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Banks Earned $40.3B During First Quarter

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WASHINGTON (5/30/13)--Commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. reported aggregate net income of $40.3 billion in the first quarter. That is a $5.5 billion--or 15.8%--increase from the $34.8 billion in profits the industry reported in first quarter 2012, according to the FDIC's most recent Quarterly Banking Profile, released Wednesday.

"Today's report shows further progress in the recovery that has been underway in the banking industry for more than three years," FDIC Chairman Martin J. Gruenberg said Wednesday.

"We saw improvement in asset quality indicators over the quarter, a continued increase in the number of profitable institutions, and further declines in the number of problem banks and bank failures," he added. "However, tighter net interest margins and slow loan growth create an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention."

The first quarter is the 15th consecutive quarter that banks' earnings registered a year-over-year increase. The increase from a year ago was accounted for by rising noninterest income, lower noninterest expenses, and reduced provisions for loan losses. Half of the 7,019 insured institutions reporting financial results had year-over-year increases in earnings. The proportion of banks that were unprofitable fell to 8.4% from 10.6% a year earlier, Gruenberg said.

The average return on assets (ROA)--a basic yardstick of profitability--rose to 1.12% from 1% a year ago. That is the highest quarterly ROA for the industry since the 1.22% posted in second quarter 2007.

First-quarter net-operating revenue--net interest income plus total noninterest income--totaled $170.6 billion, up $2.7 billion (1.6%) from a year earlier. Noninterest income rose $5.1 billion (8.3%) and net interest income declined by $2.4 billion (2.2%). The average net interest margin fell to its lowest level since 2006. Total noninterest expenses were $5.3 billion (3.9%) below the level of the first quarter of 2012. Banks set aside $11 billion in provisions for loan losses, a reduction of $3.3 billion (23.2%), compared with a year earlier.

Asset-quality indicators continued to improve. Banks and thrifts charged off $16 billion in uncollectible loans during the quarter, down $5.8 billion (26.7%) from a year earlier. The amount of noncurrent loans and leases--those 90 days or more past due or in nonaccrual status--fell by $15.7 billion (5.7%) during the quarter, and the percentage of loans and leases that were noncurrent declined to the lowest level since 2008.

To read the FDIC's most recent complete Quarterly Banking Profile, use the link.

Consumer Confidence At Highest Level In Five Years

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WASHINGTON (5/29/13)--U.S. consumer confidence in May rose to the highest level in more than five years, buoyed by improving perceptions of the labor market and overall economy, according to private research group The Conference Board ( May 28).

The board's index of consumer confidence climbed to 76.2--the highest level since February 2008--from a 69.0 in April (, MarketWatch, The Wall Street Journal and Moody's May 28). Economists surveyed by MarketWatch expected the index to reach 72.3.

The month's 7.2 gain followed a similar 7.1 increase in April.

The upswing in consumer sentiment was in sync with escalating property values and stock prices that are bolstering household finances at the same time the labor market is improving, Bloomberg said. 

Housing-market improvement has an upside with far-reaching tentacles, Ryan Sweet, senior economist at Moody's Analytics Inc. in West Chester, Pa., told Bloomberg. Homeowners are more at ease with their finances when home prices increase, which leads to consumers spending more freely, he noted.

Both subcomponents of the index hit recent high points, with the present-conditions index at its highest level since May 2008, and the expectations component the best since October 2012, the Journal said. 

Insurers Estimate Tornados Will Cost Up To $5B

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MADISON, Wis. (5/28/13)--Tornados and storm systems that ripped through the Midwest last week are expected to cause between $2 billion and $5 billion in insured property losses, said catastrophe modeler Eqecat.

A tornado that devastated Moore, Okla., destroying roughly 13,000 structures, caused most of the expected losses, Eqecat said ( May 24).

So far, about 1,990 claims just in Moore have been received by Farmers Insurance Group, Mark Toohey, a Farmers spokesman, told the publication. That number likely will rise, and claims have been split 65% in property claims and 35% in auto claims, Toohey added.

Farmers is the second-largest insurer for catastrophe risk--based on market share--in Oklahoma, according to SNL Financial data. SNL defines catastrophe risk as allied lines (excluding crop and flood damage), commercial auto physical damage, commercial multiple peril (non-liability), farmowners multiple peril, fire homeowner multiple peril, inland marine and private passenger auto physical damage.

