KeNo's Housing and Economic Portal: Sunday September 27 Housing and Economic stories

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Lending in Europe continues to shrink - (www.ft.com) The credit crunch in Europe worsened over the summer as corporate bond finance issuance failed to plug the gap left by a sharp contraction of bank lending. Net lending by banks went further into negative territory in July as companies paid back more loans than they took out new ones. Loans outstanding contracted by a net €25bn ($36bn) in the month, the fifth successive month of an increasing shrinkage of supply. At the same time, there was a retreat in the recent record corporate bond issuance. Bond issuance in July declined for the first time since March, by €20bn month on month to €27bn, although bankers are convinced that it was only seasonal. Bankers said the July trends had continued into August and would affect smaller companies most severely. Morgan Stanley, which compiled the credit crunch numbers from central bank data and Dealogic, said the scant availability of bank lending would penalise smaller companies that have no access to bond markets. “As Europe’s commercial banks de-lever, lending is likely to be squeezed,” said Huw van Steenis, banks analyst. According to Morgan Stanley, there was €319bn of corporate bond issuance in the first seven months of the year and a decline of €33bn in European bank-originated loans. That marked a reversal of the balance of corporate funding from the same time last year, when bank loans totalled €356bn compared with corporate bond issuance of only €119bn. Banks across Europe have insisted in recent months any decline in lending is due to a fall-off in demand, not supply.

Bakery Union Wins Battle, Loses War - (Mish at http://globaleconomicanalysis.blogspot.com/) Congratulations go to Local 50 of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union workers for their hard won victory against the Brynwood Partners and the Stella D'oro cookie factory. In July a National Labor Relations Board judge ruled Brynwood had negotiated in bad faith with Local 50. And now, the rest of the story ... Workers shudder over Stella D'oro cookie factory shuttering in the Bronx: Workers at the Stella D'oro cookie factory in the Bronx were still in shock Thursday as the news sunk in that the business had been sold and was moving to Ohio. They wondered how they'd pay their rents and mortgages, how they'd find another job in today's recession and what they'd do without health insurance. Workers, who already went through a long, bitter strike that ended in July, trudged out at the end of the day's shift Thursday with hangdog faces and tales of heartbreak. Rivera said she cannot afford the $1,200 to $1,600 monthly health insurance payments available through her union, Local 50 of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. "I guess I will go like everyone else on unemployment. Imagine this: 138 people out on the street." After Brynwood bought Stella D'oro from Kraft Foods in 2006, it demanded sharp cuts in wages and benefits. Union workers went on strike in August 2008. The strike ended in July when a National Labor Relations Board judge ruled Brynwood had negotiated in bad faith with Local 50 and ordered it to pay lost wages and benefits. Brynwood then said it would have to sell the firm. Alem Fese, 58, a mixer at the plant for 27 years, said she has a $1,500-a-month mortgage and hasn't written a résumé in nearly three decades. "Who's going to hire me?" she asked. "I don't know what I'm going to do. Really." "Who's going to hire me?" Who's going to hire me? is a very good question. Here's another one. Why didn't the union ask that question before they went on strike, given the threat of the owner to sell? Some people, more importantly some union leaders, would rather have no job than a job at reduced pay, until they have no job, no pay, and no benefits. At some point those workers will be saying Cut My Pay, But Please Give Me A Job. This is a guess on my part, but the pay and benefits those workers get on their next job will probably be far lower than what Brynwood offered. Now those bakers may settling for jobs at Walmart, if they can find a job at all. Wages and benefits NEED to come down. So they will, one way or another. If you don't believe me, then ask GM or Local 50. Union workers in general (and Local 50 workers specifically) need to be wondering if their union exists for the benefit of the workers or the benefit of those collecting union dues. By the way, if you have not figured this out yet, this process is very deflationary.

