Service industries in the U.S. shrank at a slower pace in May, while job losses mounted, indicating that any economic recovery will be slow to develop.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, climbed less than forecast to 44 from 43.7 in April, the Tempe, Arizona-based group reported today. ADP Employer Services estimated companies cut 532,000 workers from payrolls.
“These reports throw cold water on the notion that this aircraft carrier that is the economy will turn on a dime,” said Tim Quinlan, an economist at Wachovia Corp. in Charlotte, North Carolina. “We are heading into a long, gradual recovery that will finally culminate in positive economic growth at the end of this year.”
Federal Reserve Chairman Ben S. Bernanke today projected the economy will suffer “sizable” job losses in coming months that will restrain consumer spending. Stocks retreated for the first time in five days because of concern that increases in unemployment will hobble the early stages of any expansion later this year.
The ISM index was projected to increase to 45, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from 40.5 to 47. Readings less than 50 signal contraction.
Stocks Fall
The Standard & Poor’s 500 index fell 1.4 percent to close at 931.76. Treasury securities climbed, pushing the yield on the 10-year note down to 3.54 percent at 4:23 p.m. in New York from 3.62 percent late yesterday.
Another report today showed orders placed with factories in April rose for the second time in three months, as demand for automobiles, electrical equipment and construction machinery increased. Bookings gained 0.7 percent, after a revised 1.9 percent drop in March that was more than twice the previous estimate, the Commerce Department said.
Bernanke, in testimony to lawmakers, said large U.S. budget deficits threaten financial stability and the government can’t continue to borrow indefinitely at the current rate to finance the shortfall. He projected economic growth will return “later this year,” and said unemployment will probably continue to rise into 2010. Fed officials expect growth will not be “robust” this year, he said.
Job Losses
Economists project a Labor Department report in two days will show the unemployment rate in May topped 9 percent for the first time in more than 25 years and payrolls probably fell by more than 500,000 workers, according to a Bloomberg survey.
An inability by consumers to sustain gains in spending on concern over rising unemployment is among reasons the next expansion will probably be subdued Faxless payday loans. The economy has lost 5.7 million jobs since the recession began in December 2007, the worst performance of any post-World War II downturn.
The ISM non-manufacturing industries index of employment rose to 39 from 37 the prior month, and its gauge of new orders fell to 44.4 from 47.
Measures of order backlogs and exports also fell, while inventories contracted at a slower pace.
Two of the worst-performing parts of the economy show signs of steadying. Manufacturing fell the least in eight months in May as new orders climbed for the first time since the recession began, ISM reported two days ago. At the same time, auto industry bankruptcies, including those at General Motors Corp. and Chrysler LLC, may limit any rebound in factory activity.
Housing Steadies
Homebuilding, which is included in the services index, may be past its worst declines. Construction of single-family homes advanced in April after holding near a record low the previous two months, according to figures from the Commerce Department.
The stabilization reflects steadier sales. Total home purchases have hovered around an average annual pace of 4.98 million since November.
Recent increases in borrowing costs have restrained a refinancing boom without hindering sales, a report today from the Mortgage Bankers Association showed. The group’s loan applications index fell 16 percent last week, led by a 24 percent drop in refinancing as the rate on a 30-year fixed loan climbed to the highest level since January.
Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, is among companies still cutting costs even as demand is likely to pick up. Starwood owns brands including St. Regis, Westin and Sheraton.
“There is some healthy growth coming ahead for the industry,” Chief Financial Officer Vasant Prabhu said in a June 1 conference presentation. “People are not as spooked as they were three to six months ago, where they were unwilling to act.” Still, “I think it’s too early to call a turn,” he said.
Tiffany & Co., the world’s second-largest luxury-jewelry retailer, is among merchants sensing the slump is easing. The New York-based company last week reiterated its annual profit forecast and said year-over-year sales declines are lessening.
