Water Cooler Finance: More Spilled Oil, Fewer Jobs

By Tara Struyk | July 05, 2010 AAA
Water Cooler Finance: More Spilled Oil, Fewer Jobs

The financial news held few surprised this week. Apple's new iPhone 4 was released - with a glitch the company promises to fix. The third "Twilight" movie performed strongly in its first five days at the box office, but fell short of its predecessor's record-breaking results. And Warren Buffett gave away a little more ($1.6 billion) of his fortune to charity. However, amidst the ho-hum offerings, there were some interesting bits of news you may have overlooked.

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The Job Picture Gets Better - No Wait, It's Actually Worse
Have you ever heard the quote about how statistics are like bikinis (Punchline: What they reveal is suggestive and what they conceal is vital.) Well, it seems that even the Department of Labor isn't above dressing itself up for the economic climate. According to the latest report released on July 2, the unemployment rate fell in June from 9.7% the previous month to a still-painful 9.5%.

Unfortunately, this news doesn't imply that the economy is on the upswing. For one, there are still nearly eight million fewer private-sector jobs than there were in December 2007, before the market crashed. In addition, the report suggests that the biggest reason for the drop in the unemployment rate is simply that many people who were looking for a job had given up. This group of 1.2 million is referred to as discouraged workers, and the Department of Labor determined that there are now 414,000 more of them than there were in June 2009. (To learn more, check out What You Need To Know About The Employment Report.)

BP Shirks Its Bill
After facing some intense pressure from President Obama and the media, oil company BP (NYSE:BP) agreed to foot the bill for a $20 billion escrow fund to pay out damage claims from its notorious and ongoing Gulf of Mexico oil spill. The company also agreed to sever its dividend payments to investors. Supporters of this move saw it as a major step of the U.S. government in terms of demanding corporate accountability - critics saw it as an unconscionable political interference.

Perhaps the critics needn't have worried, as BP continues to act like a healthy American company. According to the New York Times, on July 2, BP released documents showing that it was seeking nearly $400 million from its partners in the still-gushing oil well, Anadarko Petroleum Corporation (NYSE:APC) and the Mitsui Oil Exploration Company (Nasdaq:MITSY)of Japan. This sum represents roughly 40% of what BP forked out for cleanup efforts in May.

All companies with a stake in an oil well are commonly held responsible for paying for the costs associated with an oil spill. BP's recent move in the wake of its highly publicized commitment to take responsibility for the spill is leaving the company with some egg on its face. Under current U.S. law, companies are only bound to pay out up to $75 million for the economic costs of an oil spill. The Obama administration is currently working to raise that cap, but rest-assured that the battle with BP isn't over yet. (For more on the BP spill and its effects, check out Oil Sands Should Benefit From Gulf Disaster.)

Borrow Money To Pay Bills?
After emerging from bankruptcy a year ago, GM (OTC:MTLQQ) is reportedly preparing for an initial public offering (IPO) as early as the fourth quarter of this year, and expects to file plans within the next week. Whether the re-issuance of GM stock will put the company back on track has yet to be seen. GM was profitable in its first quarter - the first time this has happened since 2007 - and has fully repaid the loans it received from the U.S. government.

But news that GM is seeking a $5 billion revolving line of credit from banks to repay its loans and provide the company with a cushion against another expected drop in U.S. auto sales. It isn't the most glowing reflection about how company management is feeling about its ability to sell cars. (To read about some of the brands GM has dropped in its effort to re-emerge as a viable company, check out 5 Dead Auto Brands And Why They Died.)

China's Economy Runs Hot and Cold
China also appeared in the news this week, as reports that its economy had rebounded strongly from the global slump emerged. However, this strong rebound also threatened to make China's economy look relatively weaker in upcoming months, with some analysts predicting a slowdown. The release of results for manufacturing and output showed month over month declines in June.

According to the Wall Street Journal, China is expected to soon surpass Japan to become the second-largest economy in terms of GDP after the U.S., but the Chinese premier, Wen Jiabao, admitted that the economic environment in China is "complicated". Although major stimulus spending by the Chinese government helped China get back on its feet, Europe's current debt crisis is likely to impact demand for goods produced in China. (For background reading, see Top 6 Factors That Drive Investment In China.)

The Bottom Line
This week saw the continuance of ongoing news stories that are unlikely to fade from the headlines any time soon. Stay tuned for new developments in next week's Water Cooler Finance. (Miss last week's Water Cooler Finance? Check it out: Water Cooler Finance: Shocking Court Rulings, Sinking Markets.)

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