History > 2006 > USA > Economy (VI)

Stocks close out banner year

with healthy gains as Dow soars 16%

Updated 12/29/2006
6:20 PM ET
AP
USA Today

NEW YORK (AP) — Wall Street slipped lower Friday, closing out a year that will be remembered for the stock market's great comeback — pulling off a year-end rally that pushed the Dow Jones industrials past 12,000 for the first time.

By all accounts, 2006 ended up a very good year for stocks as bullish investors bounced back from a slumping housing market and the Federal Reserve's two-year campaign of interest rate hikes.

The markets approached record levels in the spring, pulled back sharply in the summer, but found a clear direction in the fall to send the major indexes to multi-year highs.

Blue chips were the standouts of 2006. The Dow Jones industrial average, the index of 30 of the nation's biggest companies, hit record levels dozens of times since achieving its first close above 12,000 on Oct. 19; it traded as high as 12,529.87 before dipping to its close for the year.

This was the best year for the stock market since 2003, when Wall Street staged a massive recovery from levels sideswiped by a bear market. But 2006 will really be remembered for the market's soaring to heights not seen since the height of the dot-com era — this time, however, Wall Street advanced cautiously, not recklessly.

The rally was fed by investors' growing belief that the economy has withstood well the Fed's rate hikes and the impact of record high oil prices. And some analysts expect the advance to continue.

"The stock market is correct in its judgment that we are probably only in the fifth or sixth inning of the game, and that this (economic) expansion may even go into extra innings," said Stuart Schweitzer, global markets strategist for JPMorgan Asset & Wealth Management. "This was a barn-burner of a year, and I expect reasonably solid results over the course of 2007."

The major indexes posted healthy gains for the year, with the Dow Jones industrials rising 16.3%, the S&P 500 adding 13.6%, and the Nasdaq up 9.5%. That's the best showing since 2003, when the Dow closed up 25.3%, the Nasdaq rose 50%, and the S&P 500 gained 26.4% — but those gains were the beginning of the market's recovery from the trough of three straight losing years.

On Friday, the Dow fell 38.37, or 0.3%, to close the year at 12,463.15.

Broader stock indicators also slipped. The Standard & Poor's 500 index fell 6.43, or 0.5%, to 1418.30, and the Nasdaq composite index closed down 10.28, or 0.4%, to 2415.29.

It wasn't just the stock markets that made significant gains in 2006.

The bond market moved in lockstep with stocks — a rare event on Wall Street. Investors bought into equities because of a strong economy and robust corporate confidence. Meanwhile, typically more conservative bond investors used the fixed-income market as a hedge for a possible recession and interest rate cuts.

This year was also a bit of a rule bender for Treasuries. Yields on long-term Treasury notes and bonds were lower than for short-term Treasury bills. Junk bonds were in such demand that their yields were on almost on parity with those of investment-grade bonds.

Bonds slipped further in Friday's session, with the yield on the benchmark 10-year Treasury rising to 4.71% from 4.69% on Thursday. The yield stood at 4.37% on the first day of trading this year, and was over 5% just a few months ago.

The dollar, which has struggled against the euro and other major currencies, was mixed on Friday. The U.S. currency lost support in 2006 after the Fed stopped raising rates on Aug. 8 and kept them unchanged in its past three meetings.

And gold prices continued their rally; investors have sent precious metals sharply higher, viewing commodities like gold and silver as safe-haven investments instead of the greenback.

Plunging oil prices also fed the stock market's 2006 rally. Crude reached all-time highs in the summer when it briefly surpassed $78 a barrel due to the resilience of consumer demand and expectations of a bad hurricane season. But energy prices soon plummeted back to 2005 levels by the fall when traders saw that refiners in the Gulf of Mexico were untouched by hurricanes, and realized global crude inventories remained ample.

That retreat gave momentum to the stock market's rally, and enable investors to tolerate upward blips in the price of crude and gasoline.

The price of a barrel of light sweet crude on Friday rose 52 cents to settle at $61.05 on the New York Mercantile Exchange — about 22% below its highs of the year.

Stocks are expected to rise further in the new year, but not without some resistance. A big question still hanging over the market is whether the Fed will feel comfortable enough with the balance between inflation and a moderating economy to start lowering interest rates. If inflation seems to be accelerating, an interest rate hike could still be in the offing.

"There is going to be a tug of war between the bulls and the bears as we head into next year," said Quincy Krosby, chief investment strategist for The Hartford.

"We could hit a speed bump as Treasury market yields grow higher, and that could put pressure on the stock market," she said. "We need to pay close attention to the Fed, and how they view what I believe is going to be a growth spurt that will be manifested by yields moving up."

She also pointed to fluctuations in the dollar as another greater influence on Wall Street. Rising interest rates in Europe could help the region lure foreign investment away from the United States, further pressuring the dollar next year.

There was little corporate news Friday as traders looked toward a four-day break that includes a suspension of trading for New Year's Day and the funeral of President Gerald R. Ford. And, again trading was thin — typical of the week between Christmas and New Year's.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 1.66 billion shares, compared to 1.67 billion on Thursday.

The Russell 2000 index of smaller companies dipped 6.82, or 0.9%, to 787.66. For the year, the Russell rose 17%.

Overseas markets also soared to multi-year highs in 2006. Japan's Nikkei stock average closed up 0.01% on Friday. Britain's FTSE 100 was down 0.3%, Germany's DAX index fell 0.2%, and France's CAC-40 was up 0.2%.

The Dow Jones industrials ended the week up 121.21, or 1.0%, to finish at 12,463.15. The S&P 500 index was up 7.55, or 0.5%, to end the week at 1418.30. The Nasdaq rose 17.07, or 0.7%, to finish the week at 2415.29.

The Russell 2000 index closed the week was up 7.37, or 0.9%, to end at 787.66.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies— ended the week at 14,257.55, up 79.84 points from last week. A year ago the index was at 12,517.69.

Stocks close out banner year with healthy gains as Dow soars 16%, UT, 29.12.2006, http://www.usatoday.com/money/markets/us/2006-12-29-stocks-year-end_x.htm

Oil prices finish 2006

about where they started,

but consumers still got pinched

Updated 12/29/2006 6:42 PM ET
AP
USA Today

WASHINGTON (AP) — Oil prices settled above $61 a barrel Friday to finish 2006 roughly where they began, marking another tough year for energy consumers and another stellar one for the petroleum industry.

On Friday, light sweet crude for January delivery rose 52 cents to settle at $61.05 a barrel on the New York Mercantile Exchange, up a penny from where they ended last year.

Nymex oil futures peaked at $78.40 on July 14, but averaged $66.25 for the year, compared with $56.70 in 2005 and $41.47 in 2004.

It was the fifth straight year in which oil prices were higher than the year before, on average.

Many analysts are looking for that streak to end, but they still expect crude-oil futures next year to average more than $60 a barrel because of robust demand growth in Asia and the Middle East, efforts by OPEC to trim supply and market-rattling instability in energy-rich countries such as Nigeria and Iraq.

Slower economic growth in the USA and a production spurt from non-OPEC countries should keep prices below the 2006 average, analysts said. And with expectations of fewer refining bottlenecks, gasoline and other fuels should be less expensive — though not cheap when compared with costs from just a few years ago.

"There will be an easing of conditions, but not a dramatic reversal," said Antoine Halff, an analyst at Fimat, who cautioned that supply disruptions — whether the result of hurricanes or geopolitics — have the potential to cause short-term spikes.

"Nigeria looks increasingly unstable," Halff said, adding that internal politics in Iraq could hamper that country's all-important oil sector, too. The other country to keep an eye on is Iran, whose nuclear ambitions recently prompted United Nations sanctions.

The average retail price of gasoline in the U.S. ended the year around $2.34 a gallon, or 14 cents higher than a year ago. Analysts say the $3 level could be within reach in some parts of the country next summer, but that prices in 2007 should mainly be lower than in 2006, when they averaged $2.38 a gallon nationwide.

Oil Price Information Service analyst Tom Kloza said he expects the cost at the pump for the eastern two-thirds of the country to rise to $2.50-$2.80 a gallon ahead of summer, the peak demand period. Motorists out West will, as usual, pay even more, he said.

Kloza said "petronoia," or fears about supply disruptions, should drive the retail price of gasoline to $3 a gallon and more in California, Nevada, Oregon and Washington.

The price of natural gas plummeted almost 41% from start to finish in 2006 thanks in large part to mild weather and bulging U.S. inventories, but remained high by historical standards. For the year, natural gas futures averaged $6.98 per 1,000 cubic feet, or 23% below the 2005 average of $9.01.

Natural gas futures settled Friday at $6.299 per 1,000 cubic feet, an increase of 5.1 cents. In other Nymex trading, heating oil futures declined by 2.52 cents to settle at $1.5979 a gallon, while unleaded gasoline futures fell 4.02 cents to settle at $1.5419.

The high price of oil and natural gas throughout 2006 was a boon to major oil companies such as ExxonMobil (XOM), Chevron (CVX) and ConocoPhillips (COP), who are expected to earn more than $70 billion combined, according to analysts surveyed by Thomson Financial. In 2005, the same three companies raked in just under $64 billion.

Their soaring profits and stock prices again caught the attention of Congress, which will be controlled by Democrats next year for the first time in more than a decade.

A price below $60 a barrel would be welcome news to energy-intensive industries, particularly airlines, which have retooled their operations to use fuel more efficiently but are still struggling to maintain profitability.

Global oil demand is expected to rise 1.5 million barrels a day to 86 million barrels a day in 2007, according to the Paris-based International Energy Agency. But this increased consumption shouldn't burden the market too badly, analysts say, because supplies from non-OPEC countries in Africa, Latin America and the former Soviet Union are anticipated to rise by nearly that much.

    Oil prices finish 2006 about where they started, but consumers still got pinched, UT, 29.12.2006, http://www.usatoday.com/money/industries/energy/2006-12-29-yearend-oil_x.htm

S.E.C. Changes Reporting Rule on Bosses’ Pay

December 27, 2006
The New York Times
By FLOYD NORRIS

The Securities and Exchange Commission, in a move announced late on the last business day before Christmas, reversed a decision it had made in July and adopted a rule that would allow many companies to report significantly lower total compensation for top executives.

The change in the way grants of stock options are to be explained to investors is a victory for corporations that had opposed the rule when it was issued in July, and a defeat for institutional investors that had backed the S.E.C.’s original rule.

“It was a holiday present to corporate America,” Ann Yerger, the executive director of the Council of Institutional Investors, said yesterday. “It will certainly make the numbers look smaller in 2007 than they would otherwise have looked.”

Christopher Cox, the commission chairman, said yesterday that he viewed the decision as “a relative technicality” that improved the rule. When the rule was adopted in July, Mr. Cox said it was aimed at providing information that would allow shareholders to “make better decisions about the appropriate amount to pay the men and women entrusted with running their companies.”

In announcing the new rule on Friday, he said “the new disclosure requirements will be easier for companies to prepare and for investors to understand.”

As controversy has grown over rising executive pay, it has been hard to even get agreement on the total value of compensation for top executives. The rules passed last summer required companies to disclose more information and to compile it in a summary compensation table that is expected to become the standard by which corporate pay is compared.

The new rule changes the way grants of stock options will be measured in that summary table.

Under the old rule, if a company awarded an options grant valued at $15 million to an executive this year, the full amount of $15 million would show up in the summary compensation table.

Under the new rule, which takes effect immediately, the amount reflected in the table would be much smaller, with the remaining part of the $15 million included in later years, as the executive qualifies to exercise the options.

Under some circumstances, the options grant might not be reported at all in the first year, even if the executive would otherwise have been the company’s highest paid executive had the full value of the option grant been included.

The new rule is intended to make the disclosures identical to the way companies report options expenses in their financial statements, under accounting standard 123R, as approved by the Financial Accounting Standards Board.

In an interview yesterday, Mr. Cox said the change reflected what the commission had intended to do when it adopted the original rule in July. “My understanding all along was that we were going to follow the 123R model,” he said. “It came out differently from that when we adopted it.”

The fact it came out differently was disclosed by the S.E.C. at the time. The commission pointed out that some companies had wanted to time the disclosures in accordance with the accounting rule, but said the other approach “is more consistent with the purpose of executive compensation disclosure.”

But on Friday, the S.E.C. said it now believed that the change would provide “a fuller and more useful picture of executive compensation than our recently adopted rules.”

While practices vary, stock options often vest — meaning they may be exercised — over a period of three to five years after they are granted. The options can be canceled if the employee leaves the company before they vest.

For most executives, the accounting rule says the expense should be spread over the period from the grant to full vesting. So if options vest over five years, the expense would be reported over that period.

In the $15 million example, if the options vested over a five-year period, the summary compensation table would reflect a cost of $3 million per year. In the first year, the cost might be lower if the options were issued relatively late in the year, and could be almost nothing if they were issued just before the end of the company’s fiscal year.

But the new rule could create confusion because it would treat options issued to some executives — those eligible for retirement — differently.

If an executive were eligible to retire when the option was granted, and could keep the option if he or she did retire, then the entire option grant would be expensed immediately and listed in the summary table in the year it was granted.

But if the executive is not eligible for retirement, then the expense is spread out over the several years it takes for the options to vest.

That makes it possible that two executives with identical pay packages would have very different disclosures, making the one eligible for retirement seem to be much better compensated. “This will muddy the waters,” Ms. Yerger said.

Asked about that, Mr. Cox conceded it was an anomaly. But he said there were anomalies under the other rule as well. John White, the director of the commission’s division of corporation finance, pointed to the fact that the rule adopted in July could lead to reporting of compensation that would never be received.

“The anomaly that the commission was most concerned with was that if an executive leaves the company before the options vest, the full amount of the option still was reported in compensation disclosure when, in fact, nothing was received,” said Mr. White, who became director of the division in March, after the previous rules were proposed but before they were adopted.

He said that some companies issued options that had so-called cliff-vesting, in which all options vested after five years, and were forfeited if the executive left before that time. Under the new rule, expenses would still be reported for the first years, but then a negative amount would be reported in the year the executive left, reversing the earlier reported figures. There was no such reversal in the July rules.

The commission adopted the new rule in an unusual way, making it take effect immediately even though the commission had not announced that it was considering a change and had not sought public comment.

An S.E.C. spokesman pointed to two other rules adopted that way in recent years. Both were intended to comply with new federal laws that were about to take effect.

One, in 2000, stated that e-mail messages from mutual funds could satisfy rules requiring that information be given to customers in writing. The other, in 2001, established rules for complying with the Gramm-Leach-Bliley Act allowing mergers of financial companies.

Mr. Cox said there was no time to seek comment if the change announced Friday was to take effect in time to affect proxies issued in coming months. He said it would be confusing if companies reported one way in 2007 and then changed in 2008.

The rules adopted in July were intended to deal with widespread complaints that it was difficult to discover all elements of pay packages for top executives. Besides providing the summary table, the disclosures will provide new information in a number of areas, including retirement benefits.

The disclosures will be made for a company’s chief executive, chief financial officer and the three other highest paid executives, as indicated by the summary table. For those on the list, all option grants will be disclosed, so even if the summary table leaves out much of the value of options granted to a chief executive, investors could see the terms of the grant and consider it in assessing how well the executive was paid.

Under the July rule, a large options grant to an executive could propel him or her onto the disclosure list. But under the rule adopted Friday, such a grant might not put the executive in that group, meaning there would be no disclosure of that executive’s pay that year.

Over time, of course, most executives whose pay is being disclosed would have the same total reported under either rule. Under the new rule, options that were granted in prior years, but vested in 2006, will show up in next spring’s disclosures.

The reduction in reported pay is likely to be the largest at companies that accelerated the vesting of options in 2005 to avoid reporting them as an expense at all when the new accounting rule went into effect. Executives at those companies will not have as many old options vesting as they normally would have, and thus will be able to report lower pay.

The commission said it would take public comments on the latest change for 30 days, but it added that the new rules were now final.

When the commission considered the issue earlier this year, David C. Chavern, a vice president of the United States Chamber of Commerce, urged it to take the step it rejected in July and adopted on Friday, saying that to do otherwise would overstate compensation, since options would not have been earned when they were reported, and might later be canceled.

Whenever the value of the options shows up in the summary table, the value shown will be the estimated value of the option at the time it was granted. Years later, when the options vest, the stock price could be much higher or lower than it was when the option was issued, making the options much more valuable — or all but worthless — by the time they show up in the summary compensation table at the old value.

    S.E.C. Changes Reporting Rule on Bosses’ Pay, NYT, 27.12.2006, http://www.nytimes.com/2006/12/27/business/27place.html?hp&ex=1167282000&en=e8cb39f15e6ea1ca&ei=5094&partner=homepage

Rush at End, but Sales Fall Short

December 26, 2006
the New York Times
By MICHAEL BARBARO

There is always next year.

Shoppers swarmed discount stores and mobbed suburban malls over the crucial holiday weekend, but the final burst of buying is expected to fall short of retailers’ expectations.

Visa USA, the credit card company, said yesterday that it would lower its closely watched forecast for holiday spending. Based on purchases by credit and debit card holders, Visa said sales rose 6.5 percent in November and December, compared with the same period last year, down from its initial forecast of a 7.5 percent gain.

The company’s unexpected downward revision — and the millions of dollars in lost sales it represents — could have broad implications for the nation’s merchants, who count on purchases during the holiday season for nearly half of their business.

For consumers, it will probably translate into even deeper discounts over the next week, as they begin redeeming millions of gift cards.

Industry analysts said that, after a strong, discount-induced start the day after Thanksgiving, consumer spending slowed in December and never fully recovered. A soft housing market and high fuel prices pinched consumer spending, while unseasonably warm temperatures damped sales of cold-weather clothing from New York to Chicago.

“We knew spending would be slower than last year,” said Wayne Best, senior vice president of economic analysis at Visa USA. “But it seems to be even slower than we predicted.”

The lackluster performance, well below the 8.3 percent increase in 2005, came despite respectable last-minute sales over the weekend.

ShopperTrak RCT, which measures purchases at 45,000 mall-based stores, said spending rose 22.5 percent on Friday and Saturday, compared with the same period last year, hitting $16.3 billion.

A founder of the research firm, Bill Martin, called it a “very strong close to the holiday shopping season.”

But it was probably not enough to prop up the entire season. Marshal Cohen, chief retail analyst at the NPD Group, an influential research firm, said retailers had handicapped themselves by dangling even deeper discounts this November than last — encouraging consumers to finish their shopping earlier than ever.

According to NPD, 40 percent of Americans had started shopping by Thanksgiving weekend. “That is a huge increase over the prior year,” Mr. Cohen said.

The early shopping theory was supported, in part, by data from ShopperTrak, which said consumers spend more on the day after Thanksgiving, known as Black Friday, than on any day leading up to Christmas. That is a reversal from previous years, when the Saturday before Christmas was the biggest shopping day of the year.

Retailers turned Black Friday into a fierce game of one-upmanship this season, with dozens of malls opening at midnight to compete with discount retailers, only to be outdone by CompUSA, which began ringing up sales at 9 p.m. on Thanksgiving.

Since then, Mr. Cohen said, customer traffic at the nation’s stores has slid.

Those who did shop spent less, according to Visa USA. From Dec. 1 to Dec. 24, it said, the cost of the average purchase dropped by 1 percent. When customers did splurge, it was on electronics, appliances and home furnishings — which emerged, to Visa’s surprise, as the single biggest area of growth this holiday season.

Data from Visa is considered a reliable gauge of the economy because $17 out of every $100 is spent on its 500 million cards. Like monthly retail sales reports from the Department of Commerce, Visa’s holiday forecast includes spending on gasoline, grocery stores and restaurants.

Faced with a so-so December, retailers did their best to drum up business this last weekend. Best Buy opened at 7 a.m. and dangled scores of Christmas Eve specials like a $229 L.C.D. television and 50 percent off all HBO DVDs.

Circuit City offered Sunday-only specials like a 5.1 megapixel digital camera for $80 and gave away $100 gift cards for every purchase of $1,000 or more.

Last-minute discounts lured Kim Clark to a Wal-Mart in Hamden, Conn., on Christmas Eve.

“It’s never too late,” said Ms. Clark, a 45-year-old mother, as she spent $89 on toys like an Aquadoodle Sing ’n Doodle, one of the season’s hottest preschool products.

“I just hope my bank does not prosecute,” she said.

To make up for disappointing pre-Christmas sales, stores are now focusing on those shoppers holding gift cards. Retailers like Coach and Bloomingdale’s are introducing dozens of new products this week to encourage shoppers to spend their gift cards before the year is over.

Wal-Mart, whose sales have lagged competitors all year, appealed directly to plastic-wielding shoppers in its circular yesterday: “Got a gift card?” it read. “Get your gift.”

    Rush at End, but Sales Fall Short, NYT, 26.12.2006, http://www.nytimes.com/2006/12/26/business/26retail.html

An Economy of Extremes

December 26, 2006
The New York Times
By EDUARDO PORTER

Economists have long waxed lyrical about a “Goldilocks economy”— one that is not too hot, not too cold.

In this ideal world, the economy is running so smoothly that there is little risk of it overheating and pushing inflation higher — forcing the Federal Reserve to raise interest rates. Nor is the job market weakening, threatening to plunge the economy into the icy bath of a recession.

The “just right” economy is not often achieved, of course, but lately this bedtime story has taken a particularly tricky turn: it is both too hot and too cold.

The housing market has fallen into a deep freeze; so has the auto industry. Yet on several other fronts, including commercial construction and high-end consumer spending, economic activity appears to be sizzling.

Lombard Street Research, a British economic forecasting firm, recently dubbed the American economy the “anti-Goldilocks economy.”

That is making it challenging for both economists and the Federal Reserve to decide which risk is greater: that housing will drag down the rest of the economy, pushing the Fed to cut rates, or that inflation will remain above the Fed’s comfort zone, forcing it to push up rates instead.

But others say that next year hot and cold could end up canceling each other out, turning the economy balmy.

For now, though, with home construction entering its second year of a downturn, many economists have aggressively pared back their forecasts for growth in 2007. Some have started to utter the R-word.

