Jobless benefits dwindle as lawmakers dither

The grab-bag bill also contains other pressing measures, such as giving states more Medicaid assistance, adding to infrastructure investments, increasing the Medicare rate paid to doctors, extending tax provisions and lengthening a small business lending program.

But the bill remains stalled with Republicans and some Democrats in both chambers voicing concerns about adding $84 billion to the nation's deficit. House Democratic leadership had hoped to garner support by slashing about $50 billion from the bill on Wednesday evening, but it wasn't enough for certain lawmakers. Also, some House Democrats are concerned about passing legislation that fails in the Senate, as many measures have done this year.

Unable to muster the votes to push back the deadline to file for extended federal unemployment benefits until the end of the year, Congress has resorted to short-term fixes three times in recent months. Democratic leaders may need to do that again if the larger bill, which would lengthen the deadline through November, fails.

More than million could lose out

Some 1.2 million people will run out of their jobless benefits in June if Congress fails to act, according to the National Employment Law Project. Federal unemployment benefits, which last up to 73 weeks, kick in after the state-funded 26 weeks of coverage expire. These federal benefits are divided into tiers, and the jobless must apply each time they move into a new tier.

0:00/2:00Coping with long-term unemployment

Nearly 10 million people are collecting unemployment insurance. A record 46% of the 15.3 million jobless Americans have been out of work six months or longer.

"Taking a break without extending the unemployment program will break faith with the millions of jobless workers Congress is leaving behind," said Christine Owens, the law project's executive director.

Also in jeopardy is the 65% federal subsidy for COBRA health insurance premiums, which expires at month's end.

And physicians will see their Medicare payment rates drop by 20% in June if lawmakers don't pass an extension. The bill calls for extending the current structure through 2011.

The measure also would extend through September 2011 emergency funding to states for food stamps and aid for needy families and a subsidized jobs program.

A key provision that many governors and state lawmakers have been anxiously awaiting is $24 billion in additional Medicaid assistance. At least 19 states have already assumed those funds in their fiscal 2011 budgets. If it doesn't come through, they'd have to make even more massive cuts to balance their budgets.

The bill also contains a small but significant measure that would extend small business lending incentives that otherwise would expire this month. The program both eliminates fees that the Small Business Administration normally charges for loans made through the agency, and increases the government guarantees on those loans.

Plus, the bill also reinstates dozens of tax expired provisions for people and companies. These include a business research credit and a sales tax deduction for individuals.

CNN Congressional Producer Deirdre Walsh contributed to this report.  

First-time jobless claims in Tennessee dropCongress extends jobless benefits

Money runs out for small business loan breaks

For more than a year, the SBA has used money first allocated in last year's Recovery Act to temporarily reduce fees for borrowers and increase the guarantees banks receive on loans made through the agency's lending programs. The SBA's loan volume has picked up sharply in that time, a turnaround agency officials attribute to the stimulus incentives.

But the funding for them ran out in November. Since then, the agency has relied on a series of temporary extensions to keep the loan sweeteners in place. Every time the money runs out, the SBA opens up its Recovery Loan Queue to track applicants hoping to collect the last few remaining dollars.

The latest authorization for some of the loan incentives expires at the end of this month, and the money for them is likely to be exhausted even sooner.

President Obama and many in Congress say they want the loan incentives extended for at least the rest of this fiscal year, which runs through September. But the two chambers of Congress haven't yet agreed on legislation to do that. Result: A series of emergency bills that so far have kept the funds flowing, but only after several brief expirations.

"The stopping-and-starting is problematic," said SBA spokesman Jonathan Swain. "It is a complicating factor for our lenders and our borrowers."

When the funding pool starts to go dry, lenders scramble. Seacoast Commerce Bank, a community bank in Chula Vista, Calif., had pushed five SBA-backed loans through by midday Wednesday.

"It certainly puts a lot of strain on the whole process," said David Bartram, an executive vice president in the bank's SBA division.

It also throws borrowers into limbo. Losing the SBA's fee waiver can make a loan thousands of dollars more expensive for the borrower -- and there are some loans banks are only willing to make if they can get the higher SBA guarantee. Without it, those loans become too risky.

"There are some customers that we are not going to be able to help," Bartram said.

Members of both the House of Representatives and the Senate are pushing for another extension, but it's unclear whether legislation can make it through before the Memorial Day break.

"Nothing gets through Congress easily these days, even bipartisan legislation," said Lynn Ozer, executive vice president of government lending at Susquehanna Bank.

SBA lending is one of the few bright spots in an otherwise barren credit landscape, but it's still a small part. A recent government report estimated that SBA programs account for just 4% of all small business lending.

President Obama this week renewed his push for a new, $30 billion loan fund to seed small banks with capital to boost their local business lending. In a report issued Tuesday, the Congressional Budget Office estimated that the measure would cost the government $3.3 billion over the next five years. 

Greenspan defends Fed’s oversight of subprime mortgage marketWall Street reform: What it means to you

Inflation (CPI)

"Inflation continues to be a non-issue," said Anika Khan, Wells Fargo economist, in a research note.

On a monthly basis, CPI fell by 0.1% in April. Economists surveyed by Briefing.com expected a 0.1% jump. The decline was largely due to a 1.4% drop in the energy index, the report said.

Despite its April decline, the energy index has soared 18.5% over the last year.

The small overall CPI increases "should continue to allow the Fed to keep short-term interest rates low," Khan said.

Core CPI: The even more closely watched core CPI, which excludes volatile food and energy prices, rose 0.9% on an annual basis and was unchanged over the month.

0:00/2:44Why oil prices are so slippery

Index-by-index: The food index jumped 0.5% on an annual basis. It rose 0.2% in April, the same increase as the previous month.

The indexes for recreation, new and used motor vehicles, and medical care also posted increases in April. Other sectors declined, including apparel and household furnishings.

CPI is based on prices of goods and services that people buy for day-to-day living. Prices are collected each month in 87 urban areas across the country, from about 4,000 residences and 25,000 stores. 

Tax credit, low mortgage rates lifted April home salesInflation (CPI)

First-time jobless claims fall

The number of claims was slightly higher than expected. Economists surveyed by Briefing.com forecast new claims to fall to 455,000.

Initial claims have been caught in the mid- to upper-400,000s since November, and economists want to see it move below that bar before calling the start of a recovery.

"It's a stagnant employment situation, and that's not a good thing," said Dan Egan, president of the Massachusetts Credit Union League. "We were expecting and hoping we'd see a greater gain in jobs during this time."

Fears of a double-dip recession and the costs tied to hiring new employees still have business owners in a "cautionary mode," said Egan. Employers need to see consistent improvement in the real estate sector before they really start ramping up their hiring, he said.

The four-week moving average for weekly initial claims was 456,500, up from 454,250 the previous week. The Labor Department tracks the four-week average of the weekly figures, to smooth out the volatility of the measure.

The report also said 4,607,000 people continued to file unemployment claims for their second week or more during the week ended May 15, the most recent data available. That's down from an upwardly revised 4,656,000 the week before.

Standard unemployment benefits usually last 26 weeks. The continued claims number does not include those who have moved into state or federal extensions, or people whose benefits have expired but may still be without a job.

The national unemployment rate currently stands at 9.9%. 

Jobless claims fall for 2nd straight weekFirst-time jobless claims in Tennessee drop

TARP's tiniest failures add up

Illinois-based Midwest Bank was the fourth, and latest, TARP recipient to fail on May 14, bringing the total taxpayer loss for the failures to over $2.6 billion. The FDIC stated in its quarterly banking profile last week that its list of problem banks had grown to 775 from 702 at the start of this year. And the office of the Special Inspector General for TARP (SIGTARP) reported in April that 104 TARP banks have missed at least one, and in some cases, several, dividend payments to the U.S. Treasury.

One bank, Saigon National of California, is dangerously close to missing six dividend payments, which would give the Treasury department the right to elect two directors to the bank's board. Roy Painter, Saigon's chief financial officer, explained to Fortune that the bank has not paid its TARP dividends because it has not received approval from the Office of the Comptroller of the Currency (OCC) to make the payments. While Painter declined to explain why the OCC has not granted approval, it is likely because Saigon, like the hundreds of other small TARP recipients, lacks sufficient capital.

And if that weren't enough, the OCC announced late last week that it had recently submitted enforcement actions against Citizens Commerce National Bank in Kentucky and First Community Bank in South Carolina, both TARP recipients.

Was every bank eligible?

The Treasury department invested $84.8 million in Midwest through its Capital Purchase Program, a TARP program. Launched in October 2008, the Capital Purchase Program set aside $250 billion to purchase preferred shares of financial institutions that were suffering from liquidity problems due to the financial crisis but were otherwise in decent shape.

But it turns out that several TARP recipient banks, including Midwest, were not otherwise healthy at all.

Midwest, which had over $3 billion in assets when it failed, had made a special arrangement with the Treasury department in March to swap the government's preferred shares in the bank for common shares at a loss to the Treasury and, ultimately, taxpayers. Midwest ended up failing before it raised enough capital to support the swap, resulting in an $84 million loss for taxpayers (taking its $824,000 in dividend payments into account).

