Bank of Korea Governor Kim Choong Soo said that the central bank will manage monetary policy carefully in order to avoid creating incentives for excessive borrowing by households or companies.
The nation’s growing inflation expectations will likely push up consumer prices over time and core inflation, which excludes food and energy items, is expected to accelerate further, Kim said in prepared remarks to be delivered today at a seminar in Seoul.
He also said the expected end of the second round of quantitative easing in the U.S. makes the outlook for other major economies more uncertain, adding to concerns over volatile oil prices, Europe’s fiscal crisis, and the aftermath of the March 11 earthquake in Japan.
House Speaker John Boehner said “it’s clear” the U.S. must raise its debt limit, responding to President Barack Obama’s efforts to secure backing to extend the government’s borrowing authority.
“At some point it’s clear to me that we have to increase the debt ceiling,” Boehner, an Ohio Republican, said yesterday on CBS’s “Face the Nation.” “And as we do, we’re going to do it in a way that addresses America’s long-term fiscal challenges.”
Republicans are seeking spending cuts and no tax increases in exchange for supporting a higher debt limit. The government projected this month that the $14.3 trillion debt ceiling will be reached today. Treasury Secretary Timothy Geithner has said that while he can juggle accounts for a time, he will run out of options for avoiding default by early August.
In an April 13 speech, Obama proposed a long-term deficit- reduction package of about $4 trillion over 12 years. It would include $2 trillion in spending cuts, $1 trillion in tax increases and $1 trillion in reduced interest payments.
Failure to increase the debt limit might disrupt the global financial system and plunge the nation into another recession, Obama said on “Face the Nation” in a segment taped May 11 in Washington for broadcast yesterday.
If investors “around the world thought the full faith and credit of the U.S. was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system,” Obama said. “We could have a worse recession than we’ve already had.”
‘Totally Irresponsible’
Boehner, who in a May 9 speech demanded spending cuts greater than the amount of any debt-ceiling increase, told CBS yesterday that he understood “what the president was saying about jeopardizing the full faith and credit of the United States.”
“Our obligation is to raise the debt ceiling,” he said. “But to raise the debt ceiling without dealing with the underlying problem is totally irresponsible.”
Last month Obama appointed Vice President Joe Biden to lead negotiations with a small bipartisan group of congressional leaders to try to strike a deal on reducing the debt and deficits. The negotiators have met three times with Biden; the president held separate talks with Senate Democrats and Republicans May 11 and May 12.
“I’ve said, ‘Get them in a room, hammer out a deal, and make sure that we don’t even get close’” to defaulting on the nation’s debt, Obama said on CBS yesterday.
Kyl, Durbin
Senator Jon Kyl, an Arizona Republican who is among the lawmakers meeting with Biden, said the negotiators have found bipartisan agreement on “a couple hundred billion dollars” when about $2 trillion in savings is needed payday advance.
“It’s pretty small-ball compared to the overall job that we’re going to have to do,” Kyl, the second-ranking member in the Senate Republican leadership, said on “Fox News Sunday.”
Senator Richard Durbin of Illinois, the chamber’s No. 2 Democrat, said on the same program that the priority should be addressing the budget deficit by, among other things, reducing spending, “responsibly” changing entitlement programs and cutting tax breaks received by the five largest oil companies.
“We better be careful,” Durbin said. “It’s about the reputation of the United States and the economy. If we play games with it or play politics with it, and default on our national debt, we could plunge this country back in a recession with even deeper unemployment.”
Bond Yields
Amid debate about the deficit in Washington, bond market yields in the U.S. are lower now than when the government was running a budget surplus a decade ago. The yield on the benchmark 10-year note closed at 3.17 percent on May 13, according to Bloomberg Bond Trader prices — well below the average of 5.48 percent in 1998 through 2001, the last time the U.S. had a budget surplus.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, appearing yesterday on CNN’s “State of the Union,” said he wants the extension of the debt limit coupled with broad fiscal reforms.
Obama told CBS that debt reduction must be “balanced” and include tax increases.
“Are we going to make sure no single group — not seniors, not poor folks, not any single group — is carrying the whole burden? Let’s make sure the burden is shared,” he said.
Obama said he would resist cuts in such areas as medical research; infrastructure such as roads, bridges or railroads; or college loans for needy students.
