Actual finance blog

Switzerland's leading economic indicators fell more than expected to the lowest level in five years this month, evidence that growth may grind to a halt.

The monthly aggregate of indicators that aims to predict the economy's direction about six months ahead slid to 0.68 from a revised 0.85 in July, the KOF research institute in Zurich said today in an e-mailed release. That's the lowest since August 2003. Economists expected a drop to 0.83 from a previously reported 0.90, the median of 13 estimates in a Bloomberg survey showed.

Switzerland's expansion is losing momentum as stalling growth elsewhere in Europe threatens exports of machines and chemicals, and finance market turmoil sparked by the U.S. housing crisis erodes profit at banks including UBS AG and Credit Suisse Group. With inflation at the fastest pace in 15 years, the central bank has limited room to ease lending rates.

“This is quite a sharp slowdown,'' said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. “The risk of a recession is there, but it's still unlikely. Growth may even have been negative in the second quarter, and we see it averaging only 0.1 percent through the end of the year.''

The Swiss National Bank left its benchmark rate on hold at a six-year high on June 19 as central banks from Asia to North America shifted their focus from the global credit squeeze to stamping out inflation. The SNB holds its next monetary policy meeting on Sept. 18.

Franc Drops

The Swiss franc fell to as low as 1.6165 against the euro after the release from 1.6129 earlier. Against the dollar, the franc fell to $1.0978 from $1.0924.

SNB President Jean-Pierre Roth said on Aug. 19 the economy is slowing even more than policy makers had expected and added this week that growth will slow more markedly in the second half of the year than it did in the first http://payday-nofax.com.

The economy of Germany, Switzerland's biggest trading partner, contracted 0.5 percent in the second quarter and the economy of the euro area shrank for the first time since monetary union a decade ago.

Like other European countries, Switzerland is struggling to stave off the impact of waning growth. German business confidence plunged to a three-year low this month and European services and manufacturing contracted for a third straight month, increasing the risk of a recession.

Export Question

“Net trade continues to be surprisingly resilient, but given that two thirds of exports go to Europe, it's questionable whether they can continue to surprise to the upside,'' said Eoin O'Callaghan, an economist at BNP Paribas in London.

Export growth will probably slow to 3 percent this year after reaching 10 percent in the past two years, according to the government.

With sales weakening and the market turmoil hurting banks' profits, two engines of Swiss growth are stalling. At the same time, inflation is outpacing wage gains and may hurt household spending. Swiss consumer confidence fell to the lowest in four years this month.

Inflation may have reached its peak this summer, Roth said in an interview with the newspaper Finanz und Wirtschaft on Aug. 26. The risk of second-round effects from inflation are limited and it would be “absurd'' to use monetary policy to counter rising prices for oil and food, he said.

Full-year growth will probably slow to between 1.5 percent and 2 percent in 2008 after reaching 3.3 percent in 2007, the central bank estimates.

The price of oil has dropped 18 percent after climbing to a record $147.27 a barrel on July 11.

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U.S. private equity firm Carlyle Group CYL.UL is seeking a new investor for Willcom Inc as the Japanese mobile phone operator needs $1.8 billion to develop new technology services, four people familiar with the matter said.

Carlyle, which owns 60 percent of unlisted Willcom, has hired Merrill Lynch & Co (MER.N: Quote, Profile, Research, Stock Buzz), to find an investor to purchase new shares in Willcom, they said, asking not to be identified because the information is not public.

Carlyle is also willing to sell part of its stake, the financial sources said.

Electronic parts maker Kyocera (6971.T: Quote, Profile, Research, Stock Buzz) owns 30 percent of Willcom and KDDI Corp (9433.T: Quote, Profile, Research, Stock Buzz) holds 10 percent.

Willcom said in November it would need 200 billion yen ($1.8 billion) by the end of 2015 to develop new PHS technology to better compete against NTT DoCoMo Inc (9437.T: Quote, Profile, Research, Stock Buzz), KDDI and Softbank Corp (9984.T: Quote, Profile, Research, Stock Buzz).