Pacific Capital in California, Sterling Financial of Washington, and Independent Bank of Michigan, all TARP recipients, have made similar share swap arrangements with the Treasury. And all of these banks have missed one or more TARP dividend payments, a sign that these banks could be among the next to fail.

TARP was originally created as a direct response to a credit crisis brought on by the subprime mortgage crisis. But not all of the small banks that received bailout funds through the Capital Purchase Program came into dire straits as a result of the subprime mortgage-lending crisis -- many of them were failing due to their own mismanagement, having nothing to do with the credit crisis at all.

"Some of these smaller banks that have failed had to do with good old-fashioned poor underwriting, primarily construction loans," says Gerard Cassidy, managing director of equity research at RBC Capital Markets. "Unfortunately, thorough analysis was not done by Treasury."

In what has largely been viewed as a highly successful recovery program, the Treasury department has committed over $600 billion to 830 institutions through the $700 billion TARP program, and it has so far received over $23 billion in dividend payments, interest payments, and fees since it began to dole out TARP aid. Many banks opted to repay close to $189 billion in TARP funds early, largely to avoid the reputational costs associated with the bailout and its requirements like executive compensation restrictions.

0:00/5:10Warren: Help community banks

As a result of the political turmoil surrounding some of the nation's largest banks, politicians and activists have come to the side of small banks. Some have even advocated for governments to transfer their assets from larger to smaller institutions as a symbol of solidarity with Main Street over Wall Street. And in some cases, elected officials have even made appeals to regulators on behalf of individual financial institutions.

Earlier this month, it was revealed that several political notables, including Rep. Jan Schakowsky, Senator Richard J. Durbin, and former President Bill Clinton (in addition to Citigroup (C, Fortune 500), GE Capital (GE, Fortune 500), and Goldman Sachs (GS, Fortune 500)) helped to organize a $140-million rescue of Chicago-based ShoreBank, which has been suffering from capital deficiencies.

ShoreBank, whose motto is "Let's change the world," focuses on providing financing to low-income communities, a politically palatable priority for elected officials and large banks with less than ideal public images. Although the bank has not received funds through TARP's Capital Purchase Program, it has received $9.4 million through its Making Home Affordable Program.

Meanwhile, legislators are considering the proposed Small Business Lending Fund, a $30 billion initiative that will allow banks to exchange their TARP shares for ones with a lower dividend rate if they increase their lending to small businesses. While the program's intentions are good, some wonder if it will have unintended negative consequences. As negligent banks wait for the program, they could choose to avoid their dividend payments, even if they have sufficient funds. There are no penalties for the first five missed payments.

"How good a deal the small banks are going to get has convinced some that maybe they don't want to get out of TARP so soon," says Linus Wilson, finance professor at University of Louisiana at Lafayette. "And the banks that don't take advantage will be in a worse competitive position."

The biggest banks have rightfully borne most of the blame for the financial crisis and the costly bailout. But as they emerge from it seemingly stronger than ever, it's the littlest TARP recipients that now have reason to worry. 

A TARP-free revamp for $30 billion lending planGovernment shuts down 4 failing banks

What recession? Mining equipment is sold out until next year

Copper, used for electrical wiring and construction, was at $6,660 a ton Monday on the London Metal Exchange. Just last month, the metal briefly rose above $8,000 per ton - its highest level since August 2008. Similarly, nickel, mainly used to make steel, was at about $21,175 a ton - down from the near two-year high of around $25,000 per ton recorded earlier last month.

These dips might seem to suggest the recent metal frenzy is short-lived, but that's not entirely the case. Given the recent volatility of commodities and the markets in general, the choppy numbers are more likely to be just be a technical hiccup.

What will keep metals moving up -- and down

Prices certainly could fall further through September and possibly through the end of the year. But in the long-run, a few factors -- chiefly growing economies in East Asia and parts of Latin America -- will likely help metal prices onto a more steady upward path.

The declines of recent weeks have much to do with China's policy measures to ease inflation and cool growth. The country's money supply has expanded rapidly. Much of this is reflected by its booming property market, as well as rapidly rising prices paid by consumers and producers.

The government has passed tightening measures to temper inflation, including raising minimum mortgage rates and tightening controls on purchases of second and third properties. As construction cools, demand for steel, copper and other construction materials could shrink -- particularly since China alone is the world's largest steel producer and disproportionately consumes nearly one-third of the world's steel output.

In a global research report last week, Bank of America Merrill Lynch (BAC, Fortune 500) remained cautious on base metals, especially for the third quarter. In the coming weeks, players in the metals market will likely keep watch of China's policy measures and look hopefully for signs that problems in Europe are contained.

Industrial metals also took a hit following Greece's debt crisis. Concerns arose that other sovereigns with shaky finances, like Spain and Portugal, would be unable to access lending facilities. Despite a nearly $1 trillion package to bail Greece out of bankruptcy, fiscal deficits remain high and Eurozone governments must still tackle a host of structural issues. This has raised uncertainty over the strength of economic recovery.

Metal prices could also fall again if U.S. interest rates rise. An increase in rates effectively strengthens the value of the greenback. Since metals are denominated in US dollars, the stronger currency tends to push prices down.

On the horizon: growth will help prices recover

Over the next three to five years, prices are expected to bounce back reflecting the global recovery, said John Mothersole, a principal at IHS Global Insight. Growing economies, including China, India, Vietnam, Brazil and Mexico, are relatively well positioned to drive demand for industrial materials including metals.

"The pendulum will swing again," said Mothersole, adding that he does not foresee China's tightening policies as a long-term fixture in its economy.

Metals aren't likely to rise to levels seen prior to the global recession, when credit flowed much more widely (nickel reached an all-time high of $53,000 a ton in early 2007), but prices could stabilize as early as next year, with developing and emerging economies leading commodities upward. IHS has forecasted steady future growth in China, ranging from 8.6 percent in 2011 to 8.8 percent in 2014.

Also helping metal prices: A handful of countries are considering increasing taxes against the mining sector, which could reduce supply. Earlier this month, Australia announced plans to levy a 40 percent tax on mining profits, which have prompted mining companies to review projects in the country. Already, mining firm Xstrata has suspended copper exploration work in the country.

Meanwhile, India, Chile, Brazil and other economies big on metal exports are also weighing higher taxes. And Caterpillar is figuring out how to capitalize on the demand while it's still there -- along with pricing out the steel for all those humongous tractors they have to build this year, and next. 

Why Chinese inflation matters hereNashville recycler PSC Metals makes recovery

Manufacturing (ISM)

April's number is slightly better than expected, driven by increases in productivity, new orders and manufacturing jobs. Economists surveyed by Briefing.com were expecting a reading of 60.

"Overall, the recovery in manufacturing continues quite strong, and the signs are positive for continued growth," Norbert Ore, chairman of the ISM's survey committee, said in a release.

Of the 18 industries surveyed in the report, 17 reported growth. Apparel, non-metallic minerals and wood products were among the industries showing the strongest growth.

New orders, productivity, imports and commodity prices all rose at faster rates in April than the month before, indicating that demand for products is driving a recovery in manufacturing.

As for factory jobs, trends continue to look up. The employment component of the report grew for the fifth consecutive month, rising to 58.5 in April from 55.1 the month before.

"It affirms something we already know -- manufacturing is in a full-blown recovery," said Tim Quinlan, an economist with Wells Fargo Securities. "Now, the markets are waiting for that recovery to spread to other sectors."

The inventories part of the index shrunk slightly in April, though, to just under 50 -- the tipping point -- from 55.3 in March.

That decline is not entirely surprising, Quinlan said, as manufacturers are still taking their time to rebuild inventories after scaling back at unprecedented rates during the recession.

The ISM manufacturing index is determined by a survey of purchasing managers and reflects the number of people who say economic conditions are better, compared with those who say conditions are worse. While the index can paint a picture of broad trends, some analysts warn that because it stems from a survey, the index can be subjective. 

Economy picks up with service sector growth, more home contractsConsumer confidence soars to 18-month high

Fitch slashes Spain's credit rating

Fitch said its downgrade reflects that Spain's efforts to reduce its debt "will materially reduce the rate of growth of the Spanish economy over the medium term," said Brian Coulton, head of Fitch's sovereign ratings unit, in a statement.

The rating agency cited a weak job market, several bank restructurings and high government debt as major hindrances to Spain's recovery. Still, Fitch reaffirmed its "stable outlook" and kept Spain's short-term rating unchanged at "F1+."

Why Europe may kill the U.S. recovery

European nations have faced a slew of downgrades in the past several weeks, including Standard and Poor's cut of Greece's debt to junk status. S&P also lowered Spain's and Portugal's investment grade status in April.

Fitch's move slammed U.S. stocks Friday, which took a dive in thin trade ahead of the Memorial Day holiday.

Worries that the debt crisis will snowball and spread throughout Europe have battered markets lately. Continued uncertainty about the zone's future has also weighed on its currency -- the euro has fallen more than 6% in the past month. 