Boehner said that “for quite a while” he has privately discussed with Obama his idea for making drastic spending cuts and changes in entitlements like Medicare and other programs in tandem with raising the debt ceiling.
The speaker said he told Obama, “‘Let’s lock arms and jump out of the boat together.’ I am serious about dealing with this. And I hope he is just as serious.”
Spain doesn’t plan additional budget cuts as the deficit is already narrowing in line with the government’s plans, Finance Minister Elena Salgado said.
“The deficit is being reduced in line with forecasts, revenues are in line with forecasts and the reduction in spending is as we expected, so there will be no additional measures,” she told lawmakers in Parliament today when asked if the government is planning new cuts.
The gap between Spanish and German borrowing costs widened on May 9 to the most in almost two weeks as increasing expectations of a Greek debt restructuring fueled contagion throughout the euro region’s periphery. The Socialist government, which faces regional elections on May 22, aims to cut the deficit to 6 percent of gross domestic product this year from 9.2 percent last year, when the shortfall was the third- largest in the euro region.
Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-largest bank, also said today the government has taken enough measures for the 6 percent target to be reached if “they are rigorously implemented,” even as it forecast slower growth than the government is expecting online cash advance.
The Spanish economy will grow 0.9 percent this year and 1.6 percent in 2012, the bank said in a quarterly report today. The government sees growth of 1.3 percent this year, accelerating to 2.3 percent next year.
The extra yield on Spanish 10-year bonds over German equivalents narrowed today to 210 basis points from 215 basis points yesterday. That compares with a euro-era high of 298 basis points on Nov. 30, after Ireland became the second country after Greece to seek a European bailout, and an average of 15 basis points in the first decade of monetary union.
After a 40 percent drop in sales from October 2008 to February 2009, Materials Processing Inc. laid off workers, changed the way it sets prices and took fewer risks in the volatile commodities markets.
The efforts returned the Logansport, Indiana-based metals- processing company to profitability starting in March 2009, and sales are back to pre-crisis levels, said Chief Executive Officer Clay Barnes.
“We aggressively restructured and are going to be around for our customers for a very long time,” he said.
Once-ailing manufacturers are enjoying a robust rebound as cost-saving moves from job cuts to a greater reliance on technology help drive stronger-than-forecast growth. The shift has helped set the stage for a potential “manufacturing renaissance,” says James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. He predicts the industry will set the pace for U.S. expansion and the American stock market during this decade, as technology did in the 1990s.
“Manufacturing is leading the whole economy,” said Paulsen, whose firm oversees about $340 billion. U.S. manufacturers “had to find religion. They’ve really cleaned up their balance sheets. What is left is the cream of the crop.”
Investors’ confidence in the industry is evident in the Industrial Select Sector SPDR Fund (XLI), an exchange-traded fund made up mostly of manufacturers including Peoria, Illinois-based Caterpillar Inc. (CAT) and Boeing Co. (BA) in Chicago. The fund has climbed 37 percent since Dec. 31, 2009, compared with a 20 percent rise in the Standard and Poor’s 500 Index.
‘Global Strength’
Cooper Industries Plc (CBE), Deere & Co. (DE), Kennametal Inc. (KMT) and Timken Co. (TKR) are among businesses that “have emerged quite strongly and are able to benefit not only from the domestic recovery, but the global strength of markets,” said Eli Lustgarten, a senior research analyst at independent investment- research firm Longbow Securities in Independence, Ohio. While he recommends all four companies, Lustgarten said neither he nor Longbow owns their shares.
Timken, the Canton, Ohio-based maker of roller bearings and steels used in tools, cars and farm equipment, hired back all 3,500 manufacturing workers it had laid off in the recession and is creating 200 new jobs at three plants in its hometown, said spokeswoman Lorrie Paul Crum. It’s also added new product lines in areas such as wind energy, she said.
“The company is now on pace to achieve record earnings this year, and sales are growing substantially around the world,” Crum said.
Falling Dollar
The rebound in manufacturing — buoyed by a falling dollar — “has been much faster and stronger than companies anticipated, and they’ve been able to ramp up production without having to dramatically increase hiring,” Lustgarten said.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies of six major trade partners including the euro and yen, has dropped 12 percent in the past year as emerging-market wages rise. China’s private-sector pay in urban areas increased 14.1 percent on average to 20,759 yuan ($3,197) in 2010, according to the country’s National Bureau of Statistics.