In December, Willcom won one of two licences from the government to provide next-generation wireless Internet access low fees payday loan. The technology enables quick Internet access on laptops and other mobile devices while users are on the move. KDDI obtained the other license.

Willcom has said it plans to start offering the new service using PHS or personal handy-phone system technology in October 2009, after launching a preliminary service in April of that year.

The company is Japan’s dominant PHS mobile phone operator. PHS technology is cheaper to operate but has a shorter range and requires more base stations than other types of mobile phone technology. 

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Thailand raised its benchmark interest rate for a second straight month to tame inflation, putting the central bank in conflict with a government that called two days ago for borrowing costs to be left on hold.

The Bank of Thailand increased its one-day bond repurchase rate by a quarter point to 3.75 percent, the central bank said today in Bangkok. The decision was expected by 14 of 21 economists surveyed by Bloomberg. The others predicted no change.

Slowing growth and lower oil prices mean this may be the last rate increase this year. Deputy Finance Minister Suchart Thadathamrongvej said rates should be kept on hold, and has called on Governor Tarisa Watanagase to resign if the central bank's policies clash with government efforts to bolster the economy.

“This will be the last increase,'' said Prakash Sakpal, an economist at ING Groep NV in Singapore. “The economy is slowing. This will shift the central bank's policy focus from inflation to growth.''

Thailand's economic growth slowed more than estimated in the second quarter as higher exports of rice and rubber failed to offset a decline in domestic spending. The $245 billion economy expanded 5.3 percent from a year earlier after gaining 6.1 percent in the first quarter.

The baht rose 0.5 percent to 34.06 per dollar as of 4:55 p.m. in Bangkok. The currency gained earlier today after Prime Minister Samak Sundaravej said police won't use force to break up protests calling for his resignation. The benchmark SET Index climbed 1 percent, paring its loss this year to 21 percent.

Samak Under Fire

Thai police surrounded Samak's office today, laying siege to the almost 5,000 protesters demanding he step down. Samak, who called the demands “unreasonable,'' said police will be “soft and gentle'' with demonstrators to avoid violence.

“The central bank didn't discuss the political situation in the meeting today,'' Assistant Governor Duangmanee Vongpradhip told reporters in Bangkok. “Political uncertainty, which has existed for quite some time, has already been factored in to our economic model unless there is major bloodshed.''

The higher rate would continue to support economic growth, Duangmanee said, adding that inflation remains the key risk because of uncertainties over oil prices payday advances.

“The rate hike will anchor inflation expectations,'' she said, helping “reduce the possibility that the inflation rate will rise to double-digits.''

Inflation in Thailand accelerated to 9.2 percent last month, the fastest pace since 1998. Crude oil has tumbled 22 percent from a record $147.27 a barrel on July 11.

Oil Costs Ease

“A correction of oil prices appears to have alleviated the central bank's concerns on inflation,'' said Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok. “Inflation will peak in the third quarter and ease off in the fourth quarter given fuel tax cuts.''

Thailand raised its key rate last month for the first time in two years, joining Indonesia, India, Vietnam and the Philippines in increasing borrowing costs as a deepening global slowdown threatens Asian growth. At least half of the 14 economists in the Bloomberg News survey who predicted today's rate decision expect no further increases this year.

The decision to raise rates to 3.5 percent last month has been criticized by members of the government. Suchart, the deputy finance minister, said Aug. 25 that borrowing costs shouldn't be raised further because it would hurt consumers and companies.

Governor Tarisa on Aug. 21 vowed to “stand straight'' and continue to act in “the best interest of the country'' after King Bhumibol Adulyadej praised the Bank of Thailand for its handling of monetary policy.

Policy Still Stimulative

Still, some economists said the central bank should keep increasing borrowing costs because its policy stance remains stimulative and will fuel inflation. Adjusted for the pace of price increases, Thailand's real deposit rates stood at minus 6.6 percent and real lending rates were at minus 1.65 percent, the central bank said July 16.