Tornado activity thus far in 2013 has been below the long-term average, Eqecat said. As of May 23, there have been 342 tornado touchdowns--about half the average during the past eight years and less than one-third the pace of 2008 and 2011, which were record-activity years, Eqecat said.

Mortgage Rates Rising, Could Impact Refinancing

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WASHINGTON (5/24/13)--Fixed-mortgage rates in the U.S. are trending higher for a third consecutive week, putting pressure on refinance momentum, according to Freddie Mac's Primary Mortgage Market Survey released Thursday.

That could help credit unions, which get a good amount of loans from mortgage refinancings. "Higher rates may initially boost originations by drawing purchasers into the market and convincing those who haven't refinanced to do so before rates increase further--in both cases a 'get while the gettin's good' response," Mike Schenk, vice president of economics & statistics for the Credit Union National Association, told News Now.

"We think most who can refinance have already done so, but also know there is a tremendous amount of pent-up demand, improving labor markets--higher confidence, higher incomes--and high affordability despite the rate increases," he added.

Despite the upward trend, mortgage rates remain low, helping to keep home-buyer affordability high, which should further aid home sales and construction in coming weeks, Freddie said.

"Fixed rates moved up for the third consecutive week, with the average 30-year fixed-rate mortgage (FRM) about a quarter-percentage point higher than three weeks ago," said Frank Nothaft, Freddie Mac vice president and chief economist. "While this may slow some of the refinance momentum, rates are nonetheless low and home-buyer affordability high, which should further aid home sales and construction in coming weeks.

"For instance, in April, single-family housing permits rose to the strongest pace since May 2008 while existing home sales for the same month grew the most since November 2009," he added. "Moreover, the National Association of Realtors reported that the median number of days on the market for these sales fell from 62 to 46 days, the fewest since it began collecting the data in May 2011."

The survey revealed this new information:

  • The 30-year FRM averaged 3.59%, with an average 0.7 point for the week ending May 23, up from last week's 3.51%. Last year at this time, the 30-year FRM averaged 3.78%.
  • The 15-year FRM this week averaged 2.77%, with an average 0.7 point, up from last week when it averaged 2.69%. A year ago at this time, the 15-year FRM averaged 3.04%.
  • The five-year Treasury-indexed adjustable-rate mortgage (ARM) averaged 2.63% this week with an average 0.5 point, up from last week when it averaged 2.62%. A year ago, the five-year ARM averaged 2.83%.
  • The one-year Treasury-indexed ARM averaged 2.55% this week with an average 0.4 point, the same as last week. At this time last year, the one-year ARM averaged 2.75%.   
Borrowers may still pay closing costs which are not included in the survey, Freddie said.

In a related matter, U.S. house prices rose 1.9% in the first quarter, from the fourth quarter 2012, according to the Federal Housing Finance Agency (FHFA) House Price Index. This is the seventh consecutive quarterly price rise in the purchase-only, seasonally adjusted index. To read the FHFA release, use the link.

Major Retailers Opting Out Of Interchange Settlement

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MADISON, Wis. (5/23/13)--A group of 19 retailers, including Wal-Mart Stores, Starbuck Corp. and Costco Wholesale Corp., are opting out of a $7.25 billion antitrust settlement with credit card titans Visa Inc. and MasterCard Inc. over fees that merchants are charged to process credit card transactions.

The merchants say the reason for not accepting the proposed settlement reached last summer is that it would not stop swipe fees from rising. Also, it maintains and bolsters an anticompetitive system that permits Visa and MasterCard to fix fees, they said (The Wall Street Journal and May 21).

Furthermore, the group said the deal would prevent them from taking legal action in the future against credit card networks for any alleged anticompetitive behavior, acording to the Journal.    

If the proposed settlement were approved, large banks and credit card companies would be given license "to perpetuate an unfair and broken system that costs all consumers," Mike Cook, senior vice president of finance and an assistant treasurer for Wal-Mart said Tuesday. Those costs would also impact consumers who don't own a credit or debit card, he added. 

Other companies in the retail group that are opting out include: Alon Brands Inc., Gap Inc., Lowes Cos., Nike Inc. and 7-Eleven Inc., the Journal said.  

The National Retail Federation, a trade group based in Washington, D.C., separately said Tuesday it intends to object and opt out of the proposed settlement. The deadline to object and opt out is next week, the Journal said. 

