History > 2008 > USA > Economy (V)

A recent protest by truck drivers in Washington.

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Alex Wong/Getty Images

Oil Refiners See Profits Sink as Consumption Falls

NYT

14.5.2008

https://www.nytimes.com/2008/05/14/
business/14refine.html  

Consumer Spending

and Personal Income Slow

May 31, 2008
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON — Consumer spending barely budged in April while growth in personal income slowed, even though the government started sending out billions of dollars in economic stimulus payments.

The Commerce Department said in a report on Friday that consumer spending edged up a small 0.2 percent in April, just half the 0.4 percent rise in March. When inflation is excluded, the performance was even weaker, showing no gain in spending after excluding price changes.

Incomes rose 0.2 percent in April, just half of the March increase. That performance would have been even weaker without a boost as the government began mailing out the first of $106.7 billion in economic stimulus payments.

Consumer spending, which accounts for two-thirds of total economic activity, is being closely watched at present for signs that the economy could be slipping into a recession.

The government reported Thursday that the overall economy, as measured by the gross domestic product, grew at an annual rate of 0.9 percent, slightly better than the 0.6 percent G.D.P. growth originally estimated. However, growth at that level remained very anemic and some analysts are worried that the G.D.P. could slip into negative territory in the current quarter.

The Bush administration is hoping that a recession can be averted with the help of the economic stimulus payments.

The Commerce report said that those payments, which did not start until the end of April, totaled $7.8 billion at an annual rate for that month.

The small 0.2 percent rise in personal incomes in April was the weakest gain since a 0.2 percent rise in January. Commerce analysts said it would have been an even weaker 0.1 percent without the economic stimulus payments.

Incomes were depressed because private wages and salaries fell at an annual rate of $18.2 billion in April, the biggest setback in a year. This weakness comes in part from four consecutive months of job layoffs, starting in January.

The economy is being battered by a series of blows, from a prolonged slump in housing to a tight credit market and soaring energy prices. All of these factors have rattled consumer confidence, sending it to levels not seen in more than two decades.

For April, consumer prices, measured by an inflation gauge tied to consumer spending, rose 0.2 percent, down from a 0.3 percent rise in March. However, the rise in inflation was a more modest 0.1 percent in April when volatile food and energy costs are excluded.

The personal savings rate, the amount of spending compared to after-tax incomes, held steady at 0.7 percent in April, the same level as in February and March.

Consumer Spending and Personal Income Slow, NYT, 31.5.2008, http://www.nytimes.com/2008/05/31/business/31econ.html

The Energy Challenge

Mounting Costs

Slow the Push for Clean Coal

May 30, 2008
The New York Times
By MATTHEW L. WALD

WASHINGTON — For years, scientists have had a straightforward idea for taming global warming. They want to take the carbon dioxide that spews from coal-burning power plants and pump it back into the ground.

President Bush is for it, and indeed has spent years talking up the virtues of “clean coal.” All three candidates to succeed him favor the approach. So do many other members of Congress. Coal companies are for it. Many environmentalists favor it. Utility executives are practically begging for the technology.

But it has become clear in recent months that the nation’s effort to develop the technique is lagging badly.

In January, the government canceled its support for what was supposed to be a showcase project, a plant at a carefully chosen site in Illinois where there was coal, access to the power grid, and soil underfoot that backers said could hold the carbon dioxide for eons.

Perhaps worse, in the last few months, utility projects in Florida, West Virginia, Ohio, Minnesota and Washington State that would have made it easier to capture carbon dioxide have all been canceled or thrown into regulatory limbo.

Coal is abundant and cheap, assuring that it will continue to be used. But the failure to start building, testing, tweaking and perfecting carbon capture and storage means that developing the technology may come too late to make coal compatible with limiting global warming.

“It’s a total mess,” said Daniel M. Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley.

“Coal’s had a tough year,” said John Lavelle, head of a business at General Electric that makes equipment for processing coal into a form from which carbon can be captured. Many of these projects were derailed by the short-term pressure of rising construction costs. But scientists say the result, unless the situation can be turned around, will be a long-term disaster.

Plans to combat global warming generally assume that continued use of coal for power plants is unavoidable for at least several decades. Therefore, starting as early as 2020, forecasters assume that carbon dioxide emitted by new power plants will have to be captured and stored underground, to cut down on the amount of global-warming gases in the atmosphere.

Yet, simple as the idea may sound, considerable research is still needed to be certain the technique would be safe, effective and affordable.

Scientists need to figure out which kinds of rock and soil formations are best at holding carbon dioxide. They need to be sure the gas will not bubble back to the surface. They need to find optimal designs for new power plants so as to cut costs. And some complex legal questions need to be resolved, such as who would be liable if such a project polluted the groundwater or caused other damage far from the power plant.

Major corporations sense the possibility of a profitable new business, and G.E. signed a partnership on Wednesday with Schlumberger, the oil field services company, to advance the technology of carbon capture and sequestration.

But only a handful of small projects survive, and the recent cancellations mean that most of this work has come to a halt, raising doubts that the technique can be ready any time in the next few decades. And without it, “we’re not going to have much of a chance for stabilizing the climate,” said John Thompson, who oversees work on the issue for the Clean Air Task Force, an environmental group.

The fear is that utilities, lacking proven chemical techniques for capturing carbon dioxide and proven methods for storing it underground by the billions of tons per year, will build the next generation of coal plants using existing technology. That would ensure that vast amounts of global warming gases would be pumped into the atmosphere for decades.

The highest-profile failure involved a project known as FutureGen, which President Bush himself announced in 2003: a utility consortium, with subsidies from the government, was going to build a plant in Mattoon, Ill., testing the most advanced techniques for converting coal to a gas, capturing pollutants, and burning the gas for power.

The carbon dioxide would have been compressed and pumped underground into deep soil layers. Monitoring devices would have tested whether any was escaping to the atmosphere.

About $50 million has been spent on FutureGen, about $40 million in federal money and $10 million in private money, to draw up preliminary designs, find a site that had coal, electric transmission and suitable geology, and complete an Environmental Impact Statement, among other steps.

But in January, the government pulled out after projected costs nearly doubled, to $1.8 billion. The government feared the costs would go even higher. A bipartisan effort is afoot on Capitol Hill to save FutureGen, but the project is on life support.

The government had to change its approach, said Clarence Albright Jr., the undersecretary of the Energy Department, to “limit taxpayer exposure to the escalating cost.”

Trying to recover, the Energy Department is trying to cut a deal with a utility that is already planning a new power plant. The government would offer subsidies to add a segment to the plant dedicated to capturing and injecting carbon dioxide, as long as the utility bore much of the risk of cost overruns.

It is unclear whether any utility will agree to such a deal. The power companies, in fact, have been busy pulling back from coal-burning power plants of all types, amid rising costs and political pressure. Utility executives say they do not know of a plant that would qualify for an Energy Department grant as the project is now structured.

Most worrisome to experts on global warming, the utilities have recently been canceling their commitments to a type of plant long seen as a helpful intermediate step toward cleaner coal.

In plants of this type, coal would be gasified and pollutants like mercury, sulfur and soot removed before burning. The plants would be highly efficient, and would therefore emit less carbon dioxide for a given volume of electricity produced, but they would not inject the carbon dioxide into the ground.

But the situation is not hopeless. One new gasification proposal survives in the United States, by Duke Energy for a plant in Edwardsport, Ind.

In Wisconsin, engineers are testing a method that may allow them to bolt machinery for capturing carbon dioxide onto the back of old-style power plants; Sweden, Australia and Denmark are planning similar tests. And German engineers are exploring another approach, one that involves burning coal in pure oxygen, which would produce a clean stream of exhaust gases that could be injected into the ground.

But no project is very far along, and it remains an open question whether techniques for capturing and storing carbon dioxide will be available by the time they are critically needed.

The Electric Power Research Institute, a utility consortium, estimated that it would take as long as 15 years to go from starting a pilot plant to proving the technology will work. The institute has set a goal of having large-scale tests completed by 2020.

“A year ago, that was an aggressive target,” said Steven R. Specker, the president of the institute. “A year has gone by, and now it’s a very aggressive target.”

    Mounting Costs Slow the Push for Clean Coal, NYT, 30.5.2008, http://www.nytimes.com/2008/05/30/business/30coal.html?hp

As Oil Prices Soar, Restaurant Grease Thefts Rise

May 30, 2008
The New York Times
By SUSAN SAULNY

The bandit pulled his truck to the back of a Burger King in Northern California one afternoon last month armed with a hose and a tank. After rummaging around assorted restaurant rubbish, he dunked a tube into a smelly storage bin and, the police said, vacuumed out about 300 gallons of grease.

The man was caught before he could slip away. In his truck, the police found 2,500 gallons of used fryer grease, indicating that the Burger King had not been his first fast-food craving of the day.

Outside Seattle, cooking oil rustling has become such a problem that the owners of the Olympia Pizza and Pasta Restaurant in Arlington, Wash., are considering using a surveillance camera to keep watch on its 50-gallon grease barrel. Nick Damianidis, an owner, said the barrel had been hit seven or eight times since last summer by siphoners who strike in the night.

“Fryer grease has become gold,” Mr. Damianidis said. “And just over a year ago, I had to pay someone to take it away.”

Much to the surprise of Mr. Damianidis and many other people, processed fryer oil, which is called yellow grease, is actually not trash. The grease is traded on the booming commodities market. Its value has increased in recent months to historic highs, driven by the even higher prices of gas and ethanol, making it an ever more popular form of biodiesel to fuel cars and trucks.

In 2000, yellow grease was trading for 7.6 cents per pound. On Thursday, its price was about 33 cents a pound, or almost $2.50 a gallon. (That would make the 2,500-gallon haul in the Burger King case worth more than $6,000.)

Biodiesel is derived by processing vegetable oil or animal fat with alcohol. It is increasingly available around the country, but it is expensive. With the right kind of conversion kit (easily found on the Internet) anyone can turn discarded cooking oil into a usable engine fuel that can burn on its own, or as a cheap additive to regular diesel.

“The last time kids broke in here they went for the alcohol,” said Mr. Damianidis, who fries chicken wings and cheese sticks. “Obviously they’re stealing oil because it’s worth something.”

While there have been reports of thefts in multiple states, law enforcement officials do not compile national statistics and it remains unclear whether this is part of a passing trend or something more serious.

The suspects in a growing number of grease infractions fall into a range of categories, people interviewed on the matter said, as grease theft is a crime of opportunity. They include do-it-yourself environmentalists worried about their carbon footprints, warring waste management firms trying to beat each other on the sly, and petty thieves who are profiting from the oil’s rising value on the black market.

“It’s a new oddity,” said Officer Seth Hanson of the Federal Way Police Department, near Tacoma, Wash. He said thefts occur outside at least a couple of restaurants there each week. “We’re trying to get an eyeball on how well-organized it is, if at all. To date, we haven’t been very successful in finding anybody.”

Thefts have been reported in at least 20 states, said Christopher A. Griffin, whose family owns Griffin Industries, one of the largest grease collection and rendering companies in the country. The problem has gotten so bad, Mr. Griffin has hired two detectives to investigate thefts around the country.

“Theft is theft,” said Mr. Griffin, who is based in Cold Spring, Ky. “I don’t care if you’re stealing grease or if you’re stealing diamonds.”

Fryer oil from a restaurant that does a high volume of frying one kind of food — for example, a fried-chicken chain — is at a premium because of its relative purity. The large-scale producers of grease, restaurants mostly, own their old oil and in recent months have even made a small profit by selling it to collectors.

Because of the grease’s rancid odor, most restaurants usually store it out back with the trash.

“Once you put something in the trash, it’s abandoned property,” said Jon A. Jaworski, a lawyer in Houston who represents accused grease thieves. “A lot of times, it’s not theft.”

Even so, most restaurant owners and grease collectors say that grease is not free for the taking.

“There’s a new fight for the product, definitely a whole new demand sector,” said Bill Smith, a market reporter for Urner Barry’s Yellow Sheet, an industry newsletter that tracks yellow grease. “Grease theft is becoming a bigger and bigger issue.”

In the case of the Burger King theft, in Morgan Hill, Calif., the police were alerted to suspicious activity by a neighbor who runs his own grease collection and recycling business and is on the lookout for rustlers.

Driving through town, the neighbor, Mark Rosenzweig, said he spotted the suspect’s truck because “it stuck out.” He said he followed it for blocks before it pulled into the Burger King. Mr. Rosenzweig said he knew the man who holds the Burger King grease account, so he called him.

“I had to give everybody a roadside tutorial on grease theft,” Mr. Rosenzweig said of his next call — to the police. “Ten years ago we couldn’t give this stuff away. Now everybody’s fighting over it.”

The suspect in the case, a 49-year-old man who said he was from Las Vegas, has yet to enter a plea, and is due in court next in July.

A typical fast-food restaurant produces 150 to 250 pounds of grease a week. Many do not even know when a theft occurs because it usually happens overnight. Most security cameras and night watchmen are focused on cash registers, not the trash.

“Who do you go after?” said Jason Christensen, a trader of fats and oils for the AgriTrading Corporation, in Minnesota. “I sense you’ll start seeing more surveillance equipment put in to monitor these storage facilities at the restaurant. As the price goes up, you can afford to spend a little more to protect your interest.”

And there is so much interest in grease these days.

The City of San Francisco has its own grease recycling program run through the Public Utilities Commission called SFGreasecycle, which collects discarded vegetable oil from city restaurants at no charge and recycles it into biodiesel for use in the city fleet.

Healy Biodiesel, a company in Sedgwick, Kan., says it offers a top-quality fuel made from local cooking oils.

Ben Healy, the owner, has contracts to collect the raw grease from several franchises around town.

“One particular night not too long ago, 9 out of 15 were stolen,” he said of the grease bins. “That’s a majority of the oil and it was a big kick in the stomach.”

At Olympia Pizza and Pasta, Mr. Damianidis, who now sells his grease for a small monthly fee, finds the problem of stolen fryer oil quite annoying and distracting. And he wants to stop the thefts. He is leaning toward a security camera and hoping for the best.

“I cook food,” Mr. Damianidis said. “I’m not going to stay up until 2 in the morning trying to catch someone stealing a barrel of grease.”

    As Oil Prices Soar, Restaurant Grease Thefts Rise, NYT, 30.5.2008, http://www.nytimes.com/2008/05/30/us/30grease.html

Economic Growth Is Revised Higher

May 30, 2008
The New York Times
By MICHAEL M. GRYNBAUM

The economy grew at a faster pace than originally estimated in the first quarter, the government said on Thursday, but the nation remained mired in its most stagnant period of growth in five years.

Gross domestic product, a measure of overall economic growth, expanded at an annual rate of 0.9 percent in the first three months, according to a Commerce Department report. That was higher than the initial estimate, released a month ago, which had put the growth rate at 0.6 percent.

The government revised its figures because imports dipped more than expected in the first quarter, narrowing the trade deficit. Smaller demand for imports meant less money flowed out of American businesses into foreign countries, pushing up domestic bottom lines and, in turn, the overall growth rate.

But demand for imports fell because Americans were buying less. The bleak economic outlook has made many Americans more hesitant to spend, especially on large-scale purchases like cars and kitchen appliances. Though this trend helped nudge the G.D.P. estimate up in the first quarter, it is likely to lead to a retrenchment in the business sector in the coming months.

Indeed, despite the nominal increase in the G.D.P. figure, the revised report still showed an economy struggling to tread water as the housing slump and a crisis of confidence in the credit markets weighed on investments and buying.

Inventories slipped slightly, signaling that businesses are producing fewer goods in anticipation of slack consumer demand. Imports dipped 2.6 percent, revised down from an initial estimate of a 2.5 percent increase. A measure of consumer spending, known as “real final sales growth,” was revised up from last month’s estimate of a decline of 0.2 percent, but only to the still-anemic pace of 0.7 percent.

“There is no end in sight to the economic slump,” Joshua Shapiro, an economist at the research firm MFR, wrote in a note to clients.

The Commerce Department also provides data on inflation, almost all of which remained unchanged from last month’s initial estimate. Prices rose at a 2.6 percent annualized rate in the first quarter, following an increase of 2.4 percent in the final quarter of 2007.

Over all, gross domestic product expanded 0.6 percent at the end of last year, and 4.9 percent in the third quarter of 2007.

Data on the G.D.P. is regularly revised; the Commerce Department’s final estimates for the first quarter will be released June 26.

In a separate report released Thursday, the Labor Department said that the number of new applications for unemployment insurance rose to 372,000 last week, seasonally adjusted. The increase, of 4,000 claims, was slightly more than economists had anticipated.

    Economic Growth Is Revised Higher, NYT, 30.5.2008, http://www.nytimes.com/2008/05/30/business/30econ.html?hp

$3.99 Pump Ceiling, and Gas Sells by Half-Gallon

May 29, 2008
The New York Times
By KEN BELSON

For a brief moment on Wednesday morning, the gas pump at Gary Staiano’s Texstar service station in Bellerose, Queens, turned into a time machine. After 11.3 gallons was pumped into a Pontiac Grand Am, the meter read $23, or $2.03 a gallon, a price not seen in more than three years.

Then Mr. Staiano transported his customer back to reality when he doubled the total at the cash register. Using pumps so old that the meters go only as high as $3.99 a gallon, Mr. Staiano began pricing his gas by the half-gallon this week, just as station owners did when gas prices skyrocketed a generation ago.

“Some people say I got the cheapest prices in town” until they see the receipt, said Mr. Staiano, 50, who started pumping gas as a teenager and remembers when it rose above $1 a gallon for the first time in the 1970s.

As the average price of a gallon of regular gasoline in New York City hit a record $4.20 on Wednesday, the State Bureau of Weights and Measures gave station owners like Mr. Staiano the official go-ahead to charge by the half-gallon, provided they can prove that they have ordered new pump computers that can handle prices up to $9.99 a gallon. The new computers cost about $400 each, not including installation fees; Mr. Staiano said his would arrive in about a month.

Experts estimate that as many as 500 stations across the state, most of them independently owned, have older pumps that are unable to go above $3.99. A handful of such stations are sprinkled around the city and suburbs, including a Getty pump on Kings Highway in Brooklyn and another on Broadway in the Bronx, according to Newyorkgasprices.com. Other stations are on Long Island in Cedarhurst, Elmont and Hewlett.

By the end of the business day on Wednesday, the state had received 40 applications from stations wanting to charge for gasoline in half-gallon increments. There is a backlog of up to 17 weeks for the replacement machines from various companies, so state officials expect half-gallon pricing to be around for about five months.

“It’s an interim fix to this problem,” said Jessica Chittenden, a spokeswoman for the New York State Department of Agriculture and Markets. “There is a national shortage of these computing devices.”

There was little rush to get the new pumps until a few months ago, when gasoline prices kept climbing. As prices blew past $4 this month, stations with older pumps turned into bargains overnight for drivers lucky enough to spot them.

Of course, what the drivers saved, the owners lost. Mr. Staiano said his profits were trimmed by 6 cents to 8 cents a gallon when the pumps were stuck at $3.99 (and 9/10). That is why he began charging by the half-gallon a couple of days ago, when, he said, state officials told him an approval was imminent.

“I could absorb it for a little while,” he said. “But we’re not here to lose money.”

The state previously let stations charge by the half-gallon in the fall of 2005, when gas prices passed $2.99, but only for 90 days. This time, prices have risen so high so quickly that the manufacturers of the replacement parts have been unable to keep up. Mr. Staiano has sent a $1,000 deposit for his new pump computers to U.S. Petroleum Equipment in Combined Locks, Wis.

The gauges in the older gas pumps are computers but look more like the innards of an old adding machine or cuckoo clock. Gears of different sizes spin at different speeds depending on the digits they represent. Station attendants flick tabs to change the digits, which are written on hard black rubber spools. The digit representing $2 on one of Mr. Staiano’s pumps was written in what looked like white-out.

Mr. Staiano called his older pumps, which were bought in the 1980s, “war horses” because they rarely break or lose their calibration. New digital pumps that accept credit cards and sell multiple brands of fuel can cost as much as $15,000 each. But because 80 percent of his customers pay cash, Mr. Staiano said, the investment is not worth it.

The higher gas prices go, the more often stations have to repair pump computers, according to Robert Renkes, the executive vice president of the Petroleum Equipment Institute, a trade group in Tulsa, Okla., that represents manufacturers of station equipment.

While gasoline is still dispensed at no more than 10 gallons a minute, higher prices mean the mechanical equipment must spin faster to keep up, leading to more problems.

“When gas was a dollar a gallon, the penny wheel went to a dollar in one minute,” Mr. Renkes said. “But anything that goes four times faster is going to wear out quicker.”

For now, Mr. Staiano has placed yellow tape on his pumps alerting customers that the prices are for half-gallons. He also tells them when they first pull in that the price on the meter would be doubled. Customers using credit cards on Wednesday paid $4.15 a gallon, lower than at many stations in the area. Those using cash paid $4.05, since Mr. Staiano did not have to turn over 2 percent or more to the credit-card companies.

“I know he’s trying to keep it reasonable,” said Mary Romano, a regular customer. “But he’s in business to make money.”

    $3.99 Pump Ceiling, and Gas Sells by Half-Gallon, NYT, 29.5.2008, http://www.nytimes.com/2008/05/29/nyregion/29pumps.html?hp

Consumer confidence hits 16-year low in May

Tue May 27, 2008
10:19am EDT
Reuters
By Pedro Nicolaci da Costa

NEW YORK (Reuters) - Consumer confidence plunged unexpectedly to its lowest in 16 years in May as rising gasoline costs and falling home prices made Americans nervous about the future, a survey released on Tuesday showed.

