U.S. economy looks shaky, which weak GDP reading would confirm

Posted Oct 27, 2015 by Marvin Clark
Opponents of the Ex-Im Bank claim it is nothing more than an example of corporate welfare, even though the bank paid the Treasury $675 million in fiscal year 2014. The bank says it supported $27.4 billion in exports and 164,000 American jobs last year.
The U.S. economy has looked shaky of late, and an expected weak reading on third-quarter gross domestic product should confirm that. As a result, the Federal Reserve is again expected to keep interest rates near zero. The Fed decision, due Wednesday, and the GDP report, coming Thursday, will be the center of focus on this week’s economic calendar. Weak data almost certainly means the Fed will stick with its Zero Interest Rate Policy at this week’s meeting. The big question is whether the Fed will hint at a December move.
Also on the calendar this week is some sort of deal for the debt ceiling, which needs to be raised by November 3 in order to avoid default; and to meet the November 3 deadline, a deal needs to be reached this week. Talks have intensified between the White House and House Speaker John Boehner on a two-year budget agreement that would also increase the federal debt limit. Congressional leaders are said to be nearing an agreement, which would then need to win backing from most Democrats and at least several dozen Republicans for House passage. The deal raises the prospect that Boehner could resolve two of the thorniest fiscal hurdles before he resigns later this week.
If completed, the agreement would be the most significant spending accord in two years and perhaps since 2011, when the White House and congressional Republicans enacted deep spending cuts in exchange for an increase in the debt ceiling. Obama and some Republicans have been trying to undo part of those cuts, known as sequestration, ever since—GOP defense hawks want to lift budget caps for the Pentagon, while the president has refused to do so unless he can get an equivalent increase in domestic spending.
Under the emerging agreement, that’s what would happen. Money for defense and non-defense accounts would go up by about $50 billion this year and another $30 billion in fiscal 2017. The deal would also prevent steep premium increases for millions of Medicare beneficiaries, the House official said, in a win for Democratic negotiators. CNN is reporting that the spending increases would be offset by oil sales from the Strategic Petroleum Reserve, higher fees for telecommunications companies, and changes to the crop insurance program.
In political terms, the agreement would be a victory for three people in particular. Boehner would succeed in his stated goal of (mostly) clearing the deck of big issues for his successor. Ryan, who has barely won the support of hardliners in the House, would be spared the challenge of having to negotiate contentious fiscal agreements within weeks of assuming the speakership.
And, Obama would walk away victorious in his bid for Congress to relax spending restraints now that the economy has improved and the budget gap has shrunk (at least for the next few years). The president would also get relief in another respect: By removing the shadow of a possible government shutdown or default, he stands a better chance of seeing Congress act on his other priorities, namely criminal-justice reform, in his remaining 14 months in office.
A bipartisan group of House members will try to revive the Export-Import Bank, a federal government agency that finances exports. This is separate from the debt limit. Created during the Depression, the Ex-Im Bank provides insurance and loan guarantees to overseas buyers of American products. The Ex-Im Bank, essentially stopped doing new business on July 1, after House leaders let its charter lapse.
Opponents of the Ex-Im Bank claim it is nothing more than an example of corporate welfare, even though the bank paid the Treasury $675 million in fiscal year 2014. The bank says it supported $27.4 billion in exports and 164,000 American jobs last year. Nearly 90 percent of its loan recipients, the bank says, were small businesses, whose exports accounted for about 40 percent of those supported with Export-Import funding. Supporters in the House appear to have enough votes to re-authorize the bank, although it’s less clear it can pass the Senate.
The pace of new-home sales in the U.S. sank 11.5 percent in September to an annual rate of 468,000, marking the lowest level in 10 months. Sales for August were also revised down to a 529,000 pace from an original 552,000, which would have been a post-recession high. The median price of a new home in September was 13.5 percent higher compared to one year ago: $296,900 vs. $261,500. Despite the big drop in sales in September, new-home purchases are up 2 percent in comparison to September 2014.