Although credit unions are not involved in the proposed antitrust settlement, they--along with other financial institutions--would be impacted by terms of the $7.5 billion settlement, which would necessitate a reduced interchange rate fee (IRF) of 10 basis points for an eight-month period (News Now Nov. 1).

Credit unions with credit card programs would lose roughly $50 million in total revenues--or about 0.5 basis points on their total assets--if the total IRF reduction is $1.2 billion, the Credit Union National Association said. That loss would mostly be absorbed by a relatively small number of credit unions with very active credit card programs, CUNA added.

FOMC Minutes: Fed Considering Stepping Down QE3

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WASHINGTON (5/23/13)--The Federal Reserve is assessing whether the labor market has made real and sustainable progress. If improvement continues, its policymakers could in the next few meetings step down its pace of asset purchases, said Ben Bernanke, testifying before the Joint Economic Committee Meeting in Washington Wednesday.

However, members of the Fed's key policymaking body, the Federal Open Market Committee (FOMC), remain split about when to introduce such measures, according to minutes released Wednesday of its April 30-May 1 meeting.

The FOMC had started a third round of bond buying in what is known as quantitative easing in September and increased it in December to $85 billion a month in securities--$45 billion in Treasury securities and $40 billion in mortgage-backed securities.  At its last meeting, the committee's post-meeting statement had said the FOMC was "prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflations changes."

Most participants at the meeting "observed that the outlook for the labor market had shown progress since the program was started in September, but many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate," the FOMC's meeting minutes indicated.

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence was necessary and the likelihood of that outcome," the minutes said.

"One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the committee had several other tools it could potentially use to do so," the minutes continued.

"Most participants emphasized that it was important for the committee to be prepared to adjust the pace of its purchases up or down as needed to align the degree of policy accommodation with the changes in the outlook for the labor market and inflation as well as the extent of progress toward the committee's economic objectives," the minutes said.

In his testimony Wednesday, Bernanke noted that credit conditions in the U.S. have eased for some types of loans, as bank capital and asset quality have strengthened.  Congress and the administration could consider replacing some of the near-term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run, Bernanke said.

"With unemployment well above normal levels and inflation subdued, fostering our congressionally mandated objectives of maximum employment and price stability requires a highly accommodative monetary policy," he said.

"Because only a healthy economy can deliver sustainably high real rates of return to savers and investors, the best way to achieve higher returns in the medium term and beyond is for the Federal Reserve--consistent with its congressional mandate--to provide policy accommodation as needed to foster maximum employment and price stability," he said. The Fed "will do so with the due regard for the efficacy and costs of our policy actions and in a way that is responsive to the evolution of the economic outlook."

The FOMC's next meeting will be June 18-19.  For the full minutes, use the link.

Google, Square Launch E-mail Payment Initiatives

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MOUNTAIN VIEW, Calif. and SAN FRANCISCO (5/22/13)--Google and mobile payment company Square have launched separate initiatives that allow consumers to send payments via e-mail.

Google will integrate its digital Google Wallet with Gmail so users can send money to friends and family even if they don't have a Gmail address, Google announced last week (CNet May 15).

To send money in Gmail, users must hover over an attachment paperclip, click the "$" icon to attach money to the message, enter the amount, and press send.

Sending money via Gmail is currently available only on desktop computers. The service will be free.

Square also added a cash-by-e-mail feature, called Square Cash. The service is "invite only" (Cnet May 20)

To use Square Cash, users draft an e-mail to the recipient, CC: it to, enter a dollar amount in the subject line, and send the e-mail.

The recipient will be asked to associate a debit card with the transfer, after which the money will be sent directly to the banking account linked to it.

The sender will be charged a 50-cent fee for Square Cash.

Consumers Show More Optimism About Economy

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WASHINGTON (5/20/13)--U.S. consumers gained significant optimism in May, according to the Thomson-Reuters/University of Michigan Consumer Sentiment Index.

The early-May index jumped to 83.7 from 76.4 at the end of April. The April reading was revised from 72.3, an economist told The Wall Street Journal (May 17).

In early May, the current conditions index surged to 97.5 from 89.9 at the end of April, and the expectations index rose to 74.8 from 67.8.

The early May index gains suggest consumers are shrugging off the drag caused by cuts to federal spending, the Journal said. Declining gasoline prices, stronger housing markets and a rise in stock prices have mitigated the cuts, the Journal added. 

