ... the Fed might "have to act to offset these effects." Geithner pointed to several reasons why long-term rates in the U.S. have stayed relatively low, including foreign investors pouring money into U.S. markets, low inflation and slower growth in other countries. Geithner, who is the vice chairman of the Federal Open Market Committee, said that these trends "... underscore the importance of being open about the greater level of uncertainty we face in understanding the forces at work." These remarks from a voting member of the Fed signal that there is some disagreement among the members of the organization. That could mean that interest rates will continue to increase beyond the next two Fed meetings. Stay tuned. Editor's Note:
4. Buffett Remains No. 2 on Forbes 'Richest' List According to Forbes magazine's annual survey of the world's richest billionaires, Warren Buffett held firm to the No. 2 spot behind Microsoft founder Bill Gates, who has held the top position for the last 12 years, according to Bloomberg News. "Buffett, 75, chairman of Berkshire Hathaway Inc., lost 4.8% to $42 billion," the news service said. That is compared to a 7.5% increase to $46.6 billion for Gates last year. In his annual shareholders meeting for his company Berkshire Hathaway Inc., Buffett told attendees that his holding company's net worth grew by $5.6 billion in 2005, referring to the accomplishment as "a decent year." "That increased the book value - assets minus liabilities - of both classes of Berkshire stock 6.4%, beating the S&P gain of 4.9% for the year," according to one AP report. Berkshire sustained 2005 third-quarter hurricane losses, announcing net earnings of $5.13 billion for the fourth quarter - a massive drop-off from $20.53 billion in the previous period. But that was still a more than 50% improvement over $3.34 billion for the fourth quarter of 2004. Most recently, Buffett opted to leave the board of directors of both Coca-Cola and Gillette, though Berkshire retains a sizable amount of shares in both firms - with 200 million in Coke alone. The Oracle of Omaha said he was making the move in order to devote more time to overseeing the day-to-day operations of his own company, which has some 50 subsidiaries under its umbrella. "According to Hoover's, The Washington Post, another big Berkshire investment, is the only remaining public company on whose board Buffett still sits, apart from Berkshire," CNNMoney reports.
"On the acquisition front, Berkshire's MidAmerican Energy Holdings Co. unit is working to complete its purchase of the western U.S. utility PacifiCorp from Scottish Power for $5.1 billion in cash. Berkshire has announced two acquisitions since mid-January: Business Wire, a distributor of corporate press releases, and Applied Underwriters, a workers' compensation specialist." Editor's Note:
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