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NEW YORK (AP) — Investors sent government bond prices higher Thursday after reports on unemployment claims and first-quarter economic growth reinforced expectations that the economic recovery may be moderating.
The price of the 10-year Treasury note rose 62.5 cents per $100 invested in late trading. Its yield, which moves in the opposite direction to the price, fell to 3.06 percent from 3.13 percent late Wednesday.
It was the lowest level for the 10-year yield in a year. The yield is used as benchmark on a wide variety of loans for businesses and consumers including home mortgages.
The government reported that more people applied for unemployment benefits last week, the first increase in three weeks. Analysts had expected a drop.
The government also said that the U.S. economy grew at a relatively sluggish rate of 1.8 percent in the January-March quarter, due partly to a spike in gas prices above $4 a gallon. Economists had forecast an upward revision to 2.2 percent.
Traders tend to buy Treasurys when economic growth appears to be losing momentum.
The Treasury Department also auctioned off $29 billion in seven-year notes at a yield of 2.43 percent, the lowest yield of the year. Investors placed bids for 3.24 times the amount offered, higher than the previous four auctions this year.
The yield of the seven-year note was 2.36 percent late Thursday.
In other trading, the price of the 30-year bond rose $1.03 per $100 invested, while its yield fell to 4.22 percent from 4.27 percent late Wednesday. The yield on the two-year note slipped to 0.50 percent from 0.54 percent.
Fed says economic recovery on firmer footing
Associated Press
Article Posted by Calvin Lee Ledsome Sr.,
WASHINGTON (AP) — The Federal Reserve offered its most optimistic view of the U.S. economy since the recession ended, even as Japan’s nuclear crisis stoked new worries around the globe.
The economic recovery is on “firmer footing” and the jobs market is “improving gradually,” the Fed declared in its statement released at the conclusion of its meeting Tuesday.
That’s a more upbeat tone from its previous meeting on Jan. 26, when Fed policymakers said the rate of economic activity was “insufficient” to bring about “significant improvement” in the job market.
The Fed also downplayed inflation risks. And it dropped the phrase “disappointingly slow” in describing the progress made lowering the nation’s unemployment rate. That’s a reflection of a nearly full percentage point drop in just three months — the sharpest decline in unemployment since 1983.
The Fed on Tuesday, in a unanimous decision, said it was maintaining the pace of its $600 billion Treasury bond-purchase program to help the economy grow more strongly and to lower unemployment, which now stands at 8.9 percent.
The Fed made no mention of Japan’s crisis, which caused stocks to plunge earlier in the day. But the more positive outlook from the Fed helped Wall Street recover from a rough start. The Dow Jones industrial average ended the day 137 points down, after falling by as much as 297 points in morning trading.
“Finally, the Fed is giving us a more upbeat outlook. It is not the all-clear signal. But the Fed is much more positive in terms of the sustainability of the economic recovery going forward,” said economist Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ.
Rupkey and other economists viewed that as signal that the Fed won’t embark on a third round of stimulative bond buying when the current program ends in June.
The Fed’s bond-buying program would help the U.S. economy withstand widening economic risks from home and abroad. It is intended to lower loan rates and boost stock prices. Those forces should spur Americans to spend more and companies to hire more.
The Fed said higher prices for energy and other commodities are increasing inflation. But it predicted that the pickup in prices will be “transitory.” That’s consistent with the assessment Fed Chairman Ben Bernanke gave to Congress earlier this month. The Fed said it will keep close tabs on inflation trends.
Despite the Fed’s more optimistic outlook, the list of potential risks to the economy has grown since the Fed’s last meeting.
Japan is the world’s third-largest economy, so the earthquake and ensuing nuclear crisis there are certain to affect the global economy.
Oil price have spiked since January, rising as investors worry that unrest in the Middle East and Africa could hurt global supply. Oil prices have dipped in recent days and are now hovering around $97 a barrel. Still, gasoline prices have stayed high and now average $3.57 a gallon nationwide.
Investors also are concerned that Europe’s debt crisis could linger.
For the United States, the threats have the potential to slow the U.S. economy, or stoke inflation. Or both.
Higher energy prices have some economists lowering their growth forecasts for the first three months of the year. They said high energy prices will slow consumer spending, which accounts for 70 percent of economic activity. JPMorgan Chase now predicts growth in the January-March quarter of just 2.5 percent, down from 3.5 percent.
The Fed, however, observed that consumers are increasing the amount they spend. And Fed dropped concerns made after previous meetings that high unemployment, hard to get loans and depressed home values could restrain the pace of consumer spending.
“This is a significant acknowledgment that the American consumer is back in action, providing additional support to the expansion,” said economist Sal Guatieri at BMO Capital Markets.
Tax cuts are giving Americans more money to spend. Retail sales grew for the eighth straight month in February. Businesses are hiring more.