“We’re seeing quite an uptick in our exports from the U.S. because of the low dollar,” said Eric Spiegel, president and chief executive officer of Siemens Corp., a subsidiary in Washington of Munich-based Siemens AG. (SIE) Siemens exports $2 billion to $3 billion a year from the U.S.
Shrinking Trade Gap
The Obama administration is counting on manufacturers to help double shipments to foreign markets by 2015 and reduce the trade deficit. Rising exports have helped shrink the trade gap 24 percent to $45.8 billion as of February, the most recent month available, from $59.9 billion in January 2008, a month after the recession began.
U.S. companies “recognize there are tremendous opportunities overseas” and have made “some pretty impressive productivity gains,” said Chad Moutray, chief economist for the National Association of Manufacturers, an industry trade group in Washington. “You’ve started seeing a lot of pent-up demand.”
Signs of a robust rebound are reflected in the Institute for Supply Management’s factory index, which shows the industry expanding for 21 consecutive months through April. Manufacturing led “moderate” growth across much of the U.S. in February and March, according to the Federal Reserve’s Beige Book regional survey released April 13, with nine of the 12 Fed banks citing improvements in production, orders or revenue.
Rising Profits
Manufacturing productivity rose 5.9 percent last year, the third fastest increase since Labor Department records began in 1987, behind gains of 7.3 percent in 2002 and 6.3 percent in 2003. Profits from current production jumped 72 percent in 2010, the biggest annual increase since 2004, according to Commerce Department data.
At the same time, companies have added just 250,000 jobs since December 2009, when employment dropped to a post-World War II low of 11.5 million; the peak was 18 million in the late 1980s, according to Moutray.
“We are still a ways away from getting back to where we were,” said William Strauss, a senior economist and adviser at the Federal Reserve Bank of Chicago, which represents most of Illinois, Indiana, Michigan and Wisconsin. While production eventually should return to pre-recession levels, “I would question to a degree whether employment levels go back to where they were in late 2007,” he said. Still, “if you believe the industries hit hardest come back the strongest, that’s definitely true for manufacturing.”
Plummeting Sales
Sales at privately held Materials Processing’s three units plummeted during the recession because of falling orders and a decline in commodity prices that saw copper go from $4 a pound to $1.50 a pound within months, said Barnes, 45.
The company laid off half of its 600 employees and began setting prices when a customer placed an order, in anticipation of further declines in metal values, instead of when a product shipped, Barnes said. It initiated a third step: using futures contracts as a hedge against falling prices for copper and brass, which it was buying on the open market.
“We took the approach that things would not get better at the trough of the downturn and we needed to re-size our organization to what we considered to be a new reality,” Barnes said. “The recession forced everyone to get leaner.” The company has since rehired 150 of the 300 people laid off, he said.
Cheaper than China
Foreign companies increasingly see the attraction of having operations in America. Siemens is spending $170 million to expand a gas-turbine factory in Charlotte, North Carolina, that will manufacture the turbines “at the end of the year cheaper than we can make them in Shanghai,” Spiegel said. “It’s a good time to be adding new production capability in the U.S.”
Subsidiaries of overseas businesses consider America’s skilled workforce an important reason to invest in the country, according to a survey last year by the Organization for International Investment.
“For some of the European companies, the U.S. has become a cheaper source of labor,” said Nancy McLernon, president and chief executive officer of the Washington-based organization.
The downsizing of manufacturing during the last decade also has left what Spiegel called a “void in a lot of areas,” including wind energy. Siemens opened a new 300,000-square-foot wind-turbine facility in Hutchinson, Kansas, in December. Rising transportation costs, on the back of surging oil prices, have enhanced the attractiveness of setting up shop in the U.S. rather than importing such heavy items as blades for wind plants, according to Spiegel.
“You’re going to see more people like us starting to put manufacturing back in the U.S.,” he said.
The European Central Bank may step up its inflation fight as up to a third of its Governing Council is replaced this year.
An unprecedented seven seats on the ECB’s 23-member council may change hands in a year marked by the retirement of President Jean-Claude Trichet. The new generation of central bankers under the likely leadership of Italy’s Mario Draghi will reinforce the ECB’s inflation-fighting resolve, say economists at Citigroup Inc. and Societe Generale SA.
