Finance news. My opinion.

Australia’s economic growth slowed last quarter as higher borrowing costs and less government stimulus weakened the housing market, while a stronger currency hurt exports, economists predicted a government report will show.

Gross domestic product advanced 0.5 percent from the previous three months, when it grew 1.2 percent, according to the median of 24 estimates in a Bloomberg News survey. The Bureau of Statistics releases the report tomorrow at 11:30 a.m. in Sydney, six days before the central bank holds its final policy meeting of the year.

The report may show effects from Reserve Bank of Australia rate increases aimed at cooling inflation sparked by a mining- industry expansion that Governor Glenn Stevens yesterday said will extend “over a longish horizon.” Tighter monetary policy, less housing aid and a 7.9 percent gain in the local dollar this year have weakened consumer demand and slowed sales abroad.

“Australia hit a soft patch in the third quarter” as the “drivers of growth transition from the public to the private sector against a backdrop of rising interest rates,” said Katie Dean, head of Australian macroeconomics at Australia & New Zealand Banking Group in Melbourne.

Compared with a year earlier, Australia’s economy probably expanded 3.4 percent in the third quarter, after gaining 3.3 percent from a year earlier in the previous period, the survey of economists showed.

Dollar’s Advance

The nation’s employers added 106,200 jobs from July through September, the biggest increase in four years. That helped strengthen the local currency 15 percent against the U.S. dollar in the third quarter, the second-biggest quarterly jump in four decades, according to Bloomberg data.

A stronger currency weighs on export sales, which account for about one-fifth of the country’s GDP.

Fortescue Metals Group Ltd., Australia’s third-biggest producer of iron ore, this month approved an $8.4 billion expansion in Western Australia’s Pilbara region to almost triple output as demand from steelmakers gains.

It joins Rio Tinto Group, Vale SA and BHP Billiton Ltd. in announcing expansions as prices increase. Producers are seeking to meet demand from steel mills in China, where consumption of the alloy is forecast by Rio Tinto to double by 2020 from 2008 levels.

‘Wary of Overheating’

“On all the indications available, we are living through an event that occurs maybe once or twice in a century,” Stevens said in an address to a Committee for Economic Development of Australia event in Melbourne yesterday. “We obviously have to be wary of overheating.”

Citing expectations for a “large expansionary shock” from trade, the RBA on Nov. 2 ended a five-month pause in raising interest rates to contain expected faster inflation in 2011. It was the seventh increase in 14 months and the most aggressive round of tightening by a Group of 20 nation.

In a statement after the decision, Stevens said the economy had “relatively modest amounts of spare capacity.”

That outlook is shared by the International Monetary Fund, which predicts Australia’s economy will accelerate 3.5 percent next year on China’s demand for raw materials and energy.

Home Building

Australian home-building approvals snapped a six-month decline in October, and the nation’s current-account deficit widened in the third quarter, reports released today in Sydney showed.

The number of permits granted to build or renovate houses and apartments surged 9.3 percent from September, the Bureau of Statistics said in Sydney today. That exceeded the median forecast for a 1.4 percent gain in a Bloomberg News survey of 20 economists. The Australian dollar rose after the building- approvals report, trading at 96.58 U.S. cents as of 12:33 p.m. in Sydney, from 96.27 cents just before the data were released.

A separate report showed the shortfall on goods, services and investment increased to A$7.83 billion ($7.55 billion) from a revised A$5.41 billion in the second quarter as the strengthening currency lowered exports.

Net exports subtracted 0.4 percentage point from growth in the third quarter, the current-account report showed.

The RBA said in a release today that loans provided by Australian banks and finance companies rose 0.1 percent in October from the previous month. Lending to companies fell 0.8 percent from September and 3.2 percent from a year earlier, the central bank said.

Weaker Profits

A report published yesterday showed business profits fell 1.5 percent last quarter, as weaker earnings at financial and construction companies led to the first quarterly decline in more than a year. A Nov. 10 report showed consumer confidence fell to a five-month low.

Australian business confidence fell for a second month in October as conditions deteriorated to the weakest in more than a year on declining profitability for retail and construction companies, according to a private monthly survey released Nov. 9.

“Public sector investment also likely fell in the quarter as the school building program has peaked out,” said Paul Brennan, an economist at Citigroup Inc. in Sydney.

Construction companies benefited from more than A$20 billion in government spending on roads, railways and schools, started last year to help buttress the economy against weaker global growth.

In testimony last week to lawmakers in Canberra, Stevens reiterated the central bank’s outlook for growth of about 3.5 percent in 2011 and 2012. He added that “it would take only pretty moderate growth in the second half of the year to achieve that forecast for 2010.”

