Banks step up Fed borrowing, Wall Street passes

By JEANNINE AVERSA, AP Economics Writer
Thu Jul 24, 4:34 PM ET

WASHINGTON - Banks stepped up their borrowing over the past week from the Federal Reserve's emergency lending program, while Wall Street firms didn't draw such loans.

A Fed report released Thursday said commercial banks averaged $16.4 billion in daily borrowing over the past week. That was up from $13.9 billion in the previous week.

Investment houses were given similar loan privileges as commercial banks after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy. The situation raised fears that other Wall Street firms might be in jeopardy.

Bear Stearns was eventually taken over by JPMorgan Chase & Co. in a deal that involved the Fed's financial backing.

For the week ending July 23, Wall Street firms didn't borrow from the Fed's emergency facility, the report showed. It marked the second time since the Fed opened its emergency program to investment firms on March 17 that they didn't draw such loans.

In the prior week, firms averaged just $9 million in daily borrowing. Such borrowing rose as high as $38.1 billion in early April.

The identities of commercial banks and investment houses are not released. Commercial banks and investment companies now pay 2.25 percent in interest for the loans.

In the broadest use of the central bank's lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. Chairman Ben Bernanke said the Fed is considering extending those loan privileges — which currently are supposed to last only through mid-September — into next year.

Trying to stem eroding investor confidence, the Fed earlier this month said mortgage giants Fannie Mae and Freddie Mac could draw emergency loans from the central bank if they needed. There was no indication in the weekly report that they had done so. Shares of the mortgage giants were clobbered last week as investors grew worried about the companies' financial shape.

Separately, as part of efforts to relieve credit strains, the Fed auctioned nearly $25 billion in Treasury securities to investment companies Thursday. Firms had placed bids requesting $51.7 billion worth of the super-safe Treasury securities.

In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.

The auction program, which began March 27, is intended to make investment companies more inclined to lend to each other. A second goal is providing relief to the distressed market for mortgage-linked securities and for student loans.

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On the Net:

Federal Reserve: http://www.federalreserve.gov/

Chain Grocers Put a Face on Food

By Candice Novak Thu Jul 24, 4:00 PM ET

Locally grown produce is in vogue as even the biggest grocers try to appeal to shoppers and save on fuel costs. Among the big names selling homegrown food are Whole Foods Market, Safeway, Tesco, and Wal-Mart. As gas prices remain high and the popularity of local food grows--the number of local farmers markets has more than doubled in the past decade, the Department of Agriculture says--grocers are reviving the old practice of buying from smaller regional farms.

Wal-Mart's former produce plan involved an international network of large farms with which shoppers had little or no contact. For the most part, customers didn't even know where their foods were coming from. The company, now the nation's largest buyer of locally grown produce, labels all its produce--every peach and potato--by its state of origin. And it doesn't stop at the store. On the company's website, customers can look up farms to see pictures of their owners and read their stories, and view an interactive map.

When shopping for produce, customers have higher expectations than for other goods, says Kelly O'Keefe, professor and executive education director in Virginia Commonwealth University's advertising program, Brandcenter. They "don't want the bottom-of-the-barrel product," O'Keefe says. Chain grocers and big box stores are catering to that mentality, he says, by revamping their produce sections to reflect the region in which the goods are sold, while also continuing to import produce from abroad.

Celia Gould, director of Idaho's Department of Agriculture, says she has heard from many shoppers who say "they love buying produce that came from right here in Idaho."

Some Wal-Mart competitors are also putting a face on food. Safeway has partnered with several states to sell regionally grown food, using labels like "Colorado Proud" on produce. At Tesco, shoppers can recommend farmers they like to buy from. Whole Foods features farmers by region and facilitates "local producer loans" at interest rates of 5 to 9 percent to fund farming projects that could ultimately result in local produce being sold at a Whole Foods store. Each project is displayed online with photos and project details.

Home sales at 10-year low, jobless claims jump

By Alister Bull Thu Jul 24, 11:05 AM ET

WASHINGTON (Reuters) - Jobless claims jumped last week and the pace of existing home sales tumbled to a 10-year low as slowing growth hit hiring and a glut of unsold homes weighed on the real estate market, data on Thursday showed.

The number of U.S. workers filing new claims for jobless benefits jumped 34,000 last week, the Labor Department said, in part reflecting seasonal volatility typical at this time of year, but also indicating that jobs were hard to find.

A separate report from the real estate industry said that home sales dropped 2.6 percent in June, dragging the annual sales pace to the lowest since early 1998.

Government bonds, which benefit from signs of economic weakness, extended gains on the data while the dollar lost ground against the euro and yen. The Dow Jones Industrial Average (.DJI) was down more 1 percent.

Sliding house prices and mounting losses from the subprime mortgage market sparked a credit crunch last year that has chilled growth and hiring, despite aggressive interest rate cuts by the Federal Reserve.

"The message from claims is that unemployment is still rising," said James O'Sullivan, economist at UBS Securities in Stamford, Connecticut.

Initial claims for state unemployment insurance benefits rose to a seasonally adjusted 406,000 in the week ended July 19, from a revised 372,000 the prior week, the Labor Department said. It was the highest reading since late March and above forecasts of 376,000 new claims.

A Labor Department official noted that estimates were being impacted by annual auto plant shutdowns, the end of the quarter, and the shorter July 4 holiday reporting week.

The four-week average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, rose to 382,500 from 378,000.

"The average is still hanging right around that 375,000, which denotes a slow-growth economy, a pretty flat economy, not quite a recession," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.

The number of people remaining on the benefits roll after drawing an initial week of aid declined 9,000 to a lower-then-forecast 3.107 million in the week ended July 12, the most recent week for which data is available.

Analysts estimated so-called continued claims would be 3.14 million. It was the 13th straight week that claims were above 3 million, in a sign that the slowing economy is making it harder to find jobs.

HOUSING WOE

Housing is at the heart of the U.S. slowdown and officials hope conditions will start to gradually improve once it finds a bottom, although economists warn this may still be some way off.

The pace of existing home sales in the United States fell in June to a 4.86 million-unit annual rate, according to the National Association of Realtors.

"Anecdotally, there's a lot of foreclosed properties coming to the market. This is telling us any bottoming in the housing market will be very long and drawn out. It will take a long time for inventories to return to normal," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

Economists polled by Reuters were expecting home resales to fall to a 4.93 million-unit pace, from the 4.99 rate initially reported for May. The June rate was the lowest since a 4.83 million rate in early 1998, the Realtors said.

The inventory of homes for sale held steady at 4.49 million homes or 11.1 months of supply at the current sales pace, down only slightly from the record level of supply in April.

The median national home price declined 6.1 percent from a year ago to $215,100

In other news from the housing market, the U.S. Census Bureau said that the share of U.S. homes owned but sitting empty inched down to 2.8 percent during the second quarter from 2.9 percent in the first quarter.

(Additional reporting by Patrick Rucker and Joanne Morrison in Washington, Herb Lash and Richard Leong in New York; editing by Tom Hals)