Another Bank Bailout
The government agreed on Sunday to invest $20 billion in Citigroup Inc. and to guarantee as much as $306 billion in trouble assets, MarketWatch reports. The $20 billion of U.S. government capital is in addition to $25 billion it injected into the bank last month.

Citigroup, which was once the largest U.S. bank, has one of the farthest international reaches of any U.S. bank, with operations in more than 100 countries. It was widely perceived to be too big to be allowed to fail, Reuters says, because any collapse could cause financial havoc around the globe.

"The bailout [...] will give the U.S. government a 7.8 percent equity stake and marks the latest government effort to contain a widening financial crisis that has already brought down Bear Stearns, Lehman Brothers Holdings Inc. and Washington Mutual Inc.," Reuters notes.

If it works, the package may become a template for other U.S. banks expected to face growing losses as the economy sinks into recession, Reuters adds. However, the plan could herald another shift in the government's financial rescue, the New York Times notes, citing the Treasury Department's reversal from proposing to buy troubled assets from banks to injecting capital directly into financial institutions instead. "Neither plan, however, restored investors' confidence for long."

Though Structural Cost Burdens Ease, Manufacturers Still Pessimistic
An updated report by the National Association of Manufacturers (NAM), the Manufacturing Institute and the Manufacturers Alliance/MAPI revealed that the structural cost burden shouldered by domestic manufacturers relative to the country's nine largest trading partners has decreased by 14.1 percent since 2006 to 17.6 percent in 2008. Led by a reduction in employee benefit and health insurance expenses and costs associated with pollution abatement programs and tort litigation, the narrowing cost differential was also helped by rising costs in other parts of the world, Managing Automation reports.

Freight shipping prices have also dropped in November, with the Baltic Dry Index dropping to the lowest level since 1999. The Baltic Dry Index tracks the cost of moving goods such as coal, iron ore and grain across the oceans, and has slumped the last five months.

Despite the drop in costs, manufacturers are still pessimistic about 2009. MAPI sees a continuous decline in 2009, forecasting manufacturing production to fall by 4.2 percent, after already having sunk into negative territory in 2008. It expects the unemployment rate to average 7.7 percent next year and average gross domestic product (GDP) to grow 2.2 percent until 2013, with only 2009 showing negative growth for an entire year.

A separate study, the third-quarter edition of the PricewaterhouseCoopers LLP Manufacturing Barometer, echoes MAPI's views saying that 90 percent of the 50 U.S.-based industrial manufacturing executives surveyed believe the economy declined in the third quarter, and 63 percent remain worried about the prospects of the global economy for the next 12 months. Manufacturers are scaling back on their 12-month growth projections for revenue, predicting a 2.8 percent growth average.

Unemployment Shoots Up
First-time filings for unemployment benefits shot up to their highest level since July 1992 last week, rising 27,000 to a seasonally adjusted 542,000 and punctuating the struggling state of the U.S. labor market, the Department of Labor reported last week. In the week ending Nov. 15, the advance figure for seasonally adjusted initial claims was 542,000, an increase of 27,000 from the previous week's revised figure of 515,000. The four-week moving average was 506,500, an increase of 15,750 from the previous week's revised average of 490,750.

The advance seasonally adjusted insured unemployment rate was 3.0 percent for the week ending Nov. 8, an increase of 0.1 percentage point from the prior week's unrevised rate of 2.9 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Nov. 8 was 4,012,000, an increase of 109,000 from the preceding week's revised level of 3,903,000. The four-week moving average was 3,867,000, an increase of 71,250 from the preceding week's revised average of 3,795,750.

The Wall Street Journal (subscription required) reports, "In data released Friday by the Bureau of Labor Statistics, 12 states, including Florida, Idaho, North Carolina and Illinois, reported a rise of at least two percentage points in unemployment rates over the past year." The Journal continued, "For many states, the pace of decline is more severe than during the 2001 recession. ... In October, month-over-month unemployment rates increased in 38 states and the District of Columbia. Unemployment rates held steady in seven states and fell in five. Many economists forecast the national unemployment rate, currently at 6.5 percent, will top 8 percent in the next few months."

Notably, "the weakest states are those with concentrations of construction and manufacturing jobs. Michigan and Rhode Island, both heavily dependent on manufacturing, posted October unemployment rates of 9.3 percent, highest in the nation. Ohio's rate rose to 7.3 percent from 7.2 percent in September."

