(Headlines - scroll down for full stories)
1. Paulson Trying to Revive Social Security Overhaul
2. Will the Fed Change Its Tune?
3. Energy Dept.: Oil Inventories Down for Second Week
4. ADP: Private Sector Adds 158,000 Jobs
1. Paulson Trying to Revive Social Security Overhaul
Secretary of Treasury Henry Paulson is facing an uphill battle when it comes to
selling President Bush's Social Security reform plan to Congressional Democrats.
It will be a test of his negotiating skills, says Bloomberg News.
In an effort to save Social Security from certain bankruptcy, Paulson will try
to reach an agreement with both sides of the aisle. The problem is, however,
that the two sides have starkly different views of how to reform the world's
largest pension plan.
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On the Republican side, President Bush is proposing privatization of the social
program while Democrats want to make Social Security solvent through tax hikes.
Both sides are fundamentally opposed to the other's proposal, making it a true
test of Paulson's negotiating skills, which he perfected at his post as chief
executive of investment firm Goldman Sachs.
For a person who was responsible for the 17th largest merger of all time
(between Gillette and Procter & Gamble) and created a joint venture in China
that gave Goldman more access than any other foreign financial institution to
China's financial services market, reaching a deal should be a cakewalk.
"Paulson is going to find there's a big difference between Washington and Wall
Street," Roy Smith, a senior international partner at Goldman until 1998 and now
a finance professor at New York University, tells Bloomberg. "In the private
sector, both sides want to find a way to do a deal; in politics, it's often only
one side that wants to do it."
In 2008, the first wave of 78 million baby boomers will enter retirement and
begin collecting Social Security benefits. According to government forecasts,
Social Security costs are projected to balloon 80 percent to $789 billion from
2005 to 2015. The program will be bankrupt by 2040.
But the urgency to make a deal hasn't been felt by members of Congress. "Is
there an urgency from the point of view that if we don't deal with it in the
next two years is that going to be dangerous to the people in the Social
Security system? The answer is no," says Democratic Representative Ben Cardin of
Maryland, who was elected to the Senate in November.
We at MoneyNews will be watching the developments very closely. If a deal isn't
reached soon, the U.S. dollar, the economy, and American citizens will all be in
trouble.
Editor's Note:
2. Will the Fed Change Its Tune?
The U.S. Federal Reserve will likely say it remains focused on inflation risks
at a policy meeting next week, despite a raft of soft economic data that has
markets betting on several interest rate cuts next year.
The weaker data raised concerns an economic slowdown may cut deeper than
foreseen in the Fed's scenario for a 'soft landing,' where growth would pick up
next year after current declines in housing and some manufacturing sectors play
out.
Still, many Wall Street analysts expect the Fed to keep its bias tilted toward
fighting inflation when the policy-setting Federal Open Market Committee (FOMC)
meets on Dec. 12.
"There is very little chance that the Fed will change its balance of risks,"
said Lou Crandall, chief economist at Wrightson ICAP in New York. Crandall said
the Fed would wait until economic prospects were clearer before altering its
assessment.
Others agreed, noting the Fed's tone had changed little despite weaker data,
including a reading on factory activity released Friday that showed a
contraction for the first time in 3-1/2 years.
After the data, futures markets shifted to show a roughly 70 percent chance of a
rate cut at the Fed's March meeting, up from about 50 percent.
But Fed officials played down the data, and said the course for growth to pick
up next year remained intact.
Furthermore, data Tuesday showed service-sector activity continued to expand
while separate data showed unit labor costs grew less than first thought in the
third quarter.
"There's not a lot out there to change the view from what the Fed has been
telling us," said Drew Matus, an economist at Lehman Brothers in New York.
Fed Chairman Ben Bernanke said last week inflation, outside of volatile food and
energy costs, was likely to moderate gradually over the next year or so. But he
said the risks to that forecast seemed "primarily to the upside."
"Given the current level of inflation, a failure of inflation to moderate as
expected would be especially troublesome," he warned.
Lingering Bias
However, analysts say the Fed's anti-inflation saber rattling does not mean the
next move on rates won't be a cut.