Also, consumers do not anticipate much of a change in future inflation, with one-year inflation expectations remaining at 3.1%, and inflation expectations for the next five to 10 years dipping to 2.8% from 2.9% at the end of April, the report indicated.

Derivatives Rule Softened For Big Banks

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WASHINGTON (5/17/13)--Federal regulators have decided to relax a rule aimed at curbing large banks' domination of the derivatives market, which was a prime cause of the financial crisis.

The rule changes announced Thursday could allow a few big banks to continue controlling derivatives--a $700 trillion market involving contracts that derive their value from an underlying asset such as an interest rate or bond. The market allows firms to either protect against risk or speculate in the markets (The New York Times May 15).

Five banks hold more than 90% of all derivatives contracts, the Times said.

In 2008, that dominance of such a huge and critical market by just a few players was criticized because derivatives contracts caused insurance behemoth American International Group to nearly implode before the government bailed it out, the Times said.  

After the 2008 crisis, regulators initially intended to make asset managers contact a minimum of five banks when looking for a derivative contract price--a move geared toward engendering competition among banks, the Times said. Now, the Commodity Futures Trading  Commission has agreed to lower the standard to two banks, according to officials briefed on the matter.

Within 15 months from today, the standard will automatically increase to three banks, the officials added. The new rule, created by the trading commission, also specifies that large volumes of derivatives trading must shift to regulated trading platforms that resemble exchanges, from the current privately negotiated deals, the Times said.

In a related matter, it was announced Thursday that well-run federal credit unions would be permitted to use simple derivatives to hedge against interest rate risks under a just-proposed National Credit Union Administration program (News Now May 16).

Only credit unions that have assets of more than $250 million, are well-managed, and have the appropriate expertise will be eligible to apply for an agency derivatives investment program, under the terms of the NCUA proposal. The agency will seek comments for 60 days on the proposal. (See related News Now story, NCUA Releases CU Derivatives Program Proposal.)

Jobless Claims See Largest Spike Since Sandy

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WASHINGTON (5/17/13)--Jobless claims spiked by 32,000--more than economists had predicted--during the week ended May 11, said the Labor Department Thursday.

Claims for the week totaled 360,000, which is 30,000 more than the median forecast by economists surveyed by Bloomberg.  Estimates had ranged from 315,000 to 355,000 ( and Moody's May 16). The previous week's claims were revised to 328,000 from the 323,000 originally reported.

The claims are the highest since November, after Superstorm  Sandy had hit the North East, said Bloomberg.

The claims' four-week moving average rose by 1,250, which Moody's termed as a "moderate" increase, to 339,250. That means the average is close to its multiyear low of the previous week.

Continuing claims dropped 4,000 in the week ended May 4 to reach 3.01 million, near a multiyear low. The four-week moving average for these claims fell 21,000 to 3.02 million, a recovery low, said Moody's.

FDIC Closed Another Bank Tuesday

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WASHINGTON (5/16/13)--The Federal Deposit Insurance Corp. announced Tuesday that one bank was shuttered and its assets assumed by another bank.

Central Arizona Bank, Scottsdale, Ariz., was assumed by Western State Bank, Devils Lake, N.D. Central Arizona Bank had about $31.6 million in total assets and roughly $30.8 million in total Deposits.

The failure brings the number of total bank failures this year to 13. The cost of the failure will be $8.6 million, FDIC estimated.

JPMorgan Chase Expects More Reg Action On Collections, Add-ons

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NEW YORK (5/15/13)--Federal regulators will take more enforcement action against JPMorgan Chase & Co. regarding its collection practices and add-on products typically attached to credit cards, said the largest U.S. bank by assets.

The Consumer Financial Protection Bureau is overseeing an industry-wide review of credit card add-on products--which often include identity-theft and debt-cancellation services (Bloomberg May 13).  

In a May 8 regulatory filing, JPMorgan said it "expects that its banking supervisors will in the future continue to take more formal enforcement actions against the firm [rather than] issuing informal supervisory actions or criticisms."

The New York-based bank pointed to an identity-theft product in its filing, Bloomberg said.

In the face of regulatory scrutiny, banks such as JPMorgan and Bank of America have stopped offering certain add-on products, Bloomberg said.

