World financial news

China's export growth probably slowed last month, giving more ammunition to manufacturers calling for the government to slow the pace of the yuan's gains.

Overseas shipments climbed 22 percent from a year earlier after gaining 28.1 percent in May, according to the median estimate of 23 economists surveyed by Bloomberg News. The data may be released as early as today.

Rising raw-material, energy and labor costs and a 6.6 percent gain in the yuan versus the dollar this year have squeezed profits, just as the outlook for demand abroad weakens, exporters say. More than 2,000 shoemakers closed in Guangdong province, the world's largest footwear production center, in the five months through May, according to the customs bureau.

“Slowing exports will cool economic growth and hit some exporters hard, so the political pressure on the government to stop the yuan's appreciation will increase,'' said Stephen Green, the Shanghai-based head of China research for Standard Chartered Bank Plc.

Any effort to restrain the yuan may provoke China's biggest trading partners. The nation was a target of criticism on trade imbalances from the Group of Eight leaders, meeting in Japan this week.

In language that French President Nicolas Sarkozy said was aimed at China, the G-8 called for a “necessary adjustment'' in exchange rates “in some emerging economies with large and growing current-account surpluses.''

Smaller Surplus

China's trade surplus likely narrowed to $22.7 billion from $26.89 billion a year earlier as rising prices for oil, coal and iron ore boosted import costs. Imports probably climbed 36.2 percent, easing from a 40 percent gain in May.

Almost a third of 70,000 Hong Kong-invested factories in China's Pearl River Delta may close or move out this year as higher costs and cuts to export incentives bite, according to Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association payday loans.

“Conditions are extremely difficult,'' Lau said yesterday. “The renminbi's appreciation is the major factor,'' he said, using another name for China's currency.

Growth in overseas shipments eased to 22.9 percent in the first five months, from 25.7 percent in all of last year, as demand in the U.S., China's second-largest export market, weakened. May's surge in exports may have been because a shortened holiday added three working days to the month compared with a year earlier.

Touring Exporters

Premier Wen Jiabao and Vice Premier Wang Qishan last week visited exporters in Jiangsu, Shanghai and Shandong, listening to their concerns and urging them to become more competitive, the state-run Xinhua News Agency said.

China aims to use currency appreciation to purge exporters who add little value to the economy, Andy Rothman, a Shanghai- based China strategist at CLSA Ltd., said in a report in May. Standard Chartered's Green said yesterday that while exporters highlighted yuan appreciation, weaker overseas demand was the key reason for slower export gains.

This year's appreciation in the yuan has been faster than the 7 percent pace in 2007, cutting import costs and helping government efforts to tame inflation that jumped to a 12-year high of 8.7 percent in February.

The yuan has climbed 20.7 percent versus the dollar since a fixed exchange rate was scrapped in July 2005.

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Economists are forecasting that the unemployment rate retreated slightly in June after May’s big spike. But few believe that is a sign that the battered labor market is at or even near the bottom.

When the Labor Department releases its June employment report Thursday, economists expect the unemployment rate to fall to 5.4% from 5.5% last month.

But job losses are also expected to continue. Economists are predicting that employers cut 60,000 positions from U.S. payrolls in June, up from the 49,000 job loss reported in May.

This would be the sixth consecutive month of job losses.

One reason for the expected decline in unemployment at the same time that overall job losses are increasing is that the unemployment reading jumped in May due to a large number of teenagers looking for summer jobs.

Many of those teens likely gave up job search efforts in June, which will reduce the number of people counted as unemployed. It’s also worth pointing out that even if the unemployment rate dips to 5.4%, that’s still up from 5% in April.

And some economists even think the unemployment rate increased in June, due to the flooding in much of the Midwest.

Rich Yamarone, chief economist at Argus Research, said he believes unemployment could inch up to 5.6% in the month.

But putting aside the monthly blips in the unemployment rate, there is no denying that the job market is weak. Several economists see more job losses ahead as employers pull back on hiring plans due to soft demand for their products.

"I think if anything it appears that the declines will be slightly sharper," said Gad Levanon, senior economist at The Conference Board, a private business group with its own Employment Trend Index, which forecasts the long-term outlook for jobs.

According to the latest survey from outplacement firm Challenger, Gray & Christmas, there were 275,292 job cut announcements in the second quarter, the highest quarterly total since 2005.