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An Irish government minister says he expects an agreement Sunday with International Monetary Fund and European banking experts on an euro85 billion ($115 billion) loan for Ireland, but rejects reports that the deal could involve interest rates of 6.7 percent.

Communications Minister Eamon Ryan says all sides in the week-old aid talks want an agreement before markets open Monday. He rejects Irish media claims that some of the loan could cost 6.7 percent, much higher than the rate provided for Greece’s bailout in May.

Ryan spoke Saturday as approximately 15,000 people attended a peaceful protest march in central Dublin denouncing the government’s plans to slash spending and accept an EU-IMF rescue. Police braced for trouble later outside the parliament building.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

DUBLIN (AP) _ Some 10,000 labor union supporters marched through Dublin Saturday in Ireland’s biggest demonstration yet against severe budget-cutting plans and a looming EU-IMF bailout.

The crowd seemed lower than organizers had anticipated. The march began peacefully as organizers tried to keep confrontations to a minimum

Union chiefs who represent a third of Ireland’s 2 million-strong labor force had predicted that tens of thousands would parade along the River Liffey to the capital’s central thoroughfare, O’Connell Street, to hear calls for Ireland’s 2011 budget to hit the rich and the banks, not average citizens already struggling with reduced wages and rising bills. Police said the crowd numbered “at least” 10,000.

The rally is the first major demonstration since Ireland last week opened negotiations with European Union and International Monetary Fund experts on a likely euro85 billion ($115 billion) loan to save the country from bankruptcy.

“People are very unhappy, and this is their last chance to protest before the budget,” said Pat Kenny, a 45-year-old postal worker and labor union official, distributing bright blue banners as the march began.

“But today is just the start of a campaign against the plan. This government doesn’t have a mandate to govern, they should allow for a general election and let the public say if they are in favor of the four-year plan.”

Thousands of marchers _ led by a traditional pipe band _ crowded along the banks of Dublin’s River Liffey, banging drums and blowing whistles. Banners carried slogans including “It’s not out fault, we must default,” and “No country for young men,” a reference to the squeeze on jobs.

As part of the crisis negotiations, Ireland published a plan this week to slash euro15 billion from its deficits over the next four years, with the harshest cuts and tax hikes earmarked for the next budget being published Dec. 7.

Prime Minister Brian Cowen admits that the slashing will lower the living standards of everyone in this country of 4.5 million. But he insists Ireland has no choice given that the nation’s 2010 deficit is running at 32 percent of GDP, the highest in Europe since World War II personal business card.

Saturday’s rally coincides with Irish media reports that the EU-IMF fund could charge interest rates of up to 6.7 percent, higher than the 5.2 percent that applied to Greece’s euro110 billion bailout in May.

Irish government officials insisted that the rate would be significantly lower than 6.7 percent, while analysts said the package was likely to include a range of interest charges dependent on which countries or organizations were providing particular funds.

The union umbrella group organizing Saturday’s protest march, the Irish Congress of Trade Unions, said it would lobby up to the last minute for the government to minimize its planned cuts to welfare, pensions and other benefits. Its activists distributed protest newspapers along Saturday’s parade route bearing the simple message “Stop!”

“It’s difficult to see any justification _ either economic, social, or indeed moral _ for what the government proposes to do, and we’ll oppose them in every way we can,” said David Begg, general secretary of the group.

Cowen’s 2011 budget will seek euro4.5 billion in spending cuts and to raise an extra euro1.5 billion in taxes.

He has pledged to dissolve parliament and hold an early national election in February or March _ but only once all the spending cuts and tax hikes have been passed. Labor union leaders and opposition leaders are demanding an election first.

Gerry Adams, leader of the Irish nationalist Sinn Fein party, said reports of high interest rates on the international bailout taking shape demonstrate that Cowen’s government “cannot be trusted in any negotiations with the EU and IMF. They have no mandate to negotiate such terms and impose such a burden on ordinary Irish taxpayers.”

Some have expressed surprise that Ireland’s public so far has staged few rowdy protests. Greece suffered street violence in the run-up to its own bailout, and Portugal _ rated as most likely to follow the Greeks and Irish in taking bailout funds _ this week suffered a daylong strike that paralyzed many public services.

Irish commentator and author Fintan O’Toole and Irish folk singers Christy Moore and Frances Black were due to address the crowd on Saturday.

Begg insisted the city center protest _ a march to the General Post Office, headquarters of the leaders of Ireland’s 1916 rebellion against British rule _ would be peaceful.

But a commander of the security operation, police Chief Superintendent Michael O’Sullivan, said officers would be on guard for trouble. A police helicopter would keep watch and riot police would be deployed on standby.

“There are individuals and groups who seek to exploit such events for their own ends,” he said.