The CFPB conducted its first enforcement action against Capital One Financial Corp., resulting in the company paying roughly $210 million in penalties and restitution for some of its products, Bloomberg said.

FDIC Shutters Two Banks

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WASHINGTON (5/14/13)--Two U.S. banks were closed Friday and their assets were assumed by other banks, the Federal Deposit Insurance Corp. announced Friday. The two failures bring the number of total failures so far this year to 12.

Sunrise Bank, Valdosta, Ga., was assumed by Synovus Bank, Columbus, Ga. As of Dec. 31.,  Sunrise Bank had roughly $60.8 million in total assets and $57.8 million in total deposits. FDIC estimated the failure will cost the Deposit Insurance Fund $17.3 million.

Pisgah Community Bank, Asheville, N.C., was assumed by Capital Bank, N.A., Rockville, Md. The cost of the failure will be $8.9 million, FDIC estimated. Pisgah Community Bank had about $21.9 million in total assets and  $21.2 million in total deposits.

Jobless Claims Drop To Five-year Low

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WASHINGTON (5/10/13)--Initial claims for U.S. unemployment benefits unexpectedly fell last week to the lowest level in nearly five-and-a-half years, the Labor Department said Thursday.

Last week's decline is a sign that employers have sufficient confidence to keep workers on their payrolls and indicates the resilience of the labor market amid fiscal austerity (, The Wall Street Journal, The New York Times and Moody's May 9).

Claims decreased 4,000--to 323,000--in the week ended May 4--the fewest since January 2008--Labor Department figures indicated. Economists had forecast 335,000 claims for the week, according to a Bloomberg survey.

Also, the four-week moving average of initial jobless claims--which smoothes weekly volatility--dropped 6,250--to 336,750--on a seasonally adjusted basis for last week. That was the lowest level since November 2007--before the recession, the Journal said.

With employers relying on existing staff to keep pace with consumer demand, job dismissals fell in 2013, Bloomberg said.

More gains in the labor market are dependent on a pick-up in hiring, which would provide work for some of 11.7 million unemployed U.S. citizens and bolster consumer spending, Bloomberg said. 

Americans' Spending Rose 9% Since 2009

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MOUNTAIN VIEW, Calif. (5/10/13)--U.S. consumers are spending about 9% more than they did four years ago, according to a new survey by Intuit Inc., a provider of  business and financial-management solutions for small and midsized businesses including credit unions.  

After a prolonged lull following the 2008 recession's historic spending lows, consumers are spending--with gasoline, gift and healthcare purchases increasing significantly, said Intuit. Also, the biggest spenders are men.

The Intuit Consumer Spending Index findings are based on data from, Intuit's online and mobile personal finance software.

The key takeaway is that U.S. consumers are rebounding, Intuit said. The average household spent roughly $4,220 per month in the first three months of 2013, compared with $3,870 during the same period in 2009.

The most dramatic increases were reported in Arkansas and the District of Columbia--up 34% and 30% respectively--with the District of Columbia also spending the most per household this year at $5,144 a month. Conversely, North and South Carolina each saw spending decrease by 3%.

The Intuit Consumer Spending Index is a report that offers a near real-time view of spending, rather than surveys of what people say they spend. The index reflects the average American household's monthly spending by age, income level, state and more.

Consumers--And Members--Borrowed Slightly More In March

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WASHINGTON (5/8/13)--Borrowing by consumers and credit union members increased in March, but the increase is smaller than projected, and revolving credit--credit card use--actually decreased, said the Federal Reserve's Consumer Credit report, released Tuesday afternoon.

Overall borrowing rose $7.97 billion or 5.75%  to reach $2.81 trillion--the smallest increase since July. Economists surveyed had forecast a $16 billion increase. The data indicate that consumers are still trying to find ways to pare down their debt, said Reuters and Bloomberg (May 7). While some economists suggested this might indicate consumers are still restraining their spending, others said the deleveraging by consumers appeared to have run its course.

The $2.81 trillion credit total for March compares with $2.799 trillion borrowed in February, and $2.65 trillion borrowed in first quarter of 2012.  At credit unions, members borrowed $246.7 billion, up from February's $246.6 billion and from $223 billion in first quarter of 2012.

Revolving credit data showed that consumers overall charged $846.2 billion in March, down from $847.9 billion in February but up from $842.2 billion in first quarter 2012.  Although the nation's consumers pared down their charges, credit union members' charge card debt rose--to $39.4 billion from $39.3 billion in February. That compares with $36.4 billion in first quarter last year.