“In the short-term, the ECB may turn more hawkish,” said Klaus Baader, co-chief euro-area economist at Societe Generale in London. “Draghi will want to show he’s not lax about inflation risks and the new members will keep their voices down, strengthening the influence of established hawks like chief economist Juergen Stark.”
Germany, the only one of the four biggest euro countries yet to endorse Draghi, gets a new Bundesbank president today. Jens Weidmann, who replaces Axel Weber on the ECB council, is due to speak at noon in Frankfurt. He and Luc Coene, the new Belgian central bank governor, may support further ECB rate increases to curb mounting inflation pressures.
“Weidmann won’t rank behind Weber in terms of hawkishness,” said Juergen Michels, chief euro-area economist at Citigroup in London. “It also doesn’t seem that the successors of outgoing council members will be less focused on inflation fighting.”
‘Too Accommodative’
ECB policy makers, who raised the benchmark rate by a quarter point to 1.25 percent last month, next convene on May 5 in Helsinki. Some economists expect them to signal that another move will come as soon as June.
Monetary policy is “still too accommodative,” Belgium’s Coene said in an interview on April 18, striking a tougher tone than his predecessor Guy Quaden, who on March 31 endorsed a “cautious” rate increase.
Draghi has also sharpened his language. While Trichet said last month’s rate step wasn’t necessarily the start of a series, Draghi signaled more to come. “Monetary policy must take into account the emergence of inflationary tensions, pushed by rising food and energy prices,” he said on April 13.
Most economists and investors predict two more quarter- point increases in the ECB’s benchmark rate this year, taking it to 1.75 percent.
“We believe the ECB has to raise interest rates higher than markets expect,” Andrew Bosomworth, a fund manager at Pacific Investment Management Co., wrote in a guest commentary for Germany’s Boersen-Zeitung on April 28. “The ECB’s benchmark rate is still too low in light of economic growth and inflation expectations.”
Faster Inflation
Inflation, which the ECB aims to keep just below 2 percent, accelerated to 2.8 percent last month. Incoming policy makers will have to weigh that against the risk of inflaming the sovereign debt crisis that’s afflicting peripheral nations such as Ireland, Greece and Portugal.
As the representative of Europe’s largest economy, Weidmann will be central to those deliberations. He helped steer Germany through the financial crisis as Chancellor Angela Merkel’s chief economic advisor from 2006.
Weidmann, 43, today becomes the youngest president in the Bundesbank’s 54-year history and the youngest ECB council member. Fluent in both English and French, he is a former student and prot?g? of Weber, who made a name for himself as one of the most hawkish ECB policy makers.
ECB Exodus
Next month, Belgium’s Peter Praet will replace Gertrude Tumpel-Gugerell on the ECB’s Executive Board, whose six members together with the central bankers of the 17 euro nations comprise the Governing Council.
In July, Malta’s central bank governor Michael Bonello will be replaced by Josef Bonnici, and Nout Wellink will step down as head of the Dutch central bank. Lex Hoogduin, 54, has been tipped by academics and bank officials as his likely replacement.
The selection of Draghi to succeed Trichet, whose term ends on Oct. 31, may force two further changes.
Italy would need to appoint a new governor to join the ECB’s council in Draghi’s stead, and Lorenzo Bini Smaghi would probably have to make way for a new French policy maker on the six-member board to avoid Italy dominating the ECB’s top decision-making body.
Trichet Succession
European leaders will decide on a successor for Trichet in June, Merkel’s spokesman Steffen Seibert said last week. French President Nicolas Sarkozy, Italy’s Prime Minister Silvio Berlusconi and Spanish Finance Minister Elena Salgado have expressed support, with Belgium, Luxembourg and Portugal also backing the Italian’s candidacy.
Estonia’s adoption of the euro on Jan. 1 saw Andres Lipstok join the ECB council this year, bringing the potential number of new faces to eight.
Bonello said in an April 15 interview that, while changes on the Governing Council may shuffle the deck chairs, all policy makers will keep the ECB’s primary mandate in mind.
“I am sure that the new members will share a similar commitment to the ECB’s mission as the departing members,” he said. “It might change the distribution of views, but at the end of the day all members will be fully committed to what we have to do, and that’s to pursue the single mandate that we have, price stability.”