S&P downgrades Greek debt to junk statusBills ignore ratings agencies

Job Growth

After nearly two years of job losses, the economy has now added jobs in five of the last six months. With upward revisions for both March and February, there has been a gain of 573,000 jobs since the start of the year.

"It clearly shows that this economic recovery can no longer be seen as a jobless one," said Bart van Ark, chief economist of The Conference Board, a leading business research firm. "Companies apparently are finding they can't squeeze out any more output without adding workers."

The report also includes a separate survey of households that it uses to estimate the unemployment rate, which increased to 9.9%. Economists had forecast the rate would hold steady at 9.7%.

The rise in the unemployment rate is actually a sign of improving perception of labor market conditions. The increase was due to an uptick in job seekers who had previously been discouraged and dropped out of the job market.There was a jump of 805,000 workers returning to the labor force in April alone.

"When you think about the force it takes to get 800,000 beaten-down people off the couch and back on the street looking for work, that's pretty significant," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

Broad-based gains: The job picture got a lift from the addition of 66,000 jobs by the U.S. Census Bureau, which is in the process of completing the once-in-a-decade headcount of the U.S. population.

But the gains went far beyond that one-time Census boost, as private sector employers added 231,000 jobs. And the gains were broad based, as nearly two-thirds of industries across the private sector added jobs rather than cutting staff.

0:00/3:19Job report better than it looks

Manufacturing did exceptionally well, adding 44,000 jobs, the biggest one-month gain in the sector since August 1998. Construction added 14,000 jobs, the second straight month of gains after nearly three years of uninterrupted job losses in that battered sector.

Retailers added 12,400 jobs, and the leisure and hospitality industries added 45,000 jobs on a seasonally adjusted reading, a sign that employers in those sectors see increased consumer demand.

Temporary help services added 26,200 jobs, which economists see as an important sign of future hiring, since employers often take on temporary workers before they add permanent staff. Temp workers have now increased by 330,000 over the last seven months after roughly three straight years of job losses there.

Looking ahead: Still, the gain in jobs this year has barely made a dent in the 8.4 million jobs that were lost in 2008 and 2009. And the 15.3 million unemployed workers are suffering a great deal. A record 46% have been out of work six months or longer.

The so-called underemployment rate, which includes workers who are discouraged and those who are working part-time jobs because they can't find full-time work, rose to 17.1%, the highest level in the 17 years that figure has been calculated.

"This week's job numbers comes as a relief to Americans who found a job," President Obama said in remarks Friday morning. "But it offers obviously little comfort to those who are still out of work."

He pledged to take additional steps to help businesses hire workers.

Republican critics of the administration focused on the unemployment rate rather than gain in payrolls.

"Positive job growth is always welcome news, but this rising and painfully high unemployment rate is a far cry from President Obama's promise that the trillion-dollar 'stimulus' would keep joblessness from rising above 8%," said House Minority Leader John Boehner in a statement.

But the strength in the report raised hopes the economy will continue to add jobs at an even stronger pace going forward.

"I don't think this is the high water mark," said Jack Kleinhenz, economics professor, Case Western Reserve University. "But even with stronger gains ahead, we have a long way to go."

Achuthan said the upswing in both the overall economy and the labor market is particularly important for helping withstand external shocks, such as worries about the Greek government possibly defaulting on debt or large drops in the stock market, as were seen Thursday.

"The jobs report underscores this is a resilience of the recovery," he said. "When the business cycle is in an upswing, it starts to feed on itself, and the economy can withstand a pretty big shock without being tipped into a new downturn."

U.S. stocks started the day higher following the pre-market jobs report, but within the first hour of trading, fell into negative territory once again.
 

Economy picks up with service sector growth, more home contractsJob Growth

New home sales soar 15% in April

A consensus of economists surveyed by Briefing.com had expected April sales to rise to an annual rate of 425,000.

April was the second straight month of increases. In March new home sales snapped a four-month losing streak and surged at the fastest single-month rate in 47 years as homebuyers snatched up properties ahead of the looming deadline for the tax credit.

The homebuyer tax credit, which expired April 30, boosted sales since buyers had to sign contracts by the end of last month. First-time homebuyers qualified for a tax credit up to $8,000, while repeat buyers could get as much as a $6,500 break.

The credit also pushed existing home sales higher during the month, according to a real estate industry report released earlier this week.

"We got two solid increases in March and April," said Mark Vitner, senior economist at Wells Fargo. "We may see sales fall to a record low in the aftermath of the tax credit program, but any fallback should be short-lived."

That's because even with the jump, the current annual rate of new home sales is still historically low. Vitner said about 700,000 homes are sold annually in a stable economy.

"A true recovery in the housing market won't get underway until we see solid gains in employment and income," Vitner said.

0:00/2:39Whitney: Housing set to fall again

Although last month employers added the most jobs since March 2006, Vitner said the labor market has a long way to go as it recovers the 8.4 million jobs that were lost in 2008 and 2009 and long-term unemployment sits at severe highs.

"The job market is getting a little bit better, but it's still abysmal, he said.

Price and inventory: The government report showed that the median price of new homes sold in April was $198,400, down almost 10% from March from April 2009.

Vitner said the drop in price is because first-time home buyers, who typically spend less than repeat buyers, represented a larger portion of overall buyers last month.

An estimated 211,000 new homes were for sale at the end of April. At the current sales pace, the government expects it will take five months to sell through that inventory. That's down from March, when there were 6.7 months of inventory on the market.

Sales by region: Sales rose the most in in the Midwest, where they spiked by more than 30%; the West welcomed a 21.7% climb. Sales in the South rose more than 10%, and they were flat in the Northeast.  

Tax credit, low mortgage rates lifted April home salesExisting home sales soar in April

Job Growth

After nearly two years of job losses, the economy has now added jobs in five of the last six months. With upward revisions for both March and February, there has been a gain of 573,000 jobs since the start of the year.

"It clearly shows that this economic recovery can no longer be seen as a jobless one," said Bart van Ark, chief economist of The Conference Board, a leading business research firm. "Companies apparently are finding they can't squeeze out any more output without adding workers."

The report also includes a separate survey of households that it uses to estimate the unemployment rate, which increased to 9.9%. Economists had forecast the rate would hold steady at 9.7%.

The rise in the unemployment rate is actually a sign of improving perception of labor market conditions. The increase was due to an uptick in job seekers who had previously been discouraged and dropped out of the job market.There was a jump of 805,000 workers returning to the labor force in April alone.

"When you think about the force it takes to get 800,000 beaten-down people off the couch and back on the street looking for work, that's pretty significant," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

Broad-based gains: The job picture got a lift from the addition of 66,000 jobs by the U.S. Census Bureau, which is in the process of completing the once-in-a-decade headcount of the U.S. population.

But the gains went far beyond that one-time Census boost, as private sector employers added 231,000 jobs. And the gains were broad based, as nearly two-thirds of industries across the private sector added jobs rather than cutting staff.

0:00/3:19Job report better than it looks

Manufacturing did exceptionally well, adding 44,000 jobs, the biggest one-month gain in the sector since August 1998. Construction added 14,000 jobs, the second straight month of gains after nearly three years of uninterrupted job losses in that battered sector.

Retailers added 12,400 jobs, and the leisure and hospitality industries added 45,000 jobs on a seasonally adjusted reading, a sign that employers in those sectors see increased consumer demand.

Temporary help services added 26,200 jobs, which economists see as an important sign of future hiring, since employers often take on temporary workers before they add permanent staff. Temp workers have now increased by 330,000 over the last seven months after roughly three straight years of job losses there.

Looking ahead: Still, the gain in jobs this year has barely made a dent in the 8.4 million jobs that were lost in 2008 and 2009. And the 15.3 million unemployed workers are suffering a great deal. A record 46% have been out of work six months or longer.

The so-called underemployment rate, which includes workers who are discouraged and those who are working part-time jobs because they can't find full-time work, rose to 17.1%, the highest level in the 17 years that figure has been calculated.

"This week's job numbers comes as a relief to Americans who found a job," President Obama said in remarks Friday morning. "But it offers obviously little comfort to those who are still out of work."

He pledged to take additional steps to help businesses hire workers.

Republican critics of the administration focused on the unemployment rate rather than gain in payrolls.

"Positive job growth is always welcome news, but this rising and painfully high unemployment rate is a far cry from President Obama's promise that the trillion-dollar 'stimulus' would keep joblessness from rising above 8%," said House Minority Leader John Boehner in a statement.

But the strength in the report raised hopes the economy will continue to add jobs at an even stronger pace going forward.

"I don't think this is the high water mark," said Jack Kleinhenz, economics professor, Case Western Reserve University. "But even with stronger gains ahead, we have a long way to go."

Achuthan said the upswing in both the overall economy and the labor market is particularly important for helping withstand external shocks, such as worries about the Greek government possibly defaulting on debt or large drops in the stock market, as were seen Thursday.

"The jobs report underscores this is a resilience of the recovery," he said. "When the business cycle is in an upswing, it starts to feed on itself, and the economy can withstand a pretty big shock without being tipped into a new downturn."