Even before the official kickoff of the seventh annual annual "D: All Things Digital" conference, Facebook was making waves at the event: Hours after the company announced a $200 million cash infusion from Digital Sky Technologies that values the social media site at $10 billion, Digital Sky partner Alexander Tamas was making the rounds at the Four Seasons Aviara resort and talking up his latest deal.
I caught up with Tamas, along with Facebook Chief Operating Officer Sheryl Sandberg and Washington Post chairman and CEO Don Graham. Tamas’ Digital Sky is based in Moscow and London, and its recent investment in Facebook gives the investment firm a roughly 2% stake in the company.
Tamas says he believes Facebook is worth every cent of the $10 billion valuation. He says he flew to Palo Alto for his first meeting with Chief Executive Mark Zuckerberg several months ago and walked away certain Facebook would be the most important global Internet company.
"A lot of this is about Mark," he said, a grin spreading from ear to ear. "He is somebody who wants to build a real business." It’s a sentiment most of Facebook’s investors have expressed, and Graham, an unabashed Zuckerberg fan, nodded vigorously beside Tamas.
Despite the down economy, Facebook has had no shortage of interested investors. Sandberg reiterates the company wasn’t proactively searching for money - and insists Facebook doesn’t need the funds to maintain its operations. "We always were open to the right opportunities and the right partnership," she said. "And they have good experience across different types of properties."
Indeed, Tamas and his team will bring invaluable knowledge about doing business in Russia and Eastern Europe, where companies are testing different types of business models for social networks. Digital Sky Technologies has investments in several of the largest Internet companies in Russia so the partners are able to evaluate not one strategy, but several strategies in the Russian market place no credit check payday loans.
"The mistake people are making here is to say display advertising does not work in social networking," said Tamas, describing the American marketplace. "That is true, but what does work is much more intelligent ads. It’s much more like television. People have not taken advantage of what Internet as a medium can do."
And he’s not focused solely on advertising. Tamas has a good deal of experience with both virtual goods and different payment models. As Facebook builds out its business, the company must learn as much as possible about different revenue streams.
Of course, the $10 billion valuation may seem high in the current economy. But it is a good deal less than the $15 billion value attached to Microsoft’s $240 million investment for a 1.6% percent stake in the company. Sandberg points out that economic conditions were fairly different a year and a half ago and adds that that was before she arrived at the company. Also: Microsoft’s investment was in large part strategic.
But valuations are hard to arrive at. Which brings us back to Silicon Valley’s other hot social media property: Twitter. What does the Facebook crew think about it?
Sandberg is diplomatic, noting "the world is moving to real-time sharing" and saying there’s room for a number of players.
Tamas is more direct in his opinion of the emerging Twitterverse.
"It’s a very interesting company and has interesting potential - but it’s in a completely different league," Tamas said. He’d better hope he’s right about Facebook’s primacy: After all, he has more than $200 million riding on it.
About $1 billion has been recovered to pay back the defrauded customers of swindler Bernard Madoff, but settlements in the coming weeks will boost the number significantly, the trustee winding down the Madoff firm said on Thursday.
Trustee Irving Picard told reporters on a conference call that he has filed lawsuits to recover $10.1 billion in assets from Wall Street’s biggest investment fraud.
"This is too soon to project or speculate" the final amount that can be recovered from a fraud of up to $65 billion, Picard said.
He added that "over the course of the next few weeks, if we get some settlements, the number will certainly go up significantly from the $1 billion level, but I would not want to get into specific numbers cheap payday loans."
Madoff, 71, was arrested in December and he pleaded guilty in March to operating a huge Ponzi scheme, in which early investors are paid with money from new clients.
He is jailed awaiting sentencing, which was postponed Thursday to June 29 from June 16, and he is likely to spend the rest of his life in prison.
Service industries in the U.S. unexpectedly contracted in March at a faster pace as unemployment climbed and consumer confidence held near a record low.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 40.8, the lowest level of the year, from 41.6 the prior month, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.
