Money Studies

Adobe Systems posts 4Q loss

2009-12-16T05:04:00.001-08:00

NEW YORK (AP) -- Adobe Systems Inc. said Tuesday that although it booked a loss in the fiscal fourth quarter, consumer demand improved and allowed the maker of Photoshop and Flash software to post an optimistic outlook for the current period.

The recession has dampened demand for Creative Suite 4, the latest version of the software package targeting professional designers and developers that brings in the bulk of Adobe's revenue. It happened to launch in the fall of 2008, right as the financial meltdown hit.

But the company said Tuesday it saw demand pick up in the fourth quarter, especially in its final month. Chief Financial Officer Mark Garrett said this November uptick -- across many of the company's product lines, mainly in North America and Europe -- was more than what the company had expected. Even so, CS4 will likely end up with sales about 20 percent below its predecessor.

Adobe on Tuesday reported a loss of $32 million, or 6 cents per share, for the three months that ended Nov. 27, compared with a profit of $245.9 million, or 46 cents per share, in the same period a year earlier.

Stripping out special items such as restructuring charges and an income tax adjustment related to its October acquisition of Omniture Inc., Adobe earned 39 cents per share, surpassing Wall Street analysts' expectations.

The quarter's revenue fell 17 percent to $757.3 million, but still topped the $752.5 million expected by analysts polled by Thomson Reuters.

Adobe CEO Shantanu Narayen said he expects Creative Suite 5, which will launch sometime in the current fiscal year, to be a "must-have upgrade" for customers. Creative Suite includes many of Adobe's applications, including Photoshop, Illustrator, Flash and the Web design software Dreamweaver.

Because of the timing of CS4's launch, many customers put off buying the costly package, opting to save money and wait for the next version. Garrett said this group represents pent-up demand, not only because it's difficult to be two versions behind in software but also because many companies will be upgrading their computers and operating systems next year. This benefits Adobe because software upgrades generally follow hardware upgrades.

Adobe hasn't said when CS5 will come out, though Sasa Zorovic, an analyst with Janney Capital Markets, expects it to launch in May.

For the current quarter, Adobe is forecasting a profit of 34 cents to 39 cents per share, excluding items, on sales of $800 million to $850 million. Analysts are predicting earnings of 37 cents per share on revenue of $798.9 million, on average.

Adobe's first-quarter revenue forecast includes about $78 million to $83 million from Omniture, the Web analytics software maker it acquired for $1.8 billion in October. Omniture expands the company's product offerings because it provides a way for businesses to measure the effectiveness of the Web content they create using Adobe's software.

For the full year, the company earned $386.5 million, down 56 percent from a year earlier. Revenue fell 18 percent, to $2.95 billion. Over the past year, Adobe reduced its work force by about 1,300, though it gained some from the Omniture acquisition.

Adobe's shares fluctuated in after-hours trading as investors digested the news. The stock climbed 6 cents to $36.42 in extended trading after closing up 58 cents at $36.36.

Credit Suisse expects to pay $536 million

2009-12-16T05:03:00.000-08:00

SAN FRANCISCO (AP) -- Credit Suisse Group said Tuesday that it expects to pay $536 million to settle a five-year Justice Department investigation into business it did with countries subject to U.S. economic sanctions between 2002 and 2007.

The bank said it is in advanced settlement talks with the Justice Department, Federal Reserve, Manhattan district attorney's office and the Treasury Department's Office of Foreign Assets Control. Credit Suisse expects to book a fourth-quarter charge of 445 million euros ($649.2 million) related to the deal.

The Manhattan District Attorney's office confirmed Tuesday it was negotiating with the bank, but spokeswoman Alicia Maxey Greene said there was no final agreement. The DA's office has scheduled a news conference on the subject Wednesday.

The bank said it had previously disclosed the investigation and undertook an internal review of some U.S. dollar payments that involved countries, people or entities who could be subject to U.S. economic sanctions. That review has been completed.

Credit Suisse also said it exited the business in question in December 2005 and conducted an independent investigation into payment activity in Zurich. The company added that in 2006 it stopped doing business with all parties sanctioned by the Office of Foreign Assets Control, and as part of this move shuttered an office in Tehran.

Countries under economic sanction by the U.S. include North Korea, Cuba and Iran.

Wells Fargo stock offering to raise $12.25B

2009-12-16T05:02:00.001-08:00

NEW YORK (AP) -- Wells Fargo & Co. said Tuesday that a stock offering planned for later this week should raise $12.25 billion that will be used to help repay its government bailout loan.

The offering price of $25 a share was announced a day after Wells Fargo said it would repay the $25 billion it received as part of the Troubled Asset Relief Program.

The stock sale is expected to close on Friday, Wells Fargo said. It will raise $10.65 billion from selling 426 million shares of common stock, and another $1.6 billion from selling another 63.9 million shares to underwriters, bringing the total offering to 489.9 million shares.

The bank's shares outstanding will increase by about 10.4 percent from 4.69 billion shares of common stock outstanding as of Oct. 30. Wells Fargo's shares rose 17 cents to close at $25.66 on Tuesday.

"We are very pleased with the positive reception for this equity offering, and we appreciate the confidence investors have demonstrated in Wells Fargo's strength and future prospects," Chief Financial Officer Howard Atkins said in a prepared statement.

Wells Fargo was the last of the initial eight big banks that received TARP money to announce it would repay the government. The San Francisco-based bank's announcement on Monday came just hours after Citigroup Inc. said it would repay $20 billion in TARP money and the government would sell its nearly 34-percent stake in the bank.

By repaying TARP, Wells Fargo escapes restrictions like caps on executive compensation and dividends. It will also save the bank $1.25 billion annually in interest payments it had to pay the government for the money.

Aside from the stock sale, Wells Fargo also is issuing $1.35 billion in stock to employees instead of giving them cash bonuses. The TARP compensation restrictions affected the size of cash salary and bonuses banks could award their executives.

The size of the stock offering means Wells Fargo will no longer need to raise $1.5 billion through asset sales by the end of 2010, the bank said.

Separately Tuesday, Wells Fargo said it will pay $4.5 billion in cash for Prudential Financial Inc.'s stake in the companies' retail brokerage joint venture, which includes Wells Fargo Advisors LLC. Wells Fargo will buy the noncontrolling stake by Dec. 31.

"Wells Fargo considered the cost of Prudential's put in the assumptions for the Wachovia merger and we are pleased to take this next step pursuant to the agreement between Wachovia and Prudential," Wells Fargo Chief Financial Officer Howard Atkins said. Wells Fargo purchased Wachovia Corp. at the height of the financial market crisis last year.

Prudential Chairman and CEO John Strangfeld said in a statement that the deal will substantially enhance the company's capital position and financial flexibility going forward.

The purchase price is based on the value of Wells Fargo Advisors (then known as Wachovia Securities) at Jan. 1, 2008, prior to the contribution of the retail securities businesses of A.G. Edwards & Sons. Wells Fargo was advised by Greenhill & Co. LLC and Prudential was advised by Barclays Capital Inc. in determining the valuation.

Cobalt International Energy IPO prices below range

2009-12-16T05:01:00.002-08:00

DENVER (AP) -- Cobalt International Energy Inc. hoped investors would contribute more than $1 billion to its search for oil miles beneath the ocean even though it has no proven reserves and it expects no revenue for at least another two years.

But the Houston-based company fell short of its goal Tuesday evening, raising $850.5 million in its initial public offering as it priced 63 million shares at $13.50 each -- below the $15 to $17 range it had expected. Proceeds could reach $978.1 million if the offering's underwriters exercise an option to buy 9.45 million more shares.

Cobalt is a risky bet, say analysts who research IPOs.

Founded in 2005 by a group of private equity investors and longtime oil industry executives, including Chairman and CEO Joseph H. Bryant, whose resume includes stints at Unocal Corp., BP and Amoco, Cobalt has posted losses throughout its history and no one really knows where volatile oil prices will be in three years.

When the company strikes oil, it will take Cobalt additional time to get a well in production, analysts said.

"IPO buyers are looking for financials that are tangible, a revenue stream that's visible and profits. They're not looking for concepts right now," said Scott Sweet, senior managing partner of IPOBoutique in Tampa, Fla., comparing Cobalt to an early-stage biotech firm that still needs to go through four phases of testing to get federal approval.

In 2008, the company had a loss of $71.6 million, compared with a loss of $108.9 million the previous year. The company has lost $322.1 million since its inception.

It is unusual for an oil and gas company to go to the public markets without reserves in place or production under way, said research analyst Nick Einhorn of Renaissance Capital based in Greenwich, Conn.

"There's a lot of risks but I think for an investor who kind of believes in this deepwater opportunity, it is a good way to get 100 percent exposure to that," he said.

Cobalt has developed a proprietary method for exploration that involves analyzing geophysical information, including seismic data. It has purchased leases in the Gulf of Mexico, and off the coast of Angola and Gabon, regions where many major oil companies operate.

It has invested about $1 billion and expects to spend $1.4 billion over the next two years on exploration, Einhorn said.

Cobalt is reaching out to the public markets as the oil industry is recovering from the recession. Oil prices have hovered in the $70 range since early October, up from a low of $32.70 per barrel in January. But supplies have remained high and demand has diminished.

The company aims to raise money to finance drilling and exploration through 2011, capital spending and for general corporate purposes.

Cobalt shares will begin trading under the symbol "CIE" on the New York Stock Exchange on Wednesday.

No real consensus on bank overhaul

2009-12-16T05:01:00.001-08:00

WASHINGTON (AP) -- After meeting with bank executives, President Barack Obama noted "a big gap" between the CEOs and their lobbyists on his campaign to rewrite the rules governing the financial industry. The CEOs "support reform," Obama said, but their lobbyists have been sending a different message.

Appearing separately after the meeting, the bankers seemed to agree. "We're going to do a better job ... to work with the lobbyists" to address that disconnect, US Bancorp CEO Richard Davis said.

But the "gap" Obama said he discovered is an illusion. The bankers not only are well aware of their lobbyists' efforts, they direct them. They have supported parts of Obama's financial agenda since long before the financial crisis, when they proposed the same measures.

In striking the appearance of agreement, both sides glossed over a dispute on one key proposal: the creation of a new agency to protect consumers from bank abuses. The proposed agency would have rule-writing authority and onsite examiners.

That proposal is the core of Obama's proposed changes, and U.S. banks and their representatives oppose it unanimously. Monday's meeting didn't change that.

"The bankers (in the meeting) said they support consumer protection, but there's no reason as far as I can tell to believe they support" the new consumer protection agency, said Ed Yingling, president of the American Bankers Association.

That bankers support many other items on Obama's agenda should come as no surprise. Many of the president's key provisions track closely with a 2007 report overseen by the CEO of JPMorgan Chase & Co. and the chairman of Wells Fargo & Co., and released by the Financial Services Roundtable, which represents the 100 largest financial firms.

Roundtable lobbyist Scott Talbott said his group supported much of Obama's plan before it was announced. But he said his group and other industry groups have been consistent in opposing the proposed consumer agency.

By suggesting the opposition comes from lobbyists rather than bankers, Obama could be giving his White House guests room to soften their position. It's also a populist tactic that takes aim at a group he has often vilified -- those who play Washington's lucrative influence game.

He also may be attempting to neutralize the U.S. Chamber of Commerce, which has spent millions of dollars on a high-profile campaign to defeat the proposed consumer agency. The Chamber already won key concessions in the version of the bill that passed the House this month.

Obama's own poll numbers have been sagging, and he has little to lose from tapping the vast reservoir of public anger at banks. On Sunday night, the day before meeting with them, he was on TV calling bankers "fat cats" who "don't get it."

Monday's meeting let Obama sharpen his get-tough message, then claim to have discovered common ground.

He criticized the banks' lavish executive pay practices -- even though they have made progress in tying compensation to long-term performance. He pressed them to lend more money to consumers and businesses -- then acknowledged banks are hamstrung by the rough economy and regulators are cracking down on risky lending.

Asked about the supposed gap between bank CEOs and their lobbyists, White House spokeswoman Jennifer Psaki said, "We expect the CEOs to say the same thing in public and in private to members of Congress that they said to the president in person yesterday."

And that gap Obama discovered between the bankers' support for the rules rewrite and their lobbyists' rhetoric? Davis, the bank CEO who promised to close the gap between CEOs and lobbyists, is the incoming chairman of the Financial Services Roundtable. The Roundtable has been among the proposed consumer agency's most strident opponents, saying it "would actually harm consumers."

Davis spent the hours after Monday's White House meeting at the Roundtable's offices. The lines of communication between bank executives and their lobbyists remain open.

Aside from the rhetoric, there's no evidence they ever were closed.

Boeing's 787 jetliner finally takes to the air

2009-12-16T05:00:00.001-08:00

EVERETT, Wash. (AP) -- The first flight of Boeing's new 787 jetliner brought no surprises -- exactly what pilots, engineers and company officials had anxiously sought for the long-delayed aircraft.

"The airplane responded just as we expected," Randy Neville, one of the two pilots, said after touchdown Tuesday at Seattle's Boeing Field. "It was a joy to fly."

Boeing has billions of dollars and its reputation riding on the sleek, blue-and-white aircraft that lifted off from Everett's Paine Field on a flight over western Washington, beginning the extensive flight testing program needed to obtain Federal Aviation Administration certification.

The widebody jet, the first commercial airplane made mostly of lightweight composite materials, is more than two years behind schedule because of parts problems and labor trouble. Chicago-based Boeing was determined the plane would fly before the end of the year to prove the program was back on track.

Neville and chief pilot Mike Carricker performed a variety of basic system checks, including testing the landing gear and the flaps, before landing about three hours later. Deteriorating but typical Northwest winter weather -- rain, cold and wind -- brought the plane back about an hour earlier than planned.

Before takeoff, the 186-foot-long aircraft paused for several minutes at the end of the runway for final checks, adding to the tension for Boeing employees, customers and airline executives standing on the tarmac. Loud cheers and applause built as the plane started its takeoff roll and took to the sky, its two huge engines kicking up clouds of mist.

"It's very historical. I can't think of a thing about it that I'm not impressed with," said Joe Bierce, a flight instructor for Delta Connection in Jacksonville, Fla., who was among the 25,000 people who gathered to watch the takeoff.

The 787 is a radical departure in aircraft design. Where other passenger jets are made mostly from aluminum and titanium, nearly all of the 787's fuselage and wings are made of lightweight composite materials such as carbon fiber, accounting for about 50 percent of the aircraft by weight.

Those materials have long been used on individual parts such as rudders, and on military planes, but the 787 is the most ambitious use of the technology aboard a passenger plane.

Boeing says the aircraft will be quieter, produce lower emissions and use 20 percent less fuel than comparable planes, while giving passengers a more comfortable cabin with better air quality and larger windows.

Officials cut the flight a little short after rain reduced visibility at Boeing Field and the aircraft ran into poor weather off the Washington coast.

Carriker said there was a "very, very aggressive plan" for tests on the initial flight and that he and Neville were able to accomplish about half those goals. The weather prevented them from flying the long straight stretches they expected, he said, but did allow them to test the plane in turbulence and icing, things not normally encountered on a first flight.

"There were no major issues with the plane, which considering the complexity is a huge statement," he said.

The plane is the first of six 787s Boeing will use in the nine-month flight-test program that will subject the aircraft to conditions well beyond those found in normal airline service, including temperature extremes, flying on one engine and slamming on the brakes at takeoff speed.

Boeing, which has orders for 840 of the jets, plans to make the first delivery to Japan's All Nippon Airways late next year. The 787 remains Boeing's best-selling new plane to date, though some airlines have been forced to cancel or postpone purchases because of the weak economy.

For the first time, Boeing has relied on suppliers around the globe to build nearly all components of the plane, which are then assembled in Everett. But that approach has proved problematic, with ill-fitting parts and other glitches hampering production.

The first flight was supposed to be in 2007, with deliveries the following year. Boeing was forced to push that back five times -- delays that have cost the company credibility, sales and billions of dollars.

Most recently, Boeing needed to reinforce the area where the wings join the fuselage. Tests were completed on that fix just two weeks ago.

An eight-week strike last year by Seattle-area production workers also caused problems and factored into Boeing's decision in October to create a second 787 assembly line in North Charleston, S.C.

Scott Fancher, vice president and general manager of the 787 program, said he believes both the 200-day flight test program and efforts to ramp up 787 production will go as planned. The next test flight for the first 787 is expected in about a week, Carriker said.

The version being tested will be able to fly up to 250 passengers about 9,000 miles. A stretch version will be capable of carrying 290 passengers and a short-range model up to 330.

Boeing rival Airbus has developed the A350 XWB as the main competitor to the 787 line. Like Boeing's jetliner, the Airbus plane also features composite materials, including in the fuselage and wings.

Airbus says it had received 505 orders for the A350 from 32 customers as of November. The European company is aiming to deliver the first plane in 2013.

Tuesday's flight "was very mundane on takeoff and very mundane on the landing, and that's exactly what you want on the first flight of an experimental airplane," said analyst Scott Hamilton of Leeham Co., an aviation consulting firm in Issaquah, east of Seattle. "Boring is good in aviation."

But the significance, he said, lies in the 787's cutting-edge design and the way it's being manufactured.

"All of this is going to set the stage for all Boeing planes in the future," Hamilton said. "It's a very important milestone in the history of the company."

Associated Press Writer Manuel Valdes contributed to this report from Seattle.

Boeing 787 First Flight Web site, including link to flight Webcast: http://787firstflight.newairplane.com

CarMax reports 3Q results Friday

2009-12-16T04:58:00.000-08:00

RICHMOND, Va. (AP) -- Car dealership chain CarMax Inc. is scheduled to report earnings for its fiscal third quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The company based in Richmond, Va., said in September that its profit surged more than six-fold to $103 million for its second quarter ended Aug. 31 on a 13 percent rise in sales and a one-time gain related to its auto financing business.

The company predominantly sells used vehicles. While used cars didn't qualify under the federal Cash for Clunkers program that gave rebates for junking older cars and buying more fuel-efficient vehicles, CEO Tom Folliard said the program resulted in a spike in traffic in late July and August. But analysts said some of the sales volume was pulled forward and could likely hurt third-quarter results.

Folliard said he was encouraged by the company's sales execution, solid gross profit and an improved performance from its financing arm. He also said the Clunkers program had a positive effect on improving consumer mindset about the auto industry.

CarMax, which operates 100 stores, also has been focused on eliminating waste and improving execution to weather the weak automotive market and better position it for future growth. For the first half of the year, the company has lowered its expenses by 9.4 percent, or $43.8 million, compared with the year-ago period.

Last year, CarMax said it swung to a $21.9 million loss in the third quarter due to slumping sales and store traffic, and loan loss write-downs in its auto finance arm. Sales fell 23 percent to $1.46 billion in the quarter.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters, on average, expect a third-quarter profit of 15 cents per share on $1.65 billion in revenue.

ANALYST TAKE: Following its second-quarter results, Goldman Sachs analyst Matthew J. Fassler upgraded shares of CarMax, citing increasingly easy credit plus robust margins.

"Through a stellar August quarter, CarMax, virtually uniquely among cyclical retailers, is running margins above 'normal' levels," he wrote in a client note.