U.S. stocks started the day higher following the pre-market jobs report, but within the first hour of trading, fell into negative territory once again.
 

Job GrowthEconomy picks up with service sector growth, more home contracts

How to instantly stop the next banking crisis

It's certain that better regulations can help us respond to the next crisis faster, and with less cost to the taxpayer. So here's a simple idea: require systemically important financial institutions (think Citigroup (C, Fortune 500) or Goldman Sachs (GS, Fortune 500)) to issue so-called "contingent capital," a kind of shock-absorber that would immediately kick in during a crisis to stabilize the institution and bolster its solvency.

Contingent capital could be a special kind of debt that automatically converts to common stock when the firm's regulatory capital gets depleted. In the current political maelstrom, and despite all the self-congratulating on the much-needed financial regulatory reform package that was just passed by the Senate, this practical idea hasn't gotten the attention it deserves.

Left to their own devices, financial firms eventually restructure, but this takes time, something that is always short in a crisis. Managements drag their feet, unable to cope with hard decisions, or they hope the environment will improve and spare the need for massive shareholder dilution (i.e, the wiping out of their personal wealth). Existing debt is tricky to restructure, because holders of different seniority and tenure have different points of view making exchange offers and other strategies frustrating propositions.

Contigent capital: make banks bail themselves out next time

Financial crises are unpredictable and inescapable -- a function of market-driven economies, global capital flows, and information technology, and thus part of the price we pay for innovation and progress. While volatility may be unavoidable, we can get smarter at dealing with it. During a crisis, decision-makers face paralyzing uncertainty, yet must take action with lightning speed.

The faster we can recapitalize and stabilize the financial system, the faster we can get through the crash and on to recovery. During our recent downturn, it took Hank Paulson and his staff a full year to backstop banks after the collapse of the securitization markets, and it took two tries to get TARP right. Then we suffered another six months before the next administration implemented a regulatory stress test (the "SCAP" exercise) that finally prodded banks into recapitalizing. Imagine if we could have sped up this process and spared ourselves dreadful months of indecision and pain.

The problem is, new capital is cautious. Consider the case of CIT Group (CIT), which emerged from bankruptcy early in 2010. It took about a year from when its solvency was questioned before the company finally threw in the towel -- and that's a typical timeline for a struggling financial firm.

Sometimes government can move quickly, but this puts taxpayers at risk. To stabilize the banking system, Treasury bought preferred stock (through TARP) in many banks. This helped. But taxpayers lost $2.3 billion on CIT's TARP infusion, and at last count, some 80 banks are now deferring TARP dividend payments. If the crisis had been worse, TARP would have cost even more.

"Contingent capital" would be a shock absorber, stabilizing firms more quickly and with less taxpayer exposure than ad-hoc measures. Debt that automatically converts to equity during a crisis would reduce the need for protracted negotiations, complicated exchange offers, bankruptcy filing, or emergency government action.

This idea has in fact been around for some time: in 1991, Tom Stanton suggested contingent capital for Fannie Mae and Freddie Mac (FRE, Fortune 500) -- if people had listened then, the idea would have saved taxpayers untold billions today -- the government's bailout of the two mortgage agencies is unlimited, with the Congressional Budget Office estimating it could cost $373 billion by 2020.

The "trigger" for conversion from debt to equity would be a decline in the company's regulatory capital ratios, as disclosed in its quarterly earnings reports. If these ratios dropped below "well-capitalized" levels (typically defined as equity equal to about 8% of assets), then each dollar of the contingent capital debt would be changed into common stock, based on a fixed conversion ratio.

Everyone loses -- except taxpayers

The debt holders would lose, but at least they wouldn't have to wait for bankruptcy to determine their recoveries. Shareholders would lose too -- but without the conversion, they would need to raise emergency capital at a depressed share price, leading to much worse dilution, assuming the company could raise any capital at all. (Remember when Citigroup traded for $1 per share?).

Not only would conversion be speedy, but it would protect the taxpayer. Government-guaranteed deposits (and other debt that might need to be guaranteed) would be protected from losses by the new equity.

Given the severity of the recent crisis, systemically important financial firms ought to hold contingent capital equal to their normal equity requirement, effectively doubling taxpayers' protection.

In normal times, issuing this special kind of debt should not be expensive. Firms that look systemically dangerous might face higher costs. To avoid these costs, risky firms could shrink their balance sheets or rethink their business models. In this way, the contingent capital requirement would brake the growth of large, risky financial firms, another goal of regulatory reform. And if we're not truly preventing systemic failures with our reform plans, it's worth asking whether they're worth pursuing at all.

Kenneth A. Posner is the author of Stalking the Black Swan: Research & Decision-making in a World of Extreme Volatility 

European debt worries worldWall Street reform: Washington’s next battle

At risk: The Gulf's $234 billion economy

But there have been studies done looking at what's broadly at stake, and the number is quite large indeed.

The four biggest industries in the Gulf of Mexico are oil, tourism, fishing and shipping, and they account for some $234 billion in economic activity each year, according to a 2007 study done by regional scholars and published by Texas A&M University Press.

Two thirds of that amount is in the United States, with the other third in Mexico.

If the Gulf of Mexico were a country, it would be the 29th largest economy in the world.

Oil and gas

Ironically, the largest chunk of that money is generated by the oil and gas industry, and they may ultimately be the ones that lose the most.

Oil and gas interests generate $124 billion or 53% of the total money, according to Jim Cato, a former economics professor at the University of Florida and one of the authors on the study.

As of Thursday, all new offshore drilling in U.S. waters in the Gulf remained closed following the sinking of the Deepwater Horizon oil rig last month, which claimed 11 lives and left an uncapped oil well leaking thousands of gallons a day into the water.

Oil production from existing wells has been largely unaffected and drillers have been busying themselves with wells begun before the explosion. But the longer the ban remains intact, the harder the economic bite.

"If the moratorium is continued through June, lost revenue from shallow water drilling is estimated at $135 million," said a letter Friday from ten senators urging a lifting of the ban.

The ban may eventually be lifted, but how much more the oil industry will have to pay for royalties or spill prevention, plus restricted access to new drilling sites, remains to be seen.

Tourism

Tourism is the second largest industry in the Gulf, and it ranks right behind oil. About 46% of the Gulf economy, or over $100 billion a year, is from tourism dollars, according to the A&M report.

0:00/4:05BP's long-term oil spill fallout

With tourism, it's not necessarily the oil that washes up on the beach that hurts the industry, but how much oil people think will wash up on the beach. And people seem to think it will be bad.

In Florida, state tourism officials recently told CNN they're getting cancellations as far as three months out.

In Mississippi it's even worse.

Ken Montana, President of the Mississippi Gulf Coast Tourism Commission, said cancellation rates are running at nearly 50%.

"The perception is that everybody has oil on the beach and we are all closed up," Montana told CNN. "No beaches are closed, period."

Fishing and shipping

Fishermen are perhaps the most directly impacted by the spill. The government has already closed over 20% of federal waters for fishing activities and many of them are out of work.

But commercial fishing and shipping together only account for 1% of the Gulf's total economic activity.

While the number is small in terms of Gulf cost dollars, it does not factor in the impact a shut down in shipping could have, which could halt grain and other cargo from traveling up and down the Mississippi River.

According to the Port of New Orleans, no disruption in shipping is foreseen. The Coast Guard has set up five washing stations for ships to get scrubbed if they come into contact with the oil, but so far none have been used, said a port spokesman.

What's at stake

Obviously, the oil spill isn't going to shut down the Gulf's entire economic output.

When the spill first happened, researchers at the Harte Research Institute for Gulf of Mexico Studies, who also contributed to the A&M report, estimated the economic damages might be $1.6 billion. That number included $400 million in direct economic costs, and another $1.2 million in services provided by wetlands that might be compromised - things like water filtration and such.

But that number was arrived at when the oil spill was estimated to be 1,000 barrels a day, said David Yoskowitz, chair of socio-economics at Harte.

BP (BP) estimates for the oil leak are now 5,000 barrels a day, and some say it could be 10 times that.

Moreover, both the Harte study and the A&M report only look at the Gulf of Mexico. Yet there are reports that the oil is getting caught up in the so-called loop current, which could bring it up the eastern seaboard.

"If that happens, all bets are off," said Yoskowitz.  

Gulf spill won’t dampen U.S. appetite for oilObama suspends new Virginia offshore drilling bid

Wall Street reform: Who won, who lost

Experts believe the biggest losers are Wall Street banks, and the biggest winners are consumers, as well as credit unions and smaller community banks.

"It was quite a success," White House economic adviser Austan Goolsbee said in an interview last Friday, heralding gains for consumers. "It's the toughest, strongest consumer protection we've ever had in this country on financial stuff."

However, wins and losses are not absolute. Wall Street banks scored some success, beating back a couple of tough measures such as powers to break up banks. And consumers are poised to weather a loss with an increasingly likely shield protecting auto dealers from tougher new consumer rules.

