History > 2007 > USA > Economy (II)

Editorial

Spillover

July 30, 2007
The New York Times
 

By the end of last week, any lingering hope that the housing downturn would be contained had vanished. As this week begins, signs of contagion seem to be everywhere.

Unnerved by mounting losses in mortgage- related investments, investors have started to shun tens of billions of dollars in corporate debt offers as well — and seem likely to go on doing so for months to come. That would stanch the flow of easy money that has fueled the leveraged buyout boom, which would, in turn, expose the extent to which stocks have also come to depend on cheap credit. Stocks took a dive last week because debt-driven buyouts had long boosted the share prices of targeted companies. Stocks have also benefited directly from easy money because public companies have borrowed heavily to buy back their own stock, a ploy to drive up earnings per share.

The fallout of housing-related turmoil is also likely to extend beyond financial markets. Among the deals that faltered last week were the $7.4 billion buyout of the Chrysler Group and the $5.6 billion purchase of the Allison Transmission unit of General Motors. Unless investor capital is forthcoming, it could become increasingly difficult for the automakers to avoid bankruptcy. At the same time, the housing slump has also driven down analysts’ monthly forecasts for car and truck sales to levels not seen in nearly a decade.

The double whammy of weakness in housing and in autos has already hit the chemical maker DuPont. Last Tuesday, the company was the Dow’s biggest loser, in part because of lackluster demand for a pigment used in house paint and lower paint sales to automakers.

There is also growing evidence that housing woes are curtailing consumer spending, the mainstay of the economy. As home prices fall, home equity borrowing is drying up as a source of disposable income, while wages and salaries are hardly enough to cover many households’ consumer and mortgage debt, along with the rising costs of food, energy and other essentials. As a result, consumption ebbs.

Officials at the Federal Reserve and the Treasury Department cannot manage these problems on their own. If the Fed wanted to reduce interest rates, for example — which financial markets are expecting in the wake of last week’s plunge — it would need cooperation from other central banks to ensure that lower American rates would not dangerously weaken the dollar, provoking inflation.

Similarly, assurances that the economy will be fine, such as the one delivered on Friday by Treasury Secretary Henry Paulson Jr., ring hollow in the absence of an international reporting framework to monitor the positions taken by globally active hedge funds. Otherwise, there’s little reason to believe that government officials have all of the information they need to assess the risks to the financial system and the economy. To date, however, Treasury officials have played down the need for more monitoring.

Throughout the Bush years, international cooperation has been neglected. Last week’s gyrations are another signal that the need to work with others cannot be safely ignored.

Spillover, NYT, 30.7.2007, http://www.nytimes.com/2007/07/30/opinion/30mon1.html

Economy Posts Sharper Growth

July 27, 2007
The New York Times
By JEREMY W. PETERS

The economy pulled out of a sharp winter slump and grew at a quicker pace in the spring, lifted by an improvement in the trade deficit and stronger business spending.

The Commerce Department reported today that the gross domestic product, the measure of all goods and services produced in the United States and the broadest indicator of the strength of the economy, advanced 3.4 percent from April through June. In the first quarter, growth was a sluggish 0.6 percent, the slowest in more than four years.

But several factors reversed in the second quarter, giving the economy a very different composition. Business and government spending in the second quarter — like purchases of buildings, equipment and software — grew at a much faster pace compared with the first quarter.

The balance of trade also changed. In the second quarter, exports grew 6.4 percent, compared with just 1.1 percent in the first quarter. And imports declined 2.6 percent after gaining 3.9 percent before. A widening trade deficit acts as a drag on the economy. But trade lifted growth in the second quarter — adding 1.2 percentage points to the overall G.D.P. number.

“It’s a very different mix,” said Mickey Levy, the chief economist with Bank of America.

One factor that was critical in keeping the economy afloat this winter underperformed in the spring: the American consumer. Personal consumption, the Commerce Department’s measure of consumer spending, advanced just 1.3 percent, compared with 3.7 percent in the first quarter.

On the surface, 3.4 percent G.D.P. growth is a healthy number. Economists consider G.D.P. expansion around 3 percent in line with the economy’s potential.

But economists pointed out that what made the second quarter look so healthy — namely faster business spending — cannot hold up for the rest of the year.

“The details of today’s report are not very comforting in the sense that they provide little evidence that the rebound in growth can be sustained,” said Richard F. Moody, chief economist for Mission Residential, a real estate investment firm in Austin, Tex.

For the rest of the year, many economists see the economy expanding at a slightly below average pace — not as stunted as the first quarter, but not as strong as the second quarter either. The second quarter is likely to be a high-water mark for the year, economists said.

Without stronger consumer spending, which accounts for 70 percent of the gross domestic product, expansion will be muted.

“In order for overall real G.D.P. growth not to significantly disappoint, it is critical that consumer spending growth improve from the anemic 1.3 percent pace,” said Joshua Shapiro, chief United States economist with MFR, an economic research firm.

How Americans adjust their household budgets to higher energy prices, of course, will determine how much spending rebounds.

Another unknown factor that will determine how much the economy grows in the second half of the year is the housing market. So far this year, it has depressed growth considerably. The second quarter, however, was not as bad as the first. A decline in home buying subtracted a half percentage point from the G.D.P. figure, compared with about a full point in the first quarter.

“The more recent trajectory suggests that the housing deterioration will lessen,” said Robert Barbera, chief economist with ITG, an investment advisory firm. “It’ll continue, but it’ll lessen.”

    Economy Posts Sharper Growth, NYT, 27.7.2007, http://www.nytimes.com/2007/07/27/business/27cnd-econ.html

Apple Profit Soars 73% as Sales Rise

July 26, 2007
The New York Times
By LAURIE J. FLYNN

SAN FRANCISCO, July 25 — Apple on Wednesday reported a 73 percent jump in quarterly profit on strong sales of Macs and iPods, beating Wall Street forecasts. It also alleviated some concerns about early sales of the iPhone.

Investors were spooked on Tuesday when AT&T, which provides service for the phone, said it had activated just 146,000 iPhones in the day and a half from its release to the end of the quarter, far fewer than some analysts had expected. That sent Apple’s stock down 6 percent.

But Apple executives said on Wednesday that the company had actually sold 270,000 iPhones in that period, a number that seemed to calm investors’ fears. The executives said Apple expects to sell 1 million iPhones this quarter, and reiterated its goal of selling 10 million phones by the end of 2008. The company plans to release the phone in Europe in the fourth quarter.

“Our view is the starting gun has been fired and we’re off to a great start,” said Timothy D. Cook, Apple’s chief operating officer, in a conference call with analysts. “Our primary focus is not on initial sales but on creating a third business for Apple.”

By comparison, Apple executives said, it took nearly two years for Apple to sell 1 million iPods.

It is not entirely clear why so many early iPhone customers did not activate their phones right away, but Apple executives acknowledged that many customers experienced activation problems during the first week. Peter Oppenheimer, Apple’s chief financial officer, apologized for the problems and said they had been fixed.

Shares of Apple climbed more than 9 percent, or $12.92, in after-hours trading. They closed at $137.26, up $2.37, in regular trading. The gains more than made up for the losses on Tuesday.

Investor excitement over the iPhone’s potential has helped drive up Apple shares more than 50 percent since the product was announced in January.

The company’s profit was $818 million, or 92 cents a share, compared with $472 million, or 54 cents a share, in the quarter a year earlier. Analysts had forecast a profit of $645.6 million, or 72 cents a share, according to a survey by Thomson Financial.

The company shipped 1.76 million Macs during the quarter, representing 33 percent growth over the year-ago quarter, and 9.82 million iPods, for growth of 21 percent.

“We’re thrilled to report the highest June quarter revenue and profit in Apple’s history, along with the highest quarterly Mac sales ever,” said Steven P. Jobs, Apple’s chief executive.

Apple’s revenue for the quarter increased to $5.41 billion from $4.37 billion last year, beating Apple’s own projection of $5.1 billion.

Apple has decided to book sales from the iPhone handsets, which cost $500 or $600 depending on the model, as subscription revenue over 24 months. The company recognized $5 million in revenue from the iPhone and related products during the fiscal third quarter, which ended June 30.

The company’s gross margins rose substantially during the third quarter, to 36.9 percent from 30.3 percent in last year’s quarter. Mr. Oppenheimer said Apple’s margins benefited from favorable pricing for components like memory chips.

“The upside was clearly the health of the Mac business,” said A. C. Sacconaghi, an analyst with Sanford C. Bernstein & Company. “Apple’s in a really attractive position, where the Mac’s component prices are falling but they’re able to charge the same prices.”

Apple issued a conservative forecast for the fourth quarter, predicting revenue of about $5.7 billion and earnings per share of about 65 cents, as well as a drop in profit margins.

Mr. Oppenheimer noted that the fourth quarter includes the school buying season, in which Apple typically offers costly back-to-school promotions and sells more lower-margin entry-level Macs. He also said he expected to see component prices rise somewhat during the quarter.

Analysts have become accustomed to restrained forecasts from Apple. “Guidance for Apple has become a throwaway,” Mr. Sacconaghi said. “They guide conservatively and routinely beat it.”

    Apple Profit Soars 73% as Sales Rise, NYT, 26.7.2007, http://www.nytimes.com/2007/07/26/business/26apple.html

Existing Home Sales

Drop for 4th Month

July 25, 2007
By THE ASSOCIATED PRESS
Filed at 10:18 a.m. ET
The New York Times

WASHINGTON (AP)-- Sales of existing homes fell for a fourth straight month in June as all sections of the country showed weakness.

The National Association of Realtors reported that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units, the slowest sales pace in 4.5 years.

The median price of a new home edged up slightly to $230,300 in June, a small 0.1 percent increase from the sales price a year ago. That was the first year-over-year price increase in 11 months but analysts cautioned that it would take more months to determine whether the downward trend in prices has finally stabilized.

The decline in home sales was larger than had been expected and served to underscore the problems in housing, which is currently in the worst slump in 16 years.

The housing downturn is occurring after five boom years in which sales of both new and existing homes set records with home prices soaring by double-digit rates. However, starting in 2006, sales have slumped as mortgage rates rose and prospective buyers balked at the price levels they were seeing in many parts of the country.

Those problems have been exacerbated in recent months by spreading problems in the subprime mortgage market, which offered loans to buyers with spotty credit histories. Rising defaults in those areas are dumping more homes onto an already glutted market.

The sales declines covered all parts of the country. Sales were down 7.3 percent in the Northeast and 6.8 percent in the West. Sales fell 2.8 percent in the Midwest and 1.7 percent in the South.

The supply of unsold homes did drop by 4.2 percent in June to 4.2 million, which analysts said was a hopeful sign that the price declines may soon come to an end.

Lawrence Yun, senior economist for the Realtors, said that potential buyers have been getting mixed signals about whether now is a good time to buy a home with mortgage rates rising and banks and other lenders tightening their standards, making it harder to qualify for a loan.

"It appears that some buyers are looking for more signs of stability before they have enough confidence to make an offer," Yun said.

The Realtors are forecasting that sales of existing homes will fall by 5.6 percent this year with prices dropping by 1.4 percent. That would mark the first annual price decline on record.

Yun said that if the price decline turns out to be greater than he is forecasting that would raise concerns that consumers could cut back on their spending by enough to raise worries about a possible recession for the overall economy.

The Dow Jones industrial average suffered a 226-point drop on Tuesday as Countrywide Financial (NYSE:CFC) , one of the nation's mortgage lenders, reported a sharp drop in its second quarter profits, raising worries among investors that the housing slump could damage the overall economy by a greater extent than it already has.

    Existing Home Sales Drop for 4th Month, NYT, 25.7.2007, http://www.nytimes.com/aponline/business/AP-Economy.html

Dow Caps a 4-Month Surge,

Closing Above 14,000

July 20, 2007
The New York Times
By VIKAS BAJAJ

The Dow Jones industrial average closed just over 14,000 yesterday for the first time, capping a four-month rally that has been driven by corporate buyouts, strong corporate profits and companies buying back their own shares.

The stock market has charged past concerns about surging mortgage default rates, rising oil prices and higher interest rates. Measured in terms of corporate profits, stocks are the most expensive they have been in almost two years, although they still have not reached the frothy levels of the late 1990s.

“It’s not as attractive as it was,” Tobias Levkovich, the chief equity strategist at Citigroup, said about the stock market. “But it’s not unattractive.”

This new market reality — and the litany of worries associated with the housing market that have aroused skeptics for some time — are raising concerns about whether stocks can continue their ascent. Markets have also become more volatile relative to the recent past, with days of big increases followed by sharp drops.

Yesterday, the Dow Jones industrial average, the best-known gauge of the stock market, tracking 30 large companies, rose 82.19 points, to close at 14,000.41. The Dow is up 12.3 percent for the year. The Standard & Poor’s 500-stock index, which provides a far more comprehensive view of the market, closed up 6.91 points, to 1,553.08, and is up 9.5 percent for the year.

The Dow and the market over all were led higher by I.B.M., which reported stronger than expected quarterly profits, and Exxon Mobil, which climbed as oil prices closed in on $76 a barrel. Technology, utility, energy and industrial stocks were broadly higher. Financial stocks, however, had another rough day on worries about fallout from subprime mortgages.

Profit at large companies had been expected to start slowing significantly this year but have held up better than many analysts had predicted. The earnings forecasts that companies and analysts devised early this year might have been too pessimistic, market specialists suggest.

“The economy is mixed but not as weak as when a lot of people made their earnings expectations at the end of the first quarter,” said Leo P. Grohowski, chief investment officer at U. S. Trust, a division of Bank of America that serves wealthy clients.

Corporate profits have also received a notable boost from the declining value of the dollar against other currencies, which has made United States exports cheaper overseas and magnified the earnings of overseas subsidiaries of American companies.

The dollar has fallen 4.6 percent against both the euro and the British pound this year. It is also down against the Australian and Canadian currencies. (The exception has been the Japanese yen, which has fallen against the dollar and the euro.)

And while profits have been growing, companies are not spending as much on adding production capacity, buying equipment or acquiring other companies as they did in the late 1990s. Rather, they are spending more on their own shares. In the first three months of the year, companies in the Standard & Poor’s index bought back $118 billion of their own shares. In 2006, the number of shares outstanding among the 500 companies in the index fell by 1.53 percent, the first decline in 10 years.

Private equity firms have announced deals worth $326 billion in the first six months of this year, up from $139 billion during the same period in 2006, according to Thomson Financial.

“When credit is fairly available, when interest rates are fairly low and stock prices are not expensive and when top line growth is pretty good because of world growth,” said Robert C. Doll, vice chairman at BlackRock, the asset management company, “that is a recipe for companies buying equity.”

The price to earnings ratio of the Standard & Poor’s 500-stock index has climbed to 18.3, up from 16.6 in July 2006. The ratio has averaged 15.7 since 1935 and 22.8 since 1988, according to Howard Silverblatt, chief index analyst at Standard & Poor’s.

The record set by the Dow yesterday falls short, on an inflation adjusted basis, of the peak it reached in January 2000, 11,722.98. To match that, the Dow would need to climb roughly 315 points.

The recent stock market rally has not pulled in individual investors. Flows into domestic stock funds have remained anemic. In the first six months of this year investors put just $19 billion into domestic stock funds, 0.43 percent of the total assets in such funds, according to AMG Data Services, a research firm. By contrast, flows into nondomestic funds were $84 billion, about 5.6 percent of assets.

Investors may be drawn by the stronger performance of markets in Europe and Asia, and the increasing ease with which they can participate in those markets. Returns on foreign investments have also been helped by the weakening dollar.

The biggest concern of market specialists, they say, has to do with the cost and availability of credit.

The economy has in recent years become reliant on low interest rates and lenders’ willingness to extend credit to everyone from powerful private equity firms to home buyers with weak credit.

After spiking to 5.3 percent in June, the yield on the 10-year Treasury note, which is the benchmark that sets interest rates for mortgages, bonds and business loans, has fallen back to 5.01 percent. That is still above the 4.7 percent yield from January. The national average interest rate on the 30-year fixed mortgage has climbed to 6.73 percent, from 6.18 percent in January, according to Freddie Mac.

Richard Bernstein, chief United States strategist for Merrill Lynch, said he believes investors would be increasingly risk averse, especially if interest rates rise further.

“It’s important for people to realize that markets act in a transition phase,” Mr. Bernstein said. “We think we are going through one of those periods.”

    Dow Caps a 4-Month Surge, Closing Above 14,000, NYT, 20.7.2007, http://www.nytimes.com/2007/07/20/business/20stox.html

Google Earnings Up 28%

but Miss Expectations

July 20, 2007
The New York Times
By MIGUEL HELFT

SAN FRANCISCO, July 19 — Sometimes what is good enough for Google is not good enough for Wall Street.

The Internet search giant reported another quarter of rapid revenue growth on the strength of its core Internet search and advertising business Thursday, but expenses grew faster than investors had anticipated and profits fell short of analysts’ expectations.

Within minutes of Google’s announcement, which was made after the close of markets, disappointed investors sold off Google’s shares in after-hours trading, slashing their value by about $42, or more than 7 percent, to about $506. Shares of Google had risen steadily in recent weeks, in part, on speculation that the company, which does not provide guidance about its expected financial performance, would surpass Wall Street estimates.

“The company spent too much, as they said they might some day,” said Jordan Rohan, an analyst with RBC Capital Markets. “It wasn’t a bad quarter. It was a quarter where the analysts’ models need to be reset at a slightly lower level of profitability, and that hadn’t happened in a while.”

Google said that second-quarter net income rose 28 percent to $925 million, or $2.93 a share, falling short of the $3.01 a share that Wall Street expected. Revenues rose to $3.87 billion, up 58 percent from the same quarter in 2006.

Revenues excluding commissions paid to advertising partners, a widely followed measure of the company’s performance, were $2.72 billion, up 63 percent from a year earlier, and slightly above Wall Street’s expectations of $2.68 billion. Excluding expenses like stock-based compensation, profits were $1.12 billion, or $3.56 a share, below the $3.59 a share that analysts expected.

Google’s executives said they were satisfied with the company’s performance.

“We were very pleased with how Google did this quarter, especially with revenue growth in a seasonally weak quarter, and with what appears to be an increase in rates of user traffic growth,” Eric E. Schmidt, Google’s chief executive, said in an interview.

Mr. Schmidt said that a larger-than-expected hiring spree, as well as a change in the way the company accounts for bonuses, had contributed to the higher expenses. Google added 1,548 workers in the quarter, or about the same as in the first quarter, to end the period with nearly 13,800 employees.

“We will watch this area very closely in the future,” Mr. Schmidt said.

Google, which is now larger than any of its rivals, is growing about seven times faster than Yahoo and twice as fast as eBay.

Still, as the company has continued to grow, its rate of growth has decreased. Second quarter year-over-year revenue growth, for instance, was 125 percent in 2004, 98 percent in 2005, 77 percent in 2006 and 58 percent in the most recent quarter. But that is not what worries analysts, for now. Mr. Rohan called it the “smoothest deceleration I have seen.”

Google has to spend on new businesses to keep the growth rate aloft. But if it spends too much, Wall Street punishes the stock.

“Eventually, yes, you can’t keep growing at the same pace,” said Christa Quarles, an analyst with Thomas Weisel Partners. “That’s why the ‘what’s next’ question gets asked.”

Google still earns the overwhelming majority of its revenue from text ads that appear next to search results and on many sites across the Web. But Google has been spending heavily in variety of areas including online video, with its purchase of YouTube; software applications that compete with Microsoft’s; radio, television and newspaper advertising; mobile phone technology; and a vast network of data centers that could become a platform for delivering the next generation of computing applications. But these efforts have yet to contribute to Google’s bottom line.

During a conference call between company executives and Wall Street analysts Thursday, the “what’s next” question inevitably came up.

Omid Kordestani, Google’s senior vice president for global sales and business development, responded that it was too early to see any material affect from any of those initiatives. “Hopefully, in the next few quarters, we can shed more light on this,” Mr. Kordestani said.

For now, the focus of investors has shifted to whether Google’s higher expenses are a temporary or longer-lasting issue.

“What everyone is trying to get a handle of what we can expect for the subsequent quarters,” Ms. Quarles said. “The question was asked in nine different ways.” True to its no-financial-guidance policy, Google executives declined to answer.

Some analysts took Thursday’s sell-off of Google shares in stride. “The stock has had a tremendous run over the last few weeks and months,” said Derek Brown, an analyst with Cantor Fitzgerald. “When you take a step back and consider what this business is doing, in absolute terms and relative to other leaders in the Internet sector, this business continues to shine.”

    Google Earnings Up 28% but Miss Expectations, NYT, 20.7.2007, http://www.nytimes.com/2007/07/20/technology/20google.html

Microsoft’s Profit Rises

Despite Xbox Charge

July 20, 2007
The New York Times
By LAURIE J. FLYNN

SAN FRANCISCO, July 19 — Microsoft reported a 7 percent rise in quarterly profit and earnings that matched Wall Street’s forecasts on Thursday, despite a substantial charge for fixing defects in its Xbox video-game machine.

The company, the world’s largest software maker, attributed the strong performance to continued brisk adoption of its Windows Vista operating system and the newest release of Microsoft Office, as well as to overall strong demand from business customers.

Microsoft’s profit for the fourth quarter was $3.04 billion, or 31 cents a share, compared with $2.83 billion, or 28 cents a share, in the quarter a year earlier.

Without the charge, earnings were 39 cents a share, a 26 percent increase from the period last year.

Revenue was $13.37 billion for the quarter ended June 30, a 13 percent increase over $11.8 billion in the period last year.

Analysts had forecast a profit of 39 cents a share on $13.28 billion in revenue, according to Thomson Financial.

The results were announced after the stock market’s close. Shares declined 2 percent in after-hours trading, after rising 59 cents, to close at $31.51 in the regular session.

“It was a pretty robust quarter,” said Charles Di Bona, an analyst with Sanford C. Bernstein. “There were no surprises and they cleared the air on all the near-term issues.”

Trip Chowdhry, an analyst at Global Equities Research, said the stock was most likely down because some investors were still looking for Microsoft to continue the heady growth of its early days. “The company did well despite being a mature company in a mature market with falling prices,” he said.

For the fiscal year, Microsoft posted revenue of $51.12 billion, a 15 percent increase over the prior year. Earnings for the year were $1.42 a share, or $1.49 excluding one-time items.

“Our results this quarter cap off an extremely strong fiscal year for the company,” said Christopher P. Liddell, Microsoft’s chief financial officer. “We have healthy core businesses and are strategically investing in growth opportunities.”

For fiscal year 2008, Microsoft raised its forecast for earnings by a penny a share, to a range of $1.69 to $1.73, and for revenue by about $300 million, to $56.8 million to $57.8 million.

Microsoft executives said the company expected to earn 38 cents to 40 cents a share on $12.4 billion to $12.6 billion in sales during the first quarter, on the high end of Wall Street’s forecast of 38 cents a share on revenue of $12.51 billion.

Strong momentum in Microsoft’s core products continued through the fourth quarter. Revenue in the Client unit, which includes Windows, increased 14 percent, to $3.81 billion. Sales of Microsoft Office 2007 increased 20 percent in the fourth quarter to add $600 million to Microsoft’s revenue.

Much of the growth was driven by large-volume business customers, the company said. Colleen Healy, senior director of investor relations, said in an interview that renewals of long-term contracts were up 25 percent, a sign of continued growth.

The company incurred a charge of $1.06 billion for the anticipated cost of repairing a hardware defect in some of its Xbox 360 game consoles, a problem that may have affected as many as a third of the 11.6 million units sold.

Earlier this week, Microsoft announced that its top gaming executive, Peter Moore, was leaving Microsoft to run the sports division of Electronic Arts, the independent video game publisher, though company executives denied that his departure was related to the Xbox’s engineering problems. Don Mattrick, a former Electronic Arts studio chief, will take Mr. Moore’s job at Microsoft.

Microsoft’s online business reported an increase in sales but a widening loss, as it continued to battle Google and Yahoo.

The division’s loss in the fourth quarter grew to $239 million from $187 million in the period last year.

Ms. Healy said the revenue in the division had met Microsoft’s goal, as the company recorded a 33 percent increase in advertising.

Microsoft’s server and tools division posted sales of $3.08 billion in the fourth quarter, up from $2.69 billion a year ago.

    Microsoft’s Profit Rises Despite Xbox Charge, NYT, 20.7.2007, http://www.nytimes.com/2007/07/20/technology/20soft.html

Motorola Posts $28 Million Loss

After Drop in Sales

July 20, 2007
The New York Times
By THE ASSOCIATED PRESS

CHICAGO, July 19 (AP) — Motorola reported a second straight quarterly loss Thursday after another quarter of subpar sales. The latest deficit, $28 million, raises pressure on the company and its chief executive, Edward J. Zander.

The company promised financial improvement in its cellphone division in the second half but steered clear of estimates after weak international sales contributed to back-to-back losses for the first time in five years.

Its hopes for recovery, put off until next year, hinge on the reception of new phones like the Razr 2 and the Z8 that are just being shipped.

Some investors are also clamoring for the board to replace Mr. Zander, whose three and a half years as chief executive have been tarnished by the company’s faltering sales strategy after two years of notable success linked to runaway sales of the Razr phone.

Thomas J. Meredith, a Motorola board member as well as chief financial officer since March, said Mr. Zander still had backing from directors.

“The board is of the opinion that we have the right strategy and we have the right leadership team,” he said.

Motorola, based in Schaumburg, Ill., is in the midst of its worst stretch since a string of six straight quarters in the red from 2000 to 2002. Analysts say it is likely that Motorola has slipped beneath Samsung Electronics to third place behind Nokia in the global handset market.

Second-quarter results brought a handful of bright spots but mostly bad numbers for Motorola, which had warned last week that its results would fall short of expectations.

Few of the numbers were as indicative of its deterioration and cutbacks as the total of 35.5 million handsets it shipped during the quarter — down 46 percent from the fourth quarter when the cellphone business was still near its peak.

The net loss amounted to a penny a share, in contrast with a profit of $1.38 billion, or 55 cents a share, in the period a year ago.

Revenue fell 19 percent, to $8.73 billion, from $10.82 billion.

Mr. Zander acknowledged that “there weren’t many really new ‘wow’ products” in Motorola’s portfolio in the first half of 2007.

“This has certainly been a very difficult year,” he told analysts on a conference call.

He said several areas of improvement in the quarter provide the basis for a second-half financial pickup: a decline in inventory channels and gross margins, a higher average selling price, a lower cost structure and the recent flurry of new products.

Motorola shares rose 22 cents, to $18.22.

    Motorola Posts $28 Million Loss After Drop in Sales, NYT, 20.7.2007, http://www.nytimes.com/2007/07/20/business/20motorola.html

Chipmaker Intel

Sees Profit Jump 44 Pct.

July 17, 2007
By THE ASSOCIATED PRESS
Filed at 9:10 p.m. ET
The New York Times

SAN JOSE, Calif. (AP) -- Intel Corp. said Tuesday its second-quarter profit jumped 44 percent on strong sales of microprocessors even as the company faced fierce competition that pushed prices lower.

After hitting a new 52-week high during regular session trading, Intel's stock fell more than 4 percent in after-hours trading.

The Santa Clara-based chip maker's net income for the three months ended June 30 was $1.28 billion, or 22 cents per share, compared with $885 million, or 15 cents per share during the same period last year.

Were it not for certain one-time tax gains, Intel's profit for the latest quarter would have been lower by 3 cents per share. Analysts surveyed by Thomson Financial were expecting Intel to earn, on average, 19 cents per share.

Intel exceeded analysts' revenue expectations, ringing up $8.68 billion in the second quarter, an 8 percent increase over the $8 billion it reported in the same period last year.

Intel, the world's largest semiconductor company, announced its financial results after the market closed. Before the earnings were released, the company's stock price hit a new 52-week high, closing up 38 cents, or 1.5 percent, at $26.33.

But investors seemed displeased with the company's closely watched gross profit margin, which fell to 46.9 percent of revenues -- at the low end of the company's forecast -- because of lower microprocessor selling prices and weak demand for NOR flash memory chips, which are primarily used in cell phones. Intel is in the process of unloading its troubled NOR flash division.

''It got a little tougher in the second quarter than we expected, but it's pretty consistent with our outlook,'' Andy Bryant, Intel's chief financial officer, said in an interview with The Associated Press. ''We believe our best defense against pricing pressure is more and more product differentiation.''

Price-cutting has hurt profits at Intel and its smaller microprocessor rival, Advanced Micro Devices Inc.

However, Intel has been able to withstand the pressure better because of its size -- Intel's $153 billion market value is 18 times as big as Sunnyvale-based AMD's -- and because of its faster transition to a more advanced chip-making process that boosts chip performance while lowering manufacturing costs.

AMD, whose stock price has fallen 19 percent since the start of the year, is scheduled to report its second-quarter results on Thursday.

Intel's shares, which were up 29 percent on the year prior to the earnings announcement, shed $1.26, to $25.07, in after-hours trading Tuesday.

Cody Acree, senior semiconductor analyst with Stifel, Nicolaus & Co., said Intel's financial outlook is promising but that some investors may have been expecting too much from the company in the second quarter.

''It's a case of the stock having done so well, the expectations were probably unrealistic, at least as far as something in the summer months that would drive continued momentum,'' he said.

For the third quarter, Intel expects revenue of between $9 billion and $9.6 billion, and gross margin of 52 percent of revenue, plus or minus a couple of percentage points.

    Chipmaker Intel Sees Profit Jump 44 Pct., NYT, 17.7.2007, http://www.nytimes.com/aponline/technology/AP-Earns-Intel.html

Coca-Cola Reports

Earnings Up 1 Percent

July 17, 2007
By THE ASSOCIATED PRESS
Filed at 10:26 a.m. ET
The New York Times

ATLANTA (AP) -- The Coca-Cola Co., the world's largest beverage maker, posted a 1 percent profit increase for the second quarter on a solid 19 percent gain in sales.

The results reported Tuesday beat Wall Street expectations when one-time items are excluded. But Coke's share slipped.

For the three months ending June 29, the Atlanta-based company said it earned $1.85 billion, or 80 cents a share, compared to a profit of $1.84 billion, or 78 cents a share, for the same period a year ago.

Excluding one-time items, Coca-Cola said it earned $1.98 billion, or 85 cents a share, in the second-quarter. On a comparable basis, analysts surveyed by Thomson Financial were expecting earnings of 82 cents a share in the quarter.

Revenue rose to $7.73 billion, compared to $6.48 billion reported a year earlier.

For the first half of the year, Coca-Cola said it earned $3.11 billion, or $1.34 a share, compared to a profit of $2.94 billion, or $1.25 a share, for the same period last year. Six-month revenue rose 18 percent to $13.84 billion from $11.70 billion a year earlier.

Total unit case volume increased 6 percent in the second-quarter. However, unit case volume in the company's key North America unit declined 2 percent in the quarter.

''Of course, I'm not satisfied with these results,'' Chief Operating Officer Muhtar Kent said of North America in a conference call with investors and analysts.

Coca-Cola's largest market is North America, which provides roughly 27 percent of the company's overall unit case volume.

Coca-Cola shares fell 12 cents to $53.73 in morning trading.

Kent said that while Coca-Cola knows there ''will be bumps,'' it is working on the challenges it faces in North America and believes the situation in that market will improve in the future.

''Our actions in the quarter clearly reflect our commitment to the North America business,'' Kent said.

Chief Executive Neville Isdell said Coca-Cola's $4.1 billion purchase of Vitaminwater maker Glaceau, also known as Energy Brands, will help the company's efforts at improving its business in North America. The deal to buy Glaceau, announced May 25, was completed last month.

Coca-Cola said its international operations recorded 9 percent unit case volume growth in the quarter, with solid sales in several countries including China, Turkey, India, Brazil and South Africa. In particular, one foreign market where Coca-Cola has had difficulty in the past, the Philippines, recorded double-digit unit case volume growth in the quarter. Coca-Cola acquired the Philippines bottler on Feb. 22.

Coca-Cola remains positive about its outlook for the remainder of the year, and it expects growth to continue across most of its markets, Chief Financial Officer Gary Fayard said Tuesday. The company did not release earnings guidance, in keeping with its past practice.

------

On the Net:

The Coca-Cola Co.: http://www.coca-cola.com

    Coca-Cola Reports Earnings Up 1 Percent, NYT, 17.7.2007, http://www.nytimes.com/aponline/business/AP-Earns-Coca-Cola.html

The Dow Jones Industrials Cross 14,000

July 17, 2007
By THE ASSOCIATED PRESS
Filed at 10:00 a.m. ET
The New York Times

NEW YORK (AP) -- The Dow Jones industrial average swept past 14,000 for the first time Tuesday, rising on a relatively mild inflation report and better-than-expected profit reports from blue chip names including Coca-Cola Co. and Merrill Lynch & Co.

The stock market's best-known indicator crossed 14,000 in the first half-hour of trading, having taken just 57 trading days to make the trip from 13,000.

Stocks have risen fairly steadily since the spring amid a continuum of buyout news and evidence that despite higher fuel prices and the ongoing problems in the housing market and mortgage lending industry, consumers are spending and companies remain optimistic about the future. With the Federal Reserve ever vigilant about inflation, any news that prices are rising at a moderate pace has added to the market's momentum, as it did Tuesday.

Investors are clearly upbeat, but the Dow's latest accomplishment does raise questions about whether they are buying more on speculation than fundamentals. A week ago, the average tumbled nearly 150 points after disappointing forecasts from Home Depot Inc., Sears Holdings Corp. and homebuilder D.R. Horton Inc., but only two days later, the Dow barreled 283 points higher as investors chose to put a positive spin on a generally lackluster series of retail sales reports.

The short time that it took the Dow to pass this its milestone also recalls its ascent during the dot-com boom, especially since it took only 129 days to make the passage from 12,000 to 13,000. In the late 1990s, the Dow took just 24 days to go from 10,000 to 11,000, and 89 days to go from 6,000 to 7,000.

The end of the high-tech boom plus the recession and the aftermath of the Sept. 11, 2001, terror attacks helped send all the major market indexes into reverse. It took the Dow 7 1/2 years to trek from 11,000 to 12,000, and only last October began setting its first record highs since January 2000.

The Standard & Poor's 500 has also surpassed its early 2000 highs, reaching a new closing high last month and last week surpassing its trading high. The Nasdaq composite index, overinflated by the high-tech boom, is not expected to approach its closing high of 5,048.62 in the foreseeable future.

    The Dow Jones Industrials Cross 14,000, NYT, 17.7.2007, http://www.nytimes.com/aponline/business/AP-Wall-Street.html

The Richest of the Rich, Proud of a New Gilded Age

July 15, 2007
The New York Times
By LOUIS UCHITELLE

The tributes to Sanford I. Weill line the walls of the carpeted hallway that leads to his skyscraper office, with its panoramic view of Central Park. A dozen framed magazine covers, their colors as vivid as an Andy Warhol painting, are the most arresting. Each heralds Mr. Weill’s genius in assembling Citigroup into the most powerful financial institution since the House of Morgan a century ago.

His achievement required political clout, and that, too, is on display. Soon after he formed Citigroup, Congress repealed a Depression-era law that prohibited goliaths like the one Mr. Weill had just put together anyway, combining commercial and investment banking, insurance and stock brokerage operations. A trophy from the victory — a pen that President Bill Clinton used to sign the repeal — hangs, framed, near the magazine covers.

These days, Mr. Weill and many of the nation’s very wealthy chief executives, entrepreneurs and financiers echo an earlier era — the Gilded Age before World War I — when powerful enterprises, dominated by men who grew immensely rich, ushered in the industrialization of the United States. The new titans often see themselves as pillars of a similarly prosperous and expansive age, one in which their successes and their philanthropy have made government less important than it once was.

“People can look at the last 25 years and say this is an incredibly unique period of time,” Mr. Weill said. “We didn’t rely on somebody else to build what we built, and we shouldn’t rely on somebody else to provide all the services our society needs.”

Those earlier barons disappeared by the 1920s and, constrained by the Depression and by the greater government oversight and high income tax rates that followed, no one really took their place. Then, starting in the late 1970s, as the constraints receded, new tycoons gradually emerged, and now their concentrated wealth has made the early years of the 21st century truly another Gilded Age.

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.

Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash. Now it is back, and Mr. Weill is prominent among the new titans. His net worth exceeds $1 billion, not counting the $500 million he says he has already given away, in the open-handed style of Andrew Carnegie and the other great philanthropists of the earlier age.

At 74, just over a year into retirement as Citigroup chairman, Mr. Weill sees in Carnegie’s life aspects of his own. Andrew Carnegie, an impoverished Scottish immigrant, built a steel empire in Pittsburgh, taking risks that others shunned, just as the demand for steel was skyrocketing. He then gave away his fortune, reasoning that he was lucky to have been in the right spot at the right moment and he owed the community for his good luck — not in higher wages for his workers, but in philanthropic distribution of his wealth.