A “shift in rhetoric” indicates that China may be on the verge of allowing faster gains by the yuan to damp import costs that may fuel inflation, Capital Economics Ltd. said.
“Several senior policymakers have signaled in the last few days that China will allow the renminbi to strengthen in order to dampen imported price pressures,” said London-based economist Mark Williams, a former adviser on China to the U.K. Treasury. “This would be a significant departure — the exchange rate is usually viewed narrowly as an instrument of trade policy rather than as a monetary policy tool.”
His comments were in an e-mailed note dated yesterday. Renminbi is another term for the currency.
Increased flexibility in the yuan may “ease imported inflation pressures,” Hu Xiaolian, a deputy governor of the central bank, said in a speech transcript released yesterday. The yuan, which touched a 17-year high of 6.5276 against the dollar on April 18, is described by the U.S. as substantially undervalued and a factor in global economic imbalances that could lead to another financial crisis.
“China appears to be on the verge of allowing faster currency appreciation in response to inflation,” Williams said. “ This may not last long if inflation drops back in the second half of the year, as we expect.”
Consumer prices rose 5.4 percent in March from a year earlier, the most in almost three years.
Bets on Appreciation
Yuan forwards strengthened yesterday after a central bank adviser said China will not rule out a one-off revaluation of the currency.
Xia Bin said that while the yuan should appreciate gradually in the long term, and current conditions aren’t conducive to overly fast gains, a one-off revaluation “can’t be ruled out.” His comments were in an online interview on Sina.com.
Twelve-month non-deliverable forwards gained 0.17 percent to 6.3745 per dollar as of 6:27 p.m. in Hong Kong, reflecting bets the yuan will strengthen 2.4 percent in a year from the onshore spot rate, according to data compiled by Bloomberg.
–Paul Panckhurst. Editors: Paul Panckhurst, Ken McCallum.
To contact Bloomberg News staff for this story: Paul Panckhurst at +852-2977-6603 or ppanckhurst@bloomberg.net
Boeing’s chief 737 engineer says the company was surprised when the roof of a Southwest Airlines jetliner ripped open over Arizona.
Paul Richter says in a conference call Tuesday that the company didn’t expect to see wear in the middle section of the fuselage until the plane involved was much older.
When the company designed the 737-300, it expected the skin joint that failed to be robust enough not to require inspections for at least 60,000 pressurization cycles.
The cycles are the number of times a plane takes off and lands. The Southwest jet that needed to make an emergency landing Friday had less than 40,000 cycles.
Southwest pulled nearly 80 planes for inspections and found five with similar cracks. Richter says that it had given repair instructions on three of those planes.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
The airliner whose roof ripped open 34,000 feet over Arizona has had a busy 15-year life: taking off and touching down more than seven times a day, on average, and possibly developing microscopic cracks in its aluminum skin each time.
Federal aviation officials were preparing to issue an order Tuesday that calls for emergency inspections on 80 U.S.-registered Boeing 737 jetliners with histories similar to that Southwest Airlines jet, which had been pressurized and depressurized 39,000 times before a 5-foot-long hole opened in its fuselage.
The order is aimed at finding weaknesses in the metal exterior, but virtually all of the affected aircraft will have already been inspected by the time the order takes effect.
The safety directive applies to about 175 aircraft worldwide, including 80 planes registered in the U.S., the Federal Aviation Administration said. Of those 80, nearly all are operated by Southwest. Two belong to Alaska Airlines.
Southwest grounded nearly 80 Boeing 737-300s for inspections after its jet leaving Phoenix lost pressure Friday, forcing pilots to make an emergency landing 125 miles away in Yuma. By Monday evening, 64 were cleared to return to the skies, but three were found with cracks similar to those found on the Arizona plane.
Friday’s incident, however, raised questions about the impact that frequent takeoffs and landings by short-haul carriers like Southwest put on their aircraft and the adequacy of the inspections.
Cracks can develop from the constant cycle of pressurizing the cabin for flight, then releasing the pressure upon landing.
Since there had been no previous accidents or major incidents involving metal fatigue in the middle part of the fuselage, Boeing maintenance procedures called only for airlines to perform a visual inspection.
But airlines, manufacturers and federal regulators have known since at least 1988 that planes can suffer microscopic fractures. That year, an 18-foot section of the upper cabin of an Aloha Airlines 737-200 peeled away in flight, sucking out a flight attendant.
