General Motors Scrambles to Meet Restructuring Deadline
The United Auto Workers, General Motors Corp. and the federal government agreed to a deal on Thursday regarding labor costs, factory closures and retiree health-care funding as it scrambles to meet restructuring guidelines set by the U.S. auto task force before June 1. Details of the deal have not been released.

UAW officials will meet today to learn how many U.S. factory jobs GM will cut, and will prepare for a quick vote on the cost-cutting labor deal reached last week. GM had planned to close 16 factories, laying off 21,000 hourly workers. The union looks to complete the votes by Thursday.

If the contract is approved, it would change the payment terms on the $20 billion owed to a UAW trust fund. While the agreement clears one of the hurdles set by the government, GM is still severely in debt. Bondholders balked at GM's offer of 10 percent stake in the restructured company in exchange for debt forgiveness of $27 billion. Under GM's plan, the UAW health-care trust fund would get 39 percent stake for half of the $20 billion the company must pay into the trust, the U.S. Department of Treasury would get 50 percent stake and current bondholders would hold 1 percent.

Along with the UAW vote, GM faces other issues prior to June 1, including the German's government's decision on the preferred bidder for GM's Opel unit and how much of its $27 billion in unsecured debt could be exchanged for shares.

According to the New York Times, GM will need $40 billion to $70 billion in debtor-in-possession financing to create a new version of G.M. and dispose of its assets. The company said it expected to need another $7.6 billion from the Treasury after June 1.

Acclaimed Economist Claims Recession Over on Unemployment Dip
Based on the dip in unemployment claims, the recession is over, according to an acclaimed macroeconomist.

Robert J. Gordon, a member of the Business Cycle Dating Committee of the National Bureau of Economic Analysis — the body that determines when recessions officially begin and end — claims that for every recession since 1974, the peak in jobless claims came within weeks of the bottom of the recession, SmartMoney.com says.

At the end of April, the four-week moving average was 3.1 percent off its early April peak, and the numbers from the week ended May 8 were 4.3 percent down from the April peak. As of the week ended May 16, the four-week moving average dropped 31,000 from the four-week average for the week ended April 4.

The Department of Labor reports initial unemployment claims for the week ended May 16 dropped 12,000 from the previous week.

However, with Chrysler LLC filing for bankruptcy and GM's probable bankruptcy filing, unemployment may increase once again due to auto-related layoffs. GM said it plans to idle as many as 23 stamping, engine and transmission plants, 13 assembly plants through July, as well as shuttering 1,100 U.S. dealers.

"The 'majority' of last week's decrease in claims was in states that reported a jump in auto-related filings the prior week," Bloomberg News reports a Labor Department spokesman as having said.

Toyota and Honda Consider Supplier Contingency Plans
In case Chrysler's bankruptcy and GM's potential bankruptcy filing cause supplier bankruptcies, Toyota Motor Corp. and Honda Motor Co. are considering contingency plans to avoid possible production disruptions. "We hope the loans provided to Detroit will also help to stabilize suppliers, but the very slow market remains a concern for all," Mike Goss, a spokesman for Toyota's North American manufacturing unit in Erlanger, Ky., told Bloomberg News in an e-mail.

Measures include working with more parts makers and increasing inventories to mitigate the effects of a collapse among its U.S. suppliers, at least half of whom also work for Detroit automakers, Goss said. Honda is considering similar actions, including increasing inventories and doubling sources to buy parts from other regions.

According to Kim Hill, economist and associate director of the Center for Automotive Research, "the main concern for the Japanese carmakers is the smaller, second- or third-tier suppliers that make specialized parts." Models built strictly in the U.S. are also a big concern for Toyota.

A potential change in manufacturing processes would add to the companies' costs in conjunction with cuts in earnings forecasts. "While adopting a production system with greater inventories and reliance on imported parts will be costly and less efficient, the alternative would be worse," Ed Kim, director of industry analysis for AutoPacific Inc., told Bloomberg News. "As messy as it may be from a logistical perspective, it's better than not having any cars to build."

Leading Economic Indicators Up
The index of leading economic indicators rose 1 percent in April, the first increase in seven months, The Conference Board reported Thursday. The increase follows the 0.2 percent dip in March and signals a less intense recession in the near term and the possibility of small growth in the second half of 2009, according to The Conference Board. "The question is how long before declines in activity give way to small increases," Ken Goldstein, economist at The Conference Board, said. "If the indicators continue on the current track, that point might be reached in the second half of the year."

The contributors to the uptick, starting with the largest, were: stock prices; interest rate spreads; consumer expectations; initial claims for unemployment insurance; manufacturing hours; supplier deliveries; and manufacturers' new orders.

Consumer confidence also surged in May to 54.9, The Conference Board reported this morning. It is the fourth-largest gain in the 32-year history of the survey and the index is at its highest in eight months. "While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us," said Lynn Franco, director of The Conference Board's Consumer Research Center.

Troubled Banks Commit $56 Billion to Bolster Balance Sheets
After undergoing the government's stress test two weeks ago, the 10 banks ordered to raise $75 billion in case the economy took a turn for the worse have raised, or announced plans to raise, $48 billion. The other 9 stress-tested banks have raised or plan to raise an additional $8 billion, for a total of $56 billion.

"There are important indications that our financial system is starting to heal," Treasury Secretary Timothy Geithner told lawmakers Wednesday, adding that the Treasury Department would soon be introducing the next phase of its financial rescue effort: teaming up with private investors to buy billions of dollars in toxic assets from banks.

Geithner said the banks would repay about $25 billion in government loans in the month ahead, and the $1 trillion program to buy troubled assets from banks using public-private partnerships is likely to get rolling within six weeks. The Treasury Department has received more than 100 applications from fund managers for the program.