He cited strong selling prices that reflect a shortage of trade-ins. He said the company's strong cost controls will keep boosting profits.

William Blair analyst Sharon Zackfia said increasingly easy monthly sales comparisons to year-earlier figures also should also help the stock.

WHAT'S AHEAD: Wall Street will be looking to see when CarMax will resume its long-term plan of growing its store base at annual rate of about 15 percent. Over the past year, the company has curtailed its store growth in response to the weak ecconomic environment.

STOCK PERFORMANCE: During the quarter ended Nov. 30, shares of CarMax rose about 18 percent to end the period at $19.88. Over the past 52 weeks, the stock has traded between $6.92 and $23.07.

EU drops Microsoft browser charges

2009-12-16T04:44:00.000-08:00

BRUSSELS (AP) -- The European Union said Wednesday it is dropping antitrust charges against Microsoft Corp. after the company agreed to give Windows users a choice of up to 12 other Web browsers.

Under the terms of the deal with regulators, Microsoft will avoid further EU fines if it provides a pop-up screen that lets European users -- from March -- replace Microsoft's Internet Explorer or add another browser such as Mozilla's Firefox or Google's Chrome.

This will also allow computer manufacturers to ship PCs without Internet Explorer in Europe.

Neelie Kroes, the EU's competition commissioner, said it was an "early Christmas present for more than hundreds of millions of Europeans" who stood to benefit from having "effective and unbiased choice" between Microsoft's Internet Explorer and competing browsers.

"The (European) Commission has resolved a serious competition concern for a key market for the development of the Internet," she told reporters.

"It is as if you went to the supermarket and they only offered you one brand of shampoo on the shelf, and all the other choices are hidden out the back, and not everyone knows about them," she said. "What we are saying today is that all the brands should be on the shelf."

Microsoft general counsel Brad Smith said the company was pleased with "final resolution of several long-standing competition law issues in Europe" and looked forward to building "on the dialogue and trust that has been established between Microsoft and the Commission."

Microsoft is not out of the woods yet though, as it was warned it can still be fined up to 10 percent of yearly global turnover without regulators having to prove their case if it doesn't stick to this commitment for the next five years.

The deal comes after more than a decade of EU antitrust action against the world's biggest software company that has already seen it pay euro1.7 billion in fines.

Kroes also warned that she was still looking at complaints from software rivals that the company wasn't sharing key information that help others make products compatible with Microsoft software.

In January, the EU charged Microsoft with monopoly abuse for tying its browser, Internet Explorer to the Windows operating system software used on most desktop computers -- this, they said, was an "artificial distribution advantage" that rivals didn't have.

Kroes said since Internet Explorer was present "on virtually every PC in Europe," a lot of Internet content was specially adapted to Internet Explorer. Other software makers complain that this caused technical problems that made it hard to use other browsers.

The EU said Monday that a pop-up choice screen would eliminate those concerns when it is downloaded as an automatic update to all users of Windows XP, Windows Vista and Windows 7 in Europe who have Internet Explorer set as their default browser. Other users will be asked if they want it.

The choice screen will list the 12 most-widely used Web browsers running on Windows -- listing five prominently. Users can pick and download one or several of them, choosing from Apple's Safari, Chrome, Internet Explorer, Firefox, Opera, AOL, Maxthon, K-Meleon, Flock, Avant Browser, Sleipnir and Slim Browser.

Some 100 million computers will likely display the screen by mid-March and around 30 million new computers will show it over the next five years, the EU said.

People can keep Internet Explorer if they want -- but they will for the first time be exposed to other browsers, providing a massive new audience to many smaller browser makers.

The choice of browsers will be updated every six months on the basis of several independent sources of market share information.

Microsoft will report back regularly to the European Commission, starting in six month's time, on how the rollout of the screen is going -- and could make changes if the EU asks. The EU is also able to review the entire deal at the end of 2011.

Microsoft will also provide more information to help software developers make products compatible with Windows, Windows Server, Office, Exchange and SharePoint and will publish what the EU says is an "improved version" of an offer that Microsoft first made in July.

The EU says it is still investigating whether Microsoft is holding back some of the key data that developers need to make products that work with its software.

Regulators said they welcomed Microsoft's move but that the offer was still "informal" and wouldn't end their probe. But they offered some hope saying they would "carefully monitor the impact" of the deal on the market.

Thomas Vinje, a lawyer for browser company Opera and the European Committee for Interoperable Systems, said it was "not yet clear" that Microsoft's offer would create "a more level competitive playing field where open source software is not subject to Microsoft patent fear uncertainty and doubt."

Vinje helped file the complaints to EU regulators that triggered the investigations into Microsoft's browsers and interoperability sharing.

Bank Fees

2009-10-13T17:27:00.000-07:00

Banks are cutting overdraft fees, but there are other hidden charges.

In the wake of the uproar over bank fees charged to debit card holders--and the looming threat of congressional action--banking giants Bank of America, JPMorgan Chase, and Wells Fargo have announced drastic changes to their overdraft policies.

What banking customers might be missing is that debit card overdraft fees are the tip of the iceberg. Banks nickel and dime their customers in numerous other ways that can easily cost the average person $100 or more per year. Adding insult, many of the fees are poorly disclosed and levied regardless of any action the customer does--or doesn't--take.

"There is a long list of fees that people pay that doesn't require any type of acknowledgment on the part of the consumer," said Greg McBride, a senior financial analyst at Bankrate.com. Here are five major areas of hidden bank revenues.

Balance Transfer Fees

Cash Advances

Consumers who take cash advances from their credit cards will also be hit with a transaction fee that they might not have been expecting. As with balance transfers, cash advances often come with a fee that ranges between 3% and 5%. That's not all.

"If cash advances weren't costly enough with interest rates in the high teens, there's no grace period, and the interest clock starts ticking right away," McBride said.

Foreign Currency Surcharges

Using a debit or credit card while traveling overseas is wonderfully convenient. Perhaps too convenient. Over the past few years, banks have commonly started charging a 3% fee for any purchases made in foreign currencies. That means if you go to Paris on vacation and buy presents in euros, the charges will show up on your statement in dollars--with the 3% fees built in.

If you plan to use a debit or credit card abroad, consider opening an account with Capital One or Charles Schwab, whose foreign currency exchange fees run as low as 1%. If you are going to be taking money out of an ATM in another country (another place where banks ring up additional charges), Wells Fargo and PNC offer some of the lowest fees.

Balance Requirements

Many banks offer to waive monthly service fees on checking or savings accounts if customers maintain a collective balance above a set minimum. Dip below it, and you could be hit with a charge of $8 or more every time your balance falls below the minimum.

"These requirements are really a lose-lose proposition," McBride says. "If you don't maintain the balance, you get socked with a fee. If you do maintain it, you have the opportunity costs of stranding money in a low-yielding account when you could be earning a more competitive return in an online savings account."

ATM Fees

Bank of America and other banks now charge customers from other banks $3 to withdraw money from its ATMs. But at least you have to agree to pay the fee at the terminal. What some customers may not realize that is that their own bank often levies a $2 fee every time they use a competitor's ATM as well. Adding up all the bank fees, it may cost $5 to take out $20 of your own money. That's a 25% commission, and the bank didn't have to do a thing.

Banks commonly mail out ads pitching low interest rates for customers willing to transfer credit card balances from another institution. What many don't advertise is that there is often a balance transfer fee of between 3% and 5% hidden in the fine print.

"If you're transferring a balance from a card with a rate of 15% to a card with a rate or 13%, but you're paying a 3% admission fee, you're not saving any money," McBride said. Moving a balance of $5,000 from one credit card to another with a slightly lower interest rate could result in a $150 charge being added to the balance that you owe and pay interest on.

If you're thinking about switching to a card with a lower interest rate, ask the bank what type of transfer fees it charges. These fees are separate from the annual interest rate that you pay.

Digital Realty Trust, Inc. Schedules 3rd Quarter 2009 Earnings Release

2009-09-11T06:14:00.001-07:00

SAN FRANCISCO, Sept. 11 /PRNewswire-FirstCall/ -- Digital Realty Trust (NYSE: DLR - News) today announced that it will hold a conference call on Thursday, October 29, 2009 at 1:00 pm ET/10:00 am PT to discuss its third quarter 2009 financial results and operating performance. The conference call will feature Chief Executive Officer, Michael Foust and Chief Financial Officer and Chief Investment Officer, A. William Stein. The Company will release its financial results for the third quarter 2009 before the market opens on Thursday, October 29, 2009.

To participate in the live call, investors are invited to dial +1 (877) 941-8609 (for domestic callers) or +1 (480) 629-9818 (for international callers) and quote the conference ID #4159375 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of Digital Realty Trust's website atwww.digitalrealtytrust.com. Please go to the website at least 15 minutes early to register and download and install any necessary audio software. If you are unable to listen to the live conference call, a telephone and webcast replay will be available after 12:00 pm PT on Thursday, October 29, 2009 until 11:59 pm PT on Wednesday, November 4, 2009. The telephone replay can be accessed by dialing 800-406-7325 (for domestic callers) or 303-590-3030 (for international callers) and using the access code #4159375. A replay of the webcast will also be archived on Digital Realty Trust's website.

About Digital Realty Trust, Inc.

Digital Realty Trust, Inc. owns, acquires, redevelops, develops and manages technology-related real estate. The Company is focused on providing Turn-Key Datacenter(SM) and Powered Base Building(SM) datacenter solutions for domestic and international tenants across a variety of industry verticals ranging from information technology and internet enterprises, to manufacturing and financial services. Digital Realty Trust's 75 properties, excluding one property held as an investment in an unconsolidated joint venture, contain applications and operations critical to the day-to-day operations of technology industry tenants and corporate enterprise datacenter tenants. Comprising approximately 13.0 million rentable square feet as of July 30, 2009, including 1.1 million square feet of space held for redevelopment, Digital Realty Trust's portfolio is located in 27 markets throughout North America and Europe. For additional information, please visit Digital Realty Trust's website at http://www.digitalrealtytrust.com.

Brady Corporation Reports Earnings for Fiscal 2009

2009-09-11T06:13:00.001-07:00

MILWAUKEE--(BUSINESS WIRE)--Brady Corporation (NYSE:BRC - News) today reported results for its fiscal 2009 fourth quarter and fiscal year ended July 31, 2009.

Sales in the fiscal 2009 fourth quarter were $287.2 million compared to $396.8 million in the fourth quarter of fiscal 2008. Organic sales declined 23 percent, acquisition growth was flat, and foreign currency translation reduced sales by 5 percent. Regionally, organic sales were down 25 percent in Europe, 24 percent in the Americas, and 15 percent in Asia/Pacific.

Net income for the fiscal 2009 fourth quarter was $19.2 million or $0.37 per diluted Class A Common share, compared to $34.8 million or $0.64 per share in the fourth quarter of fiscal 2008. Results included after tax restructuring charges of $3.4 million in the quarter or $0.06 per share.

Brady’s fiscal 2009 net sales were $1.209 billion compared to $1.523 billion in sales in fiscal 2008. Organic sales were down 16 percent, acquisitions added 1 percent to sales results, and foreign currency translation reduced sales by 5 percent. Net income for fiscal 2009, including after-tax restructuring charges of $20.2 million or $0.38 per share, was $70.1 million or $1.33 per share compared to $132.2 million or $2.41 per share in fiscal 2008.

“After a strong first quarter, the global economic downturn caused a 27 percent drop in our sales over the balance of the year. Despite this, we earned $90 million in net income excluding restructuring charges and generated $127 million in cash flow from operations,” said Brady President and CEO Frank M. Jaehnert. “Beginning in the second quarter, we took quick and aggressive actions to adjust our cost structure, including a significant workforce reduction. We also continued to invest in our future and position the company for growth going forward by focusing on new product development, acquisition strategy, e-business opportunities and productivity improvement initiatives like the Brady Business Performance System (BBPS). We believe that these strategic investments along with our reduced cost structure position us well for the current economic climate as well as for future economic recovery.”

“We expect that the challenges of the global recession will continue into the first half of fiscal 2010. As a result, we expect current fiscal year net income to be between $85 and $95 million and earnings per diluted share of between $1.60 and $1.80. This guidance is based on current exchange rates and a constant tax rate. It also assumes that sales will continue at or near current levels through the first half of our fiscal year, followed by modest growth in the second half of the year,” said Brady Chief Financial Officer Thomas J. Felmer. “Our guidance excludes additional expected pretax restructuring charges of approximately $15 million or $0.20 per share, which would result in annualized pretax savings of approximately $15 million, of which $10 million are expected to be realized in fiscal 2010.

“While most of the cost reductions we made in fiscal 2009 are permanent, we expect up to $40 million of fiscal 2009 pretax savings to be non-recurring and will impact fiscal 2010 starting in the first quarter. We also expect capital expenditures in fiscal 2010 of approximately $25 million, with depreciation and amortization consistent with fiscal 2009 levels.”

A Webcast regarding fiscal 2009 results will be available at www.investor.bradycorp.com beginning at 9:30 a.m. Central Daylight Time today.

Brady Corporation is an international manufacturer and marketer of complete solutions that identify and protect premises, products and people. Its products include high-performance labels and signs, safety devices, printing systems and software, and precision die-cut materials. Founded in 1914, the company has more than 500,000 customers in electronics, telecommunications, manufacturing, electrical, construction, education, medical and a variety of other industries. Brady is headquartered in Milwaukee and employs approximately 7,000 people at operations in the Americas, Europe and Asia/Pacific. More information is available on the Internet at www.bradycorp.com.

Brady believes that certain statements in this news release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements related to future, not past, events included in this news release, including, without limitation, statements regarding Brady's future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations are forward-looking statements. When used in this news release, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions and other factors, some of which are beyond Brady's control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from the length or severity of the current worldwide economic downturn or timing or strength of a subsequent recovery; future financial performance of major markets Brady serves, which include, without limitation, telecommunications, manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, transportation; difficulties in making and integrating acquisitions; risks associated with newly acquired businesses; Brady's ability to retain significant contracts and customers; future competition; Brady's ability to develop and successfully market new products; changes in the supply of, or price for, parts and components; increased price pressure from suppliers and customers; interruptions to sources of supply; environmental, health and safety compliance costs and liabilities; Brady's ability to realize cost savings from operating initiatives; Brady's ability to attract and retain key talent; difficulties associated with exports; risks associated with international operations; fluctuations in currency rates versus the US dollar; technology changes; potential write-offs of Brady's substantial intangible assets;Brady’s ability to maintain its debt covenants; unforeseen tax consequences; risks associated with obtaining governmental approvals and maintaining regulatory compliance for new and existing products; business interruptions due to implementing business systems; and numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature contained from time to time in Brady's U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the "Risk Factors" section located in Item 1A of Part I of Brady's Annual Report on Form 10-K for the period ended July 31, 2008, as updated by subsequently filed reports. These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements.

Campbell Soup profit falls 22 percent

2009-09-11T06:12:00.001-07:00

CAMDEN, N.J. (AP) -- The Campbell Soup Co. says its fourth-quarter profit declined 22 percent. But excluding one-time items, profit was up 11 percent.

The company says its profit was hurt by the exchange rate and helped by higher retail prices.

The company reported Friday that it earned $69 million, or 20 cents per share, for the three months ended Aug. 2. That's down from $89 million, or 24 cents per share, in the same period a year ago.

Excluding one-time items such as commodity hedging and a charge related to European trademarks, profit was $107 million, or 30 cents a share. Analysts expected 26 cents per share.

Sales for the quarter were $1.53 billion, down from $1.7 billion in the year-ago period.

FedEx First Quarter Earnings to Exceed Guidance

2009-09-11T06:07:00.000-07:00

MEMPHIS, Tenn.--(BUSINESS WIRE)--FedEx Corporation (NYSE: FDX - News) today announced that it expects to report earnings of $0.58 per diluted share for the first quarter ended August 31, down 53% from $1.23 per diluted share a year ago. The company’s guidance for the quarter was $0.30 to $0.45 per diluted share.

Symbol	Price	Change
FDX	72.66	0.00

FedEx expects earnings to be $0.65 to $0.95 per diluted share in the second quarter, which reflects the current outlook for fuel prices and a continued modest recovery in the global economy. A substantial decline is expected from $1.58 per diluted share a year ago, as the company significantly benefited from rapidly declining fuel prices and the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust.

“FedEx first quarter financial performance exceeded our guidance thanks to better-than-expected FedEx International Priority^®volume, strict cost management and solid execution of our strategy,” said Alan B. Graf, Jr., FedEx Corp. chief financial officer. “Despite some encouraging signs in the global economy, it is difficult to predict the timing and pace of any economic recovery. Revenue per shipment declined year over year in each of our transportation segments, as fuel surcharges declined significantly and we continue to face a very competitive pricing environment combined with significant overcapacity in the LTL freight market.”

FedEx will release the details of its first quarter earnings on September 17, 2009.

Corporate Overview

FedEx Corp. (NYSE: FDX - News) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $35 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 280,000 team members to remain "absolutely, positively" focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit news.fedex.com.

Certain statements in this press release may be considered forward-looking statements, such as statements relating to management's views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, legal challenges or changes related to FedEx Ground’s owner-operators, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage acquired businesses, changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.'s and its subsidiaries' press releases and filings with the SEC.

Ex-Ireland envoy, EMC chairman Egan dies in Boston

2009-08-29T04:23:00.000-07:00

Richard Egan, former ambassador to Ireland, EMC data storage firm co-founder, dies in Boston

BOSTON (AP) -- Richard Egan, who rose from street kid to the U.S. ambassador to Ireland after making millions of dollars founding data storage giant EMC Corp., died Friday after a battle with lung cancer.

Symbol	Price	Change
EMC	16.13	+0.09

His family issued a statement Friday night saying the longtime suburban Hopkinton resident died at his Boston home after being diagnosed with Stage IV lung cancer in May. The family said he also suffered from emphysema, diabetes and high blood pressure.

"This is a great loss for our family, and we are terribly saddened," the family said in a statement announcing his death.

Egan, 73, was an electrical engineer and a former U.S. Marine Corps helicopter pilot who worked at Lockheed Martin, Honeywell and Intel before he co-founded data storage technology provider EMC in 1979. He sold most of his shares in the tech boom, shortly before the bubble burst.

The self-made billionaire, who raised seed money for his business by selling office furniture, was a key fundraiser for the Republican party and former President George W. Bush, becoming a Pioneer fundraiser for the president in 2000.

He stepped down as EMC chairman in January 2001, about three months before Bush nominated him to be the U.S. ambassador to Ireland.

Former Gov. Paul Cellucci mourned Egan late Friday, describing him as a good friend who served his country with honor and distinction as ambassador.

"More importantly, he was one of the finest and most entrepreneurial business leaders our state has seen for some time, creating tens of thousands of jobs and helping lead the commonwealth's economic recovery in the mid-1990s," the Republican said. "Dick was a good friend to me, and I will always appreciate his support and miss him."

EMC's President, CEO and Chairman Joe Tucci lamented the death of his mentor and friend.

