U.S. budget gap widens

NEW YORK (CNNMoney.com) -- The U.S. budget deficit grew by $111.4 billion in August, according to government figures released Friday.

The Treasury Department said the August deficit was down slightly from a shortfall of $111.91 billion a year earlier. It was also smaller than the $139.5 billion deficit that economists surveyed by Briefing.com had forecast.

But analysts said the difference from last year was due to calendar issues, which affected outlays related to monthly Social Security payments, and made the deficit in August 2008 appear larger.

For the first 11 months of the fiscal year, which began in October, the total deficit hit $1.38 trillion. That compares with a total deficit $500.5 billion for the first 11 months of fiscal 2008.

The government had a total deficit of $454.8 billion for all of fiscal 2008, which was the largest on record.

With the August shortfall, the U.S. has logged 11 consecutive months of deficits. That has happened only two times before, both in the 1980s, according to a Treasury official.

"We're still running enormous deficits," said Gus Faucher, director of macro economics at Moody's Economy.com. "But that's the price needed to pay to fix the financial system and bring the economy back to growth."

August receipts were $145.5 billion, versus $151.5 billion the month before, bringing the total amount that the government has taken in so far this year to $1.88 trillion.

Total outlays for August were $256.9 billion, a decrease from $332.2 billion in July. For the fiscal year to date, outlays totaled $3.26 trillion.

Looking ahead, the government said it expects to spend $3.65 trillion this fiscal year, which ends Sept. 30. 

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Inflation (CPI)

NEW YORK (CNNMoney.com) -- The government's index of prices paid by consumers was unchanged in July from the previous month, but the closely watched inflation gauge recorded its largest over-the-year decline in 59 years.

The Labor Department said Friday that its Consumer Price Index has fallen 2.1% over the past 12 months. It was the sharpest over-the-year drop since January 1950, when CPI fell at the same rate.

Economists surveyed by Reuters had forecast a 2% decline.

The decline was led by a sharp drop in energy prices, which are down 28.1% from July 2008, when both gasoline and oil prices were at record highs.

But if you factor out volatile energy and food prices -- which is known as the Core CPI -- consumer prices rose 1.5% on an annual basis.

On a monthly basis, Core CPI gained 0.1% in July while the basic CPI was unchanged. Both measures matched economists' expectations.

"The drop in CPI is mainly due to lower gasoline prices and lower grocery store prices," said Mark Vitner, an economist at Wells Fargo Economics Group.

Gas prices fell 0.4% in July after surging 17.2% the month before. The index of food prices was down 0.3% in July, and has fallen 1.8% over the last 12 months.

"Lower food prices are good news for consumers and should help free up some discretionary dollars for other purchases," Vitner said.

Friday's report indicates that inflation is not a threat to the economy and that the Federal Reserve will not have to raise interest rates any time soon, Vitner said.

"The fact that inflation is well behaved means the Fed has more latitude to hold rates at current levels for as long as they need to," he said.

The U.S. central bank said Wednesday that it expects "inflation will remain subdued for some time" and said that rates will remain near zero percent "for an extended period." 

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Why some small banks still love TARP

NEW YORK (CNNMoney.com) -- When it comes to TARP, it's better late than never for some banks.

Many community banks are still seeking funds through the government's controversial Troubled Asset Relief Program -- despite all the baggage that comes with a TARP loan.

Last week, the Nebraska-based State Bank of Bartley became the latest recipient of the program, accepting $1.7 million in government aid, according to the latest Treasury Department's transaction report.

And in late August, a trio of privately-held firms heralding from rural Louisiana, Detroit and Hilton Head Island, S.C. all issued preferred stock and warrants to the government in exchange for a combined $40 million in fresh capital.

So far, Treasury has invested more than $204 billion in about 600 different financial institutions through TARP. Roughly two thirds of those lenders are community banks, according to estimates by the American Bankers Association.

Banking experts said a main reason for the continued interest in TARP is because small banks are facing intense pressure from regulators to raise new capital to withstand future loan losses.

Unfortunately for many of these lenders, it is still difficult to secure private capital through traditional means.

Closely-held institutions, for example, have had little luck convincing existing stakeholders to invest more, particularly as loan losses continue to climb.

And while TARP is hardly cheap, for many lenders it is the "least worst" option, especially since other capital-raising methods, such as issuing trust-preferred securities or subordinated debt, are just not feasible.

"It's not the cost we wanted to pay [for capital], but it was an acceptable amount," said one community bank CEO whose firm accepted TARP funds earlier this year, but who declined to speak publicly on the matter.