Mr. Weill’s beginnings were similarly inauspicious. A son of immigrants from Poland, raised in Brooklyn, a so-so college student, he landed on Wall Street in a low-level job in the 1950s. Harnessing entrepreneurial energy, deftness as a deal maker and an appetite for risk, with a rising stock market pulling him along, he built a financial empire that, in his view, successfully broke through the stultifying constraints that flowed from the New Deal. They were constraints not just on what business could or could not do, but on every high earner’s take-home pay.

“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” Mr. Weill said, never believing in his younger days that deregulation and tax cuts, starting in the late 1970s, would bring back many of the easier conditions of the Gilded Age. “I felt that everything of any great consequence was really all made in the past,” he said. “That turned out not to be true and it is not true today.”

The Question of Talent

Other very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter’s “unique talent” for baseball, as Leo J. Hindery Jr. put it. “I think there are people, including myself at certain times in my career,” Mr. Hindery said, “who because of their uniqueness warrant whatever the market will bear.”

He counts himself as a talented entrepreneur, having assembled from scratch a cable television sports network, the YES Network, that he sold in 1999 for $200 million. “Jeter makes an unbelievable amount of money,” said Mr. Hindery, who now manages a private equity fund, “but you look at him and you say, ‘Wow, I cannot find another ballplayer with that same set of skills.’ ”

A handful of critics among the new elite, or close to it, are scornful of such self-appraisal. “I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.

The great fortunes today are largely a result of the long bull market in stocks, Mr. Volcker said. Without rising stock prices, stock options would not have become a major source of riches for financiers and chief executives. Stock prices rise for a lot of reasons, Mr. Volcker said, including ones that have nothing to do with the actions of these people.

“The market did not go up because businessmen got so much smarter,” he said, adding that the 1950s and 1960s, which the new tycoons denigrate as bureaucratic and uninspiring, “were very good economic times and no one was making what they are making now.”

James D. Sinegal, chief executive of Costco, the discount retailer, echoes that sentiment. “Obscene salaries send the wrong message through a company,” he said. “The message is that all brilliance emanates from the top; that the worker on the floor of the store or the factory is insignificant.”

A legendary chief executive from an earlier era is similarly critical. He is Robert L. Crandall, 71, who as president and then chairman and chief executive, led American Airlines through the early years of deregulation and pioneered the development of the hub-and-spoke system for managing airline routes. He retired in 1997, never having made more than $5 million a year, in the days before upper-end incomes really took off.

He is speaking out now, he said, because he no longer has to worry that his “radical views” might damage the reputation of American or that of the companies he served until recently as a director. The nation’s corporate chiefs would be living far less affluent lives, Mr. Crandall said, if fate had put them in, say, Uzbekistan instead of the United States, “where they are the beneficiaries of a market system that rewards a few people in extraordinary ways and leaves others behind.”

“The way our society equalizes incomes,” he argued, “is through much higher taxes than we have today. There is no other way.”

The New Tycoons

The new Gilded Age has created only one fortune as large as those of the Rockefellers, the Carnegies and the Vanderbilts — that of Bill Gates, according to various compilations. His net worth, measured as a share of the economy’s output, ranks him fifth among the 30 all-time wealthiest American families, just ahead of Carnegie. Only one other living billionaire makes the cut: Warren E. Buffett, in 16th place.

Individual fortunes nearly a century ago were so large that just 30 tycoons — Rockefeller was by far the wealthiest — had accumulated net worth equal to 5 percent of the national income. Their wealth flowed mainly from the empires they built in manufacturing, railroads, oil, coal, urban transit and mass retailing as the United States grew into the world’s largest industrial economy.

Today the fortunes of the very wealthiest are spread more widely. In addition to stock and stock options, low-interest credit has brought wealth to more families — by, for example, facilitating the sale of individual businesses for much greater sums than in the past. The fortunes amassed in hedge funds and in private equity often stem from deals involving huge amounts of easy credit and vast pools of capital available for investment.

The high-tech boom and the Internet unfolded against this backdrop. The rising stock market multiplied the wealth of Bill Gates as his software became the industry standard. It did the same for numerous others who financed start-ups on a shoestring and then went public at enormous gain.

Over a longer period, the market lifted the value of Mr. Buffett’s judicious investments and timely acquisitions, and he emerged as the extraordinarily wealthy Sage of Omaha, in effect, a baron of the new Gilded Age whose views are strikingly similar to those of Carnegie and Mr. Weill.

Like them, Mr. Buffett, 78, sees himself as lucky, having had the good fortune, as he put it, to have been born in America, white and male, and “wired for asset allocation” just when all four really paid off. He dwelt on his good fortune in a recent appearance at a fund-raiser for Hillary Rodham Clinton, who is vying for Mr. Buffett’s support of her presidential candidacy.

“This is a significantly richer country than 10, 20, 30, 40, 50 years ago,” he declared, backing his assertion with a favorite statistic. The national income, divided by the population, is a very abundant $45,000 per capita, he said, a number that reflects an affluent nation but also obscures the lopsided income distribution intertwined with the prosperity.

“Society should place an initial emphasis on abundance,” Mr. Buffett argued, but “then should continuously strive” to redistribute the abundance more equitably.

No income tax existed in Carnegie’s day to do this, and neither Mr. Buffett nor Mr. Weill push for sharply higher income tax rates now, although Mr. Buffett criticizes the present tax code as unfairly skewed in his favor. Like Carnegie, philanthropy is their preference. “I want to give away my money rather than have somebody take it away,” Mr. Weill said.

Mr. Buffett is already well down that path. Most of his wealth is in the stock of his company, Berkshire Hathaway, and he is transferring the majority of that stock to the Bill and Melinda Gates Foundation so the Gateses can “materially expand” their giving.

“In my will,” he has written, echoing Carnegie’s last wishes, “I’ve stipulated that the proceeds from all Berkshire shares I still own at death are to be used for philanthropic purposes.”

Revisionist History

The new tycoons describe a history that gives them a heroic role. The American economy, they acknowledge, did grow more rapidly on average in the decades immediately after World War II than it is growing today. Incomes rose faster than inflation for most Americans and the spread between rich and poor was much less. But the United States was far and away the dominant economy, and government played a strong supporting role. In such a world, the new tycoons argue, business leaders needed only to be good managers.

Then, with globalization, with America competing once again for first place as strenuously as it had in the first Gilded Age, the need grew for a different type of business leader — one more entrepreneurial, more daring, more willing to take risks, more like the rough and tumble tycoons of the first Gilded Age. Lew Frankfort, chairman and chief executive of Coach, the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument.

“The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”

That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be.”

Mr. Weill’s vision was to create a financial institution in the style of those that flourished in the last Gilded Age. Although insurance is gone, Citigroup still houses commercial and investment banking and stock brokerage.

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Mr. Weill’s hallway is one of those Mr. Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Mr. Weill said, if the United States was to be a powerhouse in global financial markets.

“The whole world is moving to the American model of free enterprise and capital markets,” Mr. Weill said, arguing that Wall Street cannot be a big player in China or India without giants like Citigroup. “Not having American financial institutions that really are at the fulcrum of how these countries are converting to a free-enterprise system,” he said, “would really be a shame.”

Such talk alarms Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, who started on Wall Street years ago as a partner with Mr. Weill in a stock brokerage firm. Mr. Levitt has publicly lamented the end of Glass-Steagall, but Mr. Weill argues that its repeal “created the opportunities to keep people still moving forward.”

Mr. Levitt is skeptical. “I view a gilded age as an age in which warning flags are flying and are seen by very few people,” he said, referring to the potential for a Wall Street firm to fail or markets to crash in a world of too much deregulation. “I think this is a time of great prosperity and a time of great danger.”

It’s Not the Money, or Is It?

Not that money is the only goal. Mr. Hindery, the cable television entrepreneur, said he would have worked just as hard for a much smaller payoff, and others among the very wealthy agreed. “I worked because I loved what I was doing,” Mr. Weill said, insisting that not until he retired did “I have a chance to sit back and count up what was on the table.” And Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared: “The money is a byproduct of a passionate endeavor.”

Mr. Griffin, 38, argued that those who focus on the money — and there is always a get-rich crowd — “soon discover that wealth is not a particularly satisfying outcome.” His own team at Citadel, he said, “loves the problems they work on and the challenges inherent to their business.”

Mr. Griffin maintained that he has created wealth not just for himself but for many others. “We have helped to create real social value in the U.S. economy,” he said. “We have invested money in countless companies over the years and they have helped countless people.”

The new tycoons oppose raising taxes on their fortunes. Unlike Mr. Crandall, neither Mr. Weill nor Mr. Griffin nor most of the dozen others who were interviewed favor tax rates higher than they are today, although a few would go along with a return to the levels of the Clinton administration. The marginal tax on income then was 39.6 percent, and on capital gains, 20 percent. That was still far below the 70 percent and 39 percent in the late 1970s. Those top rates, in the Bush years, are now 35 percent and 15 percent, respectively.

“The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Creating Wealth

Some chief executives of publicly traded companies acknowledge that their fortunes are indeed large — but that it reflects only a small share of the corporate value created on their watch.

Mr. Frankfort, the 61-year-old Coach chief, took home $44.4 million last year. His net worth is in the high nine figures. Yet his pay and net worth, he notes, are small compared with the gain to shareholders since Coach went public six years ago, with Mr. Frankfort at the helm. The market capitalization, the value of all the shares, is nearly $18 billion, up from an initial $700 million.

“I don’t think it is unreasonable,” he said, “for the C.E.O. of a company to realize 3 to 5 percent of the wealth accumulation that shareholders realize.”

That strikes Robert C. Pozen as a reasonable standard. He made a name for himself — and a fortune — rejuvenating mutual funds, starting with Fidelity. In one case, he said, the fund he was running made a profit of $1 billion; his pay that year was $15 million.

“In every organization there are a relatively small number of really critical people,” Mr. Pozen said. “You have to start with that premise, and I made a big difference.”

Mr. Weill makes a similar point. Escorting a visitor down his hall of tributes, he lingers at framed charts with multicolored lines tracking Citigroup’s stock price. Two of the lines compare the price in the five years of Mr. Weill’s active management with that of Mr. Buffett’s Berkshire Hathaway during the same period. Citigroup went up at six times the pace of Berkshire.

“I think that the results our company had, which is where the great majority of my wealth came from, justified what I got,” Mr. Weill said.

New Technologies

Others among the very rich argue that their wealth helps them develop new technologies that benefit society. Steve Perlman, a Silicon Valley innovator, uses his fortune from breakthrough inventions to help finance his next attempt at a new technology so far out, he says, that even venture capitalists approach with caution. He and his partners, co-founders of WebTV Networks, which developed a way to surf the Web using a television set, sold that still profitable system to Microsoft in 1997 for $503 million.

Mr. Perlman’s share went into the next venture, he says, and the next. One of his goals with his latest enterprise, a private company called Rearden L.L.C., is to develop over several years a technology that will make film animation seem like real-life movies. “There was no one who would invest,” Mr. Perlman said. So he used his own money.

In an earlier era, big corporations and government were the major sources of money for cutting-edge research with an uncertain outcome. Bell Labs in New Jersey was one of those research centers, and Mr. Perlman, now a 46-year-old computer engineer with 71 patents to his name, said that, in an earlier era, he could easily have gone to Bell as a salaried inventor.

In the 1950s, for example, he might have been on the team that built the first transistor, a famous Bell Labs breakthrough. Instead, after graduating from Columbia University, he went to Apple in Silicon Valley, then to Microsoft and finally out on his own.

“I would have been happy as a clam to participate in the development of the transistor,” Mr. Perlman said. “The path I took was the path that was necessary to do what I was doing.”

Carnegie’s Philanthropy

In contrast to many of his peers in corporate America, Mr. Sinegal, 70, the Costco chief executive, argues that the nation’s business leaders would exercise their “unique skills” just as vigorously for “$10 million instead of $200 million, if that were the standard.”

As a co-founder of Costco, which now has 132,000 employees, Mr. Sinegal still holds $150 million in company stock. He is certainly wealthy. But he distinguishes between a founder’s wealth and the current practice of paying a chief executive’s salary in stock options that balloon into enormous amounts. His own salary as chief executive was $349,000 last year, incredibly modest by current standards.

“I think that most of the people running companies today are motivated and pay is a small portion of the motivation,” Mr. Sinegal said. So why so much pressure for ever higher pay?

“Because everyone else is getting it,” he said. “It is as simple as that. If somehow a proclamation were made that C.E.O.’s could only make a maximum of $300,000 a year, you would not have any shortage of very qualified men and women seeking the jobs.”

Looking back, none of the nation’s legendary tycoons was more aware of his good luck than Andrew Carnegie.

“Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,” said David Nasaw, a historian at City University of New York and the author of “Andrew Carnegie” (Penguin Press). “The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.”

Repaying the community did not mean for Carnegie raising the wages of his steelworkers. Quite the contrary, he sometimes cut wages and, in doing so, presided over violent antiunion actions.

Carnegie did not concern himself with income inequality. His whole focus was philanthropy. He favored a confiscatory estate tax for those who failed to arrange to return, before their deaths, the fortunes the community had made possible. And today dozens of libraries, cultural centers, museums and foundations bear Carnegie’s name.

“Confiscatory” does not appear in Mr. Weill’s public comments on the estate tax, or in those of Mr. Gates. They note that the estate tax, now being phased out at the urging of President Bush, will return in full in 2010, unless Congress acts otherwise.

They publicly favor retaining an estate tax but focus their attention on philanthropy.

Mr. Weill ticks off a list of gifts that he and his wife, Joan, have made. Some bear their names, and will for years to come. With each bequest, one or the other joins the board. Appropriately, Carnegie Hall has been a big beneficiary, and Mr. Weill as chairman was honored at a huge fund-raising party that Carnegie Hall gave on his 70th birthday.

The Weills — matching what everyone else pledged — gave $30 million to enhance the concert hall that Andrew Carnegie built in 1890 in pursuit of returning his fortune to the community, establishing a standard that today’s tycoons embrace.

“We have that in common,” Mr. Weill said.

Amanda Cox contributed reporting.

    The Richest of the Rich, Proud of a New Gilded Age, NYT, 15.7.2007, http://www.nytimes.com/2007/07/15/business/15gilded.html?hp

Editorial

No Protection for Homeowners

July 14, 2007
The New York Times
 

Rising mortgage delinquencies are likely to be followed by rising consumer bankruptcies and, with them, the first big test of the federal bankruptcy reform law of 2005. Early indications are that low- to middle-income borrowers will be unduly punished.

The new law’s expensive and cumbersome requirements have already discouraged some hard-pressed homeowners from seeking bankruptcy-court protection, even in the face of dire circumstances such as spiking monthly payments coupled with job loss or medical expenses. Of the debtors who do enter bankruptcy proceedings, many are required to restructure their debts — negotiating with lenders to lower loan balances and stretch out repayments — rather than being allowed to liquidate them.

But here’s the trap: The restructuring process, known as Chapter 13, prohibits the bankruptcy court from modifying the repayment terms of most mortgages on a primary home. So even under a restructuring plan, bankrupt homeowners must still repay their mortgages in full or lose their homes.

That lender protection is a holdover from 30 years ago, when mortgage bankers required ample downpayments and most home loans had fixed interest rates. Because lenders were conservative and stuck to uncomplicated loans, they were shielded from having to take a hit when homeowners filed for bankruptcy.

But the modern-day mortgage market is neither conservative nor uncomplicated. Many of the mortgages issued during the housing boom required little or no downpayment. They also have adjustable rates primed to go up sharply and rely for their repayment on continued hefty increases in housing prices — which have not materialized — rather than on the borrowers’ income.

The 2005 bankruptcy reform should have recognized the riskiness of today’s mortgages by eliminating the outdated lender protection. But during the reform effort, fairness took a back seat to a baser aim — simply, to make it more difficult for consumers to gain a fresh start through bankruptcy. The result is that lenders who abandoned caution during the housing boom are protected while the law gives no aid to borrowers who were enticed, and at times deceived, into risky mortgages.

The law’s perverse nature is even more evident if you read the fine print: The prohibition on modifying mortgage debt applies only to primary homes. Borrowers wealthy enough to own more than one home can restructure the debt on second or even third homes.

Before foreclosures climb any higher, Congress must reform the bankruptcy law. Legislators should reject the special protection for mortgage lenders by putting mortgages on the same footing as other secured debt. Doing so would help restore consumer bankruptcy to its purpose — to provide a safety net for borrowers who can’t repay their debts for reasons beyond their control.

    No Protection for Homeowners, NYT, 14.7.2007, http://www.nytimes.com/2007/07/14/opinion/14sat1.html

For Parking Space, the Price Is Right at $225,000

July 12, 2007
The New York Times
By VIVIAN S. TOY

In Houston, $225,000 will buy a three-bedroom house with a game room, den, in-ground pool and hot tub.

In Manhattan, it will buy a parking space. No windows, no view. No walls.

While real estate in much of the country languishes, property in Manhattan continues to escalate in price, and that includes parking spaces. Some buyers do not even own cars, but grab the spaces as investments, renting them out to cover their costs.

Spaces are in such demand that there are waiting lists of buyers. Eight people are hoping for the chance to buy one of five private parking spaces for $225,000 in the basement of 246 West 17th Street, a 34-unit condo development scheduled for completion next January. The developer, meanwhile, is seeking city approval to add four more spots.

Parking in new developments is selling for twice what it was five years ago, said Jonathan Miller, an appraiser and president of Miller Samuel.

Although spaces in prime sections of Manhattan are the most expensive, even those in open lots and in garages in Brooklyn, Queens, Riverdale and Harlem are close to $50,000, although at least one new Brooklyn development is asking $125,000.

Scarcity figures big in the escalating prices. Mr. Miller estimated that less than 1 percent of all co-op and condominium buildings in the city have private garages. The city also limits how much parking new buildings below 96th Street can offer, requiring that no more than 20 percent of the units have spaces.

“It’s a fairly rare amenity,” Mr. Miller said. “And in the world of pet spas and on-site sommeliers, it’s actually a pretty functional amenity.”

In other densely packed cities where space and parking are at premium, parking spaces in condos also tend to trade at high prices. In Boston, they can sell for as much as $175,000, and they go for as much as $75,000 in Chicago. But in other cities, like Los Angeles and Dallas, most condos include parking in their prices.

For developers in New York, parking is the highest and best use for below-grade space and fetches about the same price per square foot as actual living space, which costs much more to develop. According to Miller Samuel, the average parking space costs $165,019, or $1,100 per square foot, close to the average apartment price of $1,107 per square foot. Those are averages, of course. A $200,000 parking space is about $1,333 per square foot.

If parking at the Onyx Chelsea, a new 52-unit condo at 28th Street and Eighth Avenue, is any indication, there is plenty of demand. The first two spots sold for $165,000, the third for $175,000 and the last two for $195,000. Each space will include about $50 in monthly maintenance costs. Still, there are three buyers on a waiting list.

Cynthia Habberstad is at the top of that list. She chose not to buy a spot when they were selling for $165,000, but changed her mind only to learn that all the spaces had been taken.

“At first, I was getting overwhelmed and didn’t want to spend the money,” Ms. Habberstad said. “I’m kicking myself now, believe me.”

She and her three children, ages 7, 9 and 11, live on Long Island, but the children’s modeling schedules bring them into the city at least twice a week, and the apartment they bought in the building will be a pied-à-terre.

“If we’re coming in late from dinner or we have a lot of stuff in the car, do we really want to have to walk a few blocks to get home?” Ms. Habberstad said. “It all makes sense now that I don’t have it.”

Developers are well aware of the demand. “We’re putting in parking in pretty much every development that we’re working on,” said Shaun Osher, the chief executive of Core Group Marketing, which represents 246 West 17th Street and about a dozen other new condo buildings.

In-building parking allows city dwellers with cars to replicate the suburban ideal where they can park, take their keys and walk right into their homes, Mr. Osher said.

At the Fifth Street Lofts in Long Island City, Queens, which are scheduled for completion at the end of the year, Jackie and Lee Freund bought an apartment and three garage spaces at $50,000 each, even though they own only one car.

“We bought three because we know the parking situation is bad now and its only going to get worse,” Jackie Freund said.

The Freunds, who have a 2-year-old son, have lived in a nearby rental building for the last three years. After dealing with the hassles of parking on the street, they got a space in a nearby garage.

“We’ve had the car towed, and my sister had hers towed when she came to visit and parked on the wrong side of the street,” she said. “They’re crazy for towing around here since the tow pound is nearby.”

The Freunds plan to sell one of their extra spots at the Fifth Street Lofts and rent out the other.

Buyers and brokers across the city are confident that prices will only go up as finding a parking space becomes more difficult. In fact, 40 parking garages or lots in the city have closed within the last nine months while only 23 new ones have opened, said Margot J. Tohn, publisher of “Park It! NYC 2007,” a parking garage guide.

“It’s not at a huge, huge scale, but we definitely are losing parking,” Ms. Tohn said.

Tom Postilio, a broker for Core Group Marketing and the director of sales at 246 West 17th Street, said: “There are people looking for apartments who have the attitude, ‘Love me, love my car.’ And for them, if there’s no place to park on the streets, it’s practically a deal to get a parking spot for $225,000.”

    For Parking Space, the Price Is Right at $225,000, NYT, 12.7.2007, http://www.nytimes.com/2007/07/12/us/12parking.html?hp

Budget Deficit Narrows to $205 Billion

July 11, 2007
By THE ASSOCIATED PRESS
Filed at 10:19 a.m. ET
The New York Times

WASHINGTON (AP) -- The nation's budget deficit will drop to $205 billion in the fiscal year that ends in September, less than half of what it was at its peak in 2004, according to new White House estimates.

It's also a gain over the $244 billion predicted by President Bush in February, but not as great an improvement as anticipated by other forecasters.

Bush planned to discuss the figures in an afternoon appearance as the White House's Office of Management and Budget as part of its midyear update of the budget picture.

The deficit last year was $248 billion and has closed in recent years due to impressive revenue growth from the healthy economy. Bush and Democrats in Congress have both promised to erase the deficit by 2012, though they have greatly divergent views on how to achieve the goal, with Bush and Republicans insisting on extension of his 2001 and 2003 tax cuts when they expire at the end of 2010.

The latest figure is in generally in line with expectations, as the early quarters of the 2007 fiscal year that began in October had shown continued revenue improvements. But the pace of such revenue growth has slowed more recently, according to the Congressional Budget Office.

CBO, which makes budget predictions for Congress, has estimated the deficit for the ongoing budget year will range from $150-200 billion.

The deficit peaked at $413 billion in 2004, though economists say the best way to measure the deficit is in relation to the size of the economy. By that standard, the current deficit, at 1.5 percent of gross domestic product, is the lowest since 2002.

Despite the improvements, the deficit picture remains worse than when Bush took office six years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.

But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses.

''Nothing in the administration's deficit announcement changes the failed fiscal record of President Bush,'' said Senate Budget Committee Chairman Kent Conrad, D-N.D. ''He has increased spending by nearly 50 percent since taking office, while at the same time repeatedly cutting taxes primarily on the wealthiest.''

    Budget Deficit Narrows to $205 Billion, NYT, 11.7.2007, http://www.nytimes.com/aponline/us/AP-Deficit.html

Increasing Rate of Foreclosures Upsets Atlanta

July 9, 2007
The New York Times
By VIKAS BAJAJ

ATLANTA — Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country.

The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, said Christopher F. Thornberg, an economist with Beacon Economics in Los Angeles. As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes.

A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.

For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.

While the surge in foreclosures in other big cities like Cleveland, New Orleans and Detroit can be attributed to local economic challenges, Atlanta more closely reflects the nation. Its unemployment rate, 4.9 percent in May, is low and close to the national average of 4.5 percent. And businesses here are adding jobs, albeit at a slower pace than they were last year.

Like others across the country, homeowners here took out aggressive mortgages in the last few years when interest rates were low and housing prices were soaring. Now many are falling behind — some have lost jobs or experienced other financial difficulties, but many others are not able to refinance because their homes are worth less than they paid for them and their credit is now too weak for them to qualify for another loan.

So far, the pain has been limited to those on the financial margins, but as more loans are reset to higher rates and home prices continue to slide, more homeowners will be unable to meet rising payments or to refinance. “This is a process that is starting low and will go high,” said Mr. Thornberg, the economist in Los Angeles.

Atlanta also serves as a microcosm for some broader national trends: wages have been stagnant for much of this decade, homeowners have taken on record amounts of debt, and mortgage fraud has been on the rise.

“We are a very affordable place,” said Mike Alexander, the chief of research at the Atlanta Regional Commission, an organization that serves local governments. “But our incomes are very low, and if anything went wrong, it would be very hard for people to maintain their homes.”

An estimated 2.7 percent of all housing units in the region were in foreclosure at the end of last year, up from 1.1 percent in 2000, according to an analysis by the commission. Nationally, less than 1 percent of all housing units were in foreclosure, according to data from the Mortgage Bankers Association and the Census Bureau.

Though Atlanta has added jobs in recent years, they pay less than the jobs the region lost after the technology boom of the late 1990s ended. The median household income was only 7.6 percent higher in 2005 than in 2000, according to the Census Bureau. That is about half the rate of inflation during that period, and it mirrors what has occurred nationally.

While wages have languished, average Atlanta families are shouldering more debt. As of March, residents had bigger credit card balances, mortgages and car loans relative to their income than average Americans, according to data compiled by Moody’s Economy.com. And the equity that Atlanta residents have in their homes — the value of their house minus what they owe — has dropped 14 percent since peaking in late 2005.

By comparison, in California — the state where mortgage lending was most aggressive, real estate prices climbed fastest and homeowners have the highest debt burdens — home equity values have dropped about 10 percent from their peak in 2005.

Georgia’s foreclosure laws have also accelerated a process that can drag on for months in legal proceedings in other states. Lenders can declare a borrower in default and reclaim a house in as little as 60 days.

“Because of the foreclosure laws, it may be that people go from delinquency into foreclosure much more quickly in Georgia,” said Mark Zandi, chief economist at Moody’s Economy.com.

That still would not explain why so many people fall behind on house payments in the first place.

At the end of March, 6 percent of all mortgages in Georgia were more than 30 days past due, the fourth-highest rate in the nation, according to the Mortgage Bankers Association. Mississippi, Louisiana and Michigan had more loans past due.

Rajeev Dhawan, an economics professor at Georgia State University, has started studying the characteristics of loans on homes that are in foreclosure. His preliminary analysis of data from April shows that nearly half were for adjustable rate mortgages and many were issued in the last two years.

“Everybody thought if the home prices kept going up, the lenders will keep refinancing you,” he said.

In recent years, industry groups and law enforcement agencies have also cited Atlanta for being home to some aggressive mortgage fraud schemes. It may have been an easier target because the prices of homes in the same neighborhood can vary greatly here, making it easier to inflate appraisals.

Auctions for a dozen homes conducted one day in late June across the Atlanta area — from gritty inner-city neighborhoods to the affluent suburb of Marietta — provide a window into how the real estate slump is playing out here.

The most prized property on offer that day was a stately four-bedroom brick home in Marietta that sits on a tree-covered lot measuring three-quarters of an acre. It fetched a high bid of $646,000, about $60,000 more than the last mortgage on the property. More than 200 people turned up at the auction, and the winning bidders were a young couple, Cameron and Jamie Clayton, who are expecting a second child this year.

“I wouldn’t say it is a steal,” said Mr. Clayton, who is an executive at The Weather Channel. “We paid the same price we would have paid on the market, maybe more.”

But about 25 miles south, an auction for the three-bedroom home near Turner Field produced a starkly different result. Corey Neureuther, a 29-year-old accountant, was the winning bidder. He said it was his first real estate investment and he was surprised that others did not bid the price up at the auction, which drew about 30 people. Having recently moved to Atlanta from New York, he said he became interested in buying property after learning about foreclosures in the area.

“I thought for sure it would sell for $200,000 plus,” he said. Mr. Neureuther said he thought that he could make money by renting out the house.

Stephanie Calhoun, the former owner of the home, could not be reached for comment. Property records show she took out two loans to finance 100 percent of the purchase price. She borrowed the money from Ownit Mortgage Solutions, a California company that sought bankruptcy protection in December after many of its customers defaulted on their loans. Investors who bought bonds backed by Ownit loans will bear the loss on her home.

Dean Williams, the president of Williams & Williams, the firm that conducted the auctions, said results of the sales in Atlanta and elsewhere in the country showed that real estate prices were inflated during the recent boom, especially in less affluent areas.

“When you find out what the market price really is, it can be a joke,” said Mr. Williams, whose family-owned firm is based in Tulsa, Okla.

Economists say auctions are generally the most efficient way to determine prices. But only about 1 percent of residential real estate sold in the country last year by dollar value was auctioned.

Most sellers still list homes and wait until they get an offer close to their asking price. At the end of March, 2.8 percent of all owner-occupied homes nationally were vacant and for sale, up from 1.8 percent at the start of 2005. That is the highest vacancy rate in the 51 years the Census Bureau has been tracking it.

But as more homes end up in the hands of banks and trustees for mortgage bonds — who are typically looking to minimize losses — auctions may play a bigger role.

Mark Rollins bought a house southwest of downtown Atlanta for $78,000 at one of the Williams & Williams auctions. The property sold for $255,000 in summer 2004. Mr. Rollins, who is a Realtor, said he planned to live in the house for a couple of years, fix it up and resell it for $150,000 when the market recovered.

Why did the house sell for so much more in 2004? Mr. Rollins has a simple theory: “The market was hot, the interest rates were low, and they were giving all kinds of deals to people.”

    Increasing Rate of Foreclosures Upsets Atlanta, NYT, 9.7.2007, http://www.nytimes.com/2007/07/09/business/09auctions.html?hp

U.S. Service Sector Expands in June

July 5, 2007
By THE ASSOCIATED PRESS
Filed at 10:35 a.m. ET
The New York Times

NEW YORK (AP) -- The nation's service economy expanded at a faster-than-expected clip in June, a research group said Thursday, suggesting soaring gas prices and inflation aren't dampening strength in industries such as banking, retail and travel.

The Institute for Supply Management, based in Tempe, Ariz., said its index of business activity in the non-manufacturing sector registered 60.7. The reading was higher than May's reading of 59.7 and Wall Street's expectation of 58.1.

It was the highest reading since April 2006, when it registered 61.1.

A reading above 50 indicates expansion, while one below indicates contraction.

Separately, the Labor Department reported the number of newly laid off people signing up for jobless benefits rose last week. The level of claims, though slightly higher than economists were expecting, was still in a range that pointed to a sturdy job market.

The service industries covered by the ISM report represent about 80 percent of economic activity and span diverse industries including banking, construction, retailing, mining, agriculture and travel. All 14 industries surveyed by ISM reported growth, while none reported decreased business activity compared with May.

The prices paid index also expanded, but at a more moderate pace than in the previous month. The index fell to 65.5 in June from 66.4 in May.

The report offered the latest evidence that the economy may be picking up after a recent slowdown.

On Monday, the ISM reported new orders and production powered the manufacturing sector in June, with growth expanding at its fastest pace in at least a year.

AP Economics Writer Jeannine Aversa in the Washington, D.C., bureau contributed to this report.

    U.S. Service Sector Expands in June, NYT, 5.7.2007, http://www.nytimes.com/aponline/us/AP-Economy.html

Altria Closing North Carolina Plant

June 26, 2007
By THE ASSOCIATED PRESS
Filed at 1:34 p.m. ET
The New York Times

RICHMOND, Va. (AP) -- Altria Group Inc., parent of the Philip Morris cigarette companies, will cut in half its U.S. manufacturing base, closing a North Carolina plant that employs 2,500 as it moves cigarette production for non-U.S. markets to Europe.

The manufacturing shift announced Tuesday comes amid a declining U.S. cigarette market and Wall Street speculation that Altria would soon move to split its domestic and international tobacco businesses into two companies.

Philip Morris USA will transfer all production from its Concord, N.C., plant in Cabarrus County to its Richmond production center, which will become its sole American manufacturing plant by 2011.

The Richmond plant also will switch from making cigarettes destined for both U.S. and international markets to a strictly domestic market.

In 2006, the two plants produced 80 billion cigarettes for overseas distribution. Those cigarettes will now be produced in European plants, though Philip Morris International has not specified which ones, explained David Sylvia, a spokesman for Philip Morris USA.

''We will continue to produce the cigarettes in both the Cabarrus and Richmond facilities for Philip Morris International through the fall of 2008,'' he said. ''The Cabarrus facility will also continue to produce cigarettes for us in the U.S. through 2010.''

The shift comes as the U.S. market for cigarettes loses its luster, with an increasing number of states restricting smoking in public places.

''Over the last decade or so, cigarette consumption has declined by approximately 2 percent per year,'' Sylvia said. ''It's attributable to a host of factors -- and we expect that decline to continue.''

Last year, Philip Morris USA shipped 183.4 billion cigarettes, while Philip Morris International shipped 831.4 billion cigarettes in 2006.

Altria's announcement makes its U.S. and international cigarette units more independent. Some analysts have predicted Altria would split the businesses into two companies and expect an announcement as early as August.

An Altria spokeswoman would not comment Tuesday on that possibility.

Such a split would be part of a restructuring designed to increase value for Altria shareholders that started with the parent company's spinoff in March of its remaining majority stake in Kraft Foods Inc.

Altria said in a statement that it planned to increase production at plants in Europe by the third quarter of next year.

Philip Morris International will cut costs by taking advantage of excess capacity at European plants, where manufacturing costs are lower than in the U.S., PMI spokesman Greg Prager said. With the Cabarrus plant closure, PMI will shift the production of 57 billion cigarettes per year to Europe, meaning all PMI production will be done at plants outside the U.S., Prager said.

He declined to name the plants that would increase production. PMI's plants in Europe are in Lithuania, Poland, Romania, the Czech Republic, Germany, Greece, Holland, Portugal and Switzerland.

Altria shares rose $1.47, or 2.1 percent, to $70.22 in afternoon trading.

Most North Carolina hourly employees and many salaried employees will be offered positions in Richmond, Altria said. Sylvia said the move will bring ''several hundred'' jobs to Richmond. Philip Morris USA employs 6,300 in Virginia, primarily at its Richmond cigarette plant.

Other workers at the North Carolina plant will be eligible for between three and 20 months of severance pay and benefits, depending on length of service, plus outplacement counseling.

The company said it expects cost savings of about $335 million by 2011, of which $179 million will be realized by Philip Morris International and $156 million by Philip Morris USA.

Altria expects Philip Morris USA to record an initial pretax charge of about $325 million, or 10 cents per share, in the second quarter, mainly for employee separation. There will be about $50 million in charges for the remainder of 2007.

Total expenses through 2011 will be about $670 million at Philip Morris USA, including accelerated depreciation charges of $143 million, employee separation expenses of $353 million and relocation costs, partly offset by gains on sales of land and buildings, of $174 million.

    Altria Closing North Carolina Plant, NYT, 26.6.2007, http://www.nytimes.com/aponline/business/AP-Altria-Plant.html

Americans Set Record for Charity in 2006

June 25, 2007
By THE ASSOCIATED PRESS
Filed at 7:58 a.m. ET
The New York Times

NEW YORK (AP) -- Americans gave nearly $300 billion to charitable causes last year, setting a new record and besting the 2005 total that had been boosted by a surge in aid to victims of hurricanes Katrina, Rita and Wilma and the Asian tsunami.

Donors contributed an estimated $295.02 billion in 2006, a 1 percent increase when adjusted for inflation, up from $283.05 billion in 2005. Excluding donations for disaster relief, the total rose 3.2 percent, inflation-adjusted, according to an annual report released Monday by the Giving USA Foundation at Indiana University's Center on Philanthropy.

Giving historically tracks the health of the overall economy, with the rise amounting to about one-third the rise in the stock market, according to Giving USA. Last year was right on target, with a 3.2 percent rise as stocks rose more than 10 percent on an inflation-adjusted basis.

''What people find especially interesting about this, and it's true year after year, that such a high percentage comes from individual donors,'' Giving USA Chairman Richard Jolly said.

Individuals gave a combined 75.6 percent of the total. With bequests, that rises to 83.4 percent.

The biggest chunk of the donations, $96.82 billion or 32.8 percent, went to religious organizations. The second largest slice, $40.98 billion or 13.9 percent, went to education, including gifts to colleges, universities and libraries.

About 65 percent of households with incomes less than $100,000 give to charity, the report showed.

''It tells you something about American culture that is unlike any other country,'' said Claire Gaudiani, a professor at NYU's Heyman Center for Philanthropy and author of ''The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism.'' Gaudiani said the willingness of Americans to give cuts across income levels, and their investments go to developing ideas, inventions and people to the benefit of the overall economy.

Gaudiani said Americans give twice as much as the next most charitable country, according to a November 2006 comparison done by the Charities Aid Foundation. In philanthropic giving as a percentage of gross domestic product, the U.S. ranked first at 1.7 percent. No. 2 Britain gave 0.73 percent, while France, with a 0.14 percent rate, trailed such countries as South Africa, Singapore, Turkey and Germany.