Ultimately, the final score will depend on regulators, who will be charged with implementing and policing the new policies. Regulators will set rules for bigger capital cushions. They will choose which dangerously weak banks are dismantled. They will decide what kind of lending fees abuse consumers.

LOSERS

Big Wall Street banks: The big banks knew that they were going to have to abide by new rules forcing them to beef up capital cushions and cut down on leverage and risky moves. But they also could lose the ability to engage in what's called proprietary trading for their own accounts, although the Senate bill gives regulators some leeway to water it down after a study.

One of the biggest ways the big guys lose is with complex financial products called derivatives. Derivatives are financial bets on the rise and fall of other investment tools, including interest rates, mortgages and commodities such as corn.

The Senate bill forces big banks to spin off their departments that trade derivatives. Derivatives expert Michael Greenberger called the measure the "nuclear weapon" of Wall Street reform.

"Right now, the banks are sweating bullets over it," said Greenberger, a law professor at the University of Maryland who worked at the Commodity Futures Trading Commission during the Clinton administration. "The bill is overwhelmingly tough. . .It's going to very much pinch the profits of the banks."

Additionally, both bills force big derivatives players to trade on clearinghouses and exchanges, which means more people will know what a particular bet is worth, cutting into the profits of those organizing the bets.

"It's kind of hard to know how it's ultimately going to affect banks," said Phillip Swagel, business professor at Georgetown University and former Treasury Department chief economist under President George W. Bush. "But if the regulators have a race to see who can be the toughest, that's going to have the biggest impact on bank profitability."

Visa and Mastercard: One unexpected loss could be in store for credit network operators Visa and Mastercard, as well as all the banks, over so-called interchange fees. The Senate decided to crack down on swipe fees that retailers pay when customers use debit cards. But the House doesn't address the issue, so the matter needs to be resolved in conference.

The fees comprise 1% to 3% of every transaction run through a debit or credit card, and go to cover the operational cost of transferring money from one account to another. Network operators such as Visa (V, Fortune 500) skim off a fraction of the fee, while the rest goes to the financial institution that issued the card.

0:00/4:13Enter bank reform, exit profits

The Senate steps in and directs the Federal Reserve to make debit card fees "reasonable and proportional" to costs. The Senate also allows retailers to give price cuts to customers who pay with debit cards that carry lower transaction fees.

WINNERS

Consumers: Both the Senate and House bills create a federal agency in charge of setting rules to curb unfair practices in consumer loans, such as mortgages and credit cards, as well as those made by big nonbanking lenders, including payday loan chains.

The regulator would have the authority to come up with "model disclosures" to simplify paperwork involved with any kind of financial product. The regulator is also tasked with culling penalty fees consumers often face when they pay off mortgages, particularly subprime ones, early.

Consumers also scored an extra win in the Senate bill, which ensures that they get a copy of their credit score when they get one free credit report each year.

"It's a crucial step toward delivering on the promise Congress made when it called on taxpayers to bail out the big banks," said Travis Plunkett, chief lobbyist for the Consumer Federation of America.

Community banks and credit unions: Smaller banks and credit unions were also winners, especially compared to their big brothers in the industry.

Thanks to the Senate, community banks are poised to pay less to the federal insurance fund that backs up their deposits. That would save community banks $4.5 billion over the next three years, according to the Independent Community Bankers of America. The bigger banks would pay more, although the House bill does not address the issue.

In the House bill, community banks and credit unions escape having to pay into the $150 billion fund that finances the government takedowns of failing financial firms. The Senate dropped a similar fund.

Both bills also allow credit unions and community banks to keep their existing regulator when it comes to getting policed about abiding by new consumer protection rules.

The Fed: The Federal Reserve beat back a couple of measures pruning and checking its power. While its emergency lending powers got narrowed, the Fed retained a lot of its original oversight powers over smaller and state-chartered banks, which had been threatened in earlier bill drafts.

Also, the Senate watered down a measure to subject the Fed to new congressional checks in favor of a one-time audit of the central bank's role making cheap loans to ailing Wall Street banks during the financial crisis. The House's version has a broader audit of the Fed. 

Job losses, bailout fuel noisy crowd marching on Wall StreetWall Street reform finale expected this week

Job Growth

After nearly two years of job losses, the economy has now added jobs in five of the last six months. With upward revisions for both March and February, there has been a gain of 573,000 jobs since the start of the year.

"It clearly shows that this economic recovery can no longer be seen as a jobless one," said Bart van Ark, chief economist of The Conference Board, a leading business research firm. "Companies apparently are finding they can't squeeze out any more output without adding workers."

The report also includes a separate survey of households that it uses to estimate the unemployment rate, which increased to 9.9%. Economists had forecast the rate would hold steady at 9.7%.

The rise in the unemployment rate is actually a sign of improving perception of labor market conditions. The increase was due to an uptick in job seekers who had previously been discouraged and dropped out of the job market.There was a jump of 805,000 workers returning to the labor force in April alone.

"When you think about the force it takes to get 800,000 beaten-down people off the couch and back on the street looking for work, that's pretty significant," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

Broad-based gains: The job picture got a lift from the addition of 66,000 jobs by the U.S. Census Bureau, which is in the process of completing the once-in-a-decade headcount of the U.S. population.

But the gains went far beyond that one-time Census boost, as private sector employers added 231,000 jobs. And the gains were broad based, as nearly two-thirds of industries across the private sector added jobs rather than cutting staff.

0:00/3:19Job report better than it looks

Manufacturing did exceptionally well, adding 44,000 jobs, the biggest one-month gain in the sector since August 1998. Construction added 14,000 jobs, the second straight month of gains after nearly three years of uninterrupted job losses in that battered sector.

Retailers added 12,400 jobs, and the leisure and hospitality industries added 45,000 jobs on a seasonally adjusted reading, a sign that employers in those sectors see increased consumer demand.

Temporary help services added 26,200 jobs, which economists see as an important sign of future hiring, since employers often take on temporary workers before they add permanent staff. Temp workers have now increased by 330,000 over the last seven months after roughly three straight years of job losses there.

Looking ahead: Still, the gain in jobs this year has barely made a dent in the 8.4 million jobs that were lost in 2008 and 2009. And the 15.3 million unemployed workers are suffering a great deal. A record 46% have been out of work six months or longer.

The so-called underemployment rate, which includes workers who are discouraged and those who are working part-time jobs because they can't find full-time work, rose to 17.1%, the highest level in the 17 years that figure has been calculated.

"This week's job numbers comes as a relief to Americans who found a job," President Obama said in remarks Friday morning. "But it offers obviously little comfort to those who are still out of work."

He pledged to take additional steps to help businesses hire workers.

Republican critics of the administration focused on the unemployment rate rather than gain in payrolls.

"Positive job growth is always welcome news, but this rising and painfully high unemployment rate is a far cry from President Obama's promise that the trillion-dollar 'stimulus' would keep joblessness from rising above 8%," said House Minority Leader John Boehner in a statement.

But the strength in the report raised hopes the economy will continue to add jobs at an even stronger pace going forward.

"I don't think this is the high water mark," said Jack Kleinhenz, economics professor, Case Western Reserve University. "But even with stronger gains ahead, we have a long way to go."

Achuthan said the upswing in both the overall economy and the labor market is particularly important for helping withstand external shocks, such as worries about the Greek government possibly defaulting on debt or large drops in the stock market, as were seen Thursday.

"The jobs report underscores this is a resilience of the recovery," he said. "When the business cycle is in an upswing, it starts to feed on itself, and the economy can withstand a pretty big shock without being tipped into a new downturn."

U.S. stocks started the day higher following the pre-market jobs report, but within the first hour of trading, fell into negative territory once again.
 

Job GrowthEconomy picks up with service sector growth, more home contracts

Existing home sales soar in April

The gain was widely anticipated, but still beat forecasts. Analysts surveyed by Briefing.com were looking for resales in April to rise to an annual rate of 5.65 million units.

"The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market," said Lawrence Yun, NAR chief economist. "For people who were on the sidelines, there's been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low."

The home buyer tax credit, which expired April 30, pushed sales up during the month since buyers had to sign contracts by the end of last month. First-time home buyers qualified for a tax credit up to $8,000, while those trading up could score as much as $6,500.

Despite the termination of the tax credit, NAR president Vicki Cox Golder also anticipates buyer traffic to hold up in May and June.

"Some realtors tell us they are very busy with clients who are entering the market now as a result of improved conditions, while others are welcoming a slowdown from frantic market conditions in recent months," she said.

Price and inventory: The NAR report showed that the median price of homes sold in April was $173,100 in April, up 4% from a year ago. About a third of homes sold during the month were distressed properties.

Total housing inventory rose 11.5% to 4.04 million existing homes for sale. That represents a 8.4-month supply at the current sales pace, up from a 8.1-month supply in March.

Yun said that although inventories remain higher than normal, the house pricing correction is nearly over.

"In fact, a majority of the markets have seen price gains lately," he added. "A return to old-fashioned responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles."

Sales by property and region: Sales of single-family homes rose 7.4% in April compared to the prior month, while condominium and co-op sales spiked more than 9%.

