Consumer Sentiment Takes a Hit

According to a survey released on Friday, consumer sentiment has tumbled due to dissatisfaction with government economic policies and lower expectations for improvements in the labor market.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment dropped to 71.8 from 77.6 in February, short of expectations for 78.

Across-the-board government spending cuts of $85 billion went into effect at the beginning of the month after U.S. lawmakers failed to come to a new deal.

A record 34 percent of respondents made unfavorable references to government economic policies, beating January's prior record of 31 percent.

"The frustrations expressed by consumers essentially involve how little consideration has been given to how the government's inability to reach a compromise affects people's economic situation," survey director Richard Curtin said in a statement.

The barometer of current economic conditions fell to 87.5 from 89, while the gauge of consumer expectations tumbled to 61.7 from 70.2, its weakest since November 2011.

Thirty percent of consumers expected the pace of economic growth would worsen in the coming year, up from 22 percent the previous month, while 38 percent expected the unemployment rate to increase, up from 27 percent.

Still, the damage to buying plans has so far been minimal, the survey found. The index of buying conditions for durable goods eased just slightly to 139 from 140.

The one-year inflation expectation held steady at 3.3 percent and the five-to-10-year inflation outlook edged down to 2.9 percent from 3 percent.

Is Natural Gas a Sleeping Giant?

As the winter season draws to a close and the energy market readies for a slowdown in the need for heating fuels, natural-gas prices should be falling. They’re not.

Instead, prices have climbed over 9% month to date, with the market betting on a tighter supply and demand situation following a cold winter season, signs of a recovery in the U.S. economy, a drop in drilling rigs, growing uses for the fuel, and a shift away from coal-fired plants.

“Demand on a massive scale is coming,” said Kevin Kerr, president and chief executive offer of Kerr Trading International.

“Supplies are getting tighter and demand is increasing,” he said, and that’s likely to happen dramatically in the next five years as new technology and usage comes online. “Natural gas is like a sleeping giant, waiting to be awakened.”

The recent rally followed a U.S. Energy Information Administration report showing a bigger-than-expected 145 billion-cubic-foot drop in weekly natural-gas supplies, which took total supplies below 2 trillion cubic feet for the first time since mid-May 2011. Inventories are down 440 billion cubic feet from the year-ago level.

“Weather, of course, is a big factor and impacts prices weekly,” said Greg Renwick, president and CEO of East West Petroleum Corp.

Over the long term, however, natural gas is expected to be used in other industries, such as vehicle transportation, he said. Economic growth and prices of competitive fuels will also be key factors on the demand side for natural gas, he said, while production levels and volume in storage are key on the supply end.

And in the U.S., analysts have seen overall improving economic conditions, bigger-than-usual production declines and total supply levels in storage at their lowest in nearly three years.

New Health Law Fees Enrage Employers

Employers are bracing for a little-noticed fee in the federal health-care law that will charge them $63 for each person they insure next year, one of the clearest cost increases companies face when the law takes full effect.

Companies and other plan providers will together pay $25 billion over three years to create a fund for insurance companies to offset the cost of covering people with high medical bills.

The fees will hit most large U.S. employers, and several have been lobbying to change the program, contending the levy is unfair because it subsidizes individually purchased plans that won't cover their workers. Boeing Co. and a union health plan covering retirees of General Motors, Ford Motor Co. and Chrysler, among other groups, have asked federal regulators to exclude or shield their insurance recipients from the fee.

Insurance companies, which helped put the fee in the law, say the fee is essential to prevent rates from skyrocketing when insurers get an influx of unhealthy customers next year. The fee is part of a new insurance landscape created by the health law that will forbid insurers from denying coverage to people with pre-existing conditions.

The $63 fee will apply to plans covering millions of Americans in 2014. It applies to employers that assume the risk for workers' medical bills, and many private plans sold by insurers. The fee will be smaller for 2015 and 2016, though regulators haven't set those amounts.

Few noticed the fee when the 2010 Affordable Care Act passed. Employers have spent recent months trying to peel it back, but final regulations published Monday in the Federal Register left it largely intact.

"It's caught most employers, if not all employers, by surprise," said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington, which represents large employers. "They're very upset about it."

The fee comes on top of other costs employers expect to face. Proponents of the law say it eventually will lower employers' health costs by expanding insurance coverage to 30 million Americans, meaning employers won't subsidize their unpaid medical bills.

Administrators for employee health plans have warned federal regulators they could pare insurance benefits to absorb the fee. Some benefits experts expect employers will at least partially pass on the $63 to workers.

Boeing estimates the fee will apply to about 405,000 workers and dependents it insures, costing the Chicago-based plane maker an estimated $25 million in 2014. The company spends $2.5 billion annually on health and insurance-related benefits.