“We’ve increased the probability of a recession in our forecast to 35 percent,” said David W. Berson, chief economist of Fannie Mae.

On the other hand, Charles Dumas, who follows the American economy for Lombard from London, ticked off a list of countervailing forces from high employment and income growth to robust business investment.

“None of that speaks of a slowdown,” he said. “There has to be a landing but I don’t see any signs of it yet.”

The economy looks very different depending on whether you are inside or outside the housing market.

Consider Andrew Palau, who runs Premier Homes and Additions of River Edge, N.J. Business has dried up as the collapse of the housing market has slashed demand for new master bathrooms and refurbished kitchens across Bergen County in the northeast corner of the state.

“Homeowners don’t have a clear view in front of them so they are not investing because they want to hold on to the money,” Mr. Palau said.

He managed to hold on to his staff of 10 this year, but thinks he is probably going to have to let people go next year. “Everything is telling me that next year will be worse,” he said. “I don’t see how I can keep everyone.”

Virtually every homebuilder in the nation shares Mr. Palau’s concern. Yet a look just outside the border of the housing-linked economy provides a starkly different view.

“Our market is as close to capacity as you can get,” said Michael D. Bolen, chairman and chief executive of McCarthy Building Companies in St. Louis, a commercial builder of everything from schools and hospitals to casinos and parking lots.

To hear Mr. Bolen speak, the job market has the go-go feel of the Internet-driven boom of the late 1990s. “It’s as goofy as it’s ever been,” he said. “We’re offering signing bonuses and guaranteed locations to people coming straight out of school.”

Mr. Bolen said that McCarthy expected to increase its 1800-strong hourly work force by 10 to 15 percent when the construction season picked up in the spring.

This off-kilter performance has allowed for an unusually wide difference of views on the economic outlook next year.

Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, N.Y., expects the economy to virtually stall at somewhere between flat to 1 percent growth in 2007. He thinks the Fed will slash its benchmark short-term interest rate from 5.25 percent today to 3.75 percent by the end of next year.

A majority of traders now anticipate that the Fed will cut rates next year, starting in the summer, though not by quite so much. According to the market for interest rates futures, the Fed is expected to cut its benchmark rate to 4.75 percent by the end of 2007.

Yet for all the economists taking the cue from Mr. Palau’s bleak outlook, others look to McCarthy’s booming business.

Bruce Kasman, chief economist at J. P. Morgan, forecasts the economy will grow at a healthy 3 percent clip in 2007. Rather than cutting interest rates, the Fed may well have to raise them again to quell inflationary pressures. “The rates market is pricing in weak growth and Fed easing,” Mr. Kasman said. “If our view is right there will be a correction.”

Economists were taken by surprise by the speed at which the housing market morphed from a surging bubble to a sinking stone. Today, there are some signs that the worst has passed: mortgage applications seem to be bottoming out, for instance.

But the number of permits issued to build new houses fell for the 10th straight month in November, and they are down about a third since November of last year. Residential investment plummeted in the second and third quarters of the year.

Employment in construction has fallen; so has the production of construction materials and other items related to housing. In the third quarter, the slowdown in homebuilding subtracted more than one percentage point from economic growth.

But for all the damage done by the deflating housing balloon, it has so far been narrowly circumscribed.

Today, virtually every economist agrees that the housing recession is likely to continue weighing on economic growth. But the consensus breaks up over how bad that damage will be.

The most important disagreement is over how intensely the housing recession will ricochet through the rest of the economy and how it will affect consumer spending, which accounts for more than 70 percent of the nation’s economic activity.

“I find it very hard to believe that what started in housing ends in housing,” said Jan Hatzius, chief United States economist at Goldman Sachs. “That you are not going to get any spillovers from a major recession in a sector that accounts for 6 percent of the economy.”

Many economists argue that the decline in housing prices experienced so far must inevitably deliver a big blow to consumer spending. Bluntly put, Americans who spent more than they earned as the price of homes soared cannot possibly go on spending as avidly now that the value of homes is tumbling. And if consumers spend less, businesses will stop investing.

Homeowners are certainly extracting less money from their homes to spend. Mortgage equity withdrawals, net of commissions and taxes, fell in the third quarter for the fourth time in a row, to about $380 billion at an annual rate, the lowest level in almost three years.

They are likely to keep falling. According to the Fed, the equity Americans hold in their homes grew only 0.1 percent in the third quarter, before seasonal adjustments. This was the slowest pace of growth in more than 10 years.

But for all this, consumers have not yet shown any sign that they are ready to put the wallet away. Overall consumer spending grew by 0.5 percent in both October and November, after accounting for inflation, bolstered by the decline in the price of gas.

Shawn DuBravac, staff economist at the Consumer Electronics Association, said he expected sales of everything from big screen televisions to digital cameras to grow by a little less than 7 percent next year, down from about 11 percent in 2006.

While profit margins among some electronics retailers are down due to intense competition, the business is holding up much better than expected. “Lots of people said the housing market would kill the economy,” Mr. DuBravac said. “That hasn’t happened. The consumer seems really healthy going into 2007.”

From hospitals to hotels, spending on services is growing. “This year has been a better year than last year,” said Anne Trevett, the innkeeper at Blackbeard’s Lodge in Ocracoke, a coastal island of North Carolina. “The only down times we have are due to bad weather.”

Even as the housing downturn has curtailed the ability of Americans to borrow, spending is being supported by jobs and wage growth. Employers are adding about 150,000 jobs each month, according to the government’s survey of businesses. As oil prices have declined, real wages have rebounded. Real disposable personal income has grown by 0.5 percent a month, on average, over the last three months.

Businesses are investing heavily, too. Nonresidential investment grew 10 percent in the third quarter, almost compensating for the 19 percent decline in nonresidential investment. “Outside of the housing and motor vehicle sectors,” said the Fed chairman, Ben S. Bernanke, in a speech late last month, “economic activity has, on balance, been expanding at a solid pace.”

There is one crucial weakness to all the forecasts, however. Part way through the bust of perhaps the strongest housing boom on record, the American economy is in uncharted territory.

Nobody has ever seen how a situation like this unwinds.

Allen Sinai, president and chief global economist at Decision Economics, observed that past housing-induced recessions were characterized by rising interest rates and tight credit, conditions that do not apply in these days of still cheap, easy money.

Some economists have drawn parallels to 2000 — when the Federal Reserve spun on a dime and started slashing interest rates only weeks after warning about inflationary risks. But the slump in 2000 came about because highly leveraged businesses, shocked by the end of the tech boom and the drying up of new orders, essentially stopped hiring and investing. Today, corporate balance sheets are in very good shape.

Still, there are enough uncertainties to warrant talk of a recession.

Mr. Sinai estimated that, over time, consumers ended up spending 40 cents out of every dollar in equity they extracted from their homes as house prices went up. They spent 28 percent of the capital gains they made when they sold their homes, and 3 percent of their increase in overall wealth.

“If housing is as unhelpful on the way down as it was helpful on the way up, we will get a recession,” Mr. Sinai said.

But at McCarthy, Mr. Bolen has other worries. “Our suppliers and vendors and subcontractors have been working so hard for so long they are going to get tired,” he said.

    An Economy of Extremes, NYT, 26.12.2006, http://www.nytimes.com/2006/12/26/business/26econ.html

Mark

Heady Days for Makers of Weapons

December 26, 2006
The New York Times
By LESLIE WAYNE

THESE are very good times for military contractors. Profits are up, their stocks are rising and Pentagon spending is reaching record levels.

The only cloud might seem to be what the Democratic takeover of Congress could mean for their business. After all, this is an industry that has generally supported the Republican Party by sending about 60 percent of its political contributions to Republican candidates.

But, even so, few in the military industry are worried. Next year’s Pentagon budget is expected to exceed $560 billion, including spending for Iraq. And, sometime this spring, President Bush has indicated he will seek an additional $100 billion in supplemental spending in 2007 for Iraq and Afghanistan.

And no one expects Democrats, in the last two years of the Bush administration, to make major changes, especially with the war continuing. Democrats are sensitive to the charge of being “soft” on defense, and are expected to use their control of the Senate and House Armed Services Committees to establish their military bona fides for the 2008 presidential election. This would include Senator Hillary Rodham Clinton of New York, who is an increasingly vocal member of the committee.

“I wouldn’t look for Democrats to make cuts in the defense budget,” said Michael O’Hanlan, a military expert at the Brookings Institution. “You didn’t hear a lot about the defense budget in the last campaign and the Democrats know that you don’t mess with the top line.”

Still, the industry can expect some harsh scrutiny. Senator John McCain, the Arizona Republican who has lead the efforts to tighten oversight of military contractors and programs, moves up to become the ranking Republican on the Senate Armed Services Committee.

He promises to keep up his relentless criticism of how the Pentagon spends its billions — he has already written the incoming secretary of defense, Robert M. Gates, to lay out some of his complaints.

On the House side, the incoming Democratic chairman, Ike Skelton of Missouri, has said he wants to resurrect the committee’s investigations and oversight subcommittee, which the Republicans disbanded in 1995. And he wants to hold hearings on missile defense and other space-based weapons systems that many Democrats have questioned.

While Democrats and Senator McCain may cause individual companies some pain through attacks on specific programs and weapons systems, the billions that have been supporting the industry are expected to continue unabated, and perhaps even increase.

“I think the Democrats will be on good behavior as long as the war continues and we have 150,000 troops in Iraq,” said Paul Nisbet, an analyst with JSA Securities in Newport, R.I.

Evidence of the industry’s good fortune is reflected in the stocks of major contractors over the last year. At the end of 2005, the Lockheed Martin Corporation, the largest contractor, was trading around $62 a share. Now Lockheed is around $92 a share. Over the last year, Boeing, which holds the No. 2 position, saw its shares rise from about $66 a share to around almost $89 a share. Meanwhile, Raytheon stock has risen from around $39 a share to more than $53 a share in the last year and General Dynamics has gone from the high $50s a share to almost $74 a share over the same period.

“We certainly don’t foresee any change,” said Thomas Jurkowsky, a spokesman for Lockheed Martin. “You certainly cannot deny that there is a lot of uncertainty in the world — North Korea, Iran, Iraq. The Democratic Congress will see the reality of the dangerous world we live in, and will make decisions accordingly.”

Democrats are typically loath to cut programs that could affect unionized workers. The fact that so many of the Pentagon’s weapons are build by unionized work forces — the backbone of the Democratic Party — is another reason why Democrats are expected to keep the money flowing.

“The unionized workers in defense plants are a natural constituency of the Democrats,” said Loren Thompson, a military analyst at the Lexington Institute in Arlington, Va. “There is not too much advantage for Democrats to attack weapons programs.”

Still, some programs are not expected to fare well. Among those considered vulnerable are large Air Force programs that are not directly related to the war in Iraq — satellites, missile defense and tactical fighters, for example.

Already, the incoming Senate Armed Services Committee chairman, Carl Levin, has said it is a mistake to purchase more missiles until tests can determine whether the missile defense program works.

Also worrisome to the industry is that the incoming Democrats — specifically, Mr. Levin — have indicated that they are supportive of efforts to more closely scrutinize contractors on the issues of mismanagement and cost overruns. In a postelection news conference, Mr. Levin expressed support for Mr. McCain’s efforts and even listed industry oversight as one of his top priorities.

“We need to put much more emphasis on the oversight process, to make sure that the American people are getting a proper return on their tax dollars and that Pentagon activities are lawful and transparent,” Mr. Levin said.

This comes as some of the most important and costly weapon systems the Pentagon is acquiring have fallen years behind in development and billions over budget — grist for Congressional scrutiny, especially from Mr. McCain.

In fact, Mr. McCain, even before stepping up to the No. 2 position on the committee, began to make his presence felt. Just this month, the Air Force, under pressure from Mr. McCain, announced it was rewriting some of the rules for a contest between Airbus and Boeing for a contract potentially valued at $200 billion to build a new fleet of aerial tankers, which allow military planes to be refueled in midair.

Mr. McCain’s past scrutiny of this contract led to the jailing of two top Boeing executives and the early retirement of an Air Force secretary.

Mr. McCain wrote Mr. Gates, the incoming defense secretary, to complain about a lack of open competition in the tanker bidding process, which led to rewriting of the bidding rules. The tanker program would be a record order of commercial jets — the Air Force plans to buy some 530 commercial jets over the next three decades and adapt them for use as flying gas stations.

Mr. McCain would have wielded even greater influence had he become chairman of the full Senate Armed Services Committee.

“These contractors clearly are relieved,” said Danielle Brian, executive director of the Project on Government Oversight, a nonprofit that has been critical of Pentagon practices. “These reforms won’t be the No. 1 priority for the committee, but it will be an important priority.”

    Heady Days for Makers of Weapons, NYT, 26.12.2006, http://www.nytimes.com/2006/12/26/business/26place.html

Wall St. Bonuses: So Much Money, Too Few Ferraris

December 25, 2006
The New York Times
By JENNY ANDERSON

It’s a brisk Wednesday morning in the windy caverns of Wall Street and Sarah Clark’s toes are cold.

Dressed in a purple flight attendant outfit, Ms. Clark, a 26-year-old model, is trying to entice recent bonus recipients at Goldman Sachs into using a charter plane service, handing out $1,000 discount coupons to people in front of the investment bank’s Broad Street headquarters.

“Where am I going?” asks one man, heading toward the Goldman building. “It’s your own private jet,” says Ms. Clark with a smile. “You can go wherever you like.”

For Wall Street’s elite, the sky may well be the limit.

In recent weeks, immense riches have been rained upon the top bankers and traders. After a year of record profits, investment houses like Goldman Sachs, Lehman Brothers and Morgan Stanley are awarding bonuses as high as $60 million. And a select group of hedge fund managers and private equity executives may be taking home even more.

That is serious money. And the serious luxury goods markets are feeling the impact.

Miller Motorcars, in Greenwich, Conn., is fielding more requests for the $250,000 Ferrari 599 GTB Fiorano than it can possibly fill. One real estate broker laments a dearth of listings for two clients trying to spend $20 million on Manhattan properties. Financiers already comfortably settled in multimillion-dollar apartments and town houses are buying $5 million apartments for their children. Vacation homes, usually bought and sold in the spring, are now hot this winter, including ones in private resorts like the Yellowstone Club in Montana near Yellowstone National Park.

“Last year, everybody bought Ducatis,” said one investment banker, referring to the Italian motorcycle. “This year it’s vacations. I’m on my way to St. Barts,” he said, en route to the airport. Like most bankers, he spoke on the condition that he not be identified, because he was not authorized to talk to a reporter by his company.

The 2006 bonus gold rush has re-energized some luxury markets. The Manhattan real estate market, for example, had softened; sales of apartments fell 17 percent in the third quarter this year compared with a year ago, according to the Corcoran Group.

Then came bonus day. Last week, Michele Kleier, president of Gumley Haft Kleier, received a call from a hedge fund manager in his late 30s. He had spent $6 million on an apartment two years ago and, with his bonus, wanted to upgrade. His new price range? “Not more than $20 million.”

Ed Petrie, a broker at Sotheby’s in East Hampton, N.Y., is now fielding two bids for $8 million to $10 million properties in exclusive Georgica Pond — properties that have been on the market since the spring. “The fall was relatively slow and then suddenly, with news on bonuses, there has been quite a bit of activity,” he said.

Many brokers noticed not just the bonus effect, but the bonus-anticipation effect. Buyers who sat on the sidelines in 2006, waiting for real estate prices to come down, saw news of outsized bonuses and started signing deals to pre-empt any price increase driven by new Wall Street payouts.

“Part of our recent increase in sales activity has been buyers not in financial services trying to beat the bonus rush,” said James Lansill, senior managing director at the Corcoran Sunshine Marketing Group.

Once the bonus rush started, Mr. Lansill witnessed a trend he had never seen in his 14 years in the business: people who had signed contracts for apartments under construction 5 to 6 months ago were doubling the size of the properties they were purchasing.

In the last three weeks, the Corcoran Sunshine Marketing group sold the last four apartments in the Richard Meier apartments at 165 Charles Street in Greenwich Village. The last one to go: a two-bedroom, two-bathroom apartment with 2,350 square feet that sold for just under $7 million.

Patricia Warburg Cliff, senior vice president and director for European sales at the Corcoran Group, said that until recently, 2006 had been characterized by calmer, more informed buyers. “Now there’s a feeling, ‘I need to sign because I don’t want it snatched away,’ ” she said.

Adding to the spending spree is a rash of young hedge fund analysts, first big bonus checks in hand, scooping up the $2 million to $3 million starter apartments (most popular features: glass walls, marble bathrooms and kitchens — likely to go unused — with top-flight appliances).

“We love hedge funds, they are our favorite people” Ms. Kleier said. “They don’t feel like the money is real and they don’t mind spending it — they don’t mind going up by $500,000 or $1 million increments.”

Hedge fund analysts are not the only ones celebrating bonus season. Private equity firms like the Blackstone Group and Kohlberg Kravis & Roberts helped fuel a record deal-making year.

Private equity’s deal-making has trickled down to Wall Street in two ways. For one, the banks served as advisers on the deals and financed them, raking in enormous fees. (Kohlberg Kravis is said to pay more than $700 million a year in fees to the Street.)

But bankers also see a pay effect: top executives insist they must pay up because of the danger that their best dealmakers could leave for higher-paying private equity firms or other hedge funds considered more flexible and fun.

Those young, single hedge fund managers are bringing holiday cheer to car dealerships as well. This year, drama surrounds the very limited production of the Ferrari 599 GTB Fiorano, a car with 612 horsepower that can go from zero to 60 miles an hour in 3.6 seconds. “It is the most sought-after car ever made,” said Richard Koppelman, president of Miller Motorcars. With a waiting list of 50, Mr. Koppelman expects to get only one.

Who will be the lucky customer? “It’s very difficult,” he said. “We try to take care of our best clients.”

Private planes, or shares of them, are also on the rise, with demand for charter planes at one company up 40 percent to 50 percent among financial services executives. “There is a noticeable difference this year compared to the past, especially in the financial sector,” said Jeffrey Menaged, founder and head of Chief Executive Air, the company that hired Ms. Clark for the day. A typical price for a charter flight is $30,000.

Sales of “jet cards,” a sort of debit card for private flying, increase during bonus season, Mr. Menaged said, as executives lock in last year’s gains with guaranteed comfort for the new year.

Exotic destinations are also being pitched to the Wall Street ultrarich. Unlimited Speed started Victory Lane in November, a 3,000-acre development in Georgia for motor racing aficionados. Along with a 4.5 mile racetrack, the development also has a 1,600-acre nature preserve, equestrian facilities, a golf course and spa. It already has 27 reservations, a quarter of them coming from Wall Street, said Andrew Goggin, president of Unlimited Speed.

Not everyone on Wall Street is getting multimillion-dollar bonuses. The average managing director — who stands at the top of Wall Street’s hierarchical food chain, but far from rock-star status — will be getting $1 million to $3 million, which will likely be stashed in savings as memories of the 2001 bear market remain fresh.

“I’m putting it in the bank because I know next year I could be out of a job,” said one managing director at a leading bank.

For hedge fund traders and managers, markets were rough in the spring and summer, and some did not make gains until stocks rallied this fall.

“It was a terrible year,” said one young hedge fund professional. “I am going to the movies with my bonus. By myself."

At cocktail parties, comparisons to 1999 abound. That year marked the height of the technology boom and the eve of a painful crash. “It feels a little bit like the top,” said another banker.

The morning Goldman Sachs announced record fourth-quarter and 2006 earnings, Lloyd C. Blankfein, chairman and chief executive, implored his employees — many whom would directly benefit from the bountiful earnings — to avoid excess.

“As stewards of the firm’s reputation, I ask each of you to remember that our actions — inside and outside of the office — reflect on Goldman Sachs. Even a perception of arrogance hurts all of us,” he said in a voice mail sent to the entire firm.

Back handing out vouchers in front of Goldman, Ms. Clark wondered why there weren’t more people coming to work during the early hours.

Then, at 7:30 a.m., a black Mercedes pulled up, depositing Mr. Blankfein in front of Ms. Clark. The night before, he had been awarded a $53.4 million bonus.

She offered him a voucher. “How are you?” he said, smiling quickly but refusing the voucher.

“I guess he didn’t want it,” she lamented.

    Wall St. Bonuses: So Much Money, Too Few Ferraris, NYT, 25.12.2006, http://www.nytimes.com/2006/12/25/business/25bonus.html?hp&ex=1167109200&en=7fa2fa9c03cc90e3&ei=5094&partner=homepage

Stores look to post-Christmas sales, weekend's business not as robust as expected

Updated 12/24/2006 4:46 PM ET
The Associated Press
USA Today

Bargain hunters and latecomers flocked to stores this weekend as the retail industry made its last big push for pre-Christmas sales with increased discounts and other come-ons.

But the late-buying binge was not enough to meet sales goals, and retailers are now turning to post-Christmas business to make this season a merry one, according to one report from a national research company.

"These were big days, but they came up short in terms of traffic and sales," said Bill Martin, co-founder of ShopperTrak RCT Corp., a research firm, referring to this past Friday and Saturday. ShopperTrak monitors total retail sales at more than 45,000 outlets.

After a stronger-than-expected turnout on Black Friday, the day after Thanksgiving, stores struggled through the first two weeks of December as consumers shopped at a disappointing pace.

Mild temperatures throughout most of the country didn't inspire shoppers to buy winter items. And with Christmas falling on a Monday, the season became another nail biter for retailers as consumers procrastinated with a full weekend to shop before the holiday.

"This is the best time in the world to shop," said Chuck Mingrone of East Haven, Conn., who was leaving a Bath & Body Works stores on Sunday at the Westfield Connecticut Post Mall in Milford, Conn., on Sunday, the day before Christmas. He said he expects to do all of his holiday shopping in two hours.

"I do it every year like this," Mingrone continued. "There are no lines and everyone is smiling. Every year, my family makes fun of me for doing this, but they are the ones who are frantic in lines."

