From the Globe and Mail:

Parliament’s budget watchdog is turning his careful financial eye to the massive $1-billion security bill estimated for the next month’s G8 and G20 summits.

Kevin Page confirmed this afternoon his office is debating the objectives, approach, timing and dimensions of an investigation into the costs, which appear to have dramatically escalated over several months, to secure the summits that will take place in Huntsville and Toronto over only three days.

Mr. Page and his office are responding to a request from the NDP to investigate, which they received Wednesday. He told The Globe today his office will debate internally different questions, including:

» Is this a fiscal transparency issue?

» Has the government been transparent about the cost (are there hidden costs)? Was it highlighted appropriately in the budget?

» Will the fiscal framework be adjusted for higher than anticipated costs (the question of fiscal prudence)?

» Is this an area where governments can keep their financial cards close to their chest (limited access to detailed financial information to ensure public protection)?

» Is this an operational efficiency issue?

“Assuming we know the total security bills, does this look expensive,” Mr. Page asks. “What are appropriate benchmarks – past summits in Canada; recent summits elsewhere at the G8 and G20 levels?”

He added that from this point his office will “scope out an informational request with timelines that we will post on our website.”

Mr. Page is a constant thorn in the side of the Harper government for his intense scrutiny of fiscal matters. In the past he has attacked the credibility of the government’s budget predictions, arguing Finance Minister Jim Flaherty’s plan to balance the books was about $10-billion short. He also maintains the government has a structural deficit, which Mr. Flaherty disputes.

In his letter to the budget watchdog, NDP public safety critic Don Davies says he is “deeply concerned that there may be inappropriate budgetary practices and/or expenses being included in these figures.”

He notes the initial cost proposed in the Main Estimates – tabled by the government last March – was $179-million. That figure has since ballooned to $930 million, which was contained in the Supplementary Estimates that were tabled this week.

The NDP has also asked Auditor-General Sheila Fraser for an “urgent” review of the security costs. The Liberals, meanwhile, have done the same, sending their own letter to Ms. Fraser formally requesting an audit into the security costs.

“While we do not dispute the fact that effective and efficient security is vital when world leaders are involved, we believe this amount to be excessive,” Liberal public safety critic Mark Holland writes.

Both Mr. Holland and Mr. Davies note that the security estimate for the three days of summits is more than the cost for the entire Vancouver Olympic Winter Games. “We believe the cause of this skyrocketing security bill is the result of improper planning and foresight,” Mr. Holland says.

The Liberals have argued that the decision to try to hold he summits in Huntsville was a bad one, given that it was deemed too small to accommodate the G20 summit, which then had to be moved to Toronto.

Public Safety Minister Vic Toews defended the costs Wednesday in the Commons during Question Period. He said they were the result of an “unprecedented event” with two back-to-back summits.

“And we believe the experts when they say this is the necessary level of security. I understand that the Liberals don’t believe in securing Canadians or the visitors here. We are different,” Mr. Toews said.

US growth has been revised lower after a strong first quarter in an article by the WSJ:

The U.S. economy grew briskly in the first quarter, but its pace was a little weaker than originally thought, according to the government, which revised consumer and business spending lower.

Separately, the number of U.S. workers filing new claims for unemployment benefits fell last week, but the drop was lower than expected and the figures still don’t signal any strong improvement in the labor market.

Gross domestic product increased by a 3.0% annual rate January through March, the Commerce Department said Thursday.

The data also showed corporate profits picking up. After-tax earnings climbed 9.7%, better than 8.2% during the fourth quarter. Year-over-year, profits were 42.7% higher, as the economy recovers from its deep recession and unemployment remains elevated.

In the government’s original report on first-quarter GDP a month ago, it estimated an increase of 3.2%. The revised 3.0% gain was below the 3.4% rate expected among economists surveyed by Dow Jones Newswires. And it was smaller than the 5.6% increase in GDP recorded in the fourth quarter. But the October-December surge was largely due to technical changes involving inventories and not consumer spending, a fundamental part of the U.S. economy that accounts for about two-thirds of GDP.

The latest report showed consumers increased their spending by 3.5%. That was below the previously estimated 3.6% gain but more than double the 1.6% increase of the fourth quarter.

The 3.5% gain in spending was the largest since first-quarter 2007. Americans are loosening their wallets as signs emerge of improvement in the job market.

For instance, Hibbett Sports Inc. last week said fiscal first-quarter earnings surged 59%, with big increases in shoes and clothing sales. Hibbett, which mostly operates in midsize markets in the southern half of the U.S., lifted its current-year forecast for earnings per share.

The Federal Reserve recently raised its forecast on growth for 2010. In minutes of the Fed’s policy-setting meeting April 27-28, the central bank predicted the economy would expand between 3.2% and 3.7% in 2010. That’s up from a January forecast that GDP would grow between 2.8% and 3.5%. Despite the expected strengthening, the bankers expect inflation to remain subdued.

The data Thursday barely altered the picture of benign inflationary pressures in the first quarter.

For instance, the government’s price index for personal consumption was left unrevised at a 1.5 increase. The index rose 2.5% in the fourth quarter.

The closely watched core PCE gauge, which excludes volatile food and energy prices, was also unrevised, rising at a record-low pace of 0.6%. This “core” rate of inflation went up 1.8% during the fourth quarter.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose an unrevised 1.7%, after going up 2.0% during the fourth quarter.

The chain-weighted GDP price index increased 1.0%, revised up from the previously estimated 0.9% rise. The index rose 0.5% in the fourth quarter.