The Northeast fared best last month, with sales surging 21.1% to an annual level of 1.09 million units in April, which was 41.6% higher than a year earlier.

Resales in the Midwest climbed nearly 10% last month, while they rose 8.6% in the South and 6.2% in the West.  

New home construction surges 41%Tax credit, low mortgage rates lifted April home sales

Home Prices

"The homebuyer tax credit, available until the end of April, is the likely cause for these encouraging numbers," said David Blitzer, chairman of the index committee at S&P.

But home prices actually fell by 0.9% compared with January. The dip was small enough to put prices in positive territory compared with 12 months earlier, when home prices were falling very steeply.

Indeed, 18 cities saw month-over-month price declines in February and six cities, including New York, Las Vegas and Seattle, posted new lows for this downturn.

"These data point to a risk that home prices could decline further before experiencing any sustained gains," said Blitzer. "It is too early to say that the housing market is recovering."

As of February, prices are about where they were in the Fall of 2003. Prices for the 20-city index are down 32.6% from their peak in July 2006, wiping out all of the gains from the housing boom.

California rising

The best performing market in February was San Francisco, which posted a double-digit gain over the past 12 months of 11.9%. San Diego home prices jumped 7.6% and Los Angeles gained 5.3%.

"California had very steep declines during the downfall and now people are rushing to catch the market on its way up," said Lawrence Yun, the chief economist for the National Association of Realtors.

The biggest loser continued to be Las Vegas, where prices dropped 14.6% over the past 12 months.

S&P's Blitzer warned that housing markets still have some deep problems that could derail any recovery. Chief among them is the foreclosure crisis.

"As [foreclosures] are put up for sale, we may see some further dampening in home prices," he said.

0:00/3:40Fortune 500: No more homebuilders

But David Crowe, the chief economist for the National Association of Home Builders, expects home prices to remain stable for some time.

"We're in for a period of wandering around zero [price gains]," he said, "with some months up and some down but with the general trend slightly upward."

Home builders have regained some of their confidence lately with new home sales and permits both posting big gains.

"Starter home builders in the central part of the country are most confident," said Crowe. "They're least optimistic in the bubble states like California, Nevada, Arizona and Florida, and the auto industry areas."

An upturn in the confidence level of both buyers and sellers was ushered in by federal stimulus programs, according to Yun, especially the homebuyer's tax credit and the Federal Reserve's move to purchase mortgage-backed securities. That made it easier to obtain financing.

"The stimulus program stopped the bleeding," he said. "What we now have to see is whether consumers view price stabilization as permanent." 

Tax credit, low mortgage rates lifted April home salesHome Prices

Oil for U.S. and Cuba's troubled waters

The U.S. Geological Survey estimates the nation has about 4.6 billion barrels and nearly 10 trillion cubic feet of natural gas in the North Cuba Basin, and possibly four times that much in its portion of the Gulf of Mexico. The lower estimate would put Cuba on a par with Ecuador or Colombia.

But monetizing these resources is a real challenge: The 48-year old U.S. embargo and Washington's diplomatic muscle have thwarted any real progress so far. But this edifice is under siege. The Spanish, through their energy giant, Repsol, are bringing a deep-water oil drilling rig to Cuba this fall.

Trade sanctions dictate that the rigs can not contain more than 10% of U.S.-made components, which can include software. Most rigs worldwide typically top that. To get around the restrictions, Repsol contracted for a Chinese, purpose-built rig from Saipem, the offshore drilling unit of Italy's Eni, SpA, which will operate the rig. When Repsol first drilled off Cuba's shore in 2004, its core samples were promising enough to bring on partners for this go-round, including Norway's Statoil and India's national oil company. Repsol did not reply to repeated requests for comment.

After Repsol starts drilling, other international oil companies with concession acreage off Cuba are expected to hire the Saipem rig, explains Jorge Pinon, a Cuban energy expert, with 32 years industry experience, including a stint as president of Amoco Oil Latin America before retiring in 2003 from BP, which had taken over Amoco.

"That rig is going to hang around in Cuban waters for quite a while," says Pinon, now a Florida International University fellow. "And if any of these drilling jobs hit pay dirt and substantial reservoirs are found, then the pressure in Washington is going to be such that you will see the embargo, as far as the oil industry is concerned, falling apart."

Fears of another spill

More worrisome to some is a petroleum stampede in Cuba with American companies -- and their environmental standards -- on the sidelines

"The sobering fact that a Cuban spill could foul hundreds of miles of American coastline and do profound harm to important marine habitats demands cooperative and proactive planning by Washington and Havana to minimize or avoid such a calamity," argues a recent Brookings Institution briefing paper.

Cuba's EEZ stretches to less than 50 miles from Key West but the embargo prohibits the U.S. from offering any assistance at all; by contrast there are agreements in place with Canada and Mexico to facilitate U.S. aid.

Both Statoil and Saipem have extensive deepwater experience, but other operators in the 59 Cuban concession areas -- held by the Chinese, Vietnamese, Malaysians, Venezuelans, among others -- don't or have less stellar environmental records.

Fears of a spill like that at the BP-contracted Deepwater Horizon rig might be an argument for the U.S. to try to head off Cuban exploration, but that seems an increasingly untenable tack, especially because Havana has been offering U.S. companies part of the action for years.

0:00/2:42Cheap oil: Careful what you wish for

A history of failed efforts

Politics have derailed earlier overtures: During a 2006 summit in Mexico between Cuban officials and U.S. oil executives, the U.S. Treasury insisted the Cubans be booted from the U.S.-owned hotel where they were staying. But industry is again quietly lobbying, and Washington seems to be listening. After trying for a year to get a license to visit Cuba, the Houston-based International Association of Drilling Contractors was recently granted one to go to Havana.

"It's inevitable that Cuba will explore and exploit their offshore hydrocarbon resources, and it would benefit both the American public and the Cuban people to make sure it is done right," argued a recent IADC position paper circulating in Washington.

Even more potent is the lobbying heft of the Petroleum Equipment Suppliers Associations, whose members include Halliburton (HAL, Fortune 500), Fluor (FLR, Fortune 500) and Bechtel. Industry sources credit PESA for a provision in a pending energy bill that would permit extensive industry contacts with Cuba.

A member company executive confirmed the industry sees "great opportunity" in Cuba while expressing concern that the time it takes to work out suitable conditions -- tax protocols, IP and contract sanctity protection -- could leave American companies trailing their international rivals.

Lifting or relaxing the embargo is just one step the Obama administration needs to take toward opening two-way trade with Cuba. The only real exception to the embargo -- for U.S. agricultural sales approved after 2001's devastating Hurricane Michelle -- is stymied because credit-starved Cuba has to pay cash up front. Removing that restriction could double sales to roughly $1.5 billion a year.

That is part of the "tremendous authority" the president has to advance bilateral relations, argues Jake Colvin, vice president for global trade issues at the National Foreign Trade Council, which opposes the embargo.

The Council recently joined eight other leading business organizations to support the pending Freedom to Travel to Cuba Act, to better position American businesses for the eventual lifting of the embargo. Seeing Exxon Mobil (XOM, Fortune 500) invest in Cuba probably requires "fundamental change" in bilateral relations, Colvin adds.

Not everyone wants the embargo to go

That the White House, and a Democratic Congress, haven't done more to jump-start that process has frustrated some supporters who note the sway that Cuban exiles have with Washington.

Albert Fox, Jr., founder of the Alliance for Responsible Cuba Policy, points to an April 15 fund-raiser in Miami that reportedly netted $2.5 million for President Obama. The event was hosted by the singer Gloria Estefan, whose father served as a bodyguard to Cuban dictator, Fulgencio Batista, who was overthrown by Castro in 1959.

"This perception that things are loosening is just nonsense. The embargo is tighter today than it has been at any time in the last 51 years," argues Fox.

But even though calls for lifting the embargo grow louder as Cuba's current leadership appears ready to change, many warn the U.S. not to jump the gun.

"American companies need to take in to account business interests are not necessarily the national interest all the time," said Frank Calzon, executive director of the Center for a Free Cuba, and independent organization promoting a democratic transition in the island-nation. "The Cuban regime is coming to an end, there is no question that they are on their last phase now and I think this is the worst possible time for anyone to try to invest."

--Contact Ken Stier at kenfortune@earthlink.net .  

Obama suspends new Virginia offshore drilling bidGulf spill won’t dampen U.S. appetite for oil

Wall Street reform: Next steps

The good news: The two Wall Street reform bills have a lot in common.

They both require banks to strengthen capital cushions and create a panel of regulators tasked with sounding an alarm if the financial system is at risk. They shine a light on complex financial products and create a powerful new regulator in charge of consumer financial protection.

"If you take the administration's draft and the House and Senate bills, and put them up against a wall, and step back, you'd find they'd look pretty similar," said Doug Elliott, a former investment banker and Brookings Institution fellow.

But there are some important differences. The Senate version is tougher on Wall Street: It cracks down harder on banks that make risky bets and leaves less room for financial firms to wiggle out of tougher rules on derivatives.

Here are some of the most significant differences between the Senate and House bills that lawmakers need to hash out.