Mega-gifts, which Giving USA considers to be donations of $1 billion or more, tend to get the most attention, and that was true last year especially.

Investment superstar Warren Buffett announced in June 2006 that he would give $30 billion over 20 years to the Bill and Melinda Gates Foundation. Of that total, $1.9 billion was given in 2006, which helped push the year's total higher.

Gaudiani said that gift reflects a growing focus on using donated money efficiently and effectively.

''I think it's also a strategic commitment to upward mobility exported to other countries, in the form of improved health and stronger civil societies,'' she said.

The Gates Foundation has focused on reducing hunger and fighting disease in developing countries as well as improving education in the U.S. Without Buffett's pledge, it had an endowment of $29.2 billion as of the end of 2005.

Meanwhile, companies and their foundations gave less in 2006, dropping 10.5 percent to $12.72 billion. Jolly said corporate giving fell because companies had been so generous in response to the natural disasters and because profits overall were less strong in 2006 over the year before.

The Giving USA report counts money given to foundations as well as grants the foundations make to nonprofits and other groups, since foundations typically give out only income earned without spending the original donations.

    Americans Set Record for Charity in 2006, NYT, 25.6.2007, http://www.nytimes.com/aponline/us/AP-Charitable-Giving.html

Jobless Claims Rise Unexpectedly

June 21, 2007
By THE ASSOCIATED PRESS
Filed at 10:28 a.m. ET
The New York Times

WASHINGTON (AP) -- The number of newly laid off workers filing claims for unemployment benefits shot up unexpectedly last week, rising to the highest level in two months.

The Labor Department reported that unemployment claims totaled 324,000 last week, up 10,000 from the previous week, to the highest level since mid-April.

While the big increase was unexpected, analysts said it did not change their view that the labor market remains healthy despite a year-long economic slowdown caused by a steep slump in housing and troubles in the domestic auto industry.

Analysts noted that even with the increase, claims remain close to their average over the first 5 1/2 six months of this year of 319,000.

While some economists said they still look for layoffs to rise as the year progresses, they said last week's upward blip is not a signal that is occurring.

''It will take more than one week to convince us things are really changing,'' said Ian Sheperdson, chief U.S. economist for High Frequency Economics.

The increase last week pushed claims to the highest level since they stood at 325,000 for the week ending April 21. The four-week average for claims rose to 314,500, the highest level since the first week in May. Claims have posted increases for three consecutive weeks.

Overall economic growth slowed to a lackluster annual rate of 0.6 percent in the first three months of this year, the weakest performance in four years. However, growth is expected to have rebounded in the current April-June quarter to a rate of 3 percent or even better.

The Federal Reserve meets next week to review interest rates with most analysts believing the central bank will leave rates unchanged.

The last rate change was a quarter-point increase a year ago. That capped a two-year Fed campaign to push rates higher as a way of slowing the economy enough to reduce inflation pressures.

A total of 37 states and territories posted increases in jobless claims for the week ending June 9 while 16 states had declines. The state data lags the national data by one week and is not adjusted for normal seasonal variations.

California had the largest rise in claims applications, an increase of 10,333 that was atttributed to higher layoffs in trade and service industries. Other big increases were in Pennsylvania, up 5,220; Florida, up 3,576, and Illinois, up 3,162.

Michigan had the biggest drop in jobless claims, a decline of 1,093, which was attributed to fewer layoffs in the auto industry.

    Jobless Claims Rise Unexpectedly, NYT, 21.6.2007, http://www.nytimes.com/aponline/us/AP-Jobless-Claims.html

Fuel Prices Aside, Inflation Is Tame

June 16, 2007
The New York Times
By JEREMY W. PETERS

A leap in gasoline prices pushed the overall rate of inflation higher last month, government data showed today, but consumer prices nationwide generally appear to be increasing at a consistently slower rate.

The Consumer Price Index, the government’s survey of retail prices on a wide range of consumer goods, registered an increase of 0.7 percent in May, compared with a rise of 0.4 percent in April. From May 2006 to May 2007, prices rose 2.7 percent, up from the 2.6 percent annual gain in April, according to the Labor Department.

But a separate calculation of consumer prices that excludes food and energy prices and is considered by economists and the Federal Reserve to be a better measure of inflation fell for the third consecutive month on an annual basis. The core consumer price index from May 2006 to May 2007 was 2.2 percent — its lowest annual reading in nearly a year and a half.

For the month, the core consumer price index increased just 0.1 percent, compared with 0.2 percent in April.

Investors were cheered by the report, sending stocks up 1 percent in early trading.

Declining inflation is what Fed officials have sought as they raised interest rates for two years before stopping last summer. Since then, they have left the benchmark short-term interest rate on hold at 5.25 percent, saying that inflation was still too high for them to consider lowering rates.

Ian Shepherdson, chief United States economist with High Frequency Economics, said in a research report today that falling core inflation raises “the question of just how long the Fed can credibly continue to argue that there is upside inflation risk.”

Wall Street would cheer an interest rate cut. Indeed, much of the turmoil in the stock market last week and early this week was over worries that the Fed might raise rates. But a low reading on the core producer price index yesterday, which surveys prices at the wholesale level, and a report from the Fed that showed few signs of inflation in the central bank’s 12 regional districts went a long way toward calming those fears.

While core inflation is falling, that is likely of little comfort for Americans who are paying near-record prices to fill up their vehicles with gasoline. Gas prices jumped 10.5 percent last month, compared with an increase of 4.7 percent in April.

Higher gas prices were the primary reason wages for the average American worker fell last month after inflation is taken into account — meaning that most Americans have seen an effective pay cut. In a separate report, the Labor Department said today that real average weekly earnings for workers in nonmanagement jobs declined 0.2 percent last month.

Pressuring consumers further, food prices continued to rise, though not as sharply as a few months ago. This year so far, beef prices are up 5.1 percent, poultry prices 4.3 percent and pork prices 3.4 percent.

“If you drive or eat, hold on to your wallets,” said Joel L. Naroff, president of Naroff Economic Advisors. “Over the year, gasoline prices have jumped 6 percent while food is up about 4 percent. This is a real problem for many households.”

    Fuel Prices Aside, Inflation Is Tame, NYT, 16.6.2007, http://www.nytimes.com/2007/06/16/business/15cnd-econ.html?hp

Online Sales Lose Steam as Buyers Grow Web-Weary

June 17, 2007
The New York Times
By MATT RICHTEL and BOB TEDESCHI

SAN FRANCISCO, June 16 — Has online retailing entered the Dot Calm era?

Since the inception of the Web, online commerce has enjoyed hypergrowth, with annual sales increasing more than 25 percent over all, and far more rapidly in many categories. But in the last year, growth has slowed sharply in major sectors like books, tickets and office supplies.

Growth in online sales has also dropped dramatically in diverse categories like health and beauty products, computer peripherals and pet supplies. Analysts say it is a turning point and growth will continue to slow through the decade.

The reaction to the trend is apparent at Dell, which many had regarded as having mastered the science of selling computers online, but is now putting its PCs in Wal-Mart stores. Expedia has almost tripled the number of travel ticketing kiosks it puts in hotel lobbies and other places that attract tourists.

The slowdown is a result of several forces. Sales on the Internet are expected to reach $116 billion this year, or 5 percent of all retail sales, making it harder to maintain the same high growth rates. At the same time, consumers seem to be experiencing Internet fatigue and are changing their buying habits.

John Johnson, 53, who sells medical products to drug stores and lives in San Francisco, finds that retailers have livened up their stores to be more alluring.

“They’re working a lot harder,” he said as he shopped at Book Passage in downtown San Francisco. “They’re not as stuffy. The lighting is better. You don’t get someone behind the counter who’s been there 40 years. They’re younger and hipper and much more with it.”

He and his wife, Liz Hauer, 51, a Macy’s executive, also shop online, but mostly for gifts or items that need to be shipped. They said they found that the experience could be tedious at times. “Online, it’s much more of a task,” she said. Still, Internet commerce is growing at a pace that traditional merchants would envy. But online sales are not growing as fast as they were even 18 months ago.

Forrester Research, a market research company, projects that online book sales will rise 11 percent this year, compared with nearly 40 percent last year. Apparel sales, which increased 61 percent last year, are expected to slow to 21 percent. And sales of pet supplies are on pace to rise 30 percent this year after climbing 81 percent last year.

Growth rates for online sales are slowing down in numerous other segments as well, including appliances, sporting goods, auto parts, computer peripherals, and even music and videos. Forrester says that sales growth is pulling back in 18 of the 24 categories it measures.

Jupiter Research, another market research firm, says the growth rate has peaked. It projects that overall online sales growth will slow to 9 percent a year by the end of the decade from as much as 25 percent in 2004.

Early financial results from e-commerce companies bear out the trend. EBay reported that revenue from Web site sales increased by just 1 percent in the first three months of this year compared with the same period last year. Bookings from Expedia’s North American Web sites rose by only 1 percent in the first quarter of this year. And Dell said that revenue in the Americas — United States, Canada and Latin America — for the three months ended May 4 was $8.9 billion, or nearly unchanged from the same period last year.

“There’s a recognition that some customers like a more interactive experience,” said Alex Gruzen, senior vice president for consumer products at Dell. “They like shopping and they want to go retail.”

The turning point comes as most adult Americans, and many of their children, are already shopping online.

Analysts project that by 2011, online sales will account for nearly 7 percent of overall retail sales, though categories like computer hardware and software generate more than 40 percent of their sales on the Internet.

There are other factors at work as well, including a push by companies like Apple, Starbucks and the big shopping malls to make the in-store experience more compelling.

Nancy F. Koehn, a professor at Harvard Business School who studies retailing and consumer habits, said that the leveling off of e-commerce reflected the practical and psychological limitations of shopping online. She said that as physical stores have made the in-person buying experience more pleasurable, online stores have continued to give shoppers a blasé experience. In addition, online shopping, because it involves a computer, feels like work.

“It’s not like you go onto Amazon and think: ‘I’m a little depressed. I’ll go onto this site and get transported,’ ” she said, noting that online shopping is more a chore than an escape.

But Ms. Koehn and others say that online shopping is running into practical problems, too. For one, Ms. Koehn noted, online sellers have been steadily raising their shipping fees to bolster profits or make up for their low prices.

In response, a so-called clicks-and-bricks hybrid model is emerging, said Dan Whaley, the founder of GetThere, which became one of the largest Internet travel businesses after it was acquired by Sabre Holdings.

The bookseller Borders, for example, recently revamped its Web site to allow users to reserve books online and pick them up in the store. Similar services were started by companies like Best Buy and Sears. Other retailers are working to follow suit.

“You don’t realize how powerful of a phenomenon this new strategy has become,” Mr. Whaley said. “Nearly every big box retailer is opening it up.”

Barnes & Noble recently upgraded its site to include online book clubs, reader forums and interviews with authors. The company hopes the changes will make the online world feel more like the offline one, said Marie J. Toulantis, the chief executive of BarnesandNoble.com. “We emulate the in-store experience by having a book club online,” she said.

The retailers that have started in-store pickup programs, like Sears and REI, have found that customers who choose the hybrid model are more likely to buy additional products when they pick up their items, said Patti Freeman Evans, an analyst at Jupiter Research.

Consumers are generally not committed to one form of buying over the other. Maggie Hake, 21, a recent college graduate heading to Africa in the fall to join the Peace Corps, said that when she needs to buy something for her Macintosh computer, she prefers visiting a store. “I trust it more,” she said. “I want to be sure there’s a person there if something goes wrong.”

Ms. Hake, who lives in Kentfield, Calif., just north of San Francisco, does like shopping online for certain things, particularly shoes, which are hard to find in her size. “I’ve got big feet — size 12.5 in women’s,” she said. “I also buy textbooks online. They’re cheaper.”

John Morgan, an economics professor from the Haas School of Business at the University of California, Berkeley, said he expected online commerce to continue to increase, partly because it remains less than 1 percent of the overall economy. “There’s still a lot of head room for people to grow,” he said.

Matt Richtel reported from San Francisco. Bob Tedeschi reported from Guilford, Conn.

    Online Sales Lose Steam as Buyers Grow Web-Weary, NYT, 17.6.2007, http://www.nytimes.com/2007/06/17/technology/17ecom.html?hp

Web Help for Getting a Mortgage the Criminal Way

June 16, 2007
The New York Times
By JULIE CRESWELL

Want to buy a home, but hampered by bad credit, an empty bank account or no job? No problem!

That may sound like an exaggeration of a late-night infomercial. But it is, in effect, the pitch that a number of Web sites are making to consumers, saying insolvent home shoppers can be made to look more attractive to lenders.

The sites, for example, offer better credit scores by hitching customers to a stranger’s credit card, or providing them pay stubs from a bogus company. One has even offered a well-stocked bank account to rent for a month or two.

Industry experts say these sites, which are relatively new, played a role in fueling the rampant mortgage fraud that has caused a huge spike in loan defaults in recent months because people bought homes they could not afford.

“There is a whole underground world — an online cottage industry — that has grown up that allows anyone to commit mortgage fraud,” said Constance Wilson, executive vice president at the financial fraud detection firm Interthinx.

Regulators and the mortgage industry are now vowing to crack down on aggressive lending practices that have led to a rising number of foreclosures. But that greater scrutiny, including lenders requiring more documentation than they have in the past, may actually increase demand for some of the services that these Web sites offer.

“We think these types of Web sites are increasing,” said Frank McKenna, chief fraud strategist at BasePoint Analytics, which helps banks and mortgage lenders identify fraudulent transactions.

Policing them is difficult, partly because it is unclear which laws, if any, the Web sites might be breaking (for their customers, though, the laws are clear — anybody who uses fake paycheck stubs or other false documents to misrepresent financial status to a bank or mortgage lender is committing fraud).

The people who operate these sites can also be hard to track down. At the first whiff of trouble, they can easily shut down and then quickly start a new Web site with a different name.

No statistics exist on the number of these Web sites and how many people use them, or whether any of the operators of such sites have been prosecuted.

An examination of loans made last year, including prime and subprime, in which some sort of fraud occurred, showed that incidents of false tax or financial statements had risen to 27 percent from 17 percent in 2002; fraudulent verifications of deposit had climbed to 22 percent from 15 percent four years ago; and false credit reports rose to 9 percent from 5 percent in 2002, according to a report issued this spring by the Mortgage Asset Research Institute based in Virginia.

If any documents were required, it was unclear whether the bogus documents were created by do-it-yourselfers or whether they turned to the products and services sold over the Internet.

Still, Joan E. Ferenczy, director of institutional investigations at Freddie Mac, said there had been a growing discussion in recent months among industry investigators about Web sites offering false identifications and income statements.

“Either it has been underground all along, or there has been a spike of activity there,” she said.

One service that appears to have grown exponentially in recent months, investigators say, are sites that offer to improve an individual’s credit score by adding them onto the credit cards of individuals with good credit scores and histories.

The practice, known as piggybacking, started innocently enough with individuals adding their spouses or children to their credit card accounts as authorized users.

One site, RaiseCreditScoreNow .com, offers to add a person to four separate $20,000 credit lines with 10 years of “perfect payments” for $4,000 (although they do not have access to the actual credit line). Doing so could increase an individual’s credit score by as much as 200 points in 90 days, the site says, and make the difference between qualifying for a home loan or not.

People with strong credit scores and a reliable payment history of at least 24 months on various credit accounts can be paid up to $1,000 for each person they add to the account as an authorized user, the site offers.

Several lawyers said it was unlikely that this practice was illegal, although many warned it could open the person renting out their credit card lines to fraud or identify theft. Attempts to contact the Web site were unsuccessful.

Another company, which operates SeasonedTradeLines.com, claims on its site to have an inventory of more than 100 real, verifiable credit card accounts with perfect payment histories dating back to 1974. The site asks: “How would your life be different with a 700+ credit score?”

A person answering the phone at the company declined to comment. “I’m not going to answer any questions,” he said. “I’m not going to give out any information.”

Last week, the Fair Isaac Corporation, the company that developed FICO credit scores, said it was trying to shut down piggybacking.

Starting in September, Fair Isaac said people who were added to someone else’s credit line would not benefit from the secondhand credit history in its formula, which is used by the three major credit bureaus.

“There is going to be no way to get around the new system,” said Ron Totaro, vice president for global scoring solutions at Fair Isaac.

One Web site that prompted mortgage regulators in Nevada to issue an alert to consumers and the mortgage industry two years ago offered to set up a bank account that could be “rented out” and verified to creditors or lenders at a cost of about 5 percent of the value of the assets. The people renting the assets did not actually have access to them.

While that site has disappeared, fraud experts say others have moved in to replace it.

“We’re seeing now a lot of checking accounts where funds are going in and out,” said Mr. McKenna of BasePoint. “Borrowers begin the month with $4 in the account and end the month with much, much more.”

Other sites offer help to people who need proof that they are working.

For $55, for example, the company that operates VerifyEmployment .net will ostensibly hire a person as an independent contractor, providing a paycheck stub showing an “advance,” with the corporate name and address. Another $25 will assure telephone verification of employment when a lender calls to check.

Last year, a Florida-based company that operated a Web site called NoveltyPaycheckStubs.com agreed to stop using the name of the payroll company ADP after it was sued in federal court by ADP for trademark infringement.

“It is plain that defendants are peddling counterfeit ADP earnings statements for others to use to engage in fraudulent financial transactions,” ADP claimed in its lawsuit.

NoveltyPaycheckStubs.com has since disappeared, but people looking for fake IDs or payroll stubs can still find them at FakePaycheckStubs .com.

While the site states the products are used for “entertainment purposes only,” phrases like “car loan” and “home loan” are sprinkled on the site. For $49.95, customers can receive a computer program to create paycheck stubs at home with their name and a fictional hourly salary. Attempts to contact someone at the site were unsuccessful.

For all the mentions of the pay stubs being only for entertainment, the site does offer one piece of legal advice: “I highly suggest you do not use logos from companies that are real on these stubs. I wouldn’t use any real company trademarks or copyrights either.”

    Web Help for Getting a Mortgage the Criminal Way, NYT, 16.6.2007, http://www.nytimes.com/2007/06/16/technology/16fraud.html?hp

Foreclosures Up on Certain ARMs

June 14, 2007
By THE ASSOCIATED PRESS
Filed at 11:46 a.m. ET
The New York Times

WASHINGTON (AP) -- Late payments and new foreclosures on adjustable-rate home mortgages made to people with spotty credit histories spiked to all-time highs in the first three months of this year.

The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Thursday, reported that the percentage of payments that were 30 or more days past due for ''subprime'' adjustable-rate home mortgages jumped to 15.75 percent in the January-to-March quarter.

That was a sizable increase from the prior quarter's delinquency rate of 14.44 percent and was the highest on record, the association's chief economist Doug Duncan said in an interview with The Associated Press.

People who have taken out subprime mortgages, especially adjustable-rate loans, have been clobbered as rising interest rates and weak home prices have made it increasingly difficult for them to keep up with their monthly payments. Lenders in the subprime market have been hard hit, with some being forced out of business.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process in the first quarter of this year climbed to 3.23 percent. That was up from 2.70 percent in the final quarter of 2006 and was the highest on record, Duncan said.

The first-quarter's increase in new foreclosures was mostly driven by problems in California, Florida, Nevada and Arizona, he said. In those four states, foreclosures are being ''heavily influenced by speculators who are walking away from properties now that home prices have started to fall in areas of those states and they face resets in the adjustable-rate mortgages they took out for these homes,'' Duncan explained.

Federal Reserve Chairman Ben Bernanke, in a speech last week, predicted there will be further increases in delinquencies and foreclosures this year and next as interest rates on many subprime adjustable-rate loans will go up as they reset.

Analysts estimate that nearly 2 million adjustable-rate mortgages will reset to higher rates this year and next. Some subprime borrowers were lured by an initially low ''teaser'' rates offered during the 5-year housing boom that ended in 2005. But those teaser rates can spike upward after the first few years, causing payment shocks.

Still, Bernanke said it was unlikely that troubles in the subprime mortgage market would seriously spill over to the broader economy or the financial system.

Loose lending standards, including allowing borrowers to get mortgages with little documentation, contributed to problems in the subprime market, Bernanke said. Congress is looking into possible action. Bernanke, meanwhile, has said the Fed will consider tougher rules to curb abusive practices and improve disclosure.

''In doing so, however, we must walk a fine line,'' said Fed Governor Randall Kroszner, who was presiding over a public hearing Thursday on the matter. ''We must determine how we can help to weed out abuses while also preserving incentives for responsible lenders,'' he said.

For all mortgages, the delinquency rate actually dipped to 4.84 percent in the first quarter, an improvement from the fourth quarter's rate of 4.95 percent, which had marked a 3 1/2 year high. However, the number of all mortgages starting the foreclosure process in the first quarter rose to a record high of 0.58 percent. That surpassed the previous high of 0.54 percent in the final quarter of 2006.

The association's survey covers a total of nearly 44 million loans nationwide.

Wall Street was jarred when the association's previous report in March showed surging delinquencies and new foreclosures in the final quarter of last year. The Dow Jones industrials tumbled that day nearly 243 points.

The subprime meltdown began in February, when New Century Financial Corp. and HSBC Holdings reported more borrowers missing payments. The spike in bad loans scared banks and investors away from risky debt, drying up much of the industry's financing. More than 30 subprime lenders, including New Century, have gone bankrupt this year.

    Foreclosures Up on Certain ARMs, NYT, 14.6.2007, http://www.nytimes.com/aponline/us/AP-Late-Mortgages.html

U.S Carmakers to Seek Labor Cost Cuts

June 14, 2007
By THE ASSOCIATED PRESS
Filed at 5:38 a.m. ET
The New York Times

DETROIT (AP) -- Contract talks between the U.S.-based automakers and the United Auto Workers formally begin next month, but the key issue is already clear: Eliminating the roughly $25-an-hour labor cost gap between Detroit and its Japanese rivals.

Officials at General Motors, Ford and Chrysler said Wednesday that reducing labor costs to the level paid by Toyota Motor Corp. and Honda Motor Co. -- Detroit's prime competitors -- will be the top priority.

Industry analysts say that survival of the three U.S. companies is at stake. The three automakers based near Detroit generally pay about 30 percent more per hour in wage, pension and health care costs than Japanese automakers.

And nowhere is it more critical than at Ford Motor Co., which lost $12.7 billion last year and has mortgaged its assets to fund a turnaround plan that includes thousands of job cuts to shrink itself to match lower demand for its products.

Ford, according to its annual report, paid $70.51 per hour in wages and benefits to its hourly workers last year. The company, as well as Chrysler Group and General Motors Corp., will seek to reduce costs to around $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.

The costs then would be comparable to Asian automakers, who pay similar wages but have far lower pension and health care costs and make thousands of dollars more per vehicle than the three Detroit automakers.

''We know there are competitive gaps,'' GM spokesman Dan Flores said Wednesday. ''We benchmark Toyota in a variety of areas of the business.''

GM and the UAW have worked together to cut health care costs and reduce the company's hourly work force by more than 34,000 in the past year through buyout and early retirement offers.

''However more change is required to structure GM for sustained profitability and growth,'' Flores said.

GM's annual report says its labor costs average $73.26 per hour, while Chrysler's costs average $75.86.

Negotiations are set to begin officially in July, but the UAW already is talking to the Detroit Three.

UAW spokesman Roger Kerson would not comment Wednesday, but union President Ron Gettelfinger said in March that it made major health care concessions in 2005 to Ford and GM that saved the companies billions, and implied that the union wasn't willing to give more. The UAW has completed an evaluation of Chrysler's finances but won't say whether it will give Chrysler the same deal.

''We addressed health care in '05. You don't get two bites of the apple, do you?'' he said in March.

Many industry analysts say the Detroit Three, and especially Ford, must be on par with Toyota and Honda to survive. This year's contract, they say, must be ''transformational'' in reducing pension and health care costs.

Chrysler's parent company, DaimlerChrysler AG, recently announced that it would sell a controlling stake in the company to private equity firm Cerberus Capital Management LP, and analysts have said Cerberus is likely to demand deeper concessions from the union than Daimler would have. Cerberus has said it will leave the negotiations to Chrysler officials.

Combined, the U.S.-based carmakers have more than $100 billion in long-term retiree health care costs that analysts say must be reduced.

''They're all in the same boat for this,'' said Aaron Bragman, a research analyst for Global Insight, an economic research and consulting company. ''They all need to see the same kinds of benefits and structural changes in order to survive. The big challenge is going to be whether or not the rank-and-file in the UAW can be convinced.''

Kevin Tynan of Argus Research, a New York-based equity research company, said Ford's situation is so bad that even a compromise to $60 per hour wouldn't help.

''If they're saying $70 vs. $50, $60 doesn't help anybody. Essentially Ford loses,'' Tynan said. ''That's just to be competitive on labor. Now we're talking about technology and innovation and marketing and design, all that other stuff on the product side that you still have to execute on.''

GM shares rose 67 cents to close at $32.10, while Ford gained 24 cents to $8.56 and DaimlerChrysler's U.S. shares rose $1.74 to $89.58. Toyota's U.S. shares rose $1.47 to $123.81.

------

On the Net:

http://www.chrysler.com

http://www.ford.com

http://www.gm.com

http://www.honda.com

http://www.toyota.com

    U.S Carmakers to Seek Labor Cost Cuts, NYT, 14.6.2007, http://www.nytimes.com/aponline/business/AP-Auto-Talks.html

Boeing: $2.8 Trillion Market for Jets

June 13, 2007
By THE ASSOCIATED PRESS
Filed at 1:54 p.m. ET
The New York Times

SEATTLE (AP) -- Boeing Co. on Wednesday boosted its 20-year market projections for new commercial jets to $2.8 trillion, up about $200 billion from its forecast last year, citing a growing demand for regional, single-aisle and twin-aisle jets that airlines want for nonstop routes.

Boeing lowered its market forecast for jumbo jets over the next two decades to 960 planes -- down from 990 last year -- saying airlines are increasingly turning to smaller, more fuel-efficient planes that will fly passengers directly where they want to go, bypassing layovers at hubs.

Airlines will spend less and make more money by offering more frequent nonstop flights, because passengers have shown they're willing to pay more for the convenience of flying straight to their destination, Randy Tinseth, vice president of marketing for Boeing's Seattle-based commercial airplane division, said in a conference call with reporters about the company's 2007 Current Market Outlook report.

Nonstop flights also cost airlines less and are more environmentally friendly because planes burn less fuel and produce fewer emissions with only one takeoff and landing per flight, Tinseth said.

''Airlines are responding to the true needs of passengers to save more time on more capable aircraft,'' Tinseth said. ''Airlines have accommodated air travel by adding more frequencies and nonstops, and what's most important for us is that we've seen this trend for the last 20 to 25 years, and we expect this trend to continue into the future.''

All told, Chicago-based Boeing projects airlines will buy 28,600 new passenger and cargo planes over the next two decades, including:

--17,650 single-aisle airplanes seating 90 to 240 passengers.

--6,290 twin-aisle jets seating 200 to 400 passengers.

--3,700 regional jets with no more than 90 seats.

--960 jumbo jets seating more than 400 passengers.

The new planes will meet an estimated 5 percent annual increase in passenger traffic and a 6.1 percent rise in yearly air cargo traffic, Boeing said.

Boeing said about one-third of the demand for new planes will come from the Asia-Pacific region, followed by North America, which will account for about one-quarter of worldwide demand.

Single-aisle planes such as Boeing's 737 and rival Airbus SAS's A320s will continue to be the market's best-sellers, driven by brisk growth among low-cost carriers.

But Boeing expects to make more money from sales of larger twin-aisle jets such as its 777 and new 787, which is scheduled to enter commercial service next May, about five years ahead of when Airbus plans to begin delivering its competing A350 XWB.

Boeing projects much weaker demand for jumbo jets than Airbus, which has invested heavily in its 555-seat A380. That plane is scheduled to enter commercial service in October, after delays caused by production snags that wiped more than $6 billion off the company's profit forecast for 2006-2010.

In Airbus' most recent market forecast, released last fall, the European aircraft maker projected airlines will buy more than 1,200 passenger jumbo jets over the next two decades.

    Boeing: $2.8 Trillion Market for Jets, NYT, 13.6.2007, http://www.nytimes.com/aponline/business/AP-Boeing-Market-Forecast.html

Retail Sales Surge 1.4 Pct. in May

June 13, 2007
By THE ASSOCIATED PRESS
Filed at 9:41 a.m. ET
The New York Times

WASHINGTON (AP) -- Consumers brushed off rising gasoline prices and slumping home sales to storm the malls in May, pushing retail sales up by the largest amount in 16 months.

The Commerce Department reported that retail sales surged by 1.4 percent last month, compared to April, double the increase that analysts had been expecting. Retail sales had fallen by 0.1 percent in April.

The May strength was widespread with auto dealers, department stores, specialty clothing stores and hardware stores enjoying an especially good month.

Sales would have been strong even without last month's big jump in gasoline prices, which saw prices top $3.20 per gallon. Excluding sales at gasoline stations, overall retail sales would still have been up 1.2 percent.

The strong showing caught analysts by surprise. They had been forecasting a more moderate rebound of 0.7 percent.

The increase should ease fears that consumer spending, which accounts for two-thirds of the economy, could falter in coming months under the impact of the surge in gasoline prices, the significant correction in housing and recent increases in interest rates.

The government report painted a more optimistic picture of consumer spending than last week's report from the nation's big chain stores, which reported moderate gains in their survey of same-store sales after a dismal April, a month that had been hurt by bad weather and the fact that Easter came early this year.

The 1.4 percent increase in May sales was the biggest one-month advance since a 3.3 percent surge in January 2006. It left sales at a seasonally adjusted annual rate of $377.9 billion in May.

For May, sales at general merchandise stores, the category that includes department stores, were up 1 percent and sales at department stores rose by 1.3 percent, the best showing in 19 months. Sales at specialty clothing stores jumped 2.7 percent, rebounding from a dismal 1.5 percent drop in April.

Sales of autos and auto parts were up 1.8 percent, the best performance in nearly a year, while sales were up 2.1 percent at hardware stores and 1.8 percent at sporting goods stores.

Sales at gasoline stations rose by 3.8 percent, the biggest increase in more than a year, but much of that gain reflected the big jump in prices. Retail sales are not adjusted for inflation.

    Retail Sales Surge 1.4 Pct. in May, NYT, 13.6.2007, http://www.nytimes.com/aponline/us/AP-Economy.html

Microsoft Finds Legal Defender in Justice Dept.

June 10, 2007
The New York Times
By STEPHEN LABATON

WASHINGTON, June 9 — Nearly a decade after the government began its landmark effort to break up Microsoft, the Bush administration has sharply changed course by repeatedly defending the company both in the United States and abroad against accusations of anticompetitive conduct, including the recent rejection of a complaint by Google.

The retrenchment reflects a substantially different view of antitrust policy, as well as a recognition of major changes in the marketplace. The battlefront among technology companies has shifted from computer desktop software, a category that Microsoft dominates, to Internet search and Web-based software programs that allow users to bypass products made by Microsoft, the world’s largest software maker.

In the most striking recent example of the policy shift, the top antitrust official at the Justice Department last month urged state prosecutors to reject a confidential antitrust complaint filed by Google that is tied to a consent decree that monitors Microsoft’s behavior. Google has accused Microsoft of designing its latest operating system, Vista, to discourage the use of Google’s desktop search program, lawyers involved in the case said.

The official, Thomas O. Barnett, an assistant attorney general, had until 2004 been a top antitrust partner at the law firm that has represented Microsoft in several antitrust disputes. At the firm, Justice Department officials said, he never worked on Microsoft matters. Still, for more than a year after arriving at the department, he removed himself from the case because of conflict of interest issues. Ethics lawyers ultimately cleared his involvement.

Mr. Barnett’s memo dismissing Google’s claims, sent to state attorneys general around the nation, alarmed many of them, they and other lawyers from five states said. Some state officials said they believed that Google’s complaint had merit. They also said that they could not recall receiving a request by any head of the Justice Department’s antitrust division to drop any inquiry.

Mr. Barnett’s memo appears to have backfired, state officials said. Prosecutors from several states said they intended to pursue the Google accusations with or without the federal government. In response, federal prosecutors are now discussing with the states whether the Justice Department will join them in pursuing the Google complaint.

The complaint, which contends that Google’s desktop search tool is slowed down by Microsoft’s competing program, has not been made public by Google or the judge overseeing the Microsoft consent decree, Colleen Kollar-Kotelly of the Federal District Court in Washington. It is expected to be discussed at a hearing on the decree in front of Judge Kollar-Kotelly this month.

The memo illustrates the political transformation of Microsoft, as well as the shift in antitrust policy between officials appointed by President Bill Clinton and by President Bush.

“With the change in administrations there has been a sharp falling away from the concerns about how Microsoft and other large companies use their market power,” said Harry First, a professor at the New York University School of Law and the former top antitrust lawyer for New York State who is writing a book about the Microsoft case. “The administration has been very conservative and far less concerned about single-firm dominant behavior than previous administrations.”

Ricardo Reyes, a spokesman for Google, declined to comment about the complaint.

Bradford L. Smith, the general counsel at Microsoft, said that the company was unaware of Mr. Barnett’s memo. He said that Microsoft had not violated the consent decree and that it had already made modifications to Vista in response to concerns raised by Google and other companies.

He said that the new operating system was carefully designed to work well with rival software products and that an independent technical committee that works for the Justice Department and the states had spent years examining Vista for possible anticompetitive problems before it went on sale.

He said that even though the consent decree did not oblige Microsoft to make changes to Vista in response to Google’s complaint, Microsoft lawyers and engineers had been working closely with both state and federal officials in recent days in search of an accommodation.

“We’ve made a decision to go the extra mile to be reasonable,” Mr. Smith said. “The discussions between the company and the various government agencies have been quite fruitful.”

Microsoft was saved from being split in half by a federal appeals court decision handed down early in the Bush administration. The ruling, in 2001, found that the company had repeatedly abused its monopoly power in the software business, but it reversed a lower court order sought by the Clinton administration to split up the company.

Google complained to federal and state prosecutors that consumers who try to use its search tool for computer hard drives on Vista were frustrated because Vista has a competing desktop search program that cannot be turned off. When the Google and Vista search programs are run simultaneously on a computer, their indexing programs slow the operating system considerably, Google contended. As a result, Google said that Vista violated Microsoft’s 2002 antitrust settlement, which prohibits Microsoft from designing operating systems that limit the choices of consumers.

Google has asked the court overseeing the antitrust decree to order Microsoft to redesign Vista to enable users to turn off its built-in desktop search program so that competing programs could function better, officials said.

State officials said that Mr. Barnett’s memo rejected the Google complaint, repeating legal arguments made by Microsoft.

Before he joined the Justice Department in 2004, Mr. Barnett had been vice chairman of the antitrust department at Covington & Burling. It represented Microsoft in the antitrust case and continues to represent the company.

In a recent interview, Mr. Barnett declined to discuss the Google complaint, noting that the decree requires complaints by companies to be kept confidential. He defended the federal government’s overall handling of the Microsoft case.

“The purpose of the consent decree was to prevent and prohibit Microsoft from certain exclusionary behavior that was anticompetitive in nature,” Mr. Barnett said. “It was not designed to pick who would win or determine who would have what market share.”

“We want to prevent Microsoft from doing those things that exclude competitors,” he added. “We also don’t want to disrupt the market in a way that will be harmful to consumers. What does that mean? We’ve never tried to prevent any company, including Microsoft, from innovating and improving its products in a way that will be a benefit to consumers.”

Prosecutors from several states said that they believed that Google’s complaint about anticompetitive conduct resembled the complaint raised by Netscape, a company that popularized the Web browser, that was the basis of the 1998 lawsuit.

Richard Blumenthal, the Connecticut attorney general, declined to talk about the substance of the complaint, or which company made it. But he said the memo from Mr. Barnett surprised him.

“Eyebrows were raised by this letter in our group, as much by the substance and tone as by the past relationship the author had had with Microsoft,” said Mr. Blumenthal, one of the few state prosecutors who has been involved in the case since its outset.

“In concept, if not directly word for word, it is the Microsoft-Netscape situation,” Mr. Blumenthal said. “The question is whether we’re seeing déjà vu all over again.”

The administration has supported Microsoft in other antitrust skirmishes as well.

Last year, for instance, the United States delegation to the European Union complained to European regulators that Microsoft had been denied access to evidence it needed to defend itself in an investigation there into possible anticompetitive conduct. The United States delegation is led by Ambassador C. Boyden Gray, who had worked for Microsoft as a lawyer and lobbyist.

Robert Gianfrancesco, a spokesman for the delegation, said that Ambassador Gray had not formally removed himself from involvement in Microsoft issues but was not involved in the complaint to European regulators, which was handled by other American diplomats in the delegation.

In December 2005, the Justice Department sharply criticized the Korean Fair Trade Commission after that agency ordered major changes in Microsoft’s marketing practices in Korea.

And in 2004, the Justice Department criticized the European Commission for punishing Microsoft for including its video and audio player with its operating system.