"The world lost a great man and a great leader today. On behalf of more than 40,000 EMC employees from around the world, we extend our deepest condolences to Mrs. Egan and the entire family," Tucci said. "His legacy will live on through the tens of thousands of lives he affected in so many positive ways."

Egan got a bachelor of arts in science degree from Northeastern University and a master of science degree from the Massachusetts Institute of Technology. He was part of the MIT team that developed the Apollo Guidance Computer, which provided reliable real-time control for the Apollo spacecraft that carried U.S. astronauts to the moon.

Egan never forgot his hardscrabble roots and was a major donor to Northeastern University, where a research center is named in his honor.

Egan leaves behind a wife and five children.

The family did not announce funeral plans.

For Stocks, September May Be the Cruelest Month

2009-08-16T00:13:00.000-07:00

September is fewer than three weeks away. Feeling nervous? Maybe you should be. For investors, the period between Labor Day and Halloween is proving an annual fright show. And no one knows why.

It was, of course, in September last year that Lehman collapsed and everything fell apart. But then it was also September-October 2002 that the last bear market plunged to its lows.

The 1998 financial crisis? It began late August, and rolled on for two months.

The famous crash of 1987 came in October. But most people have forgotten that the market actually started sliding downhill in late August.

That's almost exactly what happened in 1929 too. The big crash came in October, but the market peaked just after Labor Day. Prices began falling through September, then tumbled further still.

The worst month of the Depression? September, 1931, when the Dow fell about 30 percent.

It was also in September, 2000, that the bear market really got going.

The 9/11 crisis, of course, came in September. That was hardly caused by investors. But what is forgotten is that the stock market was already looking wobbly. In the two weeks before the terrorist attacks, the Standard & Poor's 500-stock index fell 7 percent.

The great panic of 1907? October. The great crash of 1873? September.

Yikes.

So is there really a September, or a Halloween, effect?

Since 1926, investors have lost nearly one percent on average during September, according to market data tracked by finance professor Kenneth French at Dartmouth's Tuck School of Business. It's the only month with a negative average return.. For each of the other 11 months, investors gained nearly one percent on average.

Other research takes the idea of an autumn dip even further. Georgia Tech doctoral student Hyung-Suk Choi studied the so-called "September effect" as part of his recent Ph.D. thesis. He looked at data for 18 developed stock markets around the world spanning up to 200 years, and found that in 15 of those markets, September brought red ink for investors.

Fund manager Sven Bouman and finance professor Ben Jacobsen concluded that investors in most world markets have historically fared poorly from May through October each year. They made their money between November and April.

Hence the old British investors' saying, "sell in May and go away, don't come back till St Leger Day." (But since St. Leger Day is in the middle of September, even that date may be premature.)

Some of the September or Halloween effect is caused by a few really bad years. But that's not the whole story. To reduce the influence of outliers I looked instead at the median result since 1926 instead of the statistical mean. The performance gap between September and the other months shrank from 2 percent to 1.4 percent. That's smaller, but it's still a difference. The median September saw losses of just 0.07 percent. But the median month for the rest of the year gained 1.37 percent.

As for the causes of a possible September effect, most are stumped.

"There haven't been any good academic stories to explain it," admits Michael Cooper, finance professor at the University of Utah's David Eccles School of Business. "One credible explanation is just luck."

It's been suggested that mutual funds drive down the market by selling their losing stocks before their October 31 year end. Or that third quarter profit warnings come in early September, raising fears about full-year results. Or that these autumn crashes used to be related to the harvest, as Midwestern banks withdrew capital from New York.

(Still another theory cites seasonal affective disorder. Investors simply get more risk-averse, and more prone to sell, as the days get shorter. That's the case argued by York University finance professor Mark Kamstra and others.

So what, if anything, should you do?

In practical terms, maybe not that much. For most people, even a performance difference of one or two percentage points isn't going to cover the transaction costs of selling before the end of August and re-entering the market a month later. And stock market patterns aren't ironclad. The market may even jump in September, as it did in 2006 and 2007.

Perhaps the best you can do is brace for turmoil.

Stocks drop as investors worry about consumers

2009-08-16T00:09:00.000-07:00

Stocks retreat after 2 days of gains as investors worry consumers will hurt economy's recovery

NEW YORK (AP) -- The fear on Wall Street is that nervous consumers are going to short-circuit the economic recovery.

Stocks fell sharply Friday, taking the major indexes down about 1 percent, after investors were disappointed by reports that the Reuters/University of Michigan index of consumer sentiment fell significantly short of expectations for the first part of August. That's a sign consumers may well keep cutting back their spending as they worry about losing their jobs. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.

The discouraging reading came a day after the Commerce Department reported an unexpected decline in retail sales. Investors were able to shake that off, but Friday's consumer sentiment number had them bailing out of stocks, jeopardizing a summer rally that had lifted the Standard & Poor's 500 index more than 15 percent in about a month. Still, the indexes finished well off their lows of the day, a sign that the mood on Wall Street isn't all that grim, and light volume likely skewed price changes.

Investors also sold off oil and other commodities and moved their money into the relative safety of the dollar and government bonds. Treasury prices jumped, sending their yields lower, while the dollar rose against other major currencies.

After rallying for months on expectations of an economic recovery, investors are worried that they have been too optimistic, given consumers' continuing reluctance to spend. Analysts are predicting that the market may be rocky for some time.

"Valuations were beginning to price in a sunnier a future, but not all the data is sunny yet," said Lawrence Creatura, portfolio manager at Federated Clover Capital Advisors, referring to stock prices. "There is still going to be a tug of war between good news and bad news as we move through the coming months."

The Dow Jones industrial average fell 76.79, or 0.8 percent, to 9,321.40 after falling as much as 165 points after the consumer sentiment survey was released.

The S&P 500 index fell 8.64, or 0.9 percent, to 1,004.09, while the Nasdaq composite index fell 23.83, or 1.2 percent, to 1,985.52.

The drop erased much of the market's advance of the last two days, and gave the big indexes their first losing week after four weeks of gains. The Dow was down 0.5 percent for the week, while the S&P 500 index fell 0.6 percent and the Nasdaq was off 0.7 percent.

About five stocks fell for every two that rose Friday on the New York Stock Exchange, where consolidated volume came to a light 5 billion shares, down from 5.3 billion a day earlier. Light volume can exaggerate the market's movements.

In other trading, the Russell 2000 index of smaller companies fell 11.29, or 2 percent, to 563.90.

Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.57 percent from 3.62 percent late Thursday. The drop in the 10-year yield is good news for consumers because it is closely tied to interest rates on mortgages and other loans.

On the New York Mercantile Exchange, gold and other metals prices fell, while oil prices sank $3.01 to $67.51 a barrel.

Stocks have had a difficult few days, falling in the early part of the week amid anxiety over what the Federal Reserve would say about the economy at the end of a two-day policy meeting. The market turned higher on Wednesday after the Fed reassured investors with a more positive stance on the economy than in the past. The market's gains spilled over into Thursday.

"This week was a great example of what will likely occur for the rest of the year," said Greg Reynholds, a vice president at Lenox Advisors. "Day by day, week by week, month by month we're going to have to try to find direction through this data jungle."

Investors have sent markets higher this summer encouraged by improvements in housing, manufacturing and corporate profits. But without the support of the consumer, the economy's recovery is in question.

"I think you're going to need to see a material stabilization in labor markets before you get meaningful and stable consumer confidence," said Stephen Wood, chief market strategist at Russell Investments. "And we're certainly not adding jobs and we're not even at a point where jobs are no longer being lost."

Stocks fell across the board Friday, with the biggest losses among financial, energy and material companies -- industries that posted some of the biggest gains in recent days. Losses weren't as steep in more defensive areas like consumer staples and utilities, which tend to hold up better when the economy is weak.

In other economic news Friday, the Labor Department said the Consumer Price Index was flat in July after a slight increase in June. That had little effect on stocks but did help bond prices. Wall Street also shrugged off a report showing a bigger-than-expected increase in industrial production as investors have come to expect an improvement in manufacturing.

Overseas, Asian markets were mostly higher, with Japan's main index hitting a ten-month high amid mounting optimism about a global economic recovery. The Nikkei stock average rose 0.8 percent.

European markets gave up early gains and finished lower. Britain's FTSE 100 dropped 0.9 percent, Germany's DAX index fell 1.7 percent, and France's CAC-40 lost 0.8 percent.

The Dow Jones industrial average closed the week down 48.67, or 0.5 percent, at 9,321.40. The Standard & Poor's 500 index fell 6.39, or 0.6 percent, to 1,004.09. The Nasdaq composite index fell 14.73, or 0.7 percent, to 1,985.52.

The Russell 2000 index, which tracks the performance of small company stocks, fell 8.50, or 1.5 percent, for the week to 563.90.

The Dow Jones U.S. Total Stock Market Index -- which measures nearly all U.S.-based companies -- ended at 10,240.52, down 175.74, or 1.7 percent, for the week. A year ago, the index was at 13,271.88.

U.S. Employers Grow More Optimistic

2009-08-16T00:06:00.000-07:00

Major U.S. employers are growing more optimistic, with few planning additional layoffs and many planning to reverse course in coming months on cost-cutting initiatives such as salary freezes, according to a new survey. But recent cuts in health-care benefits may become permanent.

The survey of human-resource executives at 175 mostly midsize and large U.S. firms by consulting firm Watson Wyatt Worldwide Inc. found that 33% plan to unfreeze salaries within the next six months and 79% within the next year. In a similar June survey, only 17% of respondents planned to unfreeze salaries within six months. Roughly 60% of the companies responding to the new survey had frozen salaries.

Of the smaller group that cut salaries, 44% of respondents said they plan to restore those cuts in the next six months, and 66% in the next year. More than 70% of the employers with hiring freezes said they plan to resume hiring within the next year. Respondents said they plan to lay off fewer than 2% of their workers in the next year, down sharply from past surveys.

"This is further evidence that companies think the worst is behind them and they're starting to look forward again," says Laura Sejen, global practice director strategic awards at Watson Wyatt. "What we don't know is have they made firm commitments at the management level or have they communicated to employees they're going to unwind these programs. It could certainly change."

The survey, conducted online earlier this month, is in line with recent reports of slowing job losses. The U.S. Labor Department said Friday that employers eliminated 247,000 jobs in July, down from an average of 556,000 in the first six months of the year. The unemployment rate fell slightly to 9.4%, from 9.5%, though economists said that largely reflected a drop in the number of people looking for work.

The Watson Wyatt survey found employers will be slower to restore changes in benefit programs -- and many recent changes to health-care plans may become permanent. Roughly two-thirds of respondents that had increased employee health-care costs say they don't plan to reverse those increases. Forty-one percent of respondents increased deductibles, co-pays or out-of-pocket maximums, while 40% increased the percentage of premiums that employees pay. These changes are" looking more permanent," says Ms. Sejen.

The news for retirement programs was more mixed. Nearly half of respondents said they plan to restore cuts in company contributions to retirement programs in the next year, and 64% envision restoring those cuts within 18 months. Of those, 67% said they will restore contributions to their prior level, but 21% will vary contributions based on corporate profits.

Many employers see the recession as bottoming out, adds David Wise, a senior consultant at consulting firm Hay Group Inc. "Most companies want to go into fiscal 2010 with the layoffs and salary freezes behind them," he says. But he warns that companies will remain conservative. "The worst thing a company can do after tough times is loosen the reins before the horse is ready to run," he says.

Wall Street ready for pause in Fed rate cuts

2008-05-04T17:39:00.001-07:00

By Adam Shell, USA TODAY
NEW YORK — A pause in interest rate cuts by the nation's central bank could prove to be refreshing for the stock market.
Investors who once clamored for rate cuts to stabilize a slowing economy and financial system on the verge of a meltdown now are calling for a halt to the Federal Reserve's easing cycle. Wall Street is now of the mind that further cuts would do more harm than good.

The 3.25 percentage-point reduction in the fed funds rate to 2% since September has restored a sense of calm to markets.

But the cheap money has also eroded the value of the U.S. dollar and contributed to an alarming rise in the price of gasoline and food, putting pressure on cash-strapped consumers.

In a statement last week, the Fed hinted that its campaign to lower borrowing costs may be near an end, saying the "uncertainty about the inflation outlook remains high." But it's not just the hope that the Fed can control inflation that has Wall Street wanting an end to the rate-cutting program.

There is a financial motive, as well: Stocks have historically performed very well during "pause periods," when the Fed has stopped lowering interest rates, an analysis by Bespoke Investment Group found.

In the past 50 years, the benchmark Standard & Poor's 500-stock index has rallied 12.3%, on average, in the period from the last rate cut in an easing cycle to the first rate increase. (The S&P is up 2% since the Fed cut on Wednesday, and a total rise of 12.3% would put it just shy of a new high.) The average duration of the Fed's pause in those 12 interest rate cycles in that period was 329 days, or almost 11 months.

Stocks rise when the Fed starts to wean the market off cheap money, because the pause:

•Signals the outlook is brightening. If the Fed no longer sees the need to provide monetary stimulus, it suggests that it is confident the economy is on the comeback trail, says Paul Hickey, Bespoke's chief investment guru.

•Shows lag effect is kicking in. It usually takes six months to a year for the benefits of rate cuts to cycle their way through the economy. Hickey says that when the Fed pauses, it often coincides with signs that the cuts are working.

While those explanations have proved true in the past, circumstances surrounding the Fed's hoped-for pause now may suggest a different outcome for stocks, says Christopher Orndorff, managing principal at money management firm Payden & Rygel.

"Historically, stocks go up because the market assumes the Fed has done their job," says Orndorff. This time, a pause is expected, "not because things are rosy again in the economy, but because inflation is higher than they would like."

Orndorff says the Fed would be in a tough spot if the economy weakens more, because if it is forced to cut again, it could fan inflation. The Fed meets again on interest rates at the end of June.

Retailers bait shoppers with rebate specials

2008-05-04T17:38:00.000-07:00

NEW YORK (AP) — Retailers from Safeway to RadioShack Corp. are offering special discounts to lure consumers in and persuade them to spend some or all of their economic stimulus checks, the first wave of which were deposited into bank accounts this past week.
"It's going to be a real war in the stores starting this weekend" as retailers fight to get a piece of the checks, said Burt P. Flickinger III, managing director of Strategic Research Group, a consumer industry consulting firm.

The retailers are all hoping to persuade Americans, worn out by high gas and food prices and the weak housing market, to spend the money rather than save it or pay down debt. Polls have indicated that most recipients plan to use the rebates mainly to buy gas, food and other essentials that have become far more expensive in the past year if they spend the money at all.

That makes convincing shoppers to buy a new dress, flat-screen TV or living room sofa a much harder sell.

"I think the retailer recognizes that they've got to strike while the check is hot," said Marshal Cohen, chief retail analyst at research firm NPD Group. "I think if you're a retailer and you're not trying to entice the consumer, you might as well go back to bed."

The checks and payments are part of a $168 billion tax rebate plan passed by Congress to help spur the lagging economy. Under the plan, individuals who have filed their tax returns for the year can receive up to $600 and families can get up to $1,200, plus $300 per child. The rebates are expected to reach 130 million households. The direct deposit payments began on Monday and paper checks go out May 9.

With sales declining, some clothing and specialty retailers have been cutting prices for months. But this week, a few big names stepped up their efforts to try to turn the stimulus cash into extra sales. Wal-Mart Stores Inc., for example, announced price cuts on everything from cereal to shampoo on Tuesday to coincide with the first round of payments.

"The traffic is certainly busier these days in our stores," said Wal-Mart spokeswoman Melissa O'Brien, although she couldn't be certain the most recent price cuts were the source of the traffic increase. She declined to say whether sales had grown since Monday or whether the marked-down items saw significant gains in the past week.

Other retailers are waiting until the weekend to offer their best deals, since more shoppers will be out on their days off.

CVS Caremark Corp., for example, is offering its loyalty card customers $5 off on a $30 purchase. At Restoration Hardware, shoppers will get $100 off orders of $750 or more through Sunday. Circuit City Stores Inc. is offering an extra 15% off through Saturday.

Flickinger said merchants are already offering weekly promotions or sales timed to events like Mother's Day, but the weekend's sales are meant as an additional incentive to "get consumers who are getting the money to spend it right away in their stores."

He said competition may be most heated at grocery stores where food prices have skyrocketed in recent months due to higher commodity costs. Milk, for example, has jumped to over $4 a gallon.

Grocers including Supervalu Inc. and Kroger Co. are offering a 10% bonus when shoppers use their rebates to buy gift cards. For example, if a customer turns a $600 economic stimulus check into a gift card, the cards would be worth $660.

Safeway Inc. has announced its own plan to give a 10% discount on groceries to Club Card customers who cash their paper checks at the store. That program begins May 14.

Sears Holdings Corp. also is offering a 10% bonus to anyone who converts their check into a Sears or Kmart gift card. That deal also starts May 14.

Other retailers are mailing special discounts to their most loyal customers. Lowe's Cos. mailed an offer Wednesday to its most active shoppers offering $10 off their next $50 purchase or $25 off their next $200 purchase when they turn their checks into its "project starter" cards.

Whether this weekend's sales can convince spend-wary consumers to come back to stores is far from certain.

Bryan Kennedy, a 30-year-old resident of St. Paul, received his payment in his bank account Wednesday and plans to spend part of it on a new set of wheels for his bike. But, he said, the bulk of his check will go toward paying down credit card debt: "I'm going to try to use it responsibly."

Gas prices keep climbing as average hits $3.39 a gallon

2008-04-16T09:41:00.002-07:00

By James R. Healey, USA TODAY
Oil set a record on Monday — and gasoline tried to.
The nationwide average for a gallon of regular was $3.389, the federal Energy Information Administration reported. That's the highest actual price the EIA has recorded, but still short of the $3.413 that would match the record after adjusting for inflation. That is $1.417 in March 1981.

GOING PREMIUM: More cars are using pricier premium gas

Oil, already at all-time highs, closed Nymex trading Monday at a record $111.76 a barrel, up $1.62 from the Friday close.

"At this point, there's not much reason for prices to come back down," says Peter Beutel, president of energy consultant Cameron Hanover. "Everything's saying it's going to go higher."

Oil rose on a weak dollar and short-term supply worries caused by sabotage in Nigeria and problems on a Midwest pipeline. It ignored short-term forecasts of less U.S. demand and long-term news of what may be the world's third-biggest oil deposit, in deep water hundreds of miles off Brazil. That would take years to develop.

Diesel — the fuel of the semis, locomotives and local delivery trucks that tote goods to keep the U.S. economy going — averaged $4.059. That was up 10.4 cents in a week and $1.182 more than a year ago. It's the first EIA report showing diesel averaging $4 or more. The previous record was $3.989 March 24.

Diesel, like gasoline, skyrocketed in 1981, but even adjusted for inflation, today's price is at least $1 higher.

The EIA's Monday survey showed that the gasoline average jumped 5.7 cents in the past week. If that pace continues, the average would pierce the inflation-adjusted high by the weekend. Monday's price was up 51.7 cents from a year ago.

The government's most recent short-term energy forecast, published last week, foresees a monthly average as high as $3.60 this spring, and cautions: "It is possible that prices at some point will cross the $4-per-gallon threshold."