“The current stance of monetary policy is accommodative,'' Cem Karacadag, an economist at Credit Suisse in Singapore, said before today's announcement. “We see the Bank of Thailand hiking the one-day repo rate to 4.25 percent in the reminder of 2008 mainly to lift negative real interest rates.''

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Malaysia's central bank kept its benchmark interest rate unchanged to avoid exacerbating an economic slowdown, breaking with its neighbors in betting inflation won't spread beyond food and fuel.

Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent for a 19th straight meeting today, it said in a statement in Kuala Lumpur. The decision was predicted by 12 of the 20 economists surveyed by Bloomberg News. The other eight expected an increase to 3.75 percent.

Malaysia has avoided following Thailand, Indonesia, India, Vietnam and the Philippines in raising borrowing costs this year as a deepening global slowdown threatens Asian growth. Central Bank Governor Zeti Akhtar Aziz has said she expects commodity prices, which drove inflation to a 26-year high last month, to ease next year as expansion cools around the world.

“Inflation in June and July showed no strong secondary effect beyond food and fuel,'' said Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd. “The risk of secondary inflation is also being kept in check by the risks of a slowing economy and a softening job market, with extra relief from the retreat in commodity prices.''

Malaysia's economic expansion probably slowed in the second quarter, a Bloomberg survey of economists shows ahead of an Aug. 29 central bank release. The U.S., Malaysia's largest export market, is close to a recession and Japan's economy contracted in the second quarter.

`Avoid' Downturn

Crude oil in New York has fallen by more than a fifth since reaching a record $147.27 a barrel on July 11, allowing Malaysia's government last week to reverse some of the fuel price increases it announced in June.

“With the expected moderation in inflation in the medium term, the greater priority is to avoid a fundamental downturn in economic activity,'' the central bank said in today's statement.

Malaysia's inflation accelerated to 8.5 percent in July after the government increased retail gasoline prices 41 percent and diesel rates 63 percent in June to prevent subsidies that keep pump costs artificially low from spiraling amid soaring oil prices. Electricity rates also rose in July.

Prime Minister Abdullah Ahmad Badawi, who is trying to prevent opposition leader Anwar Ibrahim from winning a by- election tomorrow, announced a 5.6 percent cut in gasoline prices and a 3.1 percent reduction in diesel costs last week, saying he wants to ease the burden of consumers and reduce inflationary pressure payday loan.

`Tricky' Decision

Today's decision may reduce the chances of rate increases in the remaining months of 2008, said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur, who had expected the central bank to raise the benchmark today to prevent inflation from further outpacing savings rates.

“They might raise rates but the propensity to do so is less as growth concerns could overtake inflationary risk,'' he said. “The decision was tricky because the negative real rates have widened a lot. It is made trickier by the fact that the Permatang Pauh by-election is tomorrow. The powers that be don't want to be seen to be making unpopular policy decisions.''

Voter anger over rising prices contributed to opposition gains in March elections that deprived Prime Minister Abdullah's ruling coalition of its two-thirds majority in parliament. Anwar, a former deputy premier, would return to the legislature for the first time in a decade should he win tomorrow's vote.

By-Election

Anwar, 61, is now the leader of an alliance of opposition parties and has said he plans to lure enough lawmakers from the ruling coalition to form a new government next month. He has promised to reduce fuel prices should he seize power.

Bank Negara, which hasn't raised borrowing costs since April 2006, last month increased this year's inflation forecast to between 5.5 percent and 6 percent. Slowing growth will cause inflation to ease in the second half of 2009, the central bank said today.

“The weaker economic conditions will reduce the likelihood of second-round effects that will generate persistent inflationary trends,'' today's statement said.

Still, failure to increase interest rates may add downward pressure on the ringgit, after other Asian central banks raised their benchmarks, said Kenanga's Wan Suhaimi.

“The currency will have a weakening bias after this decision,'' he said. A weaker currency would cause import costs to rise and hurt consumer demand, he added.

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U.S. builders probably broke ground in July on the fewest houses in 17 years, signaling the residential-construction slump will continue to hurt growth, economists said before a government report today.

