Finance and Economic

U.S. employment likely grew solidly last month, but the jobless rate probably rose from a 2-1/2 year low as improving conditions lured some Americans who had given up looking for work back into the labor market.

The government’s closely watched employment report due on Friday should cement views that economic growth accelerated in the fourth quarter after a tepid performance in the first nine months of 2011.

However, the pace of job creation remains too slow to signal a robust recovery is finally under way. Nonfarm payrolls rose 150,000 last month, according to a Reuters survey, after rising 120,000 in November.

Unusually mild weather during the month may have given employment a boost.

While the unemployment rate is expected to edge up to 8.7 percent from 8.6 percent, the tone of the report will likely be strengthened by upward revisions to the payrolls count for October and November, in keeping with a recent trend.

“Businesses are beginning to feel a little bit better about the future and are hiring, but we cannot get too excited because 150,000 is the minimum we need to keep the job market stable,”

said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

The economy would need even faster job growth over a sustained period to make a noticeable dent in the pool of 24.4 million Americans who remain either out of work or underemployed 2-1/2 years after the end of the 2007-09 recession.

Job growth has averaged 131,000 over the past 11 months and even if payrolls rise as expected in December, employment will still be 6.1 million below its December 2007 level.

With the labor market still far from healthy, the debt crisis in Europe unresolved and tensions over Iran threatening to drive up oil prices, the U.S. economy faces stiff headwinds.

Economists predict the recovery will lose a step early this year after expanding in the fourth quarter at what is expected to be the fastest pace in 1-1/2 years.

This should keep alive the possibility of the Federal Reserve embarking on a third round of asset purchases, or quantitative easing, to spur stronger growth.

“We could see QE3 by the middle of the year,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

The employment report will offer little comfort to the Obama administration and could provide Republicans with more ammunition to attack the government’s handling of the economy.

President Barack Obama’s chances of a second term in office could depend on the health of the labor market.

LABOR MARKET TONE IMPROVING

Although the pace of job creation remains mediocre, there is no denying that the market is healing.

Small business hiring is improving and layoffs have subsided, with first-time applications for state unemployment benefits hovering near 3-1/2 year lows.

Over the past several months, the government has consistently revised up earlier payroll counts based on its survey of employers high risk personal loans. In addition, the household survey, from which the unemployment rate is derived, has shown an even more vigorous pace of hiring for each of the last four months.

Economists say the Bureau of Labor Statistics may not be picking up jobs created by small companies and new businesses.

“The payrolls survey has a hard time picking up smaller employers and births of new start-ups, and that’s where we expect to see a lot of job creation,” said Stephen Bronars, senior economist at Welch Consulting in Washington.

“It’s always going to be harder for the BLS to pick up those because they are measuring employment at companies that are included in their survey and those tend to be the bigger, well established companies.”

In Friday’s report, the government will revise the household series going back five years. Analysts will watch this survey closely to see if the recent improvements will hold.

A broad measure of unemployment that includes people who want to work but have stopped looking and those working only part time but who want more work hit a 2-1/2-year low in November.

GOVERNMENT A DRAG

All the anticipated job gains in December will come from the private sector, where payrolls are seen rising 165,000. Government employment is expect to shrink 15,000, weighed down by budget cuts at state and local governments.

However, the worst of the belt tightening is over and some states have reporting increases in revenue.

In November, a measure of the share of industries that showed job gains during the month fell sharply and economists will be watching to see if it recovers.

Job gains in December are expected to come from construction, where unseasonably mild weather has boosted groundbreaking for new homes. Transportation and warehousing payrolls could also benefit from the mild temperatures.

Manufacturing could post a third consecutive month of job gains, but a moderation in retail employment is expected after recording the biggest increase in seven months in November as retailers geared up for a busy holiday shopping season.

Healthcare and social assistance hiring is expected to pick up after adding the smallest number of jobs in five months in November. Temporary hiring — seen as a harbinger of future hiring — is expected to show more gains.

Even though employment probably picked up last month, a modest gain in hourly earnings is likely, indicating that most of the jobs being created are low paying. The high unemployment rate also means wages cannot grow much.