Some West Coast stations are above $4 for regular, but the only local U.S. average that high is Wailuku, Hawaii, at $4.072, according to a daily price report by the Oil Price Information Service and AAA.

Senate bill to help builders and homeowners

2008-04-16T09:41:00.001-07:00

WASHINGTON — Under pressure to address the housing market meltdown, the Senate on Thursday passed a bipartisan aid package for builders and distressed homeowners, but the bill faces opposition from the House as being too generous to business.
The 84-12 Senate vote comes as congressional committees work on broader Democratic measures to provide hundreds of billions of dollars to help homeowners refinance into more affordable mortgages. The Senate action comes as home prices plunge, and economists say more than 2 million families are in danger of foreclosure.

Underscoring the increasing urgency of the issue, Republican presidential candidate Sen. John McCain of Arizona, who had resisted the idea of federal aid to homeowners, released a plan to help borrowers with high-cost adjustable-rate mortgages move into fixed-rate, 30-year loans. McCain's plan would apply to certain mortgages taken after 2005. Democrats called the McCain plan too limited, and promised more.

After passage of the Senate bill, Banking Chairman Christopher Dodd, D-Conn., said, "We're not done."

Said Dodd: "This bill is called the Foreclosure Prevention Act. Quite candidly, what we've done here doesn't quite live up to the title." Sen. Richard Shelby of Alabama, the top Republican on the banking panel, called the measure a good step, while expressing concern that Congress might move well beyond, to a taxpayer-funded bailout of people who "freely" used risky loans.

The Senate-passed bill includes $4 billion in grants to help localities buy and restore foreclosed homes, and a $7,000 income tax credit for buying foreclosed property. The bill beefs up consumer counseling efforts, provides more than $10 billion in mortgage revenue bonds to help refinance mortgages and expands the Federal Housing Administration.

One controversial provision, estimated to cost $25 billion through 2010, would allow home builders and other firms now posting losses to retroactively claim refunds against previous years' taxes.

Harvard economist Lawrence Summers said the business tax break would do little to stimulate activity and could harm the market. "Providing tax credits conditioned on initiation of the foreclosure process is likely to have perverse effects. … Foreclosures may be encouraged," Summers told a Senate hearing.

Dodd and House Financial Services Committee Chairman Barney Frank, D-Mass., want to let the FHA help refinance troubled borrowers into viable mortgages. In exchange for writing off part of the mortgage principal, a lender would receive a payment from the proceeds of a new FHA loan.

Import prices rise 2.8% in March on a tide of oil

2008-04-16T09:40:00.001-07:00

WASHINGTON (Reuters) — U.S. import prices rose a more-than-expected 2.8% in March as petroleum prices jumped 9.1%, a Labor Department report showed Friday.
U.S. export prices rose 1.5% during the month, also more than expected and the largest monthly gain on record, as prices for farm and food products continued to rise.

Analysts polled by Reuters had forecast a 2% rise in import prices in March and a 0.5% rise in export prices.

The larger-than-expected rise in import prices boosted the dollar in early trading after the report. Stronger inflation could limit the Federal Reserve's ability to cut interest rates during the current economic slowdown.

Import prices have risen 14.8% over the last 12 months, the largest year-to-year gain since the Labor Department began publishing the data.

FIND MORE STORIES IN: Federal Reserve | Labor Department | Reuters
A large factor was petroleum prices, which have risen 60% over the past year, although prices for food, feed and beverages have increased 14%.

Export prices have risen 7.9% over the last 12 months, also the largest increase on record.

Prices for agricultural exports and food, feed and beverage exports have both risen more than 33% over the past year.

Fed transcript: '02 deflation fears helped drive down rates

2008-04-16T09:39:00.002-07:00

By Martin Crutsinger, AP Economics Writer
WASHINGTON — Just-released transcripts show the Federal Reserve was worried about the threat of deflation when it decided to cut a key interest rate by a half point in November 2002.
The transcripts, which were released Friday, showed that then-Federal Reserve Chairman Alan Greenspan and his colleagues were concerned about a sluggish recovery from the 2001 recession and the possibility that the country could tumble into a period of deflation, or falling prices.

Greenspan, in the transcripts, said that deflation was a "pretty scary prospect, and one that we certainly want to avoid."

"We are dealing with what basically is a latent deflationary type of economy, and we are all acutely aware of the implications of that economy," Greenspan said.

While the Fed releases edited minutes of meetings of its interest-rate setting Federal Open Market Committee with a three week lag, it does not publish full transcripts until five years later.

The Fed cut interest rates at the November 2002 meeting to 1.25%, as the economy struggled to find its footing after the Sept. 11, 2001 terror attacks and corporate accounting scandals. It was the central bank's only rate move of the year, after it had lowered rates from 6.5% to 1.75% in 11 steps through 2001.

The Fed eventually took rates down to 1% in June 2003 over worries that falling prices could mire the U.S. economy in a similar rut as Japan.

Some critics have argued that there was never a serious threat that the United States would experience a bout of deflation and that the extremely low interest rates engineered by the Fed created a housing boom in this country that drove prices and sales up to record levels only to burst in 2006, sending shockwaves through the economy.

'Really bad': April consumer confidence lowest since '82

2008-04-16T09:39:00.001-07:00

NEW YORK (Reuters) — Consumer confidence fell to its lowest in more than 25 years in early April, diving deeper into recessionary territory on heightened worries over inflation and jobs, a survey showed Friday.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence fell to 63.2 in April from 69.5 in March, well below economists' median expectation of a slight fall to 69.0, according to a Reuters poll.

The April result is the lowest since March 1982's level of 62.0, when the "stagflationary" period of low growth and high inflation was still fresh in the memory of many Americans.

Near-term inflation expectations measured by the survey jumped to the highest since the turmoil after Iraq's invasion of Kuwait in late 1990, which caused oil prices to rise sharply.

"It's really bad," Carl Lantz, interest rate strategist at Credit Suisse in New York, said about the report.

of Michigan Surveys of Consumers
"It confirms what we already know now that we are in a consumer-led recession, and it's going to be a pretty protracted one."

The report's reading of one-year inflation expectations jumped to 4.8% — the highest since a similar reading in October 1990 — from 4.3% in March.

Five-year inflation expectations rose to 3.1% — the highest since December 2007 — from 2.9% in March.

The index of expectations for personal finances fell to 97, the lowest since April 1980 when it was 94, from 112 in March.

The index of current personal finances fell to 87, its lowest since November 1982, when it was 85, from 93 in March.

"The April loss was due to rising inflation and shrinking income gains," the Reuters/University of Michigan Surveys of Consumers said in a statement.

"There have only been a dozen other surveys that have recorded a lower level of consumer sentiment in the more than 50-year history of the survey."

World finance officials gather in Washington

2008-04-16T09:38:00.001-07:00

WASHINGTON — The world's top financial officials, shaken by a credit crisis that has roiled markets around the world, planned to devote much of their discussions Friday to recommendations they hope will restore confidence.
The plan, with 65 recommendations, seeks to boost transparency, strengthen the role of credit rating agencies and bolster cooperation between regulatory authorities in major countries.

Those proposals will be explored when finance ministers and central bank presidents from the world's seven richest industrial countries meet in Washington for discussions to be led by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

The discussions, which will include the top finance officials of Japan, Germany, Britain, France, Italy and Canada, are taking place in advance of the weekend meetings of the 185-nation International Monetary Fund and its sister lending institution, the World Bank.

Even before the Group of Seven meeting, Paulson held a series of one-on-one sessions with finance officials from individual countries, including Japanese Finance Minister Fukushiro Nukaga. Nukaga told reporters that he believes each country should undertake suitable measures to deal with the global crisis.

The G-7 finance officials planned a dinner Friday night that will include executives of some of the world's biggest financial companies to get their ideas on what more should be done. Top executives of Citigroup, Deutsche Bank, Barclays, Credit Suisse, Lehman Bros. and Morgan Stanley were among those invited.

The financial officials are gathering after a credit crisis, which began in the United States with rising defaults on subprime mortgages, has spread around the globe. It has caused major financial institutions to declare billions of dollars in losses and brought Bear Stearns, the fifth largest investment bank in the United States, to the brink of bankruptcy.

The IMF said in reports this week that worldwide losses could approach $1 trillion over the next two years and that the turmoil has already pushed the United States, the world's largest economy, into a recession and raised the risks of a global downturn to one in four.

Faced with that gloomy assessment, global financial leaders are certain to do everything they can during the next three days of meetings to demonstrate that they are on top of the situation.

Paulson told an audience of bankers on Thursday that while "the risks continue to be to the downside" he believes the U.S. economy would receive a significant boost when 130 million households begin spending rebate checks the government will start mailing out next month. He said the extra consumer spending generated should be enough to create 500,000 to 600,000 extra jobs this year.

The plan the G-7 officials are working on was developed by the Financial Stability Forum, a group that includes central bankers and major financial regulators from around the world. The panel is headed by Mario Draghi, head of Italy's central bank, who will present his group's findings to the other G-7 officials during their Friday afternoon closed-door talks at the Treasury Department.

Those recommendations include proposals to make financial markets less secretive and improve supervision. One suggestion is to have banks, securities firms and other financial institutions disclose their holdings of securities backed by subprime mortgages, the risky debt instruments which were at the heart of the crisis in the United States.

Housing woes won't end soon, poll suggests

2008-04-16T09:37:00.002-07:00

WASHINGTON — A growing majority say they won't buy a home anytime soon, the latest sign of increasing pessimism about the nation's housing crisis, a poll showed Monday.
The Associated Press-AOL Money & Finance poll found that more than a quarter of homeowners worry their home will lose value over the next two years. One in seven mortgage holders fear they won't be able to make their monthly payments on time over the next six months.

POLL RESULTS: See the numbers

"This is a great time to buy, but not necessarily to sell," said Robert Jackson, who lives in a two-bedroom house in Ferguson, Mo., with his wife and four young children. He said he would love to purchase a larger home, but can't because even if he found a buyer, he would probably lose thousands on his house, which he bought less than two years ago.

"We're just going to have to slap a Band-Aid on it and stay here until the market gets a little bit better," Jackson, 30, said.

Jackson is not alone. Sixty percent said they definitely won't buy a home in the next two years, up from 53% who said so in an AP-AOL poll in September 2006. At the same time, just 11% are certain or very likely to buy soon, down from 15% in 2006.

The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling — good if you're buying a house but bad if you have to sell one.

The number who expect falling prices in their area has grown to about 25% from 18% in September 2006, while nearly 40% think prices will rise, compared with 49%. Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.

Underscoring the public's unsettled feelings, the number saying local housing prices are about right has fallen to 35% from 45%. Almost half say homes are overpriced — especially in the Northeast — unchanged from 2006. Those saying housing is underpriced have doubled to about one in 10, particularly Midwesterners.

Some pockets buck regional trends. Laurie Jensen, a single mother of three, struggles to make payments on her home in Whitehall, Mont., by working as a seasonal road construction flagger and at times collecting unemployment. She said she'd like to move outside of town, but the area is popular and prices have surged.

"Things are pretty crazy," she said. "Places I don't consider that great are really expensive."

One in 10 have adjustable rate mortgages, half of the number who said so two years ago. These mortgages generally start at a low interest rate and are later adjusted to market conditions — which has often meant steep, unaffordable boosts that have forced many to refinance or even lose their homes.

Daniel Gallego, a warehouse worker in Stockton, Calif., said he may have to sell his home at a big loss. He said rising gasoline and other costs have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now, before his rates rise.

"We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

The public anxiety is in reaction to an economy that is veering toward recession and losing jobs even as the housing market sputters badly. Foreclosures have soared to record highs, mortgage rates have increased, sales of existing and new homes have fallen and home values have dropped.

Gus Faucher, director of macroeconomics for Moody's Economy.com, a consulting firm, estimated that 9 million homeowners owe more on their home than it's worth. He said his company believes home sales are at or near bottom and home values will continue to fall until early next year.

Even so, he said, many people bought their homes before the run-up in values that started around 2001 and remain in good shape.

"So the value of your house goes down temporarily," he said. Unless the homeowner must sell now or can't afford the payments, "that doesn't have that much of an impact."

The poll also found:

•The biggest worriers are those expecting to buy soon. Of that group 43% frets that their home's value will drop in the next two years, compared with 25% of those not expecting to buy shortly.

•Fifty-nine percent think now is a good time to buy.

•Half think this is a very tough time for first-time buyers, an increase from two years ago. Nearly two-thirds think it's harder for first-home buyers than it was five years ago.

The AP-AOL Money & Finance poll was conducted from March 24-April 3 by Abt SRBI. It involved telephone interviews with 1,002 adults nationwide, for whom the margin of sampling error is plus or minus 3.1 percentage points.

Included were interviews with 769 homeowners, for whom the sampling margin of error is plus or minus 3.5 points. The margin of sampling error for other subgroups was larger.

Rising oil pushes up wholesale prices

2008-04-16T09:37:00.001-07:00

The price of oil shot to a record Tuesday, pushed up by supply worries — and a gusher of new money into the commodities markets.
Texas light, sweet crude for May delivery closed at $113.79, up $2.03 from Monday's record settlement at $111.76. Oil has soared 79% the past 12 months. The record followed a government report that said prices at the wholesale level soared nearly 7% in the 12 months ended in March and that half the increase came from energy. Moving the prices:

•Oil production jitters. Middle East producers are pumping at full capacity. "Any supply disruption has an outsized impact," says Alec Young, equity market strategist for Standard & Poor's. Traders have been fretting about problems in Nigeria and Russia.

•Huge demand. "Even though the U.S. is in recession, analysts have underestimated the voracious demand for oil from emerging markets," Young says. Just seven in 1,000 Indians own a car, for example, despite India's booming economy. As emerging economies grow, so will the demand for oil and energy.

•The weak dollar. Oil is priced in dollars, and the value of the dollar has tumbled 8% this year vs. the euro. Producers raise prices to compensate for the lower value of the dollar.

All of these forces have been in place for some time. But huge demand for commodity investments — particularly in energy — have sent oil prices skyrocketing, says Tom Kloza, chief oil analyst for the Oil Price Information Service. "People are pouring money into commodities as the can't-miss asset class of the second half of the decade," Kloza says.

The number of energy futures contracts traded at the New York Mercantile Exchange in the first three months of 2008 soared 18% vs. the same period in 2007. Investors have poured a net $928 million into four of the largest commodity exchange-traded funds this year, Lipper says.

Commodity markets are smaller than the stock or bond markets, and even modest increases in volume can push up oil prices sharply. "People who say it has nothing to do with speculation are the same people who said there wasn't a housing bubble a few years ago," Kloza says.

Soaring oil prices drove wholesale prices up 1.1% in March from February, the second-largest increase in 33 years, the Labor Department said Tuesday.

Producers' prices in March were up 6.9% from a year earlier, and about half the increase came from higher energy costs. Energy prices on a monthly basis leaped 2.9% in March, led by a 13.1% rise in heating oil and a 15.3% gain in diesel fuel. Core producer prices, which are stripped of the volatile food and energy components, grew 0.2%.

Dems try to load up 'money train' war funding bill

2008-04-16T09:36:00.000-07:00

WASHINGTON — Democrats in Congress are seeking to attach tens of billions of dollars in domestic spending to President Bush's latest $108 billion war funding request, setting up a political battle that could put U.S. troops and their families in the middle.
Plans to add money for such things as transportation, unemployment insurance, aid to states, food stamps, public housing and veterans' benefits has prompted veto threats from the White House.

Bush's budget director, Jim Nussle, said Tuesday that only a month remains before the Pentagon would threaten to furlough thousands of civilian employees. The Pentagon made a similar threat in December before Congress appropriated $70 billion for the wars.

"They're trying to figure out how to put everything onto this," Nussle said in an interview. In testimony prepared for the Senate Appropriations Committee today, he calls the war funding measure "the last big money train out of town before the election." That could be the case if Congress doesn't pass any of its regular appropriations bills on time.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have not decided which items to seek as part of the war funding request and are hoping to reach agreement with the White House on some of it. Reid spokesman Jim Manley said the items being reviewed would be "quick ways to stimulate the economy."

Spurring the Democrats' effort is a struggling economy. Pelosi, who negotiated with the Bush administration to win quick passage of a two-year, $168 billion economic stimulus package, called on the president last week to support a second measure "to get our economy back on track, create jobs and speed assistance to families struggling to make ends meet."

The first package included more than $100 billion in rebates to taxpayers, which will only begin to be mailed or deposited directly into bank accounts next month. A family of four with an annual household income under $150,000 will get up to $1,800. Even low-income Americans who paid no taxes last year are in line for smaller rebates.

Bush has said he wants to wait for those rebates to reach households — and perhaps get spent — before deciding on a second stimulus package. But pent-up demand in Congress has pushed items left out of the first package to the forefront. The House Ways and Means Committee is set to approve an extension of unemployment benefits today. A similar measure that fell out of the first package would have cost nearly $15 billion over two years.

Nussle said adding that type of spending to the war funding bill would jeopardize projections for a balanced budget in 2012. Halfway through the 2008 fiscal year, the deficit already has reached $310 billion, according to the Congressional Budget Office. The White House has projected the deficit for the full year would be $410 billion.

"This is a matter of just continued deficit spending without an eye toward how it's going to be paid for," Nussle said.

The war funding bill is slated to reach the House later this month or in early May. Possible additions:

•Providing 13 more weeks of jobless benefits to workers who reach the 26-week maximum, which is backed by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., and Senate Finance Committee Chairman Max Baucus, D-Mont.

•Spending on highway, rail and airport projects that are ready to go but fall short of state funds. House Transportation and Infrastructure Committee Chairman James Oberstar, D-Minn.,lists 3,000 such projects.

•Expanding college tuition benefits for military veterans of Iraq and Afghanistan, proposed by Virginia Democratic Sen. Jim Webb.

Some Democrats and advocates want to pay for at least part of it. "There's many a good thing that you could do, and you should pay for it," said Chad Stone, chief economist for the liberal Center on Budget and Policy Priorities, which has been involved in the negotiations.

Consumer prices up 0.3% in March; housing starts plunge

2008-04-16T09:35:00.000-07:00

WASHINGTON (Reuters) — Consumer prices rose a less-than-expected 0.3% in March, leaving the Federal Reserve some room to lower interest rates to ward off a housing-led slowdown, and the construction of new homes plunged in March to the lowest level in 17 years, according to reports Wednesday.
While the slide in the housing sector continued, industrial production unexpectedly rebounded as utilities raised output due to colder weather, according to the Fed, making up for weak manufacturing growth.

And a fourth report showed that higher prices and rising unemployment resulted in falling wages in March. After adjusting for inflation, average weekly earnings for non-supervisory employees dropped 1% last month, compared to the same period a year ago. It was the sixth month that inflation-adjusted wages were down.

The rise in March's consumer price index was less than the 0.4% gain that economists had forecast. Prices were flat in February. So-called core consumer prices, which exclude food and energy, were up 0.2% — in line with expectations — after also being unchanged in February, the Labor Department said.

Energy prices gained 1.9% in March after declining 0.5% in February. Costlier energy has been a major factor in rising concern about potential inflation, but it did not show through strongly in the March data.