Others were forced to shop late for lack of time or because they hadn't been in the mood.

"I don't know. Christmas just crept up on me this year," said Aimee Lovan of Des Moines, who was at the Valley West Mall in West Des Moines. "And also the weather. It's been so warm so I haven't been in a Christmas mood."

Based on data released late Sunday by ShopperTrak, sales for both Friday and Saturday generated a combined $16.2 billion, with Saturday's business generating $8.72 billion. But Martin expected Saturday's sales volume to surpass Black Friday's sales, which posted $8.96 billion.

Based on the weekend's sales results, Martin estimated that holiday sales are so far up 4.3%, short of the 5% forecast.

"We still have the week after Christmas," said Martin. "We are going to need a lot of gift card redemptions." Gift cards are only recorded on a retailers' balance sheet until the cards are redeemed.

This holiday season, consumers shopped early for flat-panel TVs, hot toys like T.M.X. Elmo and new consoles such as Sony's Playstation3, but held off on apparel, creating a mixed holiday picture.

Bright spots have been the online business and luxury stores. But many mall-based apparel chains were challenged by increased competition from department stores such as Federated Department Stores Inc.'s Macy's and J.C. Penney Co., which are benefiting from industry consolidation and fresh fashions.

Still, many mall-based stores kept to their promotional calendar throughout the season, refusing to buckle down to shoppers' pressure for the best deal. This past weekend, stores slashed prices to tempt shoppers to buy, though Marshal Cohen, chief analyst at the NPD Group, a market research company in Port Washington, N.Y., said that most merchants still weren't "panicking." Stores are realizing the holiday season also includes January, he said.

But, some stores were pulling out all the stops. Gap Inc., which has been languishing, took additional markdowns on everything from T-shirts to hooded sweatshirts and jean jackets at its namesake stores. Long-sleeve T-shirts were slashed to $9.99,from $24.50 at a Gap store in Manhattan.

Those who delayed shopping saw big benefits in waiting.

Retired school principal Carol Beck, now of Durham, N.C., was doing most of her holiday shopping Sunday and finished in about 30 minutes. She said she spent $150 and bought most things at 50% off.

Other shoppers were already done, but came to the mall Sunday to see if any other items struck their fancy.

"I buy extra gifts just in case I forget people," said Mina Singzon from Los Angeles, who was at the Glendale Galleria in Glendale, Calif. "That happens sometimes."

Taubman Centers Inc., which operates or owns 23 malls in 11 states, reported that business, based on a sampling of malls, was tracking up mid-single digit percentage increases for the week ended Saturday compared with a year ago. On Saturday, sales were up anywhere from mid-single to low-double digit increases from a year ago.

Billie Scott, spokeswoman at Simon Property Group, which owns or operates 175 malls in 38 states, said that half of the malls that were sampled reported traffic and business on Saturday was about the same as the previous Saturday; the other half said traffic was lighter, though spending was up.

Santa Monica, Calif.-based Macerich Co., which operates 80 malls nationwide, reported that traffic was up 36% in the week ended Saturday from the previous week.

Kathleen Waugh, spokeswoman at Toys "R" Us said this past week was "exceptionally strong, " particularly on Saturday.

Meanwhile, a late buying binge online helped online retailers surpass holiday sales forecasts, according to comScore Networks. Online spending from Nov. 1 through Wednesday reached $21.68 billion, marking a 26% increase compared to the corresponding year-ago period. The results exclude travel, auctions and corporate purchases. ComScore expected holiday sales to rise 24%.

The final days before Christmas and post-holiday business, boosted in party by gift cards redemptions, have becoming increasingly important for retailers.

According to BigResearch, which conducted a poll for the National Retail Federation, consumers are expected to spend a total of $24.81 billion on gift cards this holiday season, up from $18.48 billion in the year-ago period.

Jason Cameron from West Haven, Conn., bought some American Eagle gift cards for his sisters and girlfriend on Sunday.

"They're quick and people can get whatever they want," he said.

Now, stores need Cameron's sisters and girlfriend to redeem them quickly.

    Stores look to post-Christmas sales, weekend's business not as robust as expected, UT, 24.12.2006, http://www.usatoday.com/news/nation/2006-12-24-shopping_x.htm

Gender Pay Gap, Once Narrowing, Is Stuck in Place

December 24, 2006
The New York Times
By DAVID LEONHARDT

Throughout the 1980s and early ’90s, women of all economic levels — poor, middle class and rich — were steadily gaining ground on their male counterparts in the work force. By the mid-’90s, women earned more than 75 cents for every dollar in hourly pay that men did, up from 65 cents just 15 years earlier.

Largely without notice, however, one big group of women has stopped making progress: those with a four-year college degree. The gap between their pay and the pay of male college graduates has actually widened slightly since the mid-’90s.

For women without a college education, the pay gap with men has narrowed only slightly over the same span.

These trends suggest that all the recent high-profile achievements — the first female secretary of state, the first female lead anchor of a nightly newscast, the first female president of Princeton, and, next month, the first female speaker of the House — do not reflect what is happening to most women, researchers say.

A decade ago, it was possible to imagine that men and women with similar qualifications might one day soon be making nearly identical salaries. Today, that is far harder to envision.

“Nothing happened to the pay gap from the mid-1950s to the late ’70s,” said Francine D. Blau, an economist at Cornell and a leading researcher of gender and pay. “Then the ’80s stood out as a period of sharp increases in women’s pay. And it’s much less impressive after that.”

Last year, college-educated women between 36 and 45 years old, for example, earned 74.7 cents in hourly pay for every dollar that men in the same group did, according to Labor Department data analyzed by the Economic Policy Institute. A decade earlier, the women earned 75.7 cents.

The reasons for the stagnation are complicated and appear to include both discrimination and women’s own choices. The number of women staying home with young children has risen recently, according to the Labor Department; the increase has been sharpest among highly educated mothers, who might otherwise be earning high salaries. The pace at which women are flowing into highly paid fields also appears to have slowed.

Like so much about gender and the workplace, there are at least two ways to view these trends. One is that women, faced with most of the burden for taking care of families, are forced to choose jobs that pay less — or, in the case of stay-at-home mothers, nothing at all.

If the government offered day-care programs similar to those in other countries or men spent more time caring for family members, women would have greater opportunity to pursue whatever job they wanted, according to this view.

The other view is that women consider money a top priority less often than men do. Many may relish the chance to care for children or parents and prefer jobs, like those in the nonprofit sector, that offer more opportunity to influence other people’s lives.

Both views, economists note, could have some truth to them.

“Is equality of income what we really want?” asked Claudia Goldin, an economist at Harvard who has written about the revolution in women’s work over the last generation. “Do we want everyone to have an equal chance to work 80 hours in their prime reproductive years? Yes, but we don’t expect them to take that chance equally often.”

Whatever role their own preferences may play in the pay gap, many women say they continue to battle subtle forms of lingering prejudice. Indeed, the pay gap between men and women who have similar qualifications and work in the same occupation — which economists say is one of the purest measures of gender equality — has barely budged since 1990.

Today, the discrimination often comes from bosses who believe they treat everyone equally, women say, but it can still create a glass ceiling that keeps them from reaching the best jobs at a company.

“I don’t think anyone would ever say I couldn’t do the job as well as a man,” said Christine Kwapnoski, a 42-year-old bakery manager at a Sam’s Club in Northern California who will make $63,000 this year, including overtime. Still, Ms. Kwapnoski said she was paid significantly less than men in similar jobs, and she has joined a class-action lawsuit against Wal-Mart Stores, which owns Sam’s Club.

The lawsuit is part of a spurt of cases in recent years contending gender discrimination at large companies, including Boeing, Costco, Merrill Lynch and Morgan Stanley. Last month, the Supreme Court heard arguments in a case against Goodyear Tire and Rubber.

At Sam’s Club, Ms. Kwapnoski said that when she was a dock supervisor, she discovered that a man she supervised was making as much as she was. She was later promoted with no raise, even though men who received such a promotion did get more money, she said.

“Basically, I was told it was none of my business, that there was nothing I could do about it,” she said.

Ms. Kwapnoski does not have a bachelor’s degree, but her allegations are typical of the recent trends in another way: the pay gap is now largest among workers earning relatively good salaries.

At Wal-Mart, the percentage of women dwindles at each successive management level. They hold almost 75 percent of department-head positions, according to the company. But only about 20 percent of store managers, who can make significantly more than $100,000, are women.

This is true even though women receive better evaluations than men on average and have longer job tenure, said Brad Seligman, the lead plaintiffs’ lawyer in the lawsuit.

Theodore J. Boutrous Jr., a lawyer for Wal-Mart, said the company did not discriminate. “It’s really a leap of logic to assume that the data is a product of discrimination,” Mr. Boutrous said. “People have different interests, different priorities, different career paths” — and different levels of desire to go into management, he added.

The other companies that have been sued also say they do not discriminate.

Economists say that the recent pay trends have been overlooked because the overall pay gap, as measured by the government, continues to narrow. The average hourly pay of all female workers rose to 80.1 percent of men’s pay last year, from 77.3 percent in 2000.

But that is largely because women continue to close the qualifications gap. More women than men now graduate from college, and the number of women with decades of work experience is still growing rapidly. Within many demographic groups, though, women are no longer gaining ground.

Ms. Blau and her husband, Lawrence M. Kahn, another Cornell economist, have done some of the most detailed studies of gender and pay, comparing men and women who have the same occupation, education, experience, race and labor-union status. At the end of the late 1970s, women earned about 82 percent as much each hour as men with a similar profile. A decade later, the number had shot up to 91 percent, offering reason to wonder if women would reach parity.

But by the late ’90s, the number remained at 91 percent. Ms. Blau and Mr. Kahn have not yet examined the current decade in detail, but she said other data suggested that there had been little movement.

During the 1990s boom, college-educated men received larger raises than women on average. Women have done slightly better than the men in the last few years, but not enough to make up for the late ’90s, the Economic Policy Institute analysis found.

There is no proof that discrimination is the cause of the remaining pay gap, Ms. Blau said. It is possible that the average man, brought up to view himself the main breadwinner, is more committed to his job than the average woman.

But researchers note that government efforts to reduce sex discrimination have ebbed over the period that the pay gap has stagnated. In the 1960s and ’70s, laws like Title VII and Title IX prohibited discrimination at work and in school and may have helped close the pay gap in subsequent years. There have been no similar pushes in the last couple of decades.

Women have continued to pour into high-paid professions like law, medicine and corporate management where they were once rare, but the increases seem to have slowed, noted Reeve Vanneman, a sociologist at the University of Maryland.

Medicine offers a particularly good window on these changes. Roughly 40 percent of medical school graduates are women today. Yet many of the highest paid specialties, the ones in which salaries often exceed $400,000, remain dominated by men and will be for decades to come, based on the pipeline of residents.

Only 28 percent of radiology residents in 2004-5 were women, the Association of American Medical Colleges has reported. Only 10 percent of orthopedic surgery residents were female. The specialties in which more than half of new doctors are women, like dermatology, family medicine and pediatrics, tend to pay less.

Melanie Kingsley, a 28-year-old resident at the Indiana University School of Medicine, said she had wanted to be a doctor for as long as she could recall. For a party celebrating her graduation from medical school, her mother printed up invitations with a photo of Dr. Kingsley wearing a stethoscope — when she was a toddler.

As the first doctor in her family, though, she did not have a clear idea of which specialty she would choose until she spent a summer working alongside a female dermatologist in Chicago. There, she saw that dermatologists worked with everyone from newborns to the elderly and worked on nearly every part of the body, and she was hooked.

“You get paid enough to support your family and enjoy life,” said Dr. Kingsley, a lifelong Indiana resident. “Yeah, maybe I won’t make a lot of money. But I’ll be happy with my day-to-day job, and that’s the reason I went into medicine — to help other people.” She added: “I have seen people do it for the money, and they’re not very happy.”

The gender differences among medical specialties point to another aspect of the current pay gap. In earlier decades, the size of the gap was similar among middle-class and affluent workers. At times, it was actually smaller at the top.

But the gap is now widest among highly paid workers. A woman making more than 95 percent of all other women earned the equivalent of $36 an hour last year, or about $90,000 a year for working 50 hours a week. A man making more than 95 percent of all other men, putting in the same hours, would have earned $115,000 — a difference of 28 percent.

At the very top of the income ladder, the gap is probably even larger. The official statistics do not capture the nation’s highest earners, and in many fields where pay has soared — Wall Street, hedge funds, technology — the top jobs are overwhelmingly held by men.

    Gender Pay Gap, Once Narrowing, Is Stuck in Place, NYT, 24.12.2006, http://www.nytimes.com/2006/12/24/business/24gap.html?hp&ex=1167022800&en=5f20582834dacaca&ei=5094&partner=homepage

Seductively Easy, Payday Loans Often Snowball

December 23, 2006
The New York Times
By ERIK ECKHOLM

GALLUP, N.M., Dec. 20 — Earl Milford put up an artificial Christmas tree in the wooden house on the Navajo reservation near here that he shares with a son and daughter-in-law and their two little girls.

But money is scarce and so are presents. “It’s all right,” he said, “they know I love them.”

Mr. Milford is chronically broke because each month, in what he calls “my ritual,” he travels 30 miles to Gallup and visits 16 storefront money-lending shops. Mr. Milford, who is 59 and receives a civil service pension and veteran’s disability benefits, doles out some $1,500 monthly to the lenders just to cover the interest on what he had intended several years ago to be short-term “payday loans.”

Mr. Milford said he had stopped taking out new loans, but many other residents of the Gallup area and countless more people across the country are visiting payday lenders this month, places with names like Cash Cow, Payday Plus and Fast Buck, to get advances of a few hundred dollars to help with holiday expenses.

While such lending is effectively banned in 11 states, including New York, through usury or other laws, it is flourishing in the other 39. The practice is unusually rampant and unregulated in New Mexico, where the Center for Responsible Lending, a private consumer group, calculates that nationally payday loans totaled at least $28 billion in 2005, doubling in five years.

The loans are quick and easy. Customers are usually required to leave a predated personal check that the lender can cash on the next payday, two or four weeks later. They must show a pay stub or proof of regular income, like Social Security, but there is no credit check, which leads to some defaults but, more often, continued extension of the loan, with repeated fees.

In many states, including New Mexico, lenders also make no effort to see if customers have borrowed elsewhere, which is how Mr. Milford could take out so many loans at once. If they repay on time, borrowers pay fees ranging from $15 per $100 borrowed in some states to, in New Mexico, often $20 or more per $100, which translates into an annualized interest rate, for a two-week loan, of 520 percent or more.

In September, Congress, responding to complaints that military personnel were the targets of “predatory lenders,” imposed a limit of 36 percent annual interest on loans to military families. The law will take effect next October and is expected to choke off payday lending to this group because, lenders say, the fees they could charge for a two-week loan would be negligible, little more than 10 cents per day, said Don Gayhardt, president of the Dollar Financial Corporation, which owns a national chain of lenders called Money Marts.

The new law will have little impact on the larger practice because military families account for only a tiny share of payday lending, which lenders defend as meeting a need of low-income workers.

Mr. Gayhardt said the industry had prospered because more people worked in modestly paying service-sector jobs, and in a pinch they found payday loans cheaper and more convenient than bouncing checks, paying late fees on credit cards or having their utilities cut off.

Mr. Gayhardt, who is also a board member of the Community Financial Services Association of America, a trade group that represents about 60 percent of payday lenders, said the frequency of extended rollovers and huge payments was exaggerated by critics.

He said the association supported “fair regulations,” including a cap on two-week fees in the range of $15 to $17 per $100, a level now mandated in several states, including Florida, Illinois and Minnesota. This translates into effective fees of about a dollar a day for those who repay on time, which he said was reasonable given the risks and costs of business.

“We want to treat customers well so they’ll come back,” Mr. Gayhardt said in a telephone interview from his headquarters near Philadelphia.

Even so, higher fees and sorry stories are not hard to find. Payday lenders have proliferated over the last 15 years, including here in Gallup, a scenic but impoverished town of 22,000 with a mix of Indian, Hispanic and white residents and a striking density of storefront lenders.

At least 40 lending shops have sprung up, scattered among touristy “trading posts,” venerable pawn shops and restaurants along the main street (old Route 66) and with as many as three crowding into every surrounding strip mall.

“Payday lending just keeps growing, and it just keeps sucking our community dry,” said Ralph Richards, a co-owner of Earl’s, Gallup’s largest and busiest restaurant.

Mr. Richards sees the impact among his 120 employees, mainly Navajo, some of whom become trapped by payday loans they cannot repay and, he said, “develop a sense of hopelessness.”

In one indication of how common the problems are, his restaurant alone gets 10 to 15 calls each day from payday lenders trying to collect overdue fees from his workers, Mr. Richards said. At any one time, under court order, he must garnishee the wages of about a dozen of his workers to repay such lenders.

The biggest problem, consumer advocates say, and the biggest source of profits to lenders, is that too many customers find, like Mr. Milford, that they must “roll over” the loans, repaying the same fee each month until they can muster the original loan amount.

Over several months, they can easily spend far more on fees than they ever received in cash and may end up by borrowing from multiple sites to pay off others.

One restaurant cashier here, Pat T., a 39-year-old mother of five who did not want to embarrass her family by giving her full name, said she had borrowed $200 last year when she could not pay an electric bill because “it was so easy to do.” It took her six months to repay the $200, and by then, she had paid $510 in fees.

Efforts to regulate the industry in New Mexico bogged down this year. Lenders hired lobbyists to push for mild rules, and consumer advocates were split between those who wanted to virtually shut down the industry and others, including Gov. Bill Richardson, who promoted rules like mandatory reporting of loans, limits on fees and rollovers, and an option for borrowers to convert loans to longer-term installment plans.

Last summer, after legislation failed, Mr. Richardson issued regulations along those lines, but a court declared them illegal. The state has appealed.

The issue will be raised again in January’s legislative session. Lt. Gov. Diane D. Denish, who described payday loans as “stripping the wealth out of the low-income community,” said she feared that the same political stalemate would prevail. In the meantime, Ms. Denish and many others say, efforts are needed to develop private alternatives to payday loans.

In an initiative that has attracted wide attention here, the First Financial Credit Union will offer an alternative payday loan plan, with a fee of $12 per $100 borrowed and a novel chance for customers to start building assets.

Customers who attend classes in financial planning and agree not to seek loans elsewhere will have 80 percent of their loan fees returned to them and put into their own personal savings account, said Ben Heyward, chief executive of the credit union.

“We’ll lick the payday lending problem when people learn how to save,” Mr. Heyward said. “When they kick the short-term loan addiction.”

In the meantime, there is no shortage of borrowers.

Debbie Tang, a single mother of two, took out three $200 loans, with total fees of $180 per month, when her child support payments did not arrive last month or this month. Without a credit history to get a bank loan, Ms. Tang said she felt she had little choice but to visit payday lenders to pay the electric and gas bills until her grants for her nursing studies arrive in January.

Like Mr. Milford, Ms. Tang has put up a Christmas tree but has no presents underneath. She recently broke the hard news to her 10-year-old daughter and 8-year-old son: “We’ll just put Christmas off for a month,” she said.

    Seductively Easy, Payday Loans Often Snowball, NYT, 23.12.2006, http://www.nytimes.com/2006/12/23/us/23payday.html?hp&ex=1166936400&en=74f7b854ab02e1e9&ei=5094&partner=homepage

Consumer Spending Picked Up in November

December 22, 2006
By THE ASSOCIATED PRESS
Filed at 10:21 a.m. ET
The New York Times

WASHINGTON (AP) -- Showing some holiday cheer, consumers boosted their spending in November by the largest amount in four months, while the nation's manufacturers saw demand for big-ticket goods rebound.

The latest snapshot of consumer and business activity was contained in a pair of reports released by the Commerce Department on Friday, with encouraging signs for the economy.

One report showed consumers increasing their spending by 0.5 percent last month, up from a 0.3 percent gain and the most since July. Incomes -- the fuel for future spending -- rose a modest 0.3 percent for the second month in a row. The income and spending figures aren't adjusted for inflation.

Another report showed that orders placed with factories for costly manufactured goods went up 1.9 percent last month. That was a turnaround from the 8.2 percent plunge registered in October.

On Wall Street, the reports failed to give investors a burst of joy. The Dow Jones industrials were down 61 points and the Nasdaq was off 9 points in morning trading.

The spending and income figures were just shy of economists' forecasts. They were expecting a gain of 0.6 percent in spending and a gain of 0.4 percent for income. The demand shown in the manufacturing report was stronger than the 1.5 percent gain economists were anticipating.

Together the reports suggest that the economic expansion is not in danger of fizzling out, despite strains from the deepening housing slump.

The ailing housing market was the main reason why economic growth slowed to a 2 percent pace in the late summer. As troubles linger from housing, more sluggish performances are expected in the months ahead.

Thus far, though, consumers seem to be holding up fairly well.

In November, consumers boosted spending on big-ticket ''durable'' goods -- such as cars and appliances expected to last at least three years -- by a strong 1.2 percent, the most since July. Spending on ''nondurables'' such as food and clothes, rose by a solid 0.7 percent, after a 0.6 percent cut the month before. Spending on services increased 0.4 percent, following a 0.6 percent rise.

Consumer spending is closely watched by economists because it is a major shaper of overall economic activity.

With spending growth outpacing income growth, Americans' personal savings rate -- savings as a percentage of after-tax income -- dipped to negative 1.0 percent in November, the worst showing since August.

In the manufacturing report, factories saw new orders rise in November for computers and communications equipment, as well as cars and airplanes. But demand for machinery, electrical equipment and primary metals, including steel, ebbed.

Manufacturers are having to deal with some fallout related to problems in the housing market as well as the struggling automotive industry.

There was some encouraging news Friday on the inflation front.

An inflation measure tied to the income and spending report showed ''core'' prices -- excluding food and energy -- moderated last month. These prices rose 2.2 percent over the last 12 months ending in November, an improvement from the 2.4 percent gain reported for the 12 months ending in October.

Even with the improvement, core inflation is still higher than the Fed would like.