The Conference Board, an industry group, said its monthly measure of consumers' mood fell to 57.2 from 62.3 in April, well below Wall Street's median estimate of 60.0.

"There is a fear the economy is in a recession or going into one and people may find their jobs in jeopardy," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York.

"When you talk to people on the street they seem to be really being squeezed at the pump and the supermarket while their income isn't keeping up."

The index has dropped by almost half since last July, when housing market troubles triggered the most severe credit crisis in at least a decade.

At the same time, inflation expectations rose to an all-time high 7.7 percent, well above April's 6.8 percent.

The pain was felt across the board, with consumers worried about both what is happening now and what might be to come. The present situation index dropped to 74.4 from 81.9, while the expectations barometer dived to 45.7 from 50.0.

Other reports out on Tuesday suggested the housing market will not get better any time soon. New home sales rose but only after downward revisions to the prior month, and remained near their weakest in more than 15 years.

Meanwhile prices of single-family homes plunged a record 14.1 percent in the first quarter from a year earlier, marking a pace five times faster than the last housing recession, according to the Standard & Poor's/Case Shiller index.

"Weakening business and job conditions coupled with growing pessimism about the short-term future have depleted consumers' confidence in the overall state of the economy," said Lynn Franco, director of The Conference Board Consumer Research Center.
 

(Additional reporting by John Parry; Editing by James Dalgleish)

    Consumer confidence hits 16-year low in May, R, 27.5.2008, http://www.reuters.com/article/domesticNews/idUSN2737788720080527

Op-Ed Contributor

The Working Wounded

May 27, 2008
The New York Times
By DAVID M. UHLMANN

Ann Arbor, Mich.

ON a hot August morning in 1996, Scott Dominguez reported to work at Evergreen Resources, a small fertilizer manufacturing plant in his hometown, Soda Springs, Idaho. The workday began like any other, with gruff commands barked out by the owner of the company, Allan Elias, who was a Wharton graduate, a lawyer and one of the most notorious violators of environmental and worker-safety laws in the state.

Mr. Elias wanted his workers to clean out a 25,000-gallon tank that contained cyanide waste. He refused to test the air or the waste inside the tank. He ignored the pleas of his workers for safety equipment. When the workers complained of sore throats and difficulty breathing, Mr. Elias told them to finish the job or find work somewhere else.

Mr. Dominguez, a 20-year-old high school graduate, wanted to keep his job. Wearing just jeans and a T-shirt, he used a ladder to descend into the tank. Two hours later, covered in sludge and barely breathing, he was removed from the tank, a victim of cyanide poisoning at the hands of a ruthless employer who would blame his “stupid and lazy” employees for the incident.

Mr. Dominguez suffered severe and permanent brain damage. He now has the rigid body movement and stammering speech found in patients with Parkinson’s disease.

The Justice Department opened a criminal investigation of Evergreen Resources. I was one of the lead prosecutors on the case. We quickly discovered that we had a major problem.

Mr. Elias did not commit a crime under the Occupational Safety and Health Act, which is the primary federal worker-safety law in the United States. Why not? Because Mr. Dominguez did not die.

My colleagues and I were shocked to learn that an employer who breaks the nation’s worker-safety laws can be charged with a crime only if a worker dies. Even then, the crime is a lowly Class B misdemeanor, with a maximum sentence of six months in prison. (About 6,000 workers are killed on the job each year, many in cases where the deaths could have been prevented if their employers followed the law.) Employers who maim their workers face, at worst, a maximum civil penalty of $70,000 for each violation.

We ended up prosecuting Mr. Elias for environmental crimes, and he was sentenced to 17 years in prison. I later became chief of the Justice Department’s environmental crimes section, and we started an initiative — based on this case and others like it — to seek justice when workers were seriously injured or killed during environmental crimes. We prosecuted some of the largest companies in America. But in cases where no environmental crimes were committed, we often could not prosecute.

Employers rarely face criminal prosecution under the worker-safety laws. In the 38 years since Congress enacted the Occupational Safety and Health Act, only 68 criminal cases have been prosecuted, or less than two per year, with defendants serving a total of just 42 months in jail. During that same time, approximately 341,000 people have died at work, according to data compiled from the National Safety Council and the Bureau of Labor Statistics by the A.F.L.-C.I.O.

It is long past time for Congress to change the law. First, Congress should amend the Occupational Safety and Health Act to make it a crime for an employer to commit violations that cause serious injury to workers or that knowingly place workers at risk of death or serious injury. Whether good fortune intervenes and prevents harm to workers should not determine whether an employer commits a crime.

Congress should make it a felony to commit a criminal violation of the worker-safety laws, and the penalties for lawbreakers should be stiffened. The maximum sentence ought to be measured in years, not months.

Congress also should change the worker-safety laws so that ignorance of the law is no longer a defense. Employers have a duty to know their responsibilities under the Occupational Safety and Health Act.

Finally, Congress should make clear who can be prosecuted. Some courts have held that prosecution is limited to companies and their owners. Supervisors who order workers to break the law, as well as responsible corporate officers who fail to stop violations that they know are occurring, should also be held criminally responsible, just as they are under most other federal laws.

Most companies care about protecting their workers. But without a serious threat of criminal enforcement, more workers will be put at risk by companies that put profits before safety.

David M. Uhlmann is a law professor at the University of Michigan.

    The Working Wounded, NYT, 27.5.2008, http://www.nytimes.com/2008/05/27/opinion/27uhlmann.html

Auto Industry Feels the Pain of Tight Credit

May 27, 2008
The New York Times
By ERIC DASH

The auto industry is getting sideswiped by the housing crisis.

Auto lenders and banks, closing their wallets, have prevented hundreds of thousands of consumers from obtaining the financing for a car. Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots.

Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.

The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown.

“It is a bleak picture, and it all hinges on the availability of financing,” said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. “The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors.”

Within the auto sector, problems stemming from the continuing tightening of credit have already started to spread. Auto lenders like Chase, Capital One and GMAC are finding it harder and more expensive to obtain money for loans. Profits also look dimmer as the lenders absorb losses from defaults and pull back from making new loans.

Car dealers and manufacturers will probably face months of weaker profits as they offer more incentives to sell new vehicles. Luxury car sales, which provide outsize profits for auto companies, are off 13 percent from last year, according to the Autodata research firm. And consumers, facing potentially higher mortgage payments and $4-a-gallon gas, are delaying purchases of midmarket cars.

“The housing crisis, defined with the credit crisis, has really knocked consumers back on their heels,” said Michael J. Jackson, the chairman of AutoNation, the largest automobile retailer.

But the auto industry may not suffer the same severe downturn as the housing sector. One reason is that auto lenders have long issued loans expecting that vehicles, as collateral for the loans, start to lose value as soon as they are driven off the lot. In contrast, mortgage lenders during the housing boom believed that home prices would keep rising.

Still, the parallels are striking. Easy money and lax underwriting helped extend a boom for automakers from 2005 to early 2007. With Detroit pumping out new cars, consumers were encouraged to buy even though they might not have needed a new vehicle.

Now, just as in the housing sector, the auto industry is suffering, too.

Borrowers are falling behind on their car payments at a rate faster than in other recent downturns. And losses are considerably worse. Auto lenders sustained losses on about 3.4 percent of their loans in the first quarter, a rate about 30 percent higher than in 2002, according to data from Moody’s Economy.com. Even some of the most creditworthy borrowers are stressed.

Recently there have been a few small signs of improvement. But auto lenders have struggled to find investors willing to buy packages of new loans. Just as in the mortgage markets, a sterling credit rating — the bond insurer’s seal of approval — is no longer trusted.

“It’s a challenge, but it’s not a crisis,” said William F. Muir, president of GMAC, the financing arm of General Motors that is now operated as a joint venture.

As the pool of money available to auto lenders has dried up, they have cut back on making new loans. Since late last year, nearly every auto finance company has tightened its lending standards. They are forcing borrowers to put more money down. They are also demanding higher monthly payments and requiring stronger credit records and more stringent documentation.

Subprime auto lenders have been forced to pull back the most. AmeriCredit, a big subprime finance company, said it would issue about $3 billion in new auto loans this year, compared with $9.2 billion in 2007. That translates into around 340,000 fewer vehicles being financed this year. But lenders catering to less risky borrowers are also retrenching.

“Capital One is pulling back, Citi is pulling back, HSBC and Wells Fargo are pulling back,” said Mr. Ryan, the analyst. So are the finance entities that serve the major automakers, like GMAC, Chrysler Financial and Ford Motor Credit. “What you are seeing at AmeriCredit is probably happening everywhere else, but probably to a lesser degree.”

Many dealers say that buyers who would have been shoo-ins for a loan a year ago are now being turned away. Ken Somerville, business manager at Pedigo Chevrolet in Indianapolis, said the tougher standards were having a “significant impact” on his ability to help customers get financing and close a sale.

“Chances are, if we can’t help them, they’ve already been somewhere else that couldn’t either,” he said.

Some of the biggest drops in car sales have been in areas where home prices have fallen most sharply. The housing boom created thousands of jobs, robust consumer confidence and strong demand for pickup trucks. Today, that has all vanished.

As home values have declined, millions of consumers have maxed out on home equity debt. In hot markets like California, nearly 30 percent of all consumers tapped into the value of their homes to help finance their new cars, according to CNW Marketing Research. In Florida, about 20 percent used home equity loans. New car sales in both states are down about 7 percent.

Those areas are also seeing surges in repossessed vehicles. Bill Glover, a veteran repo man in Fort Meyers, Fla., says he has recovered more than 100 cars a week since October, doubling his usual business. “I’m picking up 2008s already,” he said.

In the past, Mr. Glover mostly took back cars from borrowers with sketchy credit who habitually fell behind on their car payments. But that circle has widened. “Lately what we’re picking up is crew-cab pickup trucks,” Mr. Glover said, “and anything having to do with construction.”

The rise in recovered vehicles, along with tighter loan terms and weak demand from buyers, has put pressure on the used-car market too. In April, sale prices dropped 5.9 percent from a year earlier, with S.U.V.’s and pickup trucks plummeting even more, according to the Manheim Used Vehicle Value index, a widely followed measure that was not adjusted for seasonal differences. Prices had been rising for more than four years until last fall.

Analysts say there are few signs that this downward spiral will end soon. At the Midwest Auto Auction lot in the Detroit suburbs, there were plenty of deals one recent Friday morning.

Drivers shuttled more than 180 vehicles across the auction lot in two lines as the auctioneer, Ed Dunn, wearing an ivory cowboy hat from his perch above the floor, bellowed their make, model and year.

The first car up for sale was a 2007 Lincoln MKZ luxury sedan with leather seats, which had been repossessed by a local credit union. But there were no bids. So Mr. Dunn lowered the starting price again and again.

At long last, somebody bid $13,200 for the car. Sold? Sure. But at roughly $10,000 below its Kelley Blue Book value.
 

Nick Bunkley contributed reporting.

    Auto Industry Feels the Pain of Tight Credit, NYT, 27.5.2008, http://www.nytimes.com/2008/05/27/business/27auto.html?hp

What makes up the price of a gallon of gas?

24 May 2008
The Associated Press
USA Today

Consider the game of chicken that plays out every day across Pennsylvania State Highway 441. In Marietta, where the road hugs the Susquehanna River, a Rutter's Farm Store gas station stands on one side, a Sheetz gas station on the other.

Kelly Bosley, who manages Rutter's, doesn't even have to look across the highway to know when Sheetz changes its price for a gallon of gas. When Sheetz raises prices, her own pumps are busy. When Sheetz lowers prices, she has not a car in sight.

She calls Rutter's headquarters to report the competition's new price and wait for instructions.

"I call a lot of times and say, 'They went down, hurry up! Hurry up! Call me! Call me!' Or it could be where theirs goes up, and I'll say, 'Take your time! You know, I like being busy.' But I have no control over that."

You think you feel helpless at the pump?

Bosley makes a living selling gas — and even she has little control over what it costs.

So how exactly are gas prices set? What determines the hair-pulling figure you see displayed in large electronic or plastic numbers? Why is a gallon of gas, say, $4.11 — not $4.10 or $4.12? Why is the price different across the street?

It all starts with oil.

The biggest factor in the skyrocketing price of gasoline is the historic ascent of crude oil, which has surged from $45 per barrel in 2004 to more than $135 this past week, setting new record highs all the while.

In the first quarter of this year, based on a retail price of gas that now seems like a steal — $3.11 a gallon — crude oil accounted for all but about a dollar, or 70%, of the cost, according to the federal government.

The rest is a complex mix of factors, from the cost of turning oil into gas to taxes to marketing costs to, sometimes, nothing more than the competitive whims of your local gas station owner.

Not that understanding the breakdown makes it any less cringe-inducing to fill 'er up.

How it all works

First a primer on how gas gets to your tank:

Once oil is pumped from the ground, it can be sold on the spot market, a last-minute trading arena where oil companies and distributors buy and sell to each other, or straight to refiners. After it's brewed into gasoline, the product can again be sold on the spot market, or directly to wholesalers, who in turn can supply their own stations or sell it to other retailers.

Each step of the way, buyers and sellers negotiate a price until, finally, drivers pay the ultimate tab at the pump.

At the starting point of all this is the price of oil — which, like the oil itself, is nothing if not crude.

The knee-jerk villains are the oil companies, fat with multibillion-dollar profits, frequent targets of populist anger. But wait: The oil companies don't set the price of oil or the cost of a gallon of gas.

Prices are a function of the open market, the result of futures contracts being traded on the New York Mercantile Exchange, or Nymex, and other exchanges around the world.

Buying the current July crude oil futures contract means you're buying oil that will be delivered by the end of July. But most investors who trade futures have no intention of ever accepting the underlying oil: Like stock investors who frequently buy and sell their holdings, they're simply betting that prices will rise or fall.

Of late, on the Nymex, oil futures have been rising.

Why? Blame the falling dollar. Oil is priced in U.S. dollars, and the weaker the dollar gets, the more attractive dollar-denominated oil contracts are to foreign investors — or any investor looking for a safe haven in the turbulent stock market.

The rush of buyers keeps pushing oil futures to a series of new records, and the rest of the energy complex, including gasoline futures, has followed. That pushes up the price of gas that goes into your tank.

"Crude is the driver," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "As long as it stays up there, gasoline's not going to be able to decline much at all, even if demand slips. That's just the way it is."

There is some evidence Americans are buying less gas as the price marches higher, and common sense suggests they would cut back even more if gas rose to $4.50 or $5 a gallon.

Lower demand should mean lower prices — but it takes time for that to happen, given the enormous scale of refining operations that produce gasoline.

"Once demand begins to slow, that needs to translate into inventories, then you get some price weakening," Ritterbusch said. "But it takes a while."

Oil and gasoline prices often move in the same direction, but they aren't linked directly. In fact, while oil prices have more than doubled in the past year, gasoline is only up about 19% during the same time.

Oil prices often fluctuate with production decisions from the Organization of Petroleum Exporting Countries, which supplies about 40% of the world's crude, or when conflict in the Middle East or Nigeria threatens supplies.

For example, oil prices rose $2.46 in one day last month amid reports a ship under contract to the Defense Department fired warning shots at two boats in the Persian Gulf that may have been Iranian.

A Navy spokesman later said the origin of the boats was unclear, but the news raised concerns that a conflict between U.S. and Iranian forces could cut oil supplies from the region. That same day, gas prices rose another 2.1 cents to a then-record national average of $3.577 a gallon on other supply concerns.

And the rise has only grown more dramatic. Oil sprinted higher this past week, rising more than $4 a barrel on Wednesday alone and past $135 on Thursday.

As for gasoline prices: They're closely tied to demand from U.S. drivers and how efficiently refineries are operating. Falling production or inventories often send prices skyrocketing.

Those prices can vary greatly depending on the region.

The Gulf Coast is the source of about half the gasoline produced in the United States, and areas farthest from there tend to have higher prices because of the cost of shipping gas via pipeline and tanker truck all over the country.

Some of those places, like California and New York, also have higher local taxes that push the price higher.

Oil companies may not set the price of oil and gasoline, but not everyone is willing to sit back and let them claim to be innocent bystanders.

In particular, for the second time this year, Big Oil's biggest executives were on Capitol Hill in recent days getting pummeled by many in Congress for their record profits while Americans struggle with record fuel prices.

"Where is the corporate conscience?" Sen. Dick Durbin, D-Ill., asked the top executives of the five largest U.S. oil companies.

Answers sought

Soaring gas prices have led to cries for a variety of answers, from Hillary Rodham Clinton and John McCain's suggestion to suspend the federal gas tax this summer to President Bush's call to open the Arctic National Wildlife Refuge in Alaska and some offshore waters that are now off limits to oil development.

Others have suggested a windfall profits tax on oil companies, although some economists say that might actually hurt supply. Oil companies say they're not to blame for spiking fuel prices, and their earnings, measured against revenue, are in line with other industries.

On top of that, rising oil prices have sharply cut profit margins for refining, and that hits the major oil companies — which both pump oil and refine it for use as gasoline.

A giant like ExxonMobil can handle the blow. Its refining and marketing profits for the first quarter were down 39% from a year ago, but Exxon still banked a nearly $11 billion profit because of the hefty prices earned on crude it pumped out of the ground.

Smaller refiners aren't so fortunate. Sunoco Inc.'s refining and supply business lost $123 million in the first quarter, hurt by lower margins. Tesoro Corp. lost $82 million for the same period.

In any case, huge profits at big oil companies like ExxonMobil and Chevron aren't because of high prices at the pump. Their massive profits are tied to their exploration and production arms, which are benefiting from record crude prices.

Higher crude costs also have squeezed profits at the refining arms of companies like ConocoPhillips, which don't produce enough crude themselves to refine at full capacity without buying more oil from other producers.

CEO Jim Mulva said ConocoPhillips, the second-largest U.S. refiner behind Valero Energy Corp., buys about 2 million barrels of crude a day at market prices to refine into gasoline and other products.

"If oil costs us $30 a barrel or $40 a barrel or $120 a barrel, that's why the cost of gasoline is what it is," he said. "It's not because of taxes. It's not because of ... refining and distribution. It's because of the cost of oil."

Other factors

But it's not only about the price of oil. Other costs are a factor — though they've remained relatively stable.

For example, federal and state taxes added 40 cents to a gallon of gas in the first three months of this year, roughly the same amount as they added four years ago.

California's 63.9 cents of tax is the nation's highest, Alaska's 26.4 cents the lowest. How the money is used varies from state to state, though the federal take helps to build and maintain highways and bridges.

Marketing and distribution costs — the tab for delivering gasoline from refiner to retailer — were 27 cents to start the year, only 6 cents above the cost four years ago.

The cost of refining added 27 cents to a gallon in the first quarter of this year, a nickel less than what it added in 2004, according to the Energy Information Administration.

That refining occurs at sprawling industrial complexes across the U.S., with most of the biggest along the Gulf Coast. Barrels of crude arrive each day by pipeline, ship and barge. The refineries, by heating, treating and blending the raw oil, turn out products like diesel and lubricating oil.

And, of course, gasoline.

A 'waiting game'

What happens when that gasoline makes its way to your neighborhood gas station?

Major oil companies own fewer than 5% of gas stations. Most are owned by small retailers — and many of them say they're struggling these days to turn a profit on gas. That's because wholesale gasoline prices have risen sharply in recent months — again, blame it on crude — but station owners have been unable to raise pump prices fast enough to keep pace.

And you can't keep jacking up the price when drivers are buying less.

Gas station owners face a balancing act: They must try to maintain a price that allows them to afford the next shipment of gasoline but not give the competition an edge.

Stations pay tens of thousands of dollars for each gas shipment before they see a cent in the register. Eventually, many make only a few cents on a gallon of gasoline, a margin that can disappear altogether when credit card fees are added in.

Thank goodness for beef jerky and sodas.

Most gasoline retailers long ago got past any illusion they can make money by selling gas. They rely on gas sales to drive traffic to their shops, where they hope auto repairs or food and drink sales will help them turn a profit.

"You're always out there competing with the guy next door — literally with the guy across the street — and worried too about how you're going to pay for your next supply," said Rayola Dougher, a senior economic adviser at the American Petroleum Institute, the oil industry's trade association.

In the Philadelphia suburb of Havertown, Pa., earlier in the week, Sunoco station operator Steve Kehler received a load of gasoline — 9,000 gallons — which, at a wholesale price of $3.729 a gallon, cost him 4 cents more than the previous load.

That left him in a sticky situation: Should he raise prices right away to recoup some of his higher gasoline expenses, or should he hold off for a couple of days in hopes his competitors will also have to raise their prices?

"I'm surrounded by $3.89's, and I'm already at $3.91," said Kehler, referring to his prices and those of some nearby competitors. "I'm going to play a little waiting game right now."

The $33,600 Kehler must pay for his overnight gasoline delivery won't be debited from his bank account for a few days. That gives him a little breathing room, time to hold prices steady. Hiking prices too quickly will hurt sales.

"I'll probably change it tomorrow night, at closing," Kehler said. "I'll go up 4 cents."

That will put Kehler at a gross margin of about 20 cents a gallon. After paying credit card fees, labor and rent, Kehler will be lucky to break even on his gasoline sales.

But many times, he loses money selling gas. Kehler, like most other service station operators, relies entirely upon his car repair business for income.

Of course, the plight of retailers is little consolation for drivers.

Mayra Perez said she works two fast-food jobs to help support her family, and gasoline is becoming harder to afford. She said perhaps the government should step in to help ease the burden, possibly by placing price limits on gasoline.