Over the past 12 months, inflation is up 4%, reflecting relentless gains in energy costs, which are up 17% over that period, and food prices, which are up 4.4%.

For individual food items, the gains are even more stark, with the price of bread up 14.7% over the past year and milk prices up 13.3% over the same period.

While financial markets initially greeted the consumer price data as providing greater scope for the Fed to lower interest rates, not everyone agreed.

"In spite of a benign core reading, the overall increase will persuade the Fed to be less aggressive in easing rates," said Richard DeKaser, chief economist at National City in Cleveland.

The department said that in the first quarter this year, overall consumer prices rose at a seasonally adjusted annual rate of 3.1%, down from the 4.1% rise posted for all of 2007. Core prices in the first quarter gained at a 2% rate, under the 2.4% rise for all of 2007.

Prices for apparel dropped for a second month, down 1.3% after falling 0.3% in February. The department said the March decline was the largest since September 1998, possibly a sign that retailers are being forced to cut prices to lure hard-pressed consumers into stores.

Car prices slipped 0.1%.

But a range of other costs moved higher. The Labor Department's housing-cost gauge moved up 0.4%, reflecting a sharp gain in utility costs. A measure of owner-occupied housing costs not affected by energy rose 0.2%.

Housing starts set an annual pace of 947,000 units in March, lower than the 1.02 million expected by economists. The February starts figure was revised upward to 1.075 million from the 1.065 million originally reported.

"These housing starts suggest that the pace of decline is intensifying, which is the last thing the U.S. economy needs right now," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.

Building permits fell 5.8% to an annual rate of 927,000, the slowest pace since a 916,000 rate set in April 1991. Economists polled by Reuters had forecast March permits at 970,000 after the 984,000 rate of February.

Industrial production increased 0.3% last month following a sharp 0.7% decline in February, the Fed said. That was better than the small decline of 0.1% that economists had expected.

The strength last month came from a large 1.9% increase in output at the nation's utilities and a 0.9% increase in mining, a sector that also includes oil drilling. Manufacturing posted a more modest 0.1% rise after a decline of 0.5% in February.

"Factory output was held down by a large decline in the output of motor vehicles and parts. A shortage of motor vehicle parts that resulted from a strike at a parts manufacturer idled a number of motor vehicle assembly plants," the Fed said in the report, referring to the seven-week-old walkout at American Axle & Manufacturing Holdings.

Senate agrees on compromise to help homeowners

2008-04-04T15:38:00.001-07:00

By Sue Kirchhoff and Kevin McCoy, USA TODAY
WASHINGTON — Senate leaders on Wednesday night announced a multibillion-dollar bipartisan compromise measure to aid families facing foreclosure amid the sharp housing downturn.
The proposal, which could be debated as early as Thursday, contains funding to provide foreclosure counseling to beleaguered households, help local governments buy and refurbish foreclosed properties and increase the limit on loans backed by the Federal Housing Administration.

But negotiators for both parties could not reach agreement on a provision that would give foreclosed homeowners more lenient treatment in bankruptcy proceedings.

Lawmakers were also forced to shelve a more ambitious FHA mortgage rescue plan but promised to continue working on the issue.

"This is not a complete package. Obviously, there is a lot more work that needs to be done," said Banking Committee Chairman Chris Dodd, D-Conn.

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"This will be the first reaction. It will not be the last," said Alabama Sen. Richard Shelby, the Banking Committee's top-ranking Republican.

The compromise includes:

•Foreclosure aid. A $4 billion package to aid communities hard hit by foreclosures and mortgage delinquencies. Local governments could use the funds to buy and rehabilitate foreclosed homes at a discount.

•Government-backed mortgages. Increased loan limits for FHA-guaranteed mortgages.

•Financial counseling. About $100 million in new funding for housing counseling to help up to 250,000 families.

•Tax credit. A $7,000 tax credit, over two years, for buyers of foreclosed homes or properties on which foreclosure action has been filed.

•Business tax relief. Authority for home builders and other firms that are losing money to reclaim taxes paid up to four years ago vs. two years now.

The package was negotiated against a backdrop of increasingly bleak housing market news.

During February, new foreclosure filings — including default notices, bank repossessions and auction sale notices — were reported on 223,651 properties nationwide, according to RealtyTrac, an online marketplace for foreclosure properties. That's up 60% from a year earlier.

Many business groups applauded the compromise. The Mortgage Bankers Association said the plan would "keep at-risk borrowers in their homes."

But a coalition of consumer, housing and civil rights groups criticized the failure to reach agreement on bankruptcy changes they say would help 600,000 families avoid foreclosure.

The omission represents "a win for the financial services industry that brought us this mess," the coalition said.

Surge in jobless claims stokes fears about recession

2008-04-04T15:37:00.000-07:00

By Edward Iwata, USA TODAY
In another scary sign for the sluggish U.S. economy, the Labor Department said Thursday that initial jobless claims last week rose 38,000 to 407,000 — the highest in three years.
The surging number of first-time unemployment benefit claims is a clear signal that the U.S. economy has sunk into a recession and more workers have lost jobs, economists say.

In its monthly employment report Friday, the Labor Department is expected to announce more U.S. job losses in March for the third month in a row.

"Our view is that the economy has slipped into a recession, and we're going to see very sluggish growth for the first half of this year," says Michelle Meyer, a Lehman Bros. economist who noted that the 407,000 claims were the most since September 2005, just after Hurricane Katrina.

Economist Ian Shepherdson at High Frequency Economics called the jobless claims "a grim surprise" in a note to clients. He wrote that claims higher than 400,000 "clearly signal recession, though one week is not a trend."

FIND MORE STORIES IN: Wall Street | Hurricane Katrina | Poor | Standard | Dow Jones | Nasdaq | Labor Department | Moody | Economy.com | Federal Reserve Chairman Ben Bernanke | Institute for Supply Management | Lehman Bros | High Frequency Economics | Michelle Meyer
The news — coupled with Federal Reserve Chairman Ben Bernanke's congressional testimony earlier this week that the U.S. economy might stall — spooked Wall Street and sent stock indexes falling in early trading. By the end of the day, though, the Standard & Poor's 500, the Dow Jones industrial average and Nasdaq all had risen slightly.

BERNANKE: Recession is possible

Meyer and Andrew Gledhill, an economist at Moody's Economy.com, believe that the March unemployment rate will rise to 5%, up from 4.8% in February. "Businesses are scaling back hiring plans, and layoffs are rising," Gledhill says.

The unemployment rate should peak at about 6% by the end of the year, as the U.S. economy starts to bounce back from the downturn, Meyer predicts.

In recessions from the 1970s energy crisis through the 2001 dot-com bust, unemployment rates have ranged from 6% to 11%.

Many economists believe that the Fed's recent rate cuts are warding off a worse recession. Meyer predicts that the Fed will continue to trim rates through early 2009.

In a separate economic indicator out Thursday, the Institute for Supply Management's Non-Manufacturing index rose in March by 0.3 points to 49.6%. A reading below 50% means the value of services in the USA contracted slightly during the month. The number reflects turmoil in the financial markets and construction that have rippled through the economy, Steven Wood of Insight Economics wrote in a note to clients.

Late payments on consumer loans at 16-year high

2008-04-04T15:36:00.002-07:00

NEW YORK — More Americans have fallen behind on consumer loans than at any time in nearly 16 years, as credit problems once concentrated in mortgages spread into other forms of debt.
In a quarterly study, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.65% in the fourth quarter from 2.44% in the third quarter, and from 2.23% a year earlier.

The rate of delinquencies was the highest since a 2.75% rate in the first quarter of 1992. It provides a fresh sign the nation's economy is slowing, and may be in recession.

"There's no question that the economy is weakening beyond housing, resulting in the loss of household purchasing power," said John Lonski, chief economist at Moody's Investors Service.

"Deterioration of household credit should continue through 2008, though the rate may moderate," he added. "If it intensifies, then the current recession may prove more severe than anticipated."

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ABA Chief Economist James Chessen attributed the jump in the delinquency rate largely to auto loans.

Late payments on "indirect" auto loans, which are made through dealerships, totaled 3.13%, the highest on record. Delinquencies on direct auto loans rose to 1.90%, a 2-1/2-year high.

Credit and debit card delinquencies rose to 4.38% from the third quarter's 4.18%, following four straight quarterly declines.

Housing wasn't spared. Delinquencies on home equity loans rose to a 2-1/2-year high of 2.39%, and on home equity lines of credit rose to 0.96%, matching a level last seen in the fourth quarter of 1997.

The ABA study covers more than 300 banks that extend a majority of outstanding consumer loans. Its study covers direct auto, indirect auto, home equity, home improvement, marine, mobile home, personal and recreational vehicle loans.

Losses tied to mortgages, credit cards and other consumer loans are expected to hurt quarterly results at large lenders such as Citigroup (C), Bank of America (BAC) and Wachovia (WB), and at more specialized lenders such as GMAC, the auto finance and mortgage company.

Financial companies worldwide have written off more than $200 billion related to subprime mortgages and other debt, and analysts expect tens of billions of dollars of additional write-downs for the just-completed quarter.

Labor market woes won't help. Economists surveyed by Reuters expect the government on Friday to report the economy shed 60,000 jobs in March, boosting the unemployment rate to 5% from February's 4.8%.

"Debt repayment abilities of consumers should continue to erode until the labor market firms," Lonski said. "It will be difficult to have a firming of the labor market if household purchasing power continues to suffer from faster growth in food and energy prices, relative to income."

Economy sheds 80,000 jobs in March

2008-04-04T15:36:00.001-07:00

WASHINGTON (Reuters) — Employers cut payrolls for a third month in a row in March and the unemployment rate jumped to a 2-1/2 year high, more evidence that a housing downturn and credit crisis may have pushed the economy into a recession.
The Labor Department on Friday reported that March non-farm payrolls fell 80,000, biggest decline in five years.

It also said the March unemployment rate jumped to 5.1% from 4.8%, highest since a matching rate in September 2005. The 5.1% rate is still relatively low by historical standards.

Adding to the bleak picture, the department revised the first two months of the year's job losses to a total of 152,000 from a previous estimate of 85,000.

The March job report was more bleak than expected. Economists had forecast a decline of 60,000 in non-farm payrolls and a rise in the unemployment rate to 5%.

FIND MORE STORIES IN: New York | Labor Department | Federal Reserve Chairman Ben Bernanke | Bureau of Labor Statistics | Credit Suisse | Keith Hall
"There doesn't appear to be any silver lining. It shows that we're right in the middle of a recession that will probably take a while," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York.

"Our expectation is that it will be a longer recession than the last two and we're just in the beginning," Lantz added.

During the first quarter of this year job losses averaged 77,000 a month, compared to average monthly gains of 76,000 in the last half of 2007, according to Keith Hall, Bureau of Labor Statistics commissioner.

Job losses were widespread in March. Construction, manufacturing, retailing, financial services and various business services all racked up losses. That overwhelmed gains elsewhere, including in education and health care, leisure and hospitality as well as in government.

With the pace of hiring slowing down, the number of unemployed people increased to 7.8 million in March; workers with jobs saw only modest wage gains at the same time.

Average hourly earnings for jobholders rose to $17.86 in March, a 0.3% increase from the previous month. That matched economists' forecasts. Over the past 12 months, wages grew 3.6%. With lofty energy and food prices, workers may feel like their paychecks are shrinking.

The economy is suffering the effects of a housing collapse, a credit crunch and a financial system in turmoil. That's causing people and businesses to hunker down, crimping spending, capital investment and hiring. Those things in turn further weaken the economy in what has become a vicious cycle.

For the first time, Federal Reserve Chairman Ben Bernanke acknowledged Wednesday that the country could be heading toward a recession, saying federal policymakers are "fighting against the wind" in combating it. Many other economists and the public believe the recession already has arrived.0

Gasoline prices rise to a record $3.30 and head higher

2008-04-04T15:31:00.000-07:00

By John Wilen, AP Business Writer
NEW YORK — Retail gasoline prices surged to a record above $3.30 a gallon Friday and appear poised to rise further in coming weeks as gasoline supplies tighten.
Oil prices, meanwhile, supported the gas price rally, jumping more than $2 a barrel after a dismal employment report sent the dollar lower.

At the pump, gas prices rose 1.4 cents overnight to a national average of $3.303 a gallon, according to AAA and the Oil Price Information Service. That's the latest in a series of records, and about 60 cents higher than a year ago.

While oil's surge above $100 a barrel the last month has boosted gasoline prices so far this year, analysts now expect gas prices to continue rising regardless of what direction crude takes. The Energy Department expects prices to peak near $3.50 a gallon later in the spring, but many analysts predict the spike could approach $4.

That's because gasoline supplies are falling, in part because producers are cutting back production due to the high cost of crude — the more expensive crude is, the more refiners have to pay and the lower their profit.

FIND MORE STORIES IN: Texas | Los Angeles | Labor Department | New York Mercantile Exchange | Energy Department | Oil Price Information Service | Corpus Christi | ConocoPhillips | ATA Airlines | Valero Energy | Mike Pina
They're also in the process of switching over from producing winter grades of gasoline to the less polluting but more expensive grade of fuel they're required to sell in the summer.

"That cuts back on some of the supply and helps to pump up the price," says Mike Pina, a spokesman for AAA.

The margin between the price refiners pay for crude and what they get for selling the products they make from it is around $11 to $12 a barrel right now, according to the Oil Price Information Service. However, that margin has slipped into negative territory some days and is well below margins of $37 a barrel refiners earned last spring.

On Thursday, ConocoPhillips said high crude prices were significantly hurting refining margins. Last week, Valero Energy cut output at its Corpus Christi, Texas, refinery due to high supplies and falling demand. Analysts believe many other refiners are adopting similar tactics.

Friday's price spike is a sign those cutbacks may be working, giving everyone in the supply chain, from refiners to retailers, the ability to raise prices to try to boost margins. Many gas retailers say they make more on the sale of coffee and sundries in their convenience stores than from selling gasoline.

Of course, that's not good news for consumers also paying higher food prices and watching their home values slide. Food prices are high due in part to diesel prices, which held steady overnight at a national average $4.023 a gallon, near recent records.

High oil prices are also hurting airlines. Aloha Airlines shut down and ATA Airlines filed for bankruptcy protection in recent weeks, citing high fuel prices as a cause of their failures.

In futures trading, meanwhile, oil futures rose Friday after the Labor Department said employers cut payrolls by 80,000 jobs last month, much more than analysts had expected. The unemployment rate rose to 5.1%. That news sent the dollar lower and pushed light, sweet crude for May delivery up $2.40 to settle at $106.23 a barrel on the New York Mercantile Exchange. Gasoline futures for May delivery rose 3.24 cents to settle at $2.7567 a gallon.

Gasoline futures were also boosted Friday by a fire that shut down part of a Los Angeles refinery.

Much of crude's price moves in recent months have been tied to the dollar. Many investors view crude, gold and other hard commodities as hedges against a falling dollar and rising prices. Also, crude becomes less expensive for overseas investors when the dollar is falling.

'Trillion Dollar Meltdown' paints scary economic picture

2008-04-02T19:14:00.001-07:00

By Kerry Hannon, Special for USA TODAY
Charles Morris, author of The Trillion Dollar Meltdown, isn't one for sugarcoating. His analysis is dour and grim, but certainly not dull. And when read against a backdrop of an ever-weaker economy, increasingly anxious economists and a stream of gloomy predictions, it can be downright scary.
Morris, a lawyer and former banker who has written 10 books, argues that the subprime mortgage crisis is only a taste of the mayhem that will play out across an array of financial assets.

He lays out the likely course of write-downs and defaults on a whole gamut of assets — residential mortgages, commercial mortgages, high-yield bonds, leveraged loans, credit cards and the complex bond structures that sit atop them. It comes to about $1 trillion, according to Morris. "The sad truth, however, is that subprime (losses he estimates as high as $500 billion) is just the first big boulder in an avalanche of asset write-downs that will rattle on through much of 2008," he predicts.

He doubts it will be an orderly deleveraging. "There will inevitably be margin calls, panicked selling, clamors from shareholders, and the flight from all risky assets that could double or triple the damage."

The subject is complex. But for the most part, Morris serves up a sharp, thought-provoking historical wrap-up of the U.S. economy and its markets, along with clear scrutiny of today's economic woes.

His account runs from the 1950s to the great inflation of the 1970s and traces the financial boom through three critical developments of the 1980s and 1990s — the birth of "structured finance," the expansion of derivatives markets and the mathematization of trading. All of them flowed together to create the great credit bubble that is now imploding around us, according to Morris.

How did we get to such a place? "The current conservative, free-market cycle that commenced with the Reagan presidency, with all its achievements, seems to have long since foundered in the oily seas of gross excess," he writes.

But a few years ago, it lurked beneath the surface. "The early 2000s were a nervous, quarrelsome time — terrorism, airport check-in lines, a discouraging war, energy disruption, nasty politics. But to be a banker, or a high-rolling investor was very heaven," he writes.

He compares the popping of the Japanese asset bubble of the 1980s to events in the USA today. "In proportional scale and market mechanics, it is quite similar to the crisis we are facing now. But the tight network of Japanese government and finance executives chose instead to deny and to conceal, and almost 20 years later Japan still has not recovered," Morris asserts.

To restore credibility, he declares, "American officials and financial leaders must forthrightly admit the scale of the problem and proceed to purge the absurd valuations, the phony triple-A ratings, the inflated balance sheets, and the hidden liabilities that are marbled through financial balance sheets."

The cost of not doing so? "The loss of faith in American markets will be far greater than a one-time trillion-dollar asset write-down."

The sad fact is there isn't much the Federal Reserve can do now, he contends. He lays blame on former Fed chairman Alan Greenspan. He describes the term "Greenspan put" as commonplace on Wall Street in the early 2000s. "A 'put' is an option that allows the owner to sell an asset to some third party at a fixed price, no matter what." In this case, "no matter what goes wrong, the Fed will rescue you by creating enough cheap money to buy you out of your troubles."

It's not a pretty picture. "The 'wall of money' that has kept American markets afloat also created a global dollar tsunami that has left a waterlogged world in its wake," Morris writes.

From his vantage point, those days are kaput. The Fed will have to keep interest rates higher than we would like to avert a currency rout. And with America heading into a recession and a continued collapse in the dollar, that will inevitably trigger price increases in imported goods, much as it is doing in oil, he writes. The credit crunch will have to march its way though the financial markets over the next year or so without "soothing fountains of new dollars coming out of Washington," he contends.

Morris believes that the 1980s change from a "government-centric style of economic management toward a more markets-driven one" was vital in the American economic upturn of the 1980s and 1990s. But the "breadth of the current financial crash suggests that we've reached the point where it is market dogmatism that has become the problem, rather than the solution. And after a quarter-century run, it's time for the pendulum to swing in the other direction."

His fundamental solution: After we've dug out of our financial markets debacle, "The very first priority will be to restore effective oversight over the finance industry." Bankers and high rollers take note.