Antitrust experts attribute the Bush administration’s different approach to Microsoft to a confluence of political forces as well as significant changes in the marketplace.

A big factor has been the Bush administration’s hands-off approach to business regulation. For its part, Microsoft, which spent more than $55 million on lobbying activities in Washington from 2000 to 2006 and substantially more on lawyers, has become a more effective lobbying organization.

“The generous and noncynical view is that there has been a fundamental change in philosophy about the degree to which antitrust should be used to regulate business activity,” said Andrew I. Gavil, an antitrust law professor at Howard University who is a co-author of the Microsoft book with Professor First, the New York University law professor. “In the Microsoft case, you can see how that change has manifested itself.”

    Microsoft Finds Legal Defender in Justice Dept., NYT, 10.6.2007, http://www.nytimes.com/2007/06/10/business/10microsoft.html?hp

Trade Deficit Improved in April

June 8, 2007
By THE ASSOCIATED PRESS
Filed at 11:40 a.m. ET
The New York Times

WASHINGTON (AP) -- The trade deficit dropped sharply in April as continued strong overseas demand pushed American exports to an all-time high.

While the Bush administration hailed the unexpectedly large improvement as a sign that an export-boom was continuing, critics noted the imbalance with China rose in April, underscoring what they said was an urgent need for Congress to take action to punish China for unfair trade practices.

The Commerce Department reported Friday that the gap between what America sells abroad and what it imports totaled $58.5 billion in April, a 6.2 percent decline from the March deficit.

Exports edged up 0.2 percent to a record $129.5 billion, reflecting strong sales of soybeans and other farm products, commercial aircraft and industrial machinery. Imports fell 1.9 percent to $188 billion, reflecting big declines in imports of foreign cars, televisions and clothing and a small dip in America's foreign oil bill.

''With each new trade agreement reached and implemented, barriers around the world to U.S. exports fall and opportunities for export growth are enhanced,'' said U.S. Trade Representative Susan Schwab, who is leading the administration's effort to win congressional support for new free trade deals with South Korea and three Latin American nations.

The overall improvement in the deficit was larger than the small decline analysts had been expecting and was a hopeful sign, analysts said, that the deficit for all of 2007 should decline after posting records for five consecutive years.

They attributed the improvement to stronger growth overseas and the weaker value of the dollar against many currencies, which makes American products more competitive in overseas markets.

Trade subtracted a full percentage point from economic growth in the first three months of this year, when the economy slowed to a barely discernible 0.6 percent growth rate.

Analysts said the new trade report, which showed slightly improved deficit figures in previous months, should help boost economic growth as measured by the gross domestic product to closer to 1 percent in the first quarter while the big narrowing in the April deficit should help support a rebound in GDP growth to around 2.5 percent or better in the second quarter.

Through the first four months of this year, the deficit is running at an annual rate of $705.9 billion, a drop of 6.9 percent from last year's record $758.5 billion imbalance.

However, the deficit with China widened to $19.4 billion in April, the worst showing since January, and through the first four months of the year is running 11.9 percent higher than the pace of a year ago when the gap with China set a record at $232.6 billion.

The deficit with China has gotten increasing attention in Congress, where critics are pushing various bills that would impose economic sanctions to punish China for what they contend are unfair trading practices such as currency manipulation and copyright piracy.

Sen. Sherrod Brown, D-Ohio, said that the failure to crack down on China and other countries had led to ''out of control trade deficits'' and a resulting loss of well-paying manufacturing jobs.

He said a recent report by the Economic Policy Institute, a liberal think tank, found that America's soaring trade deficit with China from 1997 through 2006 had displaced production that could have supported 2.17 million U.S. jobs.

The administration, trying to head off a protectionist backlash, has launched a new series of high-level talks with the Chinese. The latest round of those discussions two weeks ago failed to yield any breakthroughs in the main area of contention, China's undervalued currency, but Treasury Secretary Henry Paulson said this week that he remained committed to the discussions.

For April, exports of American agricultural products set a record at $6.7 billion, reflecting strong increases in shipments of soybeans, nuts and meat. Exports of industrial materials and consumer goods also set records.

On the import side, the foreign oil bill edged down a slight 0.2 percent to $24.9 billion on a seasonally adjusted basis even though the average price of a barrel of crude oil rose to $57.28, the highest level since last September.

The deficit with Canada, America's largest trading partner, rose by 7.4 percent to $5.8 billion but the imbalance with Mexico, the other partner in the North American Free Trade Agreement, fell by 22.3 percent to $5.3 billion. The imbalance with the European Union was up 17.1 percent to $9 billion.

------

On the Net:

Trade report: http://www.census.gov/ft900

    Trade Deficit Improved in April, NYT, 8.6.2007, http://www.nytimes.com/aponline/us/AP-Economy.html

U.S. Trade Gap Lower Than Expected

June 8, 2007
By REUTERS
The New York Times

WASHINGTON, June 8 (Reuters) - The U.S. trade deficit shrank much more than expected in April to $58.5 billion, as the weakening U.S. dollar appeared to depress import demand and help push exports to a record, a U.S. Commerce Department report on Friday showed.

The trade gap narrowed 6.2 percent from a downwardly revised estimate for March. The April tally fell below the $60 billion to $66.9 billion range of estimates made by analysts surveyed before the report.

The Commerce Department also revised its estimate of the 2006 trade deficit to $758.5 billion, from a previously reported $765.3 billion.

U.S. exports rose slightly to a record $129.5 billion. The 0.2 percent increase partly reflected a $3 billion upward revision in March exports to $129.2 billion.

Exports of both goods and services set records, and several categories such as foods, feeds and beverages, industrial supplies and materials and consumer goods also hit all-time highs.

A 1.9 percent drop in overall imports also helped rein in the trade deficit, despite a jump in the average price of imported oil to $57.28 per barrel that boosted the dollar value of oil imports to the highest since September.

Imports of consumer goods dropped $1.5 billion in April while autos and auto parts fell by $1 billion. Other categories, such as capital goods and foods, feeds and beverages, also showed a decline.

Imports from China increased 6.6 percent in April to $24.2 billion, while U.S. exports to that country fell 11.5 percent to $4.8 billion. As a result, the closely watched trade gap with China swelled 12.3 percent to $19.4 billion.

    U.S. Trade Gap Lower Than Expected, NYT, 8.6.2007, http://www.nytimes.com/reuters/business/08cnd-trade.html?hp

S.& P. Index Climbs Past the Record It Set 7 Years Ago

May 31, 2007
The New York Times
By VIKAS BAJAJ and JEREMY W. PETERS

The stock market yesterday clawed back to where it was seven years ago during the heady days of technology and the Internet boom — and it had to overcome an overnight sell-off in China to get there.

Stocks, which struggled for much of the day after markets fell in Asia and Europe, received a midafternoon boost from the minutes of a Federal Reserve meeting that indicated that policy makers had become somewhat more upbeat about the economy. The tone of the minutes, if not the substance, heartened investors, who sent the Standard & Poor’s 500-stock index, the most widely followed benchmark of American stocks, past a level last reached on March 24, 2000.

The index — a weighted measure of the biggest American companies, from Exxon Mobil to Google — gained 0.8 percent, or 12.12 points, to 1,530.23, surpassing the record of 1,527.46.

The S.& P. climbed past the record early last week, too, but failed to hold onto the gains until the end of regular trading as it did yesterday. The Dow Jones industrial average, which has been breaking records with some regularity in the last several months, closed up 111.74 points, or 0.83 percent, to 13,633.08, another record.

The Nasdaq composite index rose 20.53 points yesterday, or 0.8 percent, to 2,592.59. The Nasdaq has yet to come close to regaining the levels reached during the Internet boom. It is down 49 percent from its March 2000 high.

The S.& P. breakthrough was set on a day that began with worries about a bubble in Chinese stocks. The stock market in Shanghai tumbled 6.5 percent yesterday after the government in Beijing trebled the taxes on stock transactions in an effort to rein in what has become the world’s hottest stock market.

In February, the Shanghai market precipitated a wave of selling on markets around the world after a similar sell-off. But after a brief period of uncertainty in late February and early March, investors have been pushing American stocks steadily upward. This time, the nervousness was much shorter-lived.

“If we see a 20 or 30 percent decline in the Shanghai index, that will cause investors to sit up and take notice,” Sam Stovall, chief investment strategist at Standard & Poor’s, said yesterday. “Basically, investors say, ‘You’ve got to increase the shock value, not merely replicate it to get my attention the second time around.’ ”

The United States market has been supported by a strong flow of corporate takeovers, companies buying back their own shares and corporate earnings that are proving to be better than expected.

That optimism appears to be overshadowing, at least for now, concerns about the slowing American economy, rising energy prices, a modest increase in interest rates and the troubles in the housing market.

“We have a remarkably positive environment for securities,” said James W. Paulsen, chief investment strategist for Wells Capital Management. “You have 5 percent real world G.D.P. growth right now and you have massive excessive liquidity sloshing around.”

According to minutes of the Fed meeting on May 9, officials seemed to think that the economic outlook had improved somewhat, even as they acknowledged that the housing market and the problems in subprime mortgages would serve as a bigger drag on the economy than they had previously thought.

But the minutes reiterated, as statements from the Fed have for many months now, that policy makers remain concerned that inflation is too high and too unsettled to warrant a change in policy, which has been to leave short-term interest rates unchanged at 5.25 percent. There are also signs that the recent moderation in inflation could be threatened by rising gasoline prices, which have climbed past $3 a gallon for the first time since last summer.

Still, investors appeared willing to look past the Fed’s concerns about housing and inflation, two staple worries that while they have raised eyebrows have not yet sapped corporate profits or the frenzied deal-making on Wall Street.

While the outlook for profits is not as ebullient as it was in the last several years, it remains reasonably upbeat. Low interest rates have also ensured that businesses still have easy access to credit. (The 4.87 percent yield on the 10-year Treasury note, which has risen in the last two months, is still historically low.)

“Until interest rates rise significantly and investors become excessively optimistic, the market is likely to continue upward,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Company, a securities firm.

Yet, some skeptics worry that investors have become too complacent since early March; the S.& P. has risen about 11.4 percent in the period. The rally, they say, does not appear to reflect the rise in interest rates, the slowdown in the economy and the recent increase in gasoline prices, said Robert C. Doll, vice chairman at BlackRock, the asset management company.

“Markets never move in one direction for a long period of time,” Mr. Doll said. “The glass is being viewed as half full, which it is, but there is always another side to the story.”

Still, many market specialists note that even with the recent run-up in the stock market, American companies are cheap compared with the past and with other world markets. The price-to-earnings ratio for companies in the S.& P. is about 18 today, compared with 32.8 in 2000 and a 21-year average of 22.5.

The S.& P., which is up 97 percent since October 2002 when a two-year bear market ended, has lagged behind other stock indexes and markets by a significant margin. By comparison, a Morgan Stanley index that tracks stock markets in developed countries excluding the United States is up 161 percent in that time.

That difference is, in part, a reflection of the huge role played by technology stocks in the S.& P. 500, both in driving it to giddy heights in the 1990s and bringing it down at the start of this decade.

The information technology sector of the index is still down about 60.8 percent from March 2000 and the telecommunications sector, which includes far fewer companies today, is down by about 43 percent. Consider JDS Uniphase, a maker of telecommunications parts and a former stock market darling. Its shares soared by more than 2,500 percent from August 1998 to March 2000. Since then, it is down by 95 percent.

Of course, many technology companies that played a leading role in the market in the last decade are either no longer part of the index or make up a far smaller portion of it. (Since March 2000, there have been 199 changes in the membership of the index.)

Leadership of the stock market has shifted to the energy sector, which is up 150.7 percent since 2000, followed by the materials business, up 84 percent. Both sectors have benefited from the boom in commodities that has been driven by the fast growth of China, India and other developing nations.

There are also signs that many investors have not fully regained the faith in the market that they lost after the end of the technology boom and the terrorist attacks of 2001. In numerous polls during the last several years, Americans have expressed tepid enthusiasm for the stock market and a much stronger faith in housing.

The flow of money into mutual funds that specialize in domestic stocks, a proxy for investor sentiment, has been particularly weak in the last several years.

Even the recent rally in the American market has not been enough to draw many individual investors to American stocks.

Through the second week in May, investors this year have put just $25.3 billion into mutual funds that specialize in domestic stocks. By contrast, they have plowed more than twice that, $56.1 billion, into nondomestic funds, according to AMG Data Services.

“There is no demand push from investor sentiment that is driving these markets to record levels,” said Robert L. Adler, president of AMG Data, a research firm based in Arcata, Calif.

    S.& P. Index Climbs Past the Record It Set 7 Years Ago, NYT, 31.5.2007, http://www.nytimes.com/2007/05/31/business/31stox.html

Immigration Bill Includes Worker Screening

May 30, 2007
By THE ASSOCIATED PRESS
Filed at 3:19 a.m. ET
The New York Times

WASHINGTON (AP) -- The nation's employers say a major problem with system overload is on the way if Congress forces them to prove, electronically, that all their workers are legal.

Currently, 16,727 employers check employees through a system previously known as Basic Pilot and now called the Electronic Employer Verification System. They have checked 1.77 million employees, according to Citizenship and Immigration Services, an agency within the Homeland Security Department.

Current immigration law leaves it to employers to verify that they are hiring legal workers. But that law, passed in 1986, has not been enforced strictly.

Immigration legislation pending in the Senate would require that Social Security numbers, identification and other information supplied by all U.S. workers be run through the electronic system. If the proposal becomes law, employers would have to check all new hires within 18 months of its enactment, and check all other employees within three years.

That could mean millions more employers logging on to a system that, right now, is still under development.

''I just don't think this is a realistic approach,'' said Susan R. Meisinger, president of the Society for Human Resource Management, a suburban Washington-based association of human resources professionals. To get to all new hires in a year, she said, the Homeland Security Department would have to sign up 20,000 employers a day.

There are an estimated 7 million to 8 million employers and 140 million employees in the U.S., business and labor officials say. Under the Senate proposal, employers who have illegal workers on the payroll could face fines from $5,000 per worker to up to $75,000 and six months in jail per worker.

Screening proponents say the requirement is needed because too many employers are hiring illegal immigrants, whether knowingly or unwittingly.

The worker check system can't verify the accuracy of all information submitted to an employer, including drivers licenses and state identification cards obtained with stolen or borrowed birth certificates.

That was a problem for the pork and beef processor Swift & Co., which had been using the system for 10 years when its six plants were raided by Immigration and Customs Enforcement last year. More than 1,200 immigrant workers were arrested; Swift itself wasn't charged.

Di Ann Sanchez, vice president of human resources at Dallas-Fort Worth International Airport, anticipates a bottleneck when the airport has to ensure its 1,800 employees are legal -- even those employed for decades.

''If you've got all these employers hitting that system, is the system reliable to do it and not come back with a false negative or be so overloaded that it won't allow employers to hire as quickly as we need to?'' Sanchez said.

Jock Scharfen, deputy director of U.S. Citizenship and Immigration Services, told Congress last month that a recent study found the system could not initially confirm eight of every 100 people checked.

Not all of those who were not confirmed are illegal workers. Sometimes the system flags naturalized citizens whose citizenship status hasn't been updated, or women who didn't change their names on Social Security records when they married.

Confirmations are returned to employers in about three seconds, Scharfen said. The Senate bill allows up to three business days for initial responses to queries and 10 business days to confirm whether the worker is legal.

Chris Bentley, spokesman for Citizenship and Immigration Services, said the agency is ''confident the foundation has been laid so there can be rapid expansion of the program as needed.''

The system has given accurate and timely responses to the 800 branches of Long Island, N.Y.-based Adecco Group North America, a firm that helps companies find temporary and contract workers, said Bernadette Kenny, senior vice president for human resources.

Kenny, however, is not confident that will continue when more employers are using the system.

''The current proposals do not seem to account for the huge technology or infrastructure support that would be needed to expand it,'' Kenny said. ''If you added every employer in America, even in my simple mind, without greatly expanding that platform, it would crash.''

Employers now collect information from the I-9 forms filled out by every U.S. worker when they are hired. They submit the information, usually name, birth date, Social Security number and citizenship or immigration status to the Internet-based system. A Social Security database is checked to verify the person is a citizen.

Noncitizens' information is checked with a Homeland Security immigration database. Anyone whose status can't be verified has eight days to call a toll free number and can't be fired or have adverse employment action taken against him. DHS said it usually resolves such cases in three business days.

Critics are skeptical that Homeland Security can set up an employer verification system to handle all workers in four years. They note the agency has postponed a system to track foreigners entering and leaving the country.

Homeland officials are testing a program now with about 50 employers that will allow checks of photos on green cards, used by legal permanent residents, to verify identities. The Senate proposal also calls for testing a system in which employers would submit workers' fingerprints.

------

On the Net:

HR Initiative for a Legal Workforce: http://www.hrinitiative.org/

Homeland Security Department: http://www.dhs.gov

American Civil Liberties Union: http://www.aclu.org

    Immigration Bill Includes Worker Screening, NYT, 30.5.2007, http://www.nytimes.com/aponline/us/AP-Immigration-Checking-Workers.html

Experts Say Decision on Pay Reorders Legal Landscape

May 30, 2007
The New York Times
By STEVEN GREENHOUSE

Yesterday’s Supreme Court ruling limiting the ability of workers to sue companies for pay discrimination will reorder the legal landscape for employees and employers, workplace experts said.

While the ruling involved charges of sex discrimination, these experts said it would have broad ramifications in cases involving discrimination because of race or national origin, narrowing the legal options of many employees.

In yesterday’s 5-to-4 decision, the Supreme Court ruled that workers generally lose their right to sue for pay discrimination unless they file charges within 180 days of a specific event, like a boss giving a worker a smaller raise because of her sex. Establishing a pattern of discrimination over several years will no longer be possible.

Some legal experts said the ruling would put pressure on workers to file discrimination claims within 180 days even when they are still seeking more conclusive evidence that they were discriminated against.

“Unless they notice it on the first paycheck or a recent paycheck, they’re going to be in trouble,” said James Brudney, a professor of labor and employment law at Ohio State University.

Before yesterday’s ruling, many courts allowed workers to sue for pay discrimination years after a supervisor made a discriminatory decision because the courts considered each new paycheck a new discriminatory act.

“The ruling is clearly a very important setback in the ability to eliminate discriminatory pay,” said Marcia Greenberger, a co-president of the National Women’s Law Center. “It puts people in a terrible bind.

“On one hand,” Ms. Greenberger continued, “it requires individuals to file a complaint within 180 days of being concerned that their pay may be discriminatory in nature. But having to file that quickly could be counterproductive because people might still be trying to make sure that there really is discrimination and because they still might be trying to work things out in a conciliatory way.”

Business groups applauded the decision. “Today’s ruling is a victory for employers because it limits how far back in time an employee may go when making a discrimination claim involving pay,” said Robin Conrad, executive vice president of the National Chamber Litigation Center, an arm of the United States Chamber of Commerce. “We commend the court for issuing a fair decision that eliminates a potential windfall against employers by employees trying to dredge up stale pay claims.”

Several lawyers who defend companies said the ruling could make workers more trigger-happy about suing.

“What it means for plaintiffs’ lawyers is their clients, if they suspect or believe that there may be a pay disparity, really need to file the charge right away in the first instance,” said Connie Bertram, a lawyer based in Washington.

The Equal Employment Opportunity Commission said that 4,905 pay discrimination claims were filed in the 2006 fiscal year under various statutes, including 2,308 based on sex, 2,038 based on race and 577 based on national origin.

Theodore M. Shaw, president of the NAACP Legal Defense and Educational Fund Inc., said yesterday’s ruling should prompt employees to “rush into court” if they suspect they might be the victim of discrimination.

“Essentially what it says is, if you don’t catch an employer red-handed at the moment of discrimination, if there’s a cumulative discriminatory impact, that discrimination is beyond the reach of the law,” Mr. Shaw said. “That seems to me to be wrong as a matter of policy and wrong as a matter of legislative intent.”

Lilly Ledbetter, the plaintiff in the Supreme Court case, said in a telephone interview that it would have been hard for her to bring charges of pay discrimination within 180 days of her supervisors’ discriminatory acts because, she said, she did not learn of them until long afterward.

Ms. Ledbetter, who worked from 1979 to 1998 for a Goodyear tire plant in Alabama, said she first faced discrimination in the early 1980s. “My department manager, when he would evaluate me, he would tell me things like, ‘If you meet me at the Ramada Inn, you can be No. 1, and if you don’t, you’re on the bottom,’ ” she said.

Ms. Ledbetter said she filed sex discrimination charges with the E.E.O.C. in the early 1980s after that manager demoted from her job as a supervisor.

Later, she heard other supervisors chatting about all the money they earned, causing her to suspect that the bosses might be discriminating against her on pay. But she said she was not sure.

Ms. Ledbetter did not sue until 1998. “I never wanted to do it,” she said. “I didn’t do it until there was just no other way.” She said she had spent years trying to work out the discrimination problems with her bosses because she wanted to be a team player. But she said the bosses ultimately forced her out, giving her an unusually arduous job.

“I’m very disappointed about the ruling,” she said. “I’m disappointed for all the females who are out there working today.”

    Experts Say Decision on Pay Reorders Legal Landscape, NYT, 30.5.2007, http://www.nytimes.com/2007/05/30/us/30pay.html

Justices’ Ruling Limits Suits on Pay Disparity

May 30, 2007
The New York Times
By LINDA GREENHOUSE

WASHINGTON, May 29 — The Supreme Court on Tuesday made it harder for many workers to sue their employers for discrimination in pay, insisting in a 5-to-4 decision on a tight time frame to file such cases. The dissenters said the ruling ignored workplace realities.

The decision came in a case involving a supervisor at a Goodyear Tire plant in Gadsden, Ala., the only woman among 16 men at the same management level, who was paid less than any of her colleagues, including those with less seniority. She learned that fact late in a career of nearly 20 years — too late, according to the Supreme Court’s majority.

The court held on Tuesday that employees may not bring suit under the principal federal anti-discrimination law unless they have filed a formal complaint with a federal agency within 180 days after their pay was set. The timeline applies, according to the decision, even if the effects of the initial discriminatory act were not immediately apparent to the worker and even if they continue to the present day.

From 2001 to 2006, workers brought nearly 40,000 pay discrimination cases. Many such cases are likely to be barred by the court’s interpretation of the requirement in Title VII of the Civil Rights Act of 1964 that employees make their charge within 180 days “after the alleged unlawful employment practice occurred.”

Workplace experts said the ruling would have broad ramifications and would narrow the legal options of many employees.

In an opinion by Justice Samuel A. Alito Jr., the majority rejected the view of the federal agency, the Equal Employment Opportunity Commission, that each paycheck that reflects the initial discrimination is itself a discriminatory act that resets the clock on the 180-day period, under a rule known as “paycheck accrual.”

“Current effects alone cannot breathe life into prior, uncharged discrimination,” Justice Alito said in an opinion joined by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Anthony M. Kennedy and Clarence Thomas. Justice Thomas once headed the employment commission, the chief enforcer of workers’ rights under the statute at issue in this case, usually referred to simply as Title VII.

Under its longstanding interpretation of the statute, the commission actively supported the plaintiff, Lilly M. Ledbetter, in the lower courts. But after the Supreme Court agreed to hear the case last June, the Bush administration disavowed the agency’s position and filed a brief on the side of the employer.

In a vigorous dissenting opinion that she read from the bench, Justice Ruth Bader Ginsburg said the majority opinion “overlooks common characteristics of pay discrimination.” She said that given the secrecy in most workplaces about salaries, many employees would have no idea within 180 days that they had received a lower raise than others.

An initial disparity, even if known to the employee, might be small, Justice Ginsburg said, leading an employee, particularly a woman or a member of a minority group “trying to succeed in a nontraditional environment” to avoid “making waves.” Justice Ginsburg noted that even a small differential “will expand exponentially over an employee’s working life if raises are set as a percentage of prior pay.”

Justices John Paul Stevens, David H. Souter and Stephen G. Breyer joined the dissent.

Ms. Ledbetter’s salary was initially the same as that of her male colleagues. But over time, as she received smaller raises, a substantial disparity grew. By the time she brought suit in 1998, her salary fell short by as much as 40 percent; she was making $3,727 a month, while the lowest-paid man was making $4,286.

A jury in Federal District Court in Birmingham, Ala., awarded her more than $3 million in back pay and compensatory and punitive damages, which the trial judge reduced to $360,000. But the United States Court of Appeals for the 11th Circuit, in Atlanta, erased the verdict entirely, ruling that because Ms. Ledbetter could not show that she was the victim of intentional discrimination during the 180 days before she filed her complaint, she had not suffered an “unlawful employment practice” to which Title VII applied.

Several other federal appeals courts had accepted the employment commission’s more relaxed view of the 180-day requirement. The justices accepted Ms. Ledbetter’s appeal, Ledbetter v. Goodyear Tire and Rubber Company, No. 05-1074, to resolve the conflict.

Title VII’s prohibition of workplace discrimination applies not just to pay but also to specific actions like refusal to hire or promote, denial of a desired transfer and dismissal. Justice Ginsburg argued in her dissenting opinion that while these “singular discrete acts” are readily apparent to an employee who can then make a timely complaint, pay discrimination often presents a more ambiguous picture. She said the court should treat a pay claim as it treated a claim for a “hostile work environment” in a 2002 decision, permitting a charge to be filed “based on the cumulative effect of individual acts.”

In response, Justice Alito dismissed this as a “policy argument” with “no support in the statute.”

As with an abortion ruling last month, this decision showed the impact of Justice Alito’s presence on the court. Justice Sandra Day O’Connor, whom he succeeded, would almost certainly have voted the other way, bringing the opposite outcome.

The impact of the decision on women may be somewhat limited by the availability of another federal law against sex discrimination in the workplace, the Equal Pay Act, which does not contain the 180-day requirement. Ms. Ledbetter initially included an Equal Pay Act complaint, but did not pursue it. That law has additional procedural hurdles and a low damage cap that excludes punitive damages. It does not cover discrimination on the basis of race or Title VII’s other protected categories.

In her opinion, Justice Ginsburg invited Congress to overturn the decision, as it did 15 years ago with a series of Supreme Court rulings on civil rights. “Once again, the ball is in Congress’s court,” she said. Within hours, Senator Hillary Rodham Clinton of New York, who is seeking the Democratic nomination, announced her intention to submit such a bill.

    Justices’ Ruling Limits Suits on Pay Disparity, NYT, 30.5.2007, http://www.nytimes.com/2007/05/30/washington/30scotus.html?hp

Google, South Korean Co Mull Wider Deal

May 29, 2007
By THE ASSOCIATED PRESS
Filed at 9:24 a.m. ET
The New York Times

SEOUL, South Korea (AP) -- The top executives of Google Inc. and Daum Communications Corp., South Korea's No. 2 Internet search engine, met Tuesday to discuss broadening their partnership, Daum said.

Google Chairman Eric Schmidt and Daum CEO Seok Jong-hoon discussed cooperating in Internet search services and Daum's user-created video content service, said Lee Seung-jin, a Daum official. No official agreements were made, Lee said.

Daum late last year decided to end its advertising relationship with Yahoo Inc. in favor of using Google for paid search results.

Google, the world's No. 1 search engine company, has lagged local search engines such as NHN Corp.'s dominant Naver Web site. Users in South Korea say the local sites are better adapted to factors specific to the market, with more visually complex sites and reliance on human interaction instead of software to get search results.

Schmidt was in South Korea to participate in the Seoul Digital Forum, an annual gathering of industry and media figures.

    Google, South Korean Co Mull Wider Deal, NYT, 29.5.2007, http://www.nytimes.com/aponline/technology/AP-SKorea-Google-Daum.html

Google Deal Said to Bring U.S. Scrutiny

May 29, 2007
The New York Times
By STEVE LOHR

The Federal Trade Commission has opened a preliminary antitrust investigation into Google’s planned $3.1 billion purchase of the online advertising company DoubleClick, an industry executive briefed on the agency’s plans said yesterday.

The inquiry began at the end of last week, after it was decided that the Federal Trade Commission instead of the Justice Department would conduct the review, said the executive, who asked not to be identified because he had not been authorized to speak. The two agencies split the duties of antitrust enforcement.

An F.T.C. spokesman said yesterday that the agency did not comment on pending inquiries.

The deal, involving powerful forces in their respective niches of the online advertising business, prompted privacy advocates and competitors to raise concerns after it was announced last month. Those concerns and the deal’s size made a preliminary investigation all but certain, according to antitrust experts.

The F.T.C. has also issued Google a detailed list of questions, the industry executive said. This step, known as a "second request" for information, can suggest that a proposed acquisition raises more serious antitrust issues. But legal experts said the request is mainly a sign that the agency is closely scrutinizing the Google deal.

Google said it was confident that the deal would withstand scrutiny.

Privacy groups said it was significant that the F.T.C., the agency that monitors online privacy issues, would be conducting the review.

“We think it’s very important that the F.T.C. is taking a look at the Google-DoubleClick deal,” said Marc Rotenberg, executive director of the Electronic Privacy Information Center, a privacy rights group.

In the days after the planned merger was announced, Mr. Rotenberg’s center and two other advocacy groups, the Center for Digital Democracy and the United States Public Interest Research Group, filed a request for the F.T.C. to investigate the privacy implications.

In the complaint, the groups noted that Google collects the search histories of its users, while DoubleClick tracks what Web sites people visit. The merger, according to their complaint, would “give one company access to more information about the Internet activities of consumers than any other company in the world.”

Google has built a lucrative business in selling small text ads that appear alongside its search results and on other Web sites. DoubleClick is the leader among companies that specialize in placing graphical and video ads online.

Jeff Chester, executive director of the Center for Digital Democracy, said that decisions made now about the structure of the online advertising industry could have lasting effects on data collection and personal privacy on the Internet, especially if control rests with a “few powerful gatekeepers” led by Google.

Still, privacy issues are not typically the concern of antitrust officials. In reviewing a proposed merger, legal experts say, regulators weigh the likely impact on competition and struggle with tricky technical matters like defining the relevant market to measure.

“To the extent that a reduction in competition could make it more difficult to protect privacy, it could be a consideration,” said Andrew I. Gavil, a law professor at Howard University. “But it would have to be linked to competition. Strictly speaking, privacy is not an antitrust issue.”

Google, the Internet search giant, is facing questions about its privacy practices not only from advocacy groups in the United States, but also from an advisory panel for the European Union. The company has said it welcomes the debate. It defends its privacy safeguards and says its business is based on consumer trust.

As for the DoubleClick acquisition, Google yesterday repeated its optimism that antitrust regulators would approve the deal.

“We are confident that upon further review the F.T.C. will conclude that this acquisition poses no risk to competition and should be approved,” said Don Harrison, a senior corporate counsel for Google.

Mr. Harrison pointed to the flurry of deals in recent weeks, after Google announced its bid for DoubleClick on April 13. Later in the month, Yahoo announced it would pay $680 million for the 80 percent of Right Media, an online ad exchange, that it did not already own.

In May, WPP, the big ad agency, said it would pay $649 million for 24/7 Real Media, whose ad serving business competes with DoubleClick. And then Microsoft, which pushed for an antitrust investigation of the Google-DoubleClick deal, agreed to pay $6 billion for aQuantive, an Internet ad company. One of aQuantive’s units, Atlas, competes with DoubleClick.

Mr. Harrison said that “the online advertising industry is a dynamic and evolving space — as evidenced by a number of recently announced acquisitions.” And he added that “rich competition in this industry will bring more relevant ads to consumers and more choices for advertisers and Web site publishers.”

Among the competitors that had called for an antitrust review were Microsoft, which had lost out in the bidding for DoubleClick, and AT&T, which distributes services over the Internet like digital television.

    Google Deal Said to Bring U.S. Scrutiny, NYT, 29.5.2007, http://www.nytimes.com/2007/05/29/technology/29antitrust.html?hp

Home Prices Fall for 9th Straight Month

May 25, 2007
By THE ASSOCIATED PRESS
Filed at 12:09 p.m. ET
The New York Times

WASHINGTON (AP) -- Sales of existing homes fell by a larger-than-expected amount in April while the median price of a home sold during the month fell for a ninth straight month as the troubles in the subprime mortgage market acted as a further drag on housing.

The National Association of Realtors reported Friday that sales of existing homes fell by 2.6 percent last month to a seasonally adjusted annual rate of 5.99 million units. That was the slowest sales pace since June 2003.

The median price of a home fell to $220,900, an 0.8 percent fall from the midpoint selling price a year ago. It marked the ninth straight decline in the median price.

Sales were weak in all parts of the country. The Northeast experienced the biggest decline, a fall of 8.8 percent in April from the March sales pace. Sales were down 1.7 percent in the West, 1.2 percent in the South and 0.7 percent in the Midwest.

The drop in existing home sales for April followed news that sales of new homes surged by 16.2 percent last month, the biggest one-month rise in 14 years. However, that big jump was accompanied by a record drop in median new home prices. Analysts saw that as a sign that builders are getting more aggressive in slashing prices as a way to move a glut of unsold new homes.

The drop in sales was accompanied by a big jump in the number of unsold homes left on the market. They climbed to a record total of 4.2 million. It would take 8.4 months to exhaust that supply of homes at the April sales pace.

Analysts are concerned that the glut of unsold homes will further depress prices in coming months.

But Lawrence Yun, senior economist for the Realtors, said that the small year-over-year price decline of less than 1 percent was still modest compared to the 50 percent rise in home prices that occurred during the five boom years that ended last year.

Yun said some of the weakness in April reflected a weather payback after sales had shown gains at the beginning of the year, reflecting warmer-than-normal winter weather.

He also blamed the rising troubles in the subprime mortgage market, the area of the market designed for borrowers with weaker credit histories. Rising mortgage foreclosures are causing banks and other lenders to tighten up on their lending standards while curtailing their more risky loan business.

''We've been anticipating slower home sales because many subprime loan products are no longer available,'' he said. ''Fortunately, a wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months will help stabilize the market going forward.''

He said the big rise in unsold homes on the market could be an indication that sellers are testing the market in hopes of selling their homes and moving up to larger units, which he said would be a positive early sign of a rebound in housing.

But other analysts are not as optimistic, expressing concerns that housing could remain under downward pressure for the rest of this year and stage only a modest recovery in 2008.

The troubles in housing have acted to depress overall economic activity which slowed to a growth rate of just 1.3 percent in the first three months of this year, the slowest economic growth rate in four years.

    Home Prices Fall for 9th Straight Month, NYT, 25.5.2007, http://www.nytimes.com/aponline/business/AP-Economy.html?hp

More Than Ever, It Pays to Be the Top Executive

May 25, 2007
The New York Times
By EDUARDO PORTER

Like most companies, Office Depot has long made sure that its chief executive was the highest-paid employee. Ten years ago, the $2.2 million pay package of its chief was more than double that of his No. 2. The fifth-ranked executive received less than one-third.

But the incentive for reaching the very top of the company is now far greater. Steve Odland, who runs Office Depot today, made almost $12 million last year, more than four times the compensation of the second-highest-paid executive and over six times that of the fifth-ranking executive in the current hierarchy.

As executive pay has surged in most American companies, attention has focused on the growing gap between the earnings of top executives and the average wage of workers in cubicles or on the shop floor. Little noticed, though, is how much the gap has also widened between the summit and the next few echelons down.

“It’s executive pay chasing executive pay,” said Mark Van Clieaf, managing director of MVC Associates International, a consulting firm that develops compensation plans. “But nobody looked at the issue of internal pay equity, so the disparity just kept getting bigger.”

Few are deprived in corporate suites, of course. But the widening disparities in business, which show up in a variety of other ways, reflect a dynamic that is taking hold across the economy: the growing concentration of wealth and income among a select group at the pinnacle of success, leaving many others with similar talents and experience well behind.

In the 1960s and ’70s, chief executives running the nation’s biggest companies earned 80 percent more, on average, than the third-highest-paid executives, according to a recent study by Carola Frydman of the Massachusetts Institute of Technology and Raven E. Saks at the Federal Reserve. By the early part of this decade, the gap in the executive suite between No. 1 and No. 3 had swollen to 260 percent.

Many experts argue that chief executives have a particular ability to drive their own pay upward, in part by manipulating directors they work closely with and encouraging the use of consulting firms that have a built-in incentive to increase pay packages for those who hire them.

“There’s a sense that the C.E.O.’s pay is not determined by supply and demand,” said Robert J. Gordon, a professor of economics at Northwestern University.

There is some truth to that, but economists who have recently studied the issue contend that basic economic forces still play a big role in determining pay at the very top of the corporate ladder. It just happens to be working to the advantage of an increasingly narrow slice of business leaders.

The pay of chief executives, analysts say, is being driven by superstar dynamics similar to those that determine the inordinate rewards for pop stars and athletes — a phenomenon first explained by Sherwin Rosen of the University of Chicago in 1981 and underlined more than a decade ago by the economists Robert H. Frank and Philip J. Cook in their book “The Winner-Take-All Society” (Free Press, 1995).