Fed chairman Ben Bernanke and his colleagues, however, predict inflation will continue to ease as the economy slows to a more sustainable pace.

Given that, the central bank has felt comfortable holding interest rates steady since August. Economists believe the Fed probably will leave rates where they are well into next year.

    Consumer Spending Picked Up in November, NYT, 22.12.2006, http://www.nytimes.com/aponline/business/AP-Economy.html

Toyota’s Sales Projections Show It Surpassing G.M.

December 22, 2006
The New York Times
By MARTIN FACKLER

TOKYO, Dec. 22 — Toyota Motor said today it plans to sell 9.34 million vehicles next year, a figure that analysts said would put it ahead of troubled General Motors as the world’s largest auto company.

Toyota reported global group sales this year of 8.8 million cars and trucks, below G.M.’s 2006 sales forecast of 9.2 million vehicles. But the figures released today showed the two rival car giants on starkly different trajectories, with Toyota expecting to add a half million vehicle sales next year, at a time when G.M. is shuttering plants and laying off workers.

Surpassing G.M. would be a crowning achievement for Toyota, a company that got its start in the 1930s by reverse-engineering G.M. and Ford cars, and that spent decades catching up with Detroit. It would also end G.M.’s 81-year reign over the global auto industry, and mark another step in the rise of Asian carmakers.

However, becoming the global leader would also have its pitfalls for Toyota, analysts warned. The Japanese automaker could become a victim of its own success and follow G.M.’s decline if it grows complacent, or lets quality control slip amid its rapid expansion, analysts said. Being at the top could also make Toyota a fatter target for critics, particularly in Congress, where the company’s rise could fan a protectionist backlash, analysts said.

“Does being No. 1 matter? It matters for G.M., and for America,” said Hirofumi Yokoi, an auto analyst at CSM Asia. “It becomes a political issue when America gets passed in a core industry. Toyota will have to be even more sensitive and cautious in the U.S. market.”

Toyota’s emergence as No. 1 would also realign the global auto industry. The Japanese car company would become the new industry benchmark, say analysts, and one that would be tough to match. While G.M.’s strength in recent years has been its finance arm, Toyota’s success is grounded in its formidable manufacturing prowess. As the world’s most profitable carmaker, it also has the cash to invest heavily in new technologies and products, analysts said.

Analysts also said reaching the top would not exhaust Toyota’s opportunities for growth. They said Toyota will continue to gain in the American market, where higher gas prices have increased the popularity of smaller, more fuel-efficient vehicles. They said Toyota was expanding in developing markets, particularly China, and into alternative-energy vehicles, like hybrid and fuel-cell technologies.

Toyota’s rise would also prove a victory of sorts for its unique corporate culture, the so-called Toyota Way, which is rooted in an obsession with craftsmanship and constant improvement, or “kaizen.” Analysts said the Toyota Way would likely become enshrined as the industry’s gold standard, and the model to mimic or surpass for new challengers from South Korea and China.

“This proves that the Toyota Way is more than just an odd, quirky theory,” said Chester Dawson, author of “Lexus: the Relentless Pursuit.”

“Being No. 1 means Toyota now sets the standards that everyone has to beat,” he said.

For Toyota, the immediate concern appears to be avoiding any political fallout from passing G.M. This morning, Toyota’s president, Katsuaki Watanabe, treaded lightly around the issue of his company’s overtaking G.M., while announcing may open another factory in North America. At a press conference in Nagoya, near his company’s Toyota City headquarters, Mr. Watanabe said passing G.M. “is just a question of results,” and not a significant event for Toyota, according to Bloomberg News.

Toyota is also considering another factory somewhere in North America, Mr. Watanabe said. The company just opened a $1.28 billion pickup truck plant in San Antonio, Tex., last month, and has another factory under construction in Woodstock, Ontario slated to open in 2008.

Toyota has been building plants in the United States since the 1980s, partly to blunt trade criticism. The expanded production will help Toyota to meet U.S. sales gains without increasing exports from Japan, a Toyota executive vice president, Tokuichi Uranishi, said, according to Bloomberg News.

Mr. Watanabe also addressed Toyota’s growing number of recalls this year, which have tarnished the company’s reputation for sterling quality. In Japan alone, Toyota has recalled 1.2 million vehicles this year, prompting the transport ministry to order the company to improve quality control.

“There will be no growth without quality,” Mr. Watanabe told reporters, according to The Associated Press. “We’d like to continue our efforts to make good products that win support from our customers.”

Analysts say the growing number of defects could seriously undermine the company in the long run, especially if they are a symptom that Toyota is losing its grip on quality control as it charges forward with expansion.

“Now that it’s Toyota’s turn on top of the industry,” said CSM’s Mr. Yokoi, “Toyota has to figure out how to keep from following G.M. into decline.”

So far, the recalls have not slowed Toyota’s pace of growth. The company said today that it and its affiliates expect to build 9.42 million cars and trucks next year, up from 9.04 million this year. The Toyota group includes two subsidiaries, truck-maker Hino Motors and Daihatsu, a builder of compact cars.

Toyota also gave a regional breakdown for next year’s forecasted sales of cars built by the parent company, which bear the Toyota and Lexus brands. The largest market will remain the United States, where sales are expected to rise 6 percent to 2.68 million vehicles.

The company also said it expects a 9 percent rise in Europe and a 15 percent gain in Asian markets, including China.

Asked if becoming the industry leader would have any real impact on Toyota’s core business of building cars, most analysts said no. They said Toyota would likely keep doing what it has been doing so far: grabbing global market share by producing reliable, high-mileage vehicles.

Some also noted with irony that being No. 1 has not helped the current titleholder, G.M., which lost $10.6 billion last year.

“Being on top won’t change anything in terms of share price or earnings,” said Atushi Kawai, an auto analyst at Mizuho Investors Securities in Tokyo. “In fact, if you look at who’s been No. 1 until now, you see that there really aren’t many benefits at all.”

    Toyota’s Sales Projections Show It Surpassing G.M., NYT, 22.12.2006, http://www.nytimes.com/2006/12/22/business/worldbusiness/22cnd-toyota.html?hp&ex=1166850000&en=981a86987ef9b9e4&ei=5094&partner=homepage

Bush links minimum wage to tax break

Posted 12/21/2006 10:57 AM ET
AP
USA Today

WASHINGTON (AP) — President Bush endorsed one of the Democrats' top priorities for the new Congress, a $2.10-an-hour minimum wage increase — and on a faster timetable than they have proposed.

But his support comes with a catch.

Bush said at a Wednesday news conference that any pay hike should be accompanied by tax and regulatory relief for small businesses, potentially a tough sell for Democrats, who are about to reassume control of the House and Senate.

"Minimum wage workers have waited almost 10 long years for an increase," responded Democratic Sen. Edward Kennedy of Massachusetts, who has said that boosting the federal minimum wage will be his chief goal when he takes over as chairman of the Senate Committee on Health, Education, Labor and Pensions. "We need to pass a clean bill giving them the raise they deserve as quickly as possible."

The president brought up the issue unprompted during the White House news conference that was dominated by Iraq but veered into domestic issues as well.

Eager to show he heard the message of voters who stripped his party of majorities in both the House and Senate in the November elections, Bush said he'll work hard on what he called "an interesting new challenge" — trying to find common ground with Democrats who will lead Congress for the first time in his presidency.

"I don't expect Democratic leaders to compromise on their principles, and they don't expect me to compromise on mine," he said. "But the American people do expect us to compromise on legislation that will benefit the country."

He said initial consultations with incoming Democratic leaders revealed openings for cooperation in several areas. One was an immigration policy overhaul, including a way for some illegal workers to move toward citizenship. That was stymied this year primarily by conservative Republicans who favored a get-tough-only approach.

Other openings Bush saw for cooperation were increased federal spending on alternate energy sources; reform of Congress' appropriations process that has made it common for lawmakers to slip pet projects into spending bills, and giving American workers new skills and businesses help investing in new innovations.

Despite Washington's changed political reality, Bush also did not shy away from issues that have less chance of being well-received by Democrats, who have felt ignored for the first six years of the president's tenure.

He said he wants to work on the looming insolvency of the Social Security program. But his one-time plan to add private accounts to the system, once the highest domestic priority of his administration, is considered dead by Democrats. Bush is sending Treasury Secretary Henry M. Paulson Jr. to the Hill to gather ideas on how to restructure Social Security.

Bush also said he wants lawmakers to approve new trade deals. But Democrats have said they will insist bilateral trade agreements include tougher labor and environmental standards.

On other topics:

•Bush was asked about the pregnancy of Mary Cheney, Vice President Dick Cheney's openly gay daughter, in light of his previous statements that a child ideally should be raised by in a family headed by a married father and mother.

The president said "we ought to review law to make sure that people are treated fairly" but didn't provide specifics. Neither he nor his questioner referred to Cheney's partner, Heather Poe.

•The president said he first learned from a newspaper story Wednesday that the vice president will be called to testify in the CIA leak case on behalf of his former chief of staff. Defense attorneys for I. Lewis "Scooter" Libby, charged with perjury and obstruction, would not say whether Cheney was being subpoenaed — a potential separation-of-powers issue — but said they do not expect the vice president to resist.

"It's an interesting piece of news. And that's all I'm going to comment about an ongoing case," Bush said.

Raising the minimum wage from $5.15 to $7.25 over three years is at the top of Democratic leaders' early to-do list for next year.

GOP-crafted legislation earlier this year combined an increase with a cut in inheritance taxes on multimillion-dollar estates and the resurrection of a number of popular tax breaks, but that combination did not get through the Republican-controlled Congress.

Bush said he supports a $2.10 raise for minimum-wage earners, but over a two-year period instead of three, and added that "we should do it in a way that does not punish" small businesses.

"I support pairing it with targeted tax and regulatory relief, to help these small businesses stay competitive and to help keep our economy growing," he said.

Bush resisted any attempt to judge his presidency two years before it expires.

"I'm going to sprint to the finish. And we can get a lot done," he said. "I'm reading about George Washington still. My attitude is if they're still analyzing Number One, 43 ought not to worry about it, and just do what he think is right, and make the tough choices necessary."

    Bush links minimum wage to tax break, UT, 21.12.2006, http://www.usatoday.com/news/washington/2006-12-21-bush-minimum-wage_x.htm

Ford Expects to Fall Soon to No. 3 Spot

December 21, 2006
The New York Times
By MICHELINE MAYNARD

DEARBORN, Mich., Dec. 20 — The Ford Motor Company expects Toyota of Japan to unseat it for good next year as the No. 2 company, behind General Motors, in the American car market, a position Ford has held since the 1920s, according to internal Ford projections.

Those projections show that company officers believe that Ford will permanently fall to third place as soon as January. The shift appears to be happening much faster than Ford had previously signaled.

Ford, which is struggling to restructure itself under a plan called the Way Forward, predicted in September that its market share within two years would bottom out at 14 to 15 percent of the market, making it smaller than Toyota is now. It had not specifically predicted that it would end up behind Toyota, but the implication was clear.

That projection came only weeks after Ford hired a new chief executive, Alan R. Mulally, who formerly ran Boeing’s commercial airplane business.

Mr. Mulally has said Ford needs to pay more attention to cutting costs and transforming the way it does business than to traditional measurements like market share.

Only six years ago, Ford had a firm grip on 25 percent of the American market, because of its popular F-series pickup and Explorer S.U.V., as well as the Taurus, which ranked during the mid-1990s as the nation’s best-selling car.

But high gasoline prices, quality issues and a lack of fuel-efficient small cars have caused Ford’s sales and market share to tumble.

Through November, the Ford and Lincoln-Mercury divisions held 16.2 percent of the American market, versus a combined 14.9 percent for Toyota and its other two divisions, Scion and Lexus.

The Ford projections estimate that Ford could lose at least 1.1 percentage points of market share over the coming year, a result of Ford’s decision this fall to discontinue the Taurus, which it had sold in large volumes to rental-car companies. It also expects sales of its F-series pickup and Explorer to continue dropping, costing it more share.

The internal projections show that, in the meantime, Ford officials expect Toyota to gain more market share when it introduces a new version of the Tundra, its full-size pickup truck, in February. The gain, combined with Ford’s loss, would put Toyota ahead.

Toyota’s eventual rise to second place in the American market was expected, even if the timing was unknown.

Toyota beat Ford twice in monthly sales this year, first in July, and most recently in November, when Ford ranked fourth behind G.M., Toyota and Chrysler.

Edmunds.com, a Web site offering car-buying advice, plans to issue its own forecast Thursday that will echo the internal Ford projections, predicting second place for Toyota by mid-2007.

Ford’s chief sales statistician, George Pipas, declined to comment Wednesday night on the internal projections. Of the Edmunds forecast, Mr. Pipas said only: “Unless you think Toyota is going to go backwards, it’s a good possibility that they will gain market share.”

A Toyota spokesman, Joseph Tetherow, said the company’s goal was not to beat Ford, but to satisfy its owners. “I don’t think we celebrate who we pass or what our standing in the market is,” Mr. Tetherow said. “It’s focused on providing the right product to the customer.”

“If we’re going to pass them,” he said, “it’s their responsibility.”

Mr. Tetherow said Toyota had benefited from the introduction this year of a new version of the Camry sedan, the nation’s best-selling car, as well as the new Yaris subcompact, and the continued popularity of the Prius hybrid gas-electric vehicle.

Toyota’s growth is expected to continue, not just in the United States, but worldwide. On Friday, Toyota is expected to release its 2007 global production forecast, which, Japanese news reports have said, will mean it will pass General Motors next year to become the world’s biggest auto company. It passed Ford globally in 2003.

Toyota, which opened its seventh American factory in San Antonio last month, is deciding whether to build another North American assembly plant as well as an engine plant. By contrast, the Ford restructuring plan calls for it to shut 16 factories and eliminate 44,000 blue- and white-collar jobs by 2008.

Ford officials are also looking over their shoulders at the Chrysler Group, which has embarked on its latest restructuring plan after seeing its inventories of unsold cars and trucks swell this year. In recent weeks, Chrysler has stepped up rebates and other deals, especially on leftover 2006 models.

If the heavy incentives continue into 2007, and Chrysler picks up the rental-car sales lost when Ford discontinued the Taurus, Ford’s projections show it could wind up fourth, behind G.M., Toyota and Chrysler.

A Toyota move into second place next year would occur on the 50th anniversary of its entering the American market.

It was not an easy entry, however; consumers rejected the first offering, the tiny Toypet, prompting Toyota to withdraw from the American market for a year. For 2006, its sales in this country are expected to approach 2.5 million.

    Ford Expects to Fall Soon to No. 3 Spot, NYT, 21.12.2006, http://www.nytimes.com/2006/12/21/business/21auto.html

Economic Growth in Summer Is Revised Downward

December 21, 2006
The New York Times
By JEREMY W. PETERS

The economy grew at a more sluggish pace this summer than the government first reported, advancing by the smallest amount in more than three years.

The Commerce Department reported today that the nation’s output of goods and services grew at a 2 percent annual rate from July through September. The department’s earlier estimate for the period, issued last month, was 2.2 percent.

After roaring along at a 5.6 percent annual rate in the first quarter, growth in the gross domestic product has slowed considerably this year, falling to 2.6 percent in the second quarter and now 2.0 percent in the third. Economists now expect the fourth quarter to be no better.

The biggest reason for the slowdown has been the deflating housing market. In the third quarter, the slowdown in residential construction subtracted 1.2 percentage points from the overall growth rate. That was slightly more than the government first reported, and reflected the sharpest decline in building activity in 15 years.

Slower consumer spending on services and a rise in imports also contributed to the downward revision to third-quartere G.D.P. that was announced today.

Whether economic growth will slow so much thatthe Federal Reserve would consider lowering interest rates is far from clear. Many investors and economists are expecting the central bank to start reducing rates sometime in the first half of 2007, but the Fed has so far sounded a hesitant and cautionary note on growth, while keeping its attention mainly on lingering threats of inflation.

Today’s report showed that price increases, too, may be starting to cool. A broad measure of inflation that is closely watched by the Fed, known as the core personal consumption expenditure index, rose 2.2 percent in the third quarter, compared with a 2.7 percent rise in the second quarter. The Fed considers any reading over 2 percent to be too high for comfort.

Separately today, the Conference Board reported that its index of leading indicators ticked upward by a modest 0.1 percent in November, a suggestion that only tepid economic growth at best can be expected in the next few quarters.

Financial-market reaction to the reports seemed muted, with major stock indexes trading down only marginally by late morning and bond yields broadly unchanged.

    Economic Growth in Summer Is Revised Downward, NYT, 21.12.2006, http://www.nytimes.com/2006/12/21/business/21cnd-econ.html?hp&ex=1166763600&en=7f4a19546ea56fae&ei=5094&partner=homepage

Op-Ed Contributor

The Bonus Army

December 20, 2006
The New York Times
By HENRY BLODGET

EVEN those accustomed to Wall Street’s otherworldly pay scales gasped last week when Goldman Sachs’s 2006 compensation numbers were released: $16.5 billion, up 40 percent in a year, some $623,000 per employee. The news triggered shock and envy: Oh, my God. That’s obscene! Boy, do I wish I worked for Goldman Sachs.

Pundits asked how such numbers could be justified, whether Goldman’s employees were that much more talented than the rest of Wall Street, whether Goldman’s shareholders were getting mugged. About the only people who had nothing to say were Goldman’s understandably discreet employees. What were they thinking?

Having once been on the receiving end of the Wall Street bonus system, I can guess: Some Goldman employees probably felt ecstatic; some fairly paid; and some shafted. (It is ever thus.) For example, word has it that some secretaries fumed about making a total of only $120,000 while their bosses made millions — until gently reminded that $120,000 is great secretary pay. Most Goldman employees probably have a sense of how lucky they are compared to those outside 85 Broad Street. Few probably suffer from the delusion that the bonuses are “fair” in any moral sense: Even with frequent all-nighters, Goldman workers probably earned the best hourly wages in the world (an average of about $200 per hour, assuming a 60-hour week; the firm’s top traders, meanwhile, reportedly made $17,000 to $33,000 an hour.) In a country where some people are starving and others are furiously debating a $1 increase in the minimum wage, such bonanzas provide a startling reminder of the inequities of our free-market economy.

Within a more limited context, however — pay for performance — the compensation is fair, and Goldman’s employees have every right to view it as such. Capitalism works because it encourages and rewards those who successfully take risks, adapt to change and develop profitable opportunities. Goldman Sachs employees, arguably, are consistently better at those things than any other group of employees in the world. Yes, they have the good fortune of working in a hot industry in a favorable market environment. But they have taken spectacular advantage of both.

This year, even after paying themselves and their other expenses, Goldman’s employees generated an average of about $550,000 of pre-tax profit apiece. This is twice as much as the employees of Lehman Brothers, another strong Wall Street firm ($228,000). It is more than the employees at G.E. and Microsoft. It is even more than the employees at Google, another fantastically profitable wealth-generation machine.

Goldman’s employees even paid themselves less as a percentage of revenue this year than they did last, and less than the employees of other Wall Street firms. Any shareholder who feels mistreated by this performance is a tough shareholder to please.

At the heart of the Goldman profit factory is the annual bonus system, which mimics the dynamics of free-market capitalism. Like workers at other Wall Street firms, most Goldman employees receive the vast majority of their compensation in a single paycheck, the amount of which is based on firm, group and individual performance.

The system gives the firm extraordinary ability to invest its resources in the assets (people) that earn the biggest returns — and to do so without risk, after the fact, when the returns are in the bank. It allows the firm to pay superstars enough that they won’t jump to hedge funds and private equity firms, where the upside, believe it or not, is even more extreme. It allows the firm to pay free riders and has-beens next to nothing before it shows them the door.

The bonus system also gives the firm the flexibility to cut compensation drastically in bad years without destroying profit margins or firing thousands of loyal employees: Wall Street is notoriously cyclical, and $16.5 billion of compensation this year could become $5 billion — or less — next year. The system ensures that ambitious employees have an incentive to give their best every year, instead of resting on laurels. And it enables the company (and its shareholders) to develop new products and businesses without shouldering all of the risks: Think you’re the next Robert Rubin/Hank Paulson/Jon Corzine? Want to bet your Goldman career on your fabulous new idea? Be our guest.

Capitalism can’t solve all economic problems, as the homeless people poking through trash cans outside 85 Broad Street can surely attest. In fact, to adapt an old adage, capitalism is surely the worst economic system on the planet except for all the others. What capitalism is great at, however, is encouraging successful risk-taking, and this keeps our economy healthy and vibrant. Capitalism is also great at generating immense tax revenue (Goldman’s employees will pump almost as much into city, state and government coffers this year as they take home — some consolation for those who won’t be getting $623,000 checks in their stockings.)

In any case, to see the embodiment of our economic system in action — for better and worse — one need look no farther than Broad Street.

Henry Blodget, a former stock analyst, is the author of the forthcoming ‘‘Wall Street Self-Defense Manual.”

    The Bonus Army, NYT, 20.12.2006, http://www.nytimes.com/2006/12/20/opinion/20blodget.html

In This Town, Even a Mall Rat Can Get Rattled

December 20, 2006
The New York Times
By KEN BELSON

PARAMUS, N.J., Dec. 15 — It is fitting that the first store drivers heading south on Route 17 see as they enter town is a Stop & Shop. After all, Paramus is one of the nation’s strongest shopping magnets, generating roughly $5 billion a year in retail sales, an amount about equal to the gross domestic product of Cambodia, Nicaragua or the sultanate of Brunei.

There are larger malls and there are fancier malls elsewhere, but few places rival the sheer concentration of stores in this otherwise unremarkable suburb 18 miles northwest of Times Square. In an already densely populated state, Paramus has more parking spots than people.

Four major malls and dozens of smaller shopping centers are packed into 10 square miles. Paramus is home to Garden State Plaza, New Jersey’s largest mall, whose two million square feet of stores attract 20 million shoppers a year. The town has 27,000 residents, and about 2,700 stores. There is a Saks Fifth Avenue and a Sears; at least two dozen chains, including Borders, Old Navy and Macy’s, have more than one outlet within Paramus’s boundaries.