She was filling the tank of her compact car in Miami this past week to the tune of $3.89 per gallon for regular gas.

"This is horrible," she said. "On the weekend, my husband and I use only one car to save on gas.

"But then there's the cost of food, milk, eggs, the rent."

    What makes up the price of a gallon of gas?, UT, 24.5.2008, http://www.usatoday.com/money/industries/energy/2008-05-24-gas-breakdown_N.htm

Letters

Can We Find a New Way to Get Home?

May 23, 2008
The New York Times

To the Editor:

Re “Stranded in Suburbia” (column, May 19):

Paul Krugman is correct that Americans are “stranded in suburbia,” wedded to gasoline and greenhouse-gas emissions.

But the challenges of abandoning the suburbs would be huge. For many Americans, home ownership represents independence and demonstrates maturity. It is, after all, the American Dream.

In addition, the housing market supports much of the American economy, and many Americans’ most significant savings are in home equity.

The current housing downturn would pale in comparison with the bloodletting that would occur as the suburbs became obsolete.

To move away from our energy-guzzling suburban model, then, we Americans will have to reorganize not just our infrastructure, but also our values and our economy. We had better get started.

Stephen Serene
Washington, May 20, 2008

•

To the Editor:

Germany worked hard to become the positive example Paul Krugman describes. Our study, to be published by the Brookings Institution, finds that Germany achieved its standing through deliberate policy choices.

After World War II, Germany rebuilt its cities and accommodated the automobile by abandoning trolley lines, widening urban roads and building automobile parking garages in downtowns.

Since the late 1960s, policy makers have reversed this trend. Today German transport and land use policies are geared toward multimodal transportation by providing infrastructure, services and safety for walking, cycling and transit, and by making car use more expensive and less convenient.

In Germany, it is precisely the combination of transportation options for alternative modes and restrictions on automobiles that have made more sustainable travel behavior politically feasible and publicly acceptable.

The United States can learn from Germany how to successfully promote alternative modes of transport in a country that loves its automobiles.

Ralph Buehler, John Pucher
Uwe Kunert
Berlin, May 20, 2008

The writers are, respectively, an assistant professor of urban planning at Virginia Tech, a professor of planning and public policy at Rutgers University, and a senior researcher at the German Institute of Economic Research.

•

To the Editor:

I disagree with Paul Krugman’s analysis, for two reasons.

First, Europe has a much greater population density than the United States, so it’s more cost-effective for European countries to build and maintain public transportation.

Second, the coming alternative-energy-powered cars will change everything, allowing widely used private transport to be cost-effective once again.

James W. Voelz
Des Peres, Mo., May 19, 2008

•

To the Editor:

Paul Krugman is right. More Americans are being “stranded in suburbia” by the rising price of gas. The result is that housing prices in far suburbs are declining much more severely than in central cities.

As a recent report from CEOs for Cities shows, the same price declines are occurring in metropolitan areas without strong central cities. This ought to tell us something.

High gas prices, while painful, give us an opportunity to accelerate the changes we will have to make if we are to confront global warming. Those changes begin with more density, more local shopping and more transportation options.

Technological fixes won’t solve the problem. Individual sacrifices won’t either. We must change the way we live on the land.

The good news is that the market for cities is stronger than it has been in half a century, and cities that get this right will be rewarded economically and environmentally.

Carol Coletta
President and Chief Executive
CEOs for Cities
Chicago, May 20, 2008

•

To the Editor:

During an excursion through Europe last year, I was impressed by the lack of cars in big cities and the easy way I could get around without having to use an automobile. Some technology pioneered in America, like trolleys, was seen in more updated forms in cities across Europe.

Yet no public transportation system I’ve seen is as futuristic as the above-ground monorail system in Bangkok. Even though the world’s first above-ground rail system was installed in New York, America’s public transportation systems now seem stuck in the past. The rest of the world seems years ahead.

Most Americans believe that cities like New York have some of the best examples of public transportation, but we are really falling behind the rest of the world, and it is time to start making changes.

Dan Palevski
Ossining, N.Y., May 19, 2008

•

To the Editor:

Paul Krugman notes that extensive reliance on commuting by rail and bus in Germany allows residents to avoid using their cars for commuting to work in an era of rising oil prices.

But what should be stressed is that the European commitment to maintaining a comprehensive train system for commuting and intercity travel far exceeds ours.

In Germany alone, the rail system that reaches practically every village receives an annual government subsidy of more than $3 billion. In France, government support for a truly excellent railroad system is also at the multibillion-dollar level. All major railroad systems in Europe and Japan get substantial public financing, typically for infrastructure and train operations.

Few cities in the United States have substantial rail networks linking the suburbs to downtown areas. Moving away from our dependence on the automobile for commuting will require a far greater financial commitment to mass transportation on the part of our federal and state governments.

Roger J. Bernstein
New York, May 19, 2008

    Can We Find a New Way to Get Home?, NYT, 23.5.2008, http://www.nytimes.com/2008/05/23/opinion/l23krugman.html

Existing Home Sales Fell in April

May 24, 2008
The New York Times
By MICHAEL M. GRYNBAUM

The housing slump, which has weighed on nearly every corner of the nation’s economy, showed no signs of easing in April.

Sales of previously owned homes, which make up the bulk of the housing market, dipped 1 percent last month to a annual rate of 4.89 million. That figure, which was slightly more than expected, represents yet another record low, although the report, put out by the private National Association of Realtors, only dates to 1999.

The biggest decline came in sales of apartments and condominiums, which plunged 5.2 percent after two months of rising sales. Demand for single-family homes dropped 0.5 percent in April, the Realtors said on Friday.

The major stock indexes, down for much of the morning, climbed back slightly after the release of the report, which came in slightly ahead of economists’ expectations. The Dow industrials was off about 120 points in afternoon trading.

The median value of a previously owned home was $202,300 in April, down 8 percent from a year ago.

Inventories also ticked up: at the current sales rate, it would take nearly a year to clear out the current backlog of unsold homes.

Homeowners have watched their property values plunge for months, although the slump comes after several years of a remarkable run-up in home prices. Still, economists believe the declines have discouraged purchases, as would-be buyers hold out for prices to fall further.

“The sharp increase in inventories will continue to keep potential buyers out of the market and depress overall prices further,” Joseph Brusuelas, chief economist at Merk Investments, wrote in a research note.

A loss of confidence among lenders has also put a damper on sales, as even Americans who are eager to buy a home find themselves unable to procure mortgages from lenders who have tightened their standards.

Analysts fear that an increase in foreclosures will only add to the inventory overhang, pushing prices down further. Any substantial recovery in the housing market is not expected until at least the latter half of 2008.

The report divides sales figures into four general regions of the country. According to the Realtors, April sales dropped 6 percent in the Midwest and 4.4 percent in the Northeast, but rose 6.4 percent in the West. Sales stayed steady in the South.

    Existing Home Sales Fell in April, NYT, 24.5.2008, http://www.nytimes.com/2008/05/24/business/24econ.html?hp

Adapting, With Gritted Teeth, to Higher Gas Prices

May 24, 2008
The New York Times
By JAD MOUAWAD and MIREYA NAVARRO

Hating every minute of it, Americans are slowly learning to live with high gasoline prices. For a nation accustomed to cheap fuel, big vehicles and sprawling suburbs, the adjustments are wrenching.

Cory Asmus of Temecula, Calif., just bought a $4,800 motorcycle for his 20-mile drive to work so he could cut his gas bill to $8 a week, from $110.

Florian Bialas, a retiree who lives near Chicago, sold his 1987 Pontiac Sunfire for $3,000 and plans to relinquish his license when it expires in September. “I can walk to most places where I need to go,” he said.

And Debbie Gloyd of Cleveland has parked her Chrysler Concorde and started taking the bus to work. “I can’t afford these gas prices,” she said. “They’re insane.”

With the nationwide average price for regular gasoline closing rapidly on $4 a gallon, people are bracing for a summer of pain at the pump.

As the Memorial Day holiday approaches, kicking off the summer driving season, the record prices are provoking dread and upsetting some people’s vacation plans. A recent survey by AAA, the automobile club, found a rare year-on-year decline, of 1 percent, in the number of people planning to travel this summer.

Interviews with more than 70 people across the country suggested that the adjustments they were making, mental and otherwise, would last well beyond the summer. Americans have started trading their gas guzzlers for smaller cars, making fewer trips to the mall and, wherever possible, riding public transportation to work.

For years, it was not clear whether rising prices would ever prompt Americans to use less gas. But a combination of record prices, the slowing economy and a tight credit market have beaten consumers down.

Gasoline demand has fallen sharply since the beginning of the year and is headed for the first annual drop in 17 years, according to government estimates.

The Transportation Department reported Friday that in March, Americans drove 11 billion fewer miles than in March 2007, a decline of 4.3 percent. It is the first time since 1979 that traffic has dropped from one March to the next, and the month-on-month percentage decline is the largest since record keeping began in 1942.

High gasoline prices, plastered on 20-foot signs from coast to coast, are turning into a barometer of the country’s mood.

“The psychology has changed,” said Sara Johnson, an economist at Global Insight. “People have recognized that prices are not going down and are adapting to higher energy costs. It’s a capitulation.”

Typically, gasoline sales rise ahead of Memorial Day weekend. But gasoline sales dropped nearly 7 percent last week compared to the same week in 2007, according to an estimate by MasterCard.

Gasoline prices almost always rise in the summer, as demand increases. On Friday, gasoline prices reached yet another record, a nationwide average of nearly $3.88 a gallon. That figure was up 4 cents in one day and is 65 cents higher than this time last year, according to AAA. Diesel hit $4.65 a gallon on Friday, up $1.73 a gallon in a year.

The driver behind high gasoline prices is the high price of oil, which is being driven up by soaring worldwide demand. Oil reached a new record above $133 a barrel this week, nearly five times as expensive as it was five years ago.

All this has led to a massive transfer of wealth from American drivers to domestic and foreign oil producers. Every one-cent increase in gasoline prices means Americans pay $1.42 billion more a year for gas, according to Stephen P. Brown, an economist at the Federal Reserve Bank of Dallas. Nearly two-thirds of that goes to foreign producers.

In the first four months of the year, Americans spent $158 billion on gasoline. In 2003, just as oil prices started to take off, they spent $88 billion over the same four-month period, according to Michael McNamara, vice president of MasterCard’s Spending Pulse, an indicator of weekly gasoline sales.

Whether today’s high costs will translate into a permanent change in behavior remains to be seen, of course. The Energy Department expects gasoline sales to fall by 0.6 percent this year, the first drop since 1991, but it expects consumption to rebound in 2009 as the economy strengthens.

Still, analysts point out that the pain induced by today’s prices is getting close to the level reached during the oil shock of the early 1980s.

Americans spend 3.7 percent of their disposable income on transportation fuels. At its lowest point, that share was 1.9 percent in 1998, and at its highest it reached 4.5 percent in 1981, said Ms. Johnson of Global Insight.

Still, despite the rise in energy prices, gasoline remains cheaper in America than in most industrialized countries. In France, for example, a gallon of gasoline costs about $7.70 at today’s exchange rates. Also, Americans pay less to drive a mile today than they did in 1980, once the impact of inflation and gains in fuel efficiency are taken into account, said Lee Schipper, a visiting scholar at the transportation center of the University of California, Berkeley.

Mr. Schipper estimates that the cost of gasoline per mile traveled will be about 15 cents this year. That is nearly three times the low of 5.6 cents a mile reached in 1998, when fuel efficiency peaked and prices were at their lowest. But it is still cheaper than the record paid in 1980 of 17.1 cents a mile, adjusted for inflation.

The oil shocks of the 1970s and 1980s introduced the nation’s first efforts to curb consumption, including the first fuel standards and speed-limit laws. These had an impact on gasoline demand, which fell each year from 1979 to 1985. But then oil prices collapsed, political pressure evaporated, and many consumers lost interest in small cars.

“This is the wake up call,” Mr. Schipper said. “We actually have a lot of choices, based on what car we drive, where we live, how much time we choose to drive, and where we choose to go. But you have built in a very strong car dependency. And when the price hits the fan, people have a hard time coping.”

For many people, higher energy costs mean fewer restaurant meals, deferred weekend outings with the kids, less air travel and more time closer to home. Big box retailers are suffering as customers balk at driving to the mall, airlines have slapped on steep fuel surcharges and carmakers have seen their sales slump. On Thursday, the Ford Motor Company announced production cuts because of sharply lower demand for sport-utility vehicles and pickups.

In Los Angeles, Ron Lowe and his wife, Patricia, spend more time at home on weekends, hanging out and barbecuing. They are also more likely to leave their house together now, scheduling fewer car trips and bundling their chores to cut the gas bill.

“If I go to the grocery store, and the mall and pick up some prescription, I do it in one shot,” he said.

As gasoline prices have risen to record highs, consumer confidence, as measured in surveys, has fallen to its lowest level since 1980.

“The whole gas price situation makes me so angry,” says Lissa Nash, 39, a single mother struggling to raise her two sons on a modest nursing assistant’s salary. To make ends meet, she has started working extra shifts at a suburban Chicago hospital, picking up whatever overtime is available.

“Rising gas prices end up hurting working, lower class people like me, who can’t afford it anymore,” Ms. Nash said.

The higher costs ripple through the economy in unusual ways. In Round Lake, Ill. $3 still buys a wriggling tangle of night crawlers in a dirt-filled Styrofoam cup. But Marty Badegian, the 72-year-old owner of the Red Worm Ranch Bait Shop, says he might have to raise prices after his vendor slapped him with a $5-an-order gas surcharge.

“The gas prices are killing us,” Mr. Badegian said.

On a recent sunny Sunday in Encinitas, Calif., Ryan Andrews, 23, and Tara Driscoll, 21, arrived at the beach red-faced and sweating from riding their bicycles in 80-degree weather.

They had bought their bikes the previous week and had just cycled six miles from home. Ms. Driscoll said she got the bicycle so she could ride to work every day, a commute of two miles, instead of driving.

“It just makes sense,” she said.

At Sim’s Bowling Alley and Lounge, in Des Plaines, Ill., Robin Sebastian, 51, who tends bar there, sounded bitter the other day after recalling that she had just paid $46 to put half a tank in her 1994 Buick Regal.

“There are too many politicians’ hands in our pockets, and too many crooks in the oil companies,” said Ms. Sebastian, an Army veteran who served in the Persian Gulf. “I’m all for helping other countries, but we need to help our people here in the U.S. first.”
 

Christopher Maag, Karen Ann Cullotta and Will Carless contributed reporting.

    Adapting, With Gritted Teeth, to Higher Gas Prices, NYT, 24.5.2008, http://www.nytimes.com/2008/05/24/business/24gas.html?hp

Amid High Gas Prices, Ford Cuts Production

May 23, 2008
The New York Times
By BILL VLASIC

DETROIT — Higher gas prices and slowing vehicle sales prompted the Ford Motor Company on Thursday to announce sweeping production cuts and retreat on its goal to become profitable by 2009.

The automaker, based in Dearborn, Mich., said that it would cut production by 15 percent in the current quarter from a year ago, and further reduce production 15 to 20 percent in the third quarter and 2 to 8 percent in the fourth quarter.

Ford’s chief executive, Alan R. Mulally, said the cutbacks were the result of weak economic conditions and sharply lower demand for large trucks and sport utility vehicles.

“The challenge affecting the entire industry is the accelerating shift in consumer demand away from large trucks and S.U.V.s to smaller cars and crossovers — combined with a steep rise in commodity prices and the weak U.S. economy,” Mr. Mulally said.

Ford also backed off from its pledge to return to profitability in 2009, and said it hoped to break even by that time.

“Unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American profitability goal,” Mr. Mulally said.

Ford surprised the industry by posting a $100 million profit in the first quarter, after losing a combined $15.3 billion in 2006 and 2007.

But the automaker, as well its domestic rivals, General Motors and Chrysler, have been hard hit by slumping demand for trucks and S.U.V.s.

Ford sales have plunged almost 10 percent through the first four months of the year, and the overall American industry is headed toward its worst sales year in more than a decade.

The automaker said it was on track to achieve a goal of cutting overall costs by $5 billion by the end of this year. Ford also said it was accelerating its investment in small cars and crossover vehicles.

In a related announcement, Ford’s board said it would remain neutral on the billionaire investor Kirk Kerkorian’s cash tender offer to acquire 20 million Ford shares at a price of $8.50.

Mr. Kerkorian disclosed last month that he had built a 4.7 percent stake in Ford stock.

Ford’s shares were down more than 6 percent in morning trading.

    Amid High Gas Prices, Ford Cuts Production, NYT, 23.5.2008, http://www.nytimes.com/2008/05/23/business/23ford.html

Economic Toll Mounts From High Oil Prices

May 23, 2008
The New York Times
By GRAHAM BOWLEY and DAVID JOLLY

Oil prices leaped above $135 in overnight trading on Thursday, a new record that underscored the growing pressures that runaway energy prices are placing on some of the biggest names in global industry.

By midday Thursday, oil had fallen back and was trading at $131.95, down $1.22 from Wednesday’s close. But in a week that has seen the oil price rise by $4, the economic consequences of high fuel costs continued to mount.

The Ford Motor Company, the American auto manufacturer, said on Thursday it would cut vehicle production for the rest of this year and fall short of reaching profitability in 2009, a long-held company goal. In a statement, a top Ford executive said rising gasoline prices “are having a tremendous impact on our sales, our manufacturing operations and our profitability.”

Meanwhile, Europe’s biggest airline, Air France-KLM, warned of a profound reshaping of the world airline industry caused by what it called the “explosion” in the price of oil. And American Airlines said on Wednesday that it would slash flights and begin charging passengers to check bags, part of a company effort to cut costs in the face of skyrocketing fuel prices.

Gasoline prices are nearing $4 a gallon in the United States, partially as a result of a 39 percent rise in the price of New York oil futures since the start of the year. Prices have more than quadrupled since 2003.

Thursday’s gains came after a series of unsettling reports that suggested world oil supplies may not be able to keep up with future demand, a situation that could potentially lead to even higher prices.

On Wednesday, weaker-than-expected weekly inventory data in the United States stoked fresh worries over oil supplies in the world’s biggest economy ahead of the busy summer driving season, sending oil prices up $4.19 a barrel on the day.

Some investors reacted to a report on Thursday in The Wall Street Journal that the International Energy Agency, an Paris-based policy advisory group for industrialized countries, was concerned about a reduction in the long-term world supply of crude oil.

But the agency’s chief economist said in an interview that the study’s results were still inconclusive.

“We are going to revise our oil supply prospects,” said Fatih Birol, the economist. “We don’t know the results yet.”

And several oil analysts dismissed the importance of the current anxieties affecting the market.

“Concerns about future supply — that’s nothing new, it’s been there for four years,” said Antoine Halff, an analyst at Fimat.

Some experts expressed frustration that investors were only focusing on alarmist reports about declining supplies in a few areas and failed to consider that higher prices would eventually tamper demand and attract new production from places like Brazil.

“The market is reacting to the fact that we might not have enough oil in the market 13 years from now — excuse me?” said Edward Morse, the chief energy economist at Lehman Brothers in New York. “You never recognize it’s a bubble until the bubble is over.”

The International Energy Agency warned about such a disconnect three years ago. At the time, it said that if investments didn’t keep pace with the growth in consumption, the world might face a shortfall of as much as 15 million barrels a day by 2030. Instead of growing to reach 116 million barrels a day, global supplies would struggle to increase to 100 million barrels a day by then, up from today’s average of 86 million barrels day.

In recent years, a chorus of analysts and oil executives have raised concerns about possible shortfalls in supplies over the next years as new discoveries and production fail to keep up with rising demand. That, they warned, could lead to a supply crunch and spiking oil prices until demand eventually fell.

Part of the reason is that costs in the industry have more than doubled in the past fives years, oil-rich countries are tightening access rules for foreign investors, and many developing countries are subsidizing their fuel costs, and thereby fueling energy consumption. Global demand is expected to grow by about 1 million barrels a day in the next decade.

“We are concerned about the supply prospects,” Mr. Birol said. “Investments is the main issue here. Each year we need $400 billion a year in the oil and gas sector. But because of cost inflation, in real terms, we are far from the investments needed.”

In recent months, the market’s confusion over the long term supplies, as well as a decline the dollar, and rising commodity investments, have accelerated the rally in oil prices. Since October, oil futures have surged by a whopping $50 a barrel, jumping from $80 to over $130 a barrel.

The current market, Barclays Capital analysts said in a note to investors today, “is testing for a new equilibrium, seeking to work out what those supply and demand dynamics really look like.”

But there are still considerable signs of speculative froth in the market.

Samuel W. Bodman, the United States energy secretary, will testify at a House hearing on Thursday that higher demand, global strife, and global warming concerns have led to the run-up in oil prices.

Michael Masters, a portfolio manager at Masters Capital Management, testified Tuesday to a Senate committee that while the most common explanation given for rising oil prices is the increased demand for oil from China.

But he cited data showing that the increase in demand from index speculators over the past five years is almost equal to the increase in demand from China.

The earthquake last week in China has also been weighing on markets as well, Mr. Kilduff said. It has deepened the fears about global supply because the Chinese authorities are now diverting energy supplies for their own needs.

“China has reacted by holding supplies off the international market,” he said. “We also saw them make a major purchase on the world market.”

He said a number of China’s coal plants had been temporarily shut down, which meant the country would start to increase its demand for diesel.