As American companies, American hedge funds — and even American lawsuits — have grown in size, it has become ever more valuable to get the “best” chief executive or fund manager or litigator. This has fueled a fierce competition for talent at the top, which has pushed economic rewards farther up the ladder of success, concentrating the richest pay levels even more.

“There is an interaction between technology and scale which is true in all these businesses,” said Steven N. Kaplan, a finance professor at the Graduate School of Business of the University of Chicago. “One person can oversee more assets, and this translates into more money.”

The gap in executive pay is widening even at companies that once had more even-handed practices. At Wal-Mart, for instance, the top executive 10 years ago made some 40 percent more than his second in command. Last year, H. Lee Scott, the chief executive, received more than twice as much as his chief administrative officer, John B. Menzer.

“Wal-Mart was under the influence of its founder for so long, and he had a different set of values than the current managers,” said Graef S. Crystal, a leading expert on executive pay. “He was much more egalitarian. These are professional managers.”

The changing rewards for corporate executives are not unlike the acute concentration of wealth among entertainment industry superstars, with television, the globalization of movie audiences and the spread of digital technologies having allowed those at the very top to generate enormous incomes at the expense of those that might be slightly less popular.

Alan B. Krueger, a Princeton economist, found that the share of concert ticket revenue taken by the top 1 percent of pop stars — measured by sales per concert — rose to 56 percent in 2003 from 26 percent in 1982.

Similarly, the best-paid baseball player 20 years ago, Gary Carter, earned $2.4 million from the New York Mets, 41 percent more than the 25th-ranked, Tim Raines of the Montreal Expos. This season, the $28 million, pro rated, that the Yankees will pay Roger Clemens is more than double the paycheck of David Ortiz of the Boston Red Sox, who is 24 rungs down.

This even more skewed pattern at and near the top of the income ladder has become a sort of national standard. From 1985 to 2005, the incomes of taxpayers in the top 10th of earnings rose about 54 percent after inflation, to an average of $207,200, according to Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley.

But among the top 1 percent of taxpayers it increased 128 percent, to $812,500. And among the top 0.01 percent it nearly quadrupled, to $14 million on average.

Corporate executives, for all the attention they have drawn, are far from a majority of the superwealthy. Mr. Gordon and Ian Dew-Becker at the National Bureau of Economic Research estimated that executives accounted for 20 percent of the income in the top 0.01 percent of the scale. Others put their share lower — around 8.5 percent.

As for the gap between C.E.O. pay and that of executives working under them, one reason may be that the larger share of stock options in top executives’ compensation packages these days makes the gap widen when the market is rising, as it was in the late 1990s and generally these days. By contrast, it narrowed somewhat in the first years of the decade, when equity prices fell.

Still, that does not fully explain the current situation, fueling the debate over runaway executive pay. Standard views tend to splinter between corporate apologists, who say that top executives have tougher jobs and are more deserving than in the past, and critics who accuse many of them, in essence, of doing little more than larding their pay at the expense of stockholders.

At Office Depot, a spokesman, Brian Levine, said, “We usually don’t comment on our executive compensation other than to say all our programs are linked directly to performance.”

Mr. Scott of Wal-Mart, at a recent lunch with reporters, argued that his pay had shot up in relation to the rest of the executive pack in part because today’s chief has a much more demanding job than a decade ago.

“As we enter a world that is more complex, the company places value on things that go beyond the running of the business,” Mr. Scott said. “There are aspects of interfacing with the external world that are more like running a presidential campaign than running a business.”

But a number of economists argue that the steep growth of executive pay has less to do with the complexities of the job and more with the competition for talent among American companies.

Kevin J. Murphy, a professor of finance at the University of Southern California, said that in the 1970s, fewer than 10 percent of chief executives were hired from outside and most of those were brought in to save a company in distress.

Since then, he argued, generalist executive skills have become more valuable to companies than expertise in whatever the company does, leading to fewer businesses’ promoting executives from within. By 2000, more than a third of all new chiefs were brought in from outside.

As a result, more C.E.O.’s find themselves in the enviable position of being pursued by competing suitors. And this type of market does not exist to the same extent for executives one or two notches down.

“A really successful C.E.O. can have a significant impact on the stock price,” said Joseph E. Bachelder, a tax lawyer who advises firms on executive pay, “and I’m not sure I can say the same is true generally about the C.F.O. or a general counsel.”

As companies grow and expand globally, the value of the top executive can grow exponentially. In a study last year, two economists, Xavier Gabaix of the Massachusetts Institute of Technology and Augustin Landier of New York University, argued that the fast rise in pay of corporate C.E.O.’s mostly reflected the growing size of American corporations.

Processing reams of data, the economists estimated that hiring the most effective chief executive in the country would, statistically, increase the stock value of a company by only 0.016 percent, compared with hiring the 250th chief executive. But at a company like General Electric, which is worth about $380 billion, that tiny difference would amount to $60 million.

This, the economists argued, helps explain why that top chief executive earned five times as much as the 250th. “Substantial firm size leads to the economics of superstars, translating small differences in ability to very large deviations in pay,” the economists wrote.

But all the attention on chief executives as business superstars raises new questions. In a report published last year, Moody’s Investors Service said it would start taking into account the difference in pay within an executive team in its bond ratings.

“It raises issues of key-person risk and of whether the C.E.O. has too much authority,” said Mark Watson, managing director of the corporate governance group at Moody’s. “We are rating the company, not the person. A bus might come by and knock the person over.”

    More Than Ever, It Pays to Be the Top Executive, NYT, 25.5.2007, http://www.nytimes.com/2007/05/25/business/25execs.html?hp

Minimum Wage Increase to Become Reality

May 24, 2007
By THE ASSOCIATED PRESS
Filed at 4:24 p.m. ET
The New York Times

WASHINGTON (AP) -- After a decade-long wait, America's lowest-paid workers saw Congress poised Thursday to increase the federal minimum wage by $2.10.

For years, the idea of increasing the minimum wage from $5.15 an hour has been stalled by partisan bickering between Republicans and Democrats.

That almost became the fate of this year's proposal to raise the federal minimum wage to $7.25 over two years. Democratic leaders attached the provision to the $120 billion Iraq war spending bill, which was vetoed by the GOP-controlled White House on May 1 because of Democrats insisting on a pullout date for American troops.

But with the House and Senate ready to pass a rewritten bill, and President Bush signaling his approval at a White House news conference, it seems likely that the end is near for the longest stretch without the federal pay floor rising since the minimum wage was established in 1938.

''We're very hopeful we're going to see finally that increase in the next couple of days,'' said Sen. Edward Kennedy, D-Mass., and chair of the Senate Health Education Labor and Pensions Committee.

This would be the first change since the minimum wage went from $4.75 to $5.15 on September 1, 1997 under former President Clinton and the Republican-controlled Congress.

The minimum wage provisions were one part of the Iraq war spending bill that did not change: the minimum wage goes up to $5.85 two months after Bush signs the bill, then to $6.55 one year later and to $7.25 the next year.

The liberal-leaning Economic Policy Institute, a research group in Washington, estimates that 5.6 million workers -- or 4 percent of the work force -- currently earn less than $7.25.

''This is a great day for America's middle class,'' said Rep. George Miller, D-Calif., chair of the House Education and Labor Committee. ''America's workers have been waiting for a raise for a long time.''

Currently, a person working 40 hours per week at the current minimum wage of $5.15 makes about $10,700 a year. An increase to $7.25 would boost that to just over $15,000 a year.

The full increase, according to Miller, is enough to pay for 15 months of groceries for a family of three.

More than two dozen states and the District of Columbia already have minimum wages higher than the federal level. Minimum wage workers are typically young, single and female and are often black or Hispanic.

Raising the minimum wage was a key part of Democrats' midterm election platform. To help make it palatable for Republicans, they added $4.84 billion in tax relief for small businesses to help them hire new workers and offset any cost associated with an increase in the minimum wage.

Republicans had complained earlier that the tax cuts in the bill were insufficient, but the inclusion of the provisions in the Iraq war spending bill made it difficult for them to stop.

According to the National Restaurant Association, the last minimum wage increase cost the restaurant industry more than 146,000 jobs and restaurant owners put off plans to hire an additional 106,000 employees.

''A minimum wage increase will cost our industry jobs, and the vital discussion of how to minimize this job loss is getting lost in the debate,'' said Peter Kilgore, the group's acting interim president and chief executive officer.

------

History of increases in the minimum wage: http://www.dol.gov/esa/minwage/chart.htm

Labor Department questions and answers on the minimum wage: http://www.dol.gov/esa/minwage/q-a.htm

Labor Department list of state minimum wages: http://www.dol.gov/esa/minwage/america.htm

    Minimum Wage Increase to Become Reality, NYT, 24.5.2007, http://www.nytimes.com/aponline/us/AP-Minimum-Wage.html

Wolfowitz Resigns, Ending Long Fight at World Bank

May 18, 2007
The New York Times
By STEVEN R. WEISMAN

WASHINGTON, May 17 — Paul D. Wolfowitz, ending a furor over favoritism that blew up into a global fight over American leadership, announced his resignation as president of the World Bank Thursday evening after the bank’s board accepted his claim that his mistakes at the bank were made in good faith.

The decision came four days after a special investigative committee of the bank concluded that he had violated his contract by breaking ethical and governing rules in arranging the generous pay and promotion package for Shaha Ali Riza, his companion, in 2005.

The resignation, effective June 30, brought a dramatic conclusion to two days of negotiations between Mr. Wolfowitz and the bank board after weeks of turmoil.

“He assured us that he acted ethically and in good faith in what he believed were the best interests of the institution, and we accept that,” said the board’s directors in a statement issued Thursday night. “We also accept that others involved acted ethically and in good faith.”

In the carefully negotiated statement, the bank board praised Mr. Wolfowitz for his two years of service, particularly for his work in arranging debt relief and pressing for more assistance to poor countries, especially in Africa. They also cited Mr. Wolfowitz’s work in combating corruption, his signature issue.

Mr. Wolfowitz said he was grateful for the directors’ decision and, referring to the bank’s mission of helping the world’s poor, added: “Now it is necessary to find a way to move forward. To do that I have concluded that it is in the best interests of those whom this institution serves for that mission to be carried forward under new leadership.”

Mr. Wolfowitz’s negotiated departure averted what threatened to become a bitter rupture between the United States and its economic partners at an institution established after World War II. The World Bank channels $22 billion in loans and grants a year to poor countries.

But he left behind a place that must heal its divisions and overhaul a flawed, cumbersome structure that had allowed the controversy over Mr. Wolfowitz to spread out of control.

People close to the negotiations said that Mr. Wolfowitz had agreed not to make major personnel or policy decisions between now and June 30. Some bank officials said he might go on an administrative leave and cede day-to-day functions to an acting leader, but that might not be decided until Friday.

President Bush earlier in the day praised Mr. Wolfowitz at a news conference but signaled that the end was near by saying he regretted “that it’s come to this.” A White House spokesman, Tony Fratto, said, “We would have preferred that he stay at the bank, but the president reluctantly accepts his decision.”

More important for the bank’s future, Mr. Fratto said, President Bush will soon announce a candidate to succeed Mr. Wolfowitz, quashing speculation that the United States would end the custom, in effect since the 1940s, of the American president picking the bank president.

Many European officials previously indicated that they would go along with the United States’ picking a successor if Mr. Wolfowitz would resign voluntarily, as he now has.

Treasury Secretary Henry M. Paulson Jr. said Thursday that he would “consult my colleagues around the world” before recommending a choice to Mr. Bush, in what seemed to be an effort to assure allies that the United States would not repeat what happened in 2005 when Mr. Bush surprised them by selecting Mr. Wolfowitz, then a deputy secretary of defense and an architect of the Iraq war.

Leaders of Germany and France objected but decided not to make a fight over the choice and risk reopening wounds from their opposition to the war two years earlier. Some also argued that Mr. Wolfowitz, as a conservative seeking to write a new chapter in a career that had been focused on national security, might bring new support to aiding the world’s poor.

Soon after Mr. Wolfowitz took office, however, he engaged in fights in various quarters at the bank over issues including his campaign against corruption, in which he suspended aid to several countries without consulting board members, and his reliance on a small group of aides.

Mr. Wolfowitz’s resignation, while ending the turmoil that erupted in early April over the disclosure of his role in arranging Ms. Riza’s pay and promotion package, will not by itself repair the divisions at the bank over his leadership, bank officials said Thursday evening.

By all accounts, the terms of Mr. Wolfowitz’s exoneration left a bitter taste with most of the 24 board members, who represent major donor countries, as well as clusters of smaller donor and recipient countries. Most had wanted to adopt the findings of the special board committee that determined he had acted unethically on the matter of Ms. Riza.

But the closest the board came to criticizing Mr. Wolfowitz was saying in that “a number of mistakes were made by a number of individuals in handling the matter under consideration and that the bank’s systems did not prove robust to the strain under which they were placed.”

Also angered was the bank’s staff association, which had called for Mr. Wolfowitz’s resignation in early April. The bank’s internal blogs were filled with denunciations of the action on Thursday evening.

Late in the evening, the association issued a statement saying, “Welcome though it is, the president’s resignation is not acceptable under the present arrangement,” and that it “completely undermines the principles of good governance and the principles that the staff fight to uphold.”

The association represents most of the 7,000 full-time employees at the bank in Washington. Their unhappiness could be a crucial factor in the bank board’s ability to heal the wounds left by the fight over Mr. Wolfowitz. It appeared likely that after Mr. Wolfowitz’s departure there would be a departure of several top aides, including Robin Cleveland, who officials said was involved in the negotiations over the statements accompanying his departure.

During the day, as word spread throughout the institution that Mr. Wolfowitz was close to a deal, some officials said that one of the obstacles was his compensation package. But there was no information Thursday night on whether he would receive any sort of severance package or pension, or be reimbursed for legal fees from his long battle.

Mr. Wolfowitz’s pay package was $302,470 in salary as of 2004 — the bank pays any of the taxes on that sum — and $141,290 in expenses. His contract calls for him to be paid a year’s salary if he is terminated, but it was unclear whether his resignation would be considered a termination as defined by the contract.

Mr. Wolfowitz’s fight for vindication was led by his lawyer, Robert S. Bennett, and negotiated at the bank by the British director, Thomas Scholar, a close associate of Gordon Brown, the chancellor of the Exchequer who is to become prime minister this summer.

    Wolfowitz Resigns, Ending Long Fight at World Bank, NYT, 18.5.2007, http://www.nytimes.com/2007/05/18/washington/18wolfowitz.html

Microsoft to Buy Online Ad Company

May 19, 2007
The New York Times
By MIGUEL HELFT and ERIC PFANNER

Microsoft said today that it would buy the online advertising company aQuantive for $66.50 a share, or approximately $6 billion. It is Microsoft’s largest acquisition ever, and the latest in a flurry of deals for online advertising firms by big Internet and media companies.

The all-cash acquisition represents an 85 percent premium over aQuantive’s closing prince of $35.87 yesterday, underscoring just how critical Microsoft believes the deal is to its troubled efforts to become a major force in the fast-growing online advertising business.

“It puts us in the game, if you like,” Chris Dobson, head of global advertising sales at Microsoft, said in a telephone interview. “If you ever had any doubt that Microsoft was going to be big in the online advertising space, this should make it clear that it will.”

The deal comes on the heels of Google’s recent agreement to buy of DoubleClick for $3.1 billion, as well as the acquisitions of RightMedia by Yahoo and of 24/7 RealMedia by the advertising giant WPP Group. Microsoft, which had tried unsuccessfully to buy DoubleClick, faced competition for aQuantive, but was determined not to be outbid this time, executives said in a conference call.

Based in Seattle, aQuantive has several major businesses. Its Atlas unit competes with DoubleClick and is used by advertisers and publishers to deliver ads online in real time when users visit a Web page. The company also owns AvenueA/Razorfish, a leading interactive ad agency, and DRIVEpm, an advertising network.

Microsoft has struggled to compete in the online advertising market, particularly against Google, which dominates the field.

Until now, Microsoft has sold ads on its MSN portal and used a technology called AdCenter to sell ads linked to Internet search — a booming businesses, and the cornerstone of Google’s power. But Microsoft’s share of the search business has steadily declined, limiting the effectiveness of AdCenter.

With aQuantive, Microsoft will be able to help sell and broker ads on sites across the Web, a business that is seen as increasingly important as advertising continues to shift online. The acquisitions of DoubleClick and RightMedia by Google and Yahoo were also intended to bolster those companies’ efforts to sell and broker ads on a myriad of Web sites.

Microsoft has asked regulators to scrutinize the Google-DoubleClick deal, which it said would reduce competition. But Brad Smith, Microsoft’s senior vice president and general counsel, said Microsoft’s acquisition of aQuantive would promote competition.

Forecasters at ZenithOptimedia, a media buying agency, predict that Internet ad spending will total $31 billion globally this year, a 28 percent increase from last year. In terms of market share, the Internet has already passed outdoor advertising, and will pass radio next year, ZenithOptimedia says.

“We’re going to see people taking tens of millions of dollars out of television advertising and putting it into online, and that’s what all these guys are betting on,” said Shar VanBoskirk, an analyst at Forrester Research.

The boom in Internet advertising is also reshaping the advertising pipeline, with online media owners like Google, Yahoo and Microsoft’s MSN increasingly moving into areas that used to be dominated by advertising companies like Omnicom Group, WPP and Publicis Groupe.

In the offline world, there has generally been a clear distinction between media outlets and advertising agencies, which create the ads and buy time or space to run them. On the Internet, that line has been blurred, with portals like Google increasingly pushing into “upstream” areas like media planning and buying.

“We’ve suddenly got two different sides that are competing in the same area, in the advertising companies and the media owners,” Ms. VanBoskirk said.

There are signs of friction as online media owners like Google, with their deep pockets, expand. Google’s agreement to buy DoubleClick was criticized by Martin Sorrell, chief executive of WPP Group, who said it could trouble marketers.

“It raises issues about whether we are prepared to give Google data that’s very valuable,” he said last month as WPP gave a quarterly financial update. “Clients will be concerned over the access Google may have to information that is owned by them.”

While companies like 24/7 and DoubleClick focus primarily on distributing Internet advertising to online media owners, aQuantive gives Microsoft some broader capabilities. In addition to the Atlas ad serving platform, it also creates ads and plans media strategy, among other things, moving Microsoft into areas in which Google has not yet staked a claim.

“Today’s announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet,” Microsoft’s chief executive, Steven A. Ballmer, said in a statement.

Microsoft said that the deal would close during its 2008 fiscal year, which begins July 1, and that the merger is likely to require antitrust review.

Microsoft’s shares opened slightly lower after the deal was announced, and were trading at $30.70, down 28 cents, around 2:15 p.m.

The dealmaking frenzy in the online advertising business has caused a rapid escalation in the valuations of acquisition targets. In January, Publicis Groupe, the Paris-based advertising company, acquired Digitas, a Boston-based agency that specializes in Internet and medical communications, for $1.3 billion, or about 2.7 times sales.

In the latest deal, Microsoft is paying around 10 times estimated revenue for aQuantive. “There will be a limit to the escalation in price,” said Maurice Lévy, chief executive of Publicis, in a recent telephone conversation. “The current market has a kind of bubble.”

Mr. Dobson of Microsoft said the price that his company was paying was justified because of the potential for growth in the online advertising market. “Yes, it is high — it is a premium,” he said. “It’s much more about the medium to long term than the current size of the market.”

    Microsoft to Buy Online Ad Company, NYT, 19.5.2007, http://www.nytimes.com/2007/05/19/business/media/19soft-web.html?hp

Gasoline Prices Continue to Set Records

May 17, 2007
By THE ASSOCIATED PRESS
Filed at 12:22 p.m. ET
The New York Times

NEW YORK (AP) -- Gasoline prices hit new records at the pump again Thursday, while gas and oil futures traded higher on continued concerns that refiners aren't making enough gasoline to meet peak summer driving demand.

With the summer driving season set to begin on Memorial Day weekend, in just over a week, the 1.7 million-barrel increase in gasoline inventories reported by the government on Wednesday simply wasn't enough to convince energy traders that supplies are catching up to demand.

And that means retail gasoline prices are likely to continue rising for at least another month, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

''We might have to wait until post-Fourth of July,'' to see a significant decline in gasoline prices, Ritterbusch said.

The average national price of regular gasoline rose to an all-time high of $3.114 a gallon on Thursday, according to AAA and the Oil Price Information Service. That's up 1.1 cents overnight, and almost 25 cents in a month.

Gasoline futures for June delivery rose 5.34 cents to $2.3904 in midday trading on the New York Mercantile Exchange. Light, sweet crude for June delivery was up 91 cents at $63.46 a barrel on the Nymex.

Heating oil futures rose 3.94 cents to $1.9064 a gallon. Natural gas prices jumped 11.6 cents to $8.006 per 1,000 cubic feet after the Energy Information Administration reported a slightly lower-than-expected increase in inventories.

Brent crude for July delivery rose $1.30 to $69.27 a barrel on the ICE Futures exchange in London.

Oil prices also got some support on Thursday from comments by a top OPEC leader that the oil cartel will not pump more crude to meet an expected surge in summer demand. But analysts said traders were more focused on the tight gasoline market.

''It's still 99 percent gasoline-led,'' Ritterbusch said. ''We're still not building gasoline supplies enough.''

The Energy Information Administration reported Wednesday that gasoline stocks, while increasing to 195.2 million barrels, remained well below the average for this time of year.

''Those were insignificant figures,'' wrote Cameron Hanover analyst Peter Beutel in a research note.

Crude oil supplies rose by 1 million barrels last week to 342.2 million barrels.

''Crude may very well become a sideshow to gasoline as we enter the critical spring and summer months,'' wrote Man Financial analyst Edward Meir in a research note.

The gasoline shortage is due to a number of unexpected refinery outages this spring, and continued strong consumer demand -- despite rising prices.

''Gasoline demand remains quite strong,'' said Antoine Halff, an analyst at Fimat USA.

Every day's news seems to bring a new list of refinery problems, and Thursday was no exception. BP PLC, ConocoPhillips and Valero Energy Corp. all reported planned or unexpected shutdowns at a number of U.S. refineries, Barclays Capital analysts said in a research note.

Not helping matters were comments by OPEC Secretary General Abdalla Salem El-Badri on Thursday in Bali, Indonesia, that the 12-member oil cartel will stand firm on its view that global oil markets are amply supplied and do not need an increase before the summer.

El-Badri said U.S. gasoline stock levels are ''acceptable'' despite the industry's concern that inventories have fallen too low to meet the usual surge in summer demand.

Associated Press Writers Pablo Gorondi, in Budapest, and Gillian Wong, in Singapore, contributed to this report.

    Gasoline Prices Continue to Set Records, NYT, 17.5.2007, http://www.nytimes.com/aponline/business/AP-Oil-Prices.html

Home Sales Rate Fell 6.6 Percent in 1Q

May 15, 2007
By THE ASSOCIATED PRESS
Filed at 12:20 p.m. ET
The New York Times

WASHINGTON (AP) -- Sales of existing homes in the U.S. are on track to hit 6.4 million this year, down 6.6 percent from the pace of a year ago, the National Association of Realtors said Tuesday in the latest indication of the housing market's slowdown.

The report came on the same day as industry research firm RealtyTrac Inc. reported that mortgage lenders in April foreclosed on 62 percent more U.S. homes than a year ago as borrowers failed to keep up with loan payments.

In the realtors' trade group's quarterly survey of housing market conditions, the national median existing single-family home price in the first quarter was $212,300, down 1.8 percent from a year ago when the median price was $216,100.

''It appears the worst of the price correction is behind us,'' said Pat V. Combs, NAR's president and vice president of Coldwell Banker-AJS-Schmidt in Grand Rapids, Mich, in a prepared statement.

While lower than the first quarter of last year, existing home sales were 2.4 percent higher at an annual rate than in the last quarter of 2006.

Fourteen states and the District of Columbia showed an increase in the rate of home sales last quarter compared with only six states showing gains a quarter earlier.

The median is a typical market price where half the homes sold for more and half the homes sold for less.

At least part of the decline in the median prices of homes in the United States is because sales have shifted away from more expensive homes, the NAR said.

Regionally, existing home sales took the biggest hit in the West, where the sales pace fell 11.9 percent to an annual rate of 1.3 million units and the median home price was 1.8 percent below a year ago at $336,200.

Existing home sales in the South fell 7.3 percent to an annual rate of 2.5 million units and the median home price was $177,800, just 0.6 percent below a year ago.

In the Midwest, existing home sales fell 6.1 percent to a pace of 1.5 million units. The median single-family home price was $154,600, down 2.8 percent from a year earlier.

The Northeast fared the best with sales rising at a 1.2 percent annual rate to 1.1 million units last quarter with a median price of $268,900, down 2.5 percent from a year ago.

In its report on foreclosures, Irvine, Calif-based RealtyTrac said foreclosures in April spiked to 147,708, compared with 91,168 in 2006, as lenders moved to repossess one out of every 783 homes. The April figure was down 1 percent from March, when foreclosures hit a two-year high.

Nevada, Colorado, Connecticut, California and Ohio posted the top foreclosure rates nationwide, RealtyTrac said.

''We expect foreclosure activity to at least stay above last year's levels for the remainder of 2007, fueled by a combustible mix of risky loans taken out in the last few years -- many in the subprime market -- and slowing home price appreciation,'' James Saccacio, chief executive officer of Irvine, Calif.-based RealtyTrac, said in a prepared statement.

Foreclosures -- defined by RealtyTrac as default notices, auction sale notices and bank repossessions -- have been rising nationwide due to loans given to people with shaky credit. Many so-called subprime borrowers during the housing boom took out adjustable-rate mortgages, which are beginning to reset at higher rates.

Many subprime borrowers are unable to meet higher payments and are unable to sell their homes as housing prices slump.

    Home Sales Rate Fell 6.6 Percent in 1Q, NYT, 15.5.2007, http://www.nytimes.com/aponline/business/AP-Home-Prices-Realtors.html

Inflation Is Tame Despite Rising Gas Prices

May 16, 2007
The New York Times
By JEREMY W. PETERS

The slowing economy helped tone down inflation last month, even as rising energy prices threatened to send it higher.

The Labor Department reported today that its overall measure of consumer prices rose 0.4 percent in April after rising 0.6 percent in March. The more closely watched core consumer price index, which strips out volatile food and energy prices, climbed 0.2 percent after rising 0.1 percent in March.

But the annual data suggested a more downward path for inflation. Core consumer prices rose 2.3 percent compared with last April — the slowest pace in a year.

With the economy growing at a far less rapid pace than a year ago and consumers pulling back on their discretionary spending, it seems that businesses are keeping price increases modest for now.

Clothing prices actually fell last month, as did prices of motor vehicles, tobacco and personal computers.

On the one hand, the report affirmed the view of Federal Reserve officials that inflation would slow as economic growth cooled. In that sense, economists said, the Fed might be less insistent that another interest rate increase is possible.

But rising gas prices threaten to spoil that in the coming months, some economists noted.

“Another decline in the core inflation rate means that the Fed has less to worry about,” Rob Carnell, an economist with ING Financial Markets, said in a research report. “But for the time being, they look disinclined to ease policy until it is clearer just what the underlying trend rate of core inflation is doing.”

Still, this is only the second consecutive month in which core inflation has moderated on a year-over-year basis, and economists noted that the Fed is not likely to cut interest rates for some time.

Richard F. Moody, chief economist with Mission Residential, a real estate investment firm, noted that the price report gave the Fed “some breathing room,” but he added, “at this point this is more in terms of taking any additional hikes in the Fed funds rate off of the table more so than by upping the odds of a cut in the funds rate.”

While the slowing economy helped tame inflation last month, it was not so helpful for workers. A separate report from the Labor Department today showed that wages in April rose just 1.2 percent compared with a year earlier, after inflation is taken into account. That is the slowest inflation-adjusted gain since August.

    Inflation Is Tame Despite Rising Gas Prices, NYT, 16.5.2007, http://www.nytimes.com/2007/05/16/business/15econ-web.html?hp

News Analysis

In Deal, a Test for the U.A.W.

May 15, 2007
The New York Times
By MICHELINE MAYNARD

AUBURN HILLS, Mich., May 14 — Can private equity investors fix Chrysler for good, and can they avoid a confrontation with the United Automobile Workers union?

These are the most pressing questions to arise from the deal announced Monday for Cerberus Capital Management, which specializes in restructuring troubled companies, to pay a total of $7.4 billion to take control of Chrysler, with most of that money to be invested in the newly independent company.

By unwinding a nine-year-old merger between Chrysler and Daimler-Benz of Germany, Cerberus is also taking on Chrysler’s $18 billion obligation for health care and pensions for employees and retirees.

Any efforts to sharply reduce those perks — which Chrysler can afford but says represent a cost burden of $1,500 a vehicle — will probably put it at odds with the U.A.W.

The issue will take on added importance in two months, when the union and Detroit automakers open talks on a new national contract. The union’s position on Chrysler may influence talks with General Motors and the Ford Motor Company, with the outcome representing the latest chapter in the wholesale restructuring of the American auto industry.

For now, the U.A.W. is supporting the deal. Its stance represents a reversal from only a month ago, when Ron Gettelfinger, the union president, warned that an equity player might “strip and flip” Chrysler, selling off its most valuable parts for a quick profit.

But based on what the union was told of Cerberus’s plans, Mr. Gettelfinger said Monday that the U.A.W. was “confident enough to say that we support this transaction.”

That support may dwindle as the company and the union start discussing specifics. The most obvious way for Cerberus to make money off its investment is to cut costs — especially by reducing the benefits that workers hold sacred, including medical benefits for workers and their immediate families for life, with only modest co-payments or deductibles.

“They’re going to want us to give something up,” Tim Preston, 50, a tradesman at Chrysler’s Jefferson Avenue North assembly plant in Detroit, said Monday.

Chrysler, in fact, has already tried. Last year, the U.A.W. refused to give Chrysler the same concessions on medical costs that it granted G.M. and Ford, which it deemed in far worse shape.

The union also refused to grant deep wage and benefit cuts to the Delphi Corporation, G.M.’s former parts subsidiary, which had reached agreement to sell itself to Cerberus if a labor deal could be reached. Company and union leaders say those talks are not dead, however.

Except for the early 1980s, when the union granted concessions at all three car companies, labor talks have been fruitful for the U.A.W. in recent decades, as it has continued to make gains in wages and benefits even as tens of thousands of jobs have been eliminated.

That trend was broken in the last couple of years when the union agreed to buyouts and retirement incentives for workers and agreed to concessions at G.M. and Ford.

By showing their support Monday for the Cerberus deal, U.A.W. leaders may have been trying to set the tricky groundwork of making the prospect of concessions palatable to union members as a way to keep Chrysler competitive.

“It does promise some creative and maybe not-business-as-usual solutions,” said John Paul MacDuffie, co-director of the International Motor Vehicle Program at the Massachusetts Institute of Technology.

No requests have been made of the union yet, but both Mr. Gettelfinger and senior Chrysler executives say there seems to be a meeting of minds.

“We have been led to believe that they are very concerned about the American automobile industry,” said Mr. Gettelfinger, who spent four hours with Chrysler executives this weekend being briefed.

His reaction was clearly a relief to the Cerberus chairman, John W. Snow, the former Treasury secretary, who joined DaimlerChrysler officials in Stuttgart, Germany, at a news conference on Monday.

“We’re going to work to make sure this company succeeds, and as the company succeeds, it will maximize opportunities for workers,” Mr. Snow said. “Our objective is a successful Chrysler and a successful Chrysler creates opportunities.”

Some workers, however, were skeptical. “It makes me real nervous,” said Anthony Watson, 36, a chassis assembly worker at Chrysler’s truck plant in Warren, Mich.

Richard Burns, 39, an assembly line worker at the Warren plant, just north of Detroit, said he and many of his colleagues did not know much about Cerberus. “We’re scared they’re going to break us up,” he said.

Cerberus officials insisted Monday that was not the case. Under the complicated deal, Cerberus will take an 80.1 percent stake in the new company, to be known as Chrysler Holding. Of the $7.4 billion, Cerberus agreed to invest $5 billion in the new Chrysler and $1.05 billion in Chrysler’s financial arm. The remaining $1.35 billion will go to the former German parent company.

In turn, DaimlerChrysler has agreed to lend Chrysler Holding $400 million and will absorb $1.6 billion in costs related to a restructuring program under way at Chrysler, which said in February that it would cut 13,000 jobs and close all or part of four factories. Investors in DaimlerChrysler showed their support for the deal Monday by bidding up the shares $2.12, to $84.12. The Cerberus deal will have little impact on shareholders of the German parent company, other than the financial impact of shedding Chrysler.

All told, DaimlerChrysler will spend $677 million in cash on the transaction. Daimler-Benz paid $36 billion for Chrysler in 1998 in what was portrayed as a merger of equals but ended up being a German takeover of the American company.

In hindsight, the merger’s early days were its best. At the time, Chrysler was rolling in profit, from the popularity of its big Jeeps and minivans, while Mercedes-Benz was enjoying a comeback for its cars, especially the E-class sedan and the M-class, its first S.U.V.

The architects of that earlier merger, Jürgen E. Schrempp, the former chief executive at Daimler-Benz, and Robert J. Eaton, who ran Chrysler, envisioned a company that married the mass-market success of Chrysler and the luxury appeal of Mercedes. But Chrysler did not consistently deliver on its promise.

Indeed, for the last 30 years, Chrysler has acted like what might be described as a split-personality car company, with wide and fast swings from highs to lows.

The same big vehicles, for example, that generated big profits in the late 1990s put Chrysler out of step with changing consumer tastes when gas prices soared.

Last summer, as many as 100,000 unsold Chryslers piled up on storage lots, a big factor in Chrysler’s $1.5 billion loss for 2006. Last year, it fell to fourth place in the American market, behind Toyota.

In February, Mr. Schrempp’s successor, Dieter Zetsche, who ran Chrysler from 2000 to 2005, said the company would eliminate 13,000 jobs, or 16 percent of the total staff, and close all or part of four plants in its second restructuring in seven years.

Mr. Zetsche also put Chrysler up for sale, attracting a series of bidders, including Cerberus as well as two other equity players, the Blackstone Group and Centerbridge Partners.

The billionaire Kirk Kerkorian, who had often tangled with Chrysler management, also put in a bid, as did Magna International, the Canadian auto parts supplier.

The Cerberus deal represents a sea change in Detroit, where there has not been a major privately held company in over half a century (the Ford Motor Company, in which the Ford family still has a controlling stake, went public in 1956; G.M. has been public for nearly a century.)

As a private company, Chrysler may be able to better explore, with less public scrutiny, ways to lower health care costs with its workers.

One idea may come from the Goodyear Tire and Rubber Company, which is giving the United Steelworkers union $1 billion to take over a health care plan covering 30,000 retired workers.

Executives from all of Detroit’s companies have studied the plan, which would probably cost the auto industry tens of billions of dollars to carry out in the United States. But if the U.A.W. did agree, it would mean removing the liability from the car companies.

Whatever the answer, many industry experts predict that Chrysler will find some way to resurrect itself.

“This history of coming back from near death over and over — the nine lives of Chrysler — does have a powerful hold within the company, and with their suppliers and with the union workers,” Professor MacDuffie said.

Nick Bunkley contributed reporting.

    In Deal, a Test for the U.A.W., NYT, 15.5.2007, http://www.nytimes.com/2007/05/15/business/15Auto.html?hp

Cerberus Goes Where No Firm Has Gone Before

May 15, 2007
The New York Times
By MICHAEL J. de la MERCED and PETER EDMONSTON

In the last year, private equity firms have broken the mold over and over again. They have bought technology and finance companies, previously thought unsuitable for buyouts. The deals have gotten bigger; the financing more creative.

But with an agreement to take control of Chrysler, private equity is venturing into virtually uncharted territory.

“Private equity can go anyplace,” said Wilbur Ross, who has also invested in businesses once thought off limits.

Sure, private equity firms have bought troubled industrial companies in the past. And they have dealt with unionized work forces. But no one has tried to grapple with a company with the problems the size of Chrysler’s and with a union as powerful as the United Automobile Workers.

Perhaps more important, every move by its new private owners will come under intense scrutiny. Chrysler is a symbolic American brand, one recognized worldwide. And private equity, which has bought name companies from Toys “R” Us to Univision and accounted for a fifth of the record $3.8 trillion in deals worldwide last year, has itself come under an increasingly harsh spotlight, as Congress discusses tax changes and the public gasps at the enormous wealth of executives.

The private equity firm taking on the challenge, Cerberus Capital Management, based in New York, made its name on its hard-charging negotiating style in the rough-and-tumble world of distressed-debt investing. The firm has invested in troubled companies that it believed could benefit from rigorous cost-cutting and operational controls. Its portfolio includes the Formica Corporation, the Mervyns department store chain and a controlling interest in GMAC, General Motors’ financing arm.