It is a Faustian bargain that brings 200,000 cars a day into town during December, turning the roads into virtual parking lots, but also keeps property tax rates in Paramus relatively low — $1.55 per $100 of assessed value, compared with $3.88 in Maywood, the next town over.

And there is no sign of letup: two of the four malls are spending $100 million each to spruce themselves up, big-box stores are sprouting where strip malls and bygone department stores once sat, and traffic seems to get worse each year. All of which has made residents like Paul Giblin III seem a lot like Scrooge.

Growing up in Paramus, a bedroom community with many white-collar workers, Mr. Giblin considered the malls a playground. Later, he saw them as a convenient place to get a lot done at once. But this year, the stores and roads have become so packed that Mr. Giblin, a 30-year-old financial adviser, said he was buying half his gifts online and the rest at smaller shops.

“I don’t have the time to deal with the traffic and the malls,” he said over chicken fingers and fries at the Suburban Diner on Route 17. “My wife lives to shop, but she didn’t go to the malls this year, either.”

Residents have groaned about the traffic for years, but largely put up with it because of how much money visitors spent in the town’s stores. They also won reprieves on Sundays, when the town prohibits sales of practically everything, making Paramus a virtual ghost town.

Over all, analysts expect retail sales this season to be up about 4 percent over last year; owners of the Paramus malls would not provide specific figures about how they are doing. Yet while nearly all the available construction space in Paramus has been exhausted, developers keep adding movie theaters and restaurants in hopes of getting consumers to spend more during each visit.

Among the attractions is that New Jersey has a lower sales tax than New York City (7 percent compared with 8.375 percent), and none on clothing and shoes — New York has no state sales tax on clothing and shoe purchases of less than $110. And Paramus sits in wealthy Bergen County, where the average household income is $71,000 a year, 41st in the nation for counties with more than 65,000 residents.

“Other than New York and Beverly Hills, where else do people go to shop as their profession? Paramus,” said Marshal Cohen, a retail industry analyst at NPD Group, a market research firm. “You can go there on a Wednesday afternoon and still see people shopping.

“For the last 20 years, the industry has felt that the area was saturated,” Mr. Cohen added, “but to everyone’s amazement, it still grows and attracts people from all over.”

Paramus has no town center per se, but it seems to have a mall to suit every shopper’s personality.

Visitors from New York traveling west on Route 4 first hit Bergen Town Center, with a middle-market collection of shops, like the discount clothier Century 21. Upscale outfits like Brooks Brothers and Abercrombie & Fitch are among the 285 stores at the huge Garden State Plaza, where Wall Street analysts and investors flock for hints of how well the Christmas shopping season is going.

A bit north on Route 17 is a 45-acre plot featuring Ikea, Sports Authority and Bed, Bath & Beyond — and room for 2,800 cars. And a mile up the road are the Fashion Center and Paramus Park malls, the latter with a sweeping second-floor food court overlooking child-friendly Build-A-Bear Workshop, Lego and Disney stores.

While outsiders gravitate to the malls, residents try to avoid the congestion. Irma Weishaupt and her husband, Lou, who have lived in Paramus for 45 years, say they stick to side streets and sometimes leave town to shop.

“Rule No. 1 is to avoid Route 17 in either direction,” Mrs. Weishaupt said. “It’s the worst around Thanksgiving, but we’re always questioning what’s happening because it is getting worse.”

Though a headache for residents, traffic has a silver lining for retailers: If cars crawl along at half the 50 mile-an-hour speed limit, potential customers have more time to size up the stores, and are more likely to stop someplace they might have otherwise passed.

The mayor, James J. Tedesco III, considers the malls “a double-edged sword.”

“For the benefit of almost 50 percent of the taxes being paid for by the business community, we have to put up with congestion,” Mr. Tedesco said. “You can say during the holiday season, the traffic is exasperating. It’s a constant battle.”

The battle began in the 1950s, when both the Bergen Mall, which was recently renamed Bergen Town Center, and Garden State Plaza were built. The suburbs in northern New Jersey were growing, and the main roads that crisscross Paramus and head in every direction were a retailer’s dream.

But the traffic the malls generated swamped the roads. They have been widened repeatedly to accommodate the cars, with recent improvements to off-ramps and intersections, but it never seems to be enough.

And the building continues. The Westfield Group, which manages Garden State Plaza, is expected to finish a $100 million renovation, adding shops and entertainment options, early next year; Vornado, which bought Bergen Town Center last year for $146 million, is just starting a $100 million overhaul of its own.

Already, Paramus has 320 stores with more than $1 million in annual sales each, second in the country only to the 10021 ZIP code on the East Side of Manhattan. The vacancy rate for stores is 3 percent, several percentage points below the rate for similar real estate elsewhere. Some properties are filled even before the previous tenants move out.

“Paramus is a town with a waiting list,” said Chuck Lanyard, a commercial real estate broker at the Goldstein Group in Glen Rock.

One sign of the malls’ success is the booming valet services in their parking lots. Pro Valet Event Parking, which has 50 spots near the Papa Razzi restaurant in the Garden State Plaza, doubled its prices to $10 this holiday season.

While the traffic is overwhelming for some in Paramus, the commercial frenzy has its rewards — chiefly, businesses that pick up much of the tax burden. That has created a measure of jealousy in Maywood.

A half-century ago, developers wanted to put a mall in Maywood and the parking lots in Paramus. Eager to preserve their town’s character, Maywood residents rejected the proposal and instead got the lots, which generate little tax revenue. The town also has to grapple with the occasional stolen car, and for a fee, sewage from Bergen Town Center.

“We have gotten the short end of the stick for 50 years,” said Thomas H. Richards, mayor of Maywood, which unlike Paramus still has something resembling a small-town Main Street.

Maywood recently approved Vornado’s plan to build three stores in Bergen Town Center on its side of the border, a decision that could add $250,000 to the town’s tax rolls, Mr. Richards said, calling it “a dream come true.”

“We’d like our share of the pie,” he said.

    In This Town, Even a Mall Rat Can Get Rattled, NYT, 20.12.2006, http://www.nytimes.com/2006/12/20/business/20mall.html?hp&ex=1166677200&en=be9b2a21c7d48485&ei=5094&partner=homepage

First Ladies Will Be Golden in New Coins

December 19, 2006
By THE ASSOCIATED PRESS
Filed at 11:49 a.m. ET
The New York Times

WASHINGTON (AP) -- For the first time, the U.S. Mint is dedicating a series of coins to the accomplishments of women -- the nation's first ladies.

Starting with Martha Washington, all of them are scheduled to be honored on a series of commemorative one-half ounce gold coins that will be companions to a new series of circulating $1 coins that the Mint is producing to honor the presidents.

Mint Director Edmund Moy unveiled the designs on the first four commemorative coins at a ceremony Tuesday at the National First Ladies Library in Canton, Ohio.

''Each coin is a half-ounce of pure gold. You might say they are the presidents' better half,'' Moy said in a statement.

Both the presidential one-dollar coins and the series honoring the first ladies were authorized in 2005 by Congress and will start appearing next year.

The first ladies coins for next year are all coming out in May just before Mother's Day with the Mint hoping to generate sales of the coins, expected to cost more than $300 each, tied to the special day.

There will be a less expensive bronze medal duplicate of each of the coins in the spouse series offered for a more affordable $3 to $4.

Four new designs for both the $1 coin and the golden first ladies coin will be introduced each year in the order the president served. All presidents and their first ladies will be honored; only those who have been dead for at least two years can appear on a coin.

The designs on the first coins show the first ladies were an energetic group.

Martha Washington is depicted mending a soldier's uniform while Dolley Madison, wife of James Madison, is shown in front of the famous Gilbert Stuart portrait of Washington that she saved before the British burned the White House in the War of 1812.

Abigail Adams, wife of John Adams, the second president, is shown writing a letter to her husband with the inscription, ''Remember the ladies.'' That was her request in a letter she wrote to Adams when he was a delegate to the Continental Congress in Philadelphia in 1776.

Thomas Jefferson was one of five presidents who did not have spouses when they served in the White House. Jefferson's wife had died in 1782 before he became president in 1801.

The gold coin for his administration will feature a symbolic Lady Liberty, an image taken from a half-cent in circulation at the time Jefferson was president. The other side features inscriptions from Jefferson's grave monument of his significant accomplishments, including writing the Declaration of Independence and founding the University of Virginia.

The Mint is hoping that the $1 presidential coins, which will start coming out in February next year, will prove to be as big a hit with the public as the popular 50-state quarter series.

It will be the third time in recent history that the Mint has tried to introduce a $1 coin. The Susan B. Anthony dollar in 1979 and the Sacagewea in 2000 both proved to be failures.

Information about the new coins, including how they may be purchased, is available at the Mint's Web site, www.usmint.gov or by calling 1-800-USA-MINT.

------

On the Net:

U.S. Mint: www.usmint.gov

    First Ladies Will Be Golden in New Coins, NYT, 19.12.2006, http://www.nytimes.com/aponline/us/AP-First-Lady-Coins.html

Wholesale prices surge by largest amount in 32 years; housing starts jump

Updated 12/19/2006 8:59 AM ET
AP
USA Today

WASHINGTON (AP) — Inflation at the wholesale level surged by the largest amount in more than 30 years in November, reflecting higher prices for gasoline and a host of other items.

The producer price index, which measures inflation pressures before they reach the consumer, was up 2% last month, biggest advance since a similar increase in November 1974, the Labor Department reported Tuesday.

Economists had been expecting a rebound in wholesale prices following two months of big declines. However, the 2% jump was four times bigger than the 0.5% increase they had forecast. Even excluding volatile energy and food prices, core inflation posted a 1.3% advance, biggest jump in 26 years.

In other economic news, construction of new homes and apartments increased 6.7% in November to a seasonally adjusted annual rate of 1.588 million units. However, in a sign of the troubles still besetting the housing industry, applications for permits to build new homes fell for a 10th consecutive month.

The report on wholesale prices was in stark contrast to last week's report that consumer prices were flat in November, the third straight month of price relief at the retail level.

The big difference was energy costs, which fell in the consumer survey but were up 6.1% in the November survey of wholesale prices.

The rise in wholesale energy costs was led by a 17.9% jump in gasoline prices, biggest increase since June 2000. Natural gas for home use, home heating oil and diesel fuel costs all posted big gains at the wholesale level as well.

The performance of wholesale prices was certain to raise concerns about whether more price pressures are in the pipeline. Federal Reserve officials last week left interest rates unchanged at their final meeting of the year but said they continued to be worried about inflation pressures.

The 2% rise in wholesale inflation followed four straight months of benign readings, including outright big declines of 1.3% in September and 1.6% in October.

In those months, energy prices were falling sharply, a situation that reversed in November.

Food costs showed a small 0.1% rise last month after a big 0.8% decline in October as increases in the price of dairy products, eggs and soft drinks offset declines in vegetable and fruit prices.

The 1.3% rise in core wholesale inflation, which excludes energy and food, followed a big 0.9% drop in October and was the biggest one-month gain since a similar 1.3% rise in July 1980.

The increase in the core rate of inflation was led by a record 13.7% jump in the price of light trucks, a category that includes sport-utility vehicles. The price of new passenger cars rose by 2.2%.

    Wholesale prices surge by largest amount in 32 years; housing starts jump, UT, 19.12.2006, http://www.usatoday.com/money/economy/inflation/2006-12-19-ppi_x.htm

Economic Report Provides Reminder on Inflation

December 19, 2006
The New York Times
By JEREMY W. PETERS

Wholesale prices shot upward in November, the Labor Department reported today, offering a stark reminder that inflation remains a threat to the economy.

The producer price index, which measures what businesses charge one another for everything from iron ore and diesel fuel to cases of soda pop, was 2 percent higher in November than in October, seasonally adjusted. The index had not risen by that much in a single month in more than 32 years, since the energy and stagflation crises of the mid-1970s.

Even with the volatile prices of food and fuel removed, the “core” index rose by 1.3 percent for the month, the most since 1980.

The figures reinforced the message coming from the Federal Reserve that inflation has not been vanquished, and would seem to lengthen the odds against any move soon by the Fed to begin reducing interest rates, which some investors had hoped for as early as the spring of next year.

Separately, the Commerce Department issued a report on housing construction this morning that contained some mixed signals. On the one hand, the number of building permits authorized last month fell again, for the tenth straight month, a reminder of just how fragile the housing market remains. Permits declined by 3 percent for the month, seasonally adjusted, and were 31.3 percent lower than a year ago.

But in the same reports, the number of homes actually begun by builders rose 6.7 percent in November, seasonally adjusted.

Economists were quick to say that a November rebound in the housing-starts figure was likely simply because October’s figures had shown the steepest decline in six years, and that he new figures did not necessarily signal a turn in the broader downward trend.

“It doesn’t change the bottom line,” said Richard F. Moody, chief economist for Mission Residential, a real estate investment firm. “While there is a bottom out there for the housing market, we just don’t know where it is yet.”

Wall Street did not much like either the price report or the housing report. Stocks moved broadly lower early in the day, and bond yields bobbed upward for a while, though by late morning both markets were little changed from Monday’s levels.

For the Federal Reserve, the reports offer conflicting tugs on policy. On the one hand, the hotter inflation data bolsters the Fed’s case for keeping interest rates unchanged, as it has done at the last four meetings, or even moving closer to an increase. The central bank has repeatedly said that inflation remains too high and that its next move on interest rates is more likely to be upward than downward.

But the weak housing report and its implications for a slowing economy would seem to argue for action soon to stimulate growth and demand, perhaps by lowering interest rates. In its latest policy statement, the Fed made its clearest acknowledgment to date that economic growth is faltering, particularly in the housing market.

Still, economists said today that the Fed will probably want more evidence of weakness before thinking about easing its foot off the monetary brake pedal. Joel L. Naroff, president of Naroff Economic Advisers, said the central bank is likely to wait several months “before making any judgments about the condition of the housing market.”

    Economic Report Provides Reminder on Inflation, G, 19.12.2006, http://www.nytimes.com/2006/12/19/business/19cnd-econ.html?hp&ex=1166590800&en=ee047a89dcd3c274&ei=5094&partner=homepage

More shoppers take online plunge; sales hit $670 million in record day

Posted 12/17/2006 11:07 PM ET
USA Today
By Jayne O'Donnell

Online retail sales from Nov. 1 through Friday were up 25% over 2005, says Internet market research firm ComScore Networks.

ComScore says last Wednesday was likely the biggest online shopping day of the year and, with nearly $670 million in sales, topped last year's No. 1 day by over $100 million. In fact, sales on 12 days this year have surpassed $600 million.

Last year's single biggest day for Web sales was Dec. 11, when consumers spent $556 million online.

"It's almost like we're seeing a surging as we come down to the deadline day somewhere around (today) when free shipping with guaranteed delivery ends," says ComScore chairman Gian Fulgoni.

"We keep seeing strong growth," says Scott Silverman, executive director of the National Retail Federation (NRF) online division, shop.org. "It's newsworthy when it continues, because each year you're growing off a bigger base."

Retail consulting firm Kurt Salmon Associates polled 1,202 consumers between Nov. 25 and Dec. 5 and found most people planned to spend the same amount as in 2005, but 36% were planning to shop more online.

"We're breaking records in online shopping," says Kurt Salmon interactive strategies expert Chad Doiron. "That's the big winner."

Through Dec. 3, ComScore says, the number of online buyers was up 17% over a year ago, and the average amount spent increased 7%. Kurt Peters, editor in chief of Internet Retailer, says the growth is likely coming from more people shopping online as well as from experienced online shoppers increasing how much they spend. Peters says new buyers spend less than experienced buyers.

The good news for online retailers comes with a warning. Because consumers are trying out many different websites, they get frustrated quickly with the less satisfying ones, Peters says. Consumers' rising expectations usually outstrip websites' abilities, he says.

Doiron says online shoppers will put up with slow or hard-to-use websites this time of year. But they won't forgive being told something is in stock when it's not: "That's when you've lost a customer."

Some of the biggest retailers aren't going to let shipping deadlines steer consumers away from their websites. Starting today, the NRF's cybermonday.com website will be promoting a "buy online, pick up in-store" option for the holidays. Circuit City, Best Buy, Sears and CompUSA are among retailers offering the service.

"Picking up items in a store will be a good option for consumers who don't want to wander around looking for a particular size or color," NRF spokeswoman Ellen Davis says.

    More shoppers take online plunge; sales hit $670 million in record day, UT, 17.12.2006, http://www.usatoday.com/money/industries/technology/2006-12-17-online-retail-usat_x.htm

More homes are going, going, gone

Updated 12/14/2006 2:06 AM ET
USA Today
By Patrick O'Driscoll and Noelle Knox

DENVER — Microphone in one hand, gavel in the other, auctioneer Bret Richards barely broke his rapid-fire chatter as he eyeballed uncertain bidders.
"You-know-you-will-it's-like-Nike-just-do-it," Richards said in the jammed hotel ballroom here recently as he hawked a two-bedroom, one-bath fixer-upper. Less than a minute later, the house was sold. In two hours, 61 were auctioned, all of them foreclosures — homes whose owners had defaulted on their mortgages.

The scene is being repeated coast to coast as foreclosures tick up nationally. About 4.7% of homeowners were late on their mortgage payments in July through September this year, up slightly from 4.4% in the third quarter last year, the Mortgage Bankers Association said Wednesday.

The delinquency rate has fluctuated between about 4% and 5% for the past five years. This latest rate, though, is the highest since the end of 2005, and it's expected to rise gradually through most of next year. "We do expect to see continued modest increases in delinquencies and foreclosures over the next few quarters, mid- to late-2007, as the housing market bottoms out and then begins recovering," said Doug Duncan, MBA's chief economist.

One of main factors pushing up foreclosures: the number of borrowers who've fallen behind on their adjustable-rate subprime loans — high-interest mortgages for those with impaired credit. Those borrowers account for about 4% of all mortgages. Their loans typically start with low "teaser rates" that begin rising after a year or two, pushing up the monthly payments sometimes beyond what the borrower can afford.

"In California, I saw a billboard that said, 'Own the home you want, not the one you can afford,' " says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. "That was so silly."

ARMs cause problems

Nearly 14% of subprime borrowers with adjustable-rate mortgages (ARMs) were behind on their payments last quarter, the highest rate since the start of 2003. That figure is all but sure to rise next year, when at least $1.2 trillion in ARMs will reset to higher rates. About half that amount is expected to be refinanced into lower-rate fixed or adjustable loans, Duncan says.

Already, refinance applications have reached their highest point since September 2005, the MBA said Wednesday, as rates for 30-year, fixed-rate mortgages have unexpectedly fallen to their lowest since January.

About 1 in 10 homeowners in California with a subprime ARM was behind on mortgage payments in the third quarter. The rate is twice that in states such as West Virginia, Michigan and Alabama, where job losses have battered the housing markets.

The loss of a job is the No. 1 reason people go into foreclosure, followed by health problems and a death in the family. Typically, a lender will start foreclosure proceedings after a borrower misses payments for three months in a row. The homeowner can try to sell the property first. But that can be hard in areas where home sales are falling.

That's what happened to Bill and Dana Pittman in Denver. Dana lost her teaching job last year, then needed surgery for a brain tumor. The couple managed their mortgage payments with Bill's wages as an auto mechanic and an inheritance from Dana's parents.

When the inheritance ran out, they fell behind. "I should have tattooed across my forehead, 'Real estate stupid,' " says Dana, 51.

She says she wrote "a letter of hardship" to the mortgage company last summer, but "It was, like, 'Oh, well, too bad. We want our money.' "

To stave off foreclosure on their suburban home, the Pittmans have been trying to sell a small vacation home they own in a remote valley three hours south of Denver. But with no takers despite a cut in the asking price, they don't expect to sell it before they put their main home up for auction on Jan. 3.

If so, they say they'll have to make their vacation house their new home, even though it's more than an hour's commute from the closest towns where they could find jobs.

"It was supposed to be our retirement home," Dana says.

Hardest-hit areas

While Colorado's delinquency rate of 3.6% is below the U.S. average, there are areas such as Denver where a spike in foreclosures has caused considerable concern among residents and regulators.

Not that all foreclosures reach the auction block. Some owners are able to sell or refinance to pay off their debt. Some lenders permit borrowers who are in trouble to tack missed payments onto the end of the loan while they try to resolve their financial difficulties.

The hardest-hit states are Mississippi and Louisiana, where homeowners are still struggling to recover financially from Hurricane Katrina. But other states that have lost auto, airline and other jobs have also seen jumps in foreclosures and delinquencies. Among them: Michigan, Indiana and Ohio.

Noelle Knox reported from McLean, Va.

    More homes are going, going, gone, UT, 14.12.2006, http://www.usatoday.com/money/economy/housing/2006-12-13-mortgagedelinquencies_x.htm

Force of China's impact grows in USA

Updated 12/12/2006 3:16 AM ET
USA Today
By David J. Lynch

Smack in the center of the country, more than a thousand miles from the Pacific Ocean, Oklahoma isn't a place most people regard as a hotbed of China fever.

So when China scholar Peter Gries flew to the University of Oklahoma for a job interview this spring, he wasn't sure what he would find other than cowboys and oil wells.

What he discovered was a state energetically retooling for a globalized economy bearing an ever more distinct "made-in-China" label.

"I was shocked they had this massive China initiative going on. … What I discovered really did blow me away," says Gries, who was hired to head the university's new Institute for US-China Issues.

The 3-month-old institute, deep in tumbleweed country, illustrates the widening impact China's rise is having on the United States. In the five years since China embraced global integration by joining the World Trade Organization, bilateral trade has almost tripled. The volume of goods flowing between the two countries this year is running at an annual rate of $328 billion — 10 times the level in 1992.

China's WTO membership sparked far-reaching domestic reforms in the still-nominally-communist nation, leading to an economic flowering as well as greater personal freedom for individual Chinese. It's also meant hefty profits for U.S. corporations operating in China, such as General Motors.

