Job Growth

NEW YORK (CNNMoney.com) -- The hemorrhaging of American jobs accelerated at a record pace at the end of 2008, bringing the year's total job losses to 2.6 million or the highest level in more than six decades.

A sobering U.S. Labor Department jobs report Friday showed the economy lost 524,000 jobs in December and 1.9 million in the year's final four months, after the credit crisis began in September.

The unemployment rate rose to 7.2% last month from 6.7% in November - its highest rate since January 1993.

The steep annual drop in jobs marked the highest yearly job-loss total since 1945, the year in which World War II ended.

"We're seeing a complete unraveling of the labor market and are on track for getting beyond 10% unemployment," said Lawrence Mishel, president of the Economic Policy Institute.

The total number of unemployed Americans rose by 632,000 to 11.1 million.

November, in which 584,000 jobs were lost, and December marked the first time in the 70-year history of the report in which the economy lost more than 500,000 jobs in consecutive months.

"We have a bigger economy now, but even on a proportional basis, the last months have been the worst since [1945]," said Kurt Karl, head of economic research at Swiss Re. "It's just an enormous acceleration of job losses."

By comparison, the 2.6 million jobs lost in 2008 nationwide were equal to the number of jobs found in states such as Wisconsin, Missouri or Maryland.

Under-employment at a record high

A growing number of workers seeking full-time jobs were able to find only part-time work. Those working part-time jobs - because they couldn't find full-time work, or their hours had been cut - jumped by 715,000 people to 8 million, the highest since such records were first kept in 1955.

The so-called under-employment rate, which counts those part-time workers as well as those without jobs who have become discouraged and stopped looking for work, rose to a record 13.5% from 12.6%. Calculations for that measure began in January 1994.

"The existing unemployment figures are greatly understated," said billionaire steel tycoon Wilbur Ross in a recent interview with CNNMoney.com. "They count as employed someone who used to have a high-paid manufacturing job, and now is working at a Wal-Mart or a Wendy's."

In another discouraging sign, the average hourly work week fell last month to 33.3 hours - the lowest level in history - from 33.5 hours. Even with a modest 5-cent gain in the average hourly salary, the average weekly paycheck fell by $2 to $611.39.

Job losses widespread

Job losses were spread across a wide variety of industries. Manufacturing lost 149,000 jobs, the leisure and hospitality industries cut 22,000 jobs, and the mining industry shed 1,000 positions.

Even in the midst of the holiday shopping season, retailers still slashed payrolls by 66,600 workers last month.

Professional and business services jobs, a category seen by some economists as a proxy for overall economic activity, dropped by 113,000. And financial services jobs fell by 14,000.

Only two of ten industry categories were hiring last month. Government hiring, which has stayed relatively strong throughout the downturn, added another 7,000 jobs in December. Education and health services also grew payrolls by 45,000 employees.

Construction employment shrank further by 101,000 jobs, and the rate of construction unemployment soared to 15.3% - by far the highest of any group.

"Today's jobs report ... is conclusive evidence that it is time to put people back to work building America," said Terry O'Sullivan, general president of the Laborers' International Union of North America. "Now it's time for Congress to move to create jobs with the same urgency as they did on the $700 billion Wall Street bailout."

Call for stimulus

President-elect Barack Obama has begun his push for a massive stimulus plan, aimed at creating or saving 3 million jobs over the next two years. Lawmakers have called for rapid action to address the extraordinary stresses facing the labor market, including spending hundreds of billions of dollars on new infrastructure projects.

"This morning, we received a stark reminder about how urgent action is needed," said Obama at a Friday press conference. "Clearly the situation is dire, it is deteriorating and demands urgent and immediate action. For the sake of our economy and our people, this is the moment to act, and act without delay."

Many economists have said job losses will continue to accelerate without government intervention.

"The country is losing half a million jobs in a month, and if the government doesn't act quickly, there's no reason that wouldn't intensify," said Mark Zandi, chief economist of Moody's Economy.com before a Democratic Steering and Policy Committee forum Wednesday.

Infrastructure experts agree, saying unemployed construction workers are eager to get back to work.

"Putting money into highways won't by itself end the recession, but it will put a lot of skilled workers back on job," said Ken Simonson, chief economist for The Associated General Contractors of America.

December's job losses were expected to be deep, as employers looked to slash payrolls to free up balance sheets for the new year. But large-scale cutbacks may continue throughout the first half of 2009, economists say, as the nation's economy continues on its slow path to recovery.

"I think this [level of job loss] is going to continue at least through March," said Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm. "The many clients I've spoken with are not expecting an economic bounce-back soon. They're making the painful and difficult decisions to adjust their capacity for the reduced demand for their goods and services."

Gilliam and Karl both expect about another 1 million jobs to be lost in January and February before the declines begin to shrink to about a 200,000 level in June. Both said stimulus will help, but they doubt infrastructure jobs will have as quick of a boost as lawmakers hope.

"Infrastructure projects won't have an effect until late in the year," said Karl. "Tax cuts may have a more immediate impact, but as we saw with the last stimulus package, they may have no economic impact at all."

In another sign that more losses will come soon, temporary employment, including workers employed by temp agencies, fell by another 80,600 jobs last month. Employers often cut temporary workers before they begin cutting permanent staff.

The economy has lost more than 2.5 million jobs in the current recession, which began in December 2007, far surpassing the previous two recessions, and just below the 2.7 million jobs lost in the 1981-1982 recession, which had the deepest unemployment in the 70-year history of the report. 


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Stimulus: And now a Senate fight

NEW YORK (CNNMoney.com) -- President Obama faces a tough week: In addition to possibly unveiling a new bank and housing bailout, the Senate will take up its version of the economic stimulus package.

And if last week is any gauge, the critical Republican votes he needs likely won't come easily.

Obama, in his second week in office, pushed the ball forward in a few key areas. On Monday, he signed clean energy directives and won Senate confirmation of his Treasury Secretary. Two days later, the House passed an $819 billion stimulus bill.

But the House legislation failed to gain a single Republican vote, despite the president's hard lobbying for bipartisan support. The final House vote on the stimulus bill was 244 to 188, with 11 Democrats voting against it.

"I hope that we can continue to strengthen this plan before it gets to my desk," Obama said after the vote. "We must move swiftly and boldly to put Americans back to work, and that is exactly what this plan begins to do."

CNNMoney.com will continue to track Obama's first 100 days in office and keep score of the government's unprecedented efforts to fix the ailing economy. (Last week's article is available here.)

100-day scorecard: Week 2

Lobbying for votes: Obama worked hard all week to gather support for Wednesday's vote. On Saturday, he dedicated his weekly address to the stimulus bill, calling for "unprecedented action" on the economic crisis.

On Monday, Obama cited the tens of thousands of job cuts that companies had just announced, arguing that a stimulus bill with the aim of creating millions of jobs is needed immediately.

"Over the last few days, we've learned that Microsoft, Intel, United Airlines, Home Depot, Sprint Nextel and Caterpillar are each cutting thousands of jobs," Obama said. "We owe it to each of them and to every single American to act with a sense of urgency and common purpose."

The president then met with House and Senate Republicans on Tuesday, pleading for GOP votes. In an attempt to put to rest a popular Republican attack point, Obama asked House Democrats to remove some of the more controversial elements of the bill, including an elimination of a waiver requirement for states to receive federal aid for family planning services.

In a last-ditch effort to gain public and lawmakers' approval, Obama on Wednesday morning met with a dozen CEOs who pledged their support for the bill.

Senate push begins: After the House vote, and with a Senate vote looming this coming week, Obama continued his push on Friday. The president cited the government GDP report that showed the economy shrunk by the most in 26 years in the fourth quarter of 2008.

But without a filibuster-proof majority, Senate Democrats will likely be unable to pass their version of the stimulus bill unless they muster at least two Republican votes. That could prove a tall task for Obama, as Senate Republicans are already voicing strong opposition to the bill.