He said that the latest reports meant he would likely raise his forecast for the future oil price. “We are going to raise that,” he said. “Clearly now the medium term favors a price of above $140.”
 

Caroline Brothers, Michael M. Grynbaum and Jad Mouawad contributed reporting.

    Economic Toll Mounts From High Oil Prices, NYT, 23.5.2008, http://www.nytimes.com/2008/05/23/business/worldbusiness/23oilweb.html?hp#

Home price index posts largest drop in 17-year history

22 May 2008
USA Today
By Alan Zibel, AP Business Writer

WASHINGTON — The government says U.S. home prices posted a first-quarter decline bigger than any in the 17-year history of the data.

The Office of Federal Housing Enterprise Oversight (OFHEO) says home prices fell 3.1% in the first quarter compared with a year ago.

The index also fell 1.7% from fourth quarter 2007 to the first quarrter of 2008, largest quarterly price drop on record.

The report says prices fell in the first quarter in 43 states. Eight states had quarterly price declines of more than 3% and two — California and Nevada —saw prices decline more than 8%.

"The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation," Patrick Lawler, the agency's chief economist, said.

States with the greatest price appreciation between first quarter 2007 and first quarter 2008 were: Wyoming (6.3%), Utah (5.6%), Montana (4.9%), Texas (4.7%), and Alabama (4.5%).

States with the sharpest depreciation for the same period were: California (-10.6%), Nevada (-10.3%), Florida (-8.1%), Arizona (-5.5%), and Michigan (-3.1%).

The government index is calculated by tracking mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac. Legislation enacted in February temporarily raised the limit to as much as $729,750 in high-cost areas.

The government index focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year.

Another reading that includes such properties and focuses on major U.S. cities, the Standard & Poor's/Case-Shiller has shown larger declines.

    Home price index posts largest drop in 17-year history, UT, 22.5.2008, http://www.usatoday.com/money/economy/housing/2008-05-22-home-prices-drop_N.htm

Gasoline tops $3.83 a gallon; oil prices top $135, fall back

22 May 2008
USA Today
By John Wilen, AP Business Writer

NEW YORK — Americans getting an early start on the Memorial Day weekend found that gasoline prices again it a record high overnight, reaching a national average above $3.83 a gallon. Some analysts predict gas will break past $4 as early as next week.

Oil prices, meanwhile, fluctuated Thursday after setting a record of $135.09 in overnight trading. A stronger dollar gave some investors reason to sell oil futures to lock in profits from crude's record run. But concerns about falling supplies and rising demand are expected to keep propelling prices higher in the days and weeks to come.

Oil's surge is contributing directly to the pain consumers feel every time they fill up. At the pump, the average national price of a gallon of regular gas rose 2.4 cents overnight to $3.831, according to a survey of stations by AAA and the Oil Price Information Service. Prices are 61 cents higher than a year ago.

Unlike last year, oil prices are setting record highs on a daily basis. That's pushing gas prices higher, and analysts see no reason for gas not to follow.

"We're going to blast past $4," said James Cordier, president of Tampa-based trading firms Liberty Trading Group and OptionSellers.com.

Prices may rise as high as $3.90 on a national basis by this weekend, he said. Prices are already above $4 a gallon at many stations around the country, and are averaging more than $4 in California, New York and Illinois, among other states.

Oil prices rose to $135.09 a barrel in overnight electronic trading on the New York Mercantile Exchange before retreating to trade down 51 cents at $132.66 a barrel.

Analysts said oil futures are caught between the supply and demand concerns that boosted crude to its latest record, and a desire by some investors to cash in some profits. The dollar, one of the factors that has fed oil's rally from about $65 a year ago, strengthened against the euro Thursday. When the greenback gains ground, commodities such as oil lose their value as hedges against inflation. Also, a stronger dollar makes oil more expensive to investors overseas.

Analysts viewed oil's decline as temporary. The Wall Street Journal reported Thursday that the Paris-based International Energy Agency is trying to comprehensively assess the condition of the world's top 400 oil fields, a review that could lead to a sharp downward revision in its estimates of global oil supplies.

For years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently.

The agency is now concerned that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day in production over the next two decades, the paper reported.

That view has been echoed by many analysts.

"The market is really structurally tight ... oil demand is not growing that fast but supply is constrained," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Some analysts say crude has been boosted in recent days by especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal after last week's earthquake. Kevin Norrish, an analyst with Barclays Capital, said data from China show demand for diesel was already rising quickly before the disaster. Chinese diesel imports rose 9.2% in April compared to last year, Norrish wrote.

In other Nymex trading Thursday, June heating oil futures rose 5.05 cents to $3.9589 a gallon after earlier rising to a record $4.0153. Heating oil, which is closely related to diesel, is often traded as a proxy for diesel.

June gasoline futures fell 2.45 cents to $3.372 a gallon, and June natural gas futures rose 10 cents to $11.74 per 1,000 cubic feet. The Energy Department said natural gas inventories rose last week by 85 billion cubic feet, in line with analyst estimates.

In London, July Brent crude futures fell 5 cents to $132.65 on the ICE Futures Exchange.
 

Associated Press Writer Pablo Gorondi in Budapest and AP Business Writer Thomas Hogue in Bangkok, Thailand, contributed to this report.

    Gasoline tops $3.83 a gallon; oil prices top $135, fall back, UT, 22.5.2008, http://www.usatoday.com/money/industries/energy/2008-05-22-oil-prices_N.htm

An Oracle of Oil Predicts $200-a-Barrel Crude

May 21, 2008
The New York Times
By LOUISE STORY

Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” — a price surge that will soon drive crude oil to $200 a barrel.

Mr. Murti, who has a bit of a green streak, is not bothered much by the prospect of even higher oil prices, figuring it might finally prompt America to become more energy efficient.

An analyst at Goldman Sachs, Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now. Oil shattered yet another record on Tuesday, touching $129.60 on the New York Mercantile Exchange. Gas at $4 a gallon is arriving just in time for those long summer drives.

Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits. But the grim calculus of Mr. Murti’s prediction, issued in March and reconfirmed two weeks ago, is enough to give anyone pause: in an America of $200 oil, gasoline could cost more than $6 a gallon.

That would be fine with Mr. Murti, who owns not one but two hybrid cars. “I’m actually fairly anti-oil,” says Mr. Murti, who grew up in New Jersey. “One of the biggest challenges our country faces is our addiction to oil.”

Mr. Murti is hardly alone in predicting higher oil prices. Boone Pickens, the oilman turned corporate raider, said Tuesday that crude would hit $150 this year. But many analysts are no longer so sure where oil is going, at least in the short term. Some say prices will fall as low as $70 a barrel by year-end, according to Thomson Financial.

Experts disagree over the supply of oil, the demand for it and whether recent speculation in the commodities markets has artificially raised prices. As an energy analyst at Citigroup, Tim Evans, reportedly put it, trading commodities these days is like “sticking your hand in a blender.”

Whatever the case, oil analysts like Mr. Murti have suddenly taken on the aura that enveloped technology analysts in the 1990s.

“It’s become a very fashionable area to write about,” said Kevin Norrish, a commodity analyst at Barclays Capital, which began predicting high oil prices around the same time as Goldman. “And to try to get attention from people, people are coming out with all sorts of numbers.”

This was not always the case. In the 1990s, oil research was a sleepy area at banks. Many analysts assumed oil prices would hover near $15 to $20 a barrel forever. If prices rose much above those levels, they figured, consumers would start conserving, suppliers would raise production, or both, causing prices to decline.

But around the turn of the century, oil company after oil company started missing predicted production. Mr. Murti, who covers oil companies like ConocoPhillips and Valero Energy, decided to study the oil spikes of the 1970s.

Since starting his career at Petrie Parkman & Company, a Denver-based investment firm acquired by Merrill Lynch in 2006, he had been conservative in his calls on oil. But by 2004, he concluded the world was headed for a long supply shock that would push prices through the roof. That summer, as oil traded for about $40 a barrel, Mr. Murti coined what has become his signature phrase: super spike.

The following March, he drew attention by predicting prices would soar to $105, sending shock waves through the market. Angry investors questioned whether Goldman’s own oil traders benefited from the prediction. At Goldman’s annual meeting, Henry M. Paulson Jr., then the bank’s chief executive and now Treasury secretary, found himself defending Mr. Murti.

“Our traders were as surprised as everyone else was,” Mr. Paulson reportedly said. “Our research department is totally independent. Our trading departments have no say about this.”

Over time, Mr. Murti was proved right again. Oil crossed $100 in February. Mr. Murti’s forecasts now feed into many of Goldman’s economic and corporate forecasts, affecting research of companies like Ford and Procter & Gamble. His research is distributed widely among investors.

“Even if you disagree with their views, the problem is that Goldman does carry so much credibility,” said Nauman Barakat, senior vice president for global energy futures at Macquarie Futures USA. “There are a lot of traders who are going to buy based on their reports.”

His sudden fame unsettles Mr. Murti. He rarely grants interviews, citing concerns about privacy, and he declined to be photographed for this article. He is not the bank’s only gas prognosticator: Jeffrey R. Currie predicts oil prices out of London.

Mr. Murti, for his part, discounts suggestions that his reports affect market prices. “Whenever an analyst upgrades a stock or downgrades a stock, sometimes you get a reaction that day, but beyond a day, fundamentals win out,” he said.

Mr. Murti falls into the camp of oil analysts who believe that supply is likely to remain tight because of geopolitical factors. These analysts predict higher prices because production is declining in non-OPEC countries like Britain, Norway and Mexico.

The analysts who predict lower prices say there are supplies of oil that the bullish analysts are missing. “This year will be a year in which supply will be put into the market by stealth by OPEC and by countries we call black-hole countries,” said Edward L. Morse, chief energy economist at Lehman Brothers. China is one example, he said.

But while oil and gas prices have been rising for a while now, Americans have only just begun to reduce gasoline consumption, so their efforts to conserve have not dragged down oil prices.

“The fact that the U.S. gasoline demand can be down and that the U.S. gasoline consumer is no longer driving world oil prices is a monumental event,” Mr. Murti says. He spends most of his time talking to money managers and analysts, many of whom keep asking him if oil prices will stay high if speculators abandon the market, and says he applauds investors for driving up oil prices, since that will spur investment in alternative sources of energy.

High prices, he says, “send a message to consumers that you should try your best to buy fuel-efficient cars or otherwise conserve on energy.” Washington should create tax incentives to encourage people to buy hybrid cars and develop more nuclear energy, he said.

Of course, if lawmakers heed his advice, oil analysts like him might one day be a thing of the past. That’s fine with Mr. Murti.

“The greatest thing in the world would be if in 15 years we no longer needed oil analysts,” he says.

    An Oracle of Oil Predicts $200-a-Barrel Crude, NYT, 21.5.2008, http://www.nytimes.com/2008/05/21/business/21oil.html

Oil Passes $132 After Report on Supplies

May 21, 2008
Filed at 1:17 p.m. ET
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- Oil prices bolted to a new record above $132 a barrel Wednesday after the government reported that supplies of crude oil and gasoline fell unexpectedly last week. And crude's rise in the futures market again pressured consumers by pulling prices at the pump higher -- a gallon of regular gas rose overnight to a new record above $3.80 a gallon.

With gas and oil prices setting new records on a daily basis, many analysts are beginning to wonder whether anything can stop runaway prices. There are technical signals in the futures market, including price differences between near-term and longer-term contracts, that crude may soon fall. But with demand for oil growing in the developing world, and little end in sight to supply problems in producing countries such as Nigeria, few analysts are willing to call an end to crude's rally.

In its weekly inventory report Wednesday, the Energy Department's Energy Information Administration said crude oil inventories fell by more than 5 million barrels last week. Analysts had expected a modest increase. Gasoline inventories also fell and took the market by surprise, while inventories of distillates, which include heating oil and diesel fuel, rose less than analysts surveyed by energy research firm Platts had expected.

Light, sweet crude for July delivery rose as high as $132.69 a barrel in afternoon trading on the New York Mercantile Exchange before retreating slightly to trade up $3.43 at $132.41.

Investors seized on the inventory report to boost prices Wednesday, but traders interested in pushing prices higher are increasingly picking and choosing which news they wish to pay attention to, analysts say.

''Even if this report was bearish, with the momentum the way it is right now, it wouldn't matter,'' said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Crude prices first passed $130 overnight on concerns about demand and a weaker dollar. Analysts say crude has been boosted in recent days by especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power.

The dollar, meanwhile, weakened against the euro Wednesday. Investors see hard commodities such as oil as a hedge against inflation and a weak dollar and pour into the crude futures market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.

Many investors believe the dollar's protracted decline over the past year has been the most significant factor behind oil's rise from about $66 a barrel a year ago to today's highs.

At the pump, meanwhile, the average national price of a gallon of regular gas rose 0.7 cent overnight to a record $3.807 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. Prices are 60 cents higher than a year ago, and many forecasters believe they'll hit $4 on a national basis at some point over the next month.

''That's a fait accompli at this point,'' said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos.

Prices are already that high in many parts of the country, and the number of stations charging $4 or more rises each day. Prices are nearing $5 a gallon in parts of Alaska.

Diesel fuel rose 1.9 cents to its own record of $4.558 a gallon Wednesday. Rising prices of diesel, used to transport most consumer and industrial goods, are sending prices of food and many other goods higher.

There are signs that high prices are cutting demand for gasoline, which fell slightly over the past four weeks and has been mostly lower since January, according to EIA data. Only serious ''demand destruction,'' a jump in supplies from Nigeria or other oil producing nations or a jump in gasoline output by U.S. refiners could stop prices from continuing to rise, Rafield said. There is little sign that demand will fall anytime soon in fast-growing China, India and the Middle East, she said.

A move by the government to shore up the dollar, or an announcement that the Federal Reserve won't cut interest rates further, could also reverse the upward momentum, Flynn said; rate cuts tend to weaken the dollar.

Still, the price differences between the current, July crude oil contract and contracts for delivery of oil in later months signal a possible correction, or sharp price downturn, at some point, Rafield said. Many analysts have long argued that prices have risen well beyond levels that can be justified by supply and demand fundamentals.

''It's very difficult to call when this is going to happen, but when it happens, it's going to be quick and ugly,'' Flynn said.

In other Nymex trading, June gasoline futures rose 7.97 cents to $3.3841 a gallon, and June heating oil futures rose 10.40 cents to $3.8790 a gallon. Both contracts set new trading records. June natural gas futures rose 27.5 cents to $11.64 per 1,000 cubic feet.

In London, July Brent crude rose $4.01 to $131.85 a barrel on the ICE Futures exchange.

------

Associated Press writer Pablo Gorondi in Budapest and AP Business Writer Thomas Hogue in Bangkok, Thailand, contributed to this report.

    Oil Passes $132 After Report on Supplies, NYT, 21.5.2008, http://www.nytimes.com/aponline/business/AP-Oil-Prices.html

Wholesale Inflation Slowed in April

May 21, 2008
The New York Times
By JOHN SULLIVAN

The major market indexes dropped sharply on Tuesday, in part on retail earnings and new concerns about inflation.

Analysts said that other factors, including disappointing reports from major retailers and continued worries about credit turmoil, may also have played a role in the stock market decline.

The Dow Jones industrial average was down 216.58 points or 1.6 percent a midday, while the broader Standard and Poor’s 500-stock index fell slightly less than one percent. The technology-heavy Nasdaq was down slightly more than one percent.

And oil prices continued to rise, increasing more than $2 a barrel, reaching as high as $129.28.

Inflation worries among investors were fueled by the latest report from the Labor Department, which was that wholesale inflation rose 0.2 percent in April, which was lower than expectations, But excluding food and fuel, the April index rose 0.4 percent, almost double the forecast.

Michael Holland, the chairman of Holland & Company, said the market has done well recently in the face of troubling news, but he said Tuesday’s news about inflation as well as record oil prices had caused new concerns.

“Record oil prices combined with unsettling of the market, unsettling inflation news is the reason du jour,” Mr. Holland said.

Michael Feroli, an economist at JPMorgan Chase, said the Labor Department report came just as investors were questioning the market’s strength.

“I think even before this morning’s number, there had been some worries about this rally getting overextended,” Mr. Feroli said.

Michael Strauss, the chief economist at Commonfund, said one concern was the possibility that producers would not be able to pass along increased prices, resulting in a drop in profit margins.

“It is a reasonable level, but it is a level that suggests profit margins are being squeezed,” he said.

Also fueling the decline in the market were quarterly results from retailers like Home Depot, which reported that earnings fell to $356 million, or 21 cents a share, in the first quarter ended on May 4 from $1.05 billion, or 53 cents a share, a year earlier. Total sales fell 3.4 percent to $17.9 billion, with sales at stores open at least a year, or same-store sales, down 6.5 percent.

On a broader level, Donald L. Kohn, vice chairman of the Federal Reserve board, said in a speech in New Orleans on Tuesday that the recent news on inflation “had been mixed.”

“Core inflation has moderated a little so far this year,” Mr. Kohn said in the speech. “However, we have seen no relief from the pressures for energy and food; thus headline inflation has been quite elevated.”

According to Tuesday’s Labor Department report, food prices were unchanged in April after increasing 1.2 percent the previous month. Within the category, prices for eggs dropped 12.3 percent and vegetables dropped 4.1 percent . But rice prices increased 17.4 percent.

Energy prices declined 0.2 percent in April after a 2.9 percent jump in March. The number was helped by a 4.6 percent decline in the price of gasoline, which reflected the government’s seasonal adjustment methods.

While growing demand and questions about oil supplies have driven prices to twice as high as a year ago, Adam Robinson, an energy analyst at Lehman Brothers, said the most interesting developments recently have been in the prices for oil that will be delivered five years from now, called the back end of the market. The long-term prices, which are normally more stable than the shorter term contracts, reached $135 dollars today.

“That market was at $102 on May 1,” he said. “This market is not supposed to move around this much.”

The market also received further bad news regarding the credit crisis in a new report from Oppenheimer & Company saying that ongoing problems could extend beyond 2009. In the report, analyst Meredith Whitney predicting further setbacks for the banking sector.

“Our view is that the credit crisis will extend well into 2009 and perhaps beyond,” the report said. “Although the complexion will change, the net effect will be the same: three years of multi-billion dollar revenue reversals.”

    Wholesale Inflation Slowed in April, NYT, 21.5.2008, http://www.nytimes.com/2008/05/21/business/21econ.html?hp

Stocks Drop as Oil Tops $129 a Barrel

May 20, 2008
Filed at 1:15 p.m. ET
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- Wall Street tumbled Tuesday after oil prices spiked to a new record above $129 a barrel and a government report raised investors' concerns about the impact of inflation on consumer spending. The Dow Jones industrials fell nearly 200 points.

Crude jumped after OPEC's president was quoted as saying his organization won't raise its output before its next meeting in September. That sent a barrel of light, sweet crude to a trading high of $129.58 on the New York Mercantile Exchange.

Meanwhile, the Labor Department's producer price report, which indicated higher energy and food prices might be seeping into other parts of the economy, compounded the concerns raised by higher oil. The department said wholesale inflation edged up by 0.2 percent in April following a 1.1 percent jump in March, but outside of food and energy, prices rose by a faster 0.4 percent -- double what analysts expected.

Wall Street is worried that a drop-off in consumer spending could ensue if wholesale price increases are passed along; consumer spending is critical because it accounts for more than two-thirds of the U.S. economy.

Analyst Stephen Leeb believes escalating oil prices have now replaced the health of the financial sector as the market's biggest worry. He said rising energy creates a ''very vicious circle'' through the economy, and thinks the government must take some kind of action to bring down prices.

''Stock investors are watching oil, period,'' said Leeb, whose New York-based Leeb Capital Management focuses on crude and its impact on equities. ''The events that moved the market before revolved around write-offs and foreclosures, but all that's changed.''

The retreat in major indexes reversed the optimism of last week, when stocks rose on a growing belief that the economy is still managing to plod along despite worries about both oil prices and the global credit crisis. The loss showed that the market has yet to shake off the volatility that has plagued it since the credit crisis began last summer.

The mood on the Street was further depressed Tuesday by sluggish retail reports and comments from Federal Reserve Vice Chairman Donald Kohn that policymakers are inclined to hold interest rates steady.

In early afternoon trading, the Dow fell 194.92, or 1.50 percent, to 12,833.24. The blue chip index was near its lows of the session, its biggest intraday tumble since a 224 point drop on May 7.

Broader market indexes also retreated. The Standard & Poor's 500 index shed 12.31, or 0.86 percent, to 1,414.32, and the Nasdaq composite index dropped 25.81, or 1.02 percent, to 2,490.43.

Bond prices rose as investors again sought the relative safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.82 percent from 3.83 percent late Monday.

Gold prices were higher, and the dollar was mixed against other major currencies. A barrel of light sweet crude was last up $2.23 at $129.28, while gasoline prices ticked up 5.14 cents to $3.2880 a gallon.

Concerns about rising inflation, spurred by higher prices for commodities, were the topic of a speech by Kohn. The policymaker said he was cautiously upbeat that the economy will recover, and that the central bank ''appears to be appropriately calibrated'' to manage inflation over the medium term.

Meanwhile, the Federal Reserve Bank of Chicago issued a report that showed U.S. economic activity weakened further in April and reached its lowest level since the 2001 recession.

Data on consumer spending added to the market's glum mood. The International Council of Shopping Centers and UBS Securities showed chain-store sales fell 0.4 percent during the week of May 17, down from 1 percent the previous week.

Investors also mined earnings reports from Home Depot Inc., Target Corp., and Staples Inc. for clues about consumers.