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Ireland had little choice but to accept European Union help to avoid a breakdown in the financial system. There was no other way to rescue the banks without placing the burden on Ireland’s 4.5 million people.

At the peak of the financial crisis, the U.K. and U.S. were able to provide guarantees worth trillions of dollars to support their banks, though the actual costs turned out to be much lower as confidence was quickly restored. The full extent of the guarantee was largely hypothetical. They succeeded because they could make a credible promise of support — Ireland could not.

The Irish banking meltdown, so soon after the euro-area stress tests this year, raises questions over the reliability of these assessments, which failed to put enough emphasis not just on bad debts but on the risk of relying on the wholesale market for funds. The tests, which covered some banks but not others, will cast doubt on the strength of the remaining European banks.

While the Greek crisis served to heat up the debate over enforcing Maastricht rules on limiting budget deficits, Ireland highlights the more complex and far-reaching policy issues that involve systemic risk. There is no rulebook for this, let alone policing mechanisms. But the Irish bailout may lead to demands for wide-ranging restrictions on economic policy and on the size of member states’ banking industries and property markets. And such intrusion may extend beyond the euro area.

Tax Increases

This implication has, to some extent, already surfaced in suggestions that Ireland should give up its 12.5 percent corporate-tax regime, even though this would be unlikely to improve the country’s fiscal position much and may well hurt Irish growth prospects. Extended regulation would have damaging consequences for those economies with large banking centers: The U.K. and France may come under the spotlight, for example.

Risk control versus policy intrusion will become a thorny issue for the EU to grapple with as those countries that provide bailout funds demand ever-more-restrictive conditions and penalties of the debtors — and even seek to use the opportunity to change competitive advantages.

The Irish crisis is so important not because of its scale, but because of its origin. Unlike Greece, Ireland didn’t contravene Maastricht rules — it was an exemplary member state rather than an offender.

From the late 1980s until 2007, Ireland ran budget surpluses, bringing government debt to less than 30 percent of gross domestic product by the mid-2000s.

Celtic Hubris

Ireland’s crisis stems from its oversized property and banking sectors, both burdened with bad debts. The Celtic Tiger enjoyed an average growth rate of about 6 payday loans.5 percent from 1990 to 2007, which brought rapid prosperity, but also hubris and a housing-market bubble of massive proportions. At its peak in 2006, one house was being built for every 50 citizens in the country — more than three times the figure for the U.S.

Since the peak in late 2006, average house prices have plummeted by more than 35 percent (according to the permanent TSB/ESRI house-price index). This has left many households facing negative equity and has led to a slump in construction. So-called ghost estates may encompass some 300,000 properties in various stages of completion, producing losses of as much as 50 billion euros ($68 billion), similar in scale to the bank bailout announced by the Irish government in September.

Funding in Jeopardy

Now the banks require an even larger recapitalization to avoid collapse. Not only have bad debts escalated but the lenders’ short-term funding is in jeopardy. Ireland’s ability to take on a large recapitalization alone is doubtful since bank liabilities represent more than 10 times the nation’s GDP.

Weak economic data and failing support from the European Central Bank have led to a slump in confidence in the Irish economy and the viability of its banking industry, making funding in the market increasingly costly or impossible to obtain. This is reminiscent of the U.K.’s experience of Northern Rock Plc’s failure.

If Ireland negotiates EU funding of almost 100 billion euros, this may seem to be an adequate provision — it should cover bad debts and recapitalize the banks.

But there are still doubts about whether Ireland can develop a growth strategy that will help repay the huge increase in its public-sector debt (the same question that hangs over Greece). If fiscal tightening pushes the country deep into recession, the loans will be hard to repay. Markets also need to be convinced that Ireland and its banks have a credible plan. Otherwise the funding that the banks depend on won’t return.

If the banks need further financial support, ramping up Ireland’s government debt is no longer a viable option — the EU would have to back the banks or let them fail. Never mind concerns about a bailout for Portugal, the inability to stem the outflow of funds from Irish banks may start a bonfire that spreads beyond Ireland. The bond vigilantes are less of a threat than the banking market turning on its own weaker lenders.

(Vanessa Rossi is a senior research fellow in international economics at Chatham House in London. The opinions expressed are her own.)

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DUBLIN — Lawmakers in Prime Minister Brian Cowen’s own party mounted a rebellion Tuesday to try to oust him, an effort that could trigger a snap election and delay a massive EU-IMF bailout of Ireland.

Despite the discontent, Cowen’s Cabinet colleagues in the Fianna Fail party said they were confident the rebels have too few votes to pursue a no-confidence motion against Cowen.