In the GDP report, first-quarter business spending rose by 3.1%, revised down from an earlier estimated 4.1% increase. Equipment and software outlays surged just 12.7% instead of 13.4% as previously estimated.

Businesses boosted inventories a little more than first thought, by $33.9 billion instead of $31.1 billion. The modest rebuilding suggests companies are growing more confident of the economy’s prospects. Last year, businesses slashed inventories deeply because of the recession.

Real final sales of domestic product, which is GDP less the change in private inventories, increased at an annual rate of 1.4% in the first quarter. That was down from the previous estimate of 1.6% and below the 1.7% gain in the fourth quarter.

Housing was slightly revised, falling 10.7% in the first quarter as opposed to the originally estimated 10.9%. The component, residential fixed investment, posted a 3.8% increase during the fourth quarter. Second-quarter investment should return to positive territory; government tax relief drove buying and construction of homes up during March and April.

Federal government spending in the first quarter climbed 1.2%, revised from a 1.4% increase. State and local government outlays fell 3.9%.

Internationally, U.S. exports climbed 7.2%. Imports increased 10.4%. Originally, the government estimated first-quarter exports up 5.8% and imports up 8.9%.
Jobless Claims Fall

The Labor Department said in its weekly report Thursday that initial claims for jobless benefits fell by 14,000 to 460,000 the week ended May 22. Economists who were surveyed by Dow Jones Newswires had predicted claims would fall by 16,000.

The previous week’s level was revised upward, to 474,000 from 471,000.

The report showed that the four-week moving average, which aims to smooth volatility in the data to help paint a better picture of the underlying trend, rose for the week ended May 22. The four-week moving average increased by 2,250 to 456,500 from the previous week’s revised average of 454,250.

Total claims lasting more than one week, meanwhile, fell.

Thursday’s reported decrease in claims comes just one week after claims unexpectedly spiked by 28,000 in the week ended May 15. The jump rattled the markets and left some worried about the condition of the job market after a Labor Department economist said the increase was related to economic factors, and not to administrative issues that contributed to increases earlier in the year.

Economists have been a bit puzzled by the pattern of the claims data this year. After the jump in claims for the week ended May 15, analysts at J.P. Morgan opined that the increases could be due in part to workers in the Gulf who are idled by the oil spill, or possibly a reduction in home building coinciding with the expiration of homebuyer’s tax credit.

But analysts still aren’t fully convinced that the recent spike signaled a worsening in the job market given that nonfarm payrolls in April rose by 290,000 and are also expected to rise in May.

“The level of claims has not been a reliable predictor of the improvement in other series,” Wrightson ICAP economists wrote in a note ahead of the release.

In the Labor Department’s Thursday report, the number of continuing claims–those drawn by workers for more than one week in the week ended May 15–decreased by 49,000 to 4,607,000 from the preceding week’s revised level of 4,656,000.

The unemployment rate for workers with unemployment insurance for the week ended May 15 was 3.6%, unchanged from the prior week’s unrevised rate.

The largest decrease in claims occurred in California, which saw claims fall by 2,161 in the week ended May 15. Other states with decreases included Michigan, Washington, Florida and Oregon. The largest increase, meanwhile, occurred in Tennessee due to layoffs in the trade, service, apparel, and fabricated metals industries. Other states with increases included Missouri, Mississippi, Illinois, and Arkansas.

An interesting article out of the WSJ today on another investment fraud:

NEW YORK—A New York financial adviser to the rich and the famous was on Thursday accused of running a $30 million investment fraud and using the funds to enrich himself and friends, including a former New York City politician.

Kenneth I. Starr allegedly used his access to famous and powerful clients to “burnish an image of trustworthiness” and, in some cases, assumed total control over his clients’ financial lives, according to a criminal complaint filed by federal prosecutors in the U.S. Attorney’s office in Manhattan.

Andrew Stein, the former president of the New York City Council, was described as an “associate” in the alleged scheme. He was on Thursday charged with making false statements in an Internal Revenue Service and making false statements to an IRS agent.

The criminal complaint didn’t have details on the alleged victims, but it described them as an unnamed hedge fund manager and well-known philanthropist, an actress, a former executive of a talent agency, an elderly heiress and a jeweler who is a convicted felon.

Both Mr. Stein and Mr. Starr are expected to appear in federal court in Manhattan later Thursday. Their lawyers didn’t immediately return phone calls seeking comment Thursday.

Prosecutors accused Mr. Starr—the chief executive of Starr Investment Advisors and manager of Starr & Co. LLC—of engaging in two types of schemes.

He allegedly solicited clients for investments in entities or businesses he described as sure deals, but diverted all or some of the money to himself, his family or friends, according to the criminal complaint.

Mr. Starr allegedly used some of the funds to purchase a luxury apartment on Manhattan’s Upper East Side, worth at least $7.5 million, the complaint said. About $1.6 million of funds were invested in an entity known as Wind River LLC, prosecutors claimed. The money was used to pay for “extravagant personal expenses” of Mr. Stein, including hundreds of thousands of dollars to pay his American Express bills, prosecutors said.

Mr. Starr also allegedly made unauthorized transfers of client funds to himself or his associates. When clients sought to be repaid, Mr. Starr would transfer funds from other clients, consistent with a “Ponzi” scheme, according to the criminal complaint.

The Securities and Exchange Commission, which filed a related but separate civil complaint, said Starr Investment Advisors provides investment adviser services to more than 30 high-net-worth individuals has assets under management in excess of $700 million.

Starr & Co. provides accounting, tax preparation and other services to about 175 clients, the SEC said.

Mr. Starr isn’t the Kenneth Starr who served as prosecutor in the Whitewater investigation.
—Brett Philbin contributed to this article.