Cerberus has worked with unions in the past. In 2004, Cerberus led a group that took control of Air Canada, only months after the airline’s management had rebuffed its advances. Its window of opportunity opened when its main rival in the bidding, the billionaire Victor Li, withdrew his offer. Labor groups opposed efforts by Mr. Li — who apparently did not meet with the unions — to cut costs at the struggling airline. Cerberus then stepped in, eventually winning over Air Canada management and unions.

Still the firm may yet find a challenging sparring partner in the U.A.W., said Harley Shaiken, a professor of labor relations at the University of California, Berkeley.

“Chrysler has a scale that exceeds much of what they’ve done before,” he said. “It’s dealing with unions that remain very powerful at the company and within the industry.”

Yesterday, however, the deal received polite applause from Solidarity House, the U.A.W.’s headquarters in Detroit, as well as from Wall Street and Frankfurt.

The agreement, and the support from the union, represents a “big breakthrough” for private equity, said Mr. Ross, who has invested in many troubled manufacturing companies over the years.

As recently as a year and a half ago, “Detroit wasn’t at all sure it liked the idea of private equity coming in,” Mr. Ross said. “That’s obviously gone by the board.”

Private equity’s seemingly unstoppable wave has been fed in large part by the pension funds of unionized workers. Big pension funds of public employees like Calpers are among the biggest institutional investors in private equity firms, and public pension money accounted for about a quarter of all new money raised by private equity last year, according to the publication Private Equity Analyst.

Among the investors in Cerberus are the Los Angeles Fire and Police Pension System and the Pennsylvania Public School Employees, according to the research firm Capital IQ.

So far, however, American pension funds have expressed little desire to take up an activist mantle. Calpers, for example, has publicly criticized companies over issues like executive compensation. But absent direct threats to the jobs of its members, the pension fund said that it would not take more drastic action.

“Our bottom line is performance,” said Clark McKinley, a Calpers spokesman. “We don’t get directly involved with the funds.”

Others in organized labor say that unions could do more in using the influence of their pension funds.

“Pension funds can be enormously influential in calling for investments that are both fair and can provide returns,” said Stephen Lerner, assistant to the president of the Service Employees International Union, a politically active group that represents nearly two million workers. (The S.E.I.U. itself has only a few small pension funds, he added.)

The S.E.I.U. has recently been vocal about its concerns over buyouts, but Mr. Lerner said that the union was not inherently hostile to private equity.

In Europe, big buyouts have received a harsher reception. In Britain, the GMB Union has protested job cuts at companies like the Automobile Association, and a leading German politician once referred to private equity firms as “locusts.”

Until now, private equity firms have taken little heat for jumping into distressed, highly unionized industries. Starting in 2002, Mr. Ross’s firm began rolling the remains of five bankrupt steel companies into the International Steel Group, which he later sold to Mittal Steel for a tenfold profit. More recently, Mr. Ross’s firm and others have been buying assets from bankrupt auto parts makers.

Like Chrysler, many of these companies also had substantial legacy liabilities related to pensions and health care. But unlike Chrysler, they were often sold as part of a bankruptcy case, which offers a way to void collective bargaining agreements — a power that serves as a kind of “nuclear option” in what are often hard-fought negotiations with unions.

(Last year, the auto parts maker Delphi, which is under Chapter 11 protection, threatened to ask a bankruptcy judge to cancel its labor contracts. In response, members of the United Automobile Workers voted to give their union permission to call a strike. Cerberus, meanwhile, is expected to withdraw from a group seeking to buy a controlling interest in Delphi.)

Cerberus, by contrast, is buying Chrysler outside of bankruptcy, which brings a different dynamic to the negotiation process. Seeking court permission to break labor agreements is not an option. And considering the large investment Cerberus plans to make in Chrysler, it has ample reason to avoid a bankruptcy filing.

The threat of bankruptcy, however remote, is bound to be a shadow player as Cerberus and the U.A.W. turn to the issue of health care liabilities, said Daniel L. Keating, a vice dean at Washington University School of Law in St. Louis, who called the health care issue “the 10-ton gorilla on the cost side.”

    Cerberus Goes Where No Firm Has Gone Before, NYT, 15.5.2007, http://www.nytimes.com/2007/05/15/business/15private.html

Chrysler Group to Be Sold for $7.4 Billion

May 14, 2007
The New York Times
By MARK LANDLER and MICHELINE MAYNARD

STUTTGART, Germany May 14 — DaimlerChrysler confirmed today that it would sell a controlling interest in its struggling Chrysler Group to Cerberus Capital Management of New York, a private equity firm that specializes in restructuring troubled companies. The price being paid is $7.4 billion, mostly in the form of capital that Cerberus will put into Chrysler.

The deal unwinds a 1998 merger that was meant to create a trans-Atlantic automotive powerhouse.

The agreement will leave DaimlerChrysler, of Stuttgart, Germany, with a 19.9 percent stake in Chrysler. DaimlerChrysler will change its name to Daimler AG. It will be freed of a great amount of pension and health care liabilities in the new Chrysler company.

Cerberus will take an 80.1 percent stake in the new company, to be known as Chrysler Holding.

With the deal, Chrysler becomes the first of the big Detroit automakers to be privately owned. The prospect of private ownership had alarmed Chrysler’s labor unions, which had come out strongly against the sale of the company, fearful that an investor might try to break up the company or seek deep cuts in wages and benefits.

But Ron Gettelfinger, the president of the United Automobile Workers union, said today that the deal “was in the best interests of our U.A.W. members, the Chrysler Group and Daimler.”

Of the $7.4 billion, Cerberus agreed to invest $5 billion in the new Chrysler and $1.05 billion in Chrysler’s financial arm. The remaining $1.35 billion will go to DaimlerChrysler.

DaimlerChrysler’s share of the capital represents a remarkable comedown for a company that paid $36 billion to acquire Chrysler in 1998, in a landmark deal that was initially hailed as a blueprint for the future of the global auto industry.

As part of the complicated sale today, DaimlerChrysler has agreed to lend Chrysler Holding $400 million and will absorb $1.6 billion in costs, related to the ongoing restructuring program at Chrysler. All told, the company said, it will have a net cash outflow of $650 million from the transaction.

DaimlerChrysler, however, will transfer nearly $20 billion in pension and health care obligations for Chrysler’s workers to the new company. That will leave Daimler as a smaller, but financially stronger company.

Dieter Zetsche, the chief executive of DaimlerChrysler, said, “We’re confident that we’ve found the right solution that will create the greatest overall value — both for Daimler and Chrysler.”

The chairman of Cerberus, John W. Snow, said, “We would like to thank DaimlerChrysler for their good stewardship of this American icon over the last decade. We are aware that Chrysler faces significant challenges, but we are confident that they can and will be overcome.” Mr. Snow is the former United States treasury secretary.

The deal is expected to be finalized in the third quarter.

The sale would be a watershed for private equity companies, which have become audacious bidders for businesses as varied as retailers, steel companies and airlines in the last few years. But never before has one of them purchased a company as iconic as Chrysler, whose Dodge and Jeep brands are so embedded in the American culture that the company’s near-bankruptcy led to a federal bailout in 1979 that made Lee A. Iacocca, then its chief executive, a household name.

Daimler-Benz of Germany was an eager bidder for Chrysler nine years ago, attracted by its highly profitable lineup of Jeeps and minivans. The combination was originally portrayed as a merger of equals but ended up being a German takeover.

The merger has never resulted in the savings or market power that its creators envisioned, however, as the company struggled to put a mass market brand, Chrysler, together with Mercedes-Benz, a luxury company, while keeping both prosperous.

Chrysler’s fortunes have been on a constant roller-coaster ride, with profitable years followed by years of losses, including a $1.5 billion loss in 2006, when Chrysler fell to fourth place in the American market behind Toyota. (It had a 12.6 percent share of the domestic market in 2006, from a peak of 16 percent in 1999.) Meanwhile, Daimler’s parallel expansion into Asia ran aground because of troubles at its Japanese partner, Mitsubishi Motors. It thought Mitsubishi might serve as the third leg of its global stool when it purchased a stake in 1999. But Mitsubishi’s legal and financial troubles forced Daimler to take management control in 2002, and Daimler ended that alliance in 2004.

In February, DaimlerChrysler announced that it was keeping all of its options open for Chrysler, including a sale or finding a partner to run the company. At the same time, DaimlerChrysler announced a restructuring plan for Chrysler, the second such plan in the last seven years.

Under the latest turnaround, which calls for the company to cut 16 percent of its work force, or 13,000 jobs, Chrysler is not expected to be profitable again until 2009. DaimlerChrysler is scheduled to announce its first-quarter earnings on Tuesday.

Cerberus emerged as the leading bidder for Chrysler late last week, people involved in the transaction said.

Along with Cerberus, other interested bidders in Chrysler included Blackstone, which was exploring a purchase in conjunction with Centerbridge Partners.

Magna International, the Canadian auto parts company, and the Tracinda Corporation, the holding company owned by the billionaire Kirk Kerkorian , also said they had made bids for Chrysler.

Over the last few days, officials at Cerberus and DaimlerChrysler have been involved in detailed discussions, which have been shepherded by JPMorgan, DaimlerChrysler’s investment adviser.

“We’re confident that we have found the solution that will create the greatest overall value — both for Daimler and for Chrysler,” DaimlerChrysler chief executive Dieter Zetsche said this morning. He called the transaction “a new start” for both companies.

Participants in the talks said on Sunday night that union leaders had been informed of the discussions with Cerberus. DaimlerChrysler officials had pledged to discuss any possible sale with Mr. Gettelfinger before it took place, people with knowledge of the talks said.

Chrysler’s unions, including the U.A.W. and the Canadian Automobile Workers, had said they would prefer that Chrysler not be sold. Mr. Gettelfinger has a seat on the 20-member supervisory board at DaimlerChrysler, along with DaimlerChrysler’s unions in Germany.

A deal with Cerberus “puts an enormous amount of pressure on the union,” said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

The union thought private equity “would be the end of the world, and in some ways it probably would be,” Mr. Cole said. “The union is in a horrifying box right now. There’s got to be some real hardball that’s a part of this to get the rank and file to go along with it.”

But Mr. Gettelfinger’s support will go a long way to assuaging Chrysler workers. Indeed, Mr. Gettelfinger said his union was “pleased this decision has been made” because it meant Chrysler could focus completely on its own future.

Cerberus, whose automotive investment operations are headed by David W. Thursfield, a former executive with the Ford Motor Company, will keep Chrysler’s management in place, at least for now, people with knowledge of the discussions said.

“As a private company, Chrysler will be better positioned to focus on its long-term plan for recovery, rather than just short-term results,” said Chrysler’s chief executive, Thomas W. LaSorda.

Mr. LaSorda said no new job cuts were planned by the new owners.

Chrysler executives will leave the DaimlerChrysler management board, which will be reduced to six people.

Chrysler’s former president, Wolfgang Bernhard, who advised Cerberus, may receive a seat on the board of the new Chrysler or play some other role.

Mr. Bernhard visited Chrysler several times in the last few weeks, and has remained friendly with Mr. Zetsche, who ran Chrysler when Mr. Bernhard was president during the early 2000s.

A sale to Cerberus would mark the company’s latest investment in an automotive-related company. Last year, Cerberus, which owns the car-rental companies National and Alamo, led a consortium that purchased a 51 percent stake in the General Motors Acceptance Corporation, the financing arm of General Motors.

Cerberus also reached a tentative agreement to purchase a controlling interest in the Delphi Corporation, an auto parts supplier that used to be owned by G.M. and is operating in bankruptcy. But that transaction stalled, after Delphi and G.M. were unable to agree on contract terms with the U.A.W.

As private equity firms have appeared more often in the headlines, they have also attracted scrutiny. Along with the unions, government officials have expressed increasing concern over the financial restructurings that are the lifeblood of buyout firms; their overhauls of companies have often included massive cuts in jobs or benefits. In countries like Germany and France, private equity firms have been derided as locusts that strip companies of their assets.

Last month the Service Employees International Union , a politically active organization that represents nearly two million workers, released a report expressing public policy concerns about private equity. Among those were questions about the lack of disclosure and about certain tax breaks for buyout firms.

Nonetheless, DaimlerChrysler’s shares have climbed 15 percent, to $82 on Friday, since mid-February, when private equity firms entered the bidding for Chrysler. The shares rose again in early trading today in Europe.

At the company’s raucous annual meeting in Berlin last month, a succession of shareholders stood up to demand that the company move swiftly to dispose of Chrysler.

“This marriage made in heaven turned out to be a complete failure,” said Hans-Richard Schmitz, who represented the German Association for the Protection of Shareholders. “What’s missing now is a swift resolution of the issue by the management of the group.”

Mark Landler reported from Frankfurt, and Micheline Maynard reported from Auburn Hills, Michigan. Andrew Ross Sorkin and Michael J. de la Merced contributed reporting from New York, and Nick Bunkley contributed from Chicago.

    Chrysler Group to Be Sold for $7.4 Billion, NYT, 14.5.2007, http://www.nytimes.com/2007/05/14/automobiles/14cnd-chrysler.html?hp

Trade Deficit Shoots Up in March

May 10, 2007
By THE ASSOCIATED PRESS
Filed at 8:42 a.m. ET
The New York Times

WASHINGTON (AP) -- The trade deficit shot up in March to the highest level in six months, driven upward by a big jump in imported oil. The politically sensitive deficit with China shrank as U.S. exports to that country hit an all-time high.

The Commerce Department reported Thursday that the gap between what the United States imports and what it sells to the rest of the world rose to $63.9 billion in March, up 10.4 percent from the February level.

That was a bigger-than-expected deterioration in the trade deficit from the $60 billion deficit that analysts were forecasting. It reflected a big 17.6 percent jump in oil imports, which climbed to $24.6 billion, the highest level in six months.

In other economic news, the Labor Department reported that the number of laid off workers filing claims for unemployment benefits fell to 297,000 last week, a drop of 9,000 from the previous week.

So far this year, the trade deficit is running at an annual rate of $722.6 billion, slightly below last year's all-time record of $765.3 billion. The deficit has set new records for five consecutive years.

Critics of President Bush's trade policies contend that the administration has not done enough to protect American workers from unfair foreign competition from low-wage countries such as China.

Democrats used the soaring trade deficits and the loss of 3 million manufacturing jobs since Bush took office in their successful effort last year to regain control of both the House and Senate.

The administration, worried about a protectionist backlash in this country, has toughened its approach to China, imposing penalty trade tariffs in a dispute over Chinese paper imports and filing two new trade cases this year against the Chinese before the World Trade Organization.

Treasury Secretary Henry Paulson has pledged to keep up pressure on the Chinese to do more to open their markets to American goods. The two countries will hold the second round in a new series of economic talks later this month in Washington.

For March, the U.S. deficit with China dropped 6.4 percent to $17.2 billion, the smallest imbalance in 10 months, as U.S. exports to China set a record while imports of Chinese products declined slightly. Chinese officials announced on Wednesday a series of increased purchases of American goods in advance of the May 23-24 talks.

Even with the drop in March, America's deficit with China is still running 20.4 percent higher than a year ago and there is rising pressure in Congress to impose economic sanctions on China unless it moves more quickly in such areas as allowing its currency to rise in value against the dollar.

The $63.9 billion overall deficit in March was the largest trade gap since a deficit of $64.6 billion in September. Exports rose 1.8 percent to $126.2 billion, the second highest level on record. Imports were up an even larger 4.5 percent -- to $190.1 billion -- also the second highest level on record.

The increase in exports reflected increased shipments of U.S. autos, consumer goods and oilfield drilling equipment. This helped to offset declines in sales of civilian aircraft, computers and machine tools.

The increase in imports reflected the big jump in America's foreign oil bill, which reflected a higher volume of shipments and a rise in the average price of a barrel of crude to $53, up from $50.71 in February.

The deficit with Canada, America's biggest trading partner, rose by 21.7 percent to $5.7 billion in March even as U.S. exports to Canada hit a record. The deficit with the European Union increased by 21.3 percent to $7.7 billion as both U.S. exports and European imports set records.

    Trade Deficit Shoots Up in March, NYT, 10.5.2007, http://www.nytimes.com/aponline/us/AP-Economy.html

Chevron Seen Settling Case on Iraq Oil

May 8, 2007
The New York Times
By CLAUDIO GATTI and JAD MOUAWAD

Chevron, the second-largest American oil company, is preparing to acknowledge that it should have known kickbacks were being paid to Saddam Hussein on oil it bought from Iraq as part of a defunct United Nations program, according to investigators.

The admission is part of a settlement being negotiated with United States prosecutors and includes fines totaling $25 million to $30 million, according to the investigators, who declined to be identified because the settlement was not yet public.

The penalty, which is still being negotiated, would be the largest so far in the United States in connection with investigations of companies involved in the oil-for-food scandal.

The $64 billion program was set up in 1996 by the Security Council to help ease the effects of United Nations sanctions on Iraqi civilians after the first gulf war. Until the American invasion in 2003, the program allowed Saddam’s government to export oil to pay for food, medicine and humanitarian goods.

Using an elaborate system of secret surcharges and extra fees, however, the Iraqi regime received at least $1.8 billion in kickbacks from companies in the program, according to an investigation completed in 2005 by Paul A. Volcker, the former chairman of the Federal Reserve.

By imposing surcharges on the sale of crude oil, the Iraqi regime skimmed about $228 million from its oil exports.

A report released in 2004 by an investigator at the Central Intelligence Agency listed five American companies that bought oil through the program: the Coastal Corporation, a subsidiary of El Paso; Chevron; Texaco; BayOil; and Mobil, now part of Exxon Mobil. The companies have denied any wrongdoing and said they were cooperating with the investigations.

As part of the deal under negotiation, Chevron, which now owns Texaco, is not expected to admit to violating the United Nations sanctions. But Chevron is expected to acknowledge that it should have been aware that illegal kickbacks were being paid to Iraq on the oil, the investigators said.

The fine is connected to the payment of about $20 million in surcharges on tens of millions of barrels of Iraqi oil bought by Chevron from 2000 to 2002, investigators said.

These payments were made by small oil traders that sold oil to Chevron. But records found by United Nations, American and Italian officials showed that they were financed by Chevron.

The negotiations, which might take several weeks to conclude, follow an agreement reached in February by El Paso, the largest operator of American natural gas pipelines, to pay the United States government $7.73 million to settle allegations that it was involved in illegal payments under the oil-for-food program.

The settlement discussions are a result of months of work by a joint task force of the United States attorneys of the Southern District of New York and the Manhattan district attorney, Robert M. Morgenthau, with help from Italian authorities. Kent Robertson, a spokesman for Chevron, said “regarding the oil-for-food program generally, Chevron purchased Iraqi crude oil principally for use in its U.S. refineries, and the United Nations approved the initial sale of all cargoes ultimately purchased by Chevron.”

He said Chevron has cooperated with inquiries into the program “and we will continue to do so.”

The United States attorney’s office and the office of the New York district attorney both declined to comment.

Thus far, only former United Nations officials, individual traders and relatively small oil companies have come under scrutiny in the United States.

According to the Volcker report, surcharges on Iraqi oil exports were introduced in August 2000 by the Iraqi state oil company, the State Oil Marketing Organization. At the time, Condoleezza Rice, now secretary of state, was a member of Chevron’s board and led its public policy committee, which oversaw areas of potential political concerns for the company.

Ms. Rice resigned from Chevron’s board on Jan. 16, 2001, after being named national security advisor by President Bush.

Sean McCormack, a State Department spokesman, referred inquires to Chevron.

According to Chevron’s Securities and Exchange Commission filings, the public policy committee met three times in the course of 2000. Chevron declined to comment about the private deliberations of its board.

On Jan. 26, 2001, Patricia Woertz, then president of Chevron Products, stated in an internal communication that “the payment of such a surcharge is prohibited by U.N. sanctions against Iraq,” according to documents provided by Chevron to the Volker committee.

In any transaction involving Iraqi oil, Ms. Woertz wrote that the company should consider the “identity, experience and reputation of the selling company,” as well as “any deviation of the proposed pricing basis or margin for the transaction from historical practice.”

According to American and Italian investigators, however, a list of Iraqi oil transactions from June 2000 to December 2002, which Chevron provided to the Volcker committee, showed that the premium Chevron was paying to third parties went up after August 2000, when the illegal surcharges began — and continued to be paid even after Ms. Woertz’s warnings.

The company also did not carry out Ms. Woertz’s demand for what amounted to a credibility check on companies that sold Iraqi crude to Chevron. Chevron bought tens of millions of barrels of Iraqi oil from companies that included previously unknown players with no record in the oil business, investigators say.

One such company was Erdem Holding, which sold Chevron 13 million barrels of oil, according to Chevron’s list. This company was owned by Zeynel Abidin Erdem, a Turkish businessman who sat on the board of the Turkish-Iraqi Business Council.

On Feb. 15, 2001, about two weeks after Ms. Woertz’s internal memo was sent, Chevron bought 1.8 million barrels from Erdem, the Turkish company, at “OSP plus 36 cents.” OSP stands for the official selling price approved by the United Nations for Iraqi oil.

On other occasions, the extra payment went as high as 49.5 cents a barrel, according to the Chevron list.

In sworn statements last year to an Italian prosecutor, an Italian businessman, Fabrizio Loioli, said he sold Iraqi oil to many companies, including Chevron, and all were aware of the Iraqi request for payment of a surcharge. “In fact, each final beneficiary involved used to add this amount to the official price to disguise it as a premium to be paid to the intermediary,” Mr. Loioli said in his statement. “In reality, they were perfectly aware that only a part of that would go to the intermediary, while the remaining part was to be paid to the Iraqis.”

Italy’s financial investigators, the Guardia di Finanza, found specific evidence that Mr. Loioli’s company, Betoil, paid surcharges to the Iraqis for oil bought by Chevron. The documents, seized in Betoil’s offices, indicate that $45,000 was sent to a secret Iraqi account in Jordan as payment for surcharges on oil loaded by the tanker Overseas Ann on behalf of Chevron on March 13, 2002.

Mr. Loioli was convicted in the United Arab Emirates for fraud and is currently under investigation in Greece and Italy, according to an Italian investigator who spoke on condition of anonymity because the case is still active.

Investigators in Milan found evidence that Mr. Loioli brokered the sale of some 155 million barrels of Iraqi crude and, directly or indirectly, paid $4.5 million in surcharges. In the case of Chevron, Mr. Loioli said in his deposition that he dealt with an official in the company’s London office, Michael Dugdale, who handled the purchase of Iraqi oil.

An internal Chevron e-mail message found by United States investigators suggests that Mr. Dugdale informed the company that the premium to Mr. Loioli had the illegal Iraqi surcharge embedded in it, according to a person close to the investigation.

Mr. Dugdale left Chevron in the fall of 2005. In a telephone interview from London, he confirmed dealing with the Italian intermediary, but denied knowingly paying surcharges to the Iraqis or trying to negotiate any discount on them. “Every deal I did was approved by senior management,” Mr. Dugdale said, adding he had informed them about his negotiations with Mr. Loioli.

Claudio Gatti is an investigative reporter based in New York for Il Sole 24 Ore.

    Chevron Seen Settling Case on Iraq Oil, NYT, 8.5.2007, http://www.nytimes.com/2007/05/08/business/08chevron.html?hp

Jobs Report Is Weaker Than Expected

May 5, 2007
The New York Times
By JEREMY W. PETERS

Employers added just 88,000 jobs in April — the smallest number in more than two years, the Labor Department reported today.

In the monthly report on national employment, the job market appeared much less inviting than it has in recent months. Wages climbed at a slower rate than in March and the unemployment rate rose to 4.5 percent from 4.4 percent.

The weakness spread across many industries, from banking and retail to construction and manufacturing.

In addition, the report said that job growth in March and February was not as strong as the government first estimated. The Labor Department overcounted those months by a total of 26,000 jobs.

The report was weaker than economists forecast and suggested that the job market may be cooling as the economy slows. Last week, the Commerce Department reported that growth in the first quarter was 1.3 percent — the slowest in four years.

The gain in average hourly earnings receded last month, edging up 0.2 percent, or 4 cents, to $17.25. In March and February, wages climbed 0.3 percent and 0.4 percent, respectively.

By industry, retail was the weakest, shedding 26,000 jobs. Financial services businesses and construction firms each cut 11,000 jobs. The downsizing in manufacturing continued as 19,000 jobs were lost on factory floors last month.

    Jobs Report Is Weaker Than Expected, NYT, 5.5.2007, http://www.nytimes.com/2007/05/05/business/05jobs-web.html?hp

Turning to Churches or Scripture to Cope With Debt

April 29, 2007
The New York Times
By JOHN LELAND

LOUISVILLE, Ky. — Doug Sweeney, a police officer, watched his credit card balance grow to $13,000, thinking he would never be able to pay it off. Renée Santiago had $40,000 in student loans. Susan Hancock owed $14,000 in credit card debt and could not point to anything in her home to show for it.

“I saw it going up,” Ms. Hancock said, “but I was numb. I thought, that’s just the way of life.”

When the debt got to be too much for them, instead of going to family members or financial professionals for help, they did what many Americans are doing: they turned to their church.

“You need a little help with motivation,” said Mr. Sweeney, 47, who blamed years of impulsive spending for his debt. Recently, he joined two dozen others at Southeast Christian Church for Week 9 of a 13-week debt-reduction program called Financial Peace University. Since joining the group, he had disposed of his credit cards.

“A big part of it is that it has a faith component,” he said. “God wants you to be good stewards of your money. The money’s all his.”

As Americans have run up nonmortgage debt of more than $2.4 trillion, churches and Christian radio stations are supplementing their spiritual counseling with financial counseling, often using programs developed by other Christian organizations and marketed in church circles or over the Internet. They offer a mix of basic budget planning, household cost-cutting and debt management, bolstered by Scripture and with tithing as a goal.

“We want to be relevant and to scratch people where they itch,” said Dave Stone, the senior pastor at Southeast, a nondenominational church that draws 18,000 worshipers each weekend. “For a church not to provide some service for people who are suffocating from too much debt would be burying our head in the sand.” Economists have recognized that the behavior of consumers often ignores their rational best interests. People overestimate their ability to repay loans, or spend more using credit cards than they would with cash. Church-based debt programs provide rules to force changes in spending and saving, then use Scripture to motivate people.

More than 39,000 churches have used debt reduction programs created by Crown Financial Ministries, a group in Gainesville, Ga. About 3,000 churches have bought a $250 Good Sense program developed by Willow Creek Community Church in Barrington, Ill. Both are nonprofit organizations.

“Nothing in the Bible says you can’t borrow,” said Mike Graham, who provides free financial counseling at Southeast Christian Church, in a position he created 10 years ago after stepping down as the church’s financial manager. “What you’re not allowed to do is borrow and not pay it back.”

The programs resemble secular plans, with two exceptions, said Dave Briggs, director of the Good Sense Stewardship Ministry at Willow Creek. “A secular adviser might say, it’s O.K. to stiff your creditors through bankruptcy,” Mr. Briggs said. “Biblically, bankruptcy is only an option if you need time and space to pay back what you owe.”

“The other conflict is in the area of giving,” he said. “We get a sense of devotion to God by being generous. Secular advice says, don’t give until you can afford it.”

The Financial Peace program, a curriculum marketed for profit by a radio host, Dave Ramsey, has been used in more than 10,000 churches, as well as 1,000 corporations and 350 military units or chapels, according to Mr. Ramsey’s representative.

More than 350,000 families have completed the program, at a cost of $80 to $90 each for books, audio CDs and other material, the representative said. Mr. Ramsey declined to answer questions about how much money is taken in by the company.

Stephen Brobeck, executive director of the nonprofit Consumer Federation of America, who reviewed the Financial Peace materials for The New York Times, said the advice was “fundamentally sound,” especially for people with low or middle incomes.

“It’s better than you get from a lot of financial advisers, who make it complicated and possibly subject consumers to avoidable credit risks,” Mr. Brobeck said.

Even tithing might help some Christians feel “empowered to pay back their debt faster, though the secular perspective would be that those funds could be used directly to pay down debt,” he said.

At Southeast Christian Church, a video presentation featuring Mr. Ramsey was followed by an hour of discussion, mixing quotations from Proverbs with advice on buying used cars, time shares and generic drugs. The discussion was led by a retired police officer, Rusty Bittle, 43, who has no financial background but who paid $2,000 to take a 50-hour course to become a certified counselor for Mr. Ramsey’s program.

“If you really start listening to the Scriptures we read each class,” Mr. Bittle told the group, “you’ll see that this isn’t just a finance class, it’s about how to live your life. And if you read the Scriptures you’ll get a blessing out of it.”

Mr. Sweeney said the program’s use of Scripture helped with his overspending. “I realized that I blow a lot of money,” he said. “It takes discipline to manage it, and prayer helps you have discipline. If you think you need something, before you buy it, go home and pray about it.”

Mr. Ramsey said that although the program has a “biblical base,” it was not aimed specifically at Christians, and that his books and radio show were most popular with secular stores and stations.

“Even if you’re not some kind of sold-out believer, you can relate to Proverbs 22, Verse 7, that the borrower is a slave to the lender,” he said. “It’s like a Mark Twain saying.”

Southeast Christian Church uses both the Financial Peace and Crown Ministries courses, and works with a Christian organization called Family Credit Counseling Service in Illinois, as well as secular credit counseling.

Anna and Jon Broster turned to Mr. Graham for help after the interest rate on one of their credit cards rose to 33 percent. Mrs. Broster (pronounced like “Brewster”) paid off the balance of $900, but was left with $3,000 on her other cards.

“I wanted to focus on getting out of credit card debt,” she said. “We live week to week, with no budget.” The couple said they turned to Mr. Graham rather than a professional because they trusted the people at the church. “He’s not making money off us,” Mrs. Broster said. “And he’s a Christian.”

Mr. Broster, 27, earns $15 an hour in a manufacturing job and $140 every two weeks from a part-time job at a Walgreens. Mrs. Broster, 25, attends nursing school part time while raising their 4-year-old daughter.

Each month, when Mrs. Broster receives her credit card statements online, she checks her bank balance, sets aside some money for food and gas, and divides what is left among four or five cards. She tries to pay more than the minimum but finds it hard to get the balances down.

“My dad is more conservative about credit card usage than me,” she said. “If I see something I like, I can just swipe and have it.” She added, “If I had to hand over $70, I’d think twice about it.”

When she went to see Mr. Graham, she said, he prayed with her and said he would help her draw up a household budget, which she said she wanted to include tithes to the church. “We don’t give every week now, and I feel kind of guilty about it,” she said.

Mr. Graham said, “We believe there’s a mandate in Scripture that calls for people to give 10 percent to the church. Until they can get to a tithe, we encourage a sliding scale so they can get their blessing from God.”

In the Financial Peace classroom, Mr. Bittle was finishing the lesson. “Remember,” he told the group, “there’s only one way to attain financial peace, and that’s to walk with the Prince of Peace, Jesus Christ.”

    Turning to Churches or Scripture to Cope With Debt, NYT, 29.4.2007, http://www.nytimes.com/2007/04/29/us/29debt.html

Microsoft's Vista Sales Boost 3Q Profit

April 27, 2007
By THE ASSOCIATED PRESS
Filed at 12:22 p.m. ET
The New York Times

SEATTLE (AP) -- Shares of Microsoft Corp. soared nearly 5 percent Friday, after the company posted a 65 percent jump in third-quarter profit, boosted by sales of its new Windows Vista operating system and Office 2007, and by upgrade coupons issued over the holidays.

The results eased fears that Vista is too pricey, requires too many hardware upgrades and doesn't work with other companies' applications.

Microsoft said Thursday it earned $4.93 billion, or 50 cents per share, for the quarter ended March 31, from $2.98 billion, or 29 cents per share, in same period last year.

Excluding one-time items, profit totaled 49 cents per share, ahead of Wall Street's view for 46 cents per share, according to Thomson Financial.

Shares rose $1.43, or 4.9 percent, to $30.53 in morning trading on the Nasdaq Stock Market. The results were released after the market closed Thursday.

Revenue for the fiscal third quarter rose 32 percent to $14.4 billion. Analysts were looking for $13.89 billion in sales.

Microsoft started selling its newest operating system, Windows Vista, to consumers at the end of January. Sarah Friar, an analyst at Goldman Sachs, said Microsoft watchers were worried adoption would be slow.

''Every time I open the paper, there's some article about how bad Vista is,'' she said. Plus, analysts feared the cost of successfully running Vista was too high for consumers.

''Not only am I having to buy a new operating system, I'm having to buy a new PC,'' she said.

News that Apple Inc.'s popular iTunes digital music software didn't work with Vista, and that Dell Inc. customers were clamoring for more PCs with the old operating system, XP, helped fuel concerns, analysts said.

Microsoft quelled some of those fears when it reported its ''client'' division, responsible for Windows, brought in $5.27 billion in sales, a 67 percent improvement from a year ago.

Client division sales were ''surprisingly ahead of where we thought they would come in,'' said Sid Parakh, an analyst at McAdams Wright Ragen.

Business division revenue, which includes sales of Office 2007, rose 34 percent to $4.83 billion.

Microsoft Chief Financial Officer Chris Liddell said the ''excellent quarter'' was due to better-than-expected sales of Vista and Office. Liddell said Vista beat internal forecasts by $300 million to $400 million, and Office 2007 sales were $200 million better than expected.

Microsoft's entertainment and devices division, which includes the Xbox 360 game console and the Zune music player, posted a 21 percent sales drop to $929 million in an expected post-holiday slump.

Liddell said the company is still on track to sell 1 million Zunes by the end of June and reach the 12 million mark in Xbox 360 units sold since the product hit store shelves in November 2005.

Microsoft trails Google Inc. and Yahoo Inc. in making money from Web searches, but online services revenue edged up 11 percent to $623 million in the quarter. Online advertising revenue grew 23 percent year-over-year, and Liddell said in a conference call with analysts that ''revenue per search'' is higher than a year ago, when the company was still using a third-party ad platform.

Microsoft also said it repurchased more than $6.7 billion in stock during the quarter.

For the fiscal fourth quarter, which ends June 30, Microsoft said it expects to earn 37 cents to 39 cents per share, with revenue of $13.1 billion to $13.4 billion. Wall Street currently expects a profit of 40 cents per share on $13.31 billion in sales.

    Microsoft's Vista Sales Boost 3Q Profit, NYT, 27.4.2007, http://www.nytimes.com/aponline/technology/AP-Earns-Microsoft.html

Economic Growth Slows to Weakest Pace in 4 Years

April 28, 2007
The New York Times
By JEREMY W. PETERS

Economic growth during the first three months of the year was the slowest since early 2003, when the country was still bouncing back from recession, the government said today.

The gross domestic product, the widest measure of all goods and services produced in the United States, rose by a sluggish 1.3 percent in the first quarter. That is a considerable slowdown from the 5.6 percent rate of growth a year earlier and the 2.5 percent recorded in the fourth quarter of 2006.

The single largest contributor to the slowdown was investment in residential real estate, which subtracted nearly one percentage point from the overall G.D.P. figure.

On Wall Street, economists had forecast a slowdown, but not one this sharp. The value of the dollar against the euro immediately plummeted to a record low after the Commerce Department issued its report.

The slow growth was not enough to brake inflation. The G.D.P. price index, a statistic closely watched by the Federal Reserve to monitor price fluctuations, jumped 4 percent in the first quarter — the biggest increase in 16 years.

    Economic Growth Slows to Weakest Pace in 4 Years, NYT, 27.4.2007, http://www.nytimes.com/2007/04/28/business/28econ.web.html?hp

Manufacturing Numbers Push Dow Past 13,000

April 26, 2007
The New York Times
By JEREMY W. PETERS

Businesses placed more orders last month for heavy-duty items like machinery and electrical equipment, easing concerns that capital investment might be slowing.

News from the Commerce Department today that orders for durable goods rose 3.4 percent last month, to $214.9 billion — a larger figure than Wall Street expected — helped briefly push the Dow Jones industrial average above the 13,000 level for the first time. While the Dow quickly retreated from that leap, it later rebounded and remained above 13,000 at midday.

Over the last two months, weakening durable goods orders have raised concerns that business might be pulling back on spending. Orders plunged 8.8 percent in January and initially showed a weak gain in February. But the Commerce Department revised February’s figures up, to a gain of 2.4 percent instead of the 1.7 percent growth reported initially.

Separately, the Commerce Department released its monthly report on new home sales, which showed gains in both sales and prices. The seasonally adjusted annual sales rate for new homes rose 2.6 percent in March, to 858,000, following declines in January and February. The median price of a new home rose 6.4 percent compared with a year earlier, to $254,000.

The boost developers saw in March, however, was tempered somewhat by new data showing that sales in December, January and February were weaker than first thought. The Commerce Department said that its initial calculations overcounted the sales rates in those months by 48,000 homes.

Given the problems in the subprime mortgage market, where lenders to people with poor credit histories are tightening loan standards, economists said that the March data might not be telling the full story.

“It seems very likely that the subprime woes hitting the headlines have hurt consumer confidence, driving the number of contract cancellations higher,” Dimitry Fleming, an economist with ING Financial Markets, said in a research report.