General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC have all announced plans to close additional truck plants due to weak sales. But layoff announcements are spreading from battered sectors such as automakers, home builders and financials to other areas of the work force as well.

Starbucks (SBUX, Fortune 500) announced Tuesday it would close 600 stores and that as many as 12,000 positions could be eliminated as a result. Most of the nation’s major airlines are also responding to fuel hikes with layoffs.

On Wednesday, the ADP National Employment Report showed a much steeper than expected loss of 79,000 jobs among private sector employers in June fast cash advance. ADP, a payroll services firm, also reported the first monthly decline in service sector jobs since 2002.

"I expect unemployment and job losses to go up until the end of the year at least," Levanon said. "And if I had to guess, I think it will continue to rise into the fist half of 2009. That’s consistent with the fact we don’t expect a strong recovery in the economy at least until the middle of next year."

Economists cite several key reasons for continued weakness in the jobs outlook, such as tight credit conditions for consumers and businesses, low consumer and corporate confidence and weak profit growth

"It’s just a bad environment to expect improvement in employment," said Keith Hembre, chief economist for First American Funds.

The Blue Chip Economic forecast, which surveys longer-term estimates from top economists, sees the quarterly unemployment rate rising steadily over the next year, from 5.2% in the just completed quarter to 5.7% in the second quarter of 2009.

And even in reports that show some economic strength, employment appears weak. The Institute of Supply Management’s June manufacturing index pointed to narrow growth in that battered sector in a reading released Tuesday.

But the index’s reading on employment in the sector continued to weaken as only 11% of executives surveyed said they added jobs during the month.

The average worker also is predicting more bad times ahead for the labor market.

The Conference Board’s June survey of 5,000 households found that more than a third of respondents now believe the jobs outlook will be worse six months from now while only 8% forecast an improved job market.

This survey generally is a good predictor of future employment trends, as employees are tuned into hiring and layoff decisions at their own workplace.

Joel Prakken, chairman of Macroeconomic Advisers, which prepares the ADP jobs report, warned that there’s a risk that the labor market could end up being a lot worse than even the gloomiest forecasts.

"The second half of the year, the economy will be fragile," he said. "If in the middle of that period some big shock occurs, or even if there’s just retrenchment by households due to the pressures they’ve been under, then employment losses could accelerate much faster." 

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An influential oil-policy group released a report Tuesday arguing that the increase in oil-market speculation is not driving up crude prices. But the study far from ends the debate.

Since 2003, the volume of investment funds in commodity markets - especially oil - rose from about $15 billion to $260 billion, according to the International Energy Agency (IEA), which issued the report.

And many argue that all that extra money sloshing around is to blame for prices doubling from $71 last July to roughly $140 today.

The IEA isn’t buying it.

"There is little evidence that large investment flows into the futures market are causing an imbalance between supply and demand, and are therefore contributing to high oil prices," the report said.

Instead, the IEA put the blame for higher crude prices squarely on strong growth in demand coupled with limited growth in supply.

"If supply is constrained and demand is increasing, prices have to rise," read the report.

The IEA argues that if speculation drives prices too high, the market would be unbalanced. Either demand would fall off, or stockpiles would rise. Neither has happened.

In fact, global demand for oil products has surpassed supply in every quarter since the fourth quarter of 2006, according to the U.S. Energy Information Administration.

Fast-growing economies like China and India are consuming more and more oil. Meanwhile, it’s difficult for oil-producing countries to quickly ramp up output.

The IEA also made the argument that many commodities - such as coal and rice - are showing similar price increases, even those without the possibility of speculation.

Representatives of oil traders agree that supply and demand rules the market, not investors.

"The factor that fundamentally affects the price of a commodity is the availability and demand for it," said Greg Zerzan, the head of global public policy for the International Swaps and Derivatives Association paydayloans. The trading price "merely reflects the expectation of the movement of the price of oil."

Furthermore, even if more speculators believe the price of crude will go up than those who think it will come down, they still have to find a buyer at the price they want to sell it, said Zerzan.

The IEA report is just the latest of several recent reports that downplay the role of speculators.

However, several respected analysts testified before Congress last week and argued that investor money at least in part raises the price.