This is a potentially troubling sign for consumer spending, which has been largely supported by a reduction in savings.

The average work week is seen steady at 34.3 hours.

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Construction spending jumped in November as builders spent more on single-family homes, apartments and remodeling projects.

The Commerce Department said Tuesday that spending on construction projects rose 1.2 percent in November, following a revised 0.2 percent drop in October. The increase was the third in four months and the largest since a 2.2 percent rise in August.

The November increase pushed spending to a seasonally adjusted annual rate of $807.1 billion, still barely half the $1.5 trillion that economists consider healthy. Analysts say it could be four years before construction returns to health levels.

Home construction has begun a gradual rebound and likely added to the nation’s economic growth in 2011. The chief reason is apartments are being built almost twice as fast as two years ago. Renting is the only option for many people who have lost their jobs, their homes or both.

For November, private residential construction increased 2 percent in November to a seasonally adjusted $522.3 billion. It was the fifth consecutive gain.

Single-family construction rose 1.5 percent while multi-family construction including apartments rose 1.3 percent. The category that covers home remodeling rose 9.5 percent.

Nonresidential construction was unchanged at an annual rate of $243.7 billion, Spending on hotels and hospitals rose but those gains were offset by weakness in other areas. Spending on office buildings dropped 1.3 percent and the category that includes shopping centers fell 0.8 percent.

Spending on government projects rose 1.7 percent to an annual rate of $284.9 billion. That followed a 1.8 percent drop in October. State and local construction gained 1.3 percent and federal building activity increased 5.3 percent. But even with those gains, activity in the government sector was down 5.3 percent from a year ago.

The construction industry was hit hard by the housing bust and has had trouble recovering since the recession ended more than two years ago.

Severe budget problems have squeezed state and local governments while the federal government has come under pressure to get control of soaring budget deficits.

Private builders haven’t fared much better. While their spending increased, they have scaled back on construction plans and are working from depressed levels.

Builders in November broke ground on homes at a seasonally adjusted annual rate of 685,000. That was a 9.3 percent jump from October and the fastest pace since April 2010.

Builders should start at least 600,000 homes this year. That’s up from 587,000 last year and 554,000 in 2009 _ the worst year on record. Still, that’s half the number that economists expect in a healthy market.

While construction may be turning around, home sales are still weak. This year will likely end up as the worst for new-home sales in history.

While new homes represent less than one-fifth the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Builders are struggling to compete with weak demand because of still-high unemployment and a glut of homes on the market because of foreclosures and short sales _ where lenders accept less for a house than the mortgage on the home is worth. Those homes are selling for at an average discount of 20 percent, which is lowering neighboring home values.

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Iran’s navy said Sunday it test-fired an advanced surface-to-air missile during a drill in international waters near the strategic Strait of Hormuz, the passageway for one-sixth of the world’s oil supply.

Iran’s state TV said the missile, named Mehrab, or Altar, is designed to evade radar and was developed by Iranian scientists. The report said the missile was tested Sunday but provided no further details.

A leading Iranian lawmaker said the sea maneuvers serve as practice for closing the Strait of Hormuz if the West blocks Iran’s oil sales. After top Iranian officials made the same threat a week ago, military commanders emphasized that Iran has no intention of blocking the waterway now.

The exercise covers a 1,250-mile (2,000-kilometer) stretch of water beyond the Strait of Hormuz, including parts of the Indian Ocean and the Gulf of Aden.

The drill, which could bring Iranian ships into proximity with U.S. Navy vessels that operate in the same area, is Iran’s latest show of strength in the face of mounting international criticism over its nuclear program. The West fears Iran’s program aims to develop atomic weapons _ a charge Tehran denies, insisting it’s for peaceful purposes only.

The 10-day exercise drew significant attention after the Iranian warnings about closing the strait. Iranian military officials later appeared to back away from that threat.

A spokesman for the exercise, Rear Adm. Mahmoud Mousavi, made a similar conciliatory comment on Sunday.

“We won’t disrupt traffic through the Strait of Hormuz. We are not after this,” the semiofficial ISNA news agency quoted him as saying.