The new home sales figures do not account for buyers who have backed out of their contracts.

The government reports released today depicted an economy that remains relatively solid despite the slowdown in housing. Yesterday, the National Association of Realtors reported the sharpest monthly drop in sales of previously owned homes since 1989.

The durable goods numbers, however, were generally strong. A statistic closely monitored by economists as a harbinger of business spending, known as the core capital goods figure, climbed 4.7 percent last month after falling in January and February. The figure does not include orders for military equipment or aircraft, and is therefore less volatile than the overall durable goods number.

“The strong gain in core capital goods orders should alleviate fears that business investment was on the cusp of spiraling downwards and contributing to a sharp near-term slowdown in business investment and real G.D.P. growth,” Brian Bethune, an economist with Global Insight, wrote in a research report.

    Manufacturing Numbers Push Dow Past 13,000, NYT, 25.4.2007, http://www.nytimes.com/2007/04/26/business/26econ.web.html?hp

Dow Passes 13,000 for First Time

April 25, 2007
By THE ASSOCIATED PRESS
Filed at 2:38 p.m. ET
The New York Times

NEW YORK (AP) -- The Dow Jones industrial average shot past 13,000 for the first time Wednesday as stronger-than-expected earnings reports streamed in, suggesting to investors that corporate America is successfully weathering the cooling economy.

The stock market's best-known indicator surged past its latest milestone shortly after trading began, and rose as high as 13,047.31.

The Dow climbed to a record as many of the country's biggest companies surpassed analysts' first-quarter earnings projections. Among those beating forecasts Wednesday: soft-drink maker PepsiCo Inc., materials manufacturer Corning Inc. and Dow component Boeing Co.

Wall Street got an additional lift from the Commerce Department's report on durable goods last month, which showed a gain in orders of business capital goods and reassured investors that demand for U.S. products remains strong. The department also reported that sales of new homes rebounded slightly in March.

About two-thirds of U.S. companies so far have reported earnings that were in line with or higher than analyst expectations, said Jim Herrick, director of equity trading at Baird & Co.

''We've had pockets of companies report better earnings, and in light of the Fed not appearing to raise rates anytime soon, that bodes well for the market,'' said Herrick. ''Going forward, the market's going to be data-driven. The market's going to focus on economic data to get a hint about what the Fed will do in the latter half of the year.''

In midafternoon trading, the Dow rose 83.54, or 0.64 percent, to 13,037.48. The index, which typically retreats after crossing big milestones, wavered above and below the 13,000 mark earlier in the session.

The broader Standard & Poor's 500 index rose 10.75, or 0.73 percent, to 1,491.16, after reaching 1,492.31, a six-and-a-half-year high. The technology-dominated Nasdaq composite index advanced 20.22, or 0.80 percent, to 2,544.76, after hitting a six-year high of 2,547.56.

It took the Dow just 129 trading days, since Oct. 18, to make the trek from 12,000 to 13,000, far less than the 7 1/2 years that the blue chips took to go from 11,000 to 12,000. But the swiftness of this latest trip does recall the days of the dot-com boom when the major indexes were soaring and it took the Dow a mere 24 days to barrel from 10,000 to 11,000.

Investors have been encouraged by stable earnings growth, which shows that U.S. companies are faring well despite a slow economy. A large reason why corporate growth has held up is strength in international sales; PepsiCo Inc., for one, said Wednesday its overall profit rose 16 percent, despite a drop in operating profit at its North America unit.

Also giving exporters an advantage, the dollar is trading near historical lows versus the euro. The 13-nation currency rose as high as $1.3664 Wednesday.

''International sales are a huge part of S&P 500 revenues, and this lower dollar makes these companies more competitive,'' said Scott Wren, equity strategist for A.G. Edwards & Sons. He said analysts estimate 30 to 40 percent of sales at S&P 500 companies come from countries outside the United States.

The biggest gainer in the 30 Dow companies was Alcoa Inc. The aluminum producer said Wednesday it's considering selling its packaging and consumer businesses, which account for about 10 percent of annual revenue. Alcoa rose $2.20, or 6.5 percent, to $36.15.

The technology-dominated Nasdaq was lifted by Amazon.com, which reported late Tuesday that its first-quarter profit more than doubled, besting analyst estimates. The Web retailer also boosted its revenue outlook for the year, reassuring investors that technology companies have the potential to keep posting profits. Amazon rose $12.03, or 27 percent, to $56.78.

The Dow was the first of the major indexes to recover from the stock market's prolonged slump in the early part of the decade. The S&P 500 has yet to reach its closing peak of 1,527.46, set in March 2000, and no one expects the Nasdaq to equal its record of 5,048.62, also reached in March 2000, anytime soon.

The Dow's latest achievement did not come without setbacks and volatility -- the index lost 416 points in a single session on Feb. 27 amid fears that the U.S. economy would fall into recession and that China's economy would slow as well. Wall Street has since had periodic shudders over signs that inflation might be getting out of hand -- a trend that would lead the Fed to resume interest rate hikes -- and over data showing weakness in the housing market.

Just two weeks ago, the Dow fell nearly 90 points after minutes from the last Fed meeting showed the central bank's level of concern about inflation.

Inflation could re-emerge as an obstacle to the stock market's uptrend if energy costs keep surging. On Wednesday, crude oil futures rose $1.23 to $65.81 per barrel and gasoline futures rose to 8 1/2 month highs on the New York Mercantile Exchange, after the Energy Department reported a decline in U.S. gasoline inventories.

Bonds fell after the positive economic data and amid the advance in stocks. The yield on the benchmark 10-year Treasury note rose to 4.65 percent from 4.62 percent late Tuesday.

Gold prices rose.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.06 billion shares.

The Russell 2000 index of smaller companies rose 7.23, or 0.87 percent, to 833.59.

Overseas, Japan's Nikkei stock average fell 1.24 percent. Britain's FTSE 100 closed up 0.50 percent, Germany's DAX index gained 1.00 percent, and France's CAC-40 added 1.04 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

    Dow Passes 13,000 for First Time, NYT, 25.4.2007, http://www.nytimes.com/aponline/us/AP-Wall-Street.html?hp

Top Hedge Fund Managers Earn Over $240 Million

April 24, 2007
The New York Times
By JENNY ANDERSON and JULIE CRESWELL

James Simons, a 69-year-old publicity shy former math professor, uses complex computer-driven mathematical models to make bets on stocks, bonds and commodities, among other things.

His earnings last year were $1.7 billion.

As one of the leading hedge fund managers, Mr. Simons makes a sum that dwarfs that of the top chiefs on Wall Street. The highest paid on the Street, Lloyd C. Blankfein of Goldman Sachs, earned $54.3 million in salary, cash, restricted stock and stock options last year. (Unlike the total for Mr. Simons, Mr. Blankfein’s reported compensation does not include gains on investments.)

And Mr. Simons, the founder of Renaissance Technologies, is not the only member of the billion-dollars-a-year club.

Two other hedge fund managers, Kenneth C. Griffin and Edward S. Lampert, each took home more than $1 billion last year, with George Soros missing the hurdle by a hair, give or take $50 million, according to an annual ranking of the top 25 hedge fund earners by Institutional Investor’s Alpha magazine, which comes out today.

The rewards for managing hedge funds — lightly regulated private investment pools for institutions like endowments and wealthy individuals — have been lucrative for some time. Yet the survey also shows that for the hedge fund elite, the rich are getting much richer in a hurry.

To make Alpha’s list, a manager needed to earn at least $240 million last year, nearly double the amount in 2005. That is up from a minimum of $30 million in 2001 and 2002. Combined, the top 25 hedge fund managers last year earned $14 billion — enough to pay New York City’s 80,000 public school teachers for nearly three years.

With the modern gilded age in full swing, hedge fund managers and their private equity counterparts are comfortably seated atop one of the most astounding piles of wealth in American history.

Their ascendancy has been aided by an inflow of money from pension funds and other big investors, robust markets and fee-based compensation that can produce staggering amounts of individual wealth.

Naturally, some look upon these masters of the new universe as this generation’s robber barons, using wealth to create wealth, often in secretive ways, and leaving little that is tangible in their wake.

Others view them as new-economy financiers, evoking the likes of John D. Rockefeller or John Pierpont Morgan as they provide liquidity to the markets and broadly diversify risks in the banking and financial systems.

“You had railroads in the 19th century, which led to the opening up of the steel industry and huge fortunes being made,” said Stephen Brown, a professor at the Stern School of Business of New York University. “Now we’re seeing changes in financial technology leading to new fortunes being made and new dynasties created.”

But as hedge funds and their private equity brethren begin to emerge more onto the public stage — playing increasingly bigger roles in art and cultural circles, tiptoeing into the Washington lobbying game, and even selling shares of their own firms to the public — all aspects of their activities, their own compensation in particular, are raising eyebrows.

“There is some question as to what the hell they are doing that is worth” that kind of money, said J. Bradford DeLong, an economist at the University of California, Berkeley. “The answer is damned mysterious.”

Indeed, to some, it is difficult to see the value and the risks created by a hedge fund that bets billions of dollars on movements in everything from global currencies, stocks and bonds to real estate, reinsurance and complex credit derivatives. Recently, for instance, the House Financial Services Committee held hearings focusing on the potential risks to pensioners and the financial system caused by hedge funds.

Yet many, including past and current Federal Reserve chieftains, argue that they are greasing the wheels of capitalism.

While the debate rages, the new financiers are building up piles of money not seen since the heady days of the Internet boom. But unlike the wealth of many dot-com billionaires, who saw their fortunes collapse with the technology bubble, the gains of hedge funds are not simply returns on paper that fluctuate with the direction of the stock market. Instead the gains are huge cash payouts that most managers then reinvest in their funds, betting that they will continue to beat the markets.

Still, the performance of these managers is as varied as their strategies, ranging from complex computer models to the more old-fashioned version of betting the farm on a few stocks. None of the managers contacted for this article returned calls or would comment.

For its rankings on compensation, Alpha magazine includes the managers’ share of the firm’s management fees, usually 2 percent, and performance fees, or a share of the profits, which typically start at 20 percent.

That structure means that some hedge fund managers can still earn a huge income even with mediocre returns because of the huge size of the assets under management. Raymond T. Dalio, head of Bridgewater Associates, which has more than $30 billion in hedge fund assets, for example, took home $350 million last year even though his flagship Pure Alpha Strategy fund posted a net return of just 3.4 percent for the second consecutive year.

The magazine also includes gains made on hedge fund managers’ own capital in their funds. Mr. Simons, for instance, has more than $1 billion of his own money invested in his funds.

Topping Alpha’s list for the second consecutive year, Mr. Simons, a former code breaker for the Defense Department, uses computer-driven models to detect pricing anomalies in stocks, commodities, futures and options.

Even though he has some of the highest fees in the business — 5 percent of assets under management and 44 percent of profits — he trounces most of his competitors year after year. In 2006, the $6 billion Medallion fund posted gross returns of 84 percent; 44 percent after fees, explaining his $1.7 billion take.

Some investors do not blink at paying those startling fees. “If you pay peanuts, you get monkeys,” said Jim Dunn, a managing director with Wilshire Associates, an investment advisory firm. “We don’t concern ourselves with fees. If you can provide Alpha, I’m less concerned about what you bring home.” (Alpha is producing returns that are not tied to a market benchmark like the Standard & Poor’s 500-stock index.)

While Mr. Simons makes his mark using algorithms, the two other billionaires on this year’s list are building distinctive institutions.

Mr. Griffin’s Citadel Investment Group of Chicago is often cited as a budding Goldman Sachs, and Mr. Griffin himself is playing an increasingly public role in Chicago, with causes ranging from art to education.

Citadel employs 1,000 people, more than half of them in technology, and runs businesses serving hedge funds and another making markets. Mr. Griffin’s funds, with returns of more than 30 percent, helped net him a nifty $1.4 billion.

Compare that with the elusive Mr. Lampert, who has $11 billion of his $14.6 billion ESL fund in the retailer Sears Holdings. Last year, Sears stock rose and with it, Mr. Lampert’s fortune by about $1.3 billion.

And if the Internet age was defined by youth, the hedge fund age illustrates that experience indeed pays.

The average age of Alpha’s top 25 was 51, with only four thirty-somethings on the list. Among them is John Arnold, the 32-year-old from Centaurus Advisors who amassed net gains of 200 percent last year.

Mr. Arnold hails from Enron’s energy desk, where he received a lifetime of trading and other experiences. His $3 billion fund, among the largest energy funds in the world, racked up huge gains by taking the other side of a natural gas bet that caused Amaranth to lose more than $6 billion in a week.

But older, more familiar names dominate Alpha’s list. Boone Pickens, the 78-year-old oil tycoon, made $340 million on the back of strong returns at his energy funds and Carl C. Icahn, 71, the reborn activist investor, made $600 million.

With a greater proportion of the assets in the hedge fund industry controlled by fewer managers, some investors worry that managers are at a turning point. The same young and brash managers who achieved huge successes are now controlling vast sums of assets, and the incentive may be to protect their wealth rather than take risks to increase it.

“I think one of the significant issues of this business that we are all struggling with is that there is an inverse correlation between compensation and drive,” said Mark W. Yusko, president of Morgan Creek Capital Management, an investment advisory firm. “In many cases the incredible wealth that is created by this incentive compensation structure has a propensity to dull the senses and dull the drive.”

    Top Hedge Fund Managers Earn Over $240 Million, NYT, 24.4.2007, http://www.nytimes.com/2007/04/24/business/24hedge.html

In Las Vegas, Too Many Hotels Are Never Enough

April 24, 2007
The New York Times
By GARY RIVLIN

LAS VEGAS — Stephen A. Wynn, the hotel and gambling impresario, still remembers the first time he was asked if he and other developers had lost their minds building so many casino hotels here. It was the mid-1970s, when Las Vegas had about 35,000 rooms.

He was asked that same question in the 1980s, while building the 3,000-room Mirage, and again in the early 1990s. By that time Las Vegas was home to more hotel rooms — 106,000 — than any other city in the country.

And so now, with Las Vegas in the midst of another big building boom, Mr. Wynn only shrugs when people suggest that the nation’s premier gambling center, with 151,000 rooms and counting, simply cannot absorb any more new hotels.

Ever since the mobster Bugsy Siegel opened the first modern hotel casino here in 1946, the surest means for gaining attention has been to one-up the competition by building an even more monstrously immense pleasure palace.

But even Las Vegas has never witnessed anything quite like what is going on today.

“This is the most outrageous, over-the-top expansion” ever, Mr. Wynn said.

Americans — and an increasing number of foreigners — can’t seem to get enough of Las Vegas. The current construction craze is driven by a 95 percent weekend occupancy rate — and rates that approach 100 percent at the city’s newer properties. Last year, even the weekday rate fell just shy of 90 percent, partly because of the city’s success in positioning itself as an attractive convention destination.

Fueling the current boom as well are the enticing riches to be made catering to a new kind of guest: aging boomers entering the empty-nest phase of their free-spending lives.

And contrary to some predictions, the opening of American Indian casinos and other gambling outposts in more than 30 states has not hurt Las Vegas.

Far from it. The smaller, more prosaic gambling halls stretched across the country have actually helped the boom, casino executives say, serving as a kind of a feeder system for Las Vegas as people gain a taste for gambling and then aspire to a touch of the big time. The soaring popularity of poker has also helped drive growth as the game has drawn a younger crowd to the city.

“I suppose one day Las Vegas will reach its limit,” said Anthony Curtis, president of LasVegasAdvisor.com, a local travel site. “But that day is nowhere in sight.”

Consider the Venetian, which already ranks as the sixth-biggest hotel in the world and the fourth largest in Las Vegas, home to 15 of the 20 largest on the planet. This colossus will assume the top spot once it opens a 3,200-suite tower, now under construction, that will bring its room count to more than 7,000.

Another development, Echelon Place, will have more than 5,000 rooms when it is built on the site of the old Stardust, which its owners demolished last month. The MGM currently ranks as the largest hotel in Las Vegas — and the world — with 5,000 rooms.

At $4.4 billion, Echelon Place would rank as the most expensive development in Las Vegas history — if not for the $7 billion the MGM Mirage is spending on CityCenter. That price is far more than the previous record, set when Mr. Wynn and his financial backers spent $2.7 billion building the 2,700-room Wynn, which opened in 2005.

Even competitors marvel at the scope of the CityCenter project, which MGM calls the most expensive privately financed project in American history. This minicity bordering the Las Vegas Strip will feature six towering buildings that reach as high as 61 stories. Covering 67 acres, it will include a 4,000-room hotel, a sprawling convention center, a half million square feet of retail space and 2,700 condominium units.

The changing demographics have led the designers of the new Vegas to push a sleek and modern aesthetic, along with amenities like luxurious spas, in place of the gilt and gaudy properties that reigned in the 1980s and 1990s. But their owners’ ambitions are greater than ever.

“The building we’re seeing right now,” said Gary Loveman, chief executive of Harrah’s, which operates half a dozen casinos on the Las Vegas strip, “is by leaps and bounds bigger than anything we’ve ever seen.”

For a long time, Harrah’s had only one major casino in Las Vegas. “One of my predecessors was convinced in the late 1980s, early 1990s, that Las Vegas was overbuilt,” Mr. Loveman said. “That turned out to be a wrong call. Spectacularly wrong.”

Even more than hotel construction, a boom in condominium development has increased the number of construction cranes crowding the skies.

Developers, including Donald J. Trump and Florida-based Turnberry Associates, are collectively spending billions of dollars building condo towers on or near the Strip, adding thousands of units even as the local real estate market, like much of the country, has been mired in a downturn.

But MGM and other developers see themselves as competing for buyers far beyond the Las Vegas market. “We see these as third homes,” said Alan M. Feldman, a spokesman for MGM.

Data provided by the National Association of Realtors indicated that the median price of a condo in the Las Vegas metropolitan area fell by 3 percent in the second half of 2006.

In a perverse way, though, the city’s current boom helped developers here avoid the kind of frantic overbuilding that plagues condominium developers and condo owners in cities like Miami and Washington. John Restrepo of the Restrepo Consulting Group, a real estate firm based here, said that a “gold rush fever” had swept through the Las Vegas condo market, with more than 100 luxury condo projects, totaling 72,000 units, announced since 2005.

But escalating land prices and a steep rise in construction costs, Mr. Restrepo said, “caused most of these guys, who were never much more than a Web site and a dream, to fade away.” Today, there are just 22 luxury condo projects, representing 10,000 units, under construction, he said, “and a large portion of those units have been sold.”

The MGM Mirage is not the only casino company venturing into the condominium business. So, too, is the Venetian, which will add a 270-unit condominium tower to its property along the Strip.

“Las Vegas has morphed from a place that is simply a casino box with rooms to rent for 23 bucks a night,” said William P. Weidner, the president of Las Vegas Sands, the parent company of the Venetian. “It is now a place with mixed-used developments which take advantage of the new Las Vegas, a multiday-stay destination and a place where increasingly people want to live.”

The scale of Las Vegas’ hotel industry and the size of its properties put other cities to shame. Even the massive 2,000-room casino resort Mr. Wynn is building next to Wynn — it would rank as New York’s largest hotel — will not crack Las Vegas’s top 15.

Not to be outdone, Fontainebleau Resorts recently announced plans for a $2.8 billion, 3,900-room resort on the northern end of the Las Vegas Strip. And developer Ian Bruce Eichner has raised $3 billion to build a 3,000-unit condo-hotel, the Cosmopolitan Resort and Casino, on the Strip.

[And there is the likelihood of more large-scale projects on the horizon. Yesterday, Goldman Sachs paid $1.3 billion for the four Nevada casinos owned by Carl C. Icahn’s American Real Estate Partners, including the Stratosphere Las Vegas Hotel and Casino, but also a precious 17 acres of undeveloped land on the Strip.]

Even without the new hotel properties, the 151,000 guest rooms in the extended Las Vegas area, according to Smith Travel Research, a lodging industry data broker, are nearly twice the 80,000 rooms in New York City. Orlando ranks second to Las Vegas with 111,000 rooms.

And yet Las Vegas has more new hotel rooms under construction (11,000) than any other city in the country, as well as more rooms on the drawing boards (35,000).

Tourists spent a combined $15 billion last year at the Strip’s various casino resorts. Sixty percent of that revenue — $9 billion — was from noncasino sources ranging from hotel rooms to restaurants, some as costly as New York’s best, to high-end retailers that pay dearly for a spot inside the sprawling malls that are a staple of today’s Las Vegas casino.

These revenue sources are proving enticing even to an old-line player like Boyd Gaming, a middle-market casino company that had ceded the high-end market to the likes of MGM and the Venetian. But with the announcement of its plans for the $4.4 billion Echelon Place, Boyd made clear it was going upscale, too.

“We considered a variety of options,” said Robert L. Boughner, a longtime Boyd executive who is overseeing the Echelon project. “But ultimately we concluded that there were very compelling reasons to enter the premium tier.”

Concerns over future limits on water supplies might ultimately slow development here. Eventually, tourists might tire of fighting the daily traffic jams that snarl the Strip and nearby freeways, or grow frustrated negotiating McCarran International Airport, which seems in a perpetual state of crisis.

But those problems have not hampered Las Vegas’s success so far. The city had just under 39 million visitors in 2006, according to the Las Vegas Convention and Visitors Authority — an 86 percent increase over the 21 million visiting the city in 1990.

And in anticipation of handling even larger hordes of tourists, McCarran is in the first year of a five-year, $4 billion makeover. Meanwhile, officials are looking into adding a second airport at Ivanpah Valley, 30 miles from Las Vegas.

“People have been predicting dating back to 1955 that Las Vegas will reach a saturation point,” said David G. Schwartz, author of “Roll the Bones,” a history of gambling, and director of the Center for Gaming Research at the University of Nevada, Las Vegas. “But me, I wouldn’t bet against casino growth.”

    In Las Vegas, Too Many Hotels Are Never Enough, NYT, 24.4.2007, http://www.nytimes.com/2007/04/24/business/24vegas.html?hp

Plunge in Existing-Home Sales Is Steepest Since ’89

April 24, 2007
By THE ASSOCIATED PRESS
The New York Times

WASHINGTON (AP) -- Sales of existing homes plunged in March by the largest amount in nearly two decades, reflecting bad weather and increasing problems in the subprime mortgage market, a real estate trade group reported today.

The National Association of Realtors reported that sales of existing homes fell by 8.4 percent in March, compared with February. It was the biggest one-month decline since a 12.6 percent drop in January 1989, another period of recession conditions in housing. The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003.

The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago.

The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last year's big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

David Lereah, chief economist at the Realtors, attributed the big drop in part to bad weather in February, which discouraged shoppers and meant that sales that closed in March would be lower. Existing home sales are counted when the sales are closed.

Lereah said that the troubles in mortgage lending were also playing a significant part in depressing sales. Lenders have tightened standards with the rising delinquencies in mortgages especially in the subprime market, where borrowers with weak credit histories obtained their loans.

There was weakness in every part of the country in March. Sales fell by 10.9 percent in the Midwest. They were down 9.1 percent in the West, 8.2 percent in the Northeast and 6.2 percent in the South.

"The negative impact of subprime is considerable," Lereah said. "I expect sales to be sluggish in April, May and June."

Lereah said he didn't expect a full recovery in housing until 2008. He predicted that sales of existing homes would drop by about 3 percent this year with the decline in sales of new homes an even steeper 15 percent.

He said that the median price for homes sold in 2007 would fall by 1 percent to 3 percent, which would be the first price decline for an entire year on the Realtors' records, which go back four decades.

The steep slump in housing over the past year has been a major factor slowing the overall economy. It has subtracted around 1 percentage point from growth since mid-2006.

    Plunge in Existing-Home Sales Is Steepest Since ’89, NYT, 24.4.2007, http://www.nytimes.com/2007/04/24/business/24wire-homesales.html?hp

McDonald's 1Q Profit Climbs 22 Percent

April 21, 2007
By THE ASSOCIATED PRESS
Filed at 3:49 a.m. ET
The New York Times

CHICAGO (AP) -- McDonald's Corp. extended its hot streak to four years with a 22 percent jump in first-quarter earnings, and also said Friday it will sell nearly 1,600 restaurants in Latin America and the Caribbean to a franchisee -- a gain it pledged to return to shareholders.

The announcement sent the fast-food leader's shares briefly to an all-time high of $49.70 before they dipped in profit-taking. The once-stagnant stock has quadrupled since falling to $12.12 in March 2003.

The planned transaction involving restaurants in 18 countries will result in a non-cash impairment charge of $1.6 billion in the second quarter. But it reduces the company's financial exposure in a challenging region and will net McDonald's about $700 million in cash, which it said will be used to increase share buybacks and dividends.

Analysts hailed the sale, which had been expected as McDonald's pares the number of company-owned restaurants worldwide, and said they saw no signs the company's resurgence is running out of steam.

Boosted by surging sales in Europe and strong demand for its changing U.S. menu, McDonald's is ''firing on all cylinders,'' Goldman Sachs analyst Steven Kron said in a note to investors.

Shares in the Oak Brook, Ill.-based company fell 43 cents to close at $48.35 on the New York Stock Exchange, remaining up more than 50 percent since last June.

Profit for the first three months of the year was $762 million, or 62 cents per share, matching its April 13 estimate. That was up from $625 million, or 49 cents per share, in the same period a year ago.

Revenue rose 11 percent to $5.46 billion from $4.91 billion.

The results were in keeping with a preliminary announcement by the company last week.

''Our business is strong around the world,'' Ralph Alvarez, the company's president and chief operating officer, said on a conference call. ''2006 was an outstanding year. .... and we're off to an excellent start in 2007.''

The company said most of its Latin American and Caribbean restaurants will now be franchised by Argentine businessman Woods Staton as part of a transaction being carried out in combination with a 20-year licensing program. Staton has been a McDonald's franchisee for more than 20 years.

Under its development licensee program, local entrepreneurs provide the capital and the land and pay royalties to McDonald's.

Analysts said the latest move shields McDonald's from quarter-to-quarter turbulence in a region where many of its restaurants have underperformed.

''Latin America has been a grueling market for McDonald's given the various controls/restrictions/bureaucracy in the region, making efficient management out of Oak Brook difficult, if not impossible,'' said John Ivankoe of J.P. Morgan in a report to investors.

Chief Financial Officer Matt Paull said the region's volatility because of massive currency devaluations makes headquarters and some shareholders nervous, and Staton will manage the business better.

Paull said the company still made $55 million in operating income in Latin America in 2006, but the business wasn't growing as fast as it could have. ''Customer demand is not an issue,'' he told reporters on a conference call.

McDonald's said the impairment charge will consist of $800 million for the difference between the net book value of assets and the estimated cash proceeds, plus $825 million for accumulated currency translation losses.

CEO Jim Skinner said McDonald's will use the proceeds received to increase the amount it expects to return to shareholders to at least $5.7 billion -- up from $5 billion -- in 2007 and 2008 through dividends and share repurchases.

''For our customers and the McDonald's system, this transaction enables us to grow faster and become even more locally relevant in a part of the world that has exhibited strong demand for our brand,'' he said. ''For our shareholders, the strategic actions we're taking will reduce volatility and further solidify our commitment to generate strong returns and focus management's attention on the markets with the greatest impact on our results.''

McDonald's has recorded 48 straight months of higher sales from its established restaurants, its longest such streak since 1980.

First-quarter results were lifted by a particularly strong March in which same-store sales rose 8.2 percent worldwide and 11.2 percent in Europe.

The U.S. business, its largest market with about 13,800 restaurants, extended a run of unusually strong results in the quarter with a string of new products including snack wraps, more salads and premium coffee, all introduced within the last year.

Chicken has been a key element of the U.S. comeback and now rivals burgers for revenue. McDonald's currently reaps $5.2 billion annually in U.S. chicken items such as premium chicken sandwiches, salads with chicken, chicken selects, chicken McNuggets and chicken snack wraps.

------

On the Net:

www.mcdonalds.com

    McDonald's 1Q Profit Climbs 22 Percent, NYT, 21.4.2007, http://www.nytimes.com/aponline/business/AP-Earns-McDonalds.html

Profits Up 69% at Google, Exceeding Expectations

April 20, 2007
The New York Times
By MIGUEL HELFT
 

SAN FRANCISCO, April 19 — For much of this year, the buzz around Google has been all about the flurry of new initiatives at the No. 1 Internet search company, from its YouTube video sharing site, to its new software for office workers, to its forays into television, radio and newspaper advertising.

On Thursday, Google executives sought to change the focus.

The company said that nearly three of every four Googlers, as the company’s workers call themselves, remained focused on the business that turned Google into a money-minting Internet powerhouse: search and online advertising.

And it is that business, executives said, that delivered a surge in Google’s profits during the first three months of the year, as the company continued to outpace rivals like Microsoft and Yahoo.

“We are ecstatic about our financial results this past quarter,” Eric E. Schmidt, Google’s chief executive, said during a conference call.

Google said first-quarter profit rose 69 percent, to $1 billion, or $3.18 a share, from $592.3 million, or $1.95 a share, in the period a year ago. The results topped analysts’ expectations, sending Google’s shares up more than 3 percent in after-hours trading.

Mr. Schmidt predicted that search and advertising would continue to be the main source of profits for the foreseeable future.

“The core business is search and ads,” Mr. Schmidt said. “We are still at the beginning of that business. It is a huge business, and we have a lot of room to grow.”

For example, Mr. Schmidt said that just as in previous quarters, the company devoted significant resources to continuing to perfect the art of linking search results with ads that are tailored to users’ interests. Since, Google is paid when users click on an ad, those efforts translate into higher profitability.

“We are showing fewer ads and those ads are worth more because they are better targeted,” Mr. Schmidt said.

Overall quarterly revenue was $3.66 billion, up from $2.25 billion a year ago. Excluding commissions paid to marketing partners, revenue was $2.53 billion, compared with $1.53 billion a year earlier.

Excluding certain expenses, like stock-based compensation, profits were $3.68 a share, though analysts noted that without a benefit resulting from a change in tax rates, the figure would have been $3.50. On that basis, analysts polled by Thomson Financial had expected Google to earn $3.30 a share and report revenue of $2.5 billion, without the marketing commissions.

“Google has been able to deliver amazing profitability given its enormous investments in human resources and capital equipment,” said Jordan Rohan, an analyst with RBC Capital Markets.

Google said its overseas business was particularly strong. Revenue from outside the United States was $1.7 billion, or 47 percent of the total.

Google’s strong growth stands in sharp contrast to that of Yahoo, which announced this week that sales increased 7 percent from the year-ago quarter, while profits dropped 11 percent.

A growing number of Internet users are going to Google for their search needs. Nielsen/NetRatings reported Thursday that the number of searches conducted on Google in February reached 3.6 billion, up 40 percent from a year earlier. By comparison, searches on Yahoo grew 12 percent, to 1.3 billion, and on Microsoft, 9 percent, to 618 million.

Google continued to add workers at a brisk pace, ending the quarter with 12,238 employees worldwide, nearly 1,600 more than at the end of the previous quarter.

Earlier this year, Google’s shares dipped as investors worried that its expenses for everything from engineers and sales staff to computers and data centers would grow. But expenses, excluding stock-based compensation, actually declined to 31 percent of revenue, from 33 percent, said Gene Munster, an analyst with Piper Jaffray & Company.

“That’s particularly impressive given that they hired 1,600 employees,” Mr. Munster said.

Google’s shares slipped $4.36 in regular trading, to close at $471.65, up a bit more than 2 percent for the year. After the earnings announcement, the stock rose to more than $486 in extended trading.

The earnings report comes after a period of ambitious expansions into new businesses by Google. Just last week, the company said it would acquire the online ad services company DoubleClick for $3.1 billion. Google also recently announced deals with Clear Channel to sell radio ads and with EchoStar Communications to sell television commercial time.

If such initiatives are not contributing to Google’s bottom line yet, they are earning it a long list of increasingly assertive rivals.

During the quarter, Viacom filed a $1 billion suit against Google over copyrighted material that users post on YouTube. And this week, Microsoft and AT&T asked antitrust officials to scrutinize Google’s proposed acquisition of DoubleClick, which they say would reduce competition in the online advertising market.

On Friday, the Electronic Privacy Information Center, an advocacy organization, is planning to file a related complaint with the Federal Trade Commission, asking it to open an investigation into the privacy implications of the DoubleClick acquisition.

“No one knows today what a combined Google and DoubleClick will be able to do in the future,” said Marc Rotenberg, executive director of the center. “But we think this is the right time for the commission to look at that issue and require genuine privacy safeguards if the acquisition is to go forward.”

Mr. Schmidt said in an interview that as part of the integration with DoubleClick, Google already planned to strengthen privacy protections.

“Our incentive is to get this right because our whole business is dependent on the trust of users,” he said.

    Profits Up 69% at Google, Exceeding Expectations, NYT, 20.4.2007, http://www.nytimes.com/2007/04/20/business/20google.html

Ex-Chief at Qwest Found Guilty of Insider Trading

April 20, 2007
The New York Times
By DAN FROSCH

DENVER, April 19 — Joseph P. Nacchio, the former chief executive who transformed Qwest Communications International into a major telecommunications rival, was convicted Thursday of insider trading.

A jury in Federal District Court deliberated six days before finding Mr. Nacchio guilty on 19 of 42 counts of insider trading. He was found not guilty of 23 counts of insider trading. The eight men and four women on the jury listened as witnesses testified during the 15-day trial that Mr. Nacchio had exaggerated financial forecasts while concealing Qwest’s growing troubles.

Mr. Nacchio, 57, who was released on $2 million bond, offered a slight smile as he left the courtroom. He declined to comment as he locked arms with his wife and son and walked away. He faces up to 10 years in prison and up to $1 million per count, as well as forfeiture of assets.

The judge, Edward W. Nottingham, set sentencing for July 27.

Earlier, before a packed courtroom, Judge Nottingham methodically read each count. “Not guilty,” he said on Count 1, then repeated the phrase 22 times. Mr. Nacchio’s son Michael began sobbing, piercing an otherwise hushed courtroom. The defendant and his lawyers stared straight ahead; prosecutors sat stoic.

On Count 24, the words and mood changed. “Guilty,” the judge said, saying it again 18 times. The younger Mr. Nacchio turned somber. A defense lawyer glanced back at the Nacchio family and shook his head.

Prosecutors said that counts 24 through 42 — the ones Mr. Nacchio was convicted of — were the most important because they represented $52 million worth of stock sales he made after a trading window opened in 2001.

After the trial, Mr. Nacchio’s lawyer, Herbert J. Stern, said that he would appeal.

The prosecution team stood outside the courthouse amid a thicket of reporters and cameras.

“Convicted felon Joe Nacchio has a very nice ring to it,” the United States attorney for Colorado, Troy A. Eid, said. “I couldn’t be happier that after five and half years, justice has finally been served.”

An assistant United States attorney, Cliff Stricklin, who led the prosecution, said the jury’s verdict proved that “insider trading is not a victimless crime.”

A fellow federal prosecutor, Colleen Conry, said the verdict would ring out from Denver to Wall Street.

At a later hearing now that the trial has ended, the judge will rule on a prosecution request that Mr. Nacchio forfeit his assets.

A former financial adviser to Mr. Nacchio testified at the trial that the executive’s net worth was $536 million at the time of the stock sales in 2001 — testimony that defense lawyers had tried to have stricken as irrelevant and prejudicial.

The charges against Mr. Nacchio related to his sale of more than $100 million worth of Qwest stock in 2001. The case emerged from a federal investigation into accounting practices at Qwest, based in Denver, a telephone service provider in 14 states, mostly in the West.

During the trial, which began in March, federal prosecutors sought to portray Mr. Nacchio as a man motivated by greed who knowingly deceived analysts by concealing the company’s mounting money problems, while simultaneously unloading his own stock options.

Mr. Nacchio’s defense team was led by Mr. Stern, a prominent lawyer who, as a young Manhattan prosecutor, helped investigate the murder of Malcolm X and who was praised for cracking down on political corruption as a federal prosecutor in New Jersey in the 1970s.

Mr. Stern contended that Mr. Nacchio was a passionately optimistic executive who may have misjudged Qwest’s financial future but who believed deeply in his upbeat prognostications. Moreover, Mr. Stern asserted that Mr. Nacchio had needed to sell stock because the options were scheduled to expire.

But Mr. Nacchio, prosecutors said, set aggressive financial targets that were wildly out of step with the warnings he received from fellow executives about Qwest’s failure to increase its recurring revenue.

Several former Qwest executives, including Lee Wolfe, a former director of investor relations, testified about a surge of concern over how the company was going to meet its projections and over Qwest’s lopsided reliance on one-time transactions.

Nonetheless, prosecutors said, Mr. Nacchio continually affirmed a bright financial forecast to analysts, even as the chorus of admonitions from other Qwest executives grew. Finally, in 2001, when he realized Qwest was facing a significant shortfall, prosecutors said, Mr. Nacchio began unloading his stock options, while still publicly proclaiming the company’s good fortunes. Mr. Nacchio even backdated the sale of the stock to make it appear unrelated to Qwest’s downturn, prosecutors contended.