Home Depot fell $1.26, or 4.4 percent, to $27.62 after it reported first-quarter profit fell 66 percent amid a continued housing slump.

Target reported that profit dropped almost 8 percent on higher costs, but it was still able to beat expectations. Shares fell 23 cents to $54.69.

Staples said profit rose 1.5 percent during the quarter, and reaffirmed its outlook. Shares rose 7 cents to $23.64.

Banking stocks fell after Oppenheimer & Co. analyst Meredith Whitney said she expects the credit crisis to extend into 2009, and ''perhaps beyond.'' She said firms like JPMorgan Chase & Co. and Citigroup Inc. have set aside $25 billion to cover losses, but might have to set aside about $170 billion by the end of next year.

Citi fell 66 cents, or 2.9 percent, to $22.33. JPMorgan, which held its annual meeting on Tuesday, dropped $1.58, or 3.4 percent, to $44.43.

Mortgage finance firm Fannie Mae was in focus after Senate banking committee leaders late Monday announced they are close to a housing bill deal that would help prevent foreclosures. They also plan to change the way the government oversees both Fannie Mae and Freddie Mac.

Fannie Mae fell $1.16, or 4.3 percent, to $27.80. Freddie Mac declined 67 cents, or 2.5 percent, to $26.34.

Advancers led decliners by a 2 to 1 ratio on the New York Stock Exchange, where volume came to 524.6 million shares.

The Russell 2000 index of smaller companies fell 2.18, or 0.30 percent, to 736.27.

Overseas, Japan's central bank kept interest rates steady Tuesday amid lingering worries about a global slowdown. Tokyo's Nikkei closed down 0.77 percent.

In Europe, London's FTSE dropped 2.90 percent, Frankfurt's DAX fell 1.47 percent and Paris' CAC 40 shed 1.70 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

    Stocks Drop as Oil Tops $129 a Barrel, NYT, 20.5.2008, http://www.nytimes.com/aponline/business/AP-Wall-Street.html?hp

Op-Ed Columnist

Stranded in Suburbia

May 19, 2008
The New York Times
By PAUL KRUGMAN

BERLIN

I have seen the future, and it works.

O.K., I know that these days you’re supposed to see the future in China or India, not in the heart of “old Europe.”

But we’re living in a world in which oil prices keep setting records, in which the idea that global oil production will soon peak is rapidly moving from fringe belief to mainstream assumption. And Europeans who have achieved a high standard of living in spite of very high energy prices — gas in Germany costs more than $8 a gallon — have a lot to teach us about how to deal with that world.

If Europe’s example is any guide, here are the two secrets of coping with expensive oil: own fuel-efficient cars, and don’t drive them too much.

Notice that I said that cars should be fuel-efficient — not that people should do without cars altogether. In Germany, as in the United States, the vast majority of families own cars (although German households are less likely than their U.S. counterparts to be multiple-car owners).

But the average German car uses about a quarter less gas per mile than the average American car. By and large, the Germans don’t drive itsy-bitsy toy cars, but they do drive modest-sized passenger vehicles rather than S.U.V.’s and pickup trucks.

In the near future I expect we’ll see Americans moving down the same path. We’ve already done it once: over the course of the 1970s and 1980s, the average mileage of U.S. passenger vehicles rose about 50 percent, as Americans switched to smaller, lighter cars.

This improvement stalled with the rise of S.U.V.’s during the cheap-gas 1990s. But now that gas costs more than ever before, even after adjusting for inflation, we can expect to see mileage rise again.

Admittedly, the next few years will be rough for families who bought big vehicles when gas was cheap, and now find themselves the owners of white elephants with little trade-in value. But raising fuel efficiency is something we can and will do.

Can we also drive less? Yes — but getting there will be a lot harder.

There have been many news stories in recent weeks about Americans who are changing their behavior in response to expensive gasoline — they’re trying to shop locally, they’re canceling vacations that involve a lot of driving, and they’re switching to public transit.

But none of it amounts to much. For example, some major public transit systems are excited about ridership gains of 5 or 10 percent. But fewer than 5 percent of Americans take public transit to work, so this surge of riders takes only a relative handful of drivers off the road.

Any serious reduction in American driving will require more than this — it will mean changing how and where many of us live.

To see what I’m talking about, consider where I am at the moment: in a pleasant, middle-class neighborhood consisting mainly of four- or five-story apartment buildings, with easy access to public transit and plenty of local shopping.

It’s the kind of neighborhood in which people don’t have to drive a lot, but it’s also a kind of neighborhood that barely exists in America, even in big metropolitan areas. Greater Atlanta has roughly the same population as Greater Berlin — but Berlin is a city of trains, buses and bikes, while Atlanta is a city of cars, cars and cars.

And in the face of rising oil prices, which have left many Americans stranded in suburbia — utterly dependent on their cars, yet having a hard time affording gas — it’s starting to look as if Berlin had the better idea.

Changing the geography of American metropolitan areas will be hard. For one thing, houses last a lot longer than cars. Long after today’s S.U.V.’s have become antique collectors’ items, millions of people will still be living in subdivisions built when gas was $1.50 or less a gallon.

Infrastructure is another problem. Public transit, in particular, faces a chicken-and-egg problem: it’s hard to justify transit systems unless there’s sufficient population density, yet it’s hard to persuade people to live in denser neighborhoods unless they come with the advantage of transit access.

And there are, as always in America, the issues of race and class. Despite the gentrification that has taken place in some inner cities, and the plunge in national crime rates to levels not seen in decades, it will be hard to shake the longstanding American association of higher-density living with poverty and personal danger.

Still, if we’re heading for a prolonged era of scarce, expensive oil, Americans will face increasingly strong incentives to start living like Europeans — maybe not today, and maybe not tomorrow, but soon, and for the rest of our lives.

    Stranded in Suburbia, NYT, 19.5.2008, http://www.nytimes.com/2008/05/19/opinion/19krugman.html?ref=opinion

Editorial

Teeing Up the Next Mortgage Bust

May 19, 2008
The New York Times
 

In responding to the subprime mortgage crisis, most Congressional Republicans and many Bush administration officials apparently believe they have time on their side. They are wrong.

The housing bust is feeding on itself: price declines provoke foreclosures, which provoke more price declines. And the problem is not limited to subprime mortgages. There is an entirely different category of risky loans whose impact has yet to be felt — loans made to creditworthy borrowers but with tricky terms and interest rates that will start climbing next year.

Yet the Senate Banking Committee goes on talking. It has failed as yet to produce a bill to aid borrowers at risk of foreclosure, with the panel’s ranking Republican, Richard Shelby of Alabama, raising objections. In the House, a foreclosure aid measure passed recently, but with the support of only 39 Republicans. The White House has yet to articulate a coherent way forward, sowing confusion and delay.

The fits and starts are harmful. The housing bust is in the downward spiral of price declines and foreclosures. Single-family-home prices dropped 7.6 percent from the first quarter of 2007 through the first quarter of 2008, the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982. Conservatively estimated, 2.2 million homes will enter foreclosure this year. An additional nine million homeowners — those with zero or negative equity — are considered at high risk of default because they have no cushion if recession or inflation, or both, make it impossible for them to keep current on their mortgages.

Theoretically, when prices fall, consumer demand should rise, sending prices back up again. Unquestioning belief in that self-correcting mechanism is the reason many Republicans don’t want to do anything to prevent foreclosures.

But in many cities today, house-price declines are so severe that potential buyers are staying on the sidelines, fearful of further collapse. The result is declines that are deeper than need be to restore affordability. That’s everyone’s problem, because as long as house prices continue to fall, the financial system will remain unsettled and the economy will not revive.

And if house prices fall more than expected — a peak-to-trough decline of 20 percent to 25 percent is the rough consensus, with the low point in mid-2009 — financial losses and economic pain could extend well into 2011.

That is because a category of risky adjustable-rate loans — dubbed Alt-A, for alternative to grade-A prime loans — is scheduled to reset to higher payments starting in 2009, with losses mounting into 2010 and 2011. Distinct from subprime loans, Alt-A loans were made to generally creditworthy borrowers, but often without verification of income or assets and on tricky terms, including the option to pay only the interest due each month. Some loans allow borrowers to pay even less than the interest due monthly, and add the unpaid portion to the loan balance. Every payment increases the amount owed.

In coming years, if price declines are in line with expectations, Alt-A losses are projected to total about $150 billion, an amount the financial system could probably absorb. But until investors are sure that price declines will hew to the consensus, the financial system will not regain a sure footing. And if declines are worse than expected, losses will also be worse and the turmoil in the financial system will resume.

There’s a way to avert that calamity. It’s called foreclosure prevention. There is no excuse for delay.

    Teeing Up the Next Mortgage Bust, NYT, 19.5.2008, http://www.nytimes.com/2008/05/19/opinion/19mon1.html

Stocks Slip as Oil Hits New Record

May 16, 2008
Filed at 1:35 p.m. ET
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- Stocks declined Friday as enthusiasm over a surprise jump in home construction gave way to renewed concerns about how consumers will fare as oil pushes to fresh highs.

Wall Street, hoping for an economic rebound in the second half of the year, has been searching for any signs that the housing market is bottoming. The Commerce Department's report that home construction jumped 8.2 percent in April came as welcome news but wasn't able to quell investors' concerns about ascendent energy prices and their effect on consumer spending, which accounts for more than two-thirds of U.S. economic activity.

The price of a barrel of oil spiked to $127.82 for a new trading record on Friday.

The rise in energy and food costs is weighing on the mood of consumers. The Reuters/University of Michigan consumer sentiment reading for May fell to 59.5 in May -- the weakest reading since June 1980.

The uneasiness over energy prices follows a strong advance in stocks that left the broader market up 2.5 percent for the week before Friday's decline.

The rise in oil upended some of the week's optimism that led investors to move into cyclical stocks that typically benefit when an economy begins to emerge from a slowdown, said Steve Neimeth, portfolio manager for AIG SunAmerica Mutual Funds.

''Although the housing numbers today were generally positive, the Michigan survey was quite poor and, more importantly, a continued spike in energy and commodities is causing investors to second-guess the second-half recovery,'' he said. ''If oil and gas prices continue to go up consumers are unlikely to have the spending ability in the second half.''

In early afternoon trading, the Dow Jones industrial average fell 46.73, or 0.36 percent, to 12,945.93.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 3.18, or 0.22 percent, to 1,420.39, and the Nasdaq composite index dropped 13.21, or 0.52 percent, to 2,520.52.

Friday's move lower follows two days of gains in stocks that left the S&P 500 and Nasdaq at five-month highs.

Government bond prices rose Friday as stocks declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.79 percent from 3.82 percent late Thursday.

Gold prices rose, while the dollar fell against other major currencies.

Investors have been tracking energy prices closely, with the average U.S. retail price of gasoline around $3.77 per gallon and the average price of diesel fuel near $4.46 a gallon. Consumers and businesses alike are struggling with high commodities costs, despite mild overall readings on inflation, so Wall Street remains concerned about spending on discretionary items.

Light, sweet crude recently changed hands up $1.84 at $125.96 per barrel ahead of the start of the summer driving season and following supply disruptions in China and comments from Saudi Arabia that it hasn't seen the increase in demand that would warrant boosting production.

Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 754.4 million shares.

The Russell 2000 index of smaller companies fell 6.23, or 0.84 percent, to 737.15.

Overseas, Japan's Nikkei stock average rose 0.39 percent. In afternoon trading, Britain's FTSE 100 rose 0.64 percent, Germany's DAX index rose 0.75 percent, and France's CAC-40 rose 0.15 percent.

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    Stocks Slip as Oil Hits New Record, NYT, 16.5.2008, http://www.nytimes.com/aponline/business/AP-Wall-Street.html

For Wall Street Workers, Ax Falls Quietly

May 16, 2008
The New York Times
By LOUISE STORY and ERIC DASH

People on Wall Street seem to be vanishing overnight.

Thousands are losing their jobs as hard-pressed banks cut deep. But while layoffs are nothing new in the financial industry (they come with almost every downturn), this round seems different: it is eerily quiet.

So quiet, in fact, that people refer to these cuts as stealth layoffs. Some bosses hardly say a word after people are fired. At Citigroup, Goldman Sachs and Morgan Stanley, for example, the first clue that someone is gone can be e-mail messages that are returned to senders from a former colleague’s inactivated corporate address.

While the financial markets have found a bit of a footing lately, banks are pushing ahead with plans for some of the deepest job reductions in years. Since last summer, banks worldwide have announced plans to cut 65,000 employees.

But exactly how many jobs have been or will be eliminated is unclear. In the past, banks typically made sharp reductions all at once. After the 1987 stock market crash, for example, employees were herded into conference rooms and dismissed en masse.

This time, companies are making many small cuts over the course of weeks or even months. Some people who have lost jobs, and many more struggling to hold them, say banks are keeping employees in the dark about the size and timing of layoffs.

Citigroup, for example, said last year that it would eliminate 17,000 jobs, or about 5 percent of its work force. Then in January, Citi said it would dismiss 4,200 more people. In April, it said an additional 8,700 would go.

By contrast, after the financial upheaval of 1998, when many Wall Street banks pared payrolls, Citigroup eliminated 10,600 jobs, or about 6 percent of its work force at the time.

The idea that banks will slowly wield the knife again and again unnerves many employees. People know the cuts are coming — they just don’t know when or where.

“Nobody knows who is coming in; nobody knows who is going out,” said JoAnne Kennedy, who was laid off by JPMorgan Chase this year. “They want to keep it all as quiet as possible.”

To some bank workers, one round of layoffs seems to blur into the next. At Goldman Sachs, low performers were dismissed from January through March. A few weeks later, the bank quietly began letting more people go. All told, Goldman is axing about 8 percent of its work force, although incoming employees this summer will make up for some of that loss.

At Merrill Lynch, 1,100 people were laid off early this year, mostly in mortgage-related businesses. But in April, the firm announced 2,900 more cuts.

JPMorgan Chase said last fall that it would lay off 100 people in its fixed-income division and then followed up with several smaller rounds of cuts in other parts of the bank. The casualties will keep mounting as JPMorgan melds with Bear Stearns, the troubled investment bank it is buying.

Starting at the top, JPMorgan executives are eliminating jobs at their own bank, redeploying some people to other divisions and replacing others with Bear Stearns workers. As many as 5,500 Bear Stearns employees and 4,000 JPMorgan workers could lose their jobs before it is over.

The steady drumbeat of bad news on Wall Street is sapping morale. Wendi S. Lazar, a partner at the employment law firm of Outten & Golden, said companies are usually better off being open about cutting jobs.

“You’re seeing a very, very inconsistent message to employees,” Ms. Lazar said. “It’s, ‘I don’t know when it’s going to happen, it may be tomorrow, it may be next month; we may be able to keep you, we may not.’ ”

Layoffs are always difficult, but some of the recent cutbacks have been messier than usual. Some JPMorgan employees learned that people from Bear Stearns would get their jobs before the bosses said anything. JPMorgan clients told them first.

Some Lehman Brothers investment bankers found out their jobs were in peril when they saw cardboard boxes and dumpster bins in the hallways in March.

And when Bank of America dismissed some bankers recently, it told them that their annual bonuses had been almost wiped out and that their personal belongings would arrive in the mail. The bank announced many of the layoffs on Feb. 13, two days before many employees would be able to start cashing out stock options.

In January, when Ms. Kennedy was temporarily out of the office at JPMorgan because of surgery, her boss called to say her job had been eliminated. She did not return to her office and ended up asking the bank to send her the photos of her son that she kept on her desk.

“You don’t get to say goodbye to people,” Ms. Kennedy said. “It’s demoralizing.”

At some banks like Bank of America, many laid-off employees are not allowed to return to their desks, because the banks fear departing employees will try to take valuable colleagues or clients with them.

Officials at all of the Wall Street firms declined to comment.

At Credit Suisse, people who were laid off recently were allowed to say goodbye to colleagues. But those who stayed responded with a combination of relief and fear — relief that it wasn’t them, and fear that it might be soon. Many people say they are too worried about keeping their jobs to help friends who are out of work.

“There were mixed emotions because this clearly isn’t the last round,” said an associate who was laid off by Credit Suisse last month. “Banks really aren’t making any money right now, and they haven’t been for a while. There’s only so long you can go and not lay off more people.”

Already, the industry cuts have moved beyond low performers to people for whom the future looked bright just months ago. Analysts say the reductions announced so far will not be enough and that more may come later in the year, before employees are scheduled to collect bonuses.

“People will try to delay them for as long as possible,” Meredith Whitney, the banking analyst at Oppenheimer & Company, said of the layoffs, which she thinks are far from over. “It cuts to the bone.”

Banks and brokerage firms generally pay out about 50 percent of their revenue to employees as salaries and bonuses. Last year that percentage leapt to 70 percent, even as business began to dry up. Ms. Whitney estimates that on average banks announced plans to reduce their work forces by 5 to 8 percent. They probably will have to cut at least twice that amount, she said.

Executives have spent months developing layoff strategies, negotiating severance packages, and carefully penning scripts. Many hire outside consultants, dispatch cost-cutting czars and establish centralized restructuring offices and career placement centers. For Wall Street employees, the most dangerous days are Tuesdays, Wednesdays and Thursdays. Those are the favored days to fire people, so employees do not have the weekend to stew about it.

Euphemisms for layoffs are making the rounds too. Banks do not just fire people anymore. They engage in “head count reduction,” “reduction in force” and “redundancies.”

And gallows humor is rampant. One joke: A banker calls a colleague and asks, “Are you busy? Or are you lying?”

    For Wall Street Workers, Ax Falls Quietly, NYT, 16.5.2008, http://www.nytimes.com/2008/05/16/business/16layoff.html

Housing Starts Rise Unexpectedly

May 17, 2008
The New York Times
By MIKE NIZZ

New-home construction increased 8.2 percent in April, offering signs of life in a deeply troubled sector, the Commerce Department reported on Friday. But most of the gain came in multifamily housing, masking further bad news on single-family homes, whose groundbreakings dropped to a 17-year low.

Housing starts rose to a seasonally adjusted annual rate of 1.032 million. Construction of multifamily units surged 36 percent, compared with a 35 percent drop in March, a huge swing — and an average one in recent months, the agency said in a report.

While building permits were up 4 percent in both areas, ground was broken on 1.7 percent fewer single-family homes in April, from a seasonally-adjusted annual rate of 704,000 to 692,000.

There were varied reactions to the new figures, with one analyst telling Reuters that “it’s a nice upside surprise” and another telling Bloomberg News that the trends remained “horrific.”

Joel Naroff of Naroff Economic Advisors offered a pragmatic assessment in comments to The Associated Press. “While we may not yet have absolutely hit bottom,” he said, “it is beginning to look as if the end may be near.”

The markets were down slightly in early trading.

“The bump in starts owes entirely to multifamily dwellings,” Michael T. Darda of MKM Partners said. While the single-family figure was certainly bad news, he also said that it “indicates that the builders are rapidly taking supply off the market, which ultimately will lay the foundation for stabilization in the sector.”

The month-to-month figures may have been mixed, but the year-to-year comparisons left no doubt that housing was far from a full recovery. Overall housing starts plunged 30.6 percent compared with those in the month a year earlier, and permits sank by 34.3 percent.

Fannie Mae Eases Restriction

WASHINGTON (Reuters) — Fannie Mae, the nation’s largest source of home financing, said on Friday that it was lowering the amount of down payments required on mortgages it purchases in areas where home prices are falling.

Starting on June 1, the new requirements of 3 percent or 5 percent, which replace rules set in December, will apply nationally to loans on single-family primary residences, it said.

The rule change comes as many in the housing industry call for Fannie Mae and Freddie Mac, the second largest federally chartered home funding company, to make more affordable housing available.

Fannie Mae “will be equalizing the down payment requirements for borrowers in all parts of the country, regardless of local market conditions,” Marianne Sullivan, senior vice president of single-family credit policy and risk management, said in a news release.

Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages through its automated underwriting system, and ratios of up to 95 percent for other loans.

A conforming mortgage meets the requirements for loans that Fannie Mae and Freddie Mac can purchase.

The size of these loans was temporarily increased in March by their regulator to as high as $729,000 in high-cost areas from $417,000, in an effort to stimulate lending in one of the worst housing markets since the Great Depression. Mortgages that exceed that maximum size are jumbo loans.

Fannie Mae also said it will continue to allow loans with Community Seconds, one of various assistance programs, for up to 105 percent combined loan-to-value ratio.

With Community Seconds, a borrower has a second-lien mortgage to help cover down payment and closing costs, with funding usually provided by a state or local housing agency, employer or a nonprofit organization.

    Housing Starts Rise Unexpectedly, NYT, 17.5.2008, http://www.nytimes.com/2008/05/17/business/17housing.html?hp

Industrial production sinks in April; jobless claims inch up

15 May 2008
USA Today
By Martin Crutsinger, AP Economics Writer

WASHINGTON — The nation's industrial output plunged in April, reflecting big cutbacks in autos and other manufacturing industries, while the number of newly laid off workers applying for unemployment benefits rose slightly last week.

The Federal Reserve reported Thursday that industrial production dropped 0.7% last month, more than double the decline that economists had expected.

Manufacturing output fell 0.8%. Half of that weakness comes from large cutbacks in auto production, which has been beset by falling demand for new cars and problems related to a strike at a parts supplier for General Motors (GM).

The Labor Department reported that applications for jobless benefits rose by 6,000 last week to 371,000. The gain was in line with expectations.

The four-week moving average of new claims, considered by economists a more reliable gauge of labor trends because it irons out weekly volatility, fell to 365,750 from 366,750 in the prior week.