Labor Department figures today showed the economy lost 663,000 jobs in March and unemployment jumped to the highest since 1983, a sign spending may once again falter and prevent the economy from stabilizing. Sales at service providers may stay subdued until policy steps to unclog credit gain traction.
“These are tell-tale signs that we’re not there yet” in terms of an end to the slump, Anthony Nieves, chairman of ISM’s non-manufacturing survey, said in a conference call with reporters. “It’ll take time for different things to kick in. It’s not going to happen overnight.”
Including the 663,000 cut in March payrolls, the economy has lost about 5.1 million jobs since the start of the recession in December 2007.
Increase Projected
The ISM services index was projected to increase to 42, according to the median forecast in a Bloomberg News survey of 67 economists. Estimates ranged from 38 to 45.
The ISM index of new orders industries fell to 38 free car insurance quotes.8 from 40.7 the prior month, and its gauge of employment dropped to 32.3 from 37.3.
A measure of prices paid decreased to 39.1 from 48.1, the ISM report showed.
Manufacturing, which makes up the other 12 percent of the economy, is shrinking at a slower pace. The ISM factory index rose to 36.3 in March, a third consecutive gain that brought it closer to the breakeven point of 50, figures showed on April 1.
Some segments of the service industry are steadying. Retail sales excluding cars and trucks unexpectedly gained in February, the Commerce Department said March 12, and consumer purchases increased for a second straight month.
New autos sold at an annual rate of 9.86 million units, according to sales tracker Autodata Corp. of Woodcliff Lake, New Jersey, after February’s 9.1 million pace that was the lowest since 1981.
Still, the contraction in services has led to failures at several store chains. More than a dozen retailers have filed for bankruptcy since last year, including Circuit City Stores Inc., once the second-largest consumer-electronics retailer, and house wares retailer Linens ‘n Things Inc. This week, Gottschalks Inc., a 105-year-old chain, won permission to shut its remaining department stores.
The worldwide PC industry will experience its sharpest shipment decline in history this year as the global economy continues to deteriorate, said technology research group Gartner Inc. on Monday.
PC shipments are expected to decline 11.9 percent to 257 million units in 2009. Until now, the worst decline in PC shipments was in 2001, the height of the tech-bust-fueled recession. That year, unit shipments contracted 3.2 percent, according to Gartner.
The forecast Monday was largely expected, as technology heavyweights like Dell Inc., Hewlett-Packard Co. and Microsoft Corp. had issued lackluster earnings and forecasts.
H-P, the world’s biggest PC maker, cut its 2009 profit outlook last month. It also reported a 13 percent drop in its fiscal first-quarter profit as even its lucrative printer ink business felt the recession’s squeeze.
Dell, the No. 2 PC maker, posted a 48 percent decline in its fourth-quarter earnings and also cut its 2009 guidance — though it was still in line with Wall Street’s expectations.
Gartner expects both emerging and mature markets to suffer "unprecedented" slowdowns auto loan. Slower gross domestic product growth will weaken demand and lengthen PC lifetimes as people and businesses wait longer to replace their computers.
"The impact of reduced replacements will be especially acute in mature markets, where replacements are estimated to account for around 80 percent of shipments," said George Shiffler, research director at Gartner, in a statement.
At the same time, mobile PC shipments are expected to grow, boosted by growing demand for mini-notebooks — low-cost, low-power computers.
These computers "cushion the overall PC market slowdown, but they remain too few to prevent the market’s steep decline," Gartner said. Mini-notebooks are forecast to represent just 8 percent of PC shipments in 2009.
Japan’s exports nearly halved in January from a year earlier, with record slides in shipments to the United States, Europe and the rest of Asia pointing to a deepening recession across much of the world.
Japanese car exports fell by two-thirds from a year earlier, accelerating from a 45 percent annual decline seen in December, as the value of overall exports hit a 10-year low.
