KeNo's Housing and Economic Portal: Monday October 26 Housing and Economic stories

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L.A.'s garment industry goes from riches to rags - (www.latimes.com) Weak consumer spending and a lack of financing are the latest blows to the once-thriving industry, which is also coping with new environmental regulations and consumer safety rules. The reality television show "Project Runway" this season is putting the spotlight on Los Angeles, where designers toil in a loft downtown, competing to win $100,000 to start their own clothing line.
The local industry could use the boost. L.A.'s once-flourishing garment design and manufacturing industry is shedding jobs as quickly as a mohair sweater loses its fur. Weak U.S. consumer spending is generating less demand for the services of the people who stitch, cut and sew clothing in Los Angeles County. Garment manufacturers are finding it tough to get credit. Some, like American Apparel Inc., are dismissing employees whose papers aren't in order as the government keeps a closer eye on workers' immigration status. New environmental regulations are requiring textile mills to reduce their emissions, while makers of children's clothing are finding it costlier to comply with federal consumer safety requirements. "It's a pretty lengthy list of headaches out there for apparel companies," said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp. "These are several bottles of aspirin-worthy problems." As recently as a decade ago, downtown L.A.'s apparel industry was thriving. At the peak in 1996, more than 119,000 textile and apparel workers toiled in the Los Angeles County industry, the nation's largest. But trade agreements that lifted tariffs on foreign-made apparel encouraged U.S. manufacturers to shift production to Mexico and Central America, where wages are significantly cheaper. Meanwhile, China has become a low-cost, mass-production juggernaut, with industrial cities dedicated to a single product such as socks. Textile and apparel employment in Los Angeles County has slipped to about 58,000 workers currently, according to the California Employment Development Department. The industry has lost 6,000 jobs in the last three years. Garment contractor Luis Diaz, owner of Luis Diaz Designs, has operated in the Merchant's Exchange Building in downtown Los Angeles since 2004. On a recent morning, in an airy room where spools of brightly colored fabric line the walls, a few workers sat stitching lace bathing suits and leather bracelets. The workroom is less crowded than it was a year ago, when Diaz employed a dozen workers. "Now, it's really tough," said Diaz, who also designs his own lines of silk-and-leather suits and pink polka-dot purses. "I do the jobs of four people -- I answer the phone, I train the workers, I supervise." This month, he couldn't afford his $2,000 rent, so he asked his landlord for a $300 reduction. Even with the discount, Diaz won't be able to pay his rent until mid-month, although he usually pays at the beginning of the month.

Realtor and builder lobbies corrupt Congress, raise prices, bankrupt gov't- (www.nytimes.com) Democratic Congressional leaders are working with the White House to extend an expiring $8,000 tax credit for first-time home buyers, and aides said Wednesday that they were considering making it available to current homeowners who purchase a new residence. Extending and possibly expanding the popular home-buyers credit, which is due to expire after November, is high among options for further stimulating the economy and creating jobs, Congressional aides said, though a White House official said it was only briefly mentioned on Wednesday in an Oval Office meeting between President Obama, Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada, the Senate majority leader. The Democratic leaders met with the president to discuss a broad range of options to combat persistent high unemployment, officials say. The existing credit for first-time home buyers will expire at the end of next month if not extended, and two other components of the economic safety net — unemployment compensation and health care benefits for those who have been out of work for long periods — will expire at the end of the year. Besides the likelihood of extending those measures, which were part of the $787 billion stimulus law earlier this year, the president and Congress were also weighing additional steps, given projections that jobs will continue to be lost into the middle of next year despite signs of economic recovery, possibly driving the unemployment rate above 10 percent. But they insist that any package will not add up to a second stimulus package, a prospect that would invite Republicans’ attacks on the effectiveness of the first. Keeping the home-buyers credit and broadening it has been a priority for real estate agents and the home builders lobbies, and for Mr. Reid, who faces a tough re-election race next year in a state that has been among the hardest hit by the housing crisis since mid-2007. In a statement after the White House meeting, Mr. Reid said the government should “continue efforts to strengthen the housing market by extending the home-buyer tax credit.” By the time it is scheduled to expire, for home purchases that close before Dec. 1, the home-buyers credit will be responsible for nearly 400,000 sales of new and existing homes, out of total sales of 1.4 million, said Mark Zandi, chief economist at Moody’s Economy.com. That is roughly in line with estimates from the National Association of Realtors. Mr. Zandi, who formerly advised Senator John McCain, Republican of Arizona, and is now consulted by Democrats in the administration and in Congress, has advocated extending the credit through next August and making it available to all home buyers. Allowing the credit to expire this year would result in a decline in sales of homes that are not facing foreclosure just as sales of foreclosed homes are expected to pick up, Mr. Zandi said in an interview, “putting further downward pressure on house prices.”