The weak economy has triggered four straight months of job losses, often a sign that a recession has started. However, the April drop was just one-fourth the size of job losses in March, giving hope that the current economic slowdown may not be as severe as the past two recessions.

The increase of 6,000 claims applications last week was the smallest one-week move in about two months. Claims have been unusually volatile in recent weeks, reflecting strike-related layoffs in the auto industry and trouble the government had in seasonally adjusting the data to take into account an unusually early Easter.

For the week ending May 3, the total number of people receiving unemployment benefits rose by 28,000 to 3.06 million, the third week that this figure has been above 3 million and the highest since March 2004, another sign that the weak economy is having an adverse effect on the labor market.
 

Contributing: Reuters

    Industrial production sinks in April; jobless claims inch up, UT, 15.5.2008, http://www.usatoday.com/money/economy/2008-05-15-jobless-claims-et-al_N.htm

Foreclosures take an emotional toll on homeowners

14 May 2008
USA Today
By Stephanie Armour

On a brisk day last fall in Prineville, Ore., Raymond and Deanna Donaca faced the unthinkable: They were losing their home to foreclosure and had days to move out.

For more than two decades, the couple had lived in their three-level house, where the elms outside blazed with yellow shades of fall and their four golden retrievers slept in the yard. The town had always been home, with a lazy river and rolling hills dotted by gnarled juniper trees.

Yet just before lunch on Oct. 23, the Donacas closed all their home's doors except the one to the garage and left their 1981 Cadillac Eldorado running. Toxic fumes filled the home. When sheriff's deputies arrived at about 1 p.m., they found the body of Raymond, 71, on the second floor along with three dead dogs. The body of Deanna, 69, was in an upstairs bedroom, close to another dead retriever.

"It is believed that the Donacas committed suicide after attempts to save their home following a foreclosure notice left them believing they had few options," the Crook County Sheriff's Office said in a report.

Their suicides were a tragic extreme, but the Donacas' case symbolizes how the housing crisis is wrenching the emotional lives of legions of homeowners. The escalating pace of foreclosures and rising fears among some homeowners about keeping up with their mortgages are creating a range of emotional problems, mental-health specialists say. Those include anxiety disorders, depression and addictive behaviors such as alcoholism and gambling. And, in a few cases, suicide.

Crisis hotlines are reporting a surge in calls from frantic homeowners. The American Psychological Association (APA) and other mental-health groups are publishing tips on how to handle the emotional stress triggered by the real estate meltdown. Psychologists say they're seeing more drinking, domestic violence and marital problems linked to mortgage concerns — as well as children trying to cope with extreme anxiety when their families are forced to move.

"They're depressed, anxious. It's affected marriages, relationships," says Richard Chaifetz, CEO of ComPsych, a Chicago-based employee-assistance firm that is counseling homeowners over mortgage fears. "People tend to catastrophize, and that leads to depression. Suicide rates go up. We see an increase in drinking, outbursts at work, violence toward kids. Before, their houses were like ATMs," as they rose in value. "Now, they feel trapped like a rat in a corner."

Foreclosure filings surged 65% in April compared with the same month last year, according to a report Wednesday by RealtyTrac. One in every 519 households received a foreclosure filing last month, and the number of homes with foreclosure activity in April was the highest monthly total since RealtyTrac began issuing the report in January 2005.

Don Donaca, Raymond's brother, says it's hard to understand the suicide, but he thinks the pending foreclosure led to their deaths.

"He got so deep in debt he couldn't figure out what else to do," says Don, 74, a retired sawmill worker in Prineville. "I guess a guy would have to walk a few miles in his shoes to understand."

Financial concerns at the top

Many other homeowners are at risk of less-severe, but still significant, psychological distress: One in seven homeowners worry that they won't be able to make their mortgage payments on time over the next six months, according to an April Associated Press-AOL Money & Finance poll, and more than one-quarter fear their home will decline in value during the next two years.

ComPsych says financial concerns are now the top issue the firm's counselors are hearing in calls from clients. Calls about financial worries have surged 20% over last year; those related to mortgage problems have doubled.

"It's escalated to the No. 1 issue because of the housing crisis," Chaifetz says.

Half of Americans identify housing costs, such as rent or mortgage payments, as significant sources of stress, particularly on the East and West coasts, a 2007 survey by the APA says. Sixty-one percent in the West, and 55% in the East (compared with 47% in the Midwest and 43% in the South) reported housing costs as a very or somewhat significant source of stress.

"The problem affects the whole spectrum, not just people losing their homes," says LeslieBeth Wish, a psychologist and social worker in Sarasota, Fla. "The stress exacerbates what is already there. It brings to the surface problems that were often already there, like marital problems. There is so much blaming people for the situations they're in, and that adds to it."

One of Wish's patients was semiretired when she bought a home in 2005 in southwest Florida as an investment that she hoped to "flip," turning a profit. The woman now owes more than the house is worth and can't sell it.

Wish says her client has developed anxiety, dwelling on her financial situation from the time she wakes up to the time she goes to sleep. Other clients, Wish says, are reporting physical symptoms such as headaches and stomach pains stemming from anxiety over their mortgage situation.

ComPsych's counselors are hearing similar stories of the mental-health toll caused by the housing slump. At the request of USA TODAY, ComPsych's spokeswoman Jennifer Hudson queried counselors to come up with examples of the types of employees they're helping. One couple were going through a divorce, and the wife told ComPsych counselors that financial stress was the final trigger. They had maxed out their credit cards and were living off credit in hopes that they could keep their house. Another woman called because she suspected her husband was gambling again, apparently hoping to win big so they could repair their financial mess. She was afraid they were going to have to move in with her parents, ComPsych says.

For Gary Sweredoski of Myrtle Beach, S.C., the threat of losing his home to foreclosure has taken both a physical and an emotional toll. In 2007, Sweredoski, who had no health insurance, underwent triple bypass surgery and wound up with more than $300,000 in medical bills. Then Sweredoski, 60, a real estate broker, saw his business suffer as the housing market crashed.

Today, he and his wife, Irene, struggle to make the mortgage payment on the dream home they built in Myrtle Beach and are trying to stave off foreclosure. Like many other homeowners struggling with the financial consequences of the housing slump, Gary says the emotional pain can be severe.

Standing on his deck overlooking a lake where ducks swim and bobbing pontoon boats drift by, he says such circumstances "shatter your pride and become very humiliating, even though the circumstances are not of our making.

"The situation keeps you up at night, preventing you from getting the rest you need. A lot of the depression that I feel, I do in private," he says.

"It angers you. It frustrates you. It has a large bearing on your emotional state. When the thought of losing a home looms, you lose more than a building. You lose what you worked for so many years, all of the equity that you have accumulated over the years. It's humbling. It affects us deeply."

Rising depression, suicide rates

Historically, research shows, rates of depression and suicide tend to climb during times of economic tumult.

In an article published in 2005 by Cambridge University Press, researchers compared suicide data in Australia from January 1968 through August 2002 with economic problems such as unemployment and mortgage interest rates. The study found that economic trends are closely associated with suicide risk, with men showing a heightened risk of suicide in the face of economic adversity.

"For some people, suicide is the rational option when they see no future," says Ken Siegel, a psychologist in Beverly Hills. "One's house is very much a projection of one's self. To have a home taken away is tantamount to having part of yourself taken away. There is embarrassment. For many, it's overwhelmingly unconquerable."

In the most severe cases, as with the Donacas, authorities have linked suicides with the financial stress of foreclosures. On Oct. 25, 2007, James Hahn, 39, a chemist in north Houston, was facing foreclosure and had to vacate his home. When deputies arrived with eviction papers, Hahn engaged them and a SWAT team in a standoff that lasted more than 10 hours. It ended in the early morning when Hahn shot himself inside his home, according to a Houston Police Department report.

"Suicides are very much tied to the economy," says Kathleen Hall, founder and CEO of The Stress Institute in Atlanta. "It's a public-health issue."

In many cases, psychiatrists say, financial stresses, such as those caused by the mortgage crisis, tend to bring pre-existing mental-health issues to the surface. Studies also show a strong connection between financial distress and emotional stress, including anxiety, depression, insomnia and migraines.

"Often, there is a dilemma of not being able to afford private mental-health treatment in the midst of a financial crisis," says Joseph Weiner, a psychiatrist and chief of consultation psychiatry at North Shore University Hospital in Manhasset, N.Y. "Children will likely feel the parents' tension around financial stress. This could cause feelings of helplessness and anxiety in the child. Sometimes, young children blame themselves for their parents' stressful situation."

Jennifer Paschal, 36, of Woodstock, Ga., has tried to ease the effect of the foreclosure of her home on her children, Bailey, 12, and Trent, 9. But she says they've been deeply pained. After 13 years of marriage, Paschal is going through a divorce. The divorce and medical bills led the family to lose its home to foreclosure in April. Paschal couldn't afford the $1,300 monthly mortgage payment on her $45,000 annual salary as a day care center director.

The home is a six-bedroom house on an acre of land, with a trampoline in the backyard, blooming pink azaleas and rose bushes, and a muddy creek where Trent and Bailey would catch frogs and play with their two dogs, a retriever and a Labrador.

Before they left, Paschal took the children to their rooms and told them to fill a box with whatever they wanted to take with them. They moved in July to a two-bedroom, $900-a-month apartment. The "for sale" sign on the house they lost to foreclosure went up this month. When she saw a picture of it, Paschal says, she cried.

The children are suffering, too. Trent worries about money. Recently, at the grocery store, he told his mother not to buy milk because it cost $4. He begs his mother to get a house again, saying that he's old enough now to cut the grass.

"It's hard," Paschal says. "I think they see things very differently now. My son asked me how much money I have, and I told him not to worry about it. We had to give away our Lab and our bird dog (because it seemed unfair to keep them in such a small apartment). That killed my son. That tore him apart, big time."

In the new apartment, Paschal doesn't sleep well. After she goes to bed, she hears Trent scurry out of his bed to make sure all the doors are locked. Then Trent comes to her room and quietly tells his mother she can sleep now because everything is safe.

    Foreclosures take an emotional toll on homeowners, UT, 14.5.2008, http://www.usatoday.com/money/economy/housing/2008-05-14-mortgage-foreclosures-mental-health_N.htm

Foreclosures skyrocket 65% in April

14 May 2008
USA Today
By Stephanie Armour

In a sign that the mortgage collapse is getting worse, not better, foreclosure filings surged 65% in April from April 2007, leading some analysts to warn that the crisis might not end before 2010.

One in every 519 households received a foreclosure filing — the highest such figure since RealtyTrac began issuing foreclosure reports in January 2005. Nationally, 243,353 homes were facing foreclosure last month, RealtyTrac said. That amounts to roughly 2% of all homes.

Signs that the crisis is accelerating include sinking home values, rising foreclosures, swelling supplies of homes for sale and tighter lending rules that have shut out some who want to buy homes or refinance their mortgages.

"For the foreclosures to stop, inventories have to stop rising, and home sales have to rise," says Mark Zandi, chief economist of Moody's Economy.com, who thinks foreclosures will continue rising well into 2009 and possibly till 2010. "We need prices to come down some more."

Congress is working on a bill that would let many borrowers facing foreclosure refinance with federally insured mortgages. The bill's prospects, though, are uncertain.

"Policy is essential," Zandi says. "If they don't do anything, this crisis will continue."

Foreclosure filings in April rose from a year earlier in all but eight states, according to RealtyTrac. Those hardest hit by the tsunami of foreclosures included Arizona, California, Florida and Nevada — states where runaway subprime lending and escalating home prices symbolized the real estate boom that fizzled in 2006.

"It will almost certainly get worse," Rick Sharga of RealtyTrac says of the foreclosure filings. "Unless the government does something, we'll probably see this go on. We would expect a spike (in filings) in the third and fourth quarter" of 2008.

Joel Naroff of Naroff Economic Advisors says he thinks foreclosures could persist at a high rate into 2010. "Prices are dropping and will continue to fall throughout the year," Naroff says. "People want to buy, but they can't get financing."

As the downturn intensifies, credit counselors are reporting a wave of calls from anxious homeowners. Diane Gray, director of Novadebt, a non-profit counseling group, says its largest surge in demand from clients involves housing-related counseling services.

"Homeowners are calling about mortgage payments, including those with ARMs and interest-only loans," Gray says. "A lot of times, they've gotten into a home, and it's hard for them to understand they may not be able to afford it."

    Foreclosures skyrocket 65% in April, UT, 14.5.2008, http://www.usatoday.com/money/economy/housing/2008-05-14-foreclosures-mortgage-apps_N.htm

Oil Refiners See Profits Sink as Consumption Falls

May 14, 2008
The New York Times
By JAD MOUAWAD

While drivers are facing sticker shock at the pump these days, here is a bigger shock: high prices are putting a strain on oil refiners.

After last year’s stellar profits, American refiners are going through a traumatic period. In a time of record gasoline prices, some of them actually lost money in the first quarter, and for virtually all refiners, profits are down sharply.

Experts say the refiners are caught in a double bind. The price of their raw material, oil, is rising because of strong global demand. At the same time, consumption of gasoline in the United States is falling as a result of slower economic growth and consumer efforts to conserve.

However much the companies would like to raise gasoline prices enough to pass along the full increases in oil, analysts say they have been unable to do it. Oil prices doubled in the past year, while wholesale gasoline prices rose a mere 39 percent.

“Refiners are having a terrible time,” said Lawrence J. Goldstein, an economist at the Energy Policy Research Foundation.

For decades, global oil prices were tightly coupled to the ups and downs of the American economy. But in recent years, world oil prices have been pulled upward by heavy demand for diesel fuel from developing countries like China. American economic growth weakened in the last few months, but that has mattered little in the upward march of oil prices.

“What we see at the gasoline pump is increasingly driven by what is happening elsewhere in the global economy,” said Daniel Yergin, the chairman of Cambridge Energy Research Associates, a consulting firm.

Gasoline prices rose on Tuesday to a nationwide average of $3.73 a gallon, according to AAA, the automobile club. That is yet another record. Diesel prices also set a record, at $4.39 a gallon. Crude oil futures closed at $125.80 a barrel, up $1.57, or 1.3 percent, on the New York Mercantile Exchange.

In its latest monthly report, the International Energy Agency, an adviser to industrialized countries, reduced its forecast for global oil demand for this year, as consumption drops by a bigger-than-forecast 300,000 barrels a day in the developed world.

But that decline will be more than offset by growth from developing countries. Consequently, global consumption is expected to rise this year by 1 million barrels a day, to 86.8 million barrels a day. Nearly all that growth will come from China, the Middle East and Russia.

In the United States, there is no longer much doubt that consumers are responding to higher fuel costs by driving less. Oil consumption fell by 3.3 percent in March, compared with March of last year.

But even as gasoline demand softens, the price keeps rising, driven by higher oil prices. The cost of oil represents about 75 percent of the price of gasoline at the pump, according to the Energy Department; state and federal taxes account for 12 percent, and refining and distribution make up the rest.

The rising oil prices have led to a sharp drop in refining profit margins, or the difference between the cost of oil and the cost of gasoline. These margins, at $12.45 a barrel on average, are 60 percent below their year-ago level, and in the lower half of their five-year range, according to a report by UBS.

In response to falling gasoline demand and rising costs, refiners have cut their production rates. Refining utilization rates, for example, slumped to a low of 81.4 percent in the second week of April, compared with 90.4 percent at the same time last year. Earlier this month, refineries were running at 85 percent of their capacity.

All this has translated into a tough quarter for some refiners. While large integrated companies, like Exxon Mobil, reported big profits in the first quarter thanks to their oil sales, smaller independent refiners that buy their oil, instead of producing it themselves, have been losing money.

Tesoro, Sunoco, and United Refining all posted losses in the first quarter. The hardest hit have been small refineries that tend to process the most expensive types of crude oil into gasoline. Sunoco, for example, lost $123 million in the first quarter, while Tesoro posted a $82 million loss for that period, in contrast to a profit of $116 million last year.

“We’re just not able to pass along the increased cost of crude oil on the gasoline side,” said Lynn Westfall, the chief economist at Tesoro.

At Valero, the nation’s largest independent refiner, first-quarter profit melted by 76 percent. Its refining capacity allows it to process heavier grades of crude oil that typically trade at a discount. Still, its profit dropped to $261 million in the first quarter compared with $1.1 billion last year.

Some consumer advocates say they are deeply suspicious about the behavior of refiners who are sharply cutting production at a time of record gasoline prices.

“They are not sitting in a boardroom and colluding, but they can see easily enough where their benefit lies, and it doesn’t lie in a price war,” said Judy Dugan, the research director at Consumer Watch. “In a truly competitive market, you might see some of these providers try to improve their market share by reducing prices. But this is not happening. They are all better off by restricting production to keep prices up.”

Mark Cooper, director of research at the Consumer Federation of America, said mergers in the 1990s had cut the number of refiners in the country and contributed to reduced competition in the refining market.

“We let them accumulate market power through the wave of mergers, and we’ve been paying the price in the last five years,” he said. “If there is a small number of players in the market, they learn from each other’s behavior.”

The demand for diesel has been one of the main drivers of oil demand in recent years. Diesel and other so-called middle distillates are used as transportation, power generation and industrial fuels.

In China, for example, oil imports have surged in recent weeks, a signal that the government is stockpiling oil and diesel in anticipation of the Olympic Games. Beijing, the International Energy Agency report said, is seeking to avoid a repeat of the embarrassing fuel shortages and power disruptions that plagued the country last year.

    Oil Refiners See Profits Sink as Consumption Falls, NYT, 14.5.2008, http://www.nytimes.com/2008/05/14/business/14refine.html

Stocks Higher After Inflation Report

May 14, 2008
Filed at 1:23 p.m. ET
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- Stocks steamed higher Wednesday after a better-than-expected report on consumer prices tempered some of Wall Street's concerns about inflation. The Dow Jones industrial average rose nearly 150 points.

The Labor Department's report that consumer prices advanced 0.2 percent in April after rising 0.3 percent in March appeared to alleviate Wall Street's worries about a big spike in prices due to the recent surge in energy costs. The decline in prices comes despite the largest jump in food prices in 18 years.

Wall Street has been concerned that higher food and energy costs are cutting into consumers' ability to spend. Any pullback is an unnerving prospect for investors because consumer spending accounts for about two-thirds of U.S. economic activity.

Marc Pado, U.S. market strategist for Cantor Fitzgerald, said the tame consumer prices reading, along with recent figures on productivity, indicate that businesses are swallowing some of the rising costs they face and not passing all of them to consumers. That's welcome news as consumers are facing higher prices in some key areas, like energy and food.

''You have higher input costs but you're getting more out of your workers so therefore you're able to control your output costs,'' he said. ''The economy is lean and mean and doing well even though on the demand side it's slumping.''

In early afternoon trading, the Dow rose 144.68, or 1.13 percent, to 12,976.86.

Broader stock indicators also jumped. The Standard & Poor's 500 index advanced 15.23, or 1.09 percent, to 1,418.27, and the Nasdaq composite index rose 28.59, or 1.15 percent, to 2,523.71.

Light, sweet crude oil fell 74 cents to $125.06 on the New York Mercantile Exchange.

Bond prices ticked higher as inflation concerns eased. Rising prices can make fixed-income investments less attractive. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.90 percent from 3.91 percent late Tuesday.

The dollar was mixed against other major currencies, while gold prices fell.

In corporate news, Macy's Inc. reported it lost $59 million in the first quarter because of weaker sales and costs tied to combining businesses. But the results topped Wall Street's expectations and the stock rose $1.32, or 5.5 percent, to $25.39.

Deere & Co. said its fiscal second-quarter profit rose 22 percent as higher crop prices drove global demand for its farm equipment. But the company said rising costs of raw materials could eat into its profits in the coming months. Deere fell $7.59, or 8.4 percent, to $82.60.

Jack in the Box Inc. fell $2.83, or 10.1 percent, to $24.94 after the fast food chain said sales at restaurants open at least a year fell short of forecasts for the fiscal second quarter. The company lowered its sales target for the third quarter.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 598.6 million shares.

The Russell 2000 index of smaller companies rose 6.69, or 0.91 percent, to 743.54.

Overseas, Japan's Nikkei stock average rose 1.18 percent. In afternoon trading, Britain's FTSE 100 rose 0.18 percent, Germany's DAX index rose 0.33 percent, and France's CAC-40 advanced 1.09 percent.

------

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com 

    Stocks Higher After Inflation Report, NYT, 14.5.2008, http://www.nytimes.com/aponline/business/AP-Wall-Street.html

Gas Prices Send Surge of Riders to Mass Transit

May 10, 2008
The New York Times
By CLIFFORD KRAUSS

DENVER — With the price of gas approaching $4 a gallon, more commuters are abandoning their cars and taking the train or bus instead.

Mass transit systems around the country are seeing standing-room-only crowds on bus lines where seats were once easy to come by. Parking lots at many bus and light rail stations are suddenly overflowing, with commuters in some towns risking a ticket or tow by parking on nearby grassy areas and in vacant lots.

“In almost every transit system I talk to, we’re seeing very high rates of growth the last few months,” said William W. Millar, president of the American Public Transportation Association.

“It’s very clear that a significant portion of the increase in transit use is directly caused by people who are looking for alternatives to paying $3.50 a gallon for gas.”

Some cities with long-established public transit systems, like New York and Boston, have seen increases in ridership of 5 percent or more so far this year. But the biggest surges — of 10 to 15 percent or more over last year — are occurring in many metropolitan areas in the South and West where the driving culture is strongest and bus and rail lines are more limited.