Survey of managers shows jobs picture isn't exactly rosy

2008-04-02T19:12:00.000-07:00

By John Waggoner and Barbara Hansen, USA TODAY
In another sign of a stagnant economy, relatively few companies have plans to hire more workers over the next three months, according to a survey of employers released Wednesday.
Just 29% of managers plan to increase hiring in the second quarter of 2008, according to an online survey for USA TODAY and CareerBuilder.com by Harris Interactive. The proportion of employers with plans for increased hiring is unchanged from the last quarterly survey.

The survey, conducted Feb. 11 to March 13, involved 2,757 hiring managers and human resource professionals. CareerBuilder.com is a job-finding site jointly owned by Tribune, McClatchy, Microsoft and USA TODAY parent Gannett.

The new survey follows two monthly reports from the U.S. Department of Labor showing declines in the number of payroll jobs in the USA. In January and February, payrolls declined by a total of 85,000 jobs, the government said.

The department is scheduled to issue its employment report for March on Friday. According to a Thomson Financial survey, the consensus among economists is that payroll employment declined again in March.

In the new CareerBuilder survey, 7% of those surveyed plan to lay off workers, a solid improvement from the first quarter, when 11% planned layoffs.

Fifty-nine percent of those surveyed said they plan no changes in the size of their workforce, about the same as the last quarterly survey. The job market is weakest in the Midwest, the survey shows. "The Midwest is being hammered by layoffs in the vehicle industry, and Michigan and Ohio are in recession," says Mark Zandi, chief economist for Moody's Economy.com.

Six percent of those surveyed in the Midwest said their companies planned to decrease payroll in the second quarter, the same as the national average. But just 25% of Midwest companies plan to expand, vs. 29% nationally.

Nationally, only 22% of smaller companies plan to increase their number of permanent, full-time employees, vs. 33% for large companies.

Overall, pay raises will be modest in the next three months: 41% of the survey respondents said raises would be in the 1% to 3% range, even though inflation averaged 4% for the 12 months ended in February.

Not all companies are holding back the cash. Jerry Travis, controller at Sierra Cheese in Compton, Calif., says Sierra rewarded its employees with cost of living raises to thank them for staying with the company in hard times. The company had been clobbered by milk prices, which rose from $12 per hundred pounds to $20 last year. "You can't make and sell cheese at that price," Travis says. Milk prices have since fallen to about $16 per 100 pounds.

But the company had put money aside for tough times and had enough to reward its employees. "These people have been with us forever, and we take care of the people who stay here," he says.

Bad economic news expected to pile up

2008-04-02T19:08:00.001-07:00

By John Waggoner and Christine Dugas, USA TODAY
Last week's economic news wasn't good, and data released this week aren't going to be much better, economists say.
April will probably be a particularly cruel month for retailers, as the companies reveal just how weak sales are. J.C. Penney (JCP) led the way last week by slashing its first-quarter earnings forecast by a third, to 50 cents a share.

Despite soaring prices, consumers still have to buy food, gas and energy. So retailers that sell things that consumers can do without, like a new blazer or a new purse, are the ones that are likely to lose business, says Patricia Edwards, retail analyst at Wentworth Hauser and Violich.

"The stores that cater to middle-income consumers are going to be the ones that are hardest hit," Edwards says.

Home-improvement retailers such as Lowe's (LOW) are also facing a slump in sales because many families have seen their home values slip, so they're not spending much money to improve their homes unless they have to.

FIND MORE STORIES IN: Commerce Department | Lowe | NPD Group | Bear Stearns | Economy.com | Mark Zandi | Nordstrom | Edmunds.com | Neiman Marcus | Marshal Cohen | Violich | Reuters/University of Michigan | Patricia Edwards | Chicago Purchasing Managers
Even high-end retailers, such as Nordstrom (JWN) and Neiman Marcus, are feeling the pinch. Middle-income consumers had been upgrading their shopping and buying more affordable luxury items. "They frankly had a bad case of affluenza and now the bill is due," Edwards says.

Consumer spending gained 0.1% in February, the smallest since September 2006, the Commerce Department said Friday.

And consumer confidence, as measured by the Reuters/University of Michigan survey, slumped to the lowest in 16 years in March.

Many of this week's reports reflect economic activity in March, and economists are bracing for bad news. "You had rising gas prices, a caving stock market, weak housing, (the collapse of investment bank) Bear Stearns. … March was not a good month," says Mark Zandi, chief economist for Economy.com. Reports out this week:

•The Chicago Purchasing Managers index, out today, will probably remain below 50 — a warning sign of recession.

•March new vehicle sales, out Tuesday, should show a 13.3% decrease, to 1.33 million units, from March 2007, Edmunds.com says.

•Payroll employment, out Friday, should show a loss of 75,000 jobs in March. Excluding striking workers, the number falls to 35,000, Zandi says. He expects the unemployment rate to rise to 5% from 4.8% in February. The closely watched report is a key measure of how the economy is faring.

Despite the widespread gloom, the fact that consumers are tightening spending may be a good sign, some experts say. When there is a downturn, consumers are the last segment to react to it. "We could very well be closer to the bottom of the pit than we think," says Marshal Cohen, chief retail analyst at NPD Group.

Could an economic lesson from Sweden work in the U.S.?

2008-04-02T19:06:00.001-07:00

By David J. Lynch, USA TODAY
As U.S. officials hunt for solutions to what many economists are calling the most serious financial crisis since the Depression, they might draw lessons from another painful and costly banking emergency.
In the early 1990s, a massive Swedish real estate bubble burst, littering the Nordic economy with broken finance companies, failing businesses and jobless workers. It was the first systemic banking crisis in an industrialized country since the 1930s and it saw the Swedish economy actually shrink for three straight years — something that hasn't happened in the United States since the rapid demobilization after World War II.

The Swedish and American crises share many traits: Both followed periods of financial deregulation, and both featured newly daring banks relying upon bookkeeping maneuvers to take on unsustainable amounts of debt. Happily, despite economic conditions that were far worse than in the USA today — and unlike a similar episode in Japan — Sweden quickly recovered.

Yet, it did so in a manner that would be highly controversial in the United States. Sweden used taxpayer money — and lots of it — to rebuild its wounded banks. "In Sweden's case, the solution ultimately ended up on the government's balance sheet. … The government ended up recapitalizing the system," says economist David Rosenberg of Merrill Lynch. "There's a lesson here."

Sweden's successful crisis management may offer a road map for U.S. officials. But the Swedish cleanup wasn't cheap. It cost the public an estimated 6% of annual economic output; an equivalent bill for the U.S. today would be nearly $850 billion. And Sweden was able to implement a free-spending government rescue only because of a broad political consensus that is difficult to imagine amid the hyper-partisan atmosphere of a U.S. presidential election year.

"There was a tradition in Sweden of cooperation across party lines. … It was such an obvious crisis, everyone was really frightened," says Peter Englund of the Stockholm School of Economics.

A familiar story

To anyone who's been paying attention to deteriorating financial conditions in the USA, the Swedish episode seems eerily familiar. First, there was the multiyear expansion, with incomes surging and good times appearing all-but-permanent.

Amid the boom, however, seeds of future trouble were sown in Sweden. A comprehensive deregulation of the credit markets in 1985 introduced bankers to new customers, products and markets that neither they nor their government regulators fully understood. "The supervisory authority was not prepared for the new environment that emerged after credit market deregulation. This meant that during the 1980s the banks were able to grant loans on doubtful and sometimes even directly unsound grounds without any supervisory intervention," wrote Urban Backstrom, at the time a senior Finance Ministry official.

Much of the avalanche of new borrowing poured into an overheated property market, where prices for commercial real estate more than doubled in the latter half of the 1980s. The first signs of trouble appeared among the finance companies that were responsible for the bulk of such investment. In September 1990, a company called Nyckeln — known as "The Key" — folded when it was unable to renew its financing.

Many of the finance companies were owned by the handful of major banks that dominated Sweden's economy. Companies like Nyckeln financed their operations with a new type of commercial paper called marknadsbevis (marknads-BAY-vees) which the banks had guaranteed. When Nyckeln defaulted, the market for these securities suddenly collapsed and the losses ricocheted back onto the banks' balance sheets, much as U.S. banks today have been hurt by losses from complex securities they held off their balance sheets.

"There's a striking similarity with what is happening now," says Staffan Viotti, senior adviser to the head of Sweden's central bank.

By late 1991 there were indications that two of Sweden's major banks had exhausted their capital reserves and were barreling toward bankruptcy. Property prices, which once seemed capable only of rising, plunged by 50% in 18 months.

The economy shrank in 1991 for the first time in 10 years, then continued shrinking in 1992 and 1993. Unemployment took a sudden leap from 1.6% in 1990 to as high as 12% in 1993. Government officials debating their response met in "an atmosphere of national emergency of an almost war-like kind," according to Viotti.

Fearing that a collapse of the banking sector would capsize the economy, the Swedish government in September 1992 issued a blanket guarantee of all of the banks' obligations. Depositors, lenders and trading partners would be protected from loss. But to avoid encouraging financially risky behavior in the future, shareholders were made to suffer. In return for public money, the government received equity in the banks while the existing owners saw their stakes reduced.

Swedish lawmakers created an independent agency — the Bank Support Authority — to preside over the rehabilitation of the battered banking sector and gave the agency a blank check. But any bank that sought government help had to submit to a detailed assessment of each of its loans. In practice, that meant a government-organized process of financial triage, separating the healthy parts of the banking industry from those that were rotten.

The "good" parts of the industry were saved with injections of fresh capital from both government and private sources. The "bad" parts were placed with two government-created asset-management companies and sold off. One major bank, Gota Bank, went bankrupt and was merged into the healthy Nordbanken in 1993 (today known as Nordea).

"One of the most important lessons is that authorities must be able to intervene as quickly as possible when a bank faces problems," Stefan Ingves, the architect of the rescue operation and the current head of the Riksbank, Sweden's central bank, later wrote.

Pennies on the dollar

The government's decisive handling of the situation led to an economic recovery almost as sudden as the crisis that preceded it. The economy expanded at an annual rate of nearly 4% in both 1994 and 1995. The emergency bank guarantee was eliminated in 1996 and replaced with a deposit insurance system akin to the Federal Deposit Insurance Corp. in the USA.

Sweden's sure-handed resolution of the crisis won applause from economists, including then-chairman of the Federal Reserve Alan Greenspan, who said in 1999 that the episode showed that "speedy resolution is good." The IMF drew on the Swedish case in preparing a list of "best practices" for Asian countries trying to survive their own crises in the late 1990s.

Today, Treasury Department spokeswoman Brookly McLaughlin says officials are aware of the Swedish experience but do not consider it "an example for us."

There are differences between the Swedish and U.S. situations, which some say argue for caution. Sweden, after all, is a small country. Its annual economic output is equal to about 10 days' worth of activity in the USA. Sweden's troubles also were exacerbated by provisions of its tax system and an ill-advised defense of a fixed exchange rate. That led authorities, amid a general European currency crisis in late 1992, to briefly increase overnight interest rates to a commerce-killing 500%.

Today's U.S. financial woes also are unprecedented in their complexity. The current crisis isn't limited to the commercial banks and traditional lending practices. Instead, investment banks and a host of securities that didn't even exist in the early 1990s — such as credit default swaps, collateralized debt obligations and structured investment vehicles — play starring roles today.

"It was much easier in those days as an outsider to assess the financial situation of a specific bank," says Goran Lind, a senior Riksbank official. "Today, things are a lot more opaque."

Still, some see indications that the U.S. already is applying lessons learned from Sweden. Anders Aslund, a Swedish economist at the Peterson Institute for International Economics in Washington, D.C., points to the swift sale of the troubled Bear Stearns investment bank to JPMorgan Chase as a key example. The deal, midwived by the Federal Reserve, avoided the danger that a collapse of Bear Stearns would topple additional financial institutions. And it left shareholders with pennies on each dollar of their investment.

Paying the price

"Bear Stearns looks, to my mind, exactly out of the book how Sweden handled the banking crisis," he says.

Edward Kane, a Boston College finance professor, says the Fed's decision to facilitate the sale by backing $29 billion worth of Bear Stearns' assets is the first sign of what amounts to a government takeover of the financial system. "They've implicitly provided guarantees to any number of these firms. There is a nationalization (occurring). It is implicit and unacknowledged," says Kane, who has consulted for the Fed, the International Monetary Fund and foreign central banks.

Such a guarantee makes the government a part-owner of the country's major financial institutions. In Sweden, for example, at the height of the crisis, the government held 22% of the banking system. When the crisis eased and banks returned to profitability, the Swedish taxpayer shared in the gains.

Kane says the U.S. government should embrace the Swedish remedy and issue a formal guarantee of the country's financial institutions, so that taxpayers can benefit from any rebound. "To get the upside, we have to make it explicit. … The public is owed a better description of what's going on than they're getting," he says.

Swedish officials, such as Lind, say the government ultimately recovered all of the money it spent to recapitalize the banks through sales of the non-performing assets. The World Bank's definitive "Banking Crisis Database," however, puts the net cost at a still high 4% of gross domestic product.

Even as the economy regained momentum, Sweden continued to pay for its earlier profligacy. Unemployment remained above pre-crisis levels throughout the 1990s and the Swedish government, which had run a surplus in the 1980s, suffered budget deficits for seven consecutive years. Swedes' relative living standards also took a hit.

Sweden ranked third in per-capita income among the 30-nation Organization for Economic Co-operation and Development in 1970 behind only the USA and Switzerland. By 1991, it had fallen to 14th, where it ranks today.

Harvard University professor Kenneth Rogoff, co-author of a recent study of modern financial crises, says the cost of fixing the troubled U.S. financial system will be at least as much as Sweden spent. And maybe more.

Factory orders tumble for second month

2008-04-02T19:04:00.002-07:00

WASHINGTON — Orders to U.S. factories fell for a second month, a worse-than-expected performance that reinforced worries that the risk of recession is rising.
The Commerce Department reported Wednesday that factory orders dropped 1.3% in February, about double the downturn that economists had been expecting. Orders had fallen an even bigger 2.3% in January, the largest decline in five months.

The falloff in demand was widespread, with steep declines in orders for motor vehicles, various types of heavy machinery and demand for iron and steel.

BERNANKE: No growth possible for first half 2008

Many economists believe a prolonged housing slowdown and credit crunch have already pushed the country into a recession. Federal Reserve Chairman Ben Bernanke, testifying before the Joint Economic Committee on Wednesday, said that the economy could shrink over the first half of this year, his most pessimistic assessment to date.

"It now appears likely that gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told lawmakers. Under one rule, six straight months of declining GDP would constitute a recession.

Bernanke said he still expects economic growth to strengthen in the second half of the year but he said, "In light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside."

The report on factory orders showed demand falling 1.1% for durable goods, items expected to last at least three years, while orders for non-durable goods, products such as oil and chemicals, fell 1.5%.

The weakness in manufacturing occurred even though orders for commercial airplanes rose by 5.1% in February, rebounding from a big decline in January. Orders for motor vehicles fell 2% in February after no gain in January. Automakers are struggling with weak demand in the face of soaring gasoline prices.

Overall, orders for transportation products posted a 1.8% rise in February as the strength in commercial and defense aircraft orders as well as higher demand for ships and boats offset the drop in motor vehicles.

Orders for heavy machinery plunged 12.3% in February, the biggest decline since January 2004, while orders for iron and steel fell 2.3%.

Mortgage demand drops after rocketing; key rate at 5.75%

2008-04-02T19:04:00.001-07:00

By Julie Haviv, Reuters
NEW YORK — Mortgage applications plunged last week, largely reflecting a drop in demand for home refinancing loans, although 30-year fixed-rate mortgage rates remained below 6%, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 28 fell 28.7% to 688.3.

The index, however, gained 48.1% the previous week.

Overall mortgage applications last week were 6.0% above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 0.1% to 744.5.

The U.S. housing market is currently suffering one of the worst downturns in its history.

FIND MORE STORIES IN: National Association of Realtors | Mortgage Bankers Association
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.75%, up 0.01 percentage point from the previous week.

Interest rates were below year-ago levels of 6.13%.

Fixed 15-year mortgage rates averaged 5.27%, up from 5.23% the previous week. Rates on one-year adjustable-rate mortgages decreased to 7.00% from 7.02%.

The MBA's seasonally adjusted purchase index, widely considered a timely gauge of new-home sales, dropped 11.8% to 356.0. The index came in below its year-earlier level of 402.9, a drop of 11.6%.

The group's seasonally adjusted index of refinancing applications plummeted 38.1% to 2,636.0. The index surged 82.2% the previous week.

The index was up 25.6% from its year-ago level of 2,098.3.

Consumers seeking to refinance their existing home loans tend to be highly sensitive to shifts in interest rates.

The refinance share of applications decreased to 53.4% from 62.0% the previous week. The ARM share of activity increased to 5.4%, up from 3.8% the previous week.

While the battered U.S. housing market has not bottomed out yet, data last week suggested it may be nudging closer to recovery, particularly a better-than-expected existing home sales report for February from the National Association of Realtors.

An unwieldy supply of homes for sale remains one of the biggest obstacles facing the hard-hit sector.

Fed chief Bernanke defends Bear Stearns deal

2008-04-02T19:03:00.002-07:00

By Sue Kirchhoff, USA TODAY
WASHINGTON — Federal Reserve Chairman Ben Bernanke said Wednesday that the economy could fall into recession, as housing and financial markets remain distressed despite dramatic Fed interest rate cuts and emergency lending.
"It now appears likely that (the economy) will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told the Joint Economic Committee. He expects activity to pick up into 2009 but warned that major risks remain. "We are fighting against the wind," Bernanke said.

Bernanke staunchly defended the Fed's decision last month to broker JPMorgan Chase's (JPM) takeover of investment bank Bear Stearns, (BSC) including approval of a loan backed by $30 billion of Bear Stearns assets.

MORTGAGE DEMAND DROPS: Interest rates remain below 6%.
PREPARED TESTIMONY: Text of Bernanke's remarks.

Given "exceptional pressures" on the global economy and financial system, the damage caused by a potential Bear Stearns default could have been "severe and extremely difficult to contain," Bernanke said. He stressed that the move wasn't a bailout but an effort to preserve the integrity of the overall financial system.

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The Fed, which doesn't directly regulate Bear Stearns, had just 24 hours' notice that the nation's No. 5 investment bank could file for bankruptcy. A Bear Stearns default could have sparked a "chaotic unwinding" affecting the overall economy, Bernanke said.

"Perhaps in a more robust environment we would have made a different choice," Bernanke said. "The financing … has never happened before, and I hope it never happens again."

Even though the economy is slowing, inflation — boosted by high energy and food prices — remains a concern and constraint for the central bank. The Fed has sliced a key interest rate to 2.25% from 5.25% since September. Bernanke did not spell out the direction of policy, though his downbeat tone suggests the Fed is likely not done cutting rates.

Brian Bethune of economic consulting firm Global Insight expects the Fed to cut its target for short-term rates into midsummer.

The economy grew at an anemic 0.6% annual pace in the final quarter of 2007. Employers are shedding jobs, consumer confidence and spending have been shaken, and lenders have pulled back.

Bernanke said the extraordinary Fed moves — including invoking Depression-era authority to lend to investment banks — had helped but that financial markets are still under "considerable stress."