At stake is the future course of the potentially €100 billion ($135 billion) European Union and International Monetary Fund rescue of Ireland, a nation heading toward bankruptcy next year because of Irish banks’ reckless speculation in overpriced real estate.

Ireland’s deficit this year is 32 percent of GDP — the highest in Europe since World War II — and its banks are running short of cash because they can’t borrow on open markets.

The Irish political and economic crisis, and its uncertain solution, drove up borrowing costs Tuesday for debt-struck nations from Portugal to Spain. It also fanned fears that a third member of the 16-nation eurozone — after Greece and now Ireland — might be backed into its own bailout corner soon.

The Cabinet gathered Tuesday at Cowen’s office to complete its four-year plan for unprecedented budget cuts tied to Ireland’s international bailout. The plan, which proposes to slash €15 billion ($20 billion U.S.) from the country’s 2011-14 budget deficits through a combination of cuts and tax hikes, is to be published Wednesday.

One of Cowen’s loyal lieutenants, Transport Minister Noel Dempsey, said the EU-IMF rescue aid couldn’t flow until Ireland began slashing €6 billion ($8.2 billion U.S.) from its 2011 deficit.

“We don’t have the luxury of time in relation to this,” Dempsey said. “We asked for assistance. We were given that assistance on the basis that we were going to produce this four-year plan, that we were going to produce a budget, and that budget would pass. If we can’t do that, then the assistance isn’t there.”

Two separate political meetings were happening Tuesday — one led by a handful of party rebels, the second by the full 70-strong bloc of Fianna Fail lawmakers.

“There’s serious discontent within the parliamentary party. I believe it’s now up to those who’ve spoken out to take soundings amongst their colleagues to take action to remove that man (Cowen) immediately,” Fianna Fail lawmaker John McGuinness said.

Cowen conceded Monday night he must call an election next year but sought to delay it as long as possible. His hand was forced when the junior party in his coalition, the Greens, said it would withdraw support once the 2011 budget passed.

The Greens said they expected the country to hold an election by late January, but Fianna Fail officials — furious at the Green ambush — say the budget will require multiple votes on different tax increases that could drag the process into February.

Tensions flared as Fianna Fail and Greens convened around the same table for the first time since Cowen’s weekend decision to take a bailout. The Fianna Fail minister for tourism and the arts, Mary Hanafin, accused the Greens of undermining Ireland at a critical moment.

“I’m very annoyed by it. It certainly wasn’t expected. I’m not sure they (the Greens) have shown they have the best interests of the country at heart,” Hanafin told Irish state radio RTE.

Hanafin said she wouldn’t back any push to oust Cowen. Still, she did say she would put her name forward if the leader’s post became vacant, reflecting the murky political maneuvering within Fianna Fail, Ireland’s dominant political force since the 1930s.

At the European Parliament in Strasbourg, France, EU monetary and financial affairs minister Olli Rehn gathered Ireland’s European lawmakers for a confidential briefing — and came out stressing they must stop the political infighting long enough to pass the 2011 budget.

“It is essential that Ireland pass the budget in the timeline foreseen, and sooner rather than later, because every day that is lost increases uncertainty,” Rehn said. “Let’s adopt the budget, let’s get it out of the way, and let’s move on.”

Cowen pleaded Monday night with his many opponents not to force him from office until the 2011 budget is fully enacted and EU-IMF money is flowing into Irish banks. He even telephoned the two major opposition leaders, Fine Gael’s Enda Kenny and Labour’s Eamon Gilmore, to seek their acquiescence when the government unveils the 2011 budget Dec. 7.

But opposition lawmakers emphasized Tuesday they were determined to oust Cowen as soon as possible in pursuit of a pre-Christmas election.

“What’s the point of a government preparing a four-year plan that they won’t preside over, that they won’t be there to implement, and that they haven’t consulted the people on?” said Fine Gael lawmaker James Reilly.

Reilly and Labour lawmakers both contended that, if Cowen resigned and dissolved parliament now, an election in mid-December could lead to the new government’s revised budget being passed by Christmas.

Dempsey of Fianna Fail, however, called that schedule “quite impossible.”

Shares in Ireland’s three listed banks plummeted for a second day Tuesday.

Bank of Ireland was down 26 percent to a new record low of €0.29. Allied Irish Banks fell 20 percent to €0.33, while Irish Life & Permanent — Ireland’s only bank yet to receive a state bailout — shed 9 percent to €0.77.

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Australian credit unions and building societies can be a “strong competitive force” against banks, helping to cut borrowing costs, Treasurer Wayne Swan said in his weekly economic note.

The government wants a “new pillar,” in the industry, Swan said earlier in an interview yesterday with Channel Nine. Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and National Australia Bank Ltd., dubbed the four pillars after a law preventing takeovers among them, accounted for 87 percent of the home lending market in September, up from 76 percent three years ago.