Latvia on the edge - (www.bloomberg.com) Latvia’s plan to cap mortgage holders’ liability has damaged the Baltic state’s chances of convincing investors it can meet the terms of its bailout and avoid a devaluation, said James Oates, chief executive officer of investment company Cicero Capital. “By trying to change the legislation so that the debts can only be limited to the collateral total, that kind of gives the game away, and that, together with the Swedes’ saber-rattling, they really are out there on the edge now,” said Oates, former head of east European equities at UBS AG, by phone from Tallinn, Estonia. Prime Minister Valdis Dombrovskis on Oct. 6 asked for law changes that would limit the liability of single-home owners to the value of the collateral, citing “the situation in the financial markets and the increasing problems with the borrowers.” Stockholm-based Swedbank and SEB AB, the largest banks in the Baltics, are wrestling with widening loan losses in the region. About 90 percent of all Latvian loans are in euros. Swedbank fell as much as 2 percent and traded 0.4 percent lower at 61 kroner at 1:55 p.m. in Stockholm. SEB rose 0.2 percent to 44.70 kroner. The krona rose as much as 0.5 percent against the euro and traded at 10.3156. Credit default swap spreads on five-year Latvian debt fell 1 basis point to 520, according to CMA DataVision prices at 10 a.m. in London, after rising 41 basis points yesterday. A decline signals a lower perceived credit risk. ‘Credibility’: Latvia today sold about 1.5 million lati in three-month bills at an average yield of about 10.497 percent, and 200,000 lati of 12-month paper with a yield of 14.75 percent, according to Kristaps Strazds, head of trading and capital markets at SEB’s Latvian unit. Yesterday, the Treasury sold about 2.04 million lati in three-month and 12-month paper, and failed to sell six-month notes. Six-month paper wasn’t offered today. Latvia is struggling to cut its deficit to satisfy the European Commission, International Monetary Fund and the Swedish government, the biggest creditors in its 7.5 billion-euro ($11 billion) bailout. Latvia must “restore credibility so the state could finance itself again without international support,” European Monetary Affairs Commissioner Joaquin Almunia said on Oct. 6. Swedish Finance Minister Anders Borg said on Oct. 2 that political signals from Latvia were “worrying” and that the “patience of the international community is very limited.” ‘Aggressive’: A possible devaluation of the lats may affect the whole euro area and lead to “more aggressive attacks” against the currencies of EU members outside the euro area, Oates said. “A sudden spike in the risk premium for states inside the euro zone may put serious pressure on some member states, notably Ireland and Greece -- yet these are still protected by their membership of the single currency,” he said. “It is the non-euro currencies, such as the Swedish krona and Danish krone and the zloty that may end up taking more collateral damage.”

Latvian Hookers Signal No Recovery for Economy - (www.bloomberg.com) When the economy starts to lift itself out of this recession, what will be the leading indicator that tells us we have turned the corner? Some people track the price of shipping to gauge the health of global trade. Others look at the supply of freshly minted money pouring out of central banks. A few will say that signs of life in the housing markets are evidence of a recovery. Forget them all. The one lesson we can draw from the global credit crisis is that all the traditional ways of measuring the state of the economy are about as useful as a bottle of suntan lotion in a snowstorm. So here are two benchmarks we should all be monitoring more closely: extramarital affairs and the price of Latvian hookers. Both are telling us that there is still plenty of trouble ahead. These two measures were proposed recently as reliable economic barometers, and they warrant consideration. Economists often say “animal spirits” play a role in keeping the wheels of the business cycle turning. They have given little advice on how we should measure those spirits. Now we may have the answer. In the U.K., a Web site called www.illicitencounters.co.uk allows married people who are planning to play a few matches away from home to meet up with each other. It has at least 300,000 members, indicating that the British have more on their minds than just the work expenses of politicians and the threat of unemployment. Bull-Market Affairs: The Web site crunched its traffic and membership numbers and found that there was a big increase in both when there was a turning point in the FTSE-100 index, which measures the leading companies listed in London. When the market collapses, people plot affairs. And when the bulls rage, the same thing happens. When it is trading sideways, they stick with their partners. “It has to do with people’s confidence levels,” says Rosie Freeman-Jones, a spokeswoman for the site. “When the markets are up, they think they can have an affair because they feel they can get away with anything. When the market hits the bottom, they are looking for a way to relieve the pressure.” In a similar vein, John Hempton, who runs the financial blog Bronte Capital, has monitored the health of the Baltic economies based on the price of Latvian sex workers -- currently about 30 lati ($60) for the standard service. “The contractual terms of prostitution are short (an hour, a night) and entry to the industry is unconstrained,” he says. “That means that the prices are very flexible.” Price Collapse: True enough. His argument is that since the prices have collapsed by about two-thirds in a year, Latvia and the other Baltic states are still in big trouble with deflation lurking. This benchmark may well be a valid way to get a snapshot of the economy. If prostitution was legal in all countries, it would probably make a good index for central banks to track. There could be few better ways of checking when we will flip from inflation to deflation and vice versa.