"Tightening cycles often end at times when core inflation remains elevated and
inflation risks remain present," former Fed governor Laurence Meyer and former
Fed economist Brian Sack wrote in a recent research report for their current
employer, Macroeconomic Advisers.
"It is precisely in those circumstances that the committee (FOMC) worries about
maintaining its credibility and hence will be reluctant to quickly drop its
tightening bias," they said. "The end result is that tightening biases do tend
to linger well beyond the end of the cycle."
Financial markets widely expect the Fed to hold benchmark rates steady at its
meeting next week, which would mark the fourth straight meeting it has stayed on
hold after a string of 17 increases ended in June with benchmark overnight rates
at 5.25 percent.
After its last meeting on Oct. 24-25, the FOMC judged some inflation risks
remain. "The extent and timing of any additional firming that may be needed to
address these risks will depend on the evolution of the outlook for both
inflation and economic growth," its statement said.
Bernanke said there were risks in both directions for the economy now, in
contrast to late 2000, when economic conditions made a nosedive and prompted the
Fed to switch to an easing course.
But some large investment houses that had been among the holdouts in forecasting
rate increases in coming months have recently changed their tune on the back of
weak data.
Lehman Brothers dropped its forecast for a first-quarter rate hike last week,
while Morgan Stanley said Monday it no longer expected the Fed to tighten policy
further, even raising the prospect the Fed's tightening bias could shift to
neutral.
"The risks that growth will remain weak for longer have increased, and
consequently, the odds that inflation will rise further have declined," Morgan
Stanley economists Richard Berner and David Greenlaw wrote. "Signs that slack in
labor markets is appearing again might prompt policy-makers to change their
tightening bias to a neutral one at the December meeting."
The U.S. Labor Department issues its employment report for November Friday.
Analysts expect the jobless rate, which unexpectedly fell to a 5-1/2 year low of
4.4 percent in October, to edge up to 4.5 percent.
© 2006 Reuters.
Editor's Note:
3. Energy Dept.: Oil Inventories Down for Second Week
The U.S. Energy Department's weekly report on oil inventories showed a sharp
decline in supplies and another report confirmed the decline.
The Energy Department said crude supplies fell 1.1 million barrels to 339.7
million for the week ended Dec. 1. That's the second consecutive week the Energy
Department recorded a drop in inventories.
The American Petroleum Institute also reported a drop in oil inventories. It
said inventories dropped by 4.1 million barrels for the same period, a much
larger drop than Energy's estimate.
The two agencies also differed on distillate and gasoline supply levels. The
Energy Department said distillate inventories fell 400,000 barrels to 132.4
million barrels, compared to the API's report of a 1.5 million barrel decline in
distillates.
As for gasoline supplies, the Energy Department reported a drop of 1.1 million
barrels in inventory to 200 million barrels on hand. API said gasoline supplies
dropped just 674,000 barrels.
Declining energy supplies is an alarming sign as the winter months approach,
especially since the nation just experienced its first snow storm of the season.
Look for oil and gas prices to inch up in the coming months if supplies continue
to fall.
Editor's Note:
4. ADP: Private Sector Adds 158,000 Jobs
U.S. private employers likely added 158,000 jobs in November, according to a
survey by ADP Employer Services released on Wednesday.
The median forecast for the ADP survey from economists polled by Reuters pointed
to a reading of 125,000 new jobs for the November report.
Automatic Data Processing, based in Roseland, New Jersey, is the parent of ADP
Employer Services and is a large payroll services company. The employment report
was jointly developed with Macroeconomic Advisers LLC.
Macroeconomic Advisers LLC is based in St. Louis, Missouri. The ADP National
Employment Report is released each month, two days prior to the government's
monthly payrolls survey.
According to the latest Reuters poll of economists, the U.S. Labor Department's
employment report on Friday is expected to show that 110,000 nonfarm payroll
jobs were created in November, up from 92,000 in October.
Also on Wednesday, the second of five jobs derivatives auctions had traders
betting U.S. employers added 85,400 jobs in November. The first auction on the
data, on Tuesday, had an implied forecast of 82,000.
© 2006 Reuters.
Editor's Note:
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