"If you did go to the capital markets, it would be extremely expensive," the CEO added.

As a group, banks and thrifts have raised a little over $300 million in subordinated debt so far this year, according to research firm SNL Financial. That's a fraction of the $12.7 billion during the same period in 2007.

That has left many lenders with little choice but to ask for TARP funds.

"A good chunk of the banks are being asked to have higher capital levels than the regulations require," said Doug McClintock, a partner at law firm Sonnenschein Nath & Rosenthal.

TARP and its troubles

The rush to ask for more TARP funds by small banks comes at a time when larger rivals are looking to exit the program and the Treasury Department is talking of winding down some of the support for the financial services sector.

Many big banks have expressed concerns about the price of government support. Others worry that regulators could change the terms tied to taking TARP loans as they saw fit in the future. Specifically, there were plenty of fears about the compensation restrictions on banks accepting bailout funds.

Once the government outlined the terms for TARP repayment this spring, several banks raced to pay it back. JPMorgan Chase (JPM, Fortune 500), BB&T (BBT, Fortune 500) and Capital One (COF, Fortune 500) led the charge.

Chris Cole, senior regulatory counsel at the Independent Community Bankers of America, said many small banks have also resisted TARP out of fear of similar restrictions and due to the program's unpopularity with taxpayers.

"Some customers don't like it," he said. "Banks have responded to that by saying we don't want to turn to TARP because of what the response will be."

Despite this, there has been talk in Washington of broadening the program even further to help banks that might otherwise be rejected for a loan because of their poor health. Under that proposal, banks would be eligible for TARP funds as long as they could raise matching funds from private investors.

This initiative, which appears to have the backing of community banking industry, would expand the list of program recipients. And as more banks realize they have few other options than government aid, it almost seems certain that the number of TARP takers will only climb from here. 

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Why Ford could be out of gas

NEW YORK (CNNMoney.com) -- Have you invested in Ford lately? A lot of investors have.

The stock of the only U.S. automaker not to file for bankruptcy this year has shot up like a rocket in the past few months, rising 376% from its February low.

Still, there are significant doubts about how much higher the shares could go. Analysts surveyed by Thomson Reuters have a 12-month target price of $8, only 6% above Thursday's closing price.

"There's definitely risks to the Ford story. They're not out of the woods yet," said Efraim Levy, auto equity analyst for Standard & Poor's. "Relative to General Motors and Chrysler, they're benefiting from newer products and preference by some consumers to avoid companies that needed to be bailed out. But how much longer does the good news of market share gains continue?"

Ford (F, Fortune 500) posted steady gains in U.S. market share through June, moving back in front of Toyota (TM) in first-half sales and closing half of the gap on long-time rival General Motors.

Even when buyers turned more to import brands in July due to the Cash for Clunkers program that rewarded buyers of more fuel efficient vehicles, Ford also enjoyed some success. Its Focus compact, Fusion sedan and Escape SUV were among the top sellers under the program.

Those strong sales allowed Ford to post a year-over-year gain in U.S. sales in July, a benchmark it repeated in August. Most analysts believe the momentum to continue. Its pipeline of new models is widely considered one of the best in the industry.

"Their core portfolio is good, in terms of being fresh, competitive and a value for the money," said Tom Libby, president of the Society of Automotive Analysts.

And according to Thomson Reuters, Ford is expected to end its string of losses -- which date back to 2005 -- next year.

But Levy is worried that strong Clunkers sales could hurt results in coming months because buyers may have moved ahead their purchase plans to take advantage of Clunker deals. He thinks Ford will lose money again in 2010.

Libby is also worried that Ford's best results before the Clunkers program will be tough to match now that GM and Chrysler are no longer in bankruptcy. He said that Ford won't get back to the 17% share of the market that it enjoyed in June anytime soon.

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That's important because Rod Lache, auto analyst with Deutsche Bank, said that "market share appears to be the key question for investors." He said his $8 target price for Ford shares assumes a 16% share, a bit better than its 15.2% year-to-date share. He said each percentage point drop from 16% would lower his target price by about $1.40.

Beyond the questions of market share, there's also worries that what served Ford so well through the crisis -- a large pool of borrowed money on which to draw, will become a burden going forward.

Ford has about $26 billion in debt weighing on its balance sheet. At a conference for auto industry investors sponsored by Credit Suisse earlier this week, 82% of participants said they expect Ford to sell additional shares in order to reduce debt, a move that would dilute the holdings of current shareholders.

