MAY 14, 2010

By Josh Silverman, Director, Term Funding & Risk Management

The Federal Reserve’s latest quarterly senior loan officer survey revealed that lending standards at U.S. banks during the first quarter of 2010 were relatively unchanged from the previous quarter. In fact, lending standards actually eased somewhat across most loan types—a positive development after three years of tightening. Even with the slight relaxing of credit terms, however, the overall lending environment remains stringent.

Banks likely will be more willing to increase credit availability if the recovery appears sustainable. Yet, if history is any indication, the easing in lending standards and in the supply of credit will be slow. It took up to two years after the last two recessions ended for credit standards to relax.

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MAY 14, 2010

In celebration of the 75th anniversary of the creation of the Rural Electric Administration, CFC Forum 2010 will host a special panel discussion that brings together five administrators of the USDA’s Rural Utilities Service.

Moderated by CFC Governor and CEO Sheldon C. Petersen, “Electric Cooperatives: Lessons from the Past, Insight for the Future” features an unprecedented panel that spans 16 years of leadership at RUS. The current and former administrators will reflect on the rich heritage of what has been called the most successful social program in the history of the United States. They will share their unique insight on electric cooperatives, the history of the network and the lessons learned that can be applied today for a brighter future.

Administrators scheduled to attend:

Jonathan Adelstein (2009–Present)	James M. Andrew (2005–2009)	Hilda G. Legg (2001–2005)
Christopher A. McLean (1999–2001)	Wally Beyer (1993–1999)

MAY 14, 2010

Employment Outlook Improves

Source: Bureau of Labor Statistics

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U.S. employment increased in April by the largest gain in four years, yet the unemployment rate unexpectedly rose as thousands of people entered the labor force. According to the Bureau of Labor Statistics, non-farm payrolls jumped by 290,000 jobs last month, more than the median estimate of 190,000. This follows a revised 230,000-job increase in March.

April’s payroll report showed job gains were broad-based across different sectors of the economy, including positive job growth in the construction sector, which added payrolls for the second consecutive month since June of 2007. Manufacturers added the most workers to payrolls since August 1998 while employment at service providers rose the most since November 2006.

Despite the rise in payrolls, the unemployment rate increased to 9.9 percent after three months of holding steady at 9.7 percent. The pop in the unemployment rate was due to more people reentering the job market, an indication that job seekers are becoming more confident about the prospects for the economy. Even if the labor market continues to add jobs, the unemployment rate likely will remain elevated due the sheer volume of people who lost their jobs during the recession.

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MAY 14, 2010

On May 4, the Environmental Protection Agency (EPA) invited public comment on two alternatives for a proposed rule to regulate disposal and management of coal combustion residuals (CCRs), commonly called coal ash. The proposal marks the first time EPA has issued regulations for CCR disposal. CCRs are currently disposed of in liquid form in large surface impoundments or as a solid in landfills. EPA is seeking to ensure controls are in place at new facilities, to require liners in surface impoundments and to provide incentives for a transition away from liquid impoundments to dry storage in landfills, which is considered a safer alternative.

This action came in response to a 2008 accident at an impoundment at the Tennessee Valley Authority’s Kingston Fossil Plant in east Tennessee. The massive spill flooded more than 300 acres of land, displaced residents, contaminated the Emory and Clinch Rivers, incurred hundreds of millions of dollars in cleanup costs and caused widespread environmental damage.

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MAY 14, 2010

The U.S. Department of Energy (DOE) recently awarded $15.8 million in federal stimulus funds to New Hampshire Electric Cooperative, Plymouth, NH, for installation of smart grid technology. The grant covers about 45 percent of the $35.5 million cost of replacing the cooperative’s existing metering and communications system with advanced metering infrastructure (AMI), including new meters for each of the cooperative’s 83,000 members, associated two-way communications equipment, and sensors and controls. The new system will provide near real-time information on electric use.

