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1. Report: Rate Cuts Forecast for Next Year
2. Richest 2 Percent Have Half the World's Wealth
3. Fannie Mae Restates Earnings by $6.3 Billion
4. Jobless Claims Fall by Most in 6 Months
1. Report: Rate Cuts Forecast for Next Year
The U.S. economy will expand at a weak pace next year, setting the stage for
lower interest rates, according to a UCLA Anderson Forecast report released on
Thursday.
The forecasting unit's latest report projected quarterly real gross domestic
product growth no higher than 2.7 percent next year, reflecting the weak housing
market.
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The weakness also is reflected in a forecast of nonfarm job growth slowing to a
rate of 0.3 percent in the second quarter of next year from 1.5 percent
currently, and unemployment rising to a high of 5.2 percent in the 2007 fourth
quarter from 4.6 percent in the current quarter.
As a result, the Federal Reserve will cut interest rates to stimulate business,
said Edward Leamer, director of the UCLA Anderson Forecast.
"We think the Fed will shift from an inflation concern to a sluggishness concern
so that we'll get some rate cuts," Leamer said, adding that he sees the Federal
Funds rate falling to 4.5 percent by the fourth quarter of next year.
Rate cuts should help lift the Standard & Poor's 500 Index to a range of 1,325
to 1,525 next year, with the index ending 2007 at the high end of the range,
according to David Shulman, a senior economist with the UCLA Anderson Forecast.
"We anticipate that the Fed will be forward enough looking to see by spring that
most of the inflation pressure in the system will have been put behind us and
thereby set the stage for a series of modest rate cuts," Shulman wrote.
Economic growth should reach more than 3 percent by the first quarter of 2008,
though the housing sector will have been "greatly reduced" by then, according to
Leamer.
Housing starts should trend lower and bottom out at an annual rate of 1.4
million in the second quarter of next year, and as builders seek to sell
inventory, new-home prices will fall to a low in the third quarter of 2007 at
almost 10 percent current levels, Leamer said.
Prices for existing homes will "nudge down a bit," he said, noting the housing
market downturn will hurt home builders, construction workers, real estate
brokers and bankers — but will not be so severe as to force a recession.
Manufacturing has already shed so many jobs it is in no position to produce the
kind of massive layoffs that paired with a housing downturn would trigger
recession, Leamer added.
"We've trimmed it to the bone," Leamer said, referring to factory work. "It's
already lean and mean."
Additionally, the economy will avoid recession because credit is abundant and
consumers will continue spending at a moderate pace, Leamer said.
© 2006 Reuters.
Editor's Note:
2. Richest 2 Percent Have Half The World's Wealth
The richest 2 percent of adults in the world control more than 50 percent of its
assets. In contrast, the poorest 50 percent control just 1 percent of the
world's wealth.
In other words, distribution of the world's wealth — stocks, bonds, real estate,
and other assets — is decidedly lopsided, according to a new survey.
And the data reflect a wide disparity between the developing world and the
developed world, says The World Institute for Development Economics Research of
the United Nations University (UNU-Wider).
Almost 90 percent of the world's wealth is concentrated in North America,
Europe, and developed Asia-Pacific countries such as Japan and Australia, says
the study. For example, North America, which has just 6 percent of the world's
population, accounts for 34 percent of the world's wealth.
"Developed countries have pulled ahead of the rest of the world," co-author of
the study Edward N. Wolff, a professor of economics at New York University,
tells The New York Times. "With the notable exception of China and India, the
third world has drifted behind."
But even in the richest countries, wealth is also distributed unevenly. In the
U.S., the top 10 percent of the population holds 70 percent of wealth. In
France, the 10 percent own 61 percent of the country's wealth, 56 percent in the
UK, 44 percent in Germany, and 39 percent in Japan.
So what does it take to be among the world's richest? Assets of $2,200 qualify
for the richest half. Those with $61,000 in assets are in the top 10 percent of
the world's wealthiest. And assets of more than $500,000 get you into the elite
branch of the richest 1 percent in the world.
If all assets in the world were distributed evenly to the 6 billion people in
the world, each person would have about $20,500 in assets, according to the
study.
Editor's Note:
3. Fannie Mae Restates Earnings by $6.3 Billion
Fannie Mae said Wednesday it overstated earnings by $6.3 billion from 2001 to
mid-2004, a much lower figure than expected that closes a chapter in one of the
nation's largest accounting scandals.
Fannie Mae, the nation's largest mortgage-finance company, had earlier estimated
that it would reduce earnings by $10.8 billion.
"The restatement and results we filed today mark a critical milestone in Fannie
Mae's progress toward building a stronger, better company," Chief Executive
Officer Daniel Mudd said in a statement.