Joe Hinrichs, a Ford group vice president speaking at the conference, wouldn't speculate on such plans when asked about such a possibility at the conference, but he certainly wouldn't rule it out.

"We need to provide value for our shareholders while at the same time improving our balance sheet," he said.

Shelly Lombard, debt analyst for research firm Gimme Credit, said she believes that Ford will either sell shares or make a stock-for-debt swap offer to reduce debt, but she thinks it will be limited in scope.

"They probably need to pay down another $5 billion to $9 billion in debt, but they know they're not going to get that out of the markets," she said. "But what they've become very good at is chipping away a little at a time, taking what the capital markets will give them."

Ford ran up that debt in the past few years as it mortgaged much of its operations to raise cash to pay for its reorganization and downsizing of its North American operations.

That move was questioned at the time but in hindsight it was a huge win for Ford shareholders. It gave the company the cash it needed to weather the collapse in vehicle sales and frozen credit markets during the past year since and helped keep Ford out of bankruptcy. GM shareholders wound up with virtually worthless stock following its bankruptcy.

Still, the bankruptcy process and assistance from the government allowed GM and Chrysler to shed much of their debt far more cheaply. That leaves them with leaner balance sheets than Ford.

And that is one of the key competitive issues now hanging over the Ford stock, raising the question of whether staying out of bankruptcy actually proves to be good or bad in the long-run.

Talkback: Are you part of a Detroit-area family with a history of working in the auto industry? If so, Money magazine would like to speak with you for an upcoming personal finance story. Please e-mail details of your story and your contact information to gmannes@moneymail.com. 

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Gold powers above $1,000

NEW YORK (CNNMoney.com) -- Gold prices rallied ahead of the $1,000-an-ounce mark Friday for the third time this week, as the dollar remained under pressure.

Gold for December delivery rose $15.20, or 1.5%, to $1,012 an ounce. The precious metal settled above $1,000 for the first time this year earlier this week.

Much of the gains this week have been driven by the U.S. dollar, which has fallen out of favor.

The dollar index, which tracks the greenback against the euro, yen and four other currencies, hit a one-year low this week, hitting 76.511 Friday.

"This is new significant level for the dollar, said Kathy Lien, director of currency research for Global Forex Trading. "The dollar hasn't been this weak since September 2008."

In a jittery economy, commodities priced in dollars such as gold gain are perceived as "safe" investments and typically gain ground when the greenback wanes.

The dollar has declined against the yen for the fifth straight week and is at its lowest level against the euro since December 2008, according to Global Forex Trading.

"Gold prices have been holding up better now than in previous occasions when they tried to rally high. Many [investors] were waiting for the $1,000-mark to be broken," said Carlos Sanchez, a precious metals analyst at CPM Group. "The dollar has been weakening so that's been a supportive factor."

Gold will hold. Analysts think gold will continue its upward momentum, at least for the next few months. CPM's Sanchez said he expects prices will hold above $1,000 mark as the year ends, even if the dollar rallies.

"You may see the dollar recover somewhat and put downward pressure on gold prices. But even if there's a pullback, gold will go back up the last 2-3 months this year," Sanchez said.

And if the dollar is headed lower, as Lien anticipates, gold prices could remain strong even longer.

"There will be relief rallies along the way, but I expect a 2% depreciation of the dollar against major currencies" over the next six months, Lien said.

A grand history: Before settling at $1,000.70 on Sept. 8, gold neared the $1,000-mark in late February when investors feared that Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) might need to be nationalized.

The last time the metal surged above $1,000 in a volatile economy was in March 2008, when it hit a record high of $1,014 when Bear Stearns was on the verge of collapsing.

But gold prices fell to $720 an ounce last October when the dollar rallied, and hit their lowest point in November before beginning a choppy climb. 

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Jobless claims fall more than expected

NEW YORK (CNNMoney.com) -- The number of Americans filing for initial unemployment insurance fell last week, and ongoing claims also dropped, the government said Thursday.

There were 550,000 initial jobless claims filed in the week ended Sept. 5, down 26,000 from a revised 576,000 the previous week, the Labor Department said in a weekly report.

A consensus estimate of economists surveyed by Briefing.com expected 560,000 new claims.

The 4-week moving average of initial claims was 570,000 down 2,750 from the previous week's revised average of 572,750.

"We're still talking about declining at a slower pace, not outright job growth," said Tim Quinlan, analyst at Wells Fargo, who noted initial claims were at their lowest level since July.