Nonrevolving debt--which includes student and auto loans but not real estate loans--rose $9.68 billion in March to $1.96 trillion, up from $1.951 trillion in February.  During first quarter of 2012, nonrevolving debt totaled $1,808.7 trillion.

In credit unions, nonrevolving debt for March totaled $208.2 billion. That's up from $207.2 billion in February. During first quarter 2012, members borrowed $186.6 billion.

NY Atty General Plans To Sue Over Two Banks' Servicing Violations

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NEW YORK (5/7/13)--New York Attorney General Eric Schneiderman announced at a Monday press conference that he has plans to sue two banks over alleged repeat violations of terms of a settlement meant to prompt improvements of the banks' mortgage servicing practices (American Banker May 6).

The attorney general is reported to have said he will sue Wells Fargo and Bank of America over 339 servicing violations that his staff and consumer legal service providers have identified since October.

BofA and Wells Fargo were among five big U.S. banks that agreed to a $25 billion settlement back in February 2012. It was meant to address abusive mortgage servicing practices that lead to the now-infamous robo-signing of foreclosure documents.

Latest Jobs Reports Suggest Growth In Economy

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WASHINGTON (5/6/13)--The U.S. economy added an estimated 165,000 jobs in April, the Labor Department said Friday.

That job growth, along with a national unemployment rate of 7.5%--a four-year low--suggests steady but measured economic growth, and indicates employers are upbeat about the economic outlook amid federal budget cuts (The Wall Street Journal, The New York Times and May 3).

April's payroll gain follows an upwardly revised 138,000 in March, an increase from an initial estimate of 88,000, according to Labor Department figures.   

The economic recovery's erosion has been greatly exaggerated, Eric Green, global head of Research at TD Securities Inc. in New York, told Bloomberg. The job market is not imploding and is in better condition than generally thought, although it is in a soft spot, he added.

However, many new jobs were in lower-paying sectors such as food services and retail. Restaurants added 38,000 employees in April, and retail stores added 30,000 workers, Steve Blitz, chief economist at ITG, told the Times

Although the current hiring is good, the economy is not generating high-income jobs, Blitz added.

Retirees' Pension Advances Have High Rates

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NEW YORK (5/6/12)--Some companies targeting retirees with  pension advance offers are getting scrutiny from regulators because the companies charge steep interest rates, they aren't disclosing their fees in their ads or contracts,  and their operations fall outside state and federal banking regulations, according to The New York Times (April 27).

The Times conducted a study of more than two dozen pension-based loan contracts and found that after factoring in fees, the interest rates on these loans ranged from 27% to 106%. To qualify for the loan, the borrowers were sometimes required to take out an insurance policy naming the lender as the sole beneficiary.

The companies are courting retirees with public pensions--such as military veterans, police officers, firefighters and teacher--and offering to make short-term loans. They advertise through online and local newspaper ads, and circulars. 

Legal aid offices in several states--Arizona, California, Florida and New York--said they've received a surge in complaints. The Consumer Financial Protection Bureau and the Senate's Committee on Health, Education Labor and Pensions are examining the loans, said the Times.

Jobless Claims At Lowest Level In Five Years

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WASHINGTON (5/3/13)--The number of U.S. citizens filing initial claims for U.S. unemployment benefits dropped last week to the lowest level in more than five years. Claims fell 18,000--to a seasonally adjusted 324,000--for the week ended April 27, the Labor Department said Thursday.

That level--the lowest since January 2008--indicates companies are retaining workers, and that the job market is improving despite an overall weakness in the broader economy--a positive signal (The Wall Street Journal, The New York Times and May 2).

Economists had predicted 345,000 initial claims last week, according to a survey conducted by Bloomberg

Typically, fewer layoffs tend to go hand-in-hand with increased hiring, the Journal said. However, without a boost in economic growth, companies may be hesitant to hire more employees in coming months, Bloomberg said.

Although employers are not cutting workers, they are not aggressively adding new workers either, Tom Simons, an economist at Jefferies LLC in New York, told Bloomberg. The hiring lull is due to some caution regarding the future of government fiscal policy and the economy's low growth level, he added.

