THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Thursday, May 5, 2011

Morning Brief: 5 May 2011


Employers buck wage hike, offer allowances

STIPENDS instead of outright pay increases should be considered by wage boards as current economic conditions could soon improve, the head of an employers’ group yesterday said.

"Let us not apply a permanent solution to a very temporary problem because the pricing problem now is volatile and temporary, it can improve in a few months’ time," said Edgardo G. Lacson, president of the Employers’ Confederation of the Philippines (ECoP) at the sidelines of the organization’s annual conference.

His comments came as central bank Deputy Governor Diwa C. Guinigundo reiterated warnings against substantial increases, saying "a further rate adjustment may be considered" if minimum wages are adjusted by more than P25 per day.

The Monetary Board meets today to discuss policy and analysts expect a follow-up to last month’s 25-basis-point rate hike given rising inflation and looming wage hikes.

Mr. Lacson said the ECoP would be submitting a position paper to the Metro Manila wage board tomorrow, the last day for filing proposals before a May 9 deliberation on the Trade Union Congress of the Philippines’ (TUCP) petition for a P75 increase.

He said the grant of subsidies and allowances for clothing, transportation, food and medicine would be a "realistic" compromise as these can be withdrawn when the economic situation gets better.

Employers are also considering the Federation of Filipino-Chinese Chamber of Commerce and Industry, Inc.’s proposal of a P13.35 adjustment but even this will result to job losses, Mr. Lacson claimed.

He argued that there was "no supervening event" justifying an immediate wage hike, noting that the wage board’s declaring "extraordinary" fuel price increases as a catalyst should have also been the argument in 2008 when global crude prices hit record highs.

"We have to reconcile [the] definition of a supervening event," he said.

Labor Secretary Rosalinda D. Baldoz, who spoke at yesterday’s ECoP conference, said the Metro Manila wage board would "surely consider the temporary nature of the supervening condition in adjusting wages."

Sought for comment, TUCP Chairman Ernesto T. Herrera said his group would welcome an allowance "so long as it will be on top of the wage increase."

University of the Philippines economist Benjamin E. Diokno, for his part, said he was in favor of "temporary, voluntary and non-binding" forms of assistance.

"The advantage to employers is that these benefits won’t translate into additional contribution to SSS (Social Security Service), Pag-ibig (Home Development Mutual Fund), PhilHealth (Philippine Health Insurance) and long-term cost in terms of separation and retirement benefits," Mr. Diokno said.

"The wage boards should resist the pressure to increase minimum wages. The mild inflation rates do not justify it."

Emergency cost of living allowances were ordered by the Metro Manila wage board in 2001 (P30/day) and 2004 (P20/day) but were later integrated into the minimum wage in 2007 along with a P12/day pay hike.

Direct wage adjustments in the National Capital Region have not gone higher than 2000’s P26.50/day. Last year’s increase of P22 raised daily minimum wages in the metropolis to a range of P367-404. -- from reports by N. M. Gonzales and A. S. O. Alegado


U.S. Stocks Slump as Commodities Drive Third Straight S&P 500 Index Drop

U.S. stocks fell, with commodity producers driving a third straight loss for the Standard & Poor’s 500 Index, as lower-than-estimated reports on service industries and job growth damped optimism in the economy.

Caterpillar Inc. (CAT) and General Electric Co. (GE), among companies most-tied to the economy, fell at least 1.7 percent to lead declines in the Dow Jones Industrial Average. Freeport-McMoRan Copper & Gold Inc. (FCX) and Occidental Petroleum Corp. (OXY)dropped more than 2.4 percent as oil and metal prices sank. Las Vegas Sands Corp. (LVS), the U.S. casino company expanding in Asia, slumped 7.3 percent after reporting profit that missed estimates.

The S&P 500 lost 0.7 percent to 1,347.32 at 4 p.m. in New York. The index has dropped every day since closing at the highest level since June 2008. The Dow average fell 83.93 points, or 0.7 percent, to 12,723.58 today. Oil for June delivery declined 1.6 percent to $109.24 a barrel in New York.

“We’ve seen some tempering of economic statistics,” said Michael Mullaney, who manages $9.5 billion at Fiduciary Trust in Boston. “We’re going to see some sloppiness in the market until we get a clear indication on whether the sluggishness in economic activity is temporary. Employment growth is critical for the economy becoming self-sustaining.”

The S&P 500 extended its drop since April 29 to 1.2 percent. Oil, metal and chemical companies have led the market’s slump. Silver futures have plunged 19 percent, the biggest three-day drop since 1983, as increases in Comex margins spurred investor sales. Oil has slumped 4.1 percent.


Treasuries Rise After Report of Services Slump; Bill Rates Fall to Record

Treasuries rose, pushing 10-year note yields to a six-week low, as private reports showed service industries in the U.S. expanded less than forecast in April and companies added fewer jobs last month than projected.

Six-month bill rates reached a record low for a third consecutive day with the U.S. reducing sales of short-term securities as lawmakers negotiate an increase in the $14.3 trillion federal debt ceiling. The Treasury said it will auction $72 billion in 3-, 10- and 30-year debt next week even with the U.S. likely to exceed its borrowing capacity before or after Aug. 2. Federal Reserve Bank of Boston President Eric Rosengren said stimulus is necessary to spur the “anemic” economy.

“The bond market reacted positively to the disappointing economic news,” said Gary Pollack, head of fixed-income trading at a Deutsche Bank AG Private Wealth Management group in New York that oversees $12 billion. “Investors are buying bonds, even at these low levels, as they anticipate weaker growth.”

The yield on the 10-year note fell three basis points, or 0.03 percentage point, to 3.22 percent at 5:19 p.m. in New York, according to Bloomberg Bond Trader data, after touching 3.2 percent, the least since March 17. The price of the 3.625 percent note maturing in February 2021 rose 1/4, or $2.50 per $1,000 face amount, to 103 3/8.


Crude Oil Falls in New York After U.S. Supplies Climb to a Six-Month High

Crude oil dropped to a two-week low as a U.S. Energy Department report showed supplies surged and on signals that American economic growth is slowing.

Oil fell 1.6 percent after the report showed stockpiles rose 3.42 million barrels to 366.5 million last week, the highest level since October. Inventories were forecast to gain 2 million barrels, a Bloomberg News survey showed. Lower-than- forecast expansion in service industries and employment reduced optimism about the economic outlook.

“The inventory numbers were much more bearish than expected,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine, California. “We were already poised for a move lower when the inventory data and the negative economic numbers came out. This is looking like a perfect time to take risk off the table.”

Crude oil for June delivery fell $1.81 to $109.24 a barrel on the New York Mercantile Exchange, the lowest settlement since April 19. Prices are up 32 percent from a year ago.



Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001

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