The order is “certainly a step in the right direction,” said National Transportation Safety Board member Robert Sumwalt, who is in Yuma with the board’s accident investigation team.
The FAA’s emergency order will require initial inspections using electromagnetic devices on some Boeing 737 aircraft in the -300, -400 and -500 series that have accumulated more than 30,000 takeoffs and landings. It will require repetitive inspections at regular intervals.
The 15-year-old Southwest jet in Friday’s incident had logged 39,000 pressurization cycles, a measurement of the number of takeoffs and landings. That’s 7.2 cycles every day for every year it has been in service.
Planes that have 30,000 cycles or have been in service for 15 years are considered about halfway through their useful life.
Boeing Co. said Monday that it will issue guidance this week on how airlines should do checks on the affected airplanes now in service. An estimated 1,800 airplanes, including -300, -400, -500 model 737s, are affected by the aircraft maker’s service bulletin.
Southwest officials said the Arizona flight was given a routine inspection on Tuesday and underwent its last so-called heavy check, a more costly and extensive overhaul, in March 2010 payday loans lenders.
The decompression happened about 18 1/2 minutes after takeoff from Phoenix Sky Harbor International Airport when a gash opened above the overhead luggage bins in the middle of the plane. The pilots declared an emergency and briefly considered returning to Phoenix before the cabin crew told them of the extent of the damage, Sumwalt said. No one was seriously hurt.
The voice and data recorders were being examined in Washington.
In its inspections, Southwest found two jets had small, subsurface cracks similar to the breached plane. Sumwalt said a third was also found with the problem.
The grounding that followed the accident caused about 600 flight cancellations over the weekend and another 70 on Monday. Southwest expected to have nearly all of its grounded planes back in the air by late Tuesday.
Some stranded passengers were angry and threatened to switch airlines, but others praised its decision to ground planes as a safety-first precaution.
Southwest appeared eager to shift blame to Boeing. The airline said it had never been alerted to a potential problem where overlapping panels of aluminum skin are riveted together on the 737-300.
“This is a Boeing-designed airplane. This is a Boeing-produced airplane,” Southwest spokeswoman Linda Rutherford said. “It’s obviously concerning to us that we’re finding skin-fatigue issues.”
Boeing officials declined to respond to Rutherford’s comments.
Many of the planes that fall under the FAA order don’t fall under U.S. auspices. FAA has authority only over U.S. operators, but government aviation agencies in most other countries usually follow FAA’s safety directives with their own orders.
Germany’s Lufthansa has a fleet of 63 737s, including 33 of the 300 series, but just three are from the same series as the Southwest jet.
The problem of what is known as “widespread fatigue damage” in aging planes has a long, well-documented history.
It became a major safety focus of the FAA and was the subject of congressional hearings after the Aloha Airlines 737-200 accident in April 1988. There were 95 people on board. A flight attendant and seven passengers were seriously injured.
Following the accident, the FAA instituted a new safety regime for older 737s for cracking that includes not only visual inspections, but the use of devices that employ electromagnetic currents to spot fatigue and corrosion.
The agency also began work in 2004 on a rule that would require more detailed inspections and maintenance procedures for other types of aging aircraft, not just the 737. Initially there was opposition from airlines to the new procedures because of the cost involved.
After over six years of work, FAA published a rule requiring the new procedures late last year. It went into effect in January.
It gives manufacturers 18 months to five years, depending upon the plane involved, to develop inspection programs. Airlines and other operators then have another two and a half to six years to implement the inspection requirements.
Bill Voss, president of the Flight Safety Foundation in Alexandria, Va., said an FAA safety order to be issued Tuesday is an acknowledgement that previous inspection procedures were inadequate. “There is no question this was a very serious safety event,” Voss said.
That the skin peeled away shouldn’t come as a surprise, said Paul Czysz, professor emeritus of aeronautical engineering at St. Louis University.
Czysz said fuselages are designed with a specific stress limit, based on the number of cycles a plane flies. When a fatigue crack emerges, he said, that means the limit is being pushed. The trick is to keep up a rigorous inspection program.
“It’s not magic,” he said. “It’s just basic physics.”
Unemployment across the 17 euro countries fell below 10 percent in February for the first time in over a year, official figures showed Friday, in another sign the region is enjoying a fairly sturdy economic recovery despite debt troubles in a number of countries.