“We know there is more work to be done to build up competition, and we are determined to do that,” Swan wrote in his note yesterday. “I’m also a really big believer in the capacity of our mutual credit unions and building societies to be a strong competitive force in the banking sector.”

Australia’s biggest banks have been criticized for raising borrowing costs by more than the central bank. Swan said his government’s package to encourage competition will be released next month. Opposition Shadow Treasurer Joe Hockey will call for a review of the banking industry today, he said in an interview with the Australian Broadcasting Corp yesterday.

The Greens Party on Nov. 15 introduced draft laws to place restraints on the ability of the big banks to increase mortgage rates. The proposals in the lower house of parliament would give the Australian Prudential Regulatory Authority powers to prevent banks from raising mortgage fees above their funding costs.

‘Silver Bullet’

Finance Minister Penny Wong ruled out regulation and said the government will instead focus on supporting competition, according to the transcript of a Sky News interview.

“We’re not pretending that there’s a silver bullet,” Wong said. “We’re not going to re-introduce regulatory regimes, which historically we know have made things worse for Australian consumers and people trying to get home loans.”

Swan urged borrowers to seek loans from credit unions, building societies and smaller banks, which offer more competitive rates. He said the nation’s biggest banks act in an “arrogant way.”

“The government is determined to see a new pillar in the banking system, particularly based on the mutual sector, particularly based on our credit unions and our building societies,” Swan told Channel Nine yesterday. “They are safe and they’re very competitive.”

Competitive Forces

The government has invested A$16 billion ($15.8 billion) in Triple-A rated residential mortgage-backed securities to support smaller lenders and lower the cost of funding, Swan said in his economic note.

Commonwealth Bank reported on Nov. 15 a first-quarter unaudited cash profit of about A$1.6 billion. Westpac, Australia’s second-largest bank, earlier this month posted second-half profit that almost tripled from a year earlier, while ANZ Bank said a week earlier that earnings in the period surged 69 percent to a record. National Australia, the biggest lender to companies, posted a cash profit gain of 32 percent in the second half.

All four raised their standard variable mortgage rates by more than the Nov. 2 quarter-percentage point move by the central bank.

Australia’s Senate voted last month to hold an inquiry into competition in the banking industry, including the fees they charge.

ANZ Chief Executive Officer Mike Smith said Oct. 31 that any attempt by lawmakers to control banks’ interest rates will take Australia back to an era “long since gone.”

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California, Texas, Florida and New York, the four biggest states, all added jobs last month for the first time since May as the U.S. economic recovery stoked demand for labor.

California, the largest state, said today that non-farm jobs rose by 39,000, the most since May 2006; Texas, the second- biggest, added 47,900 and Florida, with the fourth-largest population, gained 6,900. New York, the third-biggest state, said yesterday it added 40,500 private-sector jobs, the most since April 2005.

The gains could help states shrink budget deficits that the Center on Budget and Policy Priorities says will likely total $140 billion in fiscal 2012, as new jobholders boost income- and sales-tax collections. States’ tax revenue grew about 6 percent in the three months ended on Sept. 30, the third consecutive increase, Goldman Sachs Group Inc. said today.

“The outlook for the state and local sector has improved over the last several months, as revenues have picked up or at least stabilized in most states,” Goldman’s Alec Phillips said in the note to clients.

National employment rose in October for the first time in five months, the Labor Department said Nov. 5. Payrolls climbed 151,000, exceeding all estimates in a Bloomberg News survey of economists.

Gross domestic product expanded 2 percent in the third quarter, topping the 1.7 percent growth of the second period. Economists surveyed by Bloomberg News predict 2.4 percent expansion for the fourth quarter.

National Pick-Up

“It is mildly encouraging that we are seeing some kinds of labor-market improvements in certain parts of the country,” said Paul Dales, U.S. economist for Capital Economics Ltd. in Toronto. “We have seen that kind of pick-up in the national economy as well.”

The U.S. jobless rate held unchanged at 9.6 percent in October even with the expansion of payrolls. That was the case for the four biggest states: California’s held at 12.4 percent, Texas’s at 8.1 percent, Florida’s at 11.9 percent and New York’s at 8.3 percent.

That may indicate that improving economic conditions prompted more people to look for jobs, said Julia Thornton Snider, an economist at the Anderson School of Management at the University of California Los Angeles.

“It might mean young people are looking for their first jobs or people who had been discouraged are now hearing things are getting better and they are starting to look again,” she said in a telephone interview.

Reversal of Declines

The October job gains in New York, California and Florida came after declines in September, a month when Texas gained 3,700 jobs.