Housing starts plunged 9.9 percent to an annual rate of 960,000 after a 1.066 million pace the prior month, according to the median forecast of 77 economists in a Bloomberg News survey. A separate report may show wholesale prices probably rose at a slower pace in July as fuel expenses peaked.

Stricter lending rules, rising borrowing costs, falling property values and record foreclosures will further depress home sales and cause builders to keep retrenching. Inflation pressures are likely to ease as the downturn in housing, loss of jobs and credit crisis weaken the economy this year and into 2009.

“The supply of housing continues to be cut in response to the still relatively high inventories of unsold homes,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. “This will continue to generate a large negative drag on overall growth in the second half of 2008.''

The Commerce Department will release starts figures at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 875,000 to 1.09 million.

Also at 8:30 a.m., the Labor Department may report the producer price index climbed 0.6 percent in July after jumping 1.8 percent in June, according to the survey median. Prices excluding food and fuel probably rose 0.2 percent for a third month.

Permits May Drop

Commerce's housing figures may also show building permits, a sign of future construction, fell 15 percent to a 970,000 annual pace, economists forecast online payday loan.

A change in New York City's building code that took effect July 1 caused housing starts and permits to unexpectedly surge in June as builders hurried to break ground ahead of the new regulations. The magnitude of the July drop may reflect, in part, a payback.

Underneath the gyrations, demand is weakening. Sales of existing homes fell to a 10-year low in the second quarter, according to the National Association of Realtors. A third of all sales were foreclosures or “short sales,'' in which lenders take a loss on a property.

Financing has also become scarce, a quarterly survey of banks by the Federal Reserve showed. Three-fourths of the loan officers polled reported they tightened standards on prime mortgage loans, up from the April survey. Lending rules on non- traditional loans were also toughened.

Mounting Losses

The five largest U.S. homebuilders reported a combined $1.08 billion in losses in their most recent quarters.

Builders are pessimistic as losses mount. The National Association of Home Builders/Wells Fargo's sentiment index yesterday showed optimism held at a record low in August for a second month.

Still, construction companies are making some headway in reducing the supply glut. The number of new homes for sale dropped in June by the most in four decades.

Some housing-related firms are faring better. Lowe's Cos., the world's second-largest home-improvement retailer, yesterday said full-year profit may fall less than it had anticipated.

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U.S. regulators’ emergency rule to restrict “naked” short selling in 19 major financial stocks had little impact and may have even backfired, two studies of the rule’s effects showed on Wednesday.

While overall short selling declined in nearly every firm affected by the rule, many of the 19 stocks still suffered declines in their share prices, the studies showed.

The U.S. Securities and Exchange Commission issued an emergency order last month requiring short sellers to pre-borrow stock in mortgage finance giants Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and 17 other Wall Street firms, such as Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz). While the rule expired at 11:59 p.m. on Tuesday, the SEC had billed it as an attempt to crack down on illegal “naked” short selling, that could allow reckless short selling of the stocks.

“While the SEC’s intentions may have been good, their attempt to protect price with rule-making was quite flawed and without intended effect,” said John Standerfer, Vice President of Financial Services for market data firm S3 Matching Technologies. “The market has its own mind.”

An S3 study of market data showed short sells for the 19 stocks dropped by about 63 percent while the rule was in effect, but the firm concluded the rule was “ineffective,” saying short selling “did not seem to be a significant factor” in the market’s determination of price for the stocks.

Shares of Fannie Mae and Freddie Mac are off more than 20 percent since the protective rule was first announced, despite an almost 5 percent rise in the benchmark Standard & Poor’s 500 index .SPX in the same period.

Even with the protection, S3 found the number of short sells in shares of Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) were often higher while the rule was in effect than they were the day before the rule was announced fast cash payday loan. But despite the higher levels of short selling, Bank of America’s stock price is up more than 40 percent in the past month.

A separate study from Arturo Bris, a finance professor at IMD business school in Lausanne, Switzerland, found that, even controlling for short selling, market efficiency had deteriorated more for the 19 stocks affected by the rule than for other comparable U.S. financial stocks. 