Fred Anderson

“This grant gives us the opportunity to modernize our distribution and metering system in a way that will empower our members to understand and better manage their use of electricity,” said Fred Anderson, NHEC president and CEO. “It will also help us respond to outages more quickly and efficiently. For the first time, we will know down to the individual meter where outages are occurring.”

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By Josh Silverman, Director, Term Funding & Risk Management

In late March, U.S. Treasury yields began to rise, driven by heightened concerns regarding the expanding U.S. deficit and weak foreign demand for U.S. government debt. It appeared the long-expected pressure on Treasury yields, due to the massive amount of government supply needed to support the economic stimulus package, was starting to materialize.

By April 5, the yield on the benchmark 10-year Treasury Note hit a one-and-half-year high of 4.01 percent. Since then, however, the yield has tumbled nearly 50 basis points, and on May 5 stood at 3.55 percent. The dramatic one-month drop in Treasury rates has been driven primarily by concerns emanating from Europe, including that Greece will default on its sovereign debt. Other countries, including Portugal and Spain, also are facing liquidity issues. The financial problems in Europe have resulted in a “flight-to-safety,” with investors shifting assets to U.S. Treasuries. This has resulted in Treasury rates falling significantly across the yield curve (see chart).

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May 17, 2010

Consumer Spending Fuels GDP Growth

Source: Bureau of Economic Analysis

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Gross domestic product (GDP) expanded by 3.2 percent in Q1 as consumers increased their spending by the largest amount in three years. This was the third consecutive quarter of economic expansion. Growth over the past six months has been the strongest in seven years.

Consumer spending as a main driver of growth is a welcome development since consumption accounts for nearly 70 percent of GDP. Consumer spending added 2.6 percent to growth as sales of durable goods rose more than 11 percent during the quarter.

There remains some concern that recent GDP growth has been too heavily reliant on a buildup of business inventories. Inventories added 1.6 percent to growth in Q1 but will not play as large a role going forward if businesses do not see continual increases in demand. Another concern for growth is weak government spending. Strong federal spending was not enough to offset state and local cutbacks during Q1.

Manufacturing Continues To Expand

The Institute for Supply Management’s (ISM) manufacturing index rose to 60.4 in April—the highest level in six years and the 10th consecutive month of expansion. The new orders index increased to 65.7, while the production index gained seven points to 66.9. Levels above 50 indicate expansion.

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MAY 7, 2010

Clean coal technology has the potential to rejuvenate the coal industry, boost the use of an important domestic energy source and create thousands of new jobs and other economic benefits, according to a report released last week by the Regional Economics Application Laboratory at the University of Illinois.

In results that may be transferrable to other states, the report analyzes the impact of several ongoing and potential plant projects on employment, labor income and economic growth in Illinois. “Each of the projects, if built, could provide needed energy supply…and significant jobs—both in construction and operations,” the report said. Four of the primary technologies and projects analyzed include:

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MAY 7, 2010

Last week, President Barack Obama nominated Janet Yellen, president of the San Francisco Federal Reserve Bank, to be vice chairman of the Federal Reserve Board, replacing current board vice chair Donald Kohn, whose term expires in June. Obama also nominated an economist and a lawyer to open slots on the seven-member board. If all three nominations are confirmed by the Senate, the Fed board would be at full strength for the first time in nearly four years.

Some news reports speculated the appointment of Yellen may be a bid by the Obama administration to keep short-term interest rates low and spur economic growth. Barclays Capital said Yellen “is believed to be the most dovish” Federal Open Market Committee member and has “openly expressed her concern about the risk of inflation declining rather than rising.”

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MAY 7, 2010

The Electric Power Research Institute (EPRI) launched an industry-wide “transmission efficiency” collaborative with a group of utilities and transmission system operators last week. The effort will compile and analyze performance data from transmission lines, substations and grid operations to assess the cost, benefit and technical criteria for implementing efficiency measures.

“We cannot build transmission lines and substations the same way we did years ago,” said Mike Heyeck, senior vice president of American Electric Power and chairman of EPRI’s Transmission Executive Committee. “We must fully incorporate life-cycle efficiencies into planning, engineering and procurement for the grid of our energy future.”

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