Prominent lawmaker Ismail Kowsari offered a different view. He said the war games are part of Iran’s preparations to close the vital waterway if sanctions are imposed.

“Iran’s armed forces have practiced operations to close the Strait of Hormuz several times,” the semiofficial Fars news agency quoted Kowsari as saying Sunday.

“If we feel that the enemies want to prevent our oil exports, definitely we will close the Strait of Hormuz,” he said.

Mousavi said the missile that was tested Sunday is one of the newest in the navy’s arsenal.

“It’s equipped with state-of-the-art technology and a built-in system that enables it to thwart jammers,” Mousavi told state TV. One way to deflect surface-to-air missiles is to confuse their guidance systems.

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The U.S. Treasury again shied away from labeling China a currency manipulator on Tuesday, but it rapped the country for not moving quickly enough on exchange rate reforms.

Some U.S. politicians have argued that China has gained an unfair competitive edge in global markets by keeping the yuan artificially low to boost exports, and pressure has mounted in Congress for President Barack Obama to punish China.

But the administration prefers to tread softly and use diplomacy to effect change. The U.S. Treasury, in a semi-annual report, as usual said that statutes covering a designation of currency manipulator “have not been met with respect to China.”

It repeated its standard line that appreciation in the yuan has been too slow, calling it “insufficient.”

“Treasury will closely monitor the pace of appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth,” it said in the report to Congress on international economic and exchange rate policies.

The value of the yuan, which Beijing manages closely, has risen 4 percent against the dollar this year and 7.7 percent since China dropped a firm peg against the greenback in June 2010. The Peterson Institute for International Economics recently estimated the yuan was undervalued by 24 percent against the dollar, down from 28 percent earlier in the year. It attributed the change to both Beijing’s policy of gradual currency appreciation and higher Chinese inflation.

At the heart of the friction between the two countries is a U.S. trade deficit with China that swelled in 2010 to a record $273.1 billion from about $226.9 billion in 2009. The cumulative Jan-Oct deficit with China is on track to top that this year, running at around $245.5 billion.

The Senate this year for the first time passed a bill that would require the administration to slap penalties on Chinese imports if it fails to adopt market-based exchange rates. While the measure has made no progress in the lower chamber and is unlikely to become law, it shows the mounting U.S. frustration with its vital trade partner.

President Obama at the November APEC meetings, in his toughest words yet, told President Hu Jintao that China must play by global trade rules and act like “a grown-up.”

MORE OF THE SAME

But U.S. Treasury Secretary Timothy Geithner has said the law on the FX report, which requires the administration to determine whether U.S. trade partners are deliberately undervaluing their currencies, is a poor tool to push Beijing on the yuan.

Instead, the United States prefers to argue for change at its regular closed-door meetings with Chinese officials. It also uses international economic forums, such as the Group of 20 leading nations and the International Monetary Fund, to ramp up public pressure on Beijing to move more quickly to a more-flexible currency.

China is the biggest foreign holder of U.S. Treasuries, with about $1.1 trillion, a position that gives it leverage in international economic negotiations. Foreign exchange traders had not expected a change of U.S. tactics.

“It’s not very surprising. It’s sort of sliding it in under the radar. They’re (Treasury) really not in a position to make any major moves at this point,” said Sean Incremona, an economist at 4Cast in New York.

The Treasury Department has not labeled a country a currency manipulator since July 1994, when it cited China. A designation would require the United States to step up negotiations with Beijing on the yuan’s value.

The yuan slipped on Tuesday as strong dollar demand from corporations offset a record high mid-point fixed by the People’s Bank of China. The central bank set an all-time high dollar/yuan mid-point in an apparent move to let the yuan rise a little more at the end of 2011 so as to make the yuan’s full-year nominal appreciation look bigger, traders said.

Some U.S. manufacturers, which have been hit hardest by competition from China and other emerging economies, would still prefer the U.S. government to take a harder line.

“China’s currency is still enormously undervalued,” said Scott Paul, executive director of the Alliance for American Manufacturing, an industry lobby for hard-hit textile, steel and labor groups.

“I’m disappointed that President Obama has now formally refused six times to cite China for its currency manipulation, a practice which has contributed to the loss of hundreds of thousands of American manufacturing jobs.”