Fed Reserve Policymakers Hold The Line

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WASHINGTON (5/2/13)--The Federal Open Market Committee (FOMC) Wednesday said it is holding the line on the Federal Reserve's bond-buying policy and federal targeted interest rates yet another month. It also announced, for the first time, it would increase or decrease its bond buying policy "as the outlook for the labor market or inflation changes." That is reassuring to reassuring to credit unions, said a Credit Union National Association senior economist.

The FOMC is the monetary policymaking body of the Federal Reserve. It made the announcement at the conclusion of its two-day meeting.

"Today's FOMC statement comes on the heels of a string of weak economic reports signaling the economy is struggling to gain traction," said CUNA Senior Economist Steve Rick on Wednesday.

"With this disappointing economic backdrop, the Fed reiterated its commitment for low long-term interest rates by its continued monthly purchases of $40 billion of agency mortgage back securities and $45 billion in Treasury securities.  It even indicated it may 'increase' purchases if economic conditions so warranted," Rick told News Now.

"This 'quantitative easing' (QE3)--creating excess reserves to buy assets--is having an effect on the interest-rate-sensitive sectors of the economy like auto, housing and the stock market," Rick said.

"Credit unions are seeing the effect of monetary policy through the surge in new- and used-auto loans over the last year.  Credit union new-auto loan balances rose 11.3% for the year ending in March, the fastest growing loan category," he said.

"Used-auto loan balances rose 9% over the last year, the second fastest growing loan category.  But this loan growth is coming at a cost.  Credit unions have dropped their rates on new and used auto loans by 0.5% over the last year, depressing their yield on assets and compressing the net interest margins," he added.

"Today's FOMC statement reassures credit union managers that the Federal Reserve will keep its foot on the monetary accelerator for the indefinite future," he said. "The markets are predicting the Fed will exit its QE3 asset purchase program in the first quarter of 2014 and begin raising the fed funds interest rate in the first quarter of 2015," he added.

The targeted federal funds rate for short-term loans remains at 0% to 0.25%-.The Fed has said in the past it would keep the rates at near-zero levels until unemployment fell to 6.5% or lower--if inflation forecasts were no more than 2.5%.  Currently the unemployment rate is at 7.6%, and the inflation gauge is below the 2% target.

The FOMC noted that labor market conditions have shown some improvement in recent months but the unemployment rate remains elevated. "Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable," said its statement.

The committee said that "with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of price stability and fostering maximum employment.

FOMC "continues to see downside risks to the economic outlook" and "anticipates that inflation over the medium term likely will run at or below its 2% objective."

In keeping the target range for federal funds at 0% to 0.25%,  FOMC said it "expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," and that the "exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

In determining how long to maintain the accommodative stance, the committee will consider more information on labor market conditions, inflation pressures and expectations, and financial developments. "When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."

Voting for the policy action were Fed Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.

Esther L. George, who voted against the action, said she was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

For the full statement, use the link.

Fed Unlikely To Change Monetary Policy Today

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WASHINGTON (5/1/13)--The Federal Reserve's key monetary policymaking group is not expected to make any policy changes when its two-day meeting ends today.

The Federal Open Market Committee (FOMC) began meeting Tuesday and will issue its monetary policy statement early this afternoon.

Economists are expecting no changes, saying there is little sign that the  FOMC would expand its quantitative easing policy any further at this time (The New York Times and Reuters April 30). At present, the Fed is buying back $85 billion a month in Treasury and mortgage-backed securities each month as part of the QE3 policy that it has said will continue until gains in employment are substantial.

The FOMC also has indicated it would keep short-term rates at near-zero levels--between 0% and 0.25%--until the unemployment rate fell to 6.5% or lower, if inflation forecasts were no more than 2.5%.

Currently the unemployment rate is 7.6%, and the inflation gauge rose 1.2% to below the 2% target, said the Times.

Eric S. Rosengren, president of the Federal Reserve Bank of Boston, noted that the Fed is seeing an impact from its policies, but that it is "pushing the interest-sensitive sector about as far as we're going to be able to push it at this time."

The recent increases in sales of homes and autos, as well as a rising stock market, indicate that the Fed's bond-buying policy is working, Fed Chairman Ben Bernanke said  recently.

At the committee's last meeting on March 19-20, committee members debated when to begin winding down the program, with some indicating it could be done in mid-year and others saying by the end of 2013.

Watch for News Now coverage when the statement is released this afternoon.