The problem: Risky derivatives

Taxpayers are on the hook for tens of billions of dollars used to keep giant financial firms like American International Group (AIG, Fortune 500) afloat. Nobody knew the depths of AIG's troubles when it was effectively taken over in September 2008, since the firm's risky bets were traded in the shadows.

Senate : Makes bets on complex financial contracts called derivatives more transparent, pushing them onto clearinghouses and exchanges, which can pinpoint the value of the securities. Makes firms post collateral, backing up the bets. Gives wiggle room to certain companies, such as airlines and farmers, that use derivatives to shed the risk of big swings in prices and interest rates.

House: Requires more transparency by forcing trades on clearinghouses and exchanges and requiring firms to post collateral, but only for big financial players who pose risk to the financial system. Also allows more leeway for more financial firms to escape tough rules, including some banks if they're working with airlines and farmers that need to shed the risk.

The problem: Banks that gamble

Taxpayers are on the hook when the government has to bail out banks that took on too much risk.

Senate : The Volcker rule, named for former Federal Reserve chairman Paul Volcker, directs regulators to limit the size and scope of banks' investment activities. The rule prevents banks from owning hedge funds and trading on their own accounts. Prohibits banks from making any derivative trades and forcing them to spin off their swaps desks.

House : Doesn't address either issue.

The Problem: Protecting consumers

Regulators dropped the ball by not ensuring that consumers were treated fairly in financial transactions.

Senate : Establishes an independent consumer protection agency inside the Federal Reserve. New regulator has strong powers over consumer loans, mortgages, credit cards and auto dealer loans. Agency's power is subject to a check by a new council of regulators, which can veto proposed rules that threaten the stability of the financial system or a bank's ability to remain safe.

House : Stand-alone agency. Has strong powers over consumer loans, credit cards and mortgages. But has no power over auto dealers. No checks on powers.

The Problem: Fees on card swipes

So-called interchange fees weren't a big problem in the financial crisis, but they remain a controversial point of difference between the bills. Retailers pay the operational cost -- typically 1% to 3% of a transaction -- when a customer swipes a debit or credit card.

Senate : Directs Federal Reserve to devise a way to make debit card fees "reasonable and proportional" to costs. Allows retailers to give price cuts to customers who pay with debit cards that carry lower transaction fees.

House : Doesn't address the issue. But the House Judiciary Committee passed similar legislation. 

Wall Street reform finale expected this weekObama nominates three for Fed board

Job Growth

After nearly two years of job losses, the economy has now added jobs in five of the last six months. With upward revisions for both March and February, there has been a gain of 573,000 jobs since the start of the year.

"It clearly shows that this economic recovery can no longer be seen as a jobless one," said Bart van Ark, chief economist of The Conference Board, a leading business research firm. "Companies apparently are finding they can't squeeze out any more output without adding workers."

The report also includes a separate survey of households that it uses to estimate the unemployment rate, which increased to 9.9%. Economists had forecast the rate would hold steady at 9.7%.

The rise in the unemployment rate is actually a sign of improving perception of labor market conditions. The increase was due to an uptick in job seekers who had previously been discouraged and dropped out of the job market.There was a jump of 805,000 workers returning to the labor force in April alone.

"When you think about the force it takes to get 800,000 beaten-down people off the couch and back on the street looking for work, that's pretty significant," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

Broad-based gains: The job picture got a lift from the addition of 66,000 jobs by the U.S. Census Bureau, which is in the process of completing the once-in-a-decade headcount of the U.S. population.

But the gains went far beyond that one-time Census boost, as private sector employers added 231,000 jobs. And the gains were broad based, as nearly two-thirds of industries across the private sector added jobs rather than cutting staff.

0:00/3:19Job report better than it looks

Manufacturing did exceptionally well, adding 44,000 jobs, the biggest one-month gain in the sector since August 1998. Construction added 14,000 jobs, the second straight month of gains after nearly three years of uninterrupted job losses in that battered sector.

Retailers added 12,400 jobs, and the leisure and hospitality industries added 45,000 jobs on a seasonally adjusted reading, a sign that employers in those sectors see increased consumer demand.

Temporary help services added 26,200 jobs, which economists see as an important sign of future hiring, since employers often take on temporary workers before they add permanent staff. Temp workers have now increased by 330,000 over the last seven months after roughly three straight years of job losses there.

Looking ahead: Still, the gain in jobs this year has barely made a dent in the 8.4 million jobs that were lost in 2008 and 2009. And the 15.3 million unemployed workers are suffering a great deal. A record 46% have been out of work six months or longer.

The so-called underemployment rate, which includes workers who are discouraged and those who are working part-time jobs because they can't find full-time work, rose to 17.1%, the highest level in the 17 years that figure has been calculated.

"This week's job numbers comes as a relief to Americans who found a job," President Obama said in remarks Friday morning. "But it offers obviously little comfort to those who are still out of work."

He pledged to take additional steps to help businesses hire workers.

Republican critics of the administration focused on the unemployment rate rather than gain in payrolls.

"Positive job growth is always welcome news, but this rising and painfully high unemployment rate is a far cry from President Obama's promise that the trillion-dollar 'stimulus' would keep joblessness from rising above 8%," said House Minority Leader John Boehner in a statement.

But the strength in the report raised hopes the economy will continue to add jobs at an even stronger pace going forward.

"I don't think this is the high water mark," said Jack Kleinhenz, economics professor, Case Western Reserve University. "But even with stronger gains ahead, we have a long way to go."

Achuthan said the upswing in both the overall economy and the labor market is particularly important for helping withstand external shocks, such as worries about the Greek government possibly defaulting on debt or large drops in the stock market, as were seen Thursday.

"The jobs report underscores this is a resilience of the recovery," he said. "When the business cycle is in an upswing, it starts to feed on itself, and the economy can withstand a pretty big shock without being tipped into a new downturn."

U.S. stocks started the day higher following the pre-market jobs report, but within the first hour of trading, fell into negative territory once again.
 

Job GrowthEconomy picks up with service sector growth, more home contracts

Jobs and tax bill to cost $134 billion

But that's not enough to fully offset the $174 billion in additional federal outlays that would occur as a result under the bill. CBO released its cost estimate late Friday.

The legislation would extend a host of tax breaks, give continued relief to the unemployed, delay cuts to doctors' Medicare reimbursements, provide support for job growth and fund disaster relief, among other things.

The bill, a melded version of proposal passed earlier by the House and Senate, won't be free of opposition on either side of the aisle. There is pressure to pay for more of the bill's provisions, and there is strong disagreement over some of the pay-fors that are included.

Fiscally conservative House Democrats, known as the Blue Dogs, met with Democratic leadership on Thursday about the size and cost of the bill.

And a number of Senate Republicans have been pushing for the roughly $79 billion in safety net provisions to be paid for, even though many Democrats deem it emergency spending given the financial hardships facing those who have lost their jobs as a result of the recession. Emergency spending is specifically exempt from the new pay-as-you-go law.

Safety net: The bill offers a number of safety-net provisions for the unemployed and financially strapped. It would extend to the end of this year a program that provides a greater-than-normal number of weeks that an unemployed person may collect federal unemployment benefits. The estimated cost: $47 billion over 10 years.

In addition, the bill would extend through year-end the federal subsidy to help the newly unemployed pay for health insurance under COBRA, which would reduce revenue by $7.8 billion. And it also would provide more federal aid to help budget-strapped states meet the increased demands for Medicaid services through June 30, 2011, at an estimated cost of $24 billion.

Lastly, it would extend through September 2011 emergency funding to states for food stamps and aid for needy families and a subsidized jobs program.

Tax breaks: The bill would extend a series of lapsed tax breaks for businesses and individuals. Such "tax extenders" include the research and development credit for businesses and the choice for individuals to deduct either their state and local income tax or their state and local sales tax. Extending the tax breaks through Dec. 31, 2010, would reduce federal revenue by $32 billion over 10 years.

In recent years it has been typical to pass such extenders annually so constituents don't perceive lawmakers as increasing their taxes, said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC.

But extending tax breaks one year at a time masks the real cost of what is in essence a long-term or permanent extension, since the price tag is only recorded in 12-month increments.

Small business: The bill contains a small but significant measure that would extend small business lending incentives that otherwise would expire this month.

The program both eliminates fees that the Small Business Administration normally charges for loans made through the agency, and increases the government guarantees on those loans. The provision has bipartisan support and has helped small firms borrow more than $7 billion this year alone in an otherwise grim lending climate.

Medicare payments: The bill contains a contentious measure that would extend the current Medicare reimbursement rate structure for physicians for three and a half years. Otherwise, Medicare reimbursement rates would automatically be cut 21% starting June 1 and by 1% to 6% in future years because of a pre-set formula that dictates Medicare outlays related reimbursements. The estimated cost: $63 billion over 10 years.

Originally the aim was for the "doc fix" to override the cuts for five years, but there has been pushback about the cost of doing so for that long.