Here in Denver, for example, ridership was up 8 percent in the first three months of the year compared with last year, despite a fare increase in January and a slowing economy, which usually means fewer commuters. Several routes on the system have reached capacity, particularly at rush hour, for the first time.

“We are at a tipping point,” said Clarence W. Marsella, chief executive of the Denver Regional Transportation District, referring to gasoline prices.

Transit systems in metropolitan areas like Minneapolis, Seattle, Dallas-Fort Worth and San Francisco reported similar jumps. In cities like Houston, Nashville, Salt Lake City, and Charlotte, N.C., commuters in growing numbers are taking advantage of new bus and train lines built or expanded in the last few years. The American Public Transportation Association reports that localities with fewer than 100,000 people have also experienced large increases in bus ridership.

In New York, the Metropolitan Transportation Authority reports that ridership was up the first three months of the year by more than 5 percent on the Long Island Rail Road and the Metro-North Railroad, while M.T.A. bus ridership was up 10.9 percent. New York City subway use was up 6.8 percent for January and February. Ridership on New Jersey Transit trains was up more than 5 percent for the first three months of the year.

The increase in transit use coincides with other signs that American motorists are beginning to change their driving habits, including buying smaller vehicles. The Energy Department recently predicted that Americans would consume slightly less gasoline this year than last — for the first yearly decline since 1991.

Oil prices broke yet another record on Friday, climbing $2.27, to $125.96 a barrel. The national average for regular unleaded gasoline reached $3.67 a gallon, up from $3.04 a year ago, according to AAA.

But meeting the greater demand for mass transit is proving difficult. The cost of fuel and power for public transportation is about three times that of four years ago, and the slowing economy means local sales tax receipts are down, so there is less money available for transit services. Higher steel prices are making planned expansions more expensive.

Typically, mass transit systems rely on fares to cover about a third of their costs, so they depend on sales taxes and other government funding. Few states use gas tax revenue for mass transit.

In Denver, transportation officials expected to pay $2.62 a gallon for diesel this year, but they are now paying $3.20. Every penny increase costs the Denver Regional Transportation District an extra $100,000 a year. And it is bracing for a $19 million shortfall in sales taxes this year from original projections.

“I’d like to put more buses on the street,” Mr. Marsella said. “I can’t expand service as much as I’d like to.”

Average annual growth from sales tax revenue for the Bay Area Rapid Transit District, a rail service that connects San Francisco with Oakland, has been 4.5 percent over the last 15 years. It expects that to fall to 2 percent this year, and electricity costs are rising.

“This is a year of abundant caution and concern,” said Dorothy W. Dugger, BART’s general manager, even though ridership on the line was up nearly 5 percent in the first quarter of the year.

Nevertheless, Ms. Dugger is happy that mass transit is winning over converts. “The future of mass transit in this country has never been brighter,” she said.

Other factors may be driving people to mass transit, too. Wireless computers turn travel time into productive work time, and more companies are offering workers subsidies to take buses or trains. Traffic congestion is getting worse in many cities, and parking more expensive.

Michael Brewer, an accountant who had always driven the 36-mile trip to downtown Houston from the suburb of West Belford, said he had been thinking about switching to the bus for the last two years. The final straw came when he put $100 of gas into his Pontiac over four days a couple of weeks ago.

“Finally I was ready to trade my independence for the savings,” he said while waiting for a bus.

Brayden Portillo, a freshman at the University of Colorado Denver, drove from his home in the northern suburbs to the downtown campus in his Jeep Cherokee the entire first semester of the school year, enjoying the rap and disco music blasting from his CD player.

He switched to the bus this semester because he was spending $40 a week on gas — half his salary as a part-time store clerk. “Finally, I thought this is stupid,” he said, and he is using the savings to pay down a credit card debt.

The sudden jump in ridership comes after several years of steady, gradual growth. Americans took 10.3 billion trips on public transportation last year, up 2.1 percent from 2006. Transit managers are predicting growth of 5 percent or more this year, the largest increase in at least a decade.

“If we are in a recession or economic downturn, we should be seeing a stagnation or decrease in ridership, but we are not,” said Daniel Grabauskas, general manager of the Massachusetts Bay Transportation Authority, which serves the Boston area. “Fuel prices are without question the single most important factor that is driving people to public transportation.”

Some cities are seeing spectacular gains. The Charlotte Area Transit System, which has a new light rail line, reported that it logged more than two million trips in February, up more than 34 percent from February 2007.

Caltrain, the commuter rail line that serves the San Francisco Peninsula and the Santa Clara Valley, set a record for average weekday ridership in February of 36,993, a 9.3 increase from 2007, according to its most recent public calculation.

The South Florida Regional Transportation Authority, which operates a commuter rail system from Miami to Fort Lauderdale and West Palm Beach, posted a rise of more than 20 percent in rider numbers this March and April as monthly ridership climbed to 350,000.

“Nobody believed that people would actually give up their cars to ride public transportation,” said Joseph J. Giulietti, executive director of the authority. “But in the last year, and last several months in particular, we have seen exactly that.”

    Gas Prices Send Surge of Riders to Mass Transit, NYT, 11.5.2008, http://www.nytimes.com/2008/05/10/business/10transit.html?hp

Trade Deficit Narrowed in March, but Exports Fell

May 10, 2008
The Independent
By MICHAEL M. GRYNBAUM

Demand for imports fell in March by the most since 2001, the latest indication that the economic slowdown has forced Americans to rein in their spending habits, the government reported on Friday.

Americans shied away from buying imported automobiles, which fell 9.3 percent in March, and oil, which dropped 8.9 percent. It was the second consecutive month that crude oil imports had declined. Declines were reported in a variety of other consumer goods ranging from clothing to toys and furniture.

At the same time, exports decreased for the first time in 12 months, a troubling sign for American businesses struggling with decreased domestic demand. Foreign purchases have helped prop up the American economy amid the current slowdown.

For the month, the Commerce Department reported, the trade deficit narrowed to $58.2 billion from a downwardly revised $61.7 billion in February. The 5.7 percent decrease was more than economists had expected.

Imports were down 2.9 percent in March, to $206.7 billion from $212.8 billion in February, the sharpest decline since December 2001. Sales of foreign cars, telecommunications equipment and crude oil all fell, even as demand perked up for health care goods and clothing.

“Consumers struggling with high inflation, negative wealth effects, falling home prices and increased job insecurity mean imports will fall back much further this year,” Dimitry Fleming, an economist at ING Bank in London, wrote in a note to clients.

Export sales dropped 1.7 percent to $148.5 billion from $151.1 billion in February, as demand eased for American-made automobiles, capital goods, and — strikingly — civilian aircraft, sales of which fell 31.9 percent. Purchases of American foods and beverages increased.

    Trade Deficit Narrowed in March, but Exports Fell, NYT, 10.5.2008, http://www.nytimes.com/2008/05/10/business/10econ.html?hp

Oil over $126, new peak for 5th straight day

Fri May 9, 2008
10:09am EDT
Reuters
By Santosh Menon

LONDON (Reuters) - Oil prices leapt to a new peak of more than $126 a barrel on Friday, hitting a record for the fifth straight session, in a market given an additional spur by tight supplies of diesel.

U.S. crude for June delivery rose $1.87 to $125.56 by 9:35 a.m. EDT, off a record high of $126.20 a barrel. London Brent crude rose $2.81 to $125.65 per barrel.

"I'm not particularly surprised by the speed of the rise in crude. There are many market bulls hoping for prices to rise heading into the summer," said Tetsu Emori, fund manager at Astmax Co Ltd in Tokyo.

Gas oil futures, the benchmark for European heating oil and diesel contract, surged to a new record high on Friday, driven by worries about tight global diesel supplies.

"Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast," said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

Gains in U.S. crude picked up momentum after distillate stocks in the United States, notably diesel, fell.

The U.S. government said on Wednesday domestic distillate stocks, which include heating oil and diesel, fell by 100,000 barrels last week, to 105.7 million barrels, against forecasts for an 800,000-barrel rise.

The tightness in distillates was also highlighted after Royal Dutch Shell looked set to shut its second-largest crude distillation unit and two secondary units at its Singapore plant next month for routine maintenance.

Strength in middle distillates has been aggravated by growing demand for transport fuel in Europe and power demand in emerging economies where shortages of alternate fuels have set off a boom in demand for diesel for use in electric generators.

Oil's relentless rise has once again turned the spotlight on Organization of the Petroleum Exporting Countries (OPEC), which has for months resisted demands for more oil to try to tame prices.

On Friday, an OPEC source said the exporters' group might consider whether to boost output before its next scheduled meeting should crude oil prices keep rising.

"If the price keeps going up, OPEC may consult on an increase in production before it meets in September. In my view, any increase would have to be more than 500,000 barrels per day to have an impact on the price," the source told Reuters.

OPEC's Secretary-general Abdullah al-Badri said on Thursday world oil markets have enough supply now, but OPEC was willing to pump more if needed to keep pace with demand.

(Additional reporting by Chikafumi Hodo in Tokyo; Editing by William Hardy)

    Oil over $126, new peak for 5th straight day, R, 9.5.2008, http://www.reuters.com/article/ousiv/idUSSYD3274320080509

Gas prices rattle Americans

USA Today
By Judy Keen and Paul Overberg

Record high gas prices are prompting Americans to drive less for the first time in nearly three decades, squeezing family budgets and causing major shifts in driving habits, federal data and a USA TODAY/Gallup Poll show.
As prices near — or in some places top — $4 a gallon, most Americans say they are cutting back on other household spending, seriously considering buying more fuel-efficient cars and consolidating their daily errands to save fuel.

Americans worry that steep gas costs are here to stay: eight in 10 say they doubt today's high prices are temporary, the poll finds. It's the first time such a large majority sees pricey gas as a long-term problem.

The $4 mark, compounded by a sagging economy, could be a tipping point that spurs people to make permanent lifestyle changes to reduce dependence on foreign oil and help the environment, says Steve Reich, a program director at the Center for Urban Transportation Research at the University of South Florida.

"This is a more significant shift in behavior than I've seen through other fluctuations in gasoline prices," he says. "People are starting to understand that this resource … is not something to be taken for granted or wasted."

The average price of a gallon of gas nationwide is $3.65 — the highest ever, adjusted for inflation. California's average: $3.90 a gallon. The federal Energy Information Administration (EIA) expects a $3.66 per-gallon average this summer.

The pinch is reshaping the way Americans use their cars:

• February was the fourth consecutive month in which miles driven in the USA fell, an analysis of Federal Highway Administration data show.

There hasn't been a similar decline since 1979, when shortages created long lines at pumps. In the 12 months ending in February, the latest month for which data are available, miles driven fell 0.4% from a year earlier. The last drop of that scale was in 1980-81.

The decline, while small, is significant because the U.S. population and number of households, drivers and vehicles grow by 1% to 2% a year. A gallon of gas has gone up 59 cents since February, suggesting the trend seems likely to continue. The EIA expects demand for gas to shrink 0.4% this summer from 2007 and fall 0.3% for the year. It would be the first dip in annual consumption since 1991.

• In 2004 and 2005, about one-third of Americans said they cut spending because of rising gas prices. In the new poll, 60% say they are trimming other expenses. Half of households with incomes below $20,000 say they face severe hardships because of soaring gas prices. Three-fourths of households making $75,000 or more also are changing how they use their cars.

Dawn Morris, a consultant in Dover, Del., is blunt about how gas prices are affecting her family.

"It's killing us," she says. She and her husband often stay home on weekends, and when she balances her checkbook, "every third line it says gas: $20, $30, $50."

• Americans' efforts to conserve gas are evident across the USA. At Don Jacobs Used Cars in Lexington, Ky., salesman Tony Morphis says customers are dumping gas guzzlers and ask first about gas mileage when they shop for replacements. Sonya Jensen, owner of Cat's Paw Marina in St. Augustine, Fla., says some boat owners are considering selling their watercraft. At Cycle Cave in Albuquerque, Hervey Hawk says customers are "dragging 30- to 40-year-old bikes out of the garage" and having them fixed so they can pedal to work.

• In the poll, eight in 10 Americans say they use the most fuel-efficient car they own whenever possible. Three-fourths hunt for the cheapest gas available. Six in 10 share rides with friends or neighbors.

Three-fourths say they are getting tuneups, turning off the air-conditioning or driving slower to improve mileage.

Slower speeds might help save lives, says Dennis Hughes, safety chief for the Wisconsin Transportation Department. There have been fewer driving deaths each month since October compared with a year earlier. A harsh winter and record gas prices "conspired to keep a lot of people off the road, or at least to slow down," he says.

Most of those polled expect things to get worse: 54% say they expect gas prices to reach $6 a gallon in the next five years.

For now, they are rethinking the ways they get around, where they buy a home and what they do for fun.

    Gas prices rattle Americans, UT, 8.5.2008, http://www.usatoday.com/money/industries/energy/2008-05-08-gasprices_N.htm

Some Signs of a Recovery for the Dollar

May 7, 2008
The New York Times
By STEVEN R. WEISMAN

WASHINGTON — After six years of stumbling against the euro, the dollar may be showing signs of getting back on its feet.

Two weeks ago, the dollar hit a new low of nearly $1.60 for the euro amid expectations of lower interest rates in the United States and possibly higher rates in Europe. President Nicolas Sarkozy of France and other European leaders expressed alarm over the dollar’s decline and its devastating effect on Europe’s exports.

Since then, the dollar has strengthened — it closed at $1.55 on Monday — and some economists believe that, even if it creeps down slightly, the dangers of a precipitous fall, at least against the euro, have subsided.

Economists point out that American policy makers, particularly Ben S. Bernanke, the Federal Reserve chairman, have begun to voice concern about the dollar’s fall and its inflationary effect in the United States, where a weak currency has increased the cost of oil and other imports for the American consumer.

“I am struck by Bernanke’s concern about prices when he talks about the dollar as a factor in inflation,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute and former director of monetary affairs at the Federal Reserve. “The balance is shifting toward a little more concern about the dollar.”

Although many economists consider an all-out collapse of the dollar unlikely, they acknowledge that such a collapse could occur if overseas investors, fearing a relentless decline, start dumping dollars from their portfolios — accelerating exactly what they fear might happen.

While concerned about the dollar’s value against the euro, of course, the United States has taken the opposite approach toward China and some other Asian economies.

The Bush administration, for example, continues to press China to let its currency, the yuan, appreciate against the dollar. The yuan has already climbed more than 18 percent against the dollar since mid-2005, making Chinese goods more expensive in the United States.

That shift, in turn, has eased the clamor in Congress for trade sanctions against China.

But economists say that any possible stabilizing of the dollar against the euro can only be sustained if there is a shift in economic fundamentals toward a recovery in the United States and a slowdown in Europe.

The dollar’s recent strength may be an anticipation of such trends. But it is also seen as a response to the Fed’s pause in interest-rate cuts and to recent statements by financial officials from the major economic powers.

A major contributor to the recent trend is the signal from the Federal Reserve that after lowering interest rates slightly, it would pause before lowering rates further so as not to exacerbate inflation rates. One reason that the dollar had fallen is that money market investors have shifted to the euro in search of higher interest rates.

Economists said the Fed’s decision to indicate a pause in lowering interest rates was based not simply on its concern about inflation but also on worries over the dollar. Economists said the Fed did not want the dollar to plunge further — or to encourage even the remote possibility of dollar dumping by foreign investors.

“The decline of the dollar is a factor weighing on the Fed that makes them more reluctant to continue easing interest rates,” said Laurence H. Meyer, vice chairman of Macroeconomic Advisers and a former governor of the Fed.

Another factor in the dollar’s apparent stabilizing was a statement by finance ministers of the major industrial economies last month — little noticed by the public at large but carefully scrutinized among financial experts — indicating that the United States and its partners were not prepared to let the dollar plummet endlessly.

On April 11, the finance ministers of the United States, Canada, Japan and Europe said they were “concerned” about recent “sharp fluctuations in major currencies,” a statement widely seen as endorsing the possibility of an intervention by the United States Treasury and other finance ministers to prevent a steep drop in the dollar’s value.

Pressed to explain what the statement meant, Jean-Claude Trichet, president of the European Central Bank, said “it’s a very touchy issue” but that statement was “like a poem — it speaks for itself.”

In case it did not, perhaps, Prime Minister François Fillon of France told reporters in Washington last week that France was prepared to lead a “coordinated response” of major economic powers to relieve what he said were global currency imbalances, including an undervalued dollar.

Many economists say that the statement of the finance ministers — all of them members of the so-called Group of 7 nations — was an important factor in strengthening the dollar.

“The modest wording change in the G-7 statement was important,” said Peter Hooper, chief economist at Deutsche Bank Securities, referring to the G-7. “It reflected European concern about how far out of line the dollar was, and the United States not wanting to give the impression that they were totally disengaged on the dollar.”

Bush administration officials say that, despite the G-7 statement, it would be anathema for them even to contemplate an intervention to keep the dollar from falling. Treasury Secretary Henry M. Paulson Jr. has repeatedly stated that currencies rise and fall depending on basic economic fundamentals and that interventions do not work.

But the fact that the American export sector is reaping the benefits of a lower-valued dollar, which is making American goods cheaper overseas, makes some people in Europe think that the administration has a policy of “benign neglect” on the dollar’s fall. In recent months, exports have surged 9.5 percent over their level a year ago.

The International Monetary Fund, which monitors currency fluctuations, has concluded that, given long-term trends, the euro and the dollar are in a state of equilibrium, whereas both the dollar and euro are overvalued related to the Chinese yuan, the Japanese yen and some other Asian currencies.

For many economists, the decline of the dollar against the euro or other currencies is more a function of the American trade deficit than its interest rate policies. In other words, as the United States imports more than it exports, businesses overseas pile up hundreds of billions of dollars that they sell when they convert to their own currencies.

“I think the dollar depreciates because of the fundamental trade imbalance,” said Martin Feldstein, professor of economics at Harvard and president of the National Bureau of Economic Research. “Interest rates contribute to that in a small way, but the key driver is the $700 billion trade deficit.”

Mr. Feldstein said that, as a result, he projects that the dollar may still have further to decline because, although the trade balance has improved recently, it is a long way from disappearing.

“I think the dollar has substantially further to fall,” Mr. Feldstein said. “Is this terrible? Not really. It’s the natural way for the trade deficit to be reduced.”

    Some Signs of a Recovery for the Dollar, NYT, 7.5.2008, http://www.nytimes.com/2008/05/07/business/worldbusiness/07dollar.html?hp

Doubts Raised on Big Backers of Mortgages

May 6, 2008
The New York Times
By CHARLES DUHIGG

As home prices continue their free fall and banks shy away from lending, Washington officials have increasingly relied on two giant mortgage companies — Fannie Mae and Freddie Mac — to keep the housing market afloat.

But with mortgage defaults and foreclosures rising, Bush administration officials, regulators and lawmakers are nervously asking whether these two companies, would-be saviors of the housing market, will soon need saving themselves.

The companies, which say fears that they might falter are baseless, have recently received broad new powers and billions of dollars of investing authority from the federal government. And as Wall Street all but abandons the mortgage business, Fannie Mae and Freddie Mac now overwhelmingly dominate it, handling more than 80 percent of all mortgages bought by investors in the first quarter of this year. That is more than double their market share in 2006.

But some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.

The companies, which were created by Congress but are owned by investors, suffered more than $9 billion in mortgage-related losses last year, and analysts expect those losses to grow this year. Fannie Mae is to release its latest financial results on Tuesday and Freddie Mac is to report earnings next week.

The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.

And if Fannie or Freddie fail, taxpayers would probably have to bail them out at a staggering cost.

“We’ve taken tremendous risks by loosening these companies’ purse strings,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development. “They could cause an economywide meltdown if they got into real trouble and leave the public on the hook for billions.”

Concerns over the companies’ finances have prompted a fierce behind-the-scenes battle between nervous government officials and the two companies. Bush administration officials, the Federal Reserve and lawmakers all believe that the companies’ financial safety cushion is far too thin and have pleaded with them to raise more capital from investors.

Freddie and Fannie, which are enjoying new growth and profits, have largely resisted those pleas, people briefed on the talks say, because selling new shares could dilute the holdings of existing shareholders and drive down their stock prices. Though executives have promised to raise money this year, they refuse to specify how much and when.

Moreover, the companies are using their newfound clout to push Congress and their regulator to roll back the limits that were imposed after recent scandals over accounting and executive pay, according to participants in those conversations.

More Capital Sought

As a result, high-ranking government officials are now quietly threatening to publicly criticize the two companies if they do not soon raise large amounts of capital, people with firsthand knowledge of those threats say. William Poole, a president of a Federal Reserve bank who has since retired, has warned that companies like Fannie Mae and Freddie Mac are “at the top of my list of sources of potentially serious trouble.”

A report last month by the agency overseeing the companies said that they pose “significant supervisory concerns” and that Freddie Mac suffers “internal control weaknesses.”

Lawmakers are pushing to rein in the companies with new legislation. Senator Christopher J. Dodd, the Connecticut Democrat who leads the Banking Committee, will soon take up legislation giving the government broad authority over the companies. Lawmakers say it is likely a bill will pass this year.

“They are on real thin ice financially,” said Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee. “And the way the law is written right now, there is very little we can do to correct that.”

The companies say such criticisms are without merit. Their latest regulatory filings, they note, show a combined financial safety net that exceeds required minimums by $7 billion. The companies raised $13 billion from investors last year and say any future losses will be offset by new revenue and by money they have already set aside.