"Republicans are using their leverage to get Senate Democrats to the negotiating table," said Dan Clifton, the head of policy research at Strategas Research Partners. "Senate Democrats are going to have to accept some Republican amendments if they want the bill to pass."

Clifton said the bill has a high probability of passing, even though Republicans will take a hard-line approach in the days leading up to the vote.

Geithner gets confirmed: The president also faced some difficulty in getting his Treasury secretary, Tim Geithner, confirmed. Obama and Senate Democrats had pushed for a quick confirmation of Geithner, citing a need for quick action on the economy.

But Geithner's failure to pay some taxes earlier this decade raised some eyebrows among Senate Republicans, leading to a drawn-out confirmation hearing and vote that eventually passed 60 to 34.

This coming week, Geithner will likely announce a new bank bailout plan. The plans are likely to include a program that would relieve banks of troubled mortgage assets, and may also feature promises for additional capital infusions or an offer to guarantee the value of some bank holdings.

Scolding Wall Street: After the New York comptroller's office reported on Thursday that bonuses in 2008 totaled $18.4 billion, Obama and Geithner lashed out against companies that continued to issue huge bonuses while receiving billions in funding from the Treasury's Troubled Asset Relief Program.

"That is the height of irresponsibility. It is shameful," Obama said Thursday.

Energy action: Obama on Monday directed the Environmental Protection Agency to review a California application to regulate greenhouse gases. He also told the U.S. Department of Transportation to begin implementing fuel efficiency standards passed in late 2007 but not implemented by the Bush administration.

Before signing the directives, Obama lobbied again for action on stimulus, citing the billions of dollars of renewable energy investment in the bill.

"No single issue is as fundamental to our future as energy," Obama said Monday. "It is time for this moment of peril to be turned into one of progress." 


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Senator: Cap pay at $400K for Wall Street 'idiots'

WASHINGTON (CNN) -- One day after President Barack Obama ripped Wall Street executives for their "shameful" decision to hand out $18 billion in bonuses in 2008, Congress may finally have had enough.

An angry U.S. senator introduced legislation Friday to cap compensation for employees of any company that accepts federal bailout money. Under the terms of a bill introduced by Sen. Claire McCaskill, D-Missouri, no employee would be allowed to make more than the president of the United States.

Obama's current annual salary is $400,000.

"We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer," an enraged McCaskill said on the floor of the Senate. "They don't get it. These people are idiots. You can't use taxpayer money to pay out $18 billion in bonuses."

McCaskill's proposed compensation limit would cover salaries, bonuses and stock options.

On Thursday, Obama said the prospect that some of the $700 billion Wall Street bailout could end up paying for bonuses to managers of struggling financial institutions was "shameful."

The president said it was the "height of irresponsibility" for executives to pay bonuses when their companies were asking for help from Washington.

"The American people understand we've got a big hole that we've got to dig ourselves out of, but they don't like the idea that people are digging a bigger hole even as they're being asked to fill it up," he added.

McCaskill's proposal comes three days after struggling banking giant Citigroup (C, Fortune 500) - which has taken about $45 billion from the government's Troubled Asset Relief Program - reversed plans to accept delivery of a new $45 million corporate jet, under Treasury Department prodding. 


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Consumer Confidence

NEW YORK (CNNMoney.com) -- A key measure of consumer confidence fell to an all-time low in December amid a dismal job market and uncertain outlook for the new year.

The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index fell to 38 in December from the downwardly revised 44.7 in November.

Economists were expecting the index to increase to 45.5, according to a Briefing.com consensus survey of economists.

"The further erosion of the Consumer Confidence Index reflects the rapid and steep deterioration of economic conditions that occurred in the fourth quarter of 2008," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.

Wachovia senior economist Mark Vitner said that assessment is "right on the money."

"It looks like the uptick in November was a knee-jerk response to the presidential election being over," he said.The "false reading in November" bumped their expectations too high, leading to disappointment this month, Vitner added.

The gloomy news came at the end of a full year of recession. The credit crunch has strained the financial system as central banks struggle to raise capital.

At the same time, housing prices have plunged and S&P 500 has plummeted more than 40%. The dollar has been weak against major currencies. This year's holiday retail season is predicted to have been the worst in decades.

Job market concerns

Perhaps most unsettling for Americans is the deteriorating job market. Layoffs and income cuts were widespread this year. The number of Americans filing for first-time unemployment benefits rose to a 26-year high for the week ended Dec. 20.

Nearly 2 million jobs were lost in 2008, and the slumped stock market means some nest eggs have shrunk considerably.

In the report, those saying jobs are "hard to get" rose to 42% from 37.1% in November, while those saying jobs are "plentiful" sank to 6.2% from 8.7%.

2009 outlook

"The overall economic outlook remains quite dismal for the first half of 2009, and only a modest recovery is expected in the second half," Franco said in the statement.

Consumers anticipating business conditions to worsen over the next six months increased to 32.8% from 28.3% in November, the report said. Respondents anticipating fewer jobs in the months ahead increased to 41% from 33.7%.

Vitner said the index may see a slight uptick in January as the new year can provide a psychological boost, but the poor employment conditions will prevent any long-term improvement.

"While the recession may bottom out in mid-2009, unfortunately we don't expect unemployment to hit bottom until early 2010," Vitner said. "I don't think we'll see the confidence index improve dramatically for quite some time."

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. 


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Continuing jobless claims set record

NEW YORK (CNNMoney.com) -- The number of jobless American workers receiving unemployment checks rose to the highest level since the government began keeping records in 1967.

A Labor Department spokesman said the number of Americans drawing jobless benefits for a week or longer rose to 4,776,000 in the week ended Jan. 17, the latest data available.

The number eclipses the prior mark set in November 1982, when 4,713,000 million Americans drew benefits.

Americans who moved to collect their first unemployment checks rose for the third consecutive week, to 588,000, according to a government report released Thursday.

The number of Americans filing for unemployment claims has surged by 61% from this time a year ago.

The Labor Department said initial filings for state jobless benefits rose by 3,000 for the week ended Jan. 24 from a downwardly revised 585,000 claims filed the prior week.

Economists polled by Briefing.com expected the reading to fall to 575,000 claims.

Ian Shepherdson, an economist at High Frequency Economics, said that initial claims data are a proxy for the trends in gross firings. Mass firings hit a seven-year high in 2008.

"The net result of this is soaring unemployment, and we see no chance of this picture changing in the foreseeable future. We expect net job losses of about three million through the first half of this year," Shepherdson said.

The four-week average of new unemployment claims, used to smooth fluctuations in data, grew by 24,250 to 542,500 from the prior week. A year ago, it was at 333,750.

Over the previous four weeks, the number of people on unemployment for one week or more increased by 66,500 to an average of 4.63 million a week, the government said. A year ago, it was at 2.70 million.

The greatest number of layoffs for the week ending Jan. 17 were in Michigan, with heavy losses from shutdowns in the automobile industry, North Carolina and Georgia.

On Wednesday, the House passed an $819 billion economic stimulus package with the goal of saving or creating up to 4 million jobs by 2010.  


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Don't forget those toxic assets

NEW YORK (Fortune) -- It is hard to ignore the reality that the banking crisis is experiencing another significant flare-up. Headlines are becoming scary again, with questions now raised about the future of institutions (see Bank of America) that had been somewhat shielded from the brunt of the initial storm that broke out last September.

At the core of the latest disturbing twist of events is the fact that banks, while in the midst of a severe recession, continue to be weighed down by an enormous amount of toxic assets on their balance sheets that policymakers somehow never got around to address.

At the onset of the financial market crisis that broke out last September, mopping up those toxic assets quickly became the Treasury's declared first line of attack to contain the banking system's rapidly deteriorating situation. They were the focus of the entire $700 billion TARP project that the Treasury and the Fed rushed through Congress at the beginning of October.