Paying the tab

Among the bill's "pay-fors" is a change in the way income paid to hedge fund managers and other managers of investment partnerships are taxed. Currently that income -- so-called "carried interest" -- is taxed at the capital gains rate, which is less than half the top ordinary income tax rate. The bill would instead tax as ordinary income the majority of carried interest that does not reflect returns on invested capital. The measure is estimated to raise $19 billion over 10 years.

House and Senate Democrats differ about just how broadly the carried interest change should be applied. Senate Democrats, for instance, are pushing to exempt venture capital firms, according to Tax Analysts.

Other pay-fors include more than $14 billion worth of changes to corporations' foreign tax credits.

It's not clear yet whether the bill will still be subject to further amendment. But the current plan is for the House to bring the bill to the floor for a vote on Tuesday, according to a spokesman for House Speaker Nancy Pelosi, D-Calif. If it passes, the bill would then be sent to the Senate for a final vote.

The Senate vote could occur before the Memorial Day recess. But there are still other matters that the Senate wants to wrap up before the break, most notably, financial reform and a supplemental spending bill that would, among other things, provide additional funding for U.S. military efforts in Iraq and Afghanistan.

- CNNMoney's Stacy Cowley and CNN's Deirdre Walsh contributed to this report.  

Doctors’ Medicare payouts to be cut 21% June 1Freddie Mac seeks additional $10.6 billion in aid

5 economic fault lines pose risks for recovery

Jobs: Employers are finally hiring once again, adding more than a half-million jobs over the past six months. More gains are expected in the months ahead.

But it'll take years to fully regain the 8.3 million jobs lost over the past two years. Unemployment is still near 10% and when part-time workers looking for full-time work and discouraged job seekers are counted, the underemployment rate is 17.1%.

Long-term unemployment is at record highs, and there are nearly 6 unemployed job seekers for every job opening. While that's down from the record set in November, it's almost twice as bad as the peak that followed the previous recession.

David Rosenberg, chief economist and strategist for Toronto investment bank Gluskin Sheff, said the prolonged job market woes have resulted in a decline in personal income of more than $400 billion (excluding government payments like unemployment benefits) since the start of the recession. That will keep consumer spending in check, he argues.

"Even if the technical recession is over, the depression [for most people] is ongoing," he said.

Housing: Home building, sales and prices have all shown signs of improvement recently, but many economists point out it took intervention by the government, such as a tax credit for home buyers and Federal Reserve purchases of more than $1 trillion in mortgages, to support the market.

0:00/3:22American economy not a Greek tragedy

Those programs have now come to an end, and many fear housing is about to turn lower once again.

Improved sales have trimmed less than 2% of the inventory of existing homes listed for sale, and new homes for sale are still close to the 2009 average, according to government figures. Those numbers don't even include the so-called "shadow inventory" of foreclosed homes, or homes that owners would like to sell but haven't considered listing.

"There's a risk we could see another severe downturn in both activity and prices," said Paul Ashworth, senior U.S. economist for Capital Economics. "We know that the last housing downturn had such a big impact on the overall economy."

The latest figures from the Mortgage Bankers Association show the foreclosure crisis has not yet abated. A record 14.7% of mortgage loans in the first quarter were either delinquent or in foreclosure, up nearly 2 percentage points from a year earlier.

Credit: Credit markets are in much better shape than they were in the days that followed the Lehman Brothers bankruptcy, but they have still not fully recovered. The latest Fed figures show that credit to consumers has been falling for the last seven quarters.

"We continue to see significant contraction," said Paul Kasriel, chief economist at Northern Trust in Chicago. "History suggests if you don't have the private sector creating credit, the private sector can grow but not robustly."

One reason for the credit crunch is that consumers and businesses are still nervous about borrowing. But banks also are unwilling to have too many loans to individuals and small businesses on their balance sheets. That's because bank examiners would judge those loans to be risky and require higher levels of capital.

Whatever the cause, lack of credit is going to remain an anchor on growth, according to David Wyss, chief economist for Standard & Poors.

"Small business lending is still tough, and that's where a lot of job creation comes from in an expansion," he said. "It also restricts the amount of money that consumers can spend."

Government spending: The economy got a kick start last year from the nearly $800 billion stimulus package, which gave help to cash-strapped state and local governments, funded public work projects and cut taxes. But much of that money is due to run out soon.

Economists are worried about what happens when state governments, faced with balanced-budget requirements, hit the start of their new fiscal year this summer. State and local governments already cut 65,000 jobs so far this year..

Not only could spending be cut, but taxes could be raised to balance their budgets. Many states are considering increases in sales taxes. Local governments may also boost property taxes -- which could be an additional headwind for the housing market.

Jobless benefits are also starting to run out for some of the long-term unemployed, who are hitting the 99-week maximum on payments. Estimates are that a million unemployed could have their benefits run out by the end of this year.

Europe: Finally, there are the problems in Europe. Given how fragile the recovery in the U.S. is, economists are worried about the euro crisis further denting investor and consumer confidence.

"Panics are hard to predict," said Wyss. "Realistically there's no reason for a freeze-up in markets to happen. But Europe has fumbled the ball and markets are just not convinced right now."

The continued decline of the euro versus the dollar could cause other problems for the U.S., including putting a crimp in U.S. exports. The European Union was the biggest market for U.S. goods last year, buying $221 billion of U.S. goods, more than triple what was purchased by the Chinese.

A stronger dollar makes those exports more expensive and cuts into American companies' sales and profits. It also lowers the price of European exports, giving them a leg-up in competition with U.S. goods elsewhere. 

Retail sales post April gainTax credit, low mortgage rates lifted April home sales

Wall Street reform: What it means to you

The proposal, a signature piece of the Wall Street reform bill that passed the Senate on Thursday, would create a federal agency in charge of setting rules to curb unfair practices in consumer loans and credit cards.

A similar House reform bill passed in December also outlines a consumer protection regulator.

The exact mission of the agency won't be settled until the legislation is enacted, and then until the regulator issues rules and sets its priorities. It would take about a year for the agency's impact to be felt, experts say.

Disclosures: The regulator would have the authority to come up with "model disclosures" to simplify paperwork involved with any kind of financial products.

Firms wouldn't be required to follow the model disclosures, but they'd have an incentive to do so. By adopting the models, they could be exempted from other disclosure rules the agency may issue on the product.

The regulator would be required within its first year to create a model for simplified forms for home mortgages. Consumer advocates believe that banks will start offering the simplified mortgage paperwork, even if they're not required to do so.

"The plus for consumers is that you get the information you need in one place, in a sensible format you can understand," said Gail Hillebrand, a senior attorney with Consumers Union. "The plus for companies is the consumer financial protection agency tells you how to do it, and if you do it that way, you know you haven't broken the law."

Pre-payment penalty fees: The consumer agency would have to devise a way to crack down onpenalty fees consumers often face when they pay off mortgages early.

More common on subprime loans, pre-payment fees are charged when a loan is repaid or refinanced in the first three to five years. The penalty can run 5% of the loan or several months of interest payments. Consumers often agree to risk the fee, because it allows them to lock in a comparatively lower subprime rate.

The banking industry says the penalties allow them to guarantee investors a return, while helping risky borrowers. However, consumer advocates say the penalties can trap subprime borrowers into bad loans, especially as they get their credit in order and qualify for better loans.

Congress would order the consumer regulator to ban the fees in subprime mortgages and phase them out with traditional mortgages.

Auto loans: One fight still pending after the Senate vote is whether the consumer regulator would have the authority to ensure that all auto loans are fair.

A Republican push to exempt auto dealers from the consumer regulator's work did not succeed. But the issue is very much alive since the House bill would protect dealers from new regulations. The conflict between the two bills will be worked out in coming weeks.

If auto dealers remain part of the agency's jurisdiction, the regulator, as an example, could write a new federal rule reinforcing state rules that prevent what are called "yo-yo loans."

In a yo-yo loan, a dealer lets a customer buy a car and drive it off the lot before a loan is approved, only to call him back a few days or even weeks later and say that the bank had turned down his loan application. The car owner then faces a new, pricier loan.

"Yo-yo loans are illegal but nobody's policing it," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety. "It's up to state officials, but ask your state attorney general how many times he's brought a case against an auto dealer."

0:00/4:13Enter bank reform, exit profits

Overdraft fees: The regulator could also crack down on overdraft protection fees that banks charge consumers when they spend more than they have in their accounts.

Consumers often complain that they were not aware of the huge overdraft protection fees until it's too late -- after they have been charged, say, $35 for being slightly overdrawn.

The Federal Reserve recently prohibited banks from automatically enrolling customers in overdraft protection programs. Now consumers get to opt in.

Lawmakers had wanted to go further and drafted bills that would have limited the number of overdraft fees that banks can charge each month. Those bills stalled.

If the consumer regulator gets approved, the new agency could step in for Congress and create new rules limiting the number of times consumers get hit with overdraft fees.

"Basically it would be doing what the Fed had started to do recently, but had neglected to do over past ten years," Kathleen Day, spokeswoman for the Center for Responsible Lending.  

Greenspan defends Fed’s oversight of subprime mortgage marketWall Street reform finale expected this week