The jobless rate in California, with the world’s eighth- largest economy, has been 12 percent or more for the past 15 months, according to data compiled by Bloomberg fast cash advance loan.

California, home to Silicon Valley computer makers Apple Inc. and Hewlett-Packard Co., had the nation’s third-highest unemployment rate in September, trailing only Nevada’s 14.4 percent, and Michigan, at 13 percent, according to U.S. Labor Department figures.

“October’s gain of 39,000 jobs marks the first solid month of recovery for the California economy,” said Stephen Levy, director and senior economist at the Center for Continuing Study of the California Economy in Palo Alto. “If these gains are confirmed in the following months, California will have finally turned the corner.”

Texas Low for the Year

Texas gained 172,800 non-farm jobs in the last year, the state labor department said today. The 8.1 percent October unemployment rate was the lowest of the year, it said.

“Every major industry added jobs in October, with notable increases in construction employment,” Texas Workforce Commission Chairman Tom Pauken said in a news release.

Florida added 35,700 jobs since October 2009, the state said, the largest over-the-year job growth since May 2007.

“We continue to see positive signs of stabilization and growth,” Cynthia R. Lorenzo, director of the Agency for Workforce Innovation, said in a statement. “Florida posted the largest decrease in the country last week in the number of people who filed for first-time unemployment benefits.”

New York state said yesterday that its largest job gains over the past year were in professional and business services, with an increase of 31,700 positions, and educational and health services with 25,300.

City Gains

The gains were helped by an increase in private employment in New York City, the nation’s most-populous, which added 41,900 jobs in October, more than twice the 10-year average monthly gain. Jobs in professional and business services, such as legal, accounting and advertising, increased by 14,600.

“An important aspect of these jobs is that they tend to be well paying,” Kevin Jack, an economist at the department, said in an interview.

States won’t return to full fiscal health anytime soon at the current rate of employment growth, said Nicholas Johnson, director of the State Fiscal Project at the Center on Budget and Policy Priorities in Washington.

“It’s great that it’s growing, but it’s growing slowly,” Johnson said. “We need rapid jobs growth to make up for all the lost jobs and the lost time.”

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Manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged, indicating U.S. and overseas demand will keep fueling growth.

The Federal Reserve Bank of Philadelphia’s general economic index jumped to 22.5, exceeding the most optimistic forecast in a Bloomberg News survey, from 1 a month earlier. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The figures contrast with a report earlier this week showing New York-area manufacturing contracted in November for the first time in more than a year. Exports to faster-growing economies such as China and corporate purchases of new equipment are bolstering U.S. manufacturing, which led the economy out of the worst recession since the 1930s.

“Manufacturing is still going to be one of the drivers of the recovery,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “There’s room for more inventory building and exports continue to remain strong.”

Stocks rose as Ireland moved closer to a European Union-led financial bailout, and extended gains after the Philadelphia Fed report. The Standard & Poor’s 500 Index increased 1.7 percent to 1,199.06 at 10:32 a.m. in New York. The yield on the 10-year Treasury note rose to 2.95 percent from 2.88 percent last yesterday.

The gauge was forecast to increase to 5, according to the median estimate in the Bloomberg survey. Estimates of the 60 economists surveyed ranged from minus 5 to positive 12.

Leading Indicators

The Conference Board today said its index of leading economic indicators rose 0.5 percent for a second month in October.

Another report from the Labor Department today showed fewer Americans than forecast filed claims for jobless benefits last week, a sign the labor market is starting to improve. Applications for unemployment insurance rose by 2,000 to 439,000 in the week ended Nov. 13.

The Philadelphia Fed bank’s new orders measure rose to 10 pay day loans.4, the highest level since April, from minus 5 in October. The shipments gauge increased to 16.8 in November, the highest since February, from 1.4 the prior month.

The employment index jumped to 13.3 this month, the highest since August 2007, from 2.4.

Inflation Measures

The index of prices paid rose to 34 from 31.5 the prior month, while its gauge of prices received increased to minus 2.1 from minus 9.

The overall Philadelphia Fed’s index isn’t composed of the individual measures, so some economists consider it a gauge of sentiment among manufacturers. The New York Fed’s factory measure, known as the Empire State Index, fell a record 26.9 points to minus 11.1 in November.

Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing during the month.

The institute will release its report on nationwide manufacturing for November on Dec. 1. The measure reached a five-month high of 56.9 in October.

Exports Increase

Manufacturing makes up about 11 percent of the economy and is getting a boost from expanding world trade. Exports rose 0.3 percent in September to the highest level in two years, Commerce Department data showed on Nov. 10.