Even analysts who concede the laws of supply and demand are the most significant say that speculation can make price swings more volatile - and that’s what’s going on now, they say.

"The fundamentals have been fairly firm, but speculation exacerbates the trends," said Tom Kloza, chief oil analyst with the Oil Price Information Service. "More and more money is going into buy-and-hold contracts that simply buy and roll into the next month."

If speculators simply buy and hold oil contracts, then they are not reflecting the current supply and demand.

"We need speculators who buy and sell… and sell, and buy, and buy, and sell," said Peter Beutel, an oil analyst with Cameron Hanover.  

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Children’s Hospital & Research Center Oakland is eliminating 84 jobs, mostly from its outpatient operations in Oakland, in part as a result of a growing gap between cost of providing services and reimbursement through the state’s Medi-Cal program.

Job cuts include: three doctors, half a dozen nurses, many assistant schedulers, housekeepers, security guards and a variety of other positions working in outpatient services including rheumatology, child development, cranial facial surgery and the Healthy Eating Active Lifestyle program, said Children’s Hospital CEO Frank Tiedemann. The only in-patient program affected by the cuts will be the sleep clinic, which is closing.

The workers who are losing their jobs were notified of the cuts Tuesday, although in some cases they will stay on for 30 days to help transition the care of patients. Children’s Hospital, which ended 2007 with a $3.3 million loss on patient care income on net overall revenue of $376 million, according to the hospital, has been discussing since January what to do about a growing revenue gap. It approved the staff cuts at its meeting June 24, Tiedemann said. It focused its cuts to services funded mainly through Medi-Cal dollars, where there has been a growing shortfall in reimbursements.

The hospital added that it would focus also on expanding its brand beyond the Oakland and throughout the East Bay.

For instance, the hospital opened a new outpatient facility in Modesto last Saturday, bringing services closer to some 800 families that have visited the Oakland hospital from that town.

Tiedemann added that the hospital is saddled every year with a greater share of the cost of providing services through the state’s poorly funded Medi-Cal program, the public health insurance providing services to low-income families and kids.

The gap between the direct cost of providing services at the hospital and the cost of care has increased for several years, from $24 million in 2005 to $44 million in 2008 to a projected $50 million in 2009.

"We’ve been looking a this for as long as I’ve been here," Tiedemann said.

"If the only thing that we cared about was money, we would have canceled the Medi-Cal contract. We are making some minor adjustments."

Children’s will shutter the rheumatology program, which Tiedemann described as a program that was run by a part-time retiring physician.

The hospital will also close the Healthy Eating Active Lifestyle program, providing nutritional and other support to children. The program served between 200 and 300 children a year, which Children’s will seek to serve through other programs creditscore.

The hospital is also ending its behavioral emergency response team program that it ran with help from Alameda County. The program served kids who came to the hospital with behavioral issues, but Tiedemann said it was somewhat of a "unicorn program" as Children’s didn’t have beds for these kids and usually referred them out. The hospital has lost approximately $400,000 on the program, added Mary Dean, senior vice president and chief strategic development officer at Children’s, beyond what the county provided to help keep the program running.

The hospital will continue to serve kids that come to its emergency department and it will talk to the county about ways that these patients can continue to be served in the community, Tiedemann noted. He added that Children’s would also be talking to other partners in the community about other ways to fill the gaps.

Meanwhile, the hospital will continue to expand its with outpatient facilities in the East Bay.

It is currently building a new medical building with 16 exam rooms and three MRI machines in the Shadelands Business Park in Walnut Creek. That new clinic is set to open its doors Jan. 1, 2009.

Overall the hospital employs 2,700 people.

A 10 percent rate cut to California’s Medi-Cal program should have gone into effect July 1, although that is currently caught up in a lawsuit brought by the California Hospital Association. Hospitals throughout California are currently being reimbursed for Medi-Cal services through a fund that should last about three weeks, said Jan Emerson, a spokeswoman for the association.

Meanwhile, there could be further cuts to Medi-Cal providers although these have not gone into effect because they are held up in the state’s budget negotiations. Ultimately, Emerson estimates, hospitals in California stand to lose over $1 billion in Medi-Cal funding. That is on top of the $2.7 billion burden of unfunded care that they already carry.

mhogarth@bizjournals.com | 925-598-1432

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