Mr. Stern argued that Mr. Nacchio had derived his projections from a report compiled by a consulting firm hired to assess the merger of Qwest and US West in 1999. There was no way Mr. Nacchio could have foreseen a recession in the market, Mr. Stern said.

The defense called three witnesses, one of them Philip F. Anschutz, Qwest’s founder. Mr. Anschutz testified that Mr. Nacchio had come to him despondent over the attempted suicide of one of his sons and wanted to resign, an indication of the enormous pressure Mr. Nacchio was under at the time of the stock sales, the defense said.

Under Judge Nottingham, who was considered a stickler for punctuality, the trial moved more swiftly than expected. As the proceedings drew to a close, there was speculation as to whether Mr. Nacchio would take the stand to testify about secret government contracts that Qwest was supposedly in line to win.

Before the trial, the defense indicated that Mr. Nacchio alone knew about the potentially lucrative contracts, which would have bolstered Qwest’s revenues.

But the defense never called Mr. Nacchio; putting him on the stand could have proved risky because he would have faced a relentless cross-examination, legal experts said. As a result, the government contracts were barely mentioned.

The federal charges capped a sharp turn of fortune for Mr. Nacchio, the son of a New York longshoreman turned bartender, once heralded for his hard-charging leadership as an executive for AT&T.

Hired to lead Qwest in 1997, Mr. Nacchio oversaw the company during a period of revenue growth and acquisitions.

But by 2001, Qwest’s stock value had started to sink, and Qwest’s board forced Mr. Nacchio to resign in June 2002. During that period, the federal government was investigating possible accounting fraud at the company. He was indicted by a federal grand jury on Dec. 20, 2005.

    Ex-Chief at Qwest Found Guilty of Insider Trading, NYT, 20.4.2007, http://www.nytimes.com/2007/04/20/technology/20qwest.html?hp

China Leans Less on U.S. Trade

April 18, 2007
The New York Times
By KEITH BRADSHER

GUANGZHOU, China, April 16 — At booth after booth at China’s main trade fair this week, the refrain from Chinese business executives is the same: the American market is not as crucial as it used to be.

Instead, Chinese producers of everything from socket wrenches to sport utility vehicles say, their fastest growth these days lies in Europe, Africa, the Middle East, South America and elsewhere in Asia — in other words, practically anywhere other than the United States.

So it is throughout China. With ample support from the Beijing government — including a flurry of trade missions to Africa and assistance with trade fairs in Germany, Australia or someplace in between — Chinese companies are poised to expand into the markets of many of the world’s rapidly growing economies. In some cases, they are running directly into American competitors.

Chinese business representatives at what is still known as the Canton Fair, after this city’s old name, say they are discouraged by weaker growth in the American economy, rising protectionist sentiment in Washington and the decline of the dollar against China’s currency, which makes it more expensive for Americans to buy Chinese products.

While the European Union has restricted certain imports, particularly shoes, American trade barriers have drawn more attention.

“The U.S. government is still trying to protect its own markets, unlike Europe, which is very free,” argued Huang Yasong, international sales manager for the Hubao Group, a men’s shirt maker that is rapidly expanding in Eastern Europe and Brazil.

Even so, trade barriers limit a small percentage of commerce. A more powerful driver is the strength of domestic demand and currency fluctuations.

Indeed, the rise in the euro’s value propelled China’s exports to European Union countries past its exports to the United States for the first time in February.

Currency rates have certainly influenced the finances of the Hang- zhou Jilin Machinery Company, which makes screwdrivers and other tools. Its American sales have remained basically flat, while those to Africa, Europe, the Middle East and especially Australia are on the rise.

Zhao Wei, the company’s sales manager, assigns much of the blame to the dollar’s lower value against the Chinese yuan. Officials in Beijing raised the value of their currency by 2.1 percent against the dollar in July 2005, and have let it drift up 5 percent more since then.

“It’s a big problem,” Ms. Zhao said.

To be sure, China’s exports to the United States are huge and growing, as is the trade imbalance, which is significantly larger than the European Union’s deficit with China. That is the main reason trade is a focus of attention for the newly empowered Democrats in Congress, making it likely that trade frictions between the two countries will persist and possibly worsen in the months ahead.

China surpassed Canada in the first two months of this year as the largest exporter to the United States. According to statistics released by the World Trade Organization last Thursday, China also overtook the United States in the second half of 2006 to become the world’s second-largest exporter of goods over all, after Germany.

China is still nearly 25 times as dependent on exports to the United States as a percentage of its total economic output as the United States is on exports to China. Given that the Chinese economy is less than a quarter the size of the American economy, it is all the more striking that Chinese exports to the United States are worth more than six times American exports to China.

The American exports accounted for roughly four-tenths of 1 percent of economic output in the first two months of this year, while Chinese exports to the United States equaled nearly 10 percent of China’s entire output.

The government and companies across China increasingly see a danger in becoming too dependent on a single market. So they are stepping up efforts to sell to other countries, particularly those outside the industrial world. For example, the Great Wall Motor Company, a maker of sport utility vehicles and sedans, has more than quintupled its exports in two years, to 27,505 vehicles last year. Virtually all the increase has come from fast-growing, oil-rich markets like Russia and the Middle East. “Europe and North America are not our primary markets,” the company’s chairman, Wei Jianjun, said.

And Franklin L. Lavin, the American under secretary of commerce for international trade, said, “China has been making more of an effort in recent years to diversify its export markets.” He noted that the Chinese share of American imports was still climbing, but at a slowing rate.

China has also moved beyond just making huge numbers of T-shirts and toys for prosperous Western consumers. It now produces a wide range of industrial goods and transportation gear, like weaving machines and heavy-duty trucks. It exports them in growing quantities to developing nations, many of them profiting from soaring world commodity prices and in need of the rough-and-ready durability of Chinese products.

China ships a growing share of its goods to Southern Europe, with sales especially strong to Spain and Italy, where buyers are often less affluent than in Northern Europe — although there have been signs of a backlash by workers and their unions.

The shift in exports away from the United States has been under way for several years. But it has accelerated in the last year and particularly in the first two months of this year as the dollar has weakened against the yuan, as well as other currencies.

At the same time, the strength in the euro and other currencies has made Chinese goods less expensive in those markets.

China sent more than 31 percent of its exports to the United States in 2000, but that dropped below 24 percent in November and reached 22.7 percent in February, according to a Goldman Sachs tabulation that included Chinese goods trans-shipped through Hong Kong. Exports to the rest of Asia have leveled off, while those to European Union countries rose slightly. Exports to the rest of the world, notably India, Brazil and Russia, have doubled in the last seven years, to 32 percent this winter.

“Right now, the prices we can get from Russia are a lot higher,” said Sean Zhu, vice general manager of the Ningbo Guotai Knitwear Company, which makes knit shirts.

Wang Tongsan, a senior Chinese economic forecaster and member of a committee of experts overseeing the current five-year plan, said the government did not have a policy of pushing exporters to focus on markets other than the United States. He attributed the rise in sales to developing countries to the strong entrepreneurial talents of many Chinese business people.

Several exporters here said they had not been told by the Commerce Ministry to reduce their dependence on the American market. But government-run trade associations have become more active in helping companies attend trade fairs in Europe and the developing world, they said.

Mr. Zhu said that abundant information in Chinese about foreign markets could now be found on Internet sites run by Alibaba.com, based in Hangzhou, and by various government agencies.

Chinese officials are acutely conscious of the risks of rising trade barriers in the United States. The Bush administration opened the door on March 30 to requests by American industries that contend that their Chinese competitors receive subsidies. Last week, the administration filed two complaints with the World Trade Organization arguing that Beijing tolerates widespread abuses of copyrights and trademarks.

Chinese officials are expected to go on another buying trip to the United States before next month’s round of meetings in Washington to discuss economic policies with the United States. By wrapping together a lot of separate purchase agreements in a few heavily promoted announcements, the officials hope to portray the United States as needing the Chinese market.

Similar heavily promoted purchases preceded and coincided with President Hu Jintao’s visit to the United States a year ago. And Japanese executives conducted such buying trips to the United States in the 1980s, when Japan’s trade surplus became a political issue in Washington.

State-controlled media reported on Friday that China would proceed with long-expected plans to reduce tax rebates for exporters, especially in industries like steel that use a lot of energy and fresh water, both in short supply in China.

To underline China’s desire to increase imports, the name of the Canton Fair has been formally changed, starting this week. It is now officially the China Import and Export Fair, though the organizers and many of those attending continue to call it the Canton Fair.

Certain old habits die hard, though. Foreign companies were invited to show their wares, but were relegated to the remote top floor of just one of the more than 30 halls that the trade fair fills at the city’s two convention centers.

Only 18 American companies attended, most of them little known and with small booths. One of the few publicly traded companies was Columbus McKinnon of Amherst, N.Y., selling American-made electric chain hoists. Zhang Qing, the company’s China sales manager, said that even with the weakening dollar, Columbus McKinnon focused on selling top-quality hoists instead of trying to compete just on price with Chinese manufacturers.

Far below, in a heavily traveled ground-floor corridor, executives like Henry Hu, general manager of the Ningbo Rightool Industrial I/E Company, said he was responding to the dollar’s weakness by improving the company’s products.

“Everyone is worried, but we focus on increasing the quality of our products,” said Mr. Hu, who makes socket wrench sets. “The government is encouraging us not just to manufacture, but to do more research and development.”

    China Leans Less on U.S. Trade, NYT, 18.4.2007, http://www.nytimes.com/2007/04/18/business/worldbusiness/18yuan.html

Economix

A Word of Advice During a Housing Slump: Rent

April 11, 2007
The New York Times
By DAVID LEONHARDT

A promotional spot for the National Association of Realtors came on the radio the other day. The spot, introduced as something called “Newsmakers,” was supposed to sound like a news report, with the association’s president offering real estate advice.

“This is the best time to buy,” Pat Vredevoogd Combs, the president, said cheerfully. “There’s a lot of inventory in the marketplace. Interest rates are low. It’s a wonderful tax deduction.”

By the Realtors’ way of thinking, it’s always a good time to buy. Homeownership, they argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time.

That’s how it has worked out for much of the last 15 years. But in a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters.

Most striking, perhaps, is the fact that prices may not yet have fallen far enough for buying to look better than renting today, except for people who plan to stay in a home for many years.

With the spring moving season under way, The New York Times has done an analysis of buying vs. renting in every major metropolitan area. The analysis includes data on housing costs and looks at different possibilities for the path of home prices in coming years.

It found that even though rents have recently jumped, the costs that come with buying a home — mortgage payments, property taxes, fees to real estate agents — remain a lot higher than the costs of renting. So buyers in many places are basically betting that home prices will rise smartly in the near future.

Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent.

“House prices have to fall more before housing becomes a clear buy again,” says Mark Zandi, chief economist of Moody’s Economy.com, a research company that helped conduct the analysis. “These markets aren’t as overvalued as they were a year ago or two years ago, but they’re still unfriendly. And that’s one of the reasons the market is still soft — people realize it’s not a bargain.”

There is obviously no way to know what home prices will do in the next few years. But there are two big reasons to doubt the real estate boosters who insist that it’s once again a great time to buy.

The first is history. After the last big run-up in house prices, in the 1980s, a long slump followed. In the New York area, prices peaked in early 1989 and then fell 9 percent over the next three years, according to government data. (Adjusted for inflation, the drop was much bigger.) Not until 1998 did prices pass their earlier peak.

Keep in mind that the 2000-5 boom was even bigger than the ’80s boom and that house prices on the coasts, according to the official numbers at least, have fallen only slightly so far. So it is hard to imagine that prices will rise 5 percent a year, or another 28 percent in all, over the next five years.

The second reason for skepticism is that buying has never been quite as beneficial as Realtors — and mortgage brokers, home builders and everybody else who makes money off home purchases — have made it out to be. Buyers have to pay property taxes on top of their mortgage, while renters have the taxes included in their monthly rent bill. Buyers also face thousands of dollars in closing costs (and, in Manhattan, co-op charges). Renters, meanwhile, can invest what they would have spent on closing costs and a down payment in the stock market, which hasn’t exactly delivered a bad return over the last 20 years.

And that famous mortgage-interest tax deduction? Yes, it reduces the borrowing costs that come with a mortgage, but it doesn’t eliminate them. Renters don’t face any such borrowing costs.

Almost two years ago, I interviewed a thoughtful 37-year-old man named Tchaka Owen, who happens to be a real estate agent. (Whatever the sins of the Realtors’ association, there are a lot of smart, helpful agents out there. Just remember that they have a financial interest in getting you to buy a house.)

Mr. Owen and his girlfriend, Polly Thompson, had recently moved from the Washington suburbs to the Miami area and decided to rent a two-bedroom apartment with spectacular bay views. “You can get so much more for your money, renting instead of buying,” he said at the time.

Sure enough, house prices soon began to fall in South Florida, and Mr. Owen and Ms. Thompson started to think about buying a place. A three-bedroom Mediterranean-style house that they liked was originally listed for $620,000 last year, but the price was later cut to $543,000. They bought it in June for $516,000. Since then, the market has fallen further, but Mr. Owen said he didn’t mind, because they plan to stay in the house at least a decade. “We love it,” he told me.

Clearly, there are benefits to owning a house beyond the financial, like the comfort of knowing you can stay as long as you want or can fix the roof without permission. But real estate has been sold as more than a good way to spend money. It has been sold as a can’t-miss investment. Back in 2005, near the peak of the market, the chief economist of the Realtors’ association, David Lereah, published a book called “Are You Missing the Real Estate Boom?” The can’t-miss argument was wrong then, and it may still be wrong today.

After hearing that radio spot, I called Ms. Combs and asked her whether she thought there was any chance that she and her fellow Realtors had gone a bit too far in promoting the boom. “I absolutely disagree,” she said, still cheerful. “We help people look at the marketplace.”

So I asked what advice she gave her own clients in Grand Rapids, Mich., where she is an agent. “We often tell people that they need to stay in a house five to six years for it to make sense,” she said.

That’s a nuance that didn’t make it into her “Newsmakers” interview. In Grand Rapids, where the median home costs $130,000, it is probably good advice. In a lot of other places, it may still be too optimistic.

    A Word of Advice During a Housing Slump: Rent, NYT, 11.4.2007, http://www.nytimes.com/2007/04/11/realestate/11leonhardt.html

News Analysis

U.S. Toughens Its Position on China Trade

April 10, 2007
The New York Times
By STEVEN R. WEISMAN

WASHINGTON, April 9 — Has the Bush administration’s economic team run out of patience with China?

For years, President Bush has avoided confronting Beijing with sanctions or legal challenges to its trade practices, preferring to use diplomacy to press China to bring down its trade deficit with the United States, now at $232 billion. But these days, the conciliatory approach looks as if it is being reconsidered, if not discarded.

The latest in a string of tough actions against China came on Monday, when the top American trade envoy, Susan C. Schwab, announced that the United States would take China to court at the World Trade Organization over suspected trade barriers and piracy of books, music, videos and other goods.

That action came after two other unfair trade complaints earlier this year, one last month threatening stiff new duties on certain imports, and the other in February, challenging China over its subsidies of manufactured goods.

Ms. Schwab said that even though negotiations had failed to solve trade problems, the latest steps “should not be viewed as hostile actions against China” and that resolving issues at the World Trade Organization in Geneva was “the normal way for mature trading partners” to handle differences.

The new policy risks angering or embarrassing those in Beijing who may be trying to reform economic policies as Washington wants. In addition, many trade experts worry that China might retaliate against American imports or cut back on cooperation sought by Washington on other issues, like diplomatic problems involving Iran, North Korea and Sudan.

Still, the new policy was widely seen by trade specialists and industry spokesmen as necessary to send a signal not only to Beijing but also to Democrats in Congress, who plan even tougher sanctions against China if the administration does not act.

The announcement by Ms. Schwab on piracy and trade barriers brought cautious praise from an array of Democratic trade hawks, from Senators Charles E. Schumer of New York to Sherrod Brown of Ohio, who won last year in part by taking a tough line on trade. Many Republicans echoed their endorsement. All said the action was overdue and in need of follow-up.

But even those who praised the administration’s actions warned that more such efforts were needed.

“I’ve been sending letters to this administration for years urging these kinds of actions, and they’ve been ignored,” said Representative Sander Levin, Democrat of Michigan and chairman of the trade subcommittee for the House Ways and Means panel. “Obviously the pressure has been building in this new Congress.”

Within the Bush administration the new actions were defended less as a shift than a complement to the policy proclaimed by Treasury Secretary Henry M. Paulson Jr. since he took office last summer — that it is better to solve economic disputes by negotiation. But he has also warned China that it would be dangerous to ignore the restive mood in Congress.

Unlike Commerce Secretary Carlos M. Gutierrez, who praised Ms. Schwab’s announcement on Monday, Mr. Paulson issued no public statement in support of it. Aides say that as a former Goldman Sachs executive with long business experience in China, he has been reluctant to be identified with punishments or threats.

Mr. Paulson, who has visited China three times in the last six months, is the instigator of a “strategic economic dialogue” with top Beijing leaders aimed at getting them to change Chinese policies and practices over the long term. People who have talked to the secretary about trade with China say he has been taken aback by the anti-China mood in Congress.

The Treasury chief signed off on the recent steps against China, however, according to administration officials.

“What the action today means is that Paulson realizes his approach will not deliver concrete results in time to avoid the risk of serious Congressional reaction,” said C. Fred Bergsten, director of the Peterson Institute for International Economics, a policy institute in Washington.

“The problem is that the secretary’s Chinese friends have not given him much help,” Mr. Bergsten added, referring to the unwillingness or inability of Mr. Paulson’s counterparts to move on issues as quickly as Washington wants.

Mr. Paulson has tried not to get into the specifics of trade issues like subsidies, the piracy of intellectual property in software, videos and pharmaceuticals or the welter of Chinese trade barriers on American goods and financial services.

The one issue he has spoken out on the most is currency, echoing the criticism of many economists that China’s practice of buying huge amounts of dollars has kept the value of its currency, the yuan, artificially low in order to promote its own exports by making them cheaper.

But China has taken only moderate steps to allow its currency values to float on the open market. Many in the administration are known to be increasingly impatient over the lack of progress in this area.

The next test of the administration’s tough new approach will be in late May, when a delegation of Chinese officials, led by Vice Premier Wu Yi, will come to Washington for another session of the strategic dialogue started by Mr. Paulson.

It is to be a second round of the talks begun in December, when the Treasury secretary took a team of cabinet members, and Ben S. Bernanke, the Federal Reserve chairman, to push the dialogue as the best way to solve problems.

At the time, Democrats said they would pause in their plans to push for tough measures against China to give the dialogue a chance to work. Now they say it has clearly failed and the more recent escalation is welcome.

What China will do next is an open question in the administration. The answer may not be clear until Mr. Paulson’s economic meeting with the Chinese in May.

But many Chinese experts warn that the latest steps by the administration will not help persuade China to change its reliance on a low-valued currency and other restrictions on imports and investment. The power and influence of Communist Party leaders tied to the export sector is too great, they say.

“If the U.S. takes more actions against China, it will harm Paulson’s dialogue with China and future trade meetings,” said Chen Jianan, a professor of economics at Fudan University in Shanghai. But he said the most recent actions could compel both sides to negotiate.

In the meantime, China is considered likely to try to ease tensions, not by opening up its own markets, but by opening up its wallet and purchasing more American exports, whether planes or machinery or computer chips.

There are media reports in China that the leadership will announce new purchases in advance of the May meeting, just as they did before President Hu Jintao’s visit to the White House last year.

Mr. Gutierrez, the Commerce secretary, has said repeatedly that the way to reduce the trade deficit with China, which now is about a third of the total trade deficit with other countries, is to export more. But Congress is considered unlikely to be impressed by a Chinese shopping spree.

All sides agree that the latest American actions portend a period of rough weather in United States-Chinese relations.

David Barboza contributed reporting from Shanghai.

    U.S. Toughens Its Position on China Trade, NYT, 10.4.2007, http://www.nytimes.com/2007/04/10/business/worldbusiness/10trade.html?hp

Housing Slump Pinches States in Pocketbook

April 8, 2007
The New York Times
By ABBY GOODNOUGH

MIAMI, April 7 — State tax revenues around the country are growing far more slowly this year and in some cases falling below projections, a result of the housing market slowdown that has curbed voracious spending on real estate, building materials, furniture and other items.

Nowhere is the downturn more apparent than in Florida, where tax revenue is projected to drop this year for the first time since the energy crisis of the 1970s.

But other states, especially those where housing prices soared in recent years, are also seeing their collections slow, especially in the sales and real estate transfer tax categories. While the economy remains generally strong and it is too early to predict whether the housing slump will have long-term effects, some states will have to adjust their wish lists.

For example, New Jersey could face a $2.5 billion shortfall by mid-2008, Gov. Jon S. Corzine has said, and may lease its turnpike or its lottery to a private company to raise money. In California, where income tax receipts in January were $1 billion less than forecast, a nonpartisan legislative analyst has urged budget cuts and warned that the state could have about $2 billion less in revenue this year and next than Gov. Arnold Schwarzenegger has projected.

“It’s the year of the housing hangover,” said Sean M. Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.

New home sales nationally fell in February to the lowest rate in seven years, and homeowners who tapped into plentiful home equity and spent extravagantly during the real estate boom have started to cut back.

Those events not only threaten revenue streams for things like building materials and labor, but also affect spending on big-ticket items like cars and furniture, which many homeowners financed with home equity lines of credit.

Chris McCarty, survey research director at the Bureau of Economic and Business Research at the University of Florida, said it would be foolish to “underestimate the effect that the inability to extract equity from homes is going to have.”

In one hint of how much Floridians were relying on property wealth during the real estate boom, 16 percent of new car purchases here were being made with home equity loans in 2006, compared with 7 percent nationally, according to CNW Marketing Research, an automotive research firm in Bandon, Ore. In California, the percentage was even higher — about 30 percent, said Art Spinella, the firm’s president.

During the last few years, families in much of the country have relied on the cash from mortgage refinancing, made possible by rising house values, low interest rates and a bevy of creative new loans, to make up for stagnant wages. From 2001 to 2005, even as the economy was growing at a healthy clip over all, the pay of most workers failed to keep pace with inflation. Now the housing slowdown is making it more difficult to take equity out of a house, and an improved job market is finally causing wages to rise.

Still, Mr. McCarty said consumer confidence in Florida dropped markedly last month, especially willingness to buy expensive items.

Some budget watchers say that Florida, whose housing boom was prolonged and intensified by the rebuilding frenzy after a series of hurricanes, could be a warning beacon for other states anticipating housing-related economic woes. Last spring, 9 of the 20 metropolitan areas that saw the sharpest home price appreciation were in Florida, according to the Office of Federal Housing Enterprise Oversight. Many areas of the state now have plummeting home values.

Arizona, California, Florida and Nevada, the chief beneficiaries of the housing rush, are also expected to suffer disproportionately from the slump. From late 2005 to late 2006, existing home sales fell by 21 percent in California, 27 percent in Arizona, 31 percent in Florida and 36 percent in Nevada, the steepest drop in the nation.

Maryland’s real estate transfer tax revenue has tumbled by 22 percent this fiscal year, suggesting that fewer homes are being sold, prices have fallen or both. Connecticut’s real estate transfer tax revenue, which state budget analysts predicted would fall by 3.6 percent, is down by 13.3 percent so far.

Some states have defied the trend, chiefly among them New York, where the housing market has been bolstered by sales in Manhattan. The prices and number of apartments selling in Manhattan rose in the first three months of this year, according to data released last week by several of New York City’s largest real estate brokerages.

Healthy reserves built up over the last few years and stable economic conditions outside the housing sector could cushion the blow for many states, at least for now.

“The tendency is for people to say, ‘Wow, things look pretty good, except for housing,’ ” said Richard Nathan, co-director of the Nelson A. Rockefeller Institute of Government in Albany. “But that is a very big exception, because it has a large impact on people’s perceptions of what they feel their asset capability is.”

Some economists fear the situation will worsen as credit standards tighten and more recipients of subprime loans — typically people with bad credit, who obtained such loans easily during the housing boom — default on their payments.

But others expect the revenue lag to last two years at most, because with the exception of industrial Midwestern states like Michigan and Ohio, the economy remains relatively healthy.

“Real estate is going to be a drag on the rest of the economy,” said Ryan Ratcliff, an economist for the Anderson Forecast at the University of California, Los Angeles, referring to California’s situation. “But previous recessions have always had construction plus something else combining to create job loss. Without a second source of weakness, we’re predicting sluggishness, but not a recession.”

Alan Greenspan, the former Federal Reserve chairman who has expressed worries about the housing market, has said he believes there is a one-in-three chance the economy will slip into recession in 2007.

Even without a recession, a growing national movement to reduce local property taxes could leave local governments short of the amount they need to provide services at a time when home values are falling, some economists said.

Property tax relief is the Florida Legislature’s top priority this spring. And a new package of bills in New Jersey, if approved, would give a tax credit of up to 20 percent to homeowners and cap annual local tax increases at 4 percent — despite the predicted deficit.

“People are reacting to the large increases in assessments that took place over the past few years and looking to cut property taxes,” wrote Iris J. Lav, deputy director of the Center on Budget and Policy Priorities, a liberal research and advocacy organization. “If assessments stagnate or decline, however, the cuts could seriously overreach.”

Gov. Charlie Crist of Florida is among officials across the country who dismiss that notion, saying that reducing property taxes would fatten consumers’ wallets and dissuade them from leaving the state.

Census data show that fewer people than usual moved into Florida last year. And an abrupt halt in the growth of public school enrollment this year suggests that families are leaving. Despite dropping prices, communities like Naples, Miami and Sarasota still have some of the most overvalued real estate in the nation, according to Global Insight, a research firm in Waltham, Mass.

“People are packing up the equity and moving to North Carolina and Tennessee,” Mr. Snaith said.

Georganna Meyer, chief economist for the Arizona Department of Revenue, said both sales and income tax receipts had slowed there, in part because so many people who jumped into the real estate business during the boom are now earning less. “I’ve heard stories about real estate broker income going up 50 percent year after year,” she said. “So a large part of why the income tax is not what it used to be is related to the real estate market tightening, no doubt.”

It is still too early to know how most states’ fiscal years will end — this month’s income tax filings will be crucial. But Florida, which does not have an income tax, has $303 million less than anticipated for its $70 billion budget, thanks to slowing sales tax and real estate transfer tax collections. Florida also expects to have $653 million less than anticipated in 2007-08, but Amy Baker, coordinator of the Office of Economic and Demographic Research at the State Legislature, said that was not a sign of long-term trouble.

“We saw double-digit price appreciation for several years in a row, so the atmosphere here was very charged,” Ms. Baker said, adding that the state’s housing market should bottom out by summer and pick up again by January.

“We are just returning to normal levels of growth,” she said.

Terry Aguayo contributed reporting from Miami, and David Leonhardt from New York.

    Housing Slump Pinches States in Pocketbook, NYT, 8.4.2007, http://www.nytimes.com/2007/04/08/us/08housing.html?hp

Factory Orders Up Only 1 Percent in Feb.

April 4, 2007
By THE ASSOCIATED PRESS
Filed at 10:19 a.m. ET
The New York Times

WASHINGTON (AP) -- New orders placed with U.S. factories for a range of manufactured goods rose by a disappointing 1 percent in February, a sign companies remain wary of bulking up spending amid the economic slowdown.

The increase in factory orders reported by the Commerce Department on Wednesday did mark an improvement from the jarring 5.7 percent plunge in new orders reported in January, a figure that had contributed to a Wall Street swoon in late February when the report was released.

Economists were expecting a bigger, 1.9 percent increase for February. Weakness in demand for construction machinery, primary metals including steel, and electrical equipment tempered gains elsewhere including cars and other transportation equipment, computers, chemical products and clothing.

The report showed that new orders excluding transportation equipment, where demand can swing widely from month to month, dipped by 0.4 percent in February, the second straight monthly decline.

Orders for big-ticket ''durable'' goods, expected to last at least three years, rose by 1.7 percent in February, following a 8.8 percent drop the month before.

New bookings for primary metals, which includes steel, dropped by 3.8 percent, the most since October 2004. Electrical equipment, appliances and components fell 5.8 percent, the most since August. On the other hand, computers and components rose by 4.5 percent, the most since November. Orders for automobiles went up 1.1 percent, the best showing since December.

Demand for ''nondurables,'' such as food and chemicals, edged up 0.2 percent in February, compared with a 1.7 percent decline in January.

The economy, which grew at a sluggish 2.5 percent pace in the final quarter of last year, is expected to stay in a soft patch, reflecting fallout from the troubled housing market. Some economists have downgraded their forecasts for the recently ended January-to-March quarter and are expecting economic growth to clock in just under a 2 percent pace.

Even so, Federal Reserve Chairman Ben Bernanke and most other economists don't believe the economy will fall into a recession this year.

That being said, Bernanke said one of the things the Fed will be watching closely is business investment, a key ingredient to the economy's good health. This investment has been weak and if it takes an unexpected turn for the worse, that could have adverse implications for the overall economy.

Earlier this week, the Institute for Supply Management reported that manufacturing activity in March expanded at a slower than expected pace, while businesses coped with a big jump in the prices for raw materials.

With mediocre economic growth projected and inflation still higher than Fed officials would like, analysts expect the Federal Reserve will keep interest rates steady for a while. The Fed last month left a key interest rate unchanged at 5.25 percent, where it hasn't budged since August. Before that, the Fed had steadily boosted rates for two years to fend off inflation.

    Factory Orders Up Only 1 Percent in Feb., NYT, 4.4.2007, http://www.nytimes.com/aponline/business/AP-Economy.html

Wal - Mart Defends Security Measures

April 4, 2007
By THE ASSOCIATED PRESS
Filed at 9:43 a.m. ET
The New York Times

Wal-Mart defended its security measures after a fired employee went public Wednesday with allegations of extensive corporate surveillance of the retailer's critics, consultants and shareholders.

The world's largest retailer declined to comment on specific allegations made by former security technician Bruce Gabbard, 44, to the Wall Street Journal in a report published Wednesday. Wal-Mart reiterated that it had fired Gabbard and his supervisor last month for violating company policy by recording phone calls and intercepting pager messages.

''Like most major corporations, it is our corporate responsibility to have systems in place, including software systems, to monitor threats to our network, intellectual property and our people,'' Wal-Mart spokeswoman Sarah Clark said.

''These situations are limited to cases which are high risk to the company or our associates, such as criminal fraud or security issues,'' she said.

Wal-Mart's union-backed critics, whom Gabbard identified as among the surveillance targets, accused the retailer of being ''paranoid, childish and desperate.''

''They should stop playing with spy toys and take the criticism of their business model seriously. The success of the company depends on it,'' said Nu Wexler, spokesman for Wal-Mart Watch. According to the Wall Street Journal report, the company found personal photos of Wexler and tracked his plans to attend Wal-Mart's annual meeting.

Gabbard told the Wall Street Journal he was part of a large, sophisticated surveillance operation by the Threat Research and Analysis Group, a unit of Wal-Mart's Information Systems Division.

Gabbard was fired after recording phone calls to and from a New York Times reporter and intercepting pager messages.

Gabbard and his former supervisor, Jason Hamilton, have declined repeated requests from The Associated Press to talk about their security activities.

Gabbard told the Journal he recorded the calls on his own, but added many of his activities were approved by Wal-Mart. The Journal said other employees and security firms confirmed parts of his account.

Clark said she could not comment on Gabbard's claim of blanket approval because ''that's a pretty broad statement. We wouldn't be able to comment on that without knowing the details he's referring to.''

Gabbard said Wal-Mart sent an employee to infiltrate an anti-Wal-Mart group to learn if it was going to protest at the annual shareholders' meeting and investigated McKinsey & Co. employees it believed leaked a memo about Wal-Mart's health care plans. It also uses software programs to read e-mails sent by workers using private e-mail accounts, he said.

Clark declined to comment on specific allegations.

Asked about McKinsey, she said, ''We continue to work closely with McKinsey and we have no evidence that anyone there ever inappropriately shared confidential information.''

Clark said the Threat Research group is no longer operating in the same manner that it did prior to the discovery of the unauthorized recording of telephone conversations.

''There have been changes in leadership, and we have strengthened our practices and protocols in this area,'' she said.

Wal-Mart announced changes in the group at the time it made Gabbard's eavesdropping and firing public.

    Wal - Mart Defends Security Measures, NYT, 4.4.2007, http://www.nytimes.com/aponline/business/AP-Wal-Mart-Eavesdropping.html

Apartment rents rise, vacancy little changed

Wed Apr 4, 2007 9:35AM EDT
Reuters
By Ilaina Jonas

NEW YORK (Reuters) - The U.S. apartment market remained strong in the first quarter, and most areas did not yet show an impact from the recent mortgage crisis as rents rose and the vacancy rate was little changed, according to a real estate research report.

Effective rent, which is the rent actually paid after factoring in free rent and other incentives, rose 1 percent to an average of $939 per month, according to a Reis Inc. report released on Wednesday. Effective rent has been climbing since the second quarter of 2003.

The U.S vacancy rate rose 0.1 percentage point to 6 percent in the quarter versus the previous quarter, which had a gain of 0.4 percentage point. The report tracks 79 major U.S. markets.

Experts are looking ahead for a rise in demand for apartments from people who are no longer able to buy or who lose their homes as mortgage foreclosures rise and mortgage lending standards tighten.

But foreclosures also may swell the supply of apartments and keep down rental rates as condominiums come onto the market as rental properties.

In some markets, rental rates were already restrained in the first quarter as condominiums were reconverted to apartments and returned to the market as rentals, Reis found.

"We haven't seen the full extent of the impact from the increase in foreclosures and the stress on subprime mortgages, and we'll have to keep watching this very closely in the coming quarters," said Sam Chandan, Reis chief economist.

COMPANIES, MARKETS

These trends could affect publicly traded apartment companies such as Apartment Investment and Management Co., Mid-America Apartment Communities Inc., UDR Inc., Equity Residential, Archstone-Smith Trust and AvalonBay Communities Inc.

The New York area, the largest U.S. apartment market, had the lowest vacancy rate in the first quarter at 2.4 percent. Memphis, Tennessee had the highest at 11 percent.

The markets in Fairfield County, Connecticut, Salt Lake City, Utah and Dayton, Ohio experienced the greatest declines in vacancy rates, each down 0.4 percentage points.

Fairfield's vacancy rate fell to 3 percent, Salt Lake City to 5.3 percent, and Dayton's to 8.8 percent.

"If you look at the level of demand, it's low compared to historic levels," Chandan said. "What has allowed the vacancy rate to come down in spite of that is that we've faced supply constraints.

The Orlando, Florida market claimed the greatest rise in vacancies at 0.7 percentage points to 5.6 percent.

For rental rates, San Jose, Miami and Seattle had the biggest growth in effective rent at 1.6 percent each from the prior quarter. New York followed at 1.5 percent.

Colorado Springs, Colorado came last at the other end as its effective rent fell 0.2 percent.

Around the country, net conversions of apartments to condominiums stood at less than 1,000 units in the first quarter 2007, having peaked at over 55,000 units in the third quarter of 2005.

Owners and developers gradually have been constructing new apartment buildings and halting plans to build condominiums. Instead some have converted apartment buildings-turned-condos back into rental apartments.

Fort Lauderdale, Florida leads the pack of markets with the greatest reconversion activity, accounting for 0.6 percent of the total inventory of apartments in the first quarter, according to Reis.

Other formerly hot condo markets such as Phoenix, Las Vegas, Atlanta, and Austin and Fort Worth, Texas also are seeing more reconversions.

A greater supply of apartments from reconversion activity and from individual condominium unit owners who rent units that they can't sell at a profit has begun to curb rises in rents.

In Fort Lauderdale, for example, first-quarter effective rent growth rose 0.6 percent, compared with 2.8 percent in the first quarter of 2006.

    Apartment rents rise, vacancy little changed, R, 4.4.2007, http://www.reuters.com/article/domesticNews/idUSN0326694020070404

New Century cuts 3,200 jobs, sells servicing assets

Mon Apr 2, 2007 11:26AM EDT
Reuters

NEW YORK (Reuters) - New Century Financial Corp. said on Monday it will immediately cut 3,200 jobs, or 54 percent of its work force, as part of its Chapter 11 bankruptcy reorganization.

The Irvine, California-based company also said it agreed to sell its servicing assets and platform to Carrington Capital Management LLC for $139 million, subject to bankruptcy approval.

Separately, New Century said CIT Group Inc. and Greenwich Capital Financial Products have agreed to provide up to $150 million of debtor-in-possession financing to keep the company in business as it reorganizes.

New Century had been the largest U.S. independent provider of home loans to people with poor credit histories before collapsing amid rising subprime delinquencies and defaults.

    New Century cuts 3,200 jobs, sells servicing assets, R, 2.4.2007, http://www.reuters.com/article/ousiv/idUSN0242080520070402