And, then, silence fell. In an abrupt turnaround, the Treasury announced in mid-November that the TARP funds would not be used to absorb the banks' toxic assets but would be redirected toward programs jump-starting consumer lending and spending.

The perplexing implication of the Treasury's change of focus was that, somehow, the continuing presence of such assets on the banking system's balance sheets was no longer viewed as a big problem and could be allowed to linger on, while other priorities were targeted.

The trouble is that the toxic assets did not melt away on their own and they contaminate the ability of banks to redress the quality of their balance sheets. Until the banks do so, they stand virtually no chance of returning to more normal lending activity.

Data released earlier in the week show that lending among 10 of the 13 biggest beneficiary banks of the TARP program contracted by an additional 1.4% in the fourth quarter. With the housing market offering little hope of stabilization over the next two to three quarters, there is no rational reason to expect the toxicity of mortgage-related assets to decrease.

The most disturbing aspect of the latest intense phase of the banking crisis is that now a number of major foreign institutions seem to have also been hit hard. The Royal Bank of Scotland has already effectively been nationalized - the British government raised its ownership stake recently to 70%, up from 58% previously. The other two major U.K. banks (Barclays and Lloyd's Banking Group) are widely feared to be next in line for a similar fate.

It is no accident that the two banking systems that are in the most precarious position among the major industrialized countries, the ones in the U.S. and the U.K., have something very distinctive in common: loads of toxic assets, spun out by the collapse of the respective housing markets.

Other Eurozone countries, as well as Australia, have obviously experienced problems with their banking systems in the midst of what is undoubtedly a global crisis, but none of them is remotely close to those of the endemic kind seen in the U.S. and the U.K.

A quick look at a recent research piece by JP Morgan, based on data from Bloomberg, reveals a frightening reality: On Jan. 20, 2009, the market capitalization of Citigroup (C, Fortune 500) was $19 billion, vs. $255 billion in the second quarter of 2007, while that of Barclays (BCS) was $7.4 billion, vs. $95 billion two years ago.

Similar comparisons for JP Morgan (JPM, Fortune 500), $85 billion now vs. $165 billion then, RBS (RBS) at $4.6 billion now vs. $120 billion then, Goldman Sachs (GS, Fortune 500) at $35 billion vs. $100 billion, Morgan Stanley (MS, Fortune 500) $16 billion vs. $49 billion, and UBS (UBS) at $35 billion vs. $116 billion. (While the numbers for the British banks may have been skewed somewhat adversely by the weakening of the pound during that period, the key message of those comparisons is hard to miss).

No plan to address the serious bind the banking system is in can succeed unless it deals directly with the problem of the toxic assets. In the U.K., the concept of nationalizing the banks is not viewed as a dirty word, as it as in the U.S.

Given the considerable experience of many European countries with nationalized industries at various points in recent decades, the government ultimately taking direct control of banks is one of the key options on the table.

In the U.S., though, the idea of nationalization runs contrary to the axiom of "free markets know best," which is fallacious yet still at the core of this country's cultural foundation. So the options for the U.S. are more limited.

Essentially, the solution regarding the banking system's toxic assets will need to include the original concept of a bad bank - or some close approximation of it - that will absorb the bulk of such assets and help gradually restore balance sheets to a semblance of soundness.

The new administration's economic team has already signaled that it is seriously exploring that solution, while having restated at the same time the near-sacred objective of keeping banks private.

While actual nationalization of the banks remains a no-go area of possible outcomes, a quiet, technical nationalization of a number of institutions cannot be ruled out if things continue to deteriorate. After all, another label for the same action is always easy to invent.

One thing, though, remains certain: Any solution to the banking crisis will need to go back to the basics and deal with the issue of the toxic assets. The problem is much too stubborn and pervasive to be ignored, and time is running out.

Anthony Karydakis is a former chief U.S. economist for JP Morgan Asset Management and currently an adjunct professor at New York University's Stern School of Business.  


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Employers cut 14,100 more jobs

NEW YORK (CNNMoney.com) -- The job market took another savage beating Wednesday after several companies announced cost cutting plans that involved thousands of job cuts.

Aircraft maker and defense contractor Boeing Co. was one of the largest casualties of the day, saying it would cut an additional 5,500 jobs this year, bringing its total cuts to 10,000 as the company struggles with dwindling demand for new aircraft.

Earlier this month, Boeing (BA, Fortune 500) announced plans to shed 4,500 jobs in its Commercial Airplanes division. But the additional job cuts will be across various other parts of the company.

Coffee chain Starbucks Corp. (SBUX, Fortune 500) also said it would be cutting up to 6,700 jobs, mostly due to store closings and a slower rate of store openings.

Meanwhile insurance giant Allstate Corp. (ALL, Fortune 500) said it would be cutting 1,000 jobs over the next two years, Internet company AOL, a division of CNNMoney.com parent Time Warner, intends to cut 700 jobs, according to an internal memo, and health care company Abbott Laboratories said it would be cutting 200 positions.

Electronics parts maker Jabil Circuit (JBL, Fortune 500) announced plans to eliminate 3,000 jobs on a global basis, and Japanese automaker Nissan (NSANY) said it would be cutting 110 U.S. jobs as it closes four regional offices.

Computer maker Dell Inc. (DELL, Fortune 500) also said it would be reducing the size of its workforce, but did not specify by how much.

Wednesday's announcements bring the total number of job cuts this week to more than 100,000. On Monday alone, seven companies from a broad range of industries announced a total of 71,400 job cuts.

The news comes on the same day the Labor Department reported that the total number of mass layoffs in 2008 was the highest level since 2001.

The government defines mass layoffs as those that involve "at least 50 persons from a single employer."  


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At Davos, blaming unregulated markets

DAVOS, Switzerland (Fortune) -- This year's World Economic Forum meeting at Davos is supposed to discuss how to lift the world out of its economic and financial crisis, but not everyone is satisfied just talking about the problems. Aditya Mittal, for one, is trying to take matters into his own hands.

Mittal is CFO of the world's largest steelmaker, ArcelorMittal, which has taken a brutal beating over the past few months as worldwide demand for steel has crashed. He won't talk in detail about how the company is doing ahead of the publication of its earnings next month, but he acknowledges taking aim at something that both he and some other Davos participants consider to be one of the aggravating factors of the current crisis: the unregulated market for credit default swaps, a type of speculative insurance.

Mittal thinks that the credit default swap (CDS) market has massively mispriced the risks confronting ArcelorMittal (MT), and that the company is in far better shape than that pricing would suggest. So, he tells Fortune, he has been trying to short ArcelorMittal CDS's, in the hope of making a substantial profit when other market participants realize the true picture. His problem, however, is that he can't find any bank that will let him sell the CDS's short. Mittal won't say how big a bet he wanted to place, although it's in the "three figure millions" of dollars.

It's an extreme example, but Mittal isn't the only one who thinks the market for CDS's is completely awry. A substantial part of the discussion at Davos on the first day has focused on what has gone wrong -- and the two main culprits most often identified are the arcane mathematical models that were overly trusted by banks, and runaway derivatives and other unregulated markets, including those for CDS's. 


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Mortgage applications plunge

NEW YORK (Reuters) -- Applications for U.S. home mortgages cratered to levels not seen since November last week as rates held stubbornly above record lows engineered by the Federal Reserve earlier this month, according to data from an industry group on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity plunged by 38.8% to 732.1 in the week ended Jan. 23.

Fixed 30-year mortgage rates averaged 5.22% in the week, down from 5.24% the previous week and 4.89% in early January, the MBA said.

Rising U.S. government borrowing to pay for financial bailouts and expected stimulus to stave off recession have begun to increase Treasury yields, offsetting Fed efforts to drive mortgage rates lower, analysts said. Benchmark 10-year Treasury yields, which help govern mortgage rates, have climbed nearly a half-percentage point since late December to 2.53%.

