Weekly Industry Crib Sheet: BP to Pay $4.5 Billion for Oil Spill Misconduct

Plus: U.S. Economic Growth Projected to Be Slow through Mid-2013, Wholesale Prices Drop to 18-Month Low, Jobless Claims Surge in Post-Sandy Aftermath and Metal Forming Industry Sees Modest Improvement.

Slower Economic Growth Predicted through Mid-2013

The United States economy has grown at a slow pace in recent quarters, and new data suggests that expansion could continue to be weak through the first half of 2013, as domestic and global conditions impede business activity.

A recent report from the Conference Board forecasts that real gross domestic product (GDP) will grow at an annual rate of 1.8 percent in 2013, down from 2.1 percent this year. Meanwhile, real consumer spending is projected to rise 1.7 percent, compared to 2 percent in 2012, and real capital spending is expected to plunge to 2.3 percent next year, down from 7.1 percent growth in 2012.

Relatively weak demand will be the biggest obstacle to business performance, while the low levels of job and income growth are expected to weaken consumer confidence and demand.

“Business thus faced with protracted weak demand has even weaker sentiment and has been slow to invest in capital and human capital,” the Conference Board notes. “Uncertainty over tax rules and the fate of the fiscal cliff, along with continued austerity at the state and local level, further slow the overall pace of demand. Finally, slow growth abroad limits trade prospects.”

These factors are projected to keep economic growth below an annualized rate of 1.5 percent through mid-2013. By then, housing market improvements will boost overall growth above 2 percent for the rest of the year and propel the economy to a 2.4 percent annual growth rate in 2014.

BP to Pay Largest Criminal Fine in U.S. History

More than two years after the Deepwater Horizon explosion killed 11 and resulted in the largest offshore oil spill ever in the U.S., BP announced that it will plead guilty to criminal misconduct and pay $4.5 billion, including a record $1.26 billion criminal fine.

To resolve all federal criminal charges and all claims by the Securities and Exchange Commission against the company for its responsibility for the accident, the massive criminal resolution, the largest in U.S. history, will be paid in installments over a period of five years. BP announced that it has also agreed to a term of probation spanning over five years.

The British oil and gas company has agreed to plead guilty to “11 felony counts of Misconduct or Neglect of Ships Officers relating to the loss of 11 lives; one misdemeanor count under the Clean Water Act; one misdemeanor count under the Migratory Bird Treaty Act; and one felony count of obstruction of Congress,” according to the Associated Press.

“We believe this resolution is in the best interest of BP and its shareholders,” BP Chairman Carl-Henric Svanberg, said in an official statement. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims.”

Under U.S. law, companies convicted of certain criminal acts may be barred from contracting with the federal government, but as Bloomberg News reports, the government may be reluctant to pursue a contract ban because it relies heavily on BP oil. The company’s contracts with the military surged 33 percent in the fiscal year ended September 30, 2011, up from the previous year.

Wholesale Prices Drop

U.S. producer prices fell for the first time in five months in October, marking a significant pricing drop for wholesale goods across a range of industries, new data show. The decline was primarily driven by lower energy costs and weaker auto sales.

According to the latest producer price index from the U.S. Department of Labor, finished goods prices dropped by 0.2 percent last month, following a 1.1 percent gain in September and a 1.7 percent increase in August. The October pricing drop was the steepest decrease in more than a year and a half. Manufacturers’ prices for intermediate goods inched down 0.1 percent, while the crude goods index rose by 0.9 percent.

The cost of gasoline decreased 2.2 percent in October, while prices for natural gas and home-heating oil also declined, driving the energy index down by 0.5 percent. Car prices dropped by a seasonally adjusted 1.6 percent, the largest drop since July 2009.

“Companies… anticipate expenses for raw materials will remain restrained as Europe’s debt crisis weighs on global demand,” Bloomberg News reports. “Limited prices within the production pipeline are consistent with Federal Reserve policy makers’ view that inflation is likely to be contained, giving them room to focus on steps to spur economic growth.”

Jobless Claims Surge Post-Hurricane

New initial jobless claims increased sharply in the latest week reported, largely due to the effects of Hurricane Sandy. According to the U.S. Department of Labor, unemployment claims for the week ending November 10 rose by 78,000 to a total of 439,000, the highest level in 18 months.

Meanwhile, the four-week moving average, which smoothes out volatility and provides a clearer long-term picture of the job market, increased by 11,750 from the previous week, reaching a total of 372,000.

“The powerful hurricane that struck the East Coast a few weeks ago destroyed or damaged some businesses, caused widespread power outages and forced government offices to close. As a result, more people filed applications for jobless benefits after an initial delay,” MarketWatch reports. “The one-week increase in claims was the biggest since 2005, when Hurricane Katrina devastated a large swath of the Gulf Coast. Economists say investors should discount the data. It could take several weeks for the effect of Sandy on weekly claims to fade, they say, but by then the approaching holiday season could also skew the numbers.”

The previous week’s jobless claims total was also revised up by 6,000 to 361,000. The national unemployment rate was 7.9 percent in October, with 12.3 million people across the U.S. considered officially unemployed.

Metal Forming Businesses Expect Modest Improvement

Metal forming companies expect stable business conditions during the next three months, according to the November 2012 Precision Metalforming Association (PMA) Business Conditions Report.

Among the metal forming companies surveyed for the report, 19 percent expect improved economic activity over the next three months, up 4 percentage points from October. Meanwhile, 45 percent do not anticipate any changes, down from 55 percent in October, and 33 percent predict a downturn, up from 30 percent the prior month.

Daily shipping levels are up compared to three months ago for 25 percent of respondents, an increase from 22 percent in October, while levels are steady for 37 percent (up from 33 percent) and 38 percent reported a decrease (down from 45 percent in October).

“Metal forming companies clearly anticipate continued softening for the balance of 2012 and are looking ahead to 2013 with very modest expectations for an uptick in business conditions during the first few months of the new year,” William E. Gaskin, PMA’s president, said in a statement.  “Results of the presidential election, negative stock market performance, significant concern over how Congress will address income taxes on Sub-S and LLC pass-through companies and low expectations for how Congress will address the fiscal cliff are major concerns. There also is a growing concern for resurgent regulatory enforcement by EPA, OSHA and other federal regulatory agencies.”

The PMA Business Conditions Report is a monthly compilation of economic indicators aggregated from the responses of 125 metal forming companies in the U.S. and Canada.



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