Economists expect the Fed will spend the full $600 billion and won’t extend the bond-buying program beyond its June end date.
However, economists aren’t expecting the Fed to rush and start boosting interest rates any time soon.
The Fed on Tuesday maintained a pledge to hold its key rate at a record low near zero for an “extended period.”
However, some economists believe the Fed could drop that pledge as soon as its next meeting in late April.
But that wouldn’t signal an imminent rate increase.
Many economists don’t think the Fed will start raising rate until early next year. Others think it will be at the end of 2012.
The central bank’s key rate has been at a record low since December 2008. An increase in that rate would boost lending rates charged to consumers. These include rates on certain credit cards, home equity loans and some adjustable-rate mortgages.
Bernanke, however, has said the economic recovery must be deeply rooted before the Fed moves to tighten credit.
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Obama offers deeper cuts, appeals for budget deal
March 5, 2011, 11:27 p.m. EST
Associated Press
Article Posted by Calvin Lee Ledsome Sr.,
WASHINGTON (AP) — President Barack Obama says he’s willing to make deeper spending cuts if Congress can compromise on a budget deal that would end the threat of a government shutdown.
Obama’s appeal for common ground came Saturday in his weekly radio and Internet address, but lacked specifics on how to bridge the $50 billion gulf that divides the White House and Democratic budget proposal from the deeper reductions offered by Republicans.
The competing plans are headed for test votes in the Senate in the coming week; neither is expected to survive, setting the stage for further negotiations.
The government is running on a temporary spending bill that expires March 18, so the parties have until then to come up with a plan to pay for the remainder of the budget year through September.
“We need to come together, Democrats and Republicans, around a long-term budget that sacrifices wasteful spending without sacrificing the job-creating investments in our future,” Obama said.
“My administration has already put forward specific cuts that meet congressional Republicans halfway. And I’m prepared to do more,” said Obama.
But the claim that Democrats are meeting Republicans halfway only stands up under the Democratic explanation of the intricate numbers game being played on Capitol Hill.
“We’ll only finish the job together — by sitting at the same table, working out our differences and finding common ground,” the president said.
Facing a federal deficit of $1.6 trillion, Republican leaders are under pressure from tea partiers to stick to a deep lineup of $61 billion in spending cuts for the current budget year that’s been passed by the GOP-controlled House.
Obama has threatened to veto that plan, and a Democratic offer of $6.5 billion in cuts — on top of $4 billion already signed into law — restores money the House GOP cuts from education, health and other programs.
Republicans used their weekly address to reject Obama’s approach on the budget.
“You may have heard President Obama say that we need to make sure ‘we’re living within our means,’” said freshman Rep. Diane Black, R-Tenn. “He’s right about that. Unfortunately, his budget doesn’t match his words.
“It continues out-of-control spending, it adds to our $14 trillion debt and it adds to the uncertainty that makes it harder to create jobs. Maintaining the status quo — and refusing to offer a credible plan to cut spending — is just unacceptable and inexcusable,” she said.
“The American people want us to keep the government running while cutting its cost,” Black said
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Video Section:
White House Stands By Claim That Budget Will Not Add To Debt
Weekly Address: Cutting Waste, Investing in the Future
State and local budget cuts are slowing US economy
Feb. 25, 2011, 7:09 p.m. EST
Article Published by Associated Press
Article Posted by Calvin Lee Ledsome Sr.,
WASHINGTON (AP) — Deep spending cuts by state and local governments pose a growing threat to an economy that is already grappling with high unemployment, depressed home prices and the surging cost of oil.
Lawmakers at state capitols and city halls are slashing jobs and programs, arguing that some pain now is better than a lot more later. But the cuts are coming at a price — weaker growth at the national level.
The clearest sign to date was a report Friday on U.S. gross domestic product for the final three months of 2010. The government lowered its growth estimate, pointing to larger-than-expected cuts by state and local governments. The report suggested that worsening state budget problems could hold back the recovery by putting more people out of work and reducing consumer spending.
Across the country, governors and lawmakers are proposing broad cutbacks — lowering fees paid to nursing homes in Florida, reducing health insurance subsidies for lower-income Pennsylvanians, closing prisons in New York state and scaling back programs for elderly and disabled Californians.
“The massive financial problems at the state and local levels have and will continue to restrain growth,” said economist Joel Naroff of Naroff Economic Advisors.
State and local governments account for 91 percent of all government spending on primary education, according to the Brookings Institution. And they provide 71 percent of higher-education spending. States also account for more than 70 percent of spending on roads, bridges and other infrastructure.
But those same governments cut spending at a 2.4 percent rate at the end of last year. And economists predict they will slash their budgets by up to 2.5 percent this year — potentially the sharpest reduction since 1943. The deepest cuts are expected to occur in the first six months of this year.