Doug Kight, a Boeing vice president of strategy, compensation and benefits, told Health and Human Services Secretary Kathleen Sebelius in a December letter the aircraft maker was "concerned about the significant cost impact" of the fee. Among other things, he effectively asked her to reduce the levy to account for the fact that Boeing's workers aren't part of the insurance system that can tap the reimbursement fund.

The UAW Retiree Medical Benefits Trust, which covers 806,000 retirees of General Motors, Ford, Chrysler and their dependents, asked HHS to exempt all its beneficiaries from the levy. It argued the trust, which is independent from the auto makers, shouldn't face the fee because its plans operate under terms set in federal district and bankruptcy courts in 2009.

The top lobbying groups for large employers, including the U.S. Chamber of Commerce and the Business Roundtable, also voiced concerns about the fee and asked regulators to delay its collection.

In the regulations published Monday, HHS declined to whittle down the levy for firms such as Boeing, citing the law's requirements. It said the fee wouldn't apply to the plans of retirees whose primary coverage is Medicare, which would exclude many retired autoworkers, but it declined to categorically exempt workers in court-structured benefits plans.

A Boeing spokesman said the final regulations don't appear to address the major issues it raised with regulators. A spokeswoman for the UAW trust declined to comment.

Federal regulators say they have heeded employers' complaints about the fee and tweaked details of the program. They opted to collect the levy nationally instead of through each state, moved the collection date to the end of next year and calculated the fee on a per capita basis instead of as a percentage of premiums.

"We've tried to really work with the employers and issuers in trying to make the application of this program as least burdensome as possible," said Michael Hash, director of the HHS Office of Health Reform.

In 2014, insurers will be able to tap part of the $25 billion to offset medical costs from high-risk individual-market consumers that total between $60,000 and $250,000 a year. Employers and other insurance issuers will pay $63 in 2014 for every worker, spouse, child and certain retirees they cover.

Of the fees collected, $20 billion will go toward paying high medical claims. HHS says the remaining $5 billion will be used to retroactively offset an earlier program that reimbursed employers insuring early retirees through 2011. Under that program, Boeing received $50 million and the UAW trust received $387 million, according to a federal summary of the payouts.

A Boeing spokesman said the retiree program "was not advertised as a program prefunded by the government to be paid back at a later time," and that the law's net financial impact on Boeing is negative. The UAW trust declined to comment.

HHS says the high-risk program will lower premiums for people who buy plans through the individual insurance market by between 10% and 15%. For insurance plans overall, the fee is expected to raise premiums next year by about 1%, and less in the subsequent two years of the program.

Insurance companies defend the fees, saying they will indirectly benefit employers. Companies subsidize the cost of caring for the uninsured by paying higher medical and insurance prices for workers. Moving high-risk consumers into insurance policies will minimize that problem, they say.

These uninsured "had been the individuals going to the emergency room," said Karen Ignagni, president of America's Health Insurance Plans, an insurer trade group in Washington. "The employers definitely were picking that up."

Other health plans that tried and failed to win a federal exemption from the fee include so-called multiemployer insurance plans, jointly run by unions and employers. About 20 million Americans are covered by such plans.

U.S. Seeks Better Relationship
with China

Treasury Secretary Jack Lew will press China to take "serious steps" to stop cyber-attacks directed at the United States and urge the administration of new Chinese President Xi Jinping to accelerate economic reforms, a U.S. official said on Friday.

Lew's visit to Beijing on Tuesday and Wednesday comes at a crucial time, the official told reporters on condition of anonymity. "China is undergoing their once-in-a-decade leadership transition and, of course, their reform process is at a crossroads."

"It's important to deepen our relationship with China's new leadership team at this time," the official said.

Lew lacks the international stature of his predecessor, Timothy Geithner, and is signaling the importance the United States put on its economic relationship with China by making his first international trip as secretary to Beijing.

Secretary of State John Kerry in coming weeks will also make his first trip to China since taking office last month.

Both Kerry and Lew will host their Chinese counterparts in Washington in the middle of this year for the annual U.S-China Strategic and Economic Dialogue, the official said.

China's legislature formally chose Li Keqiang as premier on Friday, installing the English-speaking bureaucrat as the man in charge of the world's second-largest economy.

President Barack Obama raised U.S. concerns about computer hacking in a phone call with Xi on Thursday, just days after U.S. intelligence leaders said for the first time that cyber-attacks and cyber espionage had supplanted terrorism as the top security threat facing the United States.

"We will press China to take serious steps to investigate and put a stop to these activities and to engage with us in a constructive direct dialogue to establish acceptable norms of behavior in cyberspace, recognizing it is a growing challenge for both of us," the senior U.S. official said.

Lew will also press China to allow its currency to rise further against the dollar and push on other concerns such as increased market access for U.S. goods and better protection of intellectual property rights, the official said.

China's yuan has appreciated 16 percent in real terms against the dollar since June 2010. "More progress, however, is needed," the official said.