Marrying 1.3 billion Chinese to the global economy, however, has left its mark on the United States. Tens of thousands of jobs in textile plants in states such as North Carolina have been wiped out by low-wage Chinese competition even as U.S. consumers enjoy lower-priced clothes, toys and furniture made in Chinese factories. Through massive purchases of U.S. Treasury bonds, the Chinese government effectively finances Americans' consumption-heavy lifestyles.

In recognition of China's growing importance to the U.S. economy, Treasury Secretary Henry Paulson flies to Beijing on Tuesday for the first session of a new "strategic economic dialogue" between the U.S. and Chinese governments. Paulson will head an unusually high-powered delegation including Federal Reserve Chairman Ben Bernanke and six Cabinet colleagues.

China's spreading impact

Financial waves from China's rise already have spread beyond traditionally international cities such as New York, Washington and Los Angeles to reshape life in the heartland. Children in Chicago's public schools study Mandarin. A regional bank in Ohio is scrambling to keep pace with business customers obsessed with the Chinese market. And a struggling iron ore mine in northern Minnesota enjoys new life thanks to China's ravenous appetite for raw materials.

Surging interest in all things Chinese can be seen in the trade delegations from San Bernardino, Calif., and San Antonio flocking to Beijing as well as the stream of popular books with titles such as China Shakes the World, Chinese Lessons and China, Inc.

Paulson's trip reflects the relentless political controversy that has accompanied China's commercial rise. In joining the WTO, China committed itself to follow international trading rules, including lowering tariffs on imported products and lifting requirements for import licenses and quotas.

Tariffs have been slashed. But critics in the U.S. business community, and in the new Democratic-led Congress, complain that the Chinese have flouted other commitments, notably on protecting the intellectual property of foreign copyright holders. Pirated movies, music and software remain widely available in China despite repeated vows of government crackdowns.

U.S. manufacturers also have grown hoarse griping that the Chinese unfairly subsidize their exports through cut-rate financing from state banks and a currency whose value is kept artificially low.

Monday, Susan Schwab, the U.S. trade representative, told Congress that China's record on WTO compliance is "decidedly mixed." In a 100-page report, Schwab said China has made good progress implementing required reforms, but "excessive Chinese government intervention" in the economy blocks smoother trade ties and forward momentum has stalled.

Some industry representatives want the U.S. to formally complain to the WTO about China's subsidies and currency policy. Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers, who was among the business executives meeting with Paulson last week, calls China's approach to its trade commitments "too cute by half."

Economic challenges

Paulson's Beijing foray comes as both China and the United States face economic challenges. There are increasing signs the U.S. economy is slowing, and some economists even warn of a possible recession next year.

Meanwhile, China, which has grown at an average annual rate of 10% since 1991, is attempting a complicated transition from export-led growth to an economy fueled by domestic consumption. The shift, intended to stabilize an economy flirting with dangerous excesses, would result in larger purchases of foreign-made goods, including from the USA, thus potentially defusing rising protectionist sentiment in Congress.

Gries' new institute, which conducts policy research and promotes public education about China, is driven by the same broad understanding that motivates Paulson's high-level diplomatic effort: However remarkable China's rise has been to date, the Middle Kingdom will only be more consequential tomorrow.

The past 15 years, China's per capita output has more than quadrupled, vaulting it to the world's No. 4 economy behind the U.S., Japan and Germany. But there's more to come: This year, China for the first time overtook Japan to become the second-largest investor in research and development behind the U.S., according to the Paris-based Organisation for Economic Co-operation and Development.

In Oklahoma, China's rising profile includes construction next year of an auto assembly plant in Ardmore, population 34,000, a town in the southern part of the state. The plant will assemble cars under the MG brand, which was acquired last year by Nanjing Automobile.

If Gries has his way, it won't be the last China-related business attracted to Oklahoma. Last month, he accompanied a local chamber of commerce delegation on a prospecting trip to China. He's also working to upgrade the undergraduate curriculum so students get a better understanding of Chinese language, history and culture.

"I want to put OU on the map as a place for Chinese studies and also put Oklahoma on the map as an excellent place for businesses interested in China," he says.

American companies have long found the lure of China's 1.3-billion-person market seductive. At National City, a Cleveland-based regional bank, trade specialist Alfred Ho says China's growth is proving irresistible for local exporters. "It's not a question of whether or not they should do business in China, it's almost a matter of necessity," says Ho, a bank vice president.

Three-quarters of the bank's business customers inquire about selling to China. Since China entered the WTO five years ago, National City has recorded a 210% increase in the value of letters of credit it provides to underwrite exports to China.

As National City's clients have expanded their involvement with China, the bank has gone beyond traditional banking services. Last month, National City — which operates in Ohio, Illinois, Indiana, Kentucky, Michigan, Missouri and Pennsylvania — unveiled a China consulting service that offers would-be exporters a network of China-based experts in supply-chain management, labor and brand management.

In a hint of what's ahead for the Sino-U.S. relationship, a 70-member Chinese delegation looking for investment opportunities visited Cleveland last week. Ho says inward investment from China will pose a fundamental question for many American businesses: "Will you be putting your company up for sale to Chinese interests?" he says.

China's U.S. investments

Chinese buyers already have acquired a number of U.S. companies. Wanxiang Group owns an auto parts maker in Rockford, Ill., while computer-maker Lenovo purchased IBM's laptop business for $1.25 billion in 2004.

Chinese investment ignited political controversy last year when a state-owned oil company, CNOOC, sought to purchase Unocal, a second-tier U.S. oil company. The bid ultimately collapsed amid furious congressional opposition.

But with China now sitting on more than $1 trillion in reserves, the bulk of it held in U.S. dollars, future acquisition attempts are virtually inevitable. And any broad effort to block them would cost the U.S.

Similar deals are threatened by the rise of protectionist sentiment in both the USA and China. In the past two years, according to Morgan Stanley, members of Congress introduced 27 separate pieces of legislation cracking down on trade with China. When Paulson sits down with Chinese leaders this week, one topic should be finding ways to smooth the way for future cross-border investments, says Jeffrey Bader, former head of Asian affairs on the National Security Council.

"They're going to be looking for equity investments and acquisitions of the sort that Japan and the Europeans have done for years, and there's no reason they shouldn't," says Bader, director of The Brookings Institution's China initiative.

Exhibit A in that argument is an aging iron ore mine in Minnesota's northern Iron Range, where Chinese cash helped save about 500 jobs. After several tough years, the mine, then known as Eveleth Taconite, filed for Chapter 11 bankruptcy in May 2003.

The closure idled several hundred workers until the end of that year, when a 70/30 partnership between Cleveland-Cliffs and Laiwu Steel acquired the firm's assets at auction for $3 million in cash and the assumption of $40 million in environmental liabilities.

China's ravenous appetite for ore to feed its steel mills was behind Laiwu's interest. From 2002 to 2005, Chinese consumption accounted for 54% of the global growth in steel demand, according to the International Monetary Fund.

"Perhaps we wouldn't have gone ahead and pulled the trigger (without Laiwu)," says Donald Gallagher, president of North American operations for Cleveland-Cliffs. "They were key to making the deal and getting it done."

    Force of China's impact grows in USA, UT, 12.12.2006, http://www.usatoday.com/money/world/2006-12-12-china-impact-usat_x.htm

Drop in oil prices pushes trade deficit to lowest level in 14 months

Updated 12/12/2006 9:06 AM ET
USA Today
By Martin Crutsinger, Associated Press

WASHINGTON — The USA's trade deficit posted a dramatic decline in October, falling to the lowest level in 14 months as the price of crude oil plunged.

But America's deficit with China hit an all-time high, reflecting a surge in shipments of toys, televisions and computers as retailers stocked their shelves for holiday shoppers.

The Commerce Department reported Tuesday that the deficit fell to $58.9 billion in October, down 8.4% from September. The percentage drop was the biggest since December 2001. It pushed the monthly deficit down to the lowest level since August 2005. The total was far lower than economists had been expecting and was substantially below the all-time monthly high of $68.5 billion in August.

The sharp decline reflected a record drop in oil prices, which sent America's foreign oil bill down 17.1% to $21.8 billion, lowest monthly total since July 2005.

However, America's deficit with China rose 6.1% to $24.4 billion, reflecting big increases in shipments of toys, games, sporting goods, televisions and computers.

It was the third straight month that the deficit with China has set a record. It is running at an annual rate of $229 billion, far above last year's $202 billion deficit, which had been an all-time high for any country.

Seven members of President Bush's Cabinet and Federal Reserve Chairman Ben Bernanke are headed to China for talks that will be led by Treasury Secretary Henry Paulson as the administration seeks to make progress on a number of contentious trade issues, which U.S. manufacturers blame for the soaring deficit.

The administration is facing increased pressure to make progress in lowering America's trade deficit now that Democrats are set to take control of both the House and Senate next year. In the November elections, Democrats attacked Bush's trade policies, charging that American workers have been battered by unfair overseas competition that contributed to the loss of nearly 3 million manufacturing jobs since Bush took office.

Even with the big improvement in October, the trade deficit this year is running at an annual rate of $772.1 billion, putting the country on track to post a fifth consecutive record deficit.

For October, exports of goods and services rose 0.2% to an all-time high $123.6 billion, as exports of farm products, computers and airplane parts all posted gains.

Imports fell 2.7% to $182.5 billion, reflecting the big drop in oil. The average price of imported crude fell by a record $7.05 a barrel to $55.47. The volume of petroleum imports was also down following several months this summer when the oil bill surged as global prices hit all-time highs.

After China, the USA recorded an $8.3 billion deficit with Japan, second-highest imbalance ever with Japan.

The trade deficit with Canada fell 4.8% to $5.4 billion while the deficit with Mexico dropped 11.3% to $5.2 billion, reflecting a record level of U.S. exports to Mexico.

The deficit with the 25-nation European Union shot up 34.3% to $9.5 billion.

    Drop in oil prices pushes trade deficit to lowest level in 14 months, NYT, 12.12.2006, http://www.usatoday.com/money/world/2006-12-12-trade-deficit-oct_x.htm

Goldman Reports Record Earnings for 2006

December 12, 2006
The New York Times
By JOHN HOLUSHA

The Goldman Sachs Group, the investment banking company that is the leading advisor in corporate mergers and acquisitions, reported today that it earned $9.34 billion this year, the most in Wall Street history.

The company said it was setting aside $16.5 billion for salaries, bonuses and benefits, or an average of $622,000 for each employee, although much larger payouts usually go to the bankers who arrange business deals or sell corporate stock to investors than to other kinds of employees.

In the company’s fourth fiscal quarter, which ended Nov. 24, profits increased 93 percent over the year before, to $3.16 billion, or $6.59 a share, exceeding the forecasts of most analysts.

It was the third consecutive year of record-breaking earnings for Goldman, which is the world’s largest securities company as measured by the total market value of its stock. And the company appears positioned to continue growing in its crucial investment banking business.

The company said its backlog of merger and underwriting deals was larger at the end of November than it was at the end of August.

Rising stock prices generally, an active market in fee-generating business deals and gains on investments, many of them in Asia, are expected to make this year exceptionally profitable for many other Wall Street companies as well.

    Goldman Reports Record Earnings for 2006, NYT, 12.12.2006, http://www.nytimes.com/2006/12/12/business/12cnd-earn.html?hp&ex=1165986000&en=c69f438dff661dd1&ei=5094&partner=homepage

Cities face life without 16 Ford plants

Posted 12/10/2006 4:44 AM ET
By M.R. Kropko, Associated Press
USA Today

LORAIN, Ohio — He glances through the chain-link fence at hulking, dark buildings and weeds growing tall in pavement cracks. The chilling scene on a gray November day makes John "Larry" Wargo sigh with sadness. He remembers when the parking lots were packed — with workers' cars and freshly assembled vehicles waiting to be sent from the Lorain Ford Assembly Plant to market.

"We were working double shifts and making 58 cars an hour, Thunderbirds and Cougars," says Wargo, 70, a retired Ford Motor Co. worker who put in 40 years, mostly as a maintenance electrician. "I feel sorry for the younger generation, because they won't see what really happened there."

It's been nearly a year since this Lake Erie port city of 68,000 began wrestling with its reality of a future without Ford. It's a future other American cities face now that the company plans to close 16 plants by 2012, some in places already hit hard by the loss of steel and other factory jobs.

Ford has idled or plans to idle nine plants so far. It can't close any of them until September because of its agreement with the United Auto Workers union.

Lorain, which worked out an agreement with Ford to close its plant early, is trying to find a buyer for the site as it fights to make ends meet. The income tax has gone up and city jobs have been cut. Potholes take longer to fill and grass isn't cut as often.

In Edison Township, N.J., a suburb of New Brunswick, where a Ford truck assembly plant closed in 2004, Hartz Mountain Industries is converting the site into stores, a small hotel, a community center and theater, said Gloria Dittman, president of the chamber of commerce.

But many cities say they can't begin such planning until the closings are official.

"If we as a city get involved, that could create an awkward situation. We can't really do anything with somebody else's property," said T.R. Carr, mayor of Hazelwood, Mo., where Ford in March idled a plant that employed 1,445.

The approaching closings come as automakers, hurting from expensive health care, cheaper foreign competition and other problems, look to cut costs.

Almost half of Ford's hourly production workers — 38,000 so far this year — have accepted buyouts or early retirement offers from the nation's second-biggest automaker, which lost $7 billion in the first nine months of the year.

About a year ago, GM made public a plan to idle 12 plants over three years. GM spokesman Dan Flores said so far production has stopped at assembly plants in Oklahoma City and Lansing, Mich., and at a sheet metal stamping plant in Lansing.

For all these cities, "it's all a question of getting property back into a tax base," said Kelly Novak, a research manager for the Washington-based National Association of Development Organizations.

Many of the cities awaiting Ford closings mirror Lorain, a blue-collar town where the plant had been part of the industrial identity since 1958. Jobs there peaked at about 7,500 in the early 1970s. Ford stopped making Cougars and Thunderbirds there in 1997. During 2005, the workforce dropped from about 1,700 to 750. Days before Christmas last year, Ford produced its last Econoline in Lorain.

Lorain jobs and workers, as well as Econoline van assembly, went to a Ford plant in nearby Avon Lake. The workers tend to live in the northeast Ohio region, not just the city, so there wasn't much population shift.

Loss of the plant meant $2.2 million less income tax revenue for a city that was already struggling with the loss of some 12,000 steel jobs in the past few decades. Lorain passed an emergency five-year, quarter-percent income tax increase to generate $2.4 million a year — about $62 a year more on a $25,000 income — but, said Mayor Craig Foltin, the city still cut about 100 jobs, including in the streets and parks departments.

One trucking company that depended on Ford went out of business, and electrical, carpentry and plumbing independent contractors feel the pinch, Foltin said.

Mary Beth Deily, an associate professor of economics at Lehigh University in Pennsylvania, said not every industrial city feels the same pain when plants close.

"A lot depends on the size of the city a plant is in. A plant site in a smaller city, like the one in Lorain, presents more of a challenge than if a plant is closed in a big city, which can better absorb the impact," she said.

In Hapeville, Ga., an Atlanta suburb, the impending closing of a Ford assembly plant could bring good change in an age where industrial sites in residential areas no longer mix, said Robin Howarth, the city's director of economic development.

"Atlanta is growing rapidly, so we are developing more of a live-work-play community," he said. "We're confident we can bring in mixed-use retail, a biotech industry or something like that."

Some other old industrial sites in blue-collar cities hit hard by manufacturing losses have successfully been redeveloped, including The Waterfront in Homestead, a suburb of Pittsburgh. The former Carnegie Steel mill is now a bustling retail and dining destination that draws people from nearby cities as well as some out of towners.

Novak, NADO's researcher, said it's a fair question to wonder who would support retail and entertainment in a place in search of jobs.

"Redevelopment into retail might only work in a big community or one with tourism," Novak said. "That's why so many community involvement meetings have to be done before a project can get off the ground, because you have to know if your project is feasible."

In Lorain, Foltin says industrial employment which might rival the pay Ford workers enjoyed — as much as about $25 an hour — would be an attractive option for the dormant 200 acres, where he envisions warehousing or small manufacturing. He expects that Ford will settle on a buyer soon, but won't disclose the finalists. He would not comment on the rumored interest of Los Angeles-based Industrial Realty Group LLC.

IRG's president, Stuart Lichter, wouldn't comment because of a confidentiality agreement with Ford.

Nationally, IRG has done about 52 projects that turn old industrial sites into something new, such as converting a former B.F. Goodrich tire factory in Akron into Canal Place, with offices, stores and restaurants, and a NASA factory into a movie studio in Downey, Calif.

Jay Gardner, vice president of real estate services for Ford Land, said the company makes it a priority to help cities which may have their own development plans where plants are shut down and also focuses on environmental cleanup and maximizing resale value.

Mike Dornan, city manager of Wixom, Mich., a Detroit suburb, said Ford's decision to idle an assembly plant there in 2007 was a jolt. But now he sees the 315-acre site as prime real estate that might someday house research offices.

"We grieved. We're still grieving. But the situation may actually be an opportunity," Dornan said. "It might be part of the new economy, nationally and globally."

    Cities face life without 16 Ford plants, UT, 10.12.2006, http://www.usatoday.com/money/autos/2006-12-10-ford-cities_x.htm

Jobs Grew at a Moderate Pace Last Month

December 8, 2006
The New York Times
By JEREMY W. PETERS

Employers added 132,000 jobs last month, a moderate pace slightly above what forecasters were expecting.

Wages grew, and the unemployment rate moved up a notch to 4.5 percent after hitting a five-year low in October of 4.4 percent. Taken together, the new numbers suggest that the job market is expanding at a steady but below-trend pace as overall economic growth slows.

Job growth last month was led by retailers, hotels, restaurants and professional service providers. Manufacturers and builders continued to shed jobs, reflecting the growing weakness in those industries.

The economy generated 414,000 new jobs from September to November, or an average of 138,000 a month. While that is below the 150,000 economists say is necessary to keep pace with the growth of the population, the report had nothing in it to suggest a sharper contraction in job growth was likely in the months ahead, experts said. “In all, this is unlikely to swing the debate over the next move in interest rates one way or the other,” said Mark Cliffe, an economist with ING Financial Markets.

The Federal Open Markets Committee meets on Tuesday and is expected to hold interest rates steady at 5.25 percent. While many economists predict the Fed will lower rates next year as the threat from inflation subsides and economic growth remains somewhat low, few are expecting that to happen soon. Today’s report confirmed that view.

“There is nothing here to move the FOMC out of its sideline seat, in which it looks to be increasingly comfortable,” said Joshua Shapiro, chief United States economist with MFR.

The uptick in the unemployment rate in November was not unexpected. Few analysts anticipated that the economy could sustain a rate as low as 4.4 percent. By historical standards, 4.5 percent is still low, and is a factor that is helping to drive up wages for ordinary American workers.

In November the average hourly wage for workers below management level rose three cents to $16.94. For the past several months, wages have outpaced inflation, giving workers the strongest buying power they have enjoyed since the economic boom of the late 1990’s. (Related Article: Long a Laggard, Wages Start to Outpace Prices)

    Jobs Grew at a Moderate Pace Last Month, NYT, 8.12.2006, http://www.nytimes.com/2006/12/08/business/09econcnd.html

Long a Laggard, Wages Start to Outpace Prices

December 8, 2006
The New York Times
By JEREMY W. PETERS and DAVID LEONHARDT
 

After four years in which pay failed to keep pace with price increases, wages for most American workers have begun rising significantly faster than inflation.

With energy prices now sharply lower than a few months ago and the improving job market forcing employers to offer higher raises, the buying power of American workers is now rising at the fastest rate since the economic boom of the late 1990s.

The average hourly wage for workers below management level — everyone from school bus drivers to stockbrokers — rose 2.8 percent from October 2005 to October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

In recent years, many Americans grew anxious about the future and economists questioned whether the recovery from the 2001 recession would ever produce genuine gains for ordinary workers.

The fall in unemployment to 4.4 percent and the recent surge in wages, however, raise the prospect that the job market could be on the brink of another strong run, much like the one that lifted incomes in the late 1990s.

“The labor market is pretty tight right now, so it’s not a huge surprise that we’ve started to see big wage gains,” said Nariman Behravesh, chief economist for the research firm Global Insight. “I think the big surprise is that it took so long.”

Still, there are a number of economic forces at work that raise doubts about whether the recent gains are the start of another boom. It is also possible, economists say, the improvement may turn out to be little more than a temporary spike.

For now, though, with the number of unemployed Americans actively seeking work at a five-year low, help-wanted signs are proliferating again and many businesses are having a harder time finding employees.

That means even lower-wage workers like Mercedes Herrera, an immigrant from Mexico who cleans at San Felipe Plaza, a high-rise office building in Houston, are enjoying more leverage with their employers. Last month, Ms. Herrera’s union, the Service Employees International Union, settled a monthlong strike and secured raises of more than $2 an hour over the next two years for some 5,300 janitors in Houston.

The pay of Ms. Herrera, a 37-year-old mother of four, will increase to $6.25 an hour on Jan. 1, from $5.65 now. “It’s going to be a big difference in my personal finances,” she said, speaking through a translator. With the extra money, she said, she hoped she would no longer have to ask for food from churches.

“We’ve always had to save for things that we have to buy,” she said. “We’ve had to create our own miracles in order to sustain ourselves.”

After years of stagnant, even declining real wages for the typical worker, the recent jump has also delivered a rare bit of good news for a White House coping with an unpopular war and the aftermath of the Democratic victory in the midterm elections.

The pay increases are “huge, even relative to a period that we think of as quite good,” said Edward P. Lazear, chairman of President Bush’s Council of Economic Advisers. “The question obviously will be, How long will it be sustained?”

That question will begin to be answered today when the Labor Department releases its monthly employment report. Forecasters expect the pay gains — which began in earnest in September, when gas prices sank — to extend into November.

But the economy has slowed significantly in recent months, and some analysts predict the housing slump will cause a further slowdown next year that will be a drag on incomes.