He said Congress should act to help stabilize the housing market. He rejected the notion that the Fed had helped Wall Street but ignored Main Street, saying interest rate cuts had at least offset some of the headwinds from financial markets. Bernanke said a company hired by the Fed to oversee Bear Stearns assets has said the Fed should be able to get its money back.

Senate agrees on compromise to help homeowners

2008-04-02T19:03:00.001-07:00

WASHINGTON — Senate leaders on Wednesday night announced a multibillion-dollar bipartisan compromise measure to aid families facing foreclosure amid the sharp housing downturn.
The proposal, which could be debated as early as Thursday, contains funding to provide foreclosure counseling to beleaguered households, help local governments buy and refurbish foreclosed properties and increase the limit on loans backed by the Federal Housing Administration.

But negotiators for both parties could not reach agreement on a provision that would give foreclosed homeowners more lenient treatment in bankruptcy proceedings.

Lawmakers were also forced to shelve a more ambitious FHA mortgage rescue plan but promised to continue working on the issue.

"This is not a complete package. Obviously, there is a lot more work that needs to be done," said Banking Committee Chairman Chris Dodd, D-Conn.

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"This will be the first reaction. It will not be the last," said Alabama Sen. Richard Shelby, the Banking Committee's top-ranking Republican.

The compromise includes:

•Foreclosure aid. A $4 billion package to aid communities hard hit by foreclosures and mortgage delinquencies. Local governments could use the funds to buy and rehabilitate foreclosed homes at a discount.

•Government-backed mortgages. Increased loan limits for FHA-guaranteed mortgages.

•Financial counseling. About $100 million in new funding for housing counseling to help up to 250,000 families.

•Tax credit. A $7,000 tax credit, over two years, for buyers of foreclosed homes or properties on which foreclosure action has been filed.

•Business tax relief. Authority for home builders and other firms that are losing money to reclaim taxes paid up to four years ago vs. two years now.

The package was negotiated against a backdrop of increasingly bleak housing market news.

During February, new foreclosure filings — including default notices, bank repossessions and auction sale notices — were reported on 223,651 properties nationwide, according to RealtyTrac, an online marketplace for foreclosure properties. That's up 60% from a year earlier.

Many business groups applauded the compromise. The Mortgage Bankers Association said the plan would "keep at-risk borrowers in their homes."

But a coalition of consumer, housing and civil rights groups criticized the failure to reach agreement on bankruptcy changes they say would help 600,000 families avoid foreclosure.

The omission represents "a win for the financial services industry that brought us this mess," the coalition said.

Clinton's goals for economy? Big change

2008-04-02T19:01:00.000-07:00

WILKES-BARRE, Pa. — Sen. Hillary Rodham Clinton plans, if elected president, to aggressively use federal tax and regulatory policy to promote key sectors of the U.S. economy. She also vows to take a more skeptical view of foreign investment in companies involved in defense work.
In an interview with USA TODAY, she proposed stripping tax benefits from sectors such as the oil industry and using government policies to boost industries such as automakers, wind turbine producers and steel companies. And she rejected criticism that her plans amounted to a form of industrial policy that would represent a dramatic departure from traditional U.S. practice.

"We subsidize the oil companies. We think it's important that we give them our tax dollars so they can go out and explore and extract and produce oil. That's a clear decision right along the lines of an industrial policy," she said. "We subsidize all kinds of industries. We don't call it that. But we've made a decision we're going to subsidize them. I think that what we subsidized in the past is not what we should be subsidizing right now."

As the Democrats prepare for this state's critical April 22 primary, Clinton's remarks illustrate the sweeping nature of the changes Corporate America would face in its dealings with the federal government if she were elected the nation's first female president.

She offered few details of how business incentives would be reshaped other than to vow to preserve auto manufacturing and steelmaking capacity and promote alternative energy industries. But she insisted that government subsidies are needed to counteract the market's tendency to "punish" investments that don't deliver swift returns. The interview came amid a global credit crunch that has the U.S. economy stumbling like a sailor on shore leave. Signs of financial weakness are evident at home — where house prices, consumer confidence and jobs are all sliding — and abroad, where the value of the U.S. dollar is down more than 17% against the euro since early 2006.

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In her comments, Clinton made it clear that she regards the free-market doctrine that has held sway in Washington for a generation to be both inequitable and ill-suited to the sharp-elbowed global competition the U.S. now faces. Leaving economic outcomes to the market has resulted in stagnant incomes for the typical family and special treatment for the well-connected, she says.

"People say all the time, 'We can't pick winners and losers.' Well, then fine. Take every single dollar of subsidy out of the federal tax code. Get rid of all of it. … Let's have a real level playing field where nobody gets a penny in subsidy," she said. "Then see what happens. You'd hear the squeals of protest from Wall Street to Houston to Silicon Valley."

Clinton was interviewed in a small gym office at King's College, a Catholic institution founded in 1946, after holding a "town hall" meeting with voters. The conversation, which came as she prepared to wrap up a six-day campaign swing focused on the economy, continued by phone as she was driven to the airport.

She was sharply critical of the Bush administration, but made no mention of her opponent, Sen. Barack Obama, D-Ill.

Her most impassioned remarks in the interview came as she blistered the oil companies and the "moneyed class" she said has reaped the economy's rewards. Indeed, the share of national income going to the top 1% of wage-earners has doubled over the past 25 years, according to Robert Lawrence, a professor of trade and investment at Harvard University.

"Americans have been sold a bill of goods about the way the economy should work through a very concerted ideological effort at propaganda," she said.

Clinton, whose lead in the polls here over Obama is shrinking, said she believes that parts of the U.S. economy already are in a recession. But she said there is still time for policymakers to avert a lengthy and punishing downturn.

Struggling town identifies with message

In Wilkes-Barre, a working-class bastion of Luzerne County, residents already are feeling the pain. The average weekly wage here in March was $679, less than 80% of the state average. The unemployment rate is 6.6%, well above the 4.8% national figure.

So Clinton's full-throated economic populism struck a responsive chord when she appeared before a crowd of college students and local residents. Standing on a low stage, flanked by giant American flags, she was greeted by a sign reading, "We've got your back Hillary." As she began her remarks, one man in the crowd yelled: "I love you, Hillary!"

Prowling the stage, Clinton touted the economic record of her husband, President Bill Clinton, during the 1990s. And she promised to create 3 million jobs by investing in building roads and bridges.

The New York senator, who hails from the Midwest and spent 12 years as first lady of Arkansas, has ties to the Scranton/Wilkes-Barre area through the family of her father, the late Hugh Rodham. In a play for the hometown vote, she waxed nostalgic about "all those happy times in Scranton."

Much of the interview revolved around the challenge of preserving a prosperous middle class amid a ferociously competitive global economy. With U.S. median wages stagnant since 2000, Clinton made it clear that she takes a more skeptical view of the unrestrained market than do its most robust defenders. If she makes it to the White House, she will push for a more active government role in shaping globalization's effect upon the economy, including identifying key industries for protection, she said.

"We have to adjust our view of this. … What is it we really believe the United States should continue to make? I would put certain defense items in that category. I would put certain basic goods in that category, like steel," she said. "If you look at every other country, they make such judgments like that. We are competing against countries that directly and indirectly subsidize what they have concluded to be in their national interest."

One symptom of U.S. economic ills is the sagging dollar. Clinton did not respond directly when asked whether she favored coordinated central bank intervention to halt the greenback's decline. But she said the dollar could be in danger of losing its status as the world's reserve currency and suggested a change in the White House would reverse the tide.

"It is in danger with respect to being a reserve currency," she said. "A lot of the problem is of our own making. I think we could see the dollar start to creep up if we had a different president."

Clinton said the country has been "trapped the last seven years … in an ideological container" that has prevented a needed rethinking of how to regulate a financially globalized world. She criticized President Bush for not acting on the current housing crisis with sufficient urgency and dismissed Treasury Secretary Henry Paulson's proposal for a revamp of financial markets regulation. "What the administration has done up until now is just not adequate," she said.

But she shied from attacking Alan Greenspan, the former Federal Reserve Board chairman, whom some economists say opened the door to the current financial turmoil.

Greenspan publicly praised the adjustable-rate mortgages, many of which were sold to borrowers who proved unable to afford them in the long term, as well as the process of securitization that spread financial weakness through multiple countries and markets. Last month, Clinton called on the president to name an emergency working group on home foreclosures and recommended it include Greenspan.

In the interview, Clinton said that "legitimate questions" have been raised about the former Fed chairman's responsibility for the crisis. But she said he remained a valuable economic figure because of his "calming influence on Wall Street."

At issue: Sending U.S. jobs abroad

During her town hall appearance, Clinton vowed to "take a hard look at every trade agreement" and said she would add tougher labor and environmental standards to any new deal. Enforcing such requirements, she said, would reduce the incentive for companies to shift jobs overseas.

In the interview, Clinton singled out drugmakers that have shifted production overseas in recent years. Higher product safety and quality standards might lead to them bringing jobs back to the USA, she said.

But when pressed, Clinton said she was unable to provide even a rough estimate of the likely impact on employment or the trade deficit of writing such standards into new trade deals. "I don't know," she said.

In Pittsburgh on Wednesday, she unveiled a proposal to eliminate a provision in the corporate tax code that economists say encourages companies to invest abroad. That would bring in an estimated $7 billion in additional revenue, which could be used to encourage investments in the USA, she said.

Clinton also had tough talk for one of the USA's top trading partners, China, which she accused of manipulating its currency, violating American copyrights and rigging its domestic market to benefit government-backed firms.

She said she would prevent the offshoring of defense-related production, citing an Indiana company that once produced sophisticated magnets for the Pentagon's precision-guided missiles. In 2003, the company, Magnaquench, shuttered its last Indiana factory and shifted operations to China. That anecdote drew a startled "oooh" from the crowd.

In 2000, while campaigning for a Senate seat, Clinton supported normal trade relations with China, despite what she described as lingering doubts about the country's human rights record. In the interview, she acknowledged that she has been "surprised" by the way the commercial relationship between the U.S. and China has evolved.

Housing regulator: Freezing mortgage rates a bad idea

2008-04-01T18:23:00.000-07:00

WASHINGTON (Reuters) — With housing markets are showing signs of improvement, the idea of freezing mortgage rates would be a mistake, the director of the Office of Federal Housing Enterprise Oversight said Friday.
"You'd really cause market dislocations," said OFHEO director James Lockhart on CNBC television, when asked about a proposal put forward by Sen. Hillary Clinton, a contender for the Democratic presidential nomination.

"I think we're going to let the market work and interest rates have come down dramatically and people are going to be able to refinance," Lockhart said.

MORTGAGE RATES: 30-year rates average 5.85%

He said lower interest rates should make it somewhat less painful for holders of adjustable-rate mortgages who face "resets" to higher rates in coming months.

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Lockhart said there were "some good signs" that the severe downturn in housing markets might be approaching an end, although he said it will take some months to be sure.

"It's going to take a while but we're starting to see some bottoms," Lockhart said, referring to a prolonged dip in construction starts on new homes. "It may take another six months or so, but hopefully we'll start pulling out of it."

He said that government-sponsored enterprises Fannie Mae and Freddie Mac are taking steps that should help keep mortgage rates lower. Regulators eased capital requirements for the two biggest U.S. mortgage finance sources so they can provide more funds for stressed mortgage markets.

"Fannie and Freddie are doing billions and billions a month refinancing people out of subprime mortgages and I think that is the way to go," Lockhart said.

In response to questions, Lockhart said he supported the idea of consolidating the regulation of Wall Street investment banks and other financial market participants that have come under criticism as credit markets have come near seizing up.

"I think that's a good idea," he said, adding that Fannie Mae and Freddie Mac need a strong regulator as they keep growing.

One reason they need to be strongly regulated is to prevent the possibility that, should they get in trouble, they could cause problems for the whole financial system, he said.

"Systemic risk is a big issue with these two companies. When you have 76% market share in just two companies, obviously they are the system," Lockhart said, calling that "a key reason" for legislative action to tighten regulation.

JC Penney cuts sales, earnings forecast; shares tumble

2008-04-01T18:22:00.000-07:00

NEW YORK (Reuters) — Department store operator J.C. Penney (JCP) on Friday slashed its first-quarter earnings forecast, saying sales through the Easter holiday were below expectations and noting that consumer confidence is at a multi-year low.
Penney's shares fell sharply, dragging down shares of other retailers.

Department store operators that cater to middle-income Americans have been hit hard by the slowdown in consumer spending as these shoppers forgo purchases of clothes, jewelry or home furnishings amid fears of a U.S. recession.

But even upscale department store chains like Nordstrom (JWN) and Neiman Marcus are starting to feel the strain of the spending slowdown.

"J.C. Penney operates in a very challenged part of the retail sector," said Craig Johnson, president of retail consulting firm Customer Growth Partners. "The mid-tier mall-based department stores are the center of the retail sector difficulties. ... They are the bull's eye of it."

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The retailer expects first-quarter earnings of approximately 50 cents a share, compared with its previous view of 75 to 80 cents a share.

It also expects a low-double-digit decline in March sales at stores open at least a year, known as same-store sales, and a high-single-digit decline in same-store sales for the first quarter. Its previous view was for same-store sales in March and the first quarter to decline in the low single digits.

"J.C. Penney counts half of American families as its customers, and they are feeling macro-economic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets," said Myron "Mike" Ullman, chairman and chief executive.

"The sharp decline in sales is reflective of these trends," he said.

In February, Penney reported a nearly 10% decline in quarterly profit and said there was no clear indication the consumer environment would improve in 2008.

It also posted a 6.7% drop in February sales at stores open at least a year while analysts, on average, were expecting a decline of just 1.9%.

Those disappointing February sales figures prompted JPMorgan analyst Charles Grom to downgrade his rating on the retailer's shares to "neutral" from "overweight," and he said at the time that the company's outlook for its March sales was "too aggressive."

Manufacturing, construction better than expected

2008-04-01T18:21:00.000-07:00

WASHINGTON (AP) — Two reports out Tuesday showed weakness in the economy, but both were better than expected.
• A closely watched gauge of manufacturing activity contracted for a second month in March, though at a slower pace than in February, as manufacturers grappled with weakening order books and rising prices for raw materials.

The Institute for Supply Management's manufacturing index edged up to a reading of 48.6 in March. That was better than expected but still signaled that the manufacturing sector continues to shrink. A reading below 50 is a sign of contraction.

Economists polled by Reuters had expected the index to drop to 47.5.

Norbert Ore, chairman of ISM's manufacturing business survey committee, said that March capped "the weakest quarterly performance for the U.S. economy since the second quarter of 2003."

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He cited weakness in orders and the backlog of orders and added: "Additionally, manufacturers continue to experience heavy cost pressures as the prices they pay are still rising, even with slower overall demand."

Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a trade group based in Arlington, Va., said he believes the manufacturing sector is in recession.

"The combination of declining business activity and rising prices brings back the unpleasant memories of yesteryears' stagflation, he said. "A recession is always bad news for manufacturers."

Still, Meckstroth said that the weak dollar, which has supported exports and weakened imports, as well as government stimulus programs "should keep the 2008 recession on the mild side for the industrial sector."

Later Tuesday, Federal Reserve Chairman Ben Bernanke met privately with House Republicans, but participants said he steered clear of saying the country is in a recession.

House Minority Leader John Boehner, R-Ohio, told reporters beforehand that the meeting was called because of "great concern about where our economy is headed."

A trio of crises — housing, credit and financial — are threatening to push the country into a recession. Home foreclosures have swelled to record highs, employers are slashing jobs and financial companies have racked up billions in losses from soured investments in mortgage-backed securities. The situation has sent a tremor through Wall Street and official Washington and affected many Americans.

Bernanke's meeting with House Republicans came one day before he is slated to go to Capitol Hill to give lawmakers a fresh assessment of economic conditions.

At Tuesday's meeting, Bernanke didn't say the economy is in a recession, Rep. Adam Putnam, R-Fla. told reporters after the session.

The ISM said its new orders index registered 46.5 in March, compared with 49.1 in February. Ore said it was the fourth month new orders failed to grow.

The backlog of orders also contracted, with a reading of 47.5 in March compared with 45.0 the previous month.

The price index, meanwhile, soared to 83.5 last month from 75.5 in February.

One bright spot, Ore said, was export demand. The index measuring exports rose to 56.5 last month from 56.0 in February.

• Construction spending fell again in February as home building tumbled for a record 24th month.

The Commerce Department said overall construction activity dropped 0.3% to $1.12 trillion at an annual rate in February, reflecting weakness in home building and non-residential construction. Only government building projects showed a gain in February.

Analysts polled by Reuters expected spending in February to decline 1%.

Residential construction fell 0.9%. Residential activity has fallen every month since March 2006, a decline that underscores the severe downturn in housing.

Analysts believe housing will keep falling until a record glut of unsold homes is reduced. That effort is being hindered by mortgage foreclosures soaring to record levels, reflecting abuses in lending at the height of the housing boom.

The weakness in housing is combining with soaring energy prices and a severe credit crunch to push the economy close to recession.

The Bush administration is hoping an economic stimulus package will boost growth this spring and summer, when 130 million households begin spending their tax rebate checks.

Construction spending fell 1% in January and 1.7% in December.

In addition to the continued fall in housing construction, spending on non-residential projects dropped 0.1% in February after declines of 1% in January and 0.2% in December. Weakness in February reflected declines in office building, health care and schools.

Government spending was the one area of strength, rising 0.4% with federal spending surging 1.4% and state and local projects rising 0.4%.

Bear of different kind mauls 1st quarter

2008-04-01T18:20:00.000-07:00

By Adam Shell, USA TODAY
NEW YORK — Undone by the fallout from the real estate bust, Wall Street resembled a house of pain in the first three months of 2008.
When the first quarter ends Monday, it will take its rightful place among the stock market's most treacherous periods. It will forever be linked to the collapse of investment bank Bear Stearns (BSC) after a 1930s-style run on the bank and the Federal Reserve's dramatic move to rescue the financial system.

The key debate now is whether the worst is over, whether stocks reflect all the bad news, or whether the downward trend is still in force.

The 9.7% first-quarter loss posted by the Standard & Poor's 500 index through Thursday is puny compared with the biggest quarterly drop ever: 39.4% in the second quarter of 1932, S&P says. If the decline holds, it would barely make it into the top 40.

But while the loss might not be of historical proportions, it still underscores how vulnerable the financial system is to the toxic combination of rampant speculation and leverage. It also is a clear reminder of how quickly financial markets can unravel if all-important investor confidence takes a major hit.

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Stock declines of this magnitude in a quarterly span are relatively rare — often coming during the doom-and-gloom of bear markets or shock-induced scares. Indeed, the credit-crunch-inspired plunge in the first quarter ranks right up with the market angst caused by America's most famous financial crises:

•The 10.3% drop in the third quarter of 1998 when hedge fund Long-Term Capital Management collapsed.

•The 14.5% decline in the third quarter of 1990 in the aftermath of the savings-and-loan crisis.

•The 23.2% plunge in the fourth quarter of 1987 after the October market crash.