Quinlan added that claims levels are well off the highs seen earlier this year amid mass layoffs, but they remain "roughly double what they would be in an expansionary economic environment."

Continuing claims: The government said 6,088,000 people filed continuing claims in the week ended Aug. 29, the most recent data available. That's down 159,000 from the preceding week's revised 6,247,000 claims.

The 4-week moving average for ongoing claims fell by 37,750 to 6,182,500, down from the prior week's revised average of 6,220,250.

The initial claims number identifies those filing for their first week of unemployment benefits. Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks.

The figures do not include those who have moved to state or federal extensions, nor people whose benefits have expired.

State-by-state data: A total of six states reported a decline in initial claims of more than 1,000 for the week ended Aug. 29, the most recent data available. Claims in Michigan fell the most, by 1,915.

Conversely, five states said that claims increased by more than 1,000. New York reported the most new claims at 4,546, which a state-supplied comment said was due to more layoffs in the transportation and service sectors.

Outlook: "In the short term, [claims] may give up some ground, but we probably have turned a corner," Quinlan said.

Wells Fargo estimates the recession ended in July, he said, but the labor market will likely not recover until the second quarter of 2010. Even when some signs of recovery are evident, "it will take a ton" to improve the unemployment rate, he added.

"It doesn't mean the economy overall is [still] in greater trouble, but it lags overall recovery," Quinlan said.

Initial claims will probably fall within a range of 500,000 and 600,000 through the end of 2009, Quinlan said.

"[Filings] could even fall below the 500,000 mark," Quinlan said. "That's optimistic, but it's possible."  

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Word on the street: No job prospects

NEW YORK (CNNMoney.com) -- The job market is showing signs of improvement, according to the latest economic reports. But for those out of work and pounding the pavement, there are few signs of a turnaround.

After peaking in January, the pace of job losses has slowed dramatically, according to the Labor Department. Employers cut 216,000 jobs from their payrolls in August -- 22% fewer than the previous month.

But even though job cuts have abated, hiring is close to a standstill, as most employers are still hesitant to add workers. The number of new hires remains near an all-time low, according to the Bureau of Labor Statistics.

And job hunters aren't seeing much improvement either.

"I've applied to over 80 positions and only gotten one callback from a company that 'wasn't hiring but was interested in me for future openings,'" said Shalon Brown, 27, who was laid off in December and has struggled to find something else in her field of landscape architecture.

"I'd be willing to take any job that pays at least $30,000 and offers health insurance right now."

But that might be harder than it sounds. One problem is that companies are trending away from filling full-time positions with benefits. For those businesses in need of extra help, employers are much more likely to bring on temporary workers to meet demand, explained Janette Marx, senior vice president of Ajilon Professional Staffing. "They are not quite sure of hiring full time yet," Marx said.

In fact, almost 70% of U.S. companies surveyed expect no change in their fourth-quarter hiring plans, according to a recent study by employment services company Manpower Inc.

Jo Prabhu, who runs placement firm 1-800-Jobquest in Long Beach, Calif., has no intention of bringing on any full-time workers in the year ahead. "We will be taking advantage of the new and acceptable methods of hiring, and will only be hiring independent consultants or contractors for 2010 on an as-needed basis."

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Prabhu also says the other companies she works with share her sentiment. "The old standards of hiring and retention have given way to the new concept of jobbing and outsourcing, and employers are seeking a greater percentage of 'at will' services without having to finance and support medical, retirement and other benefits."

And that leaves many unemployed workers out of luck and still out of a job.

Rebecca Natale, 42, is hopeful there will be more employment opportunities going forward, but is realistic that her situation might not improve until next year. Natale left her position as a human resources manager in May planning to start her own business or find another position in her industry. In the last four months, she says she has only received calls for commission-based sales jobs.

"I applied for summer help to stay busy and nothing," she said. "I figure it will be the same response if I apply for upcoming seasonal positions."

Natale views her job prospects as being
"pretty nonexistent in my field until the middle to the end of next year."

Some experts agree with that outlook. Many recruiters expect hiring to pick up again in 2010, albeit at a very slow pace. "I do believe we will start to create jobs again," although likely "after the first of the year," said Bob Damon, the president of North America for recruiting firm Korn/Ferry.

But Shalon Brown is less optimistic. Even with lowered expectations, "I've got no job prospects," she said. "I'm expecting a long, cold winter ahead."

Talkback: When do you see the job market improving? Share your comments below. 

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