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Waste Management, the nation’s largest trash hauler, is boosting its buyout offer for rival Republic Services by 9% to $37 per share.

Houston-based Waste Management (WMI, Fortune 500) says it is willing to pay about $6.99 billion, for the Ft. Lauderdale, Fla.-based Republic Services Inc (RSG)., which rejected a $34 per share, or $6.19 billion, offer in July.

The new offer, represents a 32.6% premium to Republic’s closing stock price on July 11, the last trading day prior to the public disclosure of Waste Management’s proposal.

Under the new deal, Waste Management would pay Republic $250 million if the companies were unable to close the deal because of antitrust issues payday loans. Waste Management said any deal between the companies could close by early 2009. 

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Mortgage finance giant Freddie Mac on Wednesday reported a much bigger-than-expected loss, slashed its dividend and warned of more problems ahead for the battered housing and credit markets.

Company executives, in a sobering forecast about the nation’s housing woes, said nationwide home prices are likely to drop another 7% to 9%. Those declines, and other problems in the economy, are likely to cause additional losses on the $1.8 trillion worth of single-family loans that Freddie guarantees or owns.

"Today’s challenging economic environment suggests that the housing market is far from stabilizing," Freddie Mac CEO Richard Syron said during a conference call.

Syron and other Freddie executives sought to assure investors that the company is prepared to ride out the difficulties.

But investors were unconvinced. Shares plunged 19% in afternoon trading. The decline also dragged shares of Fannie Mae (FNM, Fortune 500), which operates in the same business as Freddie and is set to report quarterly results on Friday, down 15%.

Early Wednesday, Freddie (FRE, Fortune 500) reported that it lost $821 million, or $1.63 a share, in the second quarter. Analysts surveyed by Thomson Reuters had forecast it would trim its loss to 41 cents a share from the $151 million or 66 cents-a-share it lost in the first three months of the year.

A year ago, the company earned $729 million, or 96 cents a share.

Freddie also announced that it would cut its quarterly dividend to 5 cents a share or less, subject to a final decision by its board, from 25 cents a share in an effort to save capital. Losses have strained Freddie’s capital, and the dividend cut should save the company more than $500 million a year.

Freddie’s year-to-date losses of nearly $1 billion are far below the $3.7 billion it lost the second half of 2007 as it took charges for the value of its loans portfolio. The current losses are driven by the rapidly rising costs of loan defaults and rising provisions for future losses that are certain to rise.

"While we may be roughly half way through the eventual decline, we are still in the early stages of realized defaults," said Patricia Cook, the company’s chief business officer. "Most of the expected losses are yet to be realized."

Since the start of 2007, Freddie’s portfolio of single-family home loans suffered credit default costs of nearly $2 billion. Three months ago the company estimated that those defaults could end up costing between $15 billion and $20 billion during the life of the loans.

But with steeper home price declines now being forecast, and the increasing rate of mortgage foreclosures and delinquencies, Freddie expects those costs to go higher - to as much as $42 billion in what it says is a worst-case scenario.

Freddie officials said the company should have enough capital to deal with even those worst-case losses, once it goes ahead with plans to raise $5 billion in additional capital.

"We have the wherewithal and the earning power to manage through this period," said Buddy Piszel, its chief financial officer.

Freddie said its estimated core capital slipped to $37.1 billion at the end of the quarter from $38.3 billion at the end of March 500 fast cash. That capital level is about $2.7 billion above the level it agreed to meet with its federal regulator.

Provisions for credit losses more than doubled to $2.5 billion from $1.2 billion in the first quarter. The reason: increases in the delinquency and foreclosure rates of the mortgages Freddie owns and guarantees, as well as the continued declines in home prices.

Those provisions for credit losses caused the company to lose $1.4 billion on the guarantees it makes on loans for single-family homes - about triple the $458 million loss on that line in the first quarter. The company made $129 million on those guarantees in the year-ago period.

The company saw losses soar even though its net interest income, the difference between interest paid and interest income soared to $1.5 billion from $793 million a year ago, due to lower interest costs for the firm in the just completed quarter.