Whirlpool to shut Indiana plant, cut 1,100 jobs - (www.marketwatch.com) Whirlpool Corp. announced Friday it will close its Evansville, Ind., factory next year, moving the plant's production of top-freezer refrigerators to a facility in Mexico. Citing the need to trim manufacturing capacity, Whirlpool said the mid-2010 plant closure will eliminate 1,100 full-time jobs. Whirlpool, like most manufacturers, has seen its sales slump over the past year as a global economic recession and housing market slump hurt demand for home appliances. Whirlpool's latest revenue numbers show sales in the second quarter fell 18% to $4.17 billion from the second quarter of 2008. Closing the Evansville plant is part of Whirlpool's ongoing drive to consolidate its North American manufacturing operations. The company said it is also considering relocating its Evansville refrigeration product development center, a move that would affect another 300 jobs. "A decision is expected in the near future," the company said. Whirlpool shares rose $1.57, or 2.4%, on the announcement to close at $66.11. The stock, though down 19% from year-ago levels, has rallied nearly 60% since the start of the year. "This was a difficult but necessary decision," Al Holaday, Whirlpool vice president of North American manufacturing operations said in a statement. "To reduce excess capacity and improve costs the decision was made to consolidate production within out existing North American manufacturing facilities. This will allow us to streamline our operations, improve our capacity utilization, reduce product overlap between plants, and meet future production requirements," he added. Whirlpool has been busy downsizing its operations for several years. Last fall it announced plans to ax about 5,000 jobs, or 7% of its workforce, by the end of 2009. The cuts include 500 salaried positions in North America and another 1,900 jobs abroad, mostly in Europe. The company estimated at the time that the job cuts would result in annual savings of about $275 million a year. Whirlpool, based in Benton Harbor, Mich., bought rival U.S. appliance maker Maytag for $1.79 billion in 2006, making it the world's biggest home appliance manufacturer. Shortly after the acquisition, Whirlpool shut Maytag's corporate headquarters in Newton, Iowa, and closed three production facilities, cutting about 4,500 salaried and factory jobs in the process. Whirlpool said the moves announced Friday would not alter its latest full-year earnings outlook of $3.50 to $4.00 a share. Analysts surveyed by FactSet Research are currently looking, on average, for full-year earnings from the company of $3.94 a share.

US tyre duties spark clash - (www.ft.com) A full-blown trade row erupted on Sunday night between the US and China after Beijing accused Washington of “rampant protectionism” for imposing heavy duties on imported Chinese tyres and threatened action against imports of US poultry and vehicles. Trade relations between two of the world’s biggest economies deteriorated after Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff. In his first big test on world trade since taking office in January, Mr Obama sided with America’s trade unions, which have complained that a “surge” in imports of Chinese-made tyres had caused 7,000 job losses among US factory workers. Chen Deming, China’s minister of commerce, condemned the decision, saying that it “sends the wrong signal to the world” at a time when Washington and Beijing should be co-operating to deal with the worst economic and financial crisis in decades. “This is a grave act of trade protectionism,” Mr Chen said in a statement. “Not only does it violate WTO rules, it contravenes commitments the United States government made at the [April] G20 financial summit.” China said it would now investigate imports of US poultry and vehicles, responding to complaints from domestic companies. The US warned Beijing against taking retaliatory action. “Retaliation would be inappropriate, as the United States acted entirely within the bounds of trade laws and within the safeguard provision that China itself agreed to upon accession to the World Trade Organisation,” said an official from the Office of the United States Trade Representative. US officials said they were scrutinising the export of poultry and vehicles, but said any action in retaliation by China could result in a complaint by the US to the WTO. The dispute comes less than a fortnight before Mr Obama is due to host world leaders at a summit of G20 nations in Pittsburgh and ahead of his planned visit to China in November. The decision to impose extra tyre tariffs followed a petition by the United Steelworkers union, which represents workers at many US tyre factories. Official US figures show an increase in imports by volume from 14.6m tyres in 2004 to 46m in 2008. The US data shows that the value of tyre imports from China increased from $453.3m in 2004 to $1.8bn in 2008. Four US plants closed in 2006 and 2007 and three more are likely to be closed this year. US production capacity has fallen by 17.8 per cent in the past four years, according to the official data.

Rep. Bachus: "Social Security Could Face Default Within Two Years" - (www.tuscaloosanews.com) Social Security could face a deficit within two years, according to U.S. Rep. Spencer Bachus who met with The Tuscaloosa News editorial board Tuesday. “The situation is much worse than people realize, especially because of the problems brought on by the recession, near depression,” said Bachus, R-Vestavia Hills, in an interview with the Tuscaloosa News editorial board. Bachus, the ranking member of the House Committee on Financial Services, said most people seem unaware of the impending crisis. He initially said Social Security could face "default" within two years, but his staff responded later saying the Congresssman intended to say "deficit." “What this recession has done to Social Security is pretty alarming,” he said. “We’ve known for 15 years that we were going to have to make adjustments to Social Security, but we still thought that was seven or eight years down the road. But if things don’t improve very quickly, we’re going to be dealing with that problem before we know it.” The solvency of Social Security, which provides pensions for people older than 65, has not played a major role in the current debate about health care in Congress. Bachus said it will not likely be addressed in any health-care bill the House eventually passes, although if a Social Security bailout is needed, it will invariably have an impact on government health-care programs. In the debate over health-care reform, Bachus said that he could support a bill that includes privately administered, nonprofit health-care co-operatives, and the elimination of fraud and waste in existing government programs like Medicaid and Medicare. The creation of health-care co-ops run by members is an idea that has gained momentum as Democrats and President Barack Obama seem to have moved away from insisting on a “public option,” a government-run alternative to private health insurance offered by for-profit companies. “I cannot vote for a bill that has the government intruding into the private sector, subsidizing health care and eventually putting the insurance companies out of business,” Bachus said.