The Fed's plans to lower home borrowing rates this year with purchases of up to $600 billion in mortgage-related securities had resulted in a spike in applications, mostly for homeowners seeking to refinance loans. Lower rates boosted affordability on homes, whose prices nationally have fallen more than 25%, to 2004 levels, according to Standard & Poor's/Case-Shiller indexes.

The National Association of Realtors on Monday said existing home sales rose 6.5% in December after prices dropped 15.3% from a year earlier. That report suggested sales have bottomed, according to Moody's Economy.com.

But skeptics assert that tight lending conditions and lower-than-expected appraisals will limit loan approvals. Higher rates would also cut savings via refinancings, a source of cash that could be recycled into the economy.

The MBA's seasonally adjusted index of refinancing applications plummeted 48% to 3,373.9 last week. The gauge of loan requests for home purchases declined 2.9% to 294.3. 


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More than 10,000 new job cuts

NEW YORK (CNNMoney.com) -- The job market continued to take a beating Tuesday, as six companies across several industries announced more than 11,500 job cuts Tuesday.

The huge number of job cuts pales only in comparison to Monday's statistics: seven companies issued job cut announcements totaling more than 71,400 layoffs.

In January alone, companies have announced more 211,500 job cuts.

High-tech glass and ceramics maker Corning Inc. (GLW, Fortune 500) announced it will cut 3,500 jobs, or 13% of the company's workforce, by the end of 2009. The company said its restructuring efforts will save the company between $150 million and $200 million a year.

At the close of trading Tuesday, Corning shares remained flat at $9.99.

Meanwhile, oil field services company Baker Hughes (BHI, Fortune 500) announced it will cut 1,500 employees worldwide. That's about 4% of its work force, and 850 of the cuts will be from the company's North American work force.

A Baker Hughes spokesman said the cuts are necessary because of the poor economy and credit crisis - plus, productivity from drilling rigs has fallen 25% since September's peak. The recent pullback in oil and gas demand in North America has hit the company hard, as the continent accounts for about 42% of revenue.

Baker Hughes is scheduled to report fourth-quarter and full-year 2008 earnings on Wednesday. The company's stock remained flat, closing at $32.77.

And Navistar International Corp. (NAV) said it will close its Indianapolis engine plant and Indianapolis Casting Corporation factory at the end of July. About 700 employees will lose their jobs as a result, a Navistar spokesperson said.

Meanwhile, specialty chemicals and office products company Avery Dennison (AVY, Fortune 500) announced it will cut approximately 3,600 employees worldwide over the next two years "in response to challenging economic conditions." Details were unclear, as the plan is still in development. Navistar's stock closed up 4.56%, to $28.66.

Volvo Trucks North America announced permanent layoffs of 650 hourly employees in March and April at its plant in Dublin, Va. A spokesman said declining demand caused the 40% workforce reduction at the plant.

The company laid off about 1,000 workers at the plant last May, and it had planned weeklong shutdowns during the first three months of 2009 in an effort to avoid additional job cuts.

Forest product company Weyerhaeuser (WY, Fortune 500) announced it will close two mills in Washington and cut approximately 220 jobs "due to weak market conditions." The company said 25 salaried positions and 196 hourly positions will be cut. Weyerhaeuser's shares closed at $28.71, up 2.32%

Target (TGT, Fortune 500), the second-largest U.S. discounter after Wal-Mart (WMT, Fortune 500), announced 1,500 job cuts. The Work force reduction affects 9% of employees at its headquarters, including the elimination of about 600 employees and 400 open positions, primarily in the Twin Cities area. The majority of those changes are effective today.

Target also announced it will close its Little Rock, Ark., distribution center, which currently employs 500 people, later this year. Target shares remained flat, at $33.34. 


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Retail Sales

NEW YORK (CNNMoney.com) -- Retail sales fell for the sixth straight month in December, the longest consecutive stretch of monthly declines in the measure in at least four decades.

"Consumers aren't spending and that's not good for the economy," said Scott Hoyt, senior director of consumer economics with Moody's Economy.com.

In another sign of distress for the industry, the National Retail Federation reported Wednesday that 2008 holiday sales for the combined November-December months fell 2.8%.

This was the first-ever decline in the period since the trade group first started to track holiday sales in 1995.

Combined November-December sales can account for as much 50% of their annual merchants' profit and sales, making the months crucial.

The NRF had forecast a 2.2% sales gain for the year-end months, which would have been the weakest pace of increase in at least six years.

Retail sales reflect the state of consumer spending which in turn fuels two-thirds of the nation's economy.

To that end, the Commerce Department said Wednesday that retail sales tumbled 2.7% last month, compared with a revised 2.1% drop in November. November sales were originally reported to have fallen 1.8%.

Economists surveyed by Briefing.com on average had forecast a decrease of 1.2% for December.

Sales excluding autos and auto parts also fell a much worse-than-expected 3.1% in December, compared to a revised 2.5% decline in November. Sales minus auto purchases were originally reported to have declined 1.6% in November.

Economists had forecast a decrease of 1.3% in the measure, according to Briefing.com.

"We've never had this long stretch of declines," said Michael Niemira, chief economist with the International Council of Shopping Centers (ICSC), who has analyzed the government's monthly retail sales numbers going as far back as 1967.

"This current situation is a reflection of a tough, tough environment," he said. "Consumers are buying only essential items. Credit restraints have really impacted sales of big ticket purchases."

"Moving forward, the question is whether this is the low point and could we get some moderation in retail sales in 2009," Niemira said. "We haven't seen a lot of convincing data to that effect."

A steep 15.9% slump in gasoline station sales, which resulted from a plunge in prices at the pump, contributed to much of the weakness in core retail sales.

"The headlines are breathtaking, but they do overdo the gloom," Ian Shepherdson, chief U.S. economist with High Frequency Economics, said in a report Wednesday.

"Of the $9.4B drop in sales between November and December, just over half was due to the plunge in gas prices, which pushed gas sales down by $4.9B, or 15.9%, rather more than we expected," Shepherdson wrote. "Still, core sales were very weak."

Clothing purchases fell 2.5%, department store sales slumped 2.3%, sales in electronics stores fell 1%, general merchandise stores suffered a 1.3% sales decline, and sales of furniture and home furnishings fell 1.8% in the month.

Food and beverage sales dropped 1.4% while grocery stores logged a 1.3% sales drop in December.

"There's no a lot of impetus out there to turn this situation around," Hoyt said. "We're seeing huge job cuts, negative wealth effect, bonuses will be less than usual, credit has dried up and [consumer] confidence is exceptionally low."

"The key thing is correcting the jobs situation. As long as we're shedding jobs at a rapid rate, it doesn't matter what else you do," Hoyt added, referring to the NRF's push for states to offer periodic national sales tax holidays in 2009 as an incentive to get consumers to spend money in stores.

"These tax cuts have to be part of a broader solution to turn this downward cycle around," he said. 


Inflation (CPI)
Manufacturing (ISM)
U.S. home sales rise in December

Layoffs aren't the answer

NEW YORK (CNNMoney.com) -- Another day, another job cut announcement by a major company.

Corning (GLW, Fortune 500) joined the pink-slip parade Tuesday, saying that it would cut 3,500 jobs. The news follows a brutal Monday, where companies such as Home Depot (HD, Fortune 500), Caterpilliar (CAT, Fortune 500), Sprint Nextel (S, Fortune 500) and Pfizer (PFE, Fortune 500) combined to announce more than 70,000 job cuts.

The reason that companies are rushing to reduce their headcount is obvious. Businesses are faced with sagging demand for their products and services in the wake of this global recession.

That's causing sales, earnings and stock prices to dip. So one way to try and preserve profits is to lower costs - and payroll is usually one of the first places a company looks at to slash expenses.

Talkback: Are companies cutting too many jobs?

But are companies going overboard? So far this month, CNNMoney.com has tracked more than 50 major companies that have cut a total of over 210,000 jobs.

Are mass layoffs really the best way to try and cope with this deepening downturn?

I think some companies are taking the easy way out. Layoffs are a short-sighted fix - a way for panicky CEOs to justify their big salaries and bonuses (they're making the tough decisions about how many people to get rid of, after all!) and to satisfy investors clamoring for higher profit margins.

However, adding to the rising number of people looking for work could actually do more harm than good. It's not as if people being laid off will be easily able to find a new job right now.

That means consumers are likely to spend even less. There could be an increase in foreclosures and credit card delinquencies, which will further hurt consumers. All that adds up to continued weak demand...and more problems for the companies trying to cut their way back to health.

David Resler, chief economist with Nomura Securities International Inc. in New York said he thinks that many companies are making the right call to downsize given the "inadequate demand" they face. But he concedes that mass layoffs are only going to prolong the recession.

"The growing number of layoffs will make the downturn worse. It's a bit of a self-fulfilling prophecy right now and it's not likely to end real soon," he said.

Unintended consequences

There are other many problems that come about as a result of big job cuts that companies may be overlooking in their rush to cut costs. For one, layoffs actually can be expensive in the short-term even though they may lead to longer-term cost savings.

Corning said Tuesday it would incur a charge of between $115 million and $165 million in the first quarter. Sprint, which announced 8,000 job cuts Monday, said it will recognize a charge of at least $300 million in the first quarter related to severance costs.

And Caterpillar, which announced 20,000 job cuts Monday, said it would take a $500 million charge this year due to "redundancy costs," with most of that coming in the first quarter.

Then there's the issue of productivity. Senior executives that make the job-cut decisions might like to think that fear is a great motivator and that after a major layoff, the remaining workers will work harder in order to prove their worth and avoid the next swing of the ax. But how often does that happen?

I've worked at publications that have had to lay off lots of people. And every time it's happened, morale dips...and so does productivity. Simply put, it's counterproductive. No one wins when people spend more time worrying about whether or not they're going to be the next to go than they do actually working. And if a company is not productive, customers will eventually notice.

"There are instances where you see staffing get cut to levels where consumer satisfaction deteriorates and you could start losing business," said Robert Korajczyk, professor of finance at the Kellogg School of Management at Northwestern University.

Finally, if businesses keep reducing staff and try and do more with less, they risk not being able to quickly benefit from when there is an eventual economic recovery - whenever that may be.

If companies cut too deeply, it will be that much tougher to meet demand once it actually bounces back.

"Every recession gives way to the next expansion, despite the myopia that grips markets. Companies have to be in a position to respond. They have to balance between what's good for the here and now and managing strategically for the future," said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida in Orlando.

So instead of resorting to large job cuts, companies might be better off trying to maintain the loyalty of existing employees.

Robert Maguire, the head of human capital services at CBIZ (CBIZ), a professional services company focusing on benefits, payroll and human resources, said that hiring freezes as well as salary cuts for some of the highest-paid executives, often can be better ways for companies to manage through a downturn.

Of course, some companies probably hired too many people during the last economic boom, and they are now trying to make amends for that.

But slashing their payrolls when the economy is arguably at its weakest point during this recession is not the best way to set themselves up for better times ahead.

"Companies don't know how long this downturn is going to last. So it's rational to start cutting jobs. But certainly, sooner or later there is the risk of eliminating too much and taking away what you need for your business to remain viable," said Oscar Gonzalez, an economist with John Hancock Financial Services in Boston.  


As Tennessee job losses soar, Bridgestone plans cuts
More than 10,000 new job cuts

The market's illogical rally

NEW YORK (CNNMoney.com) -- It should have been an ugly morning for the markets.

Home Depot (HD, Fortune 500), Caterpillar (CAT, Fortune 500), Sprint Nextel (S, Fortune 500), John Deere (DE, Fortune 500) and ING (ING) all announced sizable job cuts. This is further proof that this recession is hitting all sectors of the economy and all areas of the globe. It is not good news.

But stocks didn't plunge Monday morning despite all this doom and gloom. In fact, the Dow gained more than 100 points in early trading while the S&P 500 and Nasdaq both shot up about 2%. Say wha? (Stocks pulled back from those highs and were briefly trading lower Monday afternoon. But they recovered and were still up modestly heading into the close.)

The layoff news may have been tempered somewhat by Monday morning's announcement that Pfizer (PFE, Fortune 500) was buying rival drugmaker Wyeth (WYE, Fortune 500) for about $68 billion.

The merger is the biggest in nearly three years and could usher in a wave of consolidation in the healthcare sector. It may also signal cash-rich companies in other industries to take advantage of fallen stock prices and make some purchases of their own.

Talkback: Are more job cuts and other bad economic news already priced into stocks?

"Even with all the negative news on the unemployment front, the Pfizer deal shows that companies are signaling there is some value in the market here," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, an investment research firm based in Shrewsbury, N.J.

Bank stocks, which have been hit hard so far this year due to fears of rising losses and nationalization speculation, also skyrocketed higher early Monday morning.

It appears that investors may have been reassured by the news from beleaguered British bank Barclays (BCS), which said Monday morning that it posted a profit in 2008 despite massive writedowns and that it would not need new capital.

Shares of Barclays U.S.-listed stock surged nearly 60% and several large beaten down U.S. banks, such as Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and Wells Fargo (WFC, Fortune 500), all rallied as well Monday morning (Those three stocks dipped from their early morning highs as the day wore on though.)

Finally, two bits of economic data were released Monday morning - and each was better than expected. The Conference Board's leading indicators rose 0.3% compared to the 0.2% drop economists were forecasting. Even more surprisingly, existing home sales rose 6.5% in December.

So even though the slew of job cut announcements paint a picture of an economy that's still ailing, there were at least some faint signs of hope on the horizon.

And after months of reading nothing but negative headlines, one market strategist suggested that investors may be nearing a point where even the slightest bit of good news could spark a rally.

"We have almost become immune or desensitized to the bad economic news out there. It has been a long time that the market has had even a decent bit of good news," said John Norris, managing director of wealth management with Oakworth Capital Bank in Birmingham, Ala.

Still, it's premature to say that Monday's morning rally is an indication that all the bad news is already priced into the market. There have been plenty of head-fake rallies in the past few months.

"This is indicative of a bear market rally. They are illogical," said Phil Dow, director of equity strategy RBC Capital Markets in Minneapolis. "There is not enough good news for a sustainable run in the long-term. It's a temporary patch of blue."

Dow added Barclay's encouraging news should not be interpreted as the end of the financial sector's woes.

"Do we really think we are out of the woods with bank problems? I don't," he said.

So don't read too much into Monday's move. While it's nice to see the markets up despite a lot of bad news, investors still have much to be concerned about regarding the health of the economy.

Along those lines, Roberts said that what happens in Washington, D.C., over the next few weeks - not more mergers or layoff news - will be the biggest factor influencing the market in the short-term.

"The big question mark is the Obama administration. Right now, everybody is waiting to see what exactly the stimulus package will look like and what will happen to it in Congress. So the market could be bottoming until we get more news about that," he said.  


Obama: Recovery to be multi-pronged
As Tennessee job losses soar, Bridgestone plans cuts
As economy falls, more people put money away in savings

Industrial Production

WASHINGTON (Reuters) -- U.S. industrial production dropped by a bigger-than-expected 2% in December, Federal Reserve data showed Friday, capping a dismal year for manufacturing as the recession took hold.

Economists polled by Reuters had expected a 1% decline in December after a revised 1.3% drop in November, initially reported as a 0.6% dip.

For the fourth quarter as a whole, total industrial production fell at an 11.5% annual rate.

Compared with December 2007, industrial production was down 7.8%, the biggest drop since September 1975.

The Federal Reserve said output declines were "widespread." Among major market groups, only business equipment increased in December, and that was largely because of a surge in commercial aircraft production following a labor strike.

Capacity utilization fell to 73.6% , which was 7.4 percentage points below its average level from 1972 to 2007. 


Manufacturing (ISM)
As Tennessee job losses soar, Bridgestone plans cuts
As economy falls, more people put money away in savings

Manufacturing (ISM)

NEW YORK (CNNMoney.com) -- A key index of the nation's manufacturing activity fell to a 28-year low in December, according to a report released Friday.

The Institute for Supply Management, a purchasing management group based in Tempe, Ariz., said its manufacturing index was 32.4 for December. That's the lowest reading since June 1980, when it stood at 30.3.

An index of 35.4 was expected for December, according to a consensus of economist opinions provided by Briefing.com. That's down from November, when the index was 36.2.

"Manufacturing activity continued to decline at a rapid rate during the month of December," said Norbert Ore, chair of the ISM's Manufacturing Business Survey Committee, in a press release. "The decline covers the full breadth of manufacturing industries, as none of the industries in the sector report growth at this time."

Manufacturing activity failed to grow for the fifth consecutive month, according to the ISM, while the overall economy contracted for the third month running.

An index reading above 50 indicates growth, while a reading below 50 indicates a slowdown. A reading below 41 is typically associated with recession in the broader economy.

The ISM report is a national survey of purchasing managers in the manufacturing sector. The monthly survey tracks new orders, production, employment, deliveries, inventories and other aspects of the sector.

New orders have experienced the lengthiest contraction thus far - 13 months - and plunged to 22.7 in December from 27.9 the prior month. Ore said this is the lowest figure since January 1948.

Production fell to 25.5 from 31.5, in its fourth month of declines. Employment fell to 29.9 from 34.2, in its fifth month of declines. 


Inflation (CPI)
As economy falls, more people put money away in savings
As Tennessee job losses soar, Bridgestone plans cuts
Industrial Production

Obama address: 'unprecedented action' needed

WASHINGTON (CNN) -- President Barack Obama painted a bleak economic picture of the country Saturday, hours before he will meet with his economic team.

"We begin this year and this administration in the midst of an unprecedented crisis that calls for unprecedented action," he said in his weekly radio and Internet address.

"Just this week, we saw more people file for unemployment than at any time in the last 26 years, and experts agree that if nothing is done, the unemployment rate could reach double digits," Obama said.

The president pleaded for urgent action, saying, "if we do not act boldly and swiftly, a bad situation could become dramatically worse."

Obama's remarks came as he is lobbying for a quick congressional passage of a $825 billion dollar stimulus package to pump up the economy.

The president revealed more details on his stimulus package, which he says would add more than 3,000 miles of electric lines to transport alternative energy across the country.

Obama also says the plan would save taxpayers $2 billion by making three-quarters of federal buildings more energy efficient, and would "save the average working family $350 on their energy bills by weatherizing 2.5 million homes."

Obama also reiterated his call to invest more in Pell Grants to make college more affordable. His American Reinvestment and Recovery Plan would temporarily increase the maximum Pell Grant by $500, which his advisers estimate will increase college affordability for 7 million students. His plan also calls for a new $2,500 college tax credit that his advisers say could help close to 4 million college students; and the tripling of the number of fellowships in science to help spur innovation."

Some Republicans in Congress are pushing back against the plan, questioning whether it will stimulate the economy. They also say the overall price tag is too expensive and want to see more in tax cuts for individuals and businesses and less in government spending.

There was some indication this week that despite the push to stimulate the economy quickly, the proposed tax cuts wouldn't reach consumers before June. (Full story)

Republicans have also said that stimulus money dedicated primarily to infrastructure initiatives would be spent too slowly - a claim based on an analysis by the Congressional Budget Office. To counter that objection, Peter Orszag, director of the White House Office of Management and Budget, told lawmakers in a letter that 75% of money for the entire recovery package would be spent within 18 months.

The president is calling for the plan, which he said will create or save up to four million jobs over the next two years, to be passed by Congress and at his desk for signing by Feb. 16, which is Presidents Day. 


As economy falls, more people put money away in savings
Good product at right price is no longer enough
Obama: Recovery to be multi-pronged

Tax cut plans: Sizing them up

NEW YORK (CNNMoney.com) -- The Democratic leadership of the Senate Finance Committee on Friday released a $275 billion proposal of tax cuts aimed at reviving the economy.

The Senate Finance legislation, which will be debated and amended by the committee on Jan. 27, will be part of the Senate Democrats' overall economic recovery package.

The Senate tax plan shares many elements of a bill approved by the House Ways and Means committee earlier this week. But there are differences.

Make Work Pay credit: Both bills provide for a Make Work Pay credit worth $500 per worker ($1,000 per joint filers). The income limits to receive the full credit are the same in both bills ($75,000 or less for individuals, or $150,000 or less for couples filing jointly), but the two bills phase out the credit at different rates.

Under the House bill, those who make more than $75,000 but less than $100,000 (or $200,000 for couples) would get a partial credit. But under the Senate proposal, only those making less than $87,500 ($175,000 for joint filers) would be eligible for a partial credit.

This Senate provision would cost the Treasury $3 billion less over 10 years than the House bill.

Child tax credit: Both bills also allow a temporary increase in the amount of the child tax credit that would be refundable, but the Senate's increase is smaller, costing $8 billion less than the House version.

Help for the unemployed: Both bills call for the government to subsidize health care coverage for workers who lose a job.

In a departure from the House bill, the Senate Finance proposal also includes a $4.7 billion measure that would temporarily suspend the taxation of unemployment benefits.

Business loss tax break: Both the House and Senate bills broaden businesses' ability to write off their losses by expanding the so-called net-operating loss carryback provision.

But the Senate's expansion is larger, costing $2 billion more than the House's version.

Energy tax break: The Senate proposal includes an $11 billion measure to make it easier for businesses to claim valuable tax credits for investing in energy. The House bill does not include this proposal.

It would extend the number of years companies may apply an energy credit to their prior years' income, and it would allow them to apply the credit to 100% of their income, up from 25% currently, said Clint Stretch, Deloitte's managing principal of tax policy. The provision would be in effect for tax years 2008 and 2009.

When a company isn't making a lot of money, taking a income-based tax credit becomes much less valuable to them than taking it in years when they make a lot of money. The Senate provision will provide incentives for those companies to make energy investments this year, even if their income statement is dismal, because they know they can get cash back from the government because the credit can be used against income from prior years.

"It's a big pump of money [to companies] right away," Stretch said.

Negotiations on tap

The Senate Finance bill released Friday is far from the end in the Democrats' quest to have legislation ready for President Obama's signature by mid-February.

The Senate Appropriations Committee late Friday put forth its $365 billion piece of the economic recovery package.

Next week, the Finance Committee may make changes to the proposal before sending it to the Senate floor for a vote. Ranking Member Charles Grassley, R-Iowa, put out a statement Friday noting that he will push hard for revisions.

"The more that the provisions of the bill stimulate activity in the private sector and the less that they run up the deficit with slap-dash government spending and a big entitlement expansion, the better," Grassley said. "Job creation has to be the top goal, along with other help for families who are hurting, and I'll be supporting amendments to move this massive bill in that direction."

Republicans presented Obama with their alternate stimulus package on Friday, which is much more heavily weighted toward tax cuts than spending.

The next stage after the House and Senate vote on their respective bills the two chambers will need to reconcile the differences between their proposals. 


Obama: Recovery to be multi-pronged
As economy falls, more people put money away in savings
Obama address: ‘unprecedented action’ needed

Global outlook to be slashed - again

ABU DHABI (Reuters) - -- The International Monetary Fund (IMF) will cut its 2009 global growth forecast again, this time to between 1% and 1.5%, as economic conditions deteriorate further, an IMF official said on Sunday.

The IMF's latest forecast, made in November, was for growth of 2.2%.

"It will be revised to 1 to 1.5% in 2009, which is huge," Axel Bertuch-Samuels, deputy director of IMF's monetary and capital markets department, told Reuters on the sidelines of a conference in the United Arab Emirates.

"Global economic prospects have deteriorated in recent months, consumer and business confidence have dropped to levels that we have not seen in decades and activity too has dropped sharply," he said.

The 2009 year will be enormously challenging for the world's economy, he said.

In November, the IMF cut projections sharply for world growth in 2009 to 2.2%, down 0.8 percentage points from an October forecast, noting industrialised economies were headed for the first full-year contraction since World War Two.

An official release of updated IMF economic forecasts is expected on Wednesday, he said, and even forecasts for emerging markets like China and India will see downward revisions. 


Obama address: ‘unprecedented action’ needed
As economy falls, more people put money away in savings
Obama: Recovery to be multi-pronged

Inflation (CPI)

NEW YORK (CNNMoney.com) -- Consumer prices fell in December for the third straight month, with plunging energy costs contributing to the drop, the government said Friday.

The Consumer Price Index, a measure of inflation, declined a seasonally adjusted 0.7% from the prior month, the Labor Department said.

The CPI edged up 0.1% for the full year of 2008, the slightest annual increase since 1954.

The core CPI, without volatile food and energy prices, was unchanged from the prior month, the government said.

Economists had expected a CPI decline of 1% for December, and a decline of 0.1% for core CPI, according to a consensus of expectations provided by Briefing.com.

The decline was narrower than the CPI's record plunge of 1.7% in November, which exceeded all other monthly declines since the government began tracking them in 1947. The core CPI was unchanged in November.

The December decline was driven by plunging energy prices, which fell 8.3%, the government said. Transportation costs also fell by 4.4%. The cost of food, beverages and housing was unchanged. 


As economy falls, more people put money away in savings
Gas prices on the rise
Good product at right price is no longer enough

Obama: Recovery to be multi-pronged

NEW YORK (CNNMoney.com) -- President Barack Obama offered more detail on his plan to restore economic growth Friday, saying the economic stimulus program being debated in Congress is just one of at least three parts to his recovery plan.

In a meeting to discuss the stimulus proposal with Vice President Joe Biden and Democratic and Republican congressional leadership, Obama said America also needs an improved financial system stability program as well as financial market regulation reform.

"The recovery package that we're passing is only going to be one leg in, at least, a three-legged stool," said Obama. "We are also starting to put in place the kinds of reform elements - oversight, transparency, accountability - that's going to be required in order for the American people to have confidence in what we're doing."

The president cited a Government Accountability Office report released Thursday that said the government's regulation of the financial markets had "major weaknesses" that can lead to wasteful government spending.

He also said financial institutions that get bailout funds from the government must manage those funds appropriately.

Obama made an apparent allusion to reports that former Merrill Lynch CEO John Thain spent over $1 million renovating his office after he was hired as an executive at Bank of America (BAC, Fortune 500), to which he sold Merrill late last year.

He cited reports about companies "going out and renovating bathrooms or offices" and "the lack of accountability and transparency in how we are managing some of these programs to stabilize the financial system."

As for the first leg of the stool - the economic stimulus package - the president said he stressed swift and aggressive movement to pass the bill. Though he said the plan appears to be on the path towards reaching his desk on Presidents Day, much more maneuvering to reach a bipartisan agreement on the expensive and sweeping recovery plan appears likely.

The president has received some pushback from both sides of the aisle on his stimulus plan, as he tries to sell a plan that includes tax cuts and massive spending efforts.

After Friday's meeting, House Minority Leader John Boehner, R-Ohio, said he was concerned about the size of the bill, arguing that less spending and more tax cuts were needed to have a real and fast impact on the economy.

"At this point we believe spending nearly $1 trillion is really more than we ought to be putting on the backs of our kids and their kids," Boehner said. "[With tax cuts], the American people can invest it, spend it or save it, all of which are good for the economy."

House Speaker Nancy Pelosi, D-Calif., countered that the cost of the stimulus plan is less important than the quality of the recovery it creates.

"It's not just about how big the package is," Pelosi said. "It's about how fast jobs are created and how those initiatives that were added in the spending will contribute to long-term stabilization of our economy."

Those negotiations are set to continue next week, as the House is expected to hold a vote on its stimulus plan on Wednesday. The Senate is set to begin its own deliberation over its stimulus proposal next week, after announcing its own plan on Friday to meet Obama's goal of creating three to four million jobs.  


As economy falls, more people put money away in savings
Obama address: ‘unprecedented action’ needed

Gas prices on the rise

(CNN) -- Gas prices nationwide jumped a bit over the past two weeks, according to a survey published Sunday.

A gallon of self-serve regular cost, on average, $1.86, said Trilby Lundberg, publisher of the Lundberg Survey. That's a rise of nearly 8 cents over the past two weeks.

After breaking all-time-high records over the summer, prices began falling over the past several months of the year, and bottomed out in December at $1.66, Lundberg said.

Moderately higher crude oil prices contributed to the price increase, she said.

"Slight further increases in gasoline prices are very possible, but chances are slim that the prices will jump a great deal either way in the next several days," Lundberg said.

The survey tabulates prices at thousands of gas stations nationwide. The latest average reflects prices on Friday.

The lowest average was in Billings, Montana, where drivers paid an average of $1.44 for a gallon of self-serve regular.

The highest was in Anchorage, Alaska, at $2.37. 


Inflation (CPI)
Obama address: ‘unprecedented action’ needed
As Tennessee job losses soar, Bridgestone plans cuts

Gas prices jump 3 cents in 3 days

NEW YORK (CNNMoney.com) -- Gasoline prices rose for the sixth consecutive day Monday, according to a daily survey of credit card swipes.

The price of gas hit a national average of $1.842 a gallon Monday, up 0.3 cent from Sunday, according to motorist group AAA. Monday's average is nearly 3 cents higher than Friday, when prices topped $1.816 a gallon.

Current prices are now more than 10% higher than one month ago, when the national average was $1.671 a gallon.

But prices are still 39% lower than the same time a year ago, when a gallon of gas cost $3.015, and are 55% off the July 17 record high price of $4.114.

Gasoline is a product of crude oil. Therefore, it tends to rise and fall on the back of oil prices, which have slid more than $100 from their summer highs as the weakening global economy has chipped away at demand.

The drop off in crude prices helped push gas prices lower toward the end of 2008. Gasoline prices started trending higher in the new year but demand remains sluggish and $4-a-gallon gas is still a ways off.

Monday, gas prices were above $2 a gallon in 4 states: Alaska, Hawaii, California, and Washington. The cheapest gas was available in Wyoming, where a gallon cost $1.472.

Meanwhile, diesel fuel, which is used in most trucks and commercial vehicles, fell to $2.419 Monday from $2.427 a gallon. Diesel is used in shipping and transportation, and therefore the price of diesel affects the costs of other goods.

And the price of E85, an 85% ethanol blend made primarily from corn, ticked up very slightly to $1.612 a gallon from $1.610 a gallon. E85 is not available in some states, but it can be used instead of regular gas in some "flex-fuel" cars.

The AAA figures are statewide averages based on credit card swipes at up to 100,000 service stations across the nation. 


Gasoline prices continue to rise
Discount grocers win over shoppers
Jobless claims make surprise jump

Consumers: Waiting for a ray of hope

(Fortune) -- The American consumer, hunkered down since this past September, is showing no signs of rebounding any time soon, remaining on the defensive in the midst of a historic economic downturn compounded by a headline-grabbing banking sector crisis.

The latest round of consumer-related data, including last week's retail sales for December and January's Consumer Sentiment index, suggest that the reality of the household sector's situation is at least as bleak as had been feared.

These reports showed that it is not just the actual spending that has suffered greatly in the last two quarters but also that the consumer's mood has turned alarmingly sour during that period.

The severe pressure under which households have come over the last six to nine months is the result of a rare convergence of negative factors: a housing market meltdown, a semi-collapse of equity prices, rapidly eroding labor-market conditions, and the sharp tightening of bank lending standards. The dramatic decline in gasoline prices during that period has been no match for the highly potent combined impact of the other factors.

The stark picture of the latest retail sales report consisted of not just another sizable decline in December's retail sales (-2.7%) but also in the significant downward revisions to the originally reported declines in both October and November.

Personal consumption, which already contracted by a stunning 3.8% rate in the third quarter (in real terms) probably declined by another 3% or so in the fourth quarter of 2008, reflecting a major retrenchment in household spending. In view of the approximately 70% weight of consumer spending in GDP, this downtrend is a very potent drag on the overall economy and points to a contraction of about 6% in real GDP for the fourth quarter (scheduled for release on Jan. 30).

The declines in December's retail sales were widespread among all of the key categories, including a nearly 16% decline in gas-station sales (mostly the result of the ongoing slide in crude oil prices last month), while building materials, general merchandise store sales and auto sales all recorded significant declines as well.

As consumers remain squeezed, they're likely to keep delaying purchases of non-necessity and big-ticket items by, for example, driving their older cars longer instead of trading them in. On the retail front lines, the first half of 2009 will be "extraordinarily challenging," Wal-Mart's CEO warned last week.

In the search for a silver lining, one can take consolation in the rise of the personal savings rate in recent months. The rate, which is expressed as a percent of disposable personal income, rose in 2008, although in a very choppy fashion, by roughly two and a half percentage points, to 2.8% in November. This upswing in the savings rate reflects the fact that income growth has been exceeding that of spending, as the mounting anxiety of households over their job prospects and the dramatic shrinkage in the value in their stock market investments fuel a desire to save a bigger share of their current income.

The improvement in the savings rate, which in recent years has been consistently identified as a trouble spot for the U.S. economy, is a mixed blessing in the current environment as, by definition, it will keep on restraining spending and delay the prospect of an economic turnaround in 2009.

Indeed, the increased savings rate may be a virtuous thing, but the reason Americans are doing it is their bleakly pessimistic attitude toward the economy and where they think it's going. The key Reuters/University of Michigan consumer sentiment index remained at historically very low levels in early January despite its modest rise to 61.9 from November's reading of 60.1 (which was the lowest for the series since June 1980). The index consists of two components: current conditions and expectations. The current-conditions component continued its longstanding slide in early January to 69.2, down from 69.5 in December, while the expectations component bounced by about three points but remains at dismally low levels. The overall Consumer Sentiment index has deteriorated precipitously in the last 18 months or so from about 90.0 to a level of 61.9 in January.

Despite the disheartening picture painted by such surveys, one needs to see them for what they truly are, which is a simple measure of consumer psychology. If other conditions that are currently impairing the ability of consumers to spend start improving gradually, sentiment indicators will rebound fairly quickly in response to the turnaround in those underlying factors.

For now, though, with the stock market under unrelenting pressure, the housing market still in the search of a bottom, and the banking system having its own arduous long road to recovery ahead, the medium-term prospects for the consumer sector can only be described as very guarded.

Anthony Karydakis is a former chief U.S. economist with JP Morgan Asset Management and currently an adjunct professor at New York University's Stern School of Business. 


Manufacturing index at 28-year low
Jobless claims make surprise jump

A solution to the coming 'card check' battle

BOSTON (Fortune) -- Barack Obama comes to Washington carrying a load of hopes and dreams, none more ardent than organized labor's. Item No. 1 on the AFL-CIO's legislative agenda: the Employee Free Choice Act (EFCA), also known as the card-check bill. Simply put, EFCA would streamline the process by which employees could decide to join a union. In most cases, a simple majority of signed cards would suffice; no need for a full-blown election sanctioned by the National Labor Relations Board.

The bill's supporters (mostly Democrats) say it goes a long way toward restoring balance and fairness in an arena where employers routinely use bully tactics to crush unions. Opponents - mostly Republicans but also George McGovern, of all people, who came out against EFCA last summer in an op-ed piece for the Wall Street Journal - insist instead that it erodes democracy by discouraging secret-ballot elections.

Noble sentiments on both sides, but let's get real. EFCA is about power. Labor is determined to reverse decades of declining union membership. Management is determined to protect its gains. The stakes are high, the line is drawn. It's going to be a nasty fight.

But it doesn't have to be that way, according to two improbably coupled labor-war veterans with a bold idea for compromise. The two come from opposite sides of the divide. Richard Bensinger, former organizing director for the AFL-CIO, believes that EFCA would be a big improvement over current law. His friend, Dick Schubert, former president and vice chairman of Bethlehem Steel and general counsel for the Labor Department during the Nixon and Ford administrations, disagrees. Surprise, surprise.

But instead of butting heads, Schubert and Bensinger are pushing a fascinating alternative that they cooked up together - a third way that aims to "box everybody in a little bit," says Bensinger. "We're trying to create a space where maybe no one's really that comfortable. But isn't that maybe more fair?"

While Schubert's a management guy, he's not anti-union, which makes a difference. All four of his grandparents arrived in the U.S. from Eastern Europe with no English and no education. One grandmother worked in a cigar factory in Trenton, N.J., for $3 a week. "The fact that there was a union movement kept pressure on employers to treat them better," Schubert says during an interview in the paneled den of his townhouse in McLean, Va. (Dick Cheney used to live next door.) "I have a strong feeling that the union movement is relevant, even though at Bethlehem Steel I was negotiating against the union that was trying to break the company, frankly, in terms of their exorbitant demands." He pauses for a beat. "I just thought I'd throw that in."

"No comment," says Bensinger, smiling in the corner, looking kind of scruffy in his blue jeans and his purple union windbreaker. Bensinger is a cult figure in the labor movement, a skilled and passionate organizer who lost his big job at the AFL-CIO in 1998, many believe, only because he took it too seriously. He embarrassed union bosses by demanding they commit more resources to recruiting new members and fewer to featherbedding.

No one is accusing Bensinger of having mellowed since then. But over the last decade he has shown a growing willingness to talk to the other side. "I think there are CEOs - I've met some - who do want to do the right thing." One vehicle for such conversations is the Institute for Employee Choice, which he co-founded with Schubert in 2002.

It's not a new set of laws that Bensinger and Schubert are proposing, it's a code of conduct, strictly voluntary, by which both sides would agree to abide during the run-up to an election. Twelve principles, all deriving from the last one, which paraphrases the Golden Rule: "Unions and employers need to behave as they would like the other to behave." Sounds simple. But as you know if you've ever been part of a union organizing drive, on either side, it's a radical concept.

The first few principles cover the basics: No lying, no threats and no promises conditioned on support for your position. Some of that's already covered by current law, sort of. For example, employers are not allowed to promise raises in exchange for votes because that would be a bribe (although unions, for some reason, can promise whatever they want); and neither party is allowed to make explicit threats.

The problem with laws is that they're lousy at regulating ethical behavior. Over the years, employers (and to some extent unions, too) have gotten very good at walking right up to the line without crossing over. "There are a lot of things a company can do within the four corners of the law," says Washington labor lawyer David Fortney of Fortney Scott, who runs union-avoidance campaigns. The principles acknowledge that imbalance but call on both sides to straighten up and act right. Or as Bensinger puts it, "Behave in a way you wouldn't be embarrassed to explain to your kids."

Other principles address specific tactics that the law overlooks but which can interfere with employees' ability to make up their minds in a "free, fair and informed way." For the unions, that means no stuffing the payroll with union organizers in advance of an election, a practice known as salting. And no hardball corporate campaigns aimed at rousing public sympathy for the cause. ("Democratic principles require that employees be the ones to decide whether they want a union or not.")

Employers, for their part, must agree not to engage in delay tactics, which can postpone elections for years. Mandatory meetings on company time are out. ("