“The biggest issue is which direction the macroeconomy is headed,” said Jason Furman, an economist at New York University who served as an adviser to President Bill Clinton. “And there is probably a bit more uncertainty than usual about that.”

If wages rise for only a few months, the current expansion, on the verge of entering its sixth year of growth, would still stand out as an unusually bad one for workers — indeed, the only one since World War II without a sustained pay increase.

In the third quarter, which included the early weeks of the recent pay increases, the share of the nation’s economic output going to workers’ pay and benefits fell to its lowest level in 40 years, according to the Commerce Department.

Further, the average hourly wage for a worker in a nonmanagerial position, $16.91 an hour in October, was about the same as it was in 2003 when inflation is taken into account.

Some economists and incoming Congressional Democrats argue that economic trends like globalization and computerization have fundamentally altered the job market over the last decade or so. In this view, the solid pay increases of the late 1990s, stretching over multiple years, were caused by the technology bubble more than anything else and are unlikely to be repeated anytime soon.

“It’s a good job market, but it’s not the great job market it was back in the late ’90s,” said Mark Zandi, an economist with Moody’s Economy.com. “It was the tightest job market that, arguably, we’ve ever seen.”

At the height of the 1990s boom, the job market became so hot that Burger King was offering $5,000 bonuses to lure managers away from rival restaurants. The unemployment rate hit a low of 3.8 percent in the spring of 2000. Optimism among workers soared, according to polls.

In the exit polls conducted on Election Day last month, on the other hand, only 30 percent of voters said they expected life to improve for the next generation of Americans.

For now, however, paychecks are growing fatter in nearly every corner of the economy. Average hourly earnings for workers outside management grew faster than inflation in every major sector but manufacturing from October 2005 to October 2006, according to Moody’s Economy.com. For workers in leisure and hospitality, financial services and natural resources, for example, wages grew more than 4 percent, after accounting for inflation.

After years of sharply rising income inequality, the recent rise in wages also appears to be increasing pay for both rich and poor. From July through September, the inflation-adjusted hourly pay of workers near the bottom of the wage scale — those making less than 90 percent of all workers but more than the worst-off 10 percent — rose 0.1 percent.

That compares with 0.4 percent wage growth for those close to the top, those making more than 9 out of 10 other workers, according to an analysis of Labor Department statistics by the Economic Policy Institute. Wage growth for both groups is likely to pick up in the final quarter of the year.

Last year, inflation-adjusted wages of workers at the 10th percentile fell 1.8 percent, compared with a gain of 0.3 percent at the 90th percentile.

The most obvious cause of the recent turnaround is the fall in energy prices. Nominal wages have been accelerating since the beginning of 2004, but inflation, led by soaring gas prices, kept Americans from noticing any real rise in their pay during much of that time. Since the price of a gallon of regular gasoline peaked for the year at $3.03 in early August, prices at the pump have steadily declined. The national average is now down to about $2.29 a gallon.

That has taken a tremendous weight off wages, which finally started to outpace inflation in August. Inflation ran at a rate of 1.3 percent from October 2005 to October of this year, the lowest level since mid-2002. Earlier this year, inflation was running as high as 4.3 percent.

Wages have risen so swiftly that some economists worry that they could push inflation up on their own, by forcing companies to raise prices. Last week, the Federal Reserve chairman, Ben S. Bernanke, warned that the central bank might have to raise interest rates again. “One factor that we are watching carefully is labor costs,” he said.

The implications for higher inflation aside, Mr. Lazear, the White House economist, said he believed — and hoped — the trend would continue. “It’s not unreasonable to think that real wage growth will be sustained for a significant period of time simply because the labor market is so tight,” he said.

Workers — many having cut their savings and taken on more debt as wages failed to keep pace with inflation — would welcome that.

Alanzo Brown, who handles hazardous materials for a chemical company in Houston and recently completed a course that qualifies him for a raise, is expecting his pay to rise $4 an hour soon, to $19. At 29, Mr. Brown hopes to start saving more money so he can move from a rented apartment into his own home.

“I’m really trying to get into this saving thing,” Mr. Brown said.

Thayer Evans contributed reporting from Houston.

    Long a Laggard, Wages Start to Outpace Prices, NYT, 8.12.2006, http://www.nytimes.com/2006/12/08/business/08wage.html?hp&ex=1165640400&en=a06bab73a4abd4d6&ei=5094&partner=homepage

Economix
 

What Statistics on Home Sales Aren’t Saying

December 6, 2006
The New York Times
By DAVID LEONHARDT

Down in Naples, Fla., a fast-growing city on the Gulf of Mexico, there was an auction of houses about a month ago.

An auction isn’t the usual way to sell a home, but it can make sense for people who don’t want to leave their houses on the market for months at a time and also don’t want to take the first offer to come along. So on a Saturday morning inside the Naples Beach Hotel and Golf Club, a few dozen houses went on the block in front of about 500 bidders.

Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump. According to one widely followed real estate index — tabulated by the government agency that regulates Fannie Mae and Freddie Mac — the average house in Naples sold for 20 percent more this summer than it would have a year earlier.

But that wasn’t what happened at the auction. In fact, if you were at the beach club that Saturday, you could have been excused for thinking that the real estate market was crashing.

One three-bedroom ranch house with a pool sold for $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, sold for $880,000 at the auction., compared with $1.35 million a year earlier. On average, the houses that changed hands at the auction had fallen about 25 percent in value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the auction’s results.

Now, Naples is not a typical housing market. House prices nearly tripled in the first half of this decade, and speculators, who are more likely than residents to sell a house in a panic, flooded into the area in recent years. But with that said, Naples is not as unusual as you may think.

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.

In reality, homes across much of Florida, California and the Northeast are worth a lot less than they were a year ago. The auction in Naples may have exaggerated the downturn in the market there, but not by much. Tom Doyle, a Naples real estate agent, estimated that a typical house there, sold in the normal way, would go for about 20 percent less than it did the previous fall.

In the Boston area, prices have fallen about 10 to 15 percent since the middle of 2005, estimated Chobee Hoy, who owns a real estate brokerage firm in Brookline. Jerome J. Manning, who runs the Massachusetts-based auction company that conducted the Naples sale, told me he thought that values had dropped about 20 percent around Boston. (The government, meanwhile, says the average price rose 1 percent from last summer to this summer. But here’s all you need to know about how well the government tracks the Boston market: the index excludes any mortgage larger than $417,000.)

In September of last year, Ms. Hoy sold a one-bedroom condominium in Brookline for $395,000. She recently sold another apartment of the same size in the same building for $300,000. Since March, her firm has been listing a house in the Fisher Hill neighborhood of Brookline that cost $995,000 when it last sold, in the summer of 2004. Ms. Hoy expects it to sell this time for less than $900,000.

The market in northern Virginia is similar: prices are down 10 to 15 percent, according to an analysis by Mr. Lawler, a former Fannie Mae executive who’s based there. In Portland, Me., the typical house has lost about 10 percent of its value in the last year and a half, said Bill Trask, the former head of the local Realtors’ board.

In New York City, where co-op boards generally bar the door to absentee speculators and creative mortgages, prices seem to have slid a bit in the last few months, but only to roughly their 2005 levels. In the New York suburbs, though, values have fallen perhaps 10 percent or more since last year. Prices also appear to be down in Sacramento and San Diego.

For many homeowners, of course, the decline doesn’t much matter. They didn’t really benefit from the run-up, and they won’t suffer from the decline. And for any renters hoping to buy a home, the fall in prices is downright good news.

Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. As Ed Smith Jr., the chief executive of Plaza Financial Group, a mortgage brokerage firm near San Diego, said, “So many people picked up their homes, turned them upside down and shook them like a piggy bank.”

The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s Economy.com that took inflation into account. And that analysis used the house prices reported by the National Association of Realtors, which appear to be more accurate than the government’s data right now but are still too rosy.

Then there are the people who bought their homes in the last couple of years and made almost no down payment. Many of them may now be underwater, owing more on their mortgages than their houses are worth.

Most worrisome, growing numbers of these families are falling behind on their mortgage payments, and they won’t be able to bail themselves out by refinancing or selling their homes. “We’re now going to combine a high amount of debt with falling home values,” said Mark Zandi, chief economist of Economy.com.

For the broader economy, this may turn out to be just a hiccup. Big piles of debt can often look scarier than they really are. Then again, the housing slump of 2006 may also be the start of something larger. Mr. Zandi considers it to be “the most significant threat to the global expansion.”

Over the last few decades, the world’s financial system has endured a crisis roughly once every three or four years. There was the stock market crash of 1987, the Asian and Mexican meltdowns in the 1990s, the dot-com implosion of 2000 and, most recently, the aftermath of Sept. 11, 2001. We may now be living on both borrowed money and borrowed time.

    What Statistics on Home Sales Aren’t Saying, NYT, 6.12.2006, http://www.nytimes.com/2006/12/06/business/06leonhardt.html

U.S. manufacturers

getting desperate for skilled people

Updated 12/5/2006 11:27 AM ET
USA Today
By Barbara Hagenbaugh

EMMAUS, Pa. — Michael Bunner has done everything he can think of to hire workers.

He's increased pay, offered training and recently, hired a man straight out of prison.

While his story isn't too surprising given that the unemployment rate of 4.4% is at a 5 ½-year low, what is unexpected is that Bunner is in the manufacturing sector, an industry that has been grabbing headlines for losing jobs.

But despite all those layoffs, Bunner can't find plastic welders or even people who are willing and able to be trained for the specialty job.

"I'm turning down contracts," says Bunner, president of Electro Chemical Engineering and Manufacturing, which makes chemical tanks. "I could expand 20-30% overnight if I had more people."

Much has been made of the loss of millions of manufacturing jobs in the USA in recent years.

But manufacturers, regardless of size, specialty or location, across the USA are reporting a dire shortage of skilled workers: people such as welders, electricians or machinists with a craft that goes beyond pushing buttons or stacking boxes but does not require a degree.

That shortage is threatening their ability to meet current demand, let alone expand their businesses. The gap could threaten the viability of the U.S. manufacturing sector at a time when it is facing heavy competition from abroad.

In a survey of 800 manufacturers conducted by the National Association of Manufacturers (NAM) last year, more than 80% said they were experiencing a shortage of skilled workers. In October, manufacturers surveyed by the Federal Reserve Bank of Philadelphia said "finding qualified workers" was their biggest business problem.

The shortage of skilled workers is the result of a number of factors. One of the biggest is that manufacturing in the USA is becoming more high-tech and skill-based as the more repetitive, less-skilled work is moving abroad. Such jobs require greater expertise.

Plus, baby boomers with years of experience are retiring. And younger people are bypassing factory jobs, viewing them as repetitive, dirty and without much opportunity, a view that hasn't been helped by all the factory closings and headlines about manufacturing jobs moving to China.

These factors have combined to create a serious worker shortage with no end in sight.

"I've never seen anything like it in my life," says Bunner, whose father worked in a factory when he was growing up in West Virginia. "When I was a kid, people would stand in line for hours for an opportunity at a job like I have available. I can't get people to show up for an interview."

More specialized work

There were 10.2 million manufacturing production workers in the USA in October, down 19% from 10 years ago and 28% fewer than 40 years ago.

The percentage of all workers in the USA employed in manufacturing has been declining for 50 years. In October, 10% of the U.S. workforce was employed in the manufacturing sector, an all-time low. In 1946, one out of every three workers had jobs in manufacturing.

But the loss of jobs doesn't mean that manufacturing is disappearing from the USA. U.S. manufacturing production last year totaled $1.5 trillion, or 12% of gross domestic product, the broadest measure of economic activity within U.S. borders.

The sector has become more specialized, with a greater focus on technology. With a boom in productivity in manufacturing, firms are able to produce more with fewer workers.

Innovation in the manufacturing sector means that the jobs require greater skills than ever before. According to an analysis by economists Richard Deitz and James Orr at the Federal Reserve Bank of New York, employment in high-skilled manufacturing jobs rose 37%, or by 1.2 million jobs, from 1983 to 2002. At the same time, low-skilled factory jobs dropped 25%, or by approximately 2 million workers.

"The time when you can be relatively unskilled and work in manufacturing for a long time with just a high school degree and make a good salary to support a family is gone," National Association of Manufacturers chief economist David Huether says.

But finding people with the right skills isn't easy.

"It's limiting my growth," says John West, president of Fox Valley Metal-Tech in Green Bay, Wis.

Earlier this year West turned down a $1.5 million contract with Kraft Foods because he didn't have enough welders. That order would have grown his business by 10%.

Multiple job offers

West's firm, which produces metal machinery parts, has increased pay and offers full health benefits, training, a matching 401(k) plan and bonuses to employees who refer people to work there.

"You get a good worker who has that skill set, you make sure they don't want to leave," West says. "You pay them well; you treat them well."

That's good news for Richard Smith. The 29-year-old from Chillicothe, Ohio, is graduating Dec. 15 from a nine-month welding program at the Hobart Institute of Welding Technology. He's received three job offers, paying $16 to $19 an hour, or more than three times the federal minimum wage. The companies are also paying medical benefits, offering 401(k) plans and paying for additional training.

"It really took me off my feet," says Smith, who got interested in welding while he was in the Navy.

Andre Odermatt, president of the Hobart Institute in Troy, Ohio, says job postings at the school have risen 40% in the last year. Companies are increasingly offering sign-on bonuses of as much as $3,000 and are coming from as far away as California and offering to pay relocation for students willing to move, he says.

"It's like having gone through Harvard," he says. "The world is open for them."

Odermatt and others say they think the shortage of skilled manufacturing workers is largely a function of perception.

"Culturally, we have browbeaten manufacturing to such an extent that we don't have people interested," says John Sinn, interim director of the Center for Applied Technology at Bowling Green State University.

Sinn and others say it is now up to people in manufacturing to change that perception, particularly among younger people and their parents.

"Everyone wants their kids to be doctors, lawyers and dentists. … (But) all of us can't be that," says Lloyd McCaffrey, director of manufacturing technology at Williams International, a gas turbine manufacturer in Ogden, Utah.

McCaffrey's company is investing $30 million in a program at nearby Ogden-Weber Applied Technology College that will bring in students, some of them in high school, for hands-on training in machining.

Representatives at Oklahoma State University-Okmulgee meet with students, some of whom are in middle school, to teach them about manufacturing. The university also recently started a program to help train disadvantaged youths, some of whom are on probation, in manufacturing basics.

"What we're saying is, 'Here is a good option.' … This is a very good career for a lot of people," says Roy Cail, executive director of the economic development and training center at the university.

What concerns Cail and others is that as the workforce ages and the baby boomers retire, the shortage of skilled manufacturing workers could grow more acute.

In 2005, 43% of manufacturing workers were 45 years old or older. That's up from 32% in 1995, according to a NAM analysis of Labor Department data.

"As the labor force ages, there really aren't young kids coming into the trades," says Patrick Duffy, president of American Machine & Gear in Portland, Ore. Duffy recently paid workers triple time to work on Thanksgiving to get an order out.

Special skills in demand

At Electro Chemical Engineering and Manufacturing, workers create tanks that are used to process, store or haul chemicals. The steel tanks are lined with a special plastic that prevents erosion and sometimes contain reactors to make the chemicals. Bunner's clients include major companies in the pharmaceutical, chemical and high-tech industries, such as Dow Chemical, Bayer, DuPont and General Electric.

Building the tanks takes a special skill in plastic welding. Even the tiniest crack can mean a chemical leakage, a potentially dangerous and even deadly situation.

But finding plastic welders, or even people interested in learning the skill, has become next to impossible. Bunner has had three open slots for welders since April. People have come in who can't do simple math — such as calculating square footages, a key skill when 1 square foot of plastic material goes for $250. He's also had people come in who have never used a tape measure or read blueprints.

Not only has Bunner increased pay, he offers a 401(k) with a matching program, health insurance and vacation time. But that still isn't working, so he's had to "go outside the box" to recruit, as he puts it.

When a local company shut down, he set up a booth in its human resources department. He hired two people that way. And he's working with the local rescue mission and prison ministry to try to identify candidates.

Bunner is also trying to bring former employees back. An employee who retired at 65 came back to work when he was 68. Soon, the company will be mailing letters to 13 former employees, asking if they'd be interested in working night or weekend hours.

"The fact that they worked for us and they are still alive, we are contacting them," he says.

Bunner notes with a tinge of irony that his business is just down the street from Allentown, Pa., the town Billy Joel made famous in 1982 with his song Allentown. In it Joel described the area's declining manufacturing base, particularly in the steel sector, saying it was "getting very hard to stay."

Electro Chemical used to serve the steel industry but has since adapted to more high-tech uses in the evolving economy, like many other companies.

"We had to adapt or die," he says.

But unless he finds enough people who can, as he puts it, "work with your hands and work with your head," companies like his are going to struggle to get ahead. He's perplexed why more people aren't going into manufacturing.

"Manufacturing has an ugly aura," he says. But "you can't have everyone sitting in a Dilbert cubicle. … Working with your hands, there's nothing wrong with that."

    U.S. manufacturers getting desperate for skilled people, NYT, 5.12.2006, http://www.usatoday.com/money/economy/employment/2006-12-05-skilled-workers-shortage_x.htm

As Auto Prosperity Shifts South, Two Towns Offer a Study in Contrasts

December 5, 2006
The New York Times
By MICHELINE MAYNARD and NICK BUNKLEY

Twenty years ago, Livonia, Mich., was a prosperous Detroit suburb, with upscale neighborhoods and high-end stores in a new mall selling Hermès and Chanel, which some locals wore on special occasions to dine at the romantic Fonte D’Amore restaurant.

The local economy was thriving because of the Big Three automakers, which operated humming factories near Livonia and employed thousands of managers who commuted about 20 miles to the auto companies’ headquarters downtown.

Three hundred miles to the south, drivers back then on Interstate 75 could zip right by Georgetown, Ky., and barely notice it, with its tiny downtown, small college, quaint Victorian homes, and a spring that locals claimed was “the birthplace of bourbon.” The local hangout, Fava’s, was about the only place for a decent meal.

Now, two decades later, the two cities have seemingly switched places economically.

Livonia is stumbling, as Detroit’s automakers close factories and eliminate blue- and white-collar jobs. Just last week, Ford Motor announced that 30,000 workers had opted for deals worth up to $140,00 to leave. In all, with similar offers at General Motors, about 70,000 auto workers, or one-third of those in American plants, have decided this year to leave.

Georgetown, however, is booming because of Toyota, which has invested more than $5 billion in a sprawling manufacturing complex, leading to the construction of new schools, hotels and dozens of smaller factories run by suppliers to Toyota.

Their changing fortunes offer more than a tale of two auto cities. They provide a close-up look at the impact of a broader economic shift of the nation’s auto industry from north to south, as Detroit falters and their surging Asian competitors invest in Southern states.

Over the last two decades, for example, the number of automotive-related manufacturing jobs in Michigan has fallen 34 percent, according to Economy.com. By contrast, the number of automotive jobs in Kentucky rose 152 percent over that period.

“There is a definite shift away from the strongholds of American manufacturing to places that were never manufacturing centers,” said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “These international companies want a fresh start — not in a town like Detroit, with a long history in the auto industry, but in an empty field where people appreciate them.”

The shift carries with it not just thousands of well-paying jobs and billions of investment dollars, but also a sense of prosperity gained or lost.

In Georgetown, it means managing a rapidly growing population, being dependent on a single employer, and hoping that Toyota’s march to the top of the global automobile industry continues.

Fewer Jobs and Services

For Livonia, the shift means acknowledging that the industry that once provided its region the equivalent of civil service jobs can no longer be relied upon, forcing the city to shrink the services it can offer residents.

Despite signs at Livonia’s border boasting of “55 years of progress,” Mayor Jack Engebretson recently had to lay off 90 people and cut $5 million from the city’s budget. Seven elementary schools closed this fall because of falling enrollment. Wonderland, among Livonia’s original shopping centers, was torn down over the summer.

In once-prestigious neighborhoods like Old Rosedale Gardens, even price cuts do not help owners sell their historic properties. Detroit’s auto companies have also pulled back on moving employees around the world, meaning there is less of a reliable churn in the local housing market.

“Three years ago we had just as many people transferring in as out,” said Jeff Glover, a local Realtor. “Now it’s about three transferring out to one transferring in.”

Herb Miller, 80, moved to Livonia from Detroit in 1961 when he transferred to a job at the newly built G.M. bumper plant in town. He still loves Livonia, but rising crime concerns him.

“It seems like about the time that everybody was writing about what a great place this is to live, things started to change,” said Mr. Miller, recalling several murders that shook the community several years ago.

Although retailers have been clamoring to build on the west side of Livonia to serve wealthier exurbs, his section of town has been losing businesses. The closest shopping center, the 42-year-old Livonia Mall, is likely to be demolished within a few years. “They’ve got to do something about that — that’s a dead mall,” Mr. Miller said.

Livonia’s population, which exploded from 18,000 in 1950 to peak at almost 120,000 in the 1970s, now appears to have fallen below 100,000, according to an estimate by the Southeastern Michigan Council of Governments.

Today, Plymouth Road, the city’s longtime business corridor, is more of a reminder of the city’s past success than a shopping destination. The aging owner of Fonte D’Amore closed his Italian landmark restaurant this summer. Livonia’s annual holiday parade was discontinued three years ago because of budget constraints. Nearly all of its strip malls have vacancies.

There is no mystery why Plymouth Road is hurting. Michigan has the highest unemployment rate in the country, and both General Motors and the Ford Motor Company are eliminating tens of thousands of jobs through buyout and early retirement offers.

Workers at all three Detroit automakers live in Livonia, but it considers itself primarily a Ford town. Jobs at Ford originally helped attract residents who fled Detroit after the 1967 riots, and the company employs more than 4,000 people at its transmission plant on the west side of town.

For now, those jobs appear to be safe, and in fact, Ford recently filed paperwork to invest about $45 million to update the factory. But with Ford trying for its third turnaround in five years, that commitment could change.

“There are a lot of Livonia residents that are going to face challenges as Ford goes through its reinvention of itself,” Mr. Engebretson said. “We’re holding our breath.”