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Nissan’s quarterly profit dropped 20 percent as Japanese automakers took a battering from the quake and tsunami disaster that disrupted car production and destroyed dealerships.

A soaring yen and rising material costs also helped drag net profit for the fiscal first quarter down to 85 billion yen ($1 billion) from 106.6 billion yen in the April-June quarter last year, Nissan Motor Co. said Wednesday.

But Nissan Chief Executive Carlos Ghosn said the numbers show the maker of the Leaf electric car and Infiniti luxury models is holding up despite the huge odds.

The magnitude-9.0 earthquake on March 11 in northeastern Japan destroyed key suppliers of components, disrupting production for all Japanese automakers.

But Nissan’s production has been recovering faster than its rivals _ and Nissan officials acknowledge faster than they had expected themselves.

The result also outdid forecasts. A FactSet survey of analysts forecast a profit of 55 billion yen ($705 million).

Nissan sold 1.056 million vehicles in the quarter, up 10.6 percent from a year earlier. Quarterly sales edged up 1.6 percent to 2.08 trillion yen ($26.7 billion).

“Our rapid recovery from the natural disasters in March once again shows the power of Nissan in responding effectively and decisively to crisis,” Ghosn said.

Last month, Ghosn disclosed a six-year growth plan, his most ambitious since the revival plan for Nissan that he set in motion in 1999. At that time, Nissan was on the verge of collapse, and Ghosn was sent in by alliance partner Renault SA to turn it around.

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The U.S. Justice Department is investigating Credit Suisse Group’s offshore business with wealthy American clients as part of a larger probe into suspected U.S. tax evaders, the Swiss bank said Friday.

Credit Suisse said it was informed of the investigation Thursday and will cooperate with U.S. authorities within the limits set by Swiss banking secrecy.

“The investigation concerns historical private banking services provided on a cross-border basis to U.S. persons,” the bank said in a statement. “It has been reported that the U.S. authorities are conducting a broader industry inquiry,” it added.

Credit Suisse is the most high-profile Swiss bank to be targeted by U.S. investigators since rival UBS AG became embroiled in a tax evasion probe three years ago. Zurich-based UBS admitted to helping U.S. clients hide money on offshore accounts and ended up paying a fine and giving U.S. authorities details on thousands of American account holders instant credit report. The case prompted Switzerland to soften its strict banking secrecy rules in response to international pressure.

Observers had expected a formal investigation against Credit Suisse after three former and one current employee of the bank were indicted by U.S. authorities in February on charges of conspiring to help American tax cheats.

Analysts at Zuercher Kantonalbank noted that a new treaty currently being discussed by Bern and Washington _ which would automatically tax the accounts of American bank clients in Switzerland _ might ease the pressure on Credit Suisse and other Swiss banks.

Shares in Credit Suisse were down 1.5 percent at 30.13 Swiss francs ($36.88) on the Zurich exchange.

The bank releases its second-quarter results July 28.

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The Canadian housing market is due for a correction, but it will likely be a slow decline rather than a sharp drop, says a report from the Canadian Imperial Bank of Commerce.

Former Missouri Gov. Roger Wilson is out as chief executive of Missouri Employers Mutual Insurance Co., the state’s largest workers’ compensation provider, and a search is under way to replace him.

Wilson had been on administrative leave since May 13.

The departure comes as MEM, which was created in 1993 by the Missouri Legislature to provide insurance for small businesses, faces turmoil over criminal charges filed against two former members of the insurer’s board of directors.

The Columbia, Mo.-based insurer issued a statement Thursday announcing its board of directors decided to make a leadership change, and Wilson is no longer employed by MEM.

Wilson, who lives in Columbia, joined MEM’s board in January 2009 and became its acting president in June 2009. He was named CEO in January 2010.

MEM is not disclosing why Wilson was on leave or why he was removed.

“Since this is a personnel matter, we will not be making any additional comments regarding Mr. Wilson,” MEM’s statement read.

In a separate statement, Wilson said he was proud of his work at MEM. “I wish them very continued success in building on the strong record we compiled together,” Wilson’s statement read. Through a spokesman, Wilson declined to comment further.