Four of the five biggest quarterly losses came in the years after the 1929 stock market crash. The fourth worst came in the third quarter of 1974, at the tail end of the 1973-74 bear market.

The big question now: What happens next? Patrick Adams, a hedge fund manager at Choice Investment Management, sees gains ahead. "The second quarter is not likely to look like the first quarter," he says. The Fed's aggressive move to support ailing Wall Street banks and the hard-hit mortgage market has reduced the odds that another major negative bombshell is out there.

Adams says investors should buy stocks on price drops. He expects stocks to react negatively at first to weak first-quarter profit reports but to rebound quickly. "We are close to a trough, and once the market is confident (a bottom is in), we could have a pretty big rally," he says.

But with the economy slowing, joblessness on the rise and the real estate market reeling, caution might seem a more prudent choice. "Bulls will say the current slowdown is a mere flesh wound, while bears may use it as a road map for what is likely to come. We're somewhere in the middle," Jason Trennert of Strategas Research Partners wrote to clients recently.

Falling dollar dents profits on imported cars

2008-04-01T18:18:00.000-07:00

By Chris Woodyard, USA TODAY
LOS ANGELES — The falling dollar is forcing automakers to scramble for ways to maintain profit margins on cars they import from Europe, Asia and Canada.
Some, like General Motors (GM), find themselves in the odd situation of limiting the number of models they bring in from overseas subsidiaries even though they might be able to sell more in the USA.

Foreign makers, meanwhile, are considering producing more models at U.S. plants or building new factories. Some even are increasing production here to ship more U.S.-made cars overseas.

"The pressure will be for the dollar to continue falling," says Joerg Dittmer, senior industry analyst for consultants Frost & Sullivan. The result will be "more domestically made cars."

Even as GM was introducing variants in its Australian-made Pontiac G-8 at the New York auto show last week, President Fritz Henderson told reporters in Los Angeles that the key to profitability is to make sure it "carefully controls the volumes" of such imports.

Facing the same quandaries:

•Volkswagen. The German automaker will announce by June if it will build a U.S. plant. "The dollar has really put the pressure on the (plant) evaluation," spokesman Keith Price says.

•BMW. The German carmaker is expanding its Spartanburg, S.C., plant to build the new X6 and the next version of the X3. The move "certainly helps" offset the dollar's weakness vs. the euro, BMW's Tom Plucinsky says.

•Volvo. The Swedish unit of Ford (F) is considering building one or more models at a U.S. Ford plant. "The dollar is having an impact," spokesman James Hope says. A possible candidate: the C30 hatchback, which shares components with Ford's Mazda3.

•Mitsubishi. The Japanese automaker is increasing exports from its Normal, Ill., plant to Eastern Europe and the Persian Gulf.

The USA exported 3,052 cars in January, up 46% from the month in 2007, according to the most recent Census Bureau data available. Imports rose just 2%, to 10,119 cars, in the same period.

Toyota (TM) credits its 10 U.S. assembly plants for helping it weather the dollar fall, though spokesman Xavier Dominicis adds, "Our decisions are not dictated by … currency exchange rates."

Income grows as consumers do little spending in Feb

2008-04-01T18:17:00.001-07:00

WASHINGTON (Reuters) — Consumers, jolted by a credit crisis, job cuts and soaring energy costs, turned in the weakest spending performance in 17 months in February, and consumers' confidence weakened to the lowest in 16 years in March, fresh evidence that the risks of a recession are increasing.
The Commerce Department said Friday that consumer spending edged up 0.1% last month, the poorest showing since September 2006. And if the effects of inflation are removed, spending was flat in February, the third consecutive month of sluggish activity.

Personal income rose 0.5%, the report said, exceeding a forecast of 0.3%.

The personal consumption expenditure price index, a key measure of inflation, rose 0.1% in February after a downwardly revised increase of 0.3% in January. Excluding volatile food and energy costs, the personal consumption expenditure index also rose just 0.1%, in line with analyst expectations.

On a year-over-year basis, this core index rose 2.0%, matching the prior months' gain, which was downwardly revised from 2.2%.

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"The decline in the year-over-year core PCE is important in that it supports the notion the Fed is making the right decision in cutting rates aggressively and not threaten long-term price stability. It argues that the Fed can lower rates in the months ahead," said Zach Pandl, an economist with Lehman Bros. in New York.

The personal savings rate was 0.3% in February after a negative 0.1% in January.

The performance of the consumer is closely watched since consumer spending accounts for two-thirds of total economic activity. Economists said the sustained weakness in this area is one of the most worrisome signs that the economy could be tipping into a recession.

The Reuters/University of Michigan Surveys of Consumers said its final index of confidence fell to 69.5 in March as worries over fading job prospects and rising inflation clouded the outlook. That was the lowest since February 1992, when it was at 68.8.

Economists polled by Reuters expected a reading of 70.0 in the index of confidence, which the preliminary report had said was at 70.5 in early March.

Fed to auction off $100B more to commercial banks

2008-04-01T18:16:00.002-07:00

WASHINGTON (AP) — The Federal Reserve announced Friday it will auction another $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.
The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns, the nation's fifth largest investment bank.

The Fed has been holding auctions every two seeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.

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In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase, hoping to prevent a bankruptcy that could have rocked Wall Street.

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.

Fed Chairman Ben Bernanke will face questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

Paulson's financial reform plan gets mixed response

2008-04-01T18:16:00.001-07:00

By David J. Lynch, Sue Kirchhoff and Adam Shell, USA TODAY
The Federal Reserve's role in monitoring the health of financial institutions would dramatically expand under a plan the Bush administration unveiled Monday to overhaul regulatory oversight.
The plan — which critics said was sure to be modified by Congress — capped a year-long process that began with a desire to help U.S. financial players compete globally by streamlining their oversight and ended amid fear of a meltdown fed by lax regulation.

FULL REPORT: Blueprint for a modernized financial regulatory structure (pdf)
TEXT OF SPEECH: 'We can do a better job' of regulating, Paulson says

Treasury Secretary Henry Paulson, who unveiled the 218-page blueprint for reform, acknowledged that the far-reaching proposal represents just the start of a long political process.

He also fired back at critics who complained that the plan would do nothing to address regulatory failures that led to the current crisis.

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"The overhaul of our financial and regulatory system is inevitable," Paulson said in an interview with USA TODAY. "This is going to take time — a lot of time — but we have a responsibility to begin this discussion now."

The Treasury Department plan, the product of consultations with financial market participants, academics and former government officials, takes aim at what it calls an outdated regulatory structure that financial innovation has left behind.

The blueprint would:

•Replace a welter of federal agencies with three main regulators charged with ensuring stable markets, safeguarding federally guaranteed institutions such as banks and protecting consumers.

•Introduce federal regulation of the insurance industry with the creation of an optional federal charter to supplement the state-level system that's been in place for 135 years.

•Create a Mortgage Origination Commission to pass judgment on state oversight of the mortgage industry.

•Merge agencies that oversee securities and futures trading — the biggest change for the Securities and Exchange Commission since its creation in 1934.

On Capitol Hill, Paulson's proposal drew a cool reception from the majority Democrats.

Even those who welcomed it said they don't see it passing in an election year.

Rep. Barney Frank, D-Mass., who chairs the House Financial Services Committee, called it "a constructive step forward (in) a profound national discussion that cannot be concluded in the months before the election."

Senate Majority Leader Harry Reid, D-Nev., and Senate Banking Committee Chairman Chris Dodd, D-Conn., told reporters that they are focused on passing a bill to address the rising number of home foreclosures, a crisis that the administration's proposal would not address.

That bill, which Republican lawmakers are blocking, would let bankruptcy judges rewrite the terms of mortgages.

"I would call this the wild pitch," Dodd said of the Bush administration plan in a conference call with reporters. "It's not even close to the strike zone. … Clearly, this has nothing to do with the current problems we're facing."

The verdict was harsher on the presidential campaign trail, where Sens. Hillary Rodham Clinton, D-N.Y., and Barack Obama, D-Ill., both took shots at the administration's game plan.

In a statement, Clinton derided the blueprint, saying it "comes late and falls short."

Even as he introduced the sweeping proposal, Paulson took pains to stress that it had been in the works for a year and was not a response to the current financial crisis.

Asked how much the plan had been affected by the recent turmoil in credit markets, he replied, "Not much."

The Treasury secretary, a former CEO of investment bank Goldman Sachs, suggested that the economy is destined to tumble into a crisis "every five to 10 years," no matter what regulatory structure is adopted.

Still, if enacted, the administration's proposal would drastically reshape the way Washington controls several major elements of the U.S. economy.

Here's a look at the plan's likely impact if it were adopted:

Federal Reserve: Central bank gains power, responsibility

The greatest impact would be felt at the marbled headquarters of the nation's central bank, where the Federal Reserve would gain broad new responsibility for preventing financial problems from developing into crises. Along with its traditional role of promoting economic stability, the Fed would acquire new power to review the books of investment banks, hedge funds, commodity trading institutions and other firms.

It's unclear, though, whether the central bank would continue its role of overseeing national bank holding companies, or whether that power would be shifted to a new federal bank regulator. And critics questioned whether the central bank would gain enough new authority to match its new responsibilities.

"They give (the Fed) everything they need but only limit it to periods when we're in big trouble," complains former Fed governor Lyle Gramley. "There's a lot of clarification that needs to be done."

Paulson insisted, though, that the Fed would have sufficient power to act as needed. A onetime Dartmouth College football standout, Paulson likened the central bank's new role to that of a "free safety," roaming the field.

Others, including Senate Banking Committee Chairman Dodd, say the Fed helped sow the seeds of the current crisis by being slow to recognize problems in the housing sector and too reluctant to use its existing authority to clamp down on unsafe practices.

Augustine Faucher of Economy.com said it's unclear whether the Fed, or anyone, can detect latent threats in financial markets. "Presumably, the firms themselves have the greatest knowledge of the risks they undertake," Faucher wrote in a research note. "Yet during this crisis, the players clearly misjudged the risks in mortgage-related holdings. Could the Fed be expected to do better?"

Insurance industry: States could lose power to regulate

In the insurance arena, the blueprint recommends revising the historic state-by-state regulatory network by giving insurance companies the option of seeking a federal charter and Washington oversight. Long sought by the insurance industry, the proposal mirrors an option already available to banks.

The plan calls for creating an Office of National Insurance, led by a federal commissioner, within the Treasury Department. That agency would be subject to congressional oversight.

Such sweeping changes would likely involve lengthy Washington debate. But the Treasury blueprint says some issues, such as international regulatory agreements, need immediate action. It says the nation should have an easily identified "lead negotiator in the promotion of international insurance policy."

Insurers hailed the plan, while state regulators and consumer advocates argued that it would reduce protection for policyholders. Marc Racicot, president of the American Insurance Association and a former Republican national chairman, said the current state-by-state approval of some insurance products can take more than two years, compared with less than two months for similar offerings from competing industries.

Those lengthy reviews also increase costs, which are passed on to consumers, Racicot argues. A 2007 study conducted for the American Council of Life Insurers concluded that switching to a single regulator could save $5.7 billion in annual life insurance costs. Consumers would benefit with lower premiums, said Frank Keating, the former Oklahoma governor who heads the council.

But Sandy Praeger of the National Association of Insurance Commissioners said, "We want to get products into the marketplace quickly, but we also believe scrutiny of those products is important."

Banks: Oversight spread among 3 regulators

The Treasury Department's blueprint would revamp a banking system under which a patchwork of five federal regulators, along with state agencies, supervise depository institutions.

Overall, it's a "step forward," says Richard Sylla, a financial historian at New York University's business school, but it doesn't "add a lot of regulatory teeth" to overseeing the commercial banking industry.

Investment banks would face tighter regulation, which could bring benefits and drawbacks. "The reason this is good for them is that, in a sense, this will constrain future crises," says David Beim, a professor at Columbia University's business school. "But the cost is some constraint on how they do business."

One regulator, the Federal Reserve, would be charged with ensuring market stability. Another federal regulator would be charged with consumer protection. A third would oversee the safety and soundness of all institutions that are covered by federal deposit insurance.

Now, banks can seek to be primarily regulated by state or federal regulators, depending partly on the charter they seek. A long-term goal of the Treasury plan is to require all institutions covered by deposit insurance to have federal charters and, thus, federal regulation.

Consumer groups say they fear the plan would end states' enforcement authority over insurance, securities and other financial products, while offering little guarantee of strong consumer protection at the federal level. The plan, says Barbara Roper of the Consumer Federation of America, has "kernels of good ideas surrounded by a lot of bad ideas."

"If you just create a new agency flow chart, and you don't address the underlying cause of regulatory failure, you're not doing anything meaningful to benefit consumers," Roper says.

Mortgages: Agency would focus on predatory lending

A linchpin of the plan is the creation of a federal Mortgage Origination Commission, a powerful and first-of-a-kind entity whose purpose, in part, would be to prevent predatory lending or deceptive disclosure to home buyers.

The commission would be made up of a director appointed by the president and representatives from the states and federal banking regulators.

It would have broad authority to evaluate each state's handling of standards for mortgage brokers. The goal: to avoid problems such as the granting of toxic subprime mortgages that originated from state-regulated firms.

Still, the proposal could pose troubling implications for home buyers, warns Houman Shadab, senior research fellow at the Mercatus Center at George Mason University.

States now set their own standards for mortgage brokers, a duty the proposal would hand to the feds.

If those standards become overly restrictive, Shadab says, they could eliminate some good brokers along with the bad ones.

Richard Smith, CEO of Realogy, parent company of Century 21, Coldwell Banker, ERA and Sotheby's International Realty, argues that the government needs to address other mortgage-related problems. Among them: the widespread availability, in the run-up to the current crisis, of "liar loans," which let consumers obtain loans without demonstrating sufficient income needed to repay them.

Some economists say the proposal may sound good at first blush, but there are still a host of unanswered questions.

Home buyers, for example, often sign mortgages without a clear understanding of how much they are borrowing and how their payments could rise over time, notes Joel Naroff of Naroff Economic Advisors.

Wall Street: Experts see changes as demotion for SEC

On Wall Street, the Treasury secretary's initiative was generally viewed as a necessary step to restore investor confidence.

"The financial services industry had a chance to police themselves, and instead they threw caution to the wind," says Gary Kaltbaum, president of Kaltbaum & Associates. "Wall Street shirked all their responsibilities because of greed for the past three years. And, in my opinion, the regulators have been missing in action."

With the blueprint granting greater powers to the nation's central bank, Wall Street's current top cop, the Securities and Exchange Commission, would face a demotion.

Paulson has proposed that the SEC be combined with the Commodity Futures Trading Commission. Experts say they expect that its enforcement duties would be marginalized. "This is definitely a demotion for the SEC," says Mark Maddox, a securities lawyer at Maddox Hargett & Caruso and former Indiana securities commissioner. "There is a new bigger watchdog on the beat: the Fed."

But Anthony Sabino, a business professor at St. John's University, says the Fed's expanded role would be a negative for investors. "If you take the SEC's power away, Wall Street will become the Wild, Wild West," he said.

Under the new proposals, the Fed would gain greater freedom to inspect the books of investment banks, hedge funds and private-equity funds. That doesn't necessarily mean more red tape for Wall Street's finest, says Daniel Clifton, head of policy research at Strategas Research Partners.

"Paulson is trying to seek a balance by streamlining regulation, while also designating areas of the market that need to be regulated more," Clifton says. "It is not necessarily more regulation. It is more sensible regulation."

Stocks' first quarter was a real downer

2008-04-01T18:14:00.000-07:00

By Matt Krantz, USA TODAY
Investors looking back at the first quarter that ended Monday won't have any trouble locating the lowlights. It's the highlights that are harder to find.
Hammered by the failure of Bear Stearns, oil skyrocketing to more than $110 a barrel, historic weakening of the U.S. dollar and rising inflation, the market by most accounts had a terrible first three months of 2008. The Standard & Poor's 500 fell 9.9%, marking its worst quarter in 5½ years. It has fallen five consecutive months for the first time since 1990, says S&P.

"We ended up with a steady diet of bad news," says Noel Lamb, chief investment officer at Russell Investments. "Any highlights were overcome."

Still, as few highlights as there were, they provided some potentially encouraging signs, including:

•Recent dogs perked up Some industries beat up the most badly last year were among the biggest gainers in the first quarter. The best example: Home builders' stocks, which lost half their value last year, gained almost 13.8% in the first quarter, just shy of the top spot held by energy exploration and production companies, which gained a little more than 13.8% on record oil prices. "For a quarter dominated by recession fears, there was good performance by some," says Jim Paulsen of Wells Capital Management.

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•Economy plays were strong. Some investors appeared to be betting that any economic malaise will be short. Residential REITs, which invest mostly in apartment buildings, gained 8.0% during the quarter. And in another vote of confidence that the economy will not grind to a long halt, railroad stocks rose 9.6%. If the economy were truly headed toward a prolonged recession, investors wouldn't be jumping into transportation stocks this soon, Paulsen says.

Meanwhile, earnings forecasts for the broad market are hanging in there. Analysts are calling for 6.5% lower earnings in first-quarter results, says Howard Silverblatt of S&P. But strip out financials' results, and earnings are expected to grow 8.5%. Meanwhile, analysts expect earnings to stabilize in the current quarter, rise 19.3% in the third and jump 73% in the fourth.

Still, many say it's too soon to be focusing too hard on the bright spots. The fact investors are clinging to defensive investments such as gold and shares of companies that make consumer necessities shows caution, says Fa'iz Marhami, portfolio strategist at Rydex Investments. Technology stocks were also weak, helping pull the Nasdaq composite down 14.1%. "Investors are moving to what they feel is less risky," he says.

And while stocks in some industries fared well, all 10 broad market sectors fell during the quarter, S&P says. Even the best group, consumer staples, fell 3.0%. "Sure, we can end up with bits of good news to give us grounds for optimism," Lamb says. But he says more bad news is coming and it "is not all priced in."

Fed lends $75B worth of securities to investment banks

2008-04-01T18:12:00.000-07:00

By Jeannine Aversa, AP Economics Writer
WASHINGTON — Big investment banks took the Federal Reserve up on its first-time offer Thursday to let them borrow Treasury securities, the latest effort to ease a painful credit crisis.
The Federal Reserve auctioned $75 billion worth of Treasury securities. Bidders paid an interest rate of 0.33%. Demand was high. The Fed received bids of $86.1 billion worth of the securities.

FED: Tighter mortgage loan rules could revive confidence
LOCKHART: It looks like the beginning of a recession

It was the first time the Fed conducted an auction of this kind. The next one will be held April 3.

The program, dubbed the Term Securities Lending Facility, was announced earlier this month by the Fed and is intended as a booster shot for financial institutions and for the troubled mortgage market. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions that started Thursday.

FIND MORE STORIES IN: Federal Reserve | Treasury | Treasuries | Term Securities Lending Facility
Big Wall Street investment firms could borrow much-in-demand Treasury securities from the Fed and put up more risky investments, including certain shunned mortgage-backed securities as collateral for the 28-day loans.

The program is designed to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing crisis. Since the Fed's announcement of this new program, rates on some mortgages have eased somewhat.

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