“We don’t see any signs of a pick-up in the Japanese economy in the near term. The economy will gradually worsen further,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Exports to Asia, particularly to China, are tumbling at about the same pace as shipments to the United States, signaling that even China’s economy may be shrinking,” Minami said.
Many factories in China and elsewhere in Asia use Japanese components to make goods that are ultimately sold in the West.
Federal Reserve Chairman Ben Bernanke warned on Monday of a prolonged recession in the United States, one of Japan’s major markets, and President Barack Obama, while positive for the longer term, told Congress there were no quick fixes for the economy.
Asian countries rely heavily on manufactured exports and have been hit hard as the global financial crisis prompts Western consumers to curtail spending.
“In Asia, the world’s manufacturing plant, the slump in the global economy will continue to weigh on production activities and likely to lead to a further decline in exports of semiconductors,” Kyohei Morita, chief economist at Barclays Capital, said in a report small personal loans.
Japan is among the worst affected with the 45.7 percent plunge in exports in January from a year earlier, a much deeper fall than seen so far in South Korea and China.
For a graphic comparing the three countries’ exports, click: here
January figures were affected by Lunar New Year holidays that closed some key Asian export markets for several days.
Japanese exports to the rest of Asia sank 46.7 percent from a year earlier, the fourth straight month of decline, with shipments to China falling 45.1 percent, data showed on Tuesday.
The decline in Japanese exports to other emerging markets is also accelerating. Sales to Brazil fell 38 percent, more than six times the drop seen in December data.
Japan’s economy shrank last quarter at its fastest pace since the first oil crisis of the 1970s and economists said the latest figures added to concerns that the recession was worsening.
OUTLOOK BLEAK
Joe the Plumber must be pleased: President-elect Barack Obama has recently hinted he’ll delay his plan to raise taxes on individuals earning more than $250,000 a year. But what will this reprieve really mean for small business owners - should they prepare for an eventual tax hike?
That depends, say tax experts, on how your business is incorporated, and how much money it makes.
Technically, Obama’s plan is less a tax hike than the rollback of a tax cut. Between 2001 and 2003, President George W. Bush cut the top income-tax rate from 39.6% to 35%. After initially suggesting he’d restore the 39.6% top rate starting next year, Obama has more recently indicated he may wait till after 2010, when the Bush tax cuts will expire unless Congress votes to extend them.
The higher rate would affect only taxpayers in the top two brackets, which would be adjusted to include only those earning over $250,000 a year ($200,000 for single filers). For small business owners, the effects of these changes depend on how your business is organized.
Most small businesses are structured as either sole proprietorships, limited liability corporations (LLCs) or partnerships (LLPs), or under subchapter S of the IRS code (S-corps). These operate as so-called "pass-through" entities, because they don’t pay taxes themselves: Their income or losses are declared on the tax returns of their owners.
If you’re the sole owner of a business operating as an LLC, then under Obama’s plan, you’d see your income taxes rise if your household’s total income for 2009, including that of the business, exceeded $250,000.
Tax experts stress, though, that "income" here is net, not gross. If your business has sales of more than $250,000, you won’t be hit with a higher tax bill unless you’re taking home more than $250,000 in profits that you report as income on your personal taxes.
"What you pass through is your net profit - the receipts less all the expenses, labor costs, and so forth," says Eric Toder of the Tax Policy Center, a joint project of the centrist Brookings Institution and the liberal Urban Institute. A business with enough expenses to keep its profits low, then, would not see an increased tax bill.
Because of this, even the owners of many larger businesses could see their taxes remain steady under the Obama tax plan or even fall. The Tax Policy Center has estimated that of tax filers for whom more than 50% of their income comes from small-business sources, about 335,000, or 2.7%, would see their taxes rise. Toder says the center hasn’t calculated how many small business owners would benefit from various tax credits Obama has proposed.