Wilson was lieutenant governor of Missouri for two terms, beginning in 1992. He became governor upon the death of Gov. Mel Carnahan in 2000 and served for three months.

MEM’s leadership has gone through a shake-up in recent months. Douglas Morgan, a longtime MEM board member who was named chairman last fall, was indicted in April on charges that he allegedly defrauded Commercial Bank of St. Louis and owes the bank $1.5 million. Morgan also was charged with wire fraud in connection with efforts to build a casino in the Spanish Lake area while he was chairman of the St. Louis County Planning Commission. Morgan, who was removed as MEM’s chairman and resigned from the board on May 30, has pleaded not guilty to the charges.

Attorney Jim Owen of Chesterfield succeeded Morgan as board chairman. Owen is now serving as interim president and CEO of MEM.

Owen said MEM is looking for a chief executive with insurance industry leadership experience and financial expertise.

“Obviously, we want to fill this position as quickly as possible,” Owen said Thursday.

Another former MEM board member, Karen Pletz, was indicted in March on embezzlement charges. Prosecutors allege Pletz fabricated documents over several years authorizing more than $1.4 million in payments from the Kansas City University of Medicine and Biosciences, while she was the school’s president. Pletz was fired from the medical school in 2009.

Pletz, who resigned from MEM’s board in March 2010, has pleaded not guilty to the charges.

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In a rare move, the proposed back-to-work legislation to end the postal dispute sets out a wage settlement that is actually lower than Canada Post’s last offer.

“We’re really disappointed in the Conservative government’s position,” said Gayle Bossenberry, first national vice-president for the Canadian Union of Postal Workers. “The legislation is very restrictive.”

Labour Minister Lisa Raitt introduced the legislation on Tuesday, which outlines a wage settlement of 1.75 per cent in the first year, 1.5 per cent in the second year, and 2 per cent each in the final two years.

At the bargaining table, Canada Post has offered 1.9 per cent in each of the first three years, followed by 2 per cent in the final year.

The union, which represents 48,000 members, estimates the difference works out to about $875 for a full-time employee over the course of the four-year agreement.

While it may be rare to impose a wage deal, it’s not unheard of. In 1997, when the Liberal government ordered postal workers back to work after a two-week strike, it imposed a settlement that was less than Canada Post’s last offer, 5.15 per cent over three years instead of 5.25 per cent.

During question period, NDP Leader Jack Layton questioned the decision to impose wages, but Prime Minister Stephen Harper defended the move.

“The wage rates laid out in the legislation are the rates that this government agreed to with its other public service workers, and that is a fair settlement for Canada Post workers as well,” Harper said.

While the NDP has vowed to delay the legislation, Government House Leader Peter Van Loan told reporters that he expects the legislation will pass on Thursday or Friday, and then would go to the Senate. Mail service likely won’t resume until next week.

The government had threatened back to work legislation in the case of striking Air Canada workers, who reached a tentative deal with the airline last week.

In addition to the unusual step of setting wages, Bossenberry said it also uses the final offer selection process, where each side presents its final offer, and the arbitrator, who is appointed by Raitt, chooses a winner and a loser.

Unlike mediation-arbitration, there is no back and forth or attempt to find a middle ground.

The legislation also sets out penalties if the union or Canada Post defies the legislation, including up to $50,000 a day for union or company official, and up to $100,000 a day for the company or union. Individuals would face up to $1,000 a day.

“I think workers right across the country should be aware if this is the respect that the working class gets in Canada, I’m concerned,” Bossenberry said.

Even though both sides insist they want to hammer out their own agreement, they seem entrenched in their own positions. Talks are continuing, but there is little progress.

When mail volumes began to plummet, Canada Post announced plans to move to home delivery only three days a week. It then locked the workers out last week.

Ontario Federation of Labour president Sid Ryan said introducing back-to-work legislation is one thing, but “to start to prescribe what wage settlements should be is Draconian.

“It’s usually left to an arbitrator to decide. It’s unheard of,” said Ryan, noting that even in Wisconsin, where Governor Scott Walker has been taking on public sector workers, he did not set out wage settlements.