Toyota (TM) has regained its crown as the world’s biggest car company by sales after releasing figures for the first nine months of the year. The Japanese carmaker sold 7.49 million in the first three quarters of 2015, beating Volkswagen’s (VLKAF) 7.43 million and General Motors’ (GM) 7.2 million. The reversal could prove the tip of the iceberg for Volkswagen, which is engulfed in the worst scandal in its 78-year history.
Negotiators for the United Auto Workers and General Motors reached a tentative agreement on undisclosed terms for a new four-year labor contract, averting a threatened strike. The proposed deal will now go to a council of several hundred UAW leaders on Wednesday, and will then head to a ratification vote by UAW’s 52,700 workers.
FedEx (FDX) said it expects shipments during the holiday period between the Black Friday and Christmas Eve to rise 12.4 percent above year ago levels to 317 million shipments. This holiday period includes one more day that last year. FedEx expects the holiday period to include three shipment volume spikes, including Cyber Monday and the first two Mondays in December. The package delivery service said it was adding 55,000 employees for the holidays, and will expand operations.
Valeant Pharmaceuticals (VRX) has conducted an internal reviewed of the company’s accounting for its Philidor arrangement and has confirmed the appropriateness of the company’s related revenue recognition and accounting treatment. “In light of the recent allegations, however, the Board of Directors has decided to establish an ad hoc committee to review allegations related to the company’s business relationship with Philidor and related matters.”
Last Wednesday, Citron Research accused the company of using a network of pharmacies to create phantom sales of its products. Valeant said Philidor is independent and that the drugmaker’s accounting leaves no way for it to stuff inventory into the pharmacy. Valeant can’t remove the CEO or management of Philidor, and the drugmaker’s executives and board members don’t own any stake in the pharmacy. Valeant shares were down 35 percent last week, and even after the conference call today, shares dropped another 5 percent.
Duke Energy (DUK) announced plans to buy Piedmont Natural Gas (PNY) for $4.9 billion in cash. The boards of both companies have unanimously approved the buyout deal. Piedmont shareholders will receive $60 in cash for each share of common stock, representing a roughly 40 percent premium to Piedmont’s closing price on Friday.
Eating processed meats causes cancer, and red meat probably increases cancer risks. That’s the judgment of a panel of global experts assembled by the World Health Organization. Eating an extra 50 grams daily of processed meat increases the risk of colorectal cancer by 18 percent. The W.H.O. says that while the overall risk is small, it “increases with the amount of meat consumed.”
ExxonMobil (XOM) has responded to mounting calls for a federal investigation into accusations that the company knew for decades about the risks of burning fossil fuels and the effects on climate change, but withheld the information and sought to sow doubt among the public. Exxon says the allegations are “inaccurate and deliberately misleading.” But there is more to the story than a simple denial and it goes back to former Exxon CEO Lee Raymond.
Beginning in 1977, Exxon scientists began to produce a decade of papers that described a general scientific consensus that the burning of fossil fuels was changing global climate. It was not yet knowable whether the planet was undergoing a heating trend, but if it was, temperatures could rise by three to 10 degrees Celsius, one early paper said.
In the late 1980s, however, Exxon abruptly embraced a message that scientists were exaggerating how much they knew, and that the risk was that they were utterly wrong. In full-throated public statements, Raymond himself said he did not believe the planet was warming.
The possible legal ramifications of the Exxon paper trail are that the company could potentially be shown in a court to have deliberately squelched scientifically based evidence that effectively accepted the consensus view. Science is rarely incontrovertible, but, as the tobacco industry was fined a decade ago for having lied about the dangers of cigarettes, Exxon could be liable for stiff penalties should it be shown to have purposely misled the public for corporate gain.
A former prosecutor in the successful 2006 US racketeering case against tobacco companies has asserted that similar charges might be warranted against ExxonMobil. Exxon under Raymond had not previously been seen to have maliciously distorted in-house scientific research. But now, the news reports, relying on previously little-known papers and documents, many of them housed in an ExxonMobil archive at the University of Texas, allege that the company knew much more than it owned up to. The scandal has implications beyond ExxonMobil, as other oil companies that conducted their own research could also face public scrutiny.