That rise in net interest income was more than offset by the $3.3 billion hit in investment activity due to the reduced estimated value of its holdings. That’s up from a loss of $540 million a year earlier.

About $1 billion of the most recent investment loss was caused by the decline in the value of Freddie’s mortgage securities, which are backed by subprime mortgages or so-called Alt-A home loans made to borrowers who did not provide full or any verification of income or assets.

Freddie and Fannie Mae (FNM, Fortune 500), which were set up by the government to provide funding for the mortgage markets, have become the primary source of capital for banks and other lenders making home loans. They are seen as crucial to the recovery of the housing and credit markets.

But investor anxiety about the firms has driven shares of Freddie down by 66% between June 16 and Tuesday’s close, while Fannie shares lost nearly half their value during the same period. It also prompted Congress to pass a rescue measure for the firms, allowing the Treasury Department to loan them an unlimited amount of cash and even buy their shares if necessary.

Syron was asked Wednesday if Fannie and Freddie, known as government sponsored enterprises or GSEs, can continue to operate in a way that both helps the housing market and makes the profits that shareholders demand. He said he believes they can continue to serve both missions going forward, despite these losses.

"I don’t think we’re at a point that the model doesn’t work anymore," he said. "I think we are a point where the model is more stressed."

"I think virtually everyone, including our critics, would say that this would be an extremely ugly mortgage market if you didn’t have the GSEs in it," Syron said. 

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The Federal Reserve’s proposed rules for credit card lenders could lead the banking industry to lose at least $10.6 billion in interest annually, JPMorgan Chase & Co. said in a letter to regulators, citing a study.

In May, the Federal Reserve and other regulators proposed steps to end what they called "unfair and deceptive" practices in the credit card industry. The rules aim to protect people from having their interest rates raised arbitrarily, among other practices.

In a letter sent Monday to the Fed’s board of governors, the Office of Thrift Supervision and National Credit Union Administration, JPMorgan’s Chase Bank subsidiary said the proposed regulation, if finalized, "is likely to have profound effects on Chase’s operations and financial results."

The bank also said the proposal will negatively affect the credit card asset-backed securities market by reducing the amount of secondary market capital, and make credit less available to customers.

Chase cited data collected from a group of banks, including Chase itself, on a confidential basis by the law firm Morrison & Foerster LLP. Morrison & Foerster could not comment on the data Tuesday, or on how many banks participated.

The cumulative impact for the participating banks would be at least $10.6 billion in lost annualized interest, Chase said in its letter, signed by Associate General Counsel Andrew T. Semmelman.

The bank said those industry losses would likely result in a nearly 12% increase in annual percentage rates to an average of 16.58%; a $1.1 trillion reduction in total credit lines to consumers; and tighter standards that would stop $11 billion in new accounts from being booked each year.

In addition to restricting rate hikes on cards in certain situations, the Fed’s proposed rules aim to limit the imposition of inadequate time restraints on consumers, and the practice of allocating all payments to balances with lower interest rates when a borrower has balances with different rates.

On Monday, the chairman of the Senate’s investigations subcommittee said he supports the Federal Reserve’s proposed restrictions on credit card practices - but that he believes there should be more.

Sen cash advance. Carl Levin, D-Mich., wrote in a 13-page letter to the Fed that it should expand its rules to end or restrict such practices as charging interest for debt paid on time; interest on transaction fees; fees levied on consumers paying their bills on time; and billing amounts that force consumers to pay four or five times their original debt.

Back in March, JPMorgan Chase (JPM, Fortune 500), at the behest of the U.S. government, bought the ailing investment bank Bear Stearns Cos. when it appeared to be near collapse. 

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In the Mexican town of Tarimbaro, construction has stopped on new homes, so sales at a hardware store are half last year's total. A butcher who slaughtered a head of cattle a day now slays two a week. And Rocio Rangel feeds her son and daughter bread and coffee for dinner.

Rural Mexican towns are suffering as money transfers from relatives working north of the border dry up, the result of a weak U.S. economy. Remittances equaled 2.7 percent of gross domestic product last year and are Mexico's second-biggest source of dollar flows after oil exports.