To help those receiving unemployment benefits, President George W. Bush signed into law an extension of unemployment benefits, the White House said. The extension provides seven more weeks of unemployment payments to workers who have exhausted their current jobless benefits and gives those in states with the highest unemployment rates an additional 20 weeks.

Big Consumer Price Drop
Consumer prices last month plunged by the steepest amount since records were tabulated in 1947, the U.S. Labor Department reported Wednesday. Prices fell 1 percent in October on a seasonally adjusted basis, with energy prices plummeting 8.6 percent. Both the overall and energy decreases were the biggest since the government began keeping such records. Data on the overall CPI dates back to 1947, and the energy data goes back to 1957.

"Collapsing commodity prices have driven earlier worries about inflation to the back burner but fanned speculation about potential for a deflationary spiral in which consumers stop spending and companies restrict investment because they are waiting to see how far prices drop," Reuters adds.

Along with falling consumer prices, the Commerce Department said U.S. homebuilders reduced their starts of new homes by 4.5 percent in October, driving new construct to the lowest level since just after World War II, MarketWatch reports.

Eurozone Private Sector Contracting At Fastest Rate in 10 Years
"The recession in the eurozone has substantially worsened this month, with the private sector contracting at the fastest rate for at least a decade, according to a survey reported the Financial Times (subscription required) on Friday.

"Purchasing managers' indices for the 15-country region — seen as good indicators of likely trends in activity — have slumped to fresh lows in November, led by a sharp fall in manufacturing." The Financial Times added. "The 'composite' purchasing managers' index, covering services and manufacturing, fell from 43.6 in October to 39.7 this month. It is the sixth month running that the index has been below 50, which marks the border between expanding and contracting activity. ... The eurozone economy had already contracted by 0.2 percent in both the second and third quarters of this year. But the latest survey was consistent with gross domestic product falling by 0.5 percent in the final three months."

Shrinking by a larger margin, the United Kingdom's economy is estimated to contract by 0.8 percent in the last quarter of 2008 and is expected to continue shrinking by 1.7 percent in 2009, according to estimates from the business group CBI estimates in a BBC News report. The group added that unemployment could peak at close to 2.9 million by 2010, up from the current 1.8 million unemployed.

China Fights Global Economic Malaise
In response to the global economic slowdown challenging the Chinese economy (third item), China's State Council says it will spend $570 billion over the next two years to finance programs in 10 major areas, mostly dealing with infrastructure, according to Outsourced Logistics. In addition to reconstructing areas hit by a major earthquake last May, the stimulus program includes building a gas pipeline to serve Guangzhou and Hong Kong, building and expanding nuclear power plants and water conservancy projects in other areas.

The Chinese government hopes the economic stimulus package would help the country get ahead of the economic malaise and aid in creating jobs. Last Thursday, China said it was facing major unemployment problems due to the global economic crisis. There are 24 million people seeking employment in China yearly, and the government has been hard-pressed to fulfill its goal of creating 12 million new jobs annually. The country's current unemployment rate stands at 4 percent with China's officials projecting that rate to increase next year.

Obama May Hold Off Retooling NAFTA
During the presidential campaign, Barack Obama promised to renegotiate the North American Free Trade Agreement (NAFTA) and even threatened to withdraw unless it were reworked. However, given the economic crisis, the automotive industry troubles and ongoing issues with China, Obama may be forced to delay NAFTA negotiations, Bloomberg News reports.

According to three unnamed advisers, President-elect Obama will order a study on the world's largest trade agreement, then seek longer-term negotiations with Mexico and Canada on how to change it.

"If the U.S. reopens NAFTA, trade partners Mexico and Canada are sure to raise their demands for improvements," USA Today adds. "Cracking down on China is complicated by U.S. dependence upon Chinese purchases of U.S. Treasuries to finance government borrowing."

Indeed, much of the U.S. has economy relied on exporting goods to stay afloat as the economic conditions worsened.

Auto Industry Bailout Special Report
Along with the rest of the world, IMT has been watching and reporting on the ongoing auto industry bailout saga. Revisit IMT tomorrow for a special three-part report on the current and future state of a potential bailout of the Detroit automakers.

In the meantime, see some of our previous news items regarding the automotive industry's pleas for aid: Running on Fumes, Automakers Seek Help (fifth item) and Debate Continues Over Possible Auto Industry Bailout (sixth item).