Criticisms Rejected

“The irony is that right now I’m seeing the best opportunities since I’ve been in this business,” said Daniel H. Mudd, chief executive of Fannie Mae, in an interview conducted last month.

The companies also say that they have not demanded anything. Rather, they say, the limitations have been dropped because of the companies’ commitment to financial transparency and aiding the housing recovery.

But others remain concerned. Though the companies’ main regulator, James B. Lockhart III, director of the Office of Federal Housing Enterprise Oversight, has voiced strong confidence in the companies, a high-ranking member of his staff said some officials had begun considering the worst.

“It’s not irrational to be thinking about a bailout,” said that person, who requested anonymity, fearing dismissal.

Fannie and Freddie do not lend directly to home buyers. Rather, they buy mortgages from banks and other lenders, and thereby provide fresh capital for home loans. The companies keep some of the mortgages they buy, hoping to profit from them, and sell the rest to investors with a guarantee to pay off the loan if the borrower defaults.

Because of the widespread perception that the government would intervene if either company failed, they can borrow money at lower interest rates than their competitors. As a result, they have earned enormous profits that have enriched shareholders and managers alike: from 1990 to 2000, each company’s stock grew more than 500 percent and top executives were paid tens of millions of dollars.

Those profits were threatened earlier this decade, however, when new competitors emerged and after audits revealed that both companies had manipulated their earnings. The companies were forced to replace top executives, pay hundreds of millions in penalties and consent to strict growth limits.

To keep profits aloft and meet affordable-housing goals set by Congress, the companies began buying huge numbers of subprime and Alt-A mortgages, the highly profitable loans often taken out by low-income and riskier borrowers. By the end of last year, the companies had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000.

Then the housing bubble burst. In February, the companies revealed a $6 billion combined loss in the fourth quarter of 2007, and both companies’ stock prices fell more than 25 percent in less than two weeks. Freddie Mac fell to $17.39 on March 10 from $24.49 on Feb. 28, while Fannie Mae declined to $19.81 on March 10 from $27.90 on Feb. 28.

Despite those troubles, lawmakers had few alternatives to asking Fannie and Freddie to buy more and riskier mortgages.

“I want these companies to help with affordable housing, to help low-income families get loans and to help clean up this subprime mess,” said Representative Barney Frank, a Massachusetts Democrat and the chairman of the House Financial Services Committee. “Otherwise, why should they exist?”

Demands for Repeals

But now that the government depends on Fannie and Freddie to keep markets humming, the companies are making demands of their own — namely, repealing some of the limits created after the scandals and even some established by law.

Last year, in return for buying billions of dollars of subprime mortgages to help stabilize the market, executives won the right to expand their investment portfolios. In March, the companies agreed to raise more capital within the year. In exchange, they received an additional $200 billion in purchasing power.

Last month, the companies promised to pump money into the more expensive reaches of the housing market. In return, Congress temporarily raised the cap on the size of the mortgages they can buy to almost $730,000 from $417,000.

“We have to bow and scrape and haggle each time we need help,” said a senior Republican Senate assistant who spoke only on the condition of anonymity.

Each time Congress or regulators have given the companies new room for growth, their stock prices have risen. But so far the companies have balked at raising more capital. That hesitation has lawmakers concerned that when the companies raise money this year, it will not be enough.

In a March meeting, Freddie Mac’s chairman, Richard F. Syron, bolstered those fears by saying the company would put shareholders’ interests first. Michael L. Cosgrove, a spokesman for Freddie Mac, said Mr. Syron is committed to both satisfying the company’s public mission and creating shareholder value. Fannie Mae, which is in a regulatory-imposed quiet period because it will soon release financial information, declined to comment on capital-raising issues.

As worrisome as the need for new capital, some analysts say, are the companies’ books.

A report released earlier this month by Mr. Lockhart, the regulator, noted that although Freddie and Fannie had a combined $19.9 billion of “unrealized losses” on mortgage-related investments, neither company had reduced its earnings to reflect those declines. That is because they judged the losses to be temporary — in essence wagering that the mortgage market would recover before those assets were sold. Such a wager is permitted by the rules but difficult for outsiders to analyze.

Fannie Mae declined to discuss unrealized losses. Mr. Cosgrove, the Freddie Mac spokesman, said the company discloses all financial choices and downgrades all potentially impaired securities when appropriate.

The regulator’s report also noted that Freddie used accounting choices that gave it an immediate $1 billion capital increase. While those and other tactics are technically permitted, the regulator said, they deserve scrutiny.

“Companies can make assumptions that cause very large differences in what they report,” Mr. Lockhart said in an interview. He has repeatedly said that the companies are making good progress and have fixed many of their problems. But at least one accounting choice, he said, “concerns us.”

Mr. Cosgrove said Freddie Mac’s accounting choices had been the best way to reflect financial realities.

Both companies have also recently changed their policies on delinquent loans, which they previously recorded as impaired when borrowers were 120 days late. Now, some overdue loans can go two years before the companies record a loss.

Fannie Mae declined to discuss the accounting of impaired loans. A representative of Freddie Mac said marking loans as permanently impaired at 120 days does not reflect that many of them avoid foreclosure. But the biggest risk, analysts say, is that both companies are betting that the housing market will rebound by 2010. If the housing malaise lasts longer, unexpected losses could overwhelm their reserves, starting a chain of events that could result in a federal bailout.

A version of those events began in November, when Freddie Mac’s capital fell below congressionally mandated levels. The company stemmed the decline by selling $6 billion in preferred stock. But it might not manage that again if there is another unexpected loss, analysts say.

“The last two years have shown the real need for a stronger regulator,” Mr. Lockhart said. If his agency did not curb the companies’ growth earlier this decade, he added, “they would be part of the problem right now instead of part of the solution.”

    Doubts Raised on Big Backers of Mortgages, NYT, 6.5.2008, http://www.nytimes.com/2008/05/06/business/06fannie.html?hp

Economic Troubles Affect the Vegas Strip

May 6, 2008
The New York Times
By CLIFFORD KRAUSS

LAS VEGAS — For decades, this gambling center seemed nearly immune to the economic swings of the rest of the country. But these days, the city built on excess is seeing a troubling sign: moderation.

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown arrived.

Even the people still coming to Las Vegas are spending less. Julia Lee, 27, of Los Angeles said she normally brings $10,000 on her trips here to play blackjack. As Ms. Lee picked up show tickets the other night, she said she had brought less than half that on this trip. “My parents are in real estate, and we’re worried,” she said.

So are this city’s hoteliers, retailers, wedding chapel operators and anyone else who depends on the extravagance of gamblers and tourists. The spending declines are relatively modest, a few percentage points here and there. But Las Vegas has a huge inventory of new casinos and hotels due for completion in the next few years, and a long national recession could send the city reeling.

The Las Vegas outlook would be far worse if not for foreign visitors. They are taking advantage of the low dollar to savor the fare of celebrity chefs like Alex Stratta and to snap up goods that might cost twice as much in Europe.

To manage the slowdown, Las Vegas is revving up an overseas marketing campaign, and in the United States, it is pitching spontaneous Vegas escapes. “Do it without thinking!” says one television spot.

But representing only 13 percent of visitors, foreigners can take up only so much slack. Deutsche Bank recently started foreclosure on a $760 million construction loan for the Cosmopolitan Resort and Casino, a partly built project in the heart of the Las Vegas Strip.

Crown Las Vegas, a bullet-shaped hotel and casino resort that was supposed to become the tallest building in the city, was scrapped a few weeks ago for lack of financing.

One of the most prominent Las Vegas casino operators, Tropicana Entertainment, said Monday it would seek bankruptcy protection. The company, beset by financial difficulties, made cutbacks at a casino in Atlantic City that prompted New Jersey regulators to strip it of its license there; that set off a cascade of fresh financial problems.

Other multibillion-dollar Las Vegas projects are facing delays or have been put up for sale because of tightening credit and changing Wall Street perceptions about the city. The city’s resort properties already have 130,000 rooms, and Wall Street — which financed much of the recent boom — is worried that Las Vegas cannot absorb the 40,000 more that are on the drawing board or under construction.

“In this market, it is not good business to be confident,” said Jan L. Jones, a senior vice president at Harrah’s Entertainment and a former Las Vegas mayor. “I’ve never seen an economy like this nationally. Nobody knows how deep what nobody wants to call a recession will go.”

Historically, Las Vegas has been resistant to recessions, entering them later and exiting them sooner than the country at large. Gamblers, particularly high rollers, tend to play no matter which way the economic winds are blowing.

But executives here worry this recession could be different from the last two — in 1990-1 and 2001 — when consumer spending was propped up by easy credit. Now credit is drying up. And high gas and food prices, declining home values and rising unemployment are keeping many Americans closer to home.

More important, over the last two decades Las Vegas has shifted from a destination dominated by gambling to one with more appeal to middle-class shoppers, diners, golfers and others who can afford brief splurges. Whereas gambling represented 58 percent of revenue for Las Vegas Strip resorts in 1990, it represented only 41 percent of revenue in 2007, according to a Deutsche Bank report.

As gambling was legalized in more parts of the country in recent years, Las Vegas was forced to expand its own offerings to keep growing. It worked, but it made the city more susceptible to recessionary declines in disposable income.

“Las Vegas is now as vulnerable as other communities,” said J. Terrence Lanni, chairman of the board of MGM Mirage.

However, Mr. Lanni said he saw a silver lining. He predicted that a large percentage of the 40,000 new rooms planned by 2012 would be put off, giving Las Vegas time to develop airport and other facilities to expand more smoothly.

To be sure, Las Vegas today looks no more like a poverty zone than it does a religious camp. Caesars Palace is preparing for a billion-dollar makeover, including a 23-story tower and three new swimming pools. In fact, much of the Strip looks like a giant construction site, with crane lights competing with casino neon. MGM Mirage’s $8 billion CityCenter project alone takes up 76 acres.

But other numbers tell a darker story. Hotel occupancy was down for January and February, the most recent figures, by 1.5 percent, despite average daily room rates 3.8 percent below the year before. Gambling revenue in the Las Vegas metropolitan area for the same period was down about 4 percent.

“It’s accelerating to the downside,” said Bill Lerner, a senior gambling analyst at Deutsche Bank who lives in Las Vegas. “Las Vegas’s economy is more reflective of the general economy than ever.”

Las Vegas visitors said in recent interviews that they were spending less than in the past.

Rita Keene, a retired insurance risk manager from Collinsville, Ill., said she has been coming to Las Vegas several times a year since 1978 and had never set gambling limits. This year she is betting no more than $300 a day at the slot machines, and she is not going to shows.

“We have investments, and you know what the stock market has been doing,” she said while putting quarters in a slot machine at the Orleans casino. “My husband and I have even talked about this maybe being our last time.”

Even as Americans cut back, foreigners are helping to prop up the Las Vegas economy. The Las Vegas Convention and Visitors Authority reports that the average foreign visitor spent $1,200 for purposes other than gambling in 2007, up from $1,159 in 2006. That compares with average spending of $701 for all visitors in 2007, down from $750 the year before.

Gil Colon, sales manager at the Villa Reale antique and furnishings shop, said his business was off a bit, and would be down more except for revenue from foreigners, whose purchases have jumped from 30 percent of his sales two years ago to 50 percent today.

Having just arrived with his family in Las Vegas, Murat Sahsuvar, a Turkish hotelier, came into the store looking for 24 crystal chandeliers for a hotel he is building in Istanbul. Mr. Sahsuvar said he planned to buy Vacheron Constantin and Patek Philippe watches for himself and his wife, dine at the best Italian restaurant in town and have a little fun at the poker table at the Bellagio.

“We’re going to save lots of money on the watches, at least 5,000 euros,” he said. That sum, equal to nearly $8,000 because the dollar has fallen so much against the euro, “will take care of my hotel, my traveling and my food while in Las Vegas.”

    Economic Troubles Affect the Vegas Strip, NYT, 6.5.2008, http://www.nytimes.com/2008/05/06/business/06vegas.html

FACTBOX: Why oil prices are at a record high

Mon May 5, 2008
1:47pm EDT
Reuters

(Reuters) - U.S. crude oil hit an all-time high of $120.21 a barrel on Monday.

Robust demand for crude and a weak dollar have fuelled the rally from a dip below $50 at the start of 2007.

Adjusted for inflation, oil is now above the $101.70 peak hit in April 1980, according to the International Energy Agency, a year after the Iranian revolution.

DOLLAR WEAKNESS

The fall in the value of the dollar against other major currencies has helped drive buying across commodities as investors view dollar assets as relatively cheap.

It has also reduced the purchasing power of OPEC's revenues and increased the purchasing power of some non-dollar consumers.

OPEC oil ministers have noted that although prices are rising to record nominal levels, inflation and the dollar have softened the impact.

Some analysts say investors have been using oil as a hedge against the weaker dollar.

FUNDS

Since the Federal Reserve cut U.S. interest rates in mid-August last year and central banks pumped billions of dollars into financial markets to ease a credit crunch, oil and gold have risen.

Investment flows from pension and hedge funds into commodities including oil have boomed, as has speculative trading. At the same time, the credit crunch has brought some other markets, such as the U.S. asset-backed commercial paper market, to a virtual standstill.

Some of that money has found its way into energy and commodities, analysts say.

DEMAND

While previous price spikes have been triggered by supply disruptions, demand from top consumers the United States and China is a main driver of the current rally.

Global demand growth has slowed after a surge in 2004 but is still rising and higher prices have so far had a limited effect on economic growth.

Analysts say the world is coping with high nominal prices because, adjusted for exchange rates and inflation, they have been until now lower than during previous price spikes and some economies have become less energy intensive.

OPEC SUPPLY RESTRAINT

The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, started to reduce oil output in late 2006 to stem a fall in prices.

Fewer OPEC barrels entering the market helped propel the rally and consumer nations led by the International Energy Agency have urged OPEC to pump more oil.

At its meetings since December, OPEC has agreed to leave output unchanged, saying there is enough crude in the market. It next meets formally on September 9.

Few in the group believe there is much it can do to tame a market it says defies logic.
 

NIGERIA

Supply of crude from Nigeria, the world's eighth-largest oil exporter, has been cut since February 2006 because of militant attacks on the country's oil industry.

Oil companies and trading sources have detailed about a million bpd of shut Nigerian production due to militant attacks and sabotage.
 

IRAN

Oil consumers are concerned about supply disruption from Iran, the world's fourth-biggest exporter, which is locked in a dispute with the West over its nuclear program.

Western governments suspect Iran is using its civilian nuclear program as a cover to develop nuclear weapons. Iran denies this, saying it wants nuclear power to make electricity.

IRAQ

Iraq is struggling to get its oil industry back on its feet after decades of wars, sanctions and underinvestment.

Exports of Kirkuk crude from the country's north are stabilizing as the system recovers from technical problems that had mostly idled the pipeline since the U.S.-led invasion of Iraq in March 2003.
 

REFINERY BOTTLENECKS

Refiners in the United States, the world's top gas guzzler, struggled with unexpected outages which have drained inventories.

    FACTBOX: Why oil prices are at a record high, R, 5.5.2008, http://www.reuters.com/article/idUSL0526637220080505?virtualBrandChannel=10005

Oil Passes $120 as Dollar Weakens

May 5, 2008
Filed at 1:04 p.m. ET
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- Oil futures surged to a new record over $120 a barrel Monday, raising concerns about higher prices for gasoline and goods and services throughout the economy. Retail gas prices fell more than a cent over the weekend, but oil's advance increased the likelihood that pump prices would resume their climb.

Supply threats that emerged overseas and a weaker dollar sent light, sweet crude for June delivery to a new trading record of $120.21 a barrel on the New York Mercantile Exchange before futures retreated slightly to trade up $3.46 at $119.78.

Oil's sharp rise this year has driven gas prices to unprecedented levels, prompting consumers to reconsider summer vacation plans and limit daily excursions; they're also spending less at malls and shopping centers because they're paying more not just for fuel, but for all kinds of goods and services.

The mix of factors that drove oil to its latest record were a microcosm of the forces that have nearly doubled oil prices from their levels of about $62 a barrel one year ago. The dollar weakened against the euro on Monday, attracting investors to commodities such as oil which they see as a hedge against inflation. Also, a falling dollar makes oil less expensive to investors overseas. A series of Fed rate cuts starting last year weakened the dollar considerably against foreign currencies; analysts blame the dollar's protracted decline for oil's sharp rise this spring.

Supply outages or threats emerged in Iraq, Nigeria and from Iran on Monday; events in all three nations have caused prices to spike many times in recent months.

On Monday, ''the (oil) market is bolstered by news out of Iraq, where Turkish forces have once again been involved in cross-border raids against ... insurgents, and Nigeria, where rebels attacked three oil wells and pipelines feeding (an) export terminal over the weekend,'' said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

Kurdish rebels warned they could launch suicide attacks against American interests to punish the U.S. for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. Oil traders worry that any conflict in the Middle East will cut oil shipments out of Iraq. Several previous incursions by Turkish forces into Iraq have caused oil prices to rise.

In Nigeria, a Royal Dutch Shell PLC spokesman said attackers hit an oil facility belonging to Shell's joint venture in southern Nigeria and that some oil production has been shut down. Years of unrest in Nigeria have cut off nearly a quarter of the major U.S. supplier's oil output.

Also pushing oil prices higher Monday were concerns about Iran after Supreme Leader Ayatollah Ali Khamenei said Sunday his country will not bend to international pressure and give up its nuclear program. Iran is the second largest producer in the Organization of Petroleum Exporting Countries.

Beyond the occasional threats to crude supplies, global demand for oil continues to grow. While demand for oil and gasoline has been soft in the U.S., the Chinese and Indian economies are growing by double digits, boosting global demand for oil.

At the pump, meanwhile, the average national price of a gallon of regular gas slipped to $3.611 a gallon on Monday, down 1.1 cents from Friday, according to AAA and the Oil Price Information Service. Prices reached a record $3.623 a gallon on Thursday.

Diesel prices also fell, slipping to a national average of $4.239 from a record $4.251 on Thursday. The runup in prices of diesel, used to power most trucks, trains and ships, is one reason why food prices are so high.

The slight relief motorists are seeing at the pump could end quickly if oil's rise continues. Analysts say gas prices could still go up another 10 cents or so. Indeed, Andy Lebow, senior vice president at MF Global Inc., thinks the gas price declines of the last four days are almost entirely due to crude oil's sharp drop last week; prices fell from $119.93 on Monday as low as $110.30 on Thursday before rebounding. Gas prices tend to follow prices in the futures market, but with some lag.

In other Nymex trading Monday, June gasoline futures rose 7.27 cents to $3.0391 a gallon, and June heating oil futures rose 9.43 cents to $3.313 a gallon. June natural gas futures rose 36.9 cents to $11.146 per 1,000 cubic feet.

------

Associated Press Writers Yahya Barzanji in Iraq, George Jahn in Vienna and Gillian Wong in Singapore contributed to this report.

    Oil Passes $120 as Dollar Weakens, NYT, 5.5.2008, http://www.nytimes.com/aponline/business/AP-Oil-Prices.html?hp

Editorial

Helping the Unemployed

May 5, 2008
The New York Times
 

Americans don’t have to wait for the statistics to know these are very hard times. For the fourth month in a row, the economy lost jobs in April. The economists said the contraction was not as bad as expected — 20,000 jobs were shed versus an anticipated loss of 75,000. Not as bad as expected is cold comfort.

The latest employment report shows other deepening problems for American workers, including slower wage growth, cutbacks in hours, a sharp increase in the number of part-timers who would prefer full-time work and lengthening spells of unemployment.

The White House response to the pain is to wait and see if things get even worse before calling for help for the unemployed. On Friday President Bush said that his administration had anticipated the slump and would combat it with tax rebates that were passed last February as part of the economic stimulus package.

There is no guarantee, however, that the rebates — which are just now being distributed — will spur the economy as hoped. Rather than spend the money, many indebted consumers are likely to use it to pay down debt, and some people, justifiably fearful of job loss, are likely to save it.

Besides, there’s no more time to wait and see. In April, the number of Americans who had been out of work for at least 27 weeks (26 weeks is when unemployment benefits run out) rose to 1.35 million workers. In the past year, 2.74 million jobless workers have exhausted their benefits.

Job loss is clearly a hit to families’ finances and, in the aggregate, to consumer spending and economic growth. Job loss coupled with the exhaustion of unemployment benefits leads not only to personal desperation, but will further damage consumer confidence, already sorely tested by the housing bust, the credit crunch and soaring prices for food and gasoline.

What is needed — now — is for Congress to extend jobless benefits for people who exhaust their initial 26 weeks of payments. Research is unequivocal that bolstered jobless benefits are more effective stimulus than tax rebates. They also have the advantage of being targeted to people in need.

The extension could be attached to the supplemental spending bill for the Iraq war, which may come before Congress as early as this week. Predictably, President Bush is balking, mainly because of his wrongheaded belief that tax cuts are the best solution to all problems.

The White House has also asserted that with the overall unemployment rate hovering around 5 percent, joblessness is not yet bad enough to warrant an extension of unemployment benefits. But in prior recessions, benefits had already been extended when long-term unemployment reached the current level. And in recent recessions, the unemployment rate didn’t peak until the recession was basically over. Waiting for the rate to rise before extending benefits is almost sure to result in offering too little help, too late — deepening the pain of the recession.

Congress erred by not extending unemployment benefits in last February’s stimulus package. Lawmakers and Mr. Bush now have a second chance to fix that mistake. They must not squander it.

Helping the Unemployed, NYT, 5.5.2008, http://www.nytimes.com/2008/05/05/opinion/05mon1.html