“My children need more than this, but we don't have anything,'' said Rangel, 36, whose husband hasn't sent funds home from Florida in nine months.

Shrinking transfers, inflation at a three-year high and a peso that has appreciated 10 percent this year are eroding the purchasing power of Mexico's poor, the 35 percent of the population that can't afford basics such as clothing, housing and health care. Residents who depend on funds from abroad are cutting back on spending because of weakness in U.S. industries such as construction, the biggest employer of Mexico's migrants.

In the first half of this year, remittances fell 2.2 percent to $11.6 billion, the first decline for the period since Mexico's central bank began tracking the data in 1995. For the entire year, the bank forecasts they will drop as much as 3 percent.

Remittances grew only 1 percent in 2007 to $24 billion after a record 39 percent expansion in 2003.

Danger for Calderon

The dwindling flow of cash this year may shift support from President Felipe Calderon to the opposition Party of the Democratic Revolution, which attracts lower-income voters.

“The worse the economy is, the better'' the PRD will do, said Daniel Lund, president of consulting group Mund Americas in Mexico City. The party's former presidential candidate Andres Manuel Lopez Obrador refused to recognize a razor-thin defeat to Calderon in the 2006 election and set up his own quasi- government that opposes the president's initiatives.

Lopez Obrador, whose campaign pledge was “the poor come first,'' promised to reduce privileges for the business elite. Calderon is backed by the business community, who endorse his efforts to promote free trade and boost private investment.

An increase in popularity for Lopez Obrador “is the great danger'' for Calderon, said Gabriel Casillas, an economist at Banco UBS Pactual in Mexico City. “It's a priority for the presidency to try to prevent him from gaining more support.''

Diversified Exports

So far, the economy is benefiting from diversified exports and Calderon's plan to spend 2.5 trillion pesos ($250.7 billion) in public and private funds on infrastructure projects during his six-year term, creating construction jobs, building ports and expanding roads payday loans. The government estimates GDP expanded 3 percent in the second quarter.

In May, Calderon announced a program to boost aid to more than 5 million of Mexico's poorest families by 22 percent to 655 pesos a month. His goal is to shrink extreme poverty, defined as families unable to pay for a basket of basic foodstuffs, by 30 percent in the next five years. In 2006, 10.6 percent of the population was in the lowest income group.

Tarimbaro Mayor Baltazar Gaona Sanchez said Calderon's anti-poverty program benefits only about 6 percent of the townspeople and isn't having a significant effect. Residents work mainly in agriculture, growing corn, tomatoes and onions.

“There's still a lot lacking,'' he said. The economy of the municipality, which is 200 kilometers (124 miles) west of Mexico City, “has sunk,'' he said. “There are a lot of people who come to ask for help to eat.''

`No Work'

Maria Sebastiana, 50, who lives about an hour away in the town of Zinapecuaro, said her husband was fired from his construction job in Oregon and hasn't sent money to her since November. Still, her pregnant daughter's boyfriend has left for the U.S. in search of employment to support the couple and their child. “Here, there's no work,'' Sebastiana said.

In the San Fernando Valley of Los Angeles, Mexicans who once had full-time construction jobs are now looking for day employment on street corners, said Antonio Bernabe, day-laborer organizer at the city's Coalition for Humane Immigrant Rights.

“They are living in very poor conditions, eating noodle soups at 25 cents each,'' Bernabe said.

Only half of Latin American immigrants in the U.S. said they sent money home in February, down from 73 percent two years ago, according to a survey released in April by the Inter- American Development Bank.

Agustin Garduno, wearing a paint-stained sweatshirt, said he sleeps in cars and on floors at friends' houses because he can't afford rent. As noon approaches and no contractors have pulled up to the corner of Van Nuys Boulevard and Oxnard Street looking to hire, it will be the fifteenth day he has gone without work.

“If you gave me a ticket, I'll go back to Mexico because here, there's nothing,'' said Garduno, 48, who used to make $1,300 a month and now makes about $500.

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