Newell Rubbermaid Inc., which makes and markets a range of products including housewares and tools, is among companies benefiting from sales in developing markets while demand at home remains weak.

“I wish we were getting a little more help from the economies of North America and western Europe,” Mark Ketchum, chief executive officer, said on an Oct. 29 teleconference on the Atlanta-based company’s third-quarter earnings. “We’re seeing particular strength in the faster growing emerging markets of Asia, Latin America and eastern Europe.”

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Core U.S. producer prices recorded their largest fall in more than four years in October and industrial output was flat, underlining concerns at the Federal Reserve about low inflation amid moderate growth.

Economists said the data supported the U.S. central bank’s November 3 decision to ease monetary policy further even though the 0.6 percent drop in the core Producer Price Index largely reflected the annual introduction of new motor vehicle models.

Stripping out the sharp declines in vehicle prices, core producer prices — which exclude volatile food and energy costs — would have risen by 0.2 percent, the Labor Department said on Tuesday, a modest gain consistent with the economy’s sluggish growth trend and tepid domestic demand.

“Today’s PPI data shows you that beneath the surface there is not a whole lot of inflation and tomorrow’s (consumer price) data is likely to show the same thing,” said John Canally, a economist at LPL Financial in Boston.

“The Fed is not going to be proven right with one month of inflation data, but you just need to look around where wage costs are. The PPI data supports what the Fed is doing cash until payday.”

The overall decline in the core index was the biggest since July 2006 and followed a 0.1 percent gain in September. A similar increased had been expected in October.

The weak inflation report ignited a rally on the U.S. government debt market, where the 30-year bond posted its biggest one-day gain. Ongoing concerns over Ireland’s debt crisis and tight credit in China eroded risk appetite.

U.S. stock indices ended down more than 1.5 percent, while the dollar scaled a seven-week high against the euro.

Concerns that low inflation could spiral into a damaging phase of deflation prompted the U.S. central bank this month to ease monetary policy further, a step that will see it buy $600 billion worth of government bonds through the middle of 2011.

That measure has been criticized by some economists, amid signs that the recovery from the worst economic downturn since the 1930s is regaining some strength after losing momentum in the summer.

Despite brighter signs, soft demand is forcing retailers to continue with price discounting to lure customers.

Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), the world’s largest retailer, said on Tuesday there were indications consumers were still shopping paycheck-to-paycheck. Still, cost cutting helped it to a higher quarterly profit.

Home improvement chain Home Depot Inc (HD.N: Quote, Profile, Research, Stock Buzz) also reported earnings that beat expectations, but it softened its full-year sales forecast [ID:nN1627318].

A separate report from the Fed showed industrial production was flat last month, short of economists’ expectations for a rise of 0.3 percent, largely because of weak utility output that reflected unusually warm weather. But manufacturing production rose 0.5 percent, its biggest gain since July.

“The rise in manufacturing is consistent with other reports out there showing the economy picked up strength at the start of the fourth quarter,” said Jim O’Sullivan, chief economist at MF Global in New York.

Economists do not expect the distortions from the annual introduction of new vehicle models to spill over into data on consumer inflation, which is due on Wednesday California payday loan lenders. Core consumer prices are expected to have edged up 0.1 percent after being flat in September.

The core PPI was depressed by a 4.3 percent drop in the price of light motor trucks and a 3 percent drop in prices for passenger cars. In the 12 months to October, core prices have risen just 1.5 percent.

While core prices fell sharply, overall prices received by U.S. farms, factories and refineries rose 0.4 percent, but that was well below economists’ expectations for a 0.8 percent gain. Wholesale prices increased 0.4 percent in September.

Though upward pressure from rising commodity prices is starting to show, economists said it was unlikely to feed through to consumer prices in a meaningful way.

“It is not true to say that no cost increases are filtering through, but there’s still so much excess capacity in the economy that core inflation will remain quiet despite higher costs,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

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The U.S. Postal Service more than doubled its losses in fiscal year 2010, despite cutting billions of dollars in expenses and trimming its staff.

The Postal Service said its net loss totaled $8.5 billion in the fiscal year that ended Sept. 30. That compares to a loss of $3.8 billion the prior year.

The Postal Service blamed the deeper losses on the recession and on the continuing growth of e-mail. A change in the interest rates affecting the Postal Service’s workers’ compensation liability also played a role, the organization said.

Chief Financial Officer Joe Corbett said the losses were worsening despite cuts that generated cost savings of $9 billion over the past two years. Those savings came primarily from the elimination of 105,000 full-time positions — "more than any other organization, anywhere," Corbett said.

As more communications go electronic, mail volume keeps dropping. The Postal Service delivered 170.6 billion pieces in its 2010 fiscal year, compared to 176.7 billion pieces the prior year. That decline cost the service around $1 billion in lost revenue.