The worst cuts so far— 3.8 percent — came in the January-to-March period of 2010. That was the sharpest quarterly drop since late 1983, when the U.S. economy was recovering from a severe recession. Most economists think the cutbacks this year will exert an even bigger economic drag than last year.
Newly elected Republican governors are leading the charge. They’re acting on campaign pledges to shrink government to meet budget gaps. They favor smaller governments with lower taxes and less regulation, which they say will boost private-sector growth and job creation.
Some Democrats — including Govs. Andrew Cuomo of New York and Jerry Brown of California — have followed suit. They’re pushing for cuts to social programs and concessions from unions.
The governors’ push for painful cuts comes just as they gather in Washington this weekend for their winter meeting.
No state has attracted more attention than Wisconsin. Pointing to the state’s projected $3.6 billion gap, Republican Gov. Scott Walker wants to strip state workers of collective bargaining rights. He also wants them to contribute more to their pensions and health insurance costs.
The budget fight has taken center stage in Congress. Democrats are bending to Republican demands for spending cuts to avoid a shutdown of the federal government next week.
The reduction in federal spending has a direct effect on states and municipalities. They depend on money from Washington to keep schools operating, put police officers on the street and subsidize public services like job training. The end of federal stimulus programs is also widening state deficits.
Many governors, including those in Florida, New York and Colorado, are pursuing tighter budgets. Their proposals include laying off public workers and teachers, reducing spending for education and health care, and ending some social services. They’re also targeting public pension funds and health insurance plans and seeking larger contributions from public employees.
State and local budget experts fear the cutbacks will intensify this year. States are struggling to close budget gaps of about $125 billion for the upcoming budget year, according to the Center on Budget and Policy Priorities.
That’s a smaller gap than states faced in the past two years. But this time, governors won’t have federal stimulus funds to help close the deficits. And state governments, in turn, are reducing the aid they send to local governments.
“We suspect that these cutbacks are going to deepen over the next couple of quarters,” said Mark Muro, a senior fellow at the Brookings Institution. “It’s likely we’re only beginning to see the state and local drag.”
In Florida, newly elected Republican Gov. Rick Scott wants to reduce the state’s budget 5 percent. To get there, he wants to slash 8,600 state jobs and reduce Medicaid costs through a 5 percent cut in fees paid to hospitals and nursing homes, but not doctors.
Health-insurance cuts are popular with many Republican governors. Pennsylvania Gov. Tom Corbett, facing a projected $4 billion-plus deficit, said he can’t find the cash to extend a program that subsidizes health care for 41,000 lower-income adults and is nearly out of money.
Arizona Gov. Jan Brewer is suggesting that the state drop Medicaid coverage for 250,000 low-income people to make up about half of the state’s projected shortfall of about $1 billion.
It’s not just Republicans demanding tough fiscal medicine. In New York, Gov. Cuomo has said up to 9,800 state employees could be laid off if public-employee unions don’t agree to millions of dollars in concessions.
The newly elected Democrat has also proposed $1 billion in cuts to New York’s Medicaid program, with its 4.7 million recipients. He also wants to close some prisons, freeze wages for nearly 200,000 state workers, cut $1.5 billion in aid to public schools and chop 10 percent from the state’s operating budget.
In California, Brown has imposed a state hiring freeze and is proposing cuts to a host of social programs that serve the poor, elderly and disabled. He is also seeking more than $12 billion in tax extensions and fees. The state is grappling with a $26.6 billion fiscal crisis.
State spending represents just a fraction of the nation’s economic activity. Consumers typically spend roughly six times more than state and local governments do. So a big increase in consumer spending can offset public-sector cuts.
U.S. consumers boosted spending at a 4.1 percent annual rate in the final quarter of 2010 year; state and local governments cut spending at a 2.4 percent pace. If consumers had spent just 0.4 percentage point more, they would have offset the state and local government cutbacks.
That said, layoffs hurt consumer spending. And states and local governments are cutting their payrolls. State and local governments have cut more than 400,000 jobs in the past two years. Budget pressures will force an average of 20,000 more job cuts each month for the rest of this year, estimates Jon Shure of the Center on Budget and Policy Priorities, a left-leaning think tank.
State tax revenue has begun to grow again after falling sharply in recent years. But many governors are now proposing tax cuts as a way to encourage business activity, Shure said. That’s likely to escalate pressure for spending cuts because most states must balance their budgets each year.
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Contributing to this story were Associated Press writers Christopher S. Rugaber in Washington; Sandra Chereb in Carson City, Nev.; Juliet Williams in Sacramento, Calif.; Paul Davenport in Phoenix; Geoff Mulvihill in Haddonfield, N.J.; Michael Virtanen in Albany, N.Y.; Colleen Slevin in Denver; Marc Levy in Harrisburg, Pa.; Jim Davenport in Columbia, S.C.; Bill Kaczor in Tallahassee, Fla.; and Jonathan Cooper in Salem, Ore.
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