Eurostat, the EU’s statistics office, said unemployment fell by 77,000 in February, helping to take the rate down to 9.9 percent _ the lowest since December 2009 _ from January’s 10 percent. The January rate had previously been estimated at 9.9 percent but was revised up in Friday’s report.
Lower unemployment is good for the wider economy as it could help ratchet up Europe’s perennially weak consumer spending levels.
Analysts say that’s important if the recovery in the eurozone is to step up a gear. So far much of the recovery has been based on booming industrial conditions in Germany, Europe’s powerhouse. That’s evident in the unemployment rate in Germany, where the unemployment rate dropped to 6.3 percent in February from 6.5 percent in January.
Though falling unemployment is encouraging, Europe’s economy faces a number of headwinds, including a rising inflation rate. Figures Thursday showed consumer prices spiked by 2.6 percent in the year to March, way above the European Central Bank’s target of keeping inflation at “close to, but below 2 percent faxless cash advance.
As a result, the bank is widely expected to raise its main interest rate from the record low of 1 percent at its monthly policy meeting next Thursday. That expectation has in turn pushed up the value of the euro, which could potentially depress growth, too. Though a higher currency may make imported goods cheaper, it’s unlikely to be met with much enthusiasm by exporters.
That’s a toxic brew for a number of countries still reeling from a debt crisis that shows few signs of abating.
The last thing countries like Spain, which has the eurozone’s highest unemployment rate of 20.5 percent, Greece, Ireland and Portugal need are higher borrowing costs and an elevated exchange rate.
“With inflation likely to remain high and wage growth subdued, real labour income will probably shrink this year,” said Ben May, European economist at Capital Economics.
“With the spreading fiscal squeeze set to hit households too, we continue to expect household spending in the region as a whole to grow at a sluggish pace and sharp falls in Southern Europe and Ireland are probably inevitable,” May added.
House Republicans proposed a stopgap budget measure to fund the government until April 8 while lawmakers try to work out their differences on spending for the rest of the fiscal year.
The bill would cut about $6 billion in spending, in part by ending or reducing funds for 25 programs. Most of those changes have been endorsed by President Barack Obama or Senate Democrats. About $2.6 billion of the reduction would be made by rescinding unspent funds for lawmakers’ pet projects.
“While short-term funding measures are not the preferable way to fund the government, we must maintain critical programs and services for the American people until Congress comes to a final, long-term agreement,” said House Appropriations Committee Chairman Hal Rogers, a Kentucky Republican. “A government shutdown is not an option.”
The bill, to be put to a vote next week, would replace the current funding measure that expires March 18. It would be the sixth stopgap measure since the fiscal year began Oct. 1. By cutting $2 billion per week, it would keep Republicans on track to cut $61 billion this year.
Democrats and Republicans remain far apart on how to fund the government through September. Lawmakers are arguing over which side should make the next move after a House-approved plan to cut $61 billion and a Democratic alternative were defeated this week in the Senate.
Democrats said it’s up to House Republicans to show flexibility after the Senate made clear their plan wasn’t viable in that chamber.
“We’re looking for a counteroffer,” Representative Steny Hoyer of Maryland, the second-ranking Democrat, said today.
‘Prepared to Move?’
“Are you prepared to move?” Hoyer asked Majority Leader Eric Cantor on the House floor. “I’m asking you and I can’t get an answer and you apparently are not going to make a counteroffer.”
Cantor said it’s up to Senate Democrats to produce a budget-cutting plan that can clear the chamber that could provide the basis of negotiations with the House.
“There is really no offer on the table that is valid because it can’t pass the Senate,” said Cantor of Virginia. “What is the Democratic Senate’s offer?”
Obama today urged lawmakers to work out a deal, saying the public expects them to “stop with the political bickering.” He said, “We can’t keep on running the government on two-week extensions. That’s irresponsible.”
“The notion that we can’t get resolved last year’s budget in a sensible way with serious but prudent spending cuts, I think, defies common sense,” Obama said. “It shouldn’t be that complicated.”
Senator John McCain, an Arizona Republican, said he will attempt to amend the new short-term proposal to fund the Pentagon for the rest of the year.
“We can’t subject our nation’s national security to a two week-by-two week process,” McCain said. “It is not the way the Defense Department can function and this nation can defend itself and its vital security interests.”