Smaller manufacturers in Livonia have been hit hard. The city has one of the Midwest’s largest industrial corridors, a six-mile strip of factories and warehouses along Interstate 96. In 1995, more than 95 percent of Livonia’s 40 million square feet of industrial space was occupied. The vacancy rate has more than doubled since then.

Officials recently started marketing the corridor with the slogan “Industry’s Highway” in the hopes of filling some empty buildings, ideally with companies that are not in the auto business.

“We don’t want to be tied in any significant way to any one industry because it’s just not a healthy thing to do,” Mr. Engebretson said.

As for Georgetown, it had no industry to speak of and only one McDonald’s when Gov. Martha Layne Collins made her first trip to Japan in the mid-1980s, hoping to lure a foreign auto company. She had watched as Kentucky’s northern neighbor, Ohio, landed two Honda plants and a big technology center, while to the south, Tennessee had lured both Nissan and won the Saturn plant.

An Enthusiastic Reception

She said she believed that Georgetown was an ideal location, set near the intersection of Interstate 75 which runs north to south, and Interstate 64, which travels east to west. It is also just 15 minutes from Lexington, home to the University of Kentucky and a small airport.

When Toyota began narrowing its options, the state Legislature approved a $147 million incentive package to help land the factory — 30 times what Ohio spent to land Honda, although half what Alabama would eventually spend to lure Mercedes-Benz.

Georgetown residents were excited by the possibilities. “I know what it was like here before Toyota came,” said George Lusby, the Scott County executive judge, the equivalent of a county administrator. “Back then, the stores were half empty.”

Still, there was criticism of the governor for seeking foreign investment, and fears among some residents that a foreign company might not be loyal to the state. “Toyota is now accepted as part of the fabric of Kentucky, but it wasn’t 20 years ago,” said Dennis Cuneo, who recently retired as an executive in Toyota’s North American manufacturing operations and is now a consultant to the automaker.

Given that Toyota has invested more than $5 billion to date in Georgetown, “I’d do it again tomorrow,” Ms. Collins said.

Among the original workers to land a job at the plant was Cheryl Jones, a manager at a local supermarket with no factory experience. Twenty years later, she is now vice president for manufacturing at Georgetown, and recently traveled to Mexico to help open a new Toyota plant there.

“I’ve been all over the world now because of Toyota and the plants that we have,” Ms. Jones said.

Workers in Georgetown sometimes find themselves stuck in the miniature rush hour that occurs in late afternoon, when pickup trucks and Camrys pour out of the factory and turn onto Cherry Blossom Boulevard.

The local population has nearly doubled in 20 years, to about 20,000. There are at least a dozen new subdivisions, and some houses have been built directly across from the Toyota plant.

So have dozens of smaller factories, creating something akin to the industrial corridor in Livonia. Prospective investors are constantly on the phone to Jack Conner, executive director of the Georgetown/Scott County Chamber of Commerce, looking for vacant land where they can build new plants.

The buildings are not all commercial. Just this decade, Georgetown has built a recreation center, complete with an outdoor skateboard park; new elementary, middle and high schools; and is expanding a Japanese garden. The Cincinnati Bengals now hold summer practice in Toyota Stadium, also used by Georgetown College.

Downtown Georgetown bustles with antique stores, an espresso bar in the old bank building and Fava’s, which recently got a face-lift and now sells T-shirts and postcards, along with its meringue pies. The city now has three McDonald’s and a Wal-Mart Supercenter.

An Uneasy Feeling

Yet, some worry that the prosperity will not last. Employment at the plant leveled off about two years ago, at about 7,800 workers, and there is little likelihood Toyota will hire many more, except to replace those who are beginning to retire from the factory.

Plant managers, however, are constantly lobbying the company for new work, and landing it. This summer, Georgetown began building a hybrid version of the Camry sedan, replacing production previously done in Japan. And there is a large swath of empty space inside the factory that could be used to add another model to the plant, perhaps a crossover vehicle or a Lexus luxury model.

“There will never be another Toyota,” Ms. Collins said. “There are other companies, there are other manufacturers, but there is only one Toyota.”

Back in Livonia, Mayor Engebretson remains optimistic that the city will regain a sense of prosperity. He readily acknowledged the challenges facing the city, which has fared better than crumbling factory towns like Flint, a national symbol of the auto industry’s decline.

“All in all, I think Livonia is still a very vibrant community, and I am convinced unequivocally that our brightest days still lie ahead,” he said. “People have fallen on hard times, but we’re working awfully hard to keep the status that has been enjoyed by this community for many years.”

Micheline Maynard reported from Georgetown, Ky., and Nick Bunkley from Livonia, Mich.

    As Auto Prosperity Shifts South, Two Towns Offer a Study in Contrasts, NYT, 5.12.2006, http://www.nytimes.com/2006/12/05/business/05cities.html

In Glittery Atlantic City, 4 Walked Deadly Path

December 5, 2006
The New York Times
By DAVID KOCIENIEWSKI and SERGE F. KOVALESKI

ATLANTIC CITY, Dec. 3 — In this seaside resort town where vice has long been a lucrative commodity, there was nothing particularly noteworthy about four crack-addled prostitutes who lost the struggle to survive in the underground economy that flourishes alongside the shimmering casinos.

Only two of the women had even been reported missing before their decayed bodies were found in a drainage ditch on the outskirts of town three days before Thanksgiving.

“Sometimes you don’t see a girl for a few weeks, but that’s the way it is,” said Zandra Kiesel, 32, who says she has been a prostitute here for five years. “We are just hookers. It’s like nobody would miss us if we were gone.”

In the 25 years since legalized gambling helped transform Atlantic City from a faded resort to a popular destination for weekend slots players, casino companies have reaped immense profits, but the city itself has experienced both boom and bust. Thirty-four million tourists come each year, pumping billions of dollars into the local economy and providing more than 45,000 jobs.

That economy has evolved into a two-tiered system catering to the addicted. Inside the casinos, where prostitutes work the sprawling halls, betting is legal and the state has even exempted gamblers from its indoor smoking ban. On the sketchy streets outside, sex and drugs are sold openly, around the clock, as dozens of prostitutes prowl the avenues and side streets just off the Boardwalk offering sexual encounters for as little as $10 — the price of a rock of crack cocaine and a five-minute high.

What has emerged in the days since the bodies were discovered in a spongy strip of land between the Black Horse Pike and the Atlantic City Expressway is that each of the four women came to Atlantic City to escape something: abusive relationships, relatives who objected to their drug habits, or street life in other cities considered to be more dangerous.

Once they were here, their drug-fueled descent landed them on the lowest rung in Atlantic City’s social order, a strip of rundown motels just outside of town where prostitutes are so desperate to feed their habits that rocks of crack cocaine are the preferred method of payment.

“These problems have been coming up the pike from Atlantic City and have been for years,” said James J. McCullough, the mayor of neighboring Egg Harbor Township, where the four slain women were found. “We are feeling a lot of frustration and a certain degree of helplessness.”

As the police hunt a possible serial killer, several officers who spoke on the condition of anonymity said there are no obvious suspects or solid leads.

The Atlantic County prosecutor, Jeffrey S. Blitz, has more than two dozen investigators on the case, showing photographs of at least two men as they canvass neighborhoods in and around the city. But an employee at the Quality Hotel, across the street from where the bodies were found, said that when the authorities came by on Wednesday, they acknowledged they were not close to solving the case.

“The police said they have no leads and are frustrated,” she said.

Local lore has long been that the Police Department takes a laissez-faire attitude toward prostitution. A lawsuit settled this year bolstered that notion: the city agreed to pay an undisclosed amount to a former vice-squad detective who claimed he was demoted in 2001 for defying a directive by the police chief at the time to stop arresting streetwalkers. The city’s current chief, John Mooney, declined to discuss the suit, but in the court file, officials never refute the contention that police commanders had disbanded the department’s prostitution unit and discouraged arrests.

In court papers, the detective’s lawyer put it bluntly: “They gave the green light to the red-light district.”

Kimberly Raffo

It was Atlantic City’s permissiveness that attracted Kimberly Raffo, a Brooklyn native who moved here from Pembroke Pines, Fla.

Sometime in 2002, relatives noticed a drastic shift in Ms. Raffo’s behavior, and she seemed eager to break free from the boredom of her suburban life. Her sister, Maria Santos, said Ms. Raffo began taking culinary courses in Hollywood, Fla., started an affair with a student there, and began smoking crack cocaine. She refused to give up her lover or her habit and instead left behind her husband, two children and four-bedroom home and fled to Atlantic City, her sister said.

“It’s so crazy,” Ms. Santos said. “If you knew the woman before the last three years of her life, she was like Martha Stewart.”

Ms. Raffo, 35, worked as a waitress in several restaurants here before turning to prostitution. Joseph Boccino, the owner of Papa Joe’s, a diner on Pacific Avenue here frequented by prostitutes, said she and others seemed to enjoy the independence of working the streets, where they could make their own hours and answer only to their addictions.

“They didn’t have pimps and they could come and go,” said Mr. Boccino, who gave Ms. Raffo a cosmetic kit for Christmas last year.

On the morning of Nov. 19, Mr. Boccino said, Ms. Raffo showed up at the diner shortly after it opened at 2:30 a.m. and ordered her usual breakfast: two fried eggs, American cheese and sausage on a kaiser roll, and a Mountain Dew. He said she then walked out on the street and got into a Black Nissan Maxima with out-of-state license plates. She was not seen again until the next day, when her lifeless body was one of four found face down near rusted train tracks.

Barbara V. Breidor

Barbara Breidor, who at 42 was the oldest of the victims, knew both sides of Atlantic City. She grew up in an affluent Philadelphia suburb, and spent many summers in Margate, N.J., another well-off town down the beach from the casinos. She later worked in a shop her mother owned, selling jewelry and Native American artifacts on the Boardwalk.

But after her mother sold the business, Ms. Breidor worked as a waitress at the Tropicana in the late 1980s, and friends and relatives said she soon began abusing prescription painkillers. Ms. Breidor — a bright young woman who studied briefly at Penn State, dreamed of a career in law and loved to watch the History Channel — then moved on to heroin and cocaine, starting the addiction that defined the rest of her life.

When she and her boyfriend had a daughter in 1997, they let Ms. Breidor’s relatives in Florida raise the child. In 2003, after the boyfriend spent time in prison for armed robbery, Ms. Breidor returned to Atlantic City in the hope of rekindling the relationship, said her sister, Francine Lentes. The reconciliation failed, but Ms. Breidor stayed for the reason so many gamblers are lured here: the prospect of making big money.

“She used to say how she dreamed about getting a real nice place to lay her head down,” said Tracy Morgan, a prostitute who worked the same tawdry strip,

But Ms. Breidor’s crack habit, which Ms. Morgan said cost as much as $300 a day, left little room for her to recapture the comfortable lifestyle of her youth. She drifted from flophouses to friends’ apartments, leaving behind a trail of belongings, personal papers and bail receipts. Wherever she went, Ms. Breidor was meticulous about caring for the glass crack pipe she kept wrapped in a napkin in her pocket like some holy relic, Ms. Morgan said.

Desperate for drugs, Ms. Breidor began trading her body for cocaine along Black Horse Pike, where even many of Atlantic City’s hardened prostitutes are reluctant to tread. By mid-October, her behavior had become so unpredictable that when she failed to return from a two-hour errand, friends waited weeks before notifying the police.

Tracy Ann Roberts

Tracy Ann Roberts, 23, who medical examiners say was asphyxiated before she was dumped in the ravine, gravitated to Atlantic City because it seemed a promising place to make a living as an exotic dancer. But drug use left her so emaciated that club owners deemed her unfit for the stage, so she turned to the streets, said a friend, Jannette Brown, herself a former prostitute and drug addict.

A native of Bear, Del., about 50 miles from Atlantic City, Ms. Roberts dropped out of high school at 16 and eventually began studying to become a medical assistant. But after bearing a child and breaking up with her boyfriend, she began using cocaine heavily, drifting between Philadelphia and Atlantic City.

Ms. Roberts made her final journey here in August, trying to escape an abusive relationship. But in early November, a man who wanted to be Ms. Roberts’s pimp punched her in the throat so hard that she coughed up blood and had to be hospitalized, said a friend, a 29-year-old prostitute who goes by the street name Kim Possible.

After the attack, Ms. Roberts, who had been known for her uncommon willingness to share drugs and for the Southern accent she had retained from a brief time in Georgia, became withdrawn, her voice a whisper.

“Her spirit changed,” said another prostitute who worked with Ms. Roberts. “She wasn’t the same.”

Molly Jean Dilts

Molly Jean Dilts was the only one of the four victims who did not have a criminal record for prostitution. But people in Atlantic City said Ms. Dilts — well known as a cherub-faced girl who called herself Amber or Princess — could often be seen flaunting her 20-year-old body on some of the town’s roughest blocks.

An aunt, Margret Dilts, said her niece fled home in Black Lick, Pa., just outside Pittsburgh, in mid-October after a string of tragedies: her mother died of cancer several years ago and her brother was fatally shot in 2005. Ms. Dilts, who had been arrested several times for assault, public intoxication and possession of drug paraphernalia, gave birth to a son, Jeremiah, 14 months ago, but gave the child to her relatives to raise.

Friends said her troubles haunted her despite countless vials of crack cocaine. In the weeks before she was killed, Ms. Dilts told friends she had been making herself throw up because she was concerned that her weight was making it harder to attract men.

One friend, Richard Hernandez, said that Ms. Dilts was a prostitute, and that she had told him she considered overdosing on pills or hanging herself. “Molly cried a lot,” said Mr. Hernandez, 30, who met Ms. Dilts when she was buying crack cocaine on Georgia Avenue. “I’d always hug her, because if you started talking with her, she’d cry.”

Back to the Status Quo

In the two weeks since the discovery of the four dead women, life here has largely returned to the sensory overload that is Atlantic City’s status quo. Busloads of tourists stream off the highways and head straight for the casinos, passing the swath of land where the bodies were found, as prostitutes and drug dealers do business in plain sight.

Local buzz quickly turned from concern over a serial killer roaming the streets to claims by a radio talk show host that she had been given a videotape of a city councilman receiving oral sex from a prostitute on the Boardwalk.

“It is important that business now gets engaged in seeking solutions,” said Joseph Kelly, president of the Atlantic City Regional Mainland Chamber of Commerce, though he acknowledged that “the business community doesn’t have an existing plan.”

Mayor Robert W. Levy has said little about the killings and even less about the city’s approach to enforcing vice laws. Reached at his home Saturday night, he emphatically declined to discuss Atlantic City’s prostitution and drug problems.

“This is my home, this is my night, this is my weekend,” Mr. Levy shouted. “I just came home from a funeral. I got nothing to say about nothing.”

Detectives are still not certain whether the killer may have claimed more victims, and have been inquiring about other streetwalkers not seen in weeks.

The authorities have also been searching for links between the current case and the attacks on three prostitutes whose throats were slashed earlier this year, leaving two of them dead, though Mr. Blitz has said they appear unrelated.

Despite those violent deaths — and the prospect that there may actually be two serial killers preying on the city’s prostitutes — local officials say they don’t expect any decrease in the number of people drawn to the excitement of Atlantic City.

“There are 30 million people a year who pass through this little town with 36,000 residents,” said William Southrey, president of the Atlantic City Rescue Mission. “So if someone is looking for action, there are things going on all the time, legal opportunities and perverse ones.”

Nate Schweber contributed reporting.

    In Glittery Atlantic City, 4 Walked Deadly Path, NYT, 5.12.2006, http://www.nytimes.com/2006/12/05/nyregion/05slay.html?hp&ex=1165381200&en=2a22ad3413c9b5cf&ei=5094&partner=homepage

Pfizer shares sink after patient deaths put an end to trials of cholesterol drug

Updated 12/4/2006 9:51 AM ET
By Theresa Agovino, Associated Press
USA Today

NEW YORK — Shares of Pfizer (PFE), the world's largest drugmaker, sank Monday on news that the company had halted development of a key cholesterol treatment.

The stock fell $4.06, or almost 15%, to $23.80 in pre-market trading.

The company said Saturday that an independent board monitoring a study for cholesterol treatment torcetrapib recommended that the work end because of an unexpected number of deaths.

Pfizer was planning to sell torcetrapib in combination with its best-selling cholesterol-lowering drug, Lipitor. According to Pfizer spokesman Paul Fitzhenry, 82 patients taking the combination of torcetrapib died, compared with 51 deaths among patients taking Lipitor alone. Each arm of the study had 7,500 patients. Pfizer said the study didn't raise any questions about Lipitor's safety.

The news is devastating to Pfizer, which had been counting on the drug to revitalize stagnant sales hurt by patent expirations on key products. It has said it was spending around $800 million to develop torcetrapib, which was supposed to fill the void when its best-selling drug, cholesterol treatment Lipitor, loses patent protection in 2010 or 2011. Lipitor sales totaled $12.2 billion last year.

"This is obviously unfortunate because this was the biggest opportunity in their pipeline," said Barbara Ryan, an analyst at Deutsche Bank. "Clearly there is more pressure on them to do cost cutting."

Pfizer will likely slash staff and accelerate merger and licensing deals as the pressure to improve its financial performance intensifies.

Two months ago, Pfizer said it would detail plans in January to turn the company into a more nimble organization that would go beyond the program announced last year to cut $4 billion in expenses by 2008. Patent expirations will cost the company $14 billion annually between 2005 and 2007.

In the statement Pfizer issued Saturday, CEO Jeff Kindler said the company's pace of transformation will be expedited because of the loss of torcetrapib, but he didn't give specifics. Last week, Pfizer announced it was cutting 20%, or 2,200 jobs, from its U.S. sales force.

Ryan said Pfizer may lay off as many 10,000 people in the near future. Pfizer employs about 100,000 people. Ryan added that she expects Pfizer to hike its annual dividend from 96 cents to $1.10 per share in the next few weeks in hopes of putting a floor on the stock.

But Jason Napodano, an analyst at Zacks Independent Research, doesn't think the dividend will be enough to prop up the shares. He points out that at the end of last month, Pfizer pulled out of its deal with drugmaker Organon to develop schizophrenia treatment asenapine. Napodano said he expected that drug to add $500 million in sales by 2010 while, by that time, torcetrapib's sales would total $3 billion.

"Losing asenapine was a hole in the boat. Now they have hit an iceberg," said Napodano.

Pfizer reiterated it hopes to introduce six products by 2010, but Napodano said its pipeline just doesn't have another drug which offers the sales potential of torcetrapib.

Ryan and Napodano both expect Pfizer to act swiftly to bring new products into the fold, either through acquisition or licensing. But Napodano said until investors see what those products are, he sees little reason to buy the stock. He said he intends to review his "hold" rating on the stock.

Torcetrapib was designed to raise levels of HDL, or what's commonly known as good cholesterol. Pfizer has two other products in early development to raise HDL, using the same method as torcetrapib. It is too soon say whether they will be affected by the compound's demise because it unclear what caused the patient deaths in the trial.

Torcetrapib had been shown to raise blood pressure in some patients but the other two compounds haven't displayed such a side effect, according to Pfizer.

Dr. Steven Nissen, chairman of cardiovascular medicine at the Cleveland Clinic, said it is too soon to say whether the entire class of drugs known as CETP inhibitors is dangerous or if there was something specific to torcetrapib that caused the deaths. He said Roche (RHHBY) is developing drugs of the same type, and there's speculation that Merck (MRK) is too. Merck declined to say if it had such a drug in its pipeline.

Roche spokesman Darien Wilson said in clinical trials its compound has not shown a risk of elevated blood pressure and it is slated for introduction in 2009.

Pfizer was hoping to seek approval for torcetrapib in the second half of next year.

Nissen said he will examine the results of the study, and if the trial showed that the drug actually increased artery-clogging plaque, it would indicate that there is something wrong with the way the class of drugs works.

Nissen, who has been an outspoken critic of the pharmaceutical industry, said he doesn't believe Pfizer will face any liability issues over the trial because it acted swiftly to tell the public and researchers. The results were unexpected because the review board examined the trial data in October and didn't see an increased risk of death, Pfizer said.

"I have to give Pfizer credit. They did everything the right way," Nissen said.

Analysts said patients sign waivers, acknowledging that they are willingly participating in an experiment, which protect companies from most lawsuits. However, Fordham University School of Law professor Benjamin Zipursky said warning patients of risks doesn't necessarily mean they can't sue, especially if information about the trial wasn't adequately detailed or the company downplayed or hid any potential negative data.

    Pfizer shares sink after patient deaths put an end to trials of cholesterol drug, UT, 4.12.2006, http://www.usatoday.com/money/industries/health/drugs/2006-12-04-pfizer-drug_x.htm

ExxonMobil chief to get $2.8M bonus, 17% pay hike

Posted 12/1/2006 7:05 PM ET
Reuters

HOUSTON (Reuters) — ExxonMobil (XOM) Chairman and CEO Rex Tillerson will receive a $2.8 million bonus for 2006 and a 17% salary hike to $1.75 million for 2007.

The compensation package, listed in a filing by the world's largest publicly traded energy company with the Securities and Exchange Commission on Friday, comes on top of $14.2 million in restricted stock the oil executive received recently and brought his 2006 package to at least $18.5 million.

Oil executive payouts became a controversial topic earlier this year when U.S. retail gasoline prices topped $3 gallon on average. ExxonMobil has been a target for critics since former chief Lee Raymond was given a $49 million package when he stepped down last year.

Tillerson succeeded Lee Raymond at the helm of the energy company in December 2005.

Last quarter, ExxonMobil reported the second-highest ever corporate profit of $10.5 billion — behind its own 2005 fourth-quarter record.

Shares in ExxonMobil have posted steep gains so far this year, rallying 37% to outperform the 25% gain in the broader Standard and Poor's Energy Index. On Friday, the stock closed up 0.5% at a record high of $77.20.

    ExxonMobil chief to get $2.8M bonus, 17% pay hike, R, 1.12.2006, http://www.usatoday.com/money/industries/energy/2006-12-01-exxon-tillerson_x.htm