In a filing with the Securities and Exchange Commission, Fannie Mae also said
that its board had approved an increase in the company's quarterly common stock
dividend to 40 cents a share, effective this quarter.
"The dividend boost is the first indication that the clouds are beginning to
lift for Fannie Mae," said Marshall Front, chairman of Chicago-based Front
Barnett Associates, which owns Fannie Mae shares.
"This should give investors some confidence," Front said, since the board and
regulator must expect Fannie Mae to produce earnings to support the larger
payout. Because of the scandal, regulators have required Fannie Mae to keep a
large cash cushion.
Fannie Mae had slashed its dividend in half last year to help it raise capital
to meet a restatement-related shortfall.
Shares of Fannie Mae rose slightly amid very light volume in extended trade
after the news.
Fannie's scandal broke in late 2004 when regulators accused the company of gross
accounting errors and ordered it to restate earnings.
A week after that December decision, the company's top two executives, Chief
Executive Officer Franklin Raines and Chief Financial Officer Timothy Howard,
were pushed out.
Over the next two years, the company has spent roughly $1.3 billion to clean up
its flawed bookkeeping. A 2000-person army of outside auditors and consultants
has worked around the clock from the company's Washington D.C. headquarters to
correct errors.
Besides money spent on personnel, the scandal has cost Fannie $100 million for
computer upgrades that have space to hold all the information in the Library of
Congress 12 times over.
As the company has tried to emerge from scandal, it has faced tough scrutiny
from lawmakers and regulators.
In May, Fannie paid a $400 million fine to the SEC and its chief regulator, the
Office of Federal Housing Enterprise Oversight. A scathing report from OFHEO
accused top executives of massaging earnings in order to hit bonus targets
between 1998 and 2004.
The agency found $52 million of Raines' $90 million between 1998 and 2003 in
compensation were linked to earnings.
Nearly half of the company's value was erased right after the scandal broke and
OFHEO estimates that it cost investors over $25 billion. But since the early
summer, the company's share price has climbed nearly 20 percent as it has
cleared a number of regulatory and legislative hurdles.
This week lawmakers gave up on a bid to craft legislation that would create a
new regulator for Fannie Mae and it's mortgage-finance cousin, Freddie Mac.
Critics have warned that a $1.4 trillion combined investment portfolio held by
the companies is dangerously bloated and should be slashed.
© 2006 Reuters.
Editor's Note:
4. Jobless Claims Fall by Most in 6 Months
The number of newly laid off workers filing claims for unemployment benefits
dropped last week by the largest amount in six months, relieving worries about a
big jump in claims in the previous week.
The total number of claims filed last week fell to 324,000, a decline of 34,000
from the previous week, the Labor Department reported Thursday. That represented
the biggest one-week drop since the first week in June.
The decrease was in line with expectations of economists, who believed that an
unexpectedly large jump of 35,000 claims the previous week was an aberration.
The four-week moving average for jobless claims edged up slightly to 328,750,
the highest level since May, while the number of Americans receiving claims rose
to 2.52 million, the highest level since January.
Even with those increases, analysts said the labor market appears to be
withstanding this year's economic slowdown, which has been brought on by a big
drop in the once-booming housing market and weakness in other areas such as auto
sales.
The Federal Reserve engineered the current slowdown with a two-year campaign to
raise interest rates in an effort to achieve a soft landing in which economic
growth slowed enough to keep inflation in check but not enough to trigger a
full-blown recession.
While the Fed appears close to achieving this goal, some economists worry that a
bigger-than-expected drop in housing activity could trigger a more severe
slowdown, especially if job layoffs intensify in such areas as construction.
So far, businesses have trimmed their plans to hire new workers but have
resisted pressures to lay off existing workers. Economists believe that Friday's
report on employment in November will show a moderate gain of 105,000 workers,
slightly better than the 92,000 jobs added in October.
Analysts believe that the unemployment rate, which fell to a five-year low of
4.4 percent in October, will edge up slightly to 4.5 percent in November.
For the week ending Nov. 25, claims had risen by 35,000 to 358,000. Economists
attributed the big swings in the two weeks to trouble seasonally adjusting the
figures for weeks that include a holiday such as Thanksgiving, when state claims
offices are open one less day.
In the week ending Nov. 25, Wisconsin had the biggest increase in claims, a jump
of 10,655, which was blamed on higher layoffs in construction and various other
industries. Other big increases in claims were in Texas, up 4,855, and Indiana,
which had an increase of 1,842.
The state with the biggest drop in claims for the week of Nov. 25 was
California, down by 10,870, a drop that was attributed in part to claims offices
being open one less day. Other big decreases in claims occurred in Illinois,
down 5,597 and Florida, down 4,704.
The state data on claims lags one week behind the national figures.
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