Market News

MADISON, Wis. (5/16/08)

• Financial institutions should continue raising capital to avoid deeper damage to the economy, said Federal Reserve Chairman Ben Bernanke. "I strongly urge financial institutions to remain proactive in their capital-raising efforts," said Bernanke in a speech to a Fed banking conference in Chicago on Thursday. "Doing so not only helps the broader economy, but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve." He noted that sovereign wealth funds have contributed as much as one-third of the capital banks have raised. Banks and brokerages have raised around $244 billion in capital since July, following credit losses and writedowns of more than $333 billion. In his speech, Bernanke also said financial institutions need to improve their ability to detect and protect themselves against risks, and to prepare for liquidity disruptions. "Improvements in banks' risk management will provide a more-stable financial system by making firms more resilient to shocks," said Bernanke (Bloomberg.com and Associated Press via Yahoo! News May 15) ...

• The continued U.S. housing slump in the first quarter has prompted the United Nations to lower its forecast for global economic growth this year to 1.8%, from a 3.4% forecast in January. The global economy expanded by 3.8% in 2007. The U.N. also lowered its forecast for U.S. economic growth this year to negative 0.2%, from a positive 2% forecast in January. "The world economy is teetering on the brink of a severe global economic downturn," said the U.N. "If a continuing fall in house and equity prices is blended with a severe credit contraction, the world economy could come to a virtual standstill. Additionally, the unfolding food crisis, which is not only a grave humanitarian issue but also a serious threat to social and political stability in some developing economies, endangers the achievement of the Millennium Development Goals by reversing some of the progress towards those goals made so far." A major U.N. goal is to cut global poverty and hunger in half by 2015 (Bloomberg.com May 15) ...

• Industrial production plunged in April, reflecting declines in autos and other manufacturing industries, and in the mining sector. Industrial output fell 0.7% following a 0.2% increase in March, the Federal Reserve reported Thursday. Manufacturing production declined by 0.8%, reflecting an 8.2% plunge in the sale of vehicles and parts. Strikes and strike-related parts shortages resulted in production halts at many plants. Excluding vehicles and parts, manufacturing output fell by 0.4% last month. Mining output declined by 0.8%, while production at the nation's utilities edged up 0.3%. Factories, mines, and utilities operated at 79.7% of capacity in April--down from 80.4% in March and the first time the rate dropped below 80% since October 2005 after Hurricane Katrina slammed into the Gulf Coast. The level is 1.3 percentage points below its 1972-2007 average. "We think the economy is in recession since the end of 2007, and it appears the problems are consistent throughout manufacturing," said Gus Faucher, director of macroeconomics at Moody's Economy.com, a West Chester, Pa-based research firm (Associated Press via The New York Times and CNNMoney.com May 15) ...

• More Americans applied for unemployment benefits last week, as the economy continued to weaken. First-time claims for jobless benefits increased by 6,000 during the week ending May 10 to 371,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, declined by 1,000 to 365,750. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, increased by 28,000 during the week ended May 3 to 3.06 million--suggesting that people are having a tough time finding new jobs after they've been laid off.

• Consumers struggling with soaring food and energy prices will also face soaring medical-care costs this year, according to a study by Milliman Inc., a consulting and actuarial firm. Families with job-based health insurance will spend almost 11% more on medical expenses in 2008, as employers shift more costs onto employees and as pharmaceutical prices soar. The cost of pharmacy services is expected to surge 10.7% to $2,302 this year. "This is a trend we expect will continue for several years, as fewer high volume drug patents expire," said Milliman principal and study co-author Gary Brace. "For many Americans, this rate of increase is exceeded only by fuel and certain food costs," added Brace (Dow Jones Newswires May 15) ...

• CEO compensation at the nation's largest corporations declined last year, reflecting tough business conditions at large financial firms, according to a study by consulting firm Mercer. CEOs of 50 large U.S. companies saw their direct compensation drop 15.8% from 2006. Median total direct compensation for the CEOs studied was almost $14 million last year. That total doesn't include retirement benefits (Reuters via Yahoo! News May 15) ...