Unemployed without a lifeline - (money.cnn.com) move in Congress to extend benefits for the unemployed has been slowed as lawmakers debate who should qualify. As thousands of jobless Americans lose their weekly unemployment checks every day, Congress is still debating who should qualify for a benefits extension. Two weeks after the House passed an extension, Senate Democrats Thursday introduced a bill to lengthen unemployment insurance by up to 14 weeks in all states. Those living in states with unemployment levels greater than 8.5% would receive an additional six weeks. The proposal would be funded by extending the longstanding federal unemployment tax levied on employers through June 30, 2011. "This agreement recognizes the need to extend unemployment benefits for workers in every state whose unemployment benefits have run out or will do so in the next several weeks," said Senate Majority Leader Harry Reid, D-Nev. The Senate proposal differs significantly from the House measure, which lengthens benefits by 13 weeks only for those in high-unemployment states. The House bill would extend the tax through next year. Senate Republicans, who have expressed general support for extending benefits, blocked the Senate from quickly passing on Thursday. "I have no doubt that [at] the appropriate time we'll be able to work out some kind of agreement," said Sen. Jon Kyl, R-Ariz. "But our side is going to need some time to look at it." That pushes consideration of the bill into next week. If the measure makes it through the Senate, it must then be reconciled with the House version. As Congress debates the measure, 400,000 people ran out of benefits in September and another 208,000 are set to lose them this month, according to the National Employment Law Project. Some 1.4 million people will stop receiving checks by year's end if Congress doesn't act, according to the employment law project. The chorus calling for a benefits extension grew louder after the government reported on Friday that unemployment hit a 26-year high of 9.8% in September. Employers shed a higher-than-expected 263,000 jobs last month. The "employment report is a marching order for Congress to pass unemployment benefit extensions to all states, quickly," Christine Owens, executive director of the National Employment Law Project, said last week. "With six unemployed workers seeking jobs for every available opening out there, the path to recovery remains steep."

Congressional leaders fight against posting bills online - (www.washingtonexaminer.com) As Congress lurches closer to a decision on an enormous overhaul of the American health care system, pressure is mounting on legislative leaders to make the final bill available online for citizens to read before a vote. Lawmakers were given just hours to examine the $789 billion stimulus plan, sweeping climate-change legislation and a $700 billion bailout package before final votes. While most Americans normally ignore parliamentary detail, with health care looming, voters are suddenly paying attention. The Senate is expected to vote on a health bill in the weeks to come, representing months of work and stretching to hundreds of pages. And as of now, there is no assurance that members of the public, or even the senators themselves, will be given the chance to read the legislation before a vote. "The American people are now suspicious of not only the lawmakers, but the process they hide behind to do their work," said Michael Franc, president of government relations for the Heritage Foundation, a conservative think tank. At town hall meetings across the country this past summer, the main topic was health care, but there was a strong undercurrent of anger over the way Congress rushed through passage of the stimulus, global warming and bank bailout bills without seeming to understand the consequences. The stimulus bill, for example, was 1,100 pages long and made available to Congress and the public just 13 hours before lawmakers voted on it. The bill has failed to provide the promised help to the job market, and there was outrage when it was discovered that the legislation included an amendment allowing American International Group, a bailout recipient, to give out millions in employee bonuses. "If someone had a chance to look at the bill, they would have found that out," said Lisa Rosenberg, who lobbies Congress on behalf of the Sunlight Foundation to bring more transparency to government. The foundation has begun an effort to get Congress to post bills online, for all to see, 72 hours before lawmakers vote on them. "It would give the public a chance to really digest and understand what is in the bill," Rosenberg said, "and communicate whether that is a good or a bad thing while there is still time to fix it."