Carla Lipsig-Mummé, a York University professor who specializes in work and labour relations, called it highly unusual to put in a wage settlement as well as bring in back-to-work legislation in a lockout situation.

She believes this legislation could be subject to a court challenge on the grounds of contravenes charter protections, including the right to collective bargaining.

The legislation also states the arbitrator should be guided by the terms and conditions of what workers in other comparable postal industries face as well as flexibility to ensure the short-term and long-term viability of Canada Post.

It also says “the solvency ratio of the pension plan must not decline as a direct result of the new collective agreement.”

For organized labour, the Harper government’s swift action to bring in back-to-work legislation, in the Canada Post and Air Canada disputes sends a strong message.

“They have placed the labour movement on notice that the right to strike doesn’t really exist in Canada, even in the private sector,” said Ontario Federation of Labour president Sid Ryan. “(Harper) has thrown down the gauntlet, and said your move is next.

“We’ve got to respond,” said Ryan, adding there were no specific plans in the works though he mused about the one-day general strike launched in the 1970s in opposition to wage and price controls.

“We stand on the shoulders of labour leaders who came before us and fought for these rights. We have an obligation to fight for them.”

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Stocks climbed for a third straight day on Monday, the longest stretch of gains the market has had in nearly a month.

Major indexes opened mixed but moved higher in midday trading, putting the market further away from its longest weekly losing streak since 2002. Last week stocks eked out tiny gains, giving the Dow Jones industrial average and the Standard & Poor’s 500 index their first rises after a six-week slump.

The downturn, which began in early May, brought the S&P 500 close to its average level over the prior 200 days. So long as the index doesn’t sink far below that level, many technical traders see it as a sign to start buying stocks again. The S&P is now 6 percent below the 2011 high it reached on April 29.

“In the short term, stocks have been oversold, and you’re going to get some sort of bounce, whether justified or not, just for technical reasons,” said Paul Simon, chief investment officer for Tactical Allocation Group, which has $1.5 billion in assets under advisement.

The S&P 500 index is up 7 points, 0.6 percent, at 1,278. The Dow Jones industrial average is up 71 points, or 0.6 percent, to 12,076. The Nasdaq is up 16, or 0.6 percent, to 2,632.

European leaders failed over the weekend to agree on releasing more financial aid to Greece, saying the country must first agree to more budget cuts. Greece’s recent efforts to slash spending have led to street protests and political turmoil in Athens. The Greek government faces a confidence vote on Tuesday.

Prime Minister George Papandreou’s newly-reshuffled government is expected to prevail in the vote, and officials say they expect Greece to get its next installment of emergency loans in July. If Greece were to default, it could trigger losses for the banks that hold Greek bonds and more turmoil in financial markets personal loans for people with bad credit.

Investors are also looking ahead to the Federal Reserve’s two-day policy meeting, which begins Tuesday, and the next round of corporate earnings reports that begin in July, said Oliver Pursche, president of Gary Goldberg Financial Services.

“There’s a little fatigue about hearing about the same problems, and there’s no shock factor anymore,” he said. “So now you’re going to start looking ahead. Earnings season is going to start in three weeks or so.”

Analysts expect operating earnings per share for companies in the S&P 500 index rose 14 percent in the second quarter. They also expect the Fed to keep interest rates at nearly zero, a record low.

Fertilizer producer Agrium Inc. raised its forecast for second-quarter earnings after record crop prices pushed up demand for its products. Its stock rose 2.8 percent.

Nabors Industries Ltd., a driller for oil and gas, warned that its pressure pumping and international businesses have been weaker than it expected. The stock lost 2.2 percent.

PNC Financial Services Group Inc. fell 1.9 percent after saying it would buy the U.S. retail operations of Royal Bank of Canada for $3.45 billion. The deal will make PNC the fifth biggest U.S. bank with 2,870 branches. The deal follows Capital One Financial Corp.’s $9 billion purchase last week of ING’s U.S. online bank.

Greece has been at the center of Europe’s debt worries, but other countries are also facing troubles. Moody’s warned that it may cut Italy’s credit rating because of its mounting debt and sluggish growth prospects.

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