U.S. consumer confidence last week held close to the highest level in almost three years as more Americans said their finances were in good shape.
The Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, was minus 39.3 in the period to Feb. 27, compared with minus 39.2 the prior week, a report today showed. Respondents’ view of their financial situation climbed to an almost two-year high.
A two-percentage-point cut in payroll taxes this year, part of the compromise reached by President Barack Obama and Congressional Republicans, is trickling into consumers’ bank accounts. The extra cash and an improving job market are helping cushion the pinch from the biggest one-week jump in gasoline prices since the aftermath of Hurricane Katrina in 2005.
“Many people are just starting to notice the increase in their paychecks due to the tax cut,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “It’s coming at the right time.” Nonetheless, he said, confidence will be tested in coming weeks should fuel costs climb further.
Stocks rose as an unexpected drop in jobless claims bolstered confidence the labor market is improving. The Standard & Poor’s 500 Index gained 1.1 percent to 1,323.17 at 9:35 a.m. in New York. Treasury securities dropped, pushing the yield on the benchmark 10-Year Treasury note up to 3.52 percent from 3.47 percent late yesterday.
Employment Forecast
Payrolls rose by 195,000 workers in February, the biggest advance since May, after a 36,000 gain the previous month, according to the median forecast of economists surveyed before a Labor Department report tomorrow. The acceleration in hiring reflects a pickup in growth and a rebound from the weather- depressed January level, economists said.
The comfort reading for week ended Feb. 20 was the highest since April 2008.
The comfort index of personal finances rose to 2.4 last week, the highest since May 2009, from minus 2.3. Fifty-one percent of those polled held positive views on their financial situation, up from 49 percent the previous week and the first time since January 2010 that the reading topped 50 percent.
A gauge of Americans’ views of the economy fell to minus 70.6 last week from minus 69.4. The share of households with a positive view of the economy held at 15 percent for a second week, matching the highest since September 2008.
An index of the buying climate fell to minus 50.9 from minus 47.1. Those people saying it was a good time to buy needed items dropped to 25 percent from 27 percent the previous week.
Improving Sales
J.C. Penney Co., Kohl’s Corp. (KSS) and Ross Stores Inc. (ROST) were among retailers today reporting February same-store sales that topped analysts’ estimates. Purchases at stores open at least a year climbed 6.4 percent at J.C. Penney, 5 percent at Kohl’s and 3 percent at Ross, company data showed.
“We are encouraged by our solid start to the year,” Michael Balmuth, chief executive officer of Pleasanton, California-based discounter Ross Stores, said in a statement. Even so, “the much more important March/April holiday selling period is still ahead.”
The average price of regular gasoline at the pump jumped 20 cents to $3.37 a gallon in the week ended Feb. 27, according to AAA, the nation’s biggest motoring organization. It was the biggest increase since the period ended Sept. 5, 2005, after Katrina slammed into New Orleans.
“The key question is what lies ahead for prices at the pump,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “A long run-up will do far more damage than a short spurt.”
Bernanke’s View
Federal Reserve Chairman Ben S. Bernanke echoed that view in testimony before Congress this week.
“Sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored,” Bernanke told legislators in his semiannual comments on monetary policy.
Gasoline prices and the comfort index have shown a strong inverse correlation since 2004, according to calculations by Bloomberg’s Brusuelas. Additionally, changes in the four-week average of claims for jobless benefits have been in sync with the comfort gauge about 72 percent of the time.
Another report today showed claims unexpectedly declined last week to the lowest level since May 2008. Applications decreased by 20,000 to 368,000 in the week ended Feb. 26, according to the Labor Department. Economists forecast claims would climb to 395,000, according to the median estimate in a Bloomberg survey.
Renters’ Confidence
Renters, who have less at stake as home prices fall, were among the categories in the comfort survey that showed the most improvement last week, according to today’s report. Their outlook gauge rose to minus 40.7 last week, the highest since March 2008.
The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers aged 18 and over.
Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three.
The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.
The responses are broken down by participants’ sex, age, income level, race, region of residence, political affiliation, marital and employment status.
Readings of minus 40 for the index, which is based on a four-week average, have historically been the threshold indicating Americans think a recovery from recession has begun, said Langer.
Field work for the index is done by SSRS/Social Science Research Solutions in Media, Pennsylvania.
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