"We will continue our relentless efforts to innovate and improve efficiency," Corbett said . "However, the need for changes to legislation, regulations and labor contracts has never been more obvious."

Postal Service spokeswoman Joanne Veto said her organization has asked Congress to allow it to scale back to five-day delivery, cutting Saturdays, and to discontinue its "unique" requirement to pre-fund its retirement fund — something no other federal agency is required to do.

Congress has taken no action on these requests, she said.

Auditor Ernst & Young is expected to issue an audit opinion saying that "questions remain" about the Postal Service’s ability to make its $5.5 billion pre-funding payment for retiree health benefits, due at the end of fiscal year 2011.

Despite that, Veto said the Postal Service is "fully funded for existing retirement benefits."

Veto also said that mail volume is expected to pick up in fiscal year 2011, although first-class mail — the service’s most lucrative product — is forecast to continue its decline.  

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Asian-Pacific leaders have ended a summit with pledges to press ahead with moves toward freer trade, with an eventual goal of a region-wide free trade zone.

Japanese Prime Minister Naoto Kan said Sunday that the 21 members had vowed to work for sustainable, better quality growth.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

YOKOHAMA, Japan (AP) _ Asian-Pacific leaders were working Sunday on a blueprint for future regional growth that calls for pushing ahead with free trade agreements and rolling back obstacles erected in the midst of the financial crisis.

While many participants at the annual summit of the Asia-Pacific Economic Cooperation remained at odds over currency policies and other issues, they appear to agree on the vital role freer trade can play in sparking growth.

“We reaffirm our unwavering commitment to achieving free and open trade and investment in the region,” the leaders said in a draft declaration due for release after the talks ended later Sunday.

At APEC, where congeniality usually trumps conflict, leaders of the world’s three largest economies pledged Saturday not to backslide into retaliatory trade tactics, a day after discord over such issues marred the meeting of the Group of 20 major economies in Seoul, South Korea.

The 21 APEC members, whose economies account for more than half of all world commerce, have agreed to refrain from imposing any fresh barriers to trade and investment, or measures to stimulate exports, until the end of 2013.

“We commit to take steps to roll back trade distorting measures introduced during the crisis,” says the draft agreement obtained by The Associated Press, acknowledging that some economies may have resorted to emergency tactics to blunt the impact of the global slowdown.

The draft statement also notes a need to reduce trade imbalances and government debt to help ensure stable and sustainable economic growth. In a rare reference to contentious currency issues, it includes a pledge to move toward more “market-determined exchange rate systems.”

Washington contends that China’s currency, the yuan, is significantly undervalued, giving Chinese exporters an artificial advantage in overseas markets and contributing to the huge U.S. trade deficit. China and some other countries have slammed the U.S. for printing money to help spend itself out of recession, a policy they say is driving the value of their own currencies higher, flooding their markets with excess cash and fueling inflation.

But APEC’s focus is mainly on long-term goals, such as eventually forging a vast region-wide free trade zone that would encompass all its member economies, from giants China and the U.S. to tiny Brunei and Hong Kong.

Such an arrangement could help to reconcile existing free trade agreements, such as the U.S.-backed Trans-Pacific Partnership, or TPP. That bloc includes only four small economies _ Brunei, Chile, New Zealand and Singapore _ but the U.S., Australia, Malaysia, Vietnam and Peru are in talks to join them.

Asia’s robust and resilient growth has hinged on trade, and APEC, founded in 1989, has made knitting the region closer together its main objective.

But much of the group’s work occurs in face-to-face encounters outside the summit.

Host Prime Minister Naoto Kan took the opportunity to hold his first formal meeting with Chinese President Hu Jintao since a territorial dispute erupted two months ago, badly straining ties between the Asian neighbors. Kan also met with Russian President Dmitry Medvedev, though officials said the two remained divided over a recent visit by Medvedev to an island off Japan’s northern coast claimed by both countries.

In his meeting with Kan, President Barack Obama praised Japan for being a “model citizen internationally” and for Tokyo’s aim to open the faltering Japanese economy wider to foreign trade and investment, despite protests from farmers who fear the loss of subsidies and protective tariffs.

Obama also pledged to keep strong military ties _ underscoring Washington’s intention to remain a strong presence in the region.

Many in Japan and elsewhere in the region are looking to the U.S. to be a counterweight for a China that increasingly is flexing its muscles as it gains economic and diplomatic heft.

Outside the heavily guarded APEC venue, thousands of anti-China demonstrators rallied Saturday, waving big Japanese flags and placards with slogans such as “Defend our territory,” and “Defeat Chinese imperialism.” More demonstrations were planned for Sunday.

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