In total, the center forecast that Obama’s proposed increases for the top two tax brackets would increase revenue by $43 billion in 2009 and $45 billion in 2010.
There are other tax changes in the works that could affect business owners’ bottom lines fast pay day loan. Social Security may face shortfalls in coming years as the Baby Boom generation hits retirement age. During his campaign, Obama floated the idea of poking holes in the income cap on taxes that support Social Security. Currently, portions of both payroll (FICA) and self-employment taxes (SECA) are capped. The 2008 cap is $102,000 a year; you don’t pay into Social Security for any income above that level.
Another potential tax-law change, meanwhile, is brewing in Congress, where Rep. Charles Rangel, chair of the powerful House Ways and Means Committee, last month told Bloomberg Television he’d move to slice the corporate income tax rate from 35% to 28%. This would have no effect on "pass through" corporations, but would present a dramatic tax savings for corporations organized under subchapter C (C-corps), which must pay corporate taxes. Obama might support such a plan: During the campaign, his economic policy director said that Obama would like to cut the corporate tax rate.
To pay for that cut, Rangel has also suggested raising the top income-tax rate to as high as 43.6%, up from 35% today, though this seems unlikely to gain the support of the Obama administration, let alone Congressional Republicans.
For business owners hit by any new taxes, meanwhile, there are limited options, say accounting experts.
"There isn’t anything they can do that will help a lot," says Kip Dellinger, a CPA and senior tax partner with Kallman and Co. in West Los Angeles. "There may be a big push among the self-employed to try to put more money into retirement plans" - using assumptions about retiring at the earliest age possible, and pessimistic projections on returns, to allow higher contributions that will enable you reduce your taxable income to below the new top bracket.
Another option would be to shift declared income to a tax year where the old, lower rates still apply, or to a year with higher offsetting expenses, to avoid the higher rate. "It’s not difficult to accelerate income for tax purposes," notes Dellinger. The IRS’s attitude, he says, is: "If you want to report and pay tax on it, we’ll be glad to take the money."
On the other hand, given that most small business owners won’t have to worry about showing more than $250,000 in profit - especially in today’s consumer climate - Toder suggests that small business owners would be better off watching debates over health insurance reform than changes to the tax code.
"That will probably have a more profound effect on small businesses than the tax rate increases," he says.
NEW YORK — Dismal auto sales last month may be one of the clearest signs yet that faltering consumer confidence and tighter credit are squeezing consumer spending.
"It went from the housing market to the car market," said Reggie Chambers III, sales manager at Anderson Automotive Group in Baltimore.
Ford Motor Co., Toyota Motor Corp., Chrysler LLC and Nissan Motor Co. all reported U.S. sales drops of more than 30 percent Wednesday; General Motors Corp. said sales were down 16 percent. The final two weeks of the month were especially grim for car dealers as stocks tumbled, Washington dickered and credit markets froze.
To be sure, the auto industry has been reeling all year, thanks to falling house prices and record gas prices, which soured buyers on the light trucks and large cars Detroit had depended on for profitability. Now, the credit crisis is making things worse, as buyers struggle to qualify for loans and automakers scale back leasing.
CarMax said Wednesday that it is laying off 600 employees as the auto retailer tries to cut costs because of a decline in car and truck sales.
Spokeswoman Trina Lee said the reductions are in its service operations departments at a majority of its 60 production superstores. The employees were responsible for reconditioning vehicles.
Lee says the Richmond, Va., company notified the affected workers Wednesday.
The stock market roller coaster has made car buyers even more nervous. Stocks had a one-day loss, on paper, of $1 trillion Monday, for the first time in history. As the market fell, some luxury vehicle buyers called Toyota dealers asking for refunds on deposits they’d made, said Don Esmond, senior vice president of auto operations for Toyota in the U.S.
The last two weeks were "tantamount, really, to a natural disaster," said George Pipas, Ford’s top sales analyst bad credit payday loans. Showroom traffic looked like it does around a large storm, or in the weeks after the Sept. 11, 2001, attacks, he said.
"There’s just scare in the air," said Kitty Van Bortel, who owns both a Ford dealership and a Subaru dealership in Rochester, N.Y. "My opinion would be that sales are down because of the unknown, and that’s always the worst.
"People really don’t want to make a large purchase not knowing what exactly is going to happen."
Ray Ciccolo, president of Village Automotive Group, which operates six dealerships in the Boston area, said one lender has asked him to guarantee more loans, meaning that if the borrower doesn’t pay a set portion of the loan, his company is on the hook for that amount. In the past, only borrowers with bad credit required a guarantee.
Chief Executive Mike Jackson of AutoNation Inc., the largest U.S. dealership group, said tougher credit requirements from banks and finance companies — and limits on money to fund leases — have cost the 250-store chain 20 percent of its sales volume so far this year.
"Our standards have tightened," said Todd Denbo, a lending product manager at Wells Fargo & Co.
"We want customers to come in, even though it’s a difficult time, and sit down with a banker and find the right solution for them. It may not be the auto loan that’s the right fit for the customer."
Customers like Dee Gordon, 40, of Dansville, N.Y., are taking their time. Gordon was shopping with her 18-year-old daughter for an $8,500 used car.
"They’re going to be there, I keep telling my daughter," she said. "Nobody’s buying as fast as you think they are anymore."
Even trade-ins of gas guzz
The U.K. economy grew at the weakest annual pace since 1992 in the second quarter as the financial crisis curbed investment, construction and industrial production.
Gross domestic product rose 1.5 percent from a year earlier, the Office for National Statistics said in London today. That exceeded the previous estimate of 1.4 percent, which was the median forecast of 29 economists in a Bloomberg News survey. On the quarter, the economy didn't expand, as initially measured.
Prime Minister Gordon Brown's government seized Bradford & Bingley Plc and helped rescue HBOS Plc this month after the crisis undermined both mortgage lenders and threatened to worsen the economic downturn. The Bank of England has still refrained from cutting interest rates to support growth after inflation accelerated to the fastest pace in at least a decade.
“It's not a very good set of figures, the economy is heading toward a recession,'' said Howard Archer, chief European economist at Global Insight Inc. in London. “We were looking for a rate cut in November, but increasingly we're leaning to next week.''
The Bank of England kept its benchmark interest rate at 5 percent for a fifth month on Sept. 4. It lowered the rate three times until April.
The Bradford & Bingley action yesterday prompted the pound's biggest one-day drop against the dollar in 16 years. The currency traded at $1.8067 today in London.
Brown's Pledge
Brown said yesterday the government will work “night and day'' to preserve the stability of the banking system. His handling of the crisis helped narrow the Conservatives' lead to 9 points from 15 points a month earlier, according to an ICM Ltd cash advance loan. poll finished Sept. 25.
The statistics office said today that services grew 0.2 percent from the first quarter, the weakest pace since 1995. Industrial production dropped 0.7 percent, revised up from the 0.8 percent estimated previously and construction fell 0.5 percent, compared with the 1.1 percent decline initially measured.
Fixed investment fell 2.8 percent, compared with a previous estimate of 5.3 percent. Business spending fell 1 percent on the quarter. Government spending rose 0.5 percent, instead of 0.4 percent in the initial measure.
The current account deficit widened to 11 billion pounds ($19.8 billion), the largest in three quarters, the statistics office said in a separate report today.
Rate Forecasts
Market turmoil has bolstered the case for the central bank to resume rate cuts as record oil and food prices stoked inflation, which reached 4.7 percent in August. Economists Michael Saunders at Citigroup Inc. and Alan Clarke at BNP Paribas on Sept. 26 pulled forward predictions for the next rate reduction to as soon as October.
David Kern, economic adviser at the British Chambers of Commerce, yesterday called for policy makers to consider a half- point reduction in the benchmark interest rate, saying “threats to the economy are mounting and we need urgent action.''
Eight of the nine-member Monetary Policy Committee voted to leave the key interest rate unchanged this month as they weighed the growth outlook against faster inflation. The bank makes its next interest-rate decision on Oct. 9.
The economy’s spring rebound turned out to be slightly less energetic than the government previously thought. And, the road ahead is likely to be rocky as the country gets pounded by the worst financial crisis in decades.
The Commerce Department reported Friday that gross domestic product, or GDP, increased at a 2.8% annual rate in the April-June period. That wasn’t as strong as the 3.3% growth estimate made a month ago.
But it did mark a pick up after two terrible quarters. The economy barely grew in the first quarter - advancing at a feeble 0.9% pace. And, in the final quarter of last year, the economy actually shrank.
Nonetheless, the lower reading for second-quarter GDP surprised economists; they were expecting the government would stick with the 3.3% growth estimate.
The main reasons behind the downgrade: consumer spending and U.S. exports didn’t grow as much during the spring as previously thought. Yet export growth was still very brisk, a key factor keeping the economy afloat. And, consumers were helped out by the government’s tax rebates.
GDP measures the value of all goods and services produced within the United States and is the best barometer of the country’s economic health.
Since the spring, the economy has lost traction.
In the past week alone, the clogging of the nation’s credit arteries had become so bad that the Bush administration proposed a $700 billion financial bailout to Congress in a desperate bid to stem the fallout.
Despite marathon negotiations between congressional leaders and the administration to hash out a deal, the package is in limbo. Angry Republicans are balking even in the face of a prime-time plea by President Bush to move swiftly.
GOP presidential nominee Sen. John McCain and his Democratic rival, Sen. Barack Obama, were summoned to the White House and have scrambled to assure the public they are on top of the nation’s economic and financial problems.
Federal Reserve Chairman Ben Bernanke earlier this week told Congress that failing to enact the bailout could drive unemployment and foreclosures even higher and push the economy into a recession.
The economy already is faltering. It will lose momentum during the second half of this year, Bernanke told lawmakers faxless cash advance. Consumers have clamped down and slowdowns overseas are sapping demand for U.S. exports, he said.
Businesses in turn are hunkering down and cutting back on hiring. The nation’s unemployment rate jumped to 6.1% in August, a five-year high. So far this year, a staggering 605,000 jobs have vanished. The economy needs to generate more than 100,000 new jobs a month for employment to remain stable.
A growing number of analysts predict the economy will shrink in the final quarter of this year and in the first quarter of 2009 as the mounting damage of the housing, credit and financial debacles take their toll on the country.
In the spring, consumers - armed with tax rebates - boosted their spending at a 1.2% pace. That was down from the 1.7% growth rate previously reported for the second quarter, but was an improvement from the 0.9% growth rate in the first three months of the year.
Exports grew at a 12.3% pace in the spring. That was down from a previous estimate of a 13.2% growth rate, but marked a big pickup from the first quarter’s 5.1% pace.
One of the country’s biggest problems - the housing collapse - was evident in the GDP report.
Builders cut back at an annual rate of 13.3% in the second quarter. Still, that was a better showing than early this year and late last year.
An inflation gauge tied to the GDP report showed prices - excluding food and energy - rose at a 2.2% pace in the second quarter.
Although that was down from a 2.3% growth rate in the first quarter, it still remained outside the Federal Reserve’s comfort zone.
The Fed in June halted its most aggressive rate-cutting campaign in decades to shore up the economy out of concern that additional rate reductions would worsen already-high inflation. The Fed last week agreed to again hold its key rate steady at 2%, despite all the turmoil in financial markets and the broader economy. Some analysts believe the problems may force the Fed to do an about face later this year and cut rates again.
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