Business highlights Jan. 16
Consumers are squeezed as inflation outpaces wages
WASHINGTON (AP) – The notion that consumers will help lead the economic rebound received a stark rebuttal Friday: The spending power of American families is being squeezed.
Workers saw their inflation-adjusted weekly wages fall 1.6 percent last year – the sharpest drop since 1990 – even as consumer prices rose only modestly.
Slack pay and scarce job growth are slowing consumer spending, along with tight credit and a rising savings rate. That’s hindering the economy’s ability to mount a strong recovery.
JPMorgan Chase profit rises, but so do loan losses
NEW YORK (AP) – JPMorgan Chase & Co.’s $3.28 billion profit report carried a sobering message: Consumers are still struggling to pay off their loans, posing a threat to a strong economic recovery.
Even as the bank reported Friday its earnings more than quadrupled from $702 million during the final three months of 2009, JPMorgan said it’s not finished setting aside money to cover failed loans. In other words, it expects many more consumers to default to default on mortgages and other loans.
JPMorgan is the first of the big banks to announced fourth-quarter earnings. Analysts expect other banks to show similar results.
Stocks fall on JPMorgan results, sentiment survey
NEW YORK (AP) – The Dow Jones industrial average had its first triple-digit drop of 2010 as mounting losses from loans at JPMorgan Chase & Co. and a disappointing consumer sentiment reading sent investors rushing from stocks.
Financial stocks led the market lower Friday, pulling major stock indexes down about 1 percent from 15-month highs. The Dow lost almost 101 points 10,609.65, its steepest drop since Dec. 31. Interest rates fell in the bond markets as investors bought Treasurys in search of safety.
Investors took little solace from a much stronger than expected profit report late Thursday from Intel Corp., the biggest maker of computer chips.
US Attorney: J&J paid kickbacks to boost sales
TRENTON, N.J. (AP) – Federal prosecutors said Friday that health care giant Johnson & Johnson paid tens of millions of dollars in kickbacks so nursing homes would put more patients on its blockbuster schizophrenia medicine and other drugs.
In a complaint filed Friday, prosecutors said J&J paid rebates and other forms of kickbacks to Omnicare Inc., the country’s biggest dispenser of prescription drugs in nursing homes. Prosecutors allege Omnicare pharmacists then recommended that nursing home patients with signs of Alzheimer’s disease be put on the powerful schizophrenia drug Risperdal, which was later found to increase risk of death in the elderly.
Oil drops on more signs of a struggling consumer
NEW YORK (AP) – Oil prices ran up against forecasts for warmer weather, people who won’t drive or spend money and a stronger dollar.
Those factors combined for a fifth straight day of losses. Benchmark crude for February delivery slid $1.39 cents Friday to settle at $78 a barrel on the New York Mercantile Exchange. The price was down $4.75 for the week.
Government data raised more concerns about consumer spending power. The Labor Department reported that inflation-adjusted wages fell 1.6 percent last year, the sharpest drop since 1990. Energy costs were an additional burden, shooting up 18.2 percent last year – the biggest jump since 1979 – led by a nearly 54 percent rise gasoline costs.
Obama mortgage relief program fails to deliver
WASHINGTON (AP) – President Barack Obama’s plan to fix the foreclosure crisis has been a dud, putting the housing market recovery at risk.
Hopes were over-inflated when Obama unveiled the program before an adoring audience of Arizona high school students last February. Almost a year later, it appears only about 750,000 homeowners – a fraction of the 3 million to 4 million originally projected – might complete the application process, predicts Mark Zandi, chief economist at Moody’s Economy.com.
The more borrowers who can’t be helped, the more foreclosed properties will flood the market. And that means the nation’s housing market, which appeared to recover last summer, could soon take another turn for the worse.
Verizon Wireless lowers voice plan prices
NEW YORK (AP) – Verizon Wireless is cutting the price of unlimited call plans, but the largest cell phone carrier in the U.S. is requiring more of its customers to buy the data plans used to access the Internet and check e-mail on high-end mobile devices.
The latest move in a long-running pricing competition between the nation’s wireless carriers shows that the industry is mature and competitive, which leads to lower prices for customers, said Walter Piecyk, an analyst with Pali Research.
But it also shows that data use is becoming an increasingly important service for mobile carriers as they look to new sources of revenue from customers dependent on mobile access to e-mail and the Web.
Government fines United $30,000 for fare flub
MINNEAPOLIS (AP) – The U.S. Transportation Department said on Friday that United Airlines must pay a $30,000 fine for failing to include a federal tax when it quoted some airfares on its Web site.
The government said United left a 7.5 percent federal excise tax out of some fare quotes for two-and-a-half days.
United spokesman Rahsaan Johnson says a programming error moved the tax from the base fare, where government rules require it. Instead, the tax was part of the final price a customer sees later.
Lacker: recovery must be rooted before rate hikes
WASHINGTON (AP) – The economic recovery needs to be firmly rooted before the central bank reverses course and begins to raise interest rates, a Fed official said Friday.
The comments by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, are especially interesting because Lacker has a reputation for being an inflation “hawk.” Hawks worry more about super-low borrowing costs and other special support stoking inflation, while “doves” worry more about rising unemployment.
Lacker said he will be “looking for the time at which economic growth is strong enough and well-enough established” as a precursor to boosting the Fed’s key bank lending rate, now at a record low near zero.
London mayor warns of banker exodus
LONDON (AP) – London Mayor Boris Johnson has warned that thousands of high earning bankers will flee London because of the government’s tougher taxes on bonuses.
In a letter to Treasury chief Alistair Darling released on Friday, Johnson sought an urgent meeting to discuss the introduction of new tax rates for top earners and a temporary 50 percent levy on bank bonuses above 25,000 pounds ($40,700).
He estimated that around 9,000 bankers may relocate abroad, with knock-on effects on London’s legal, accountancy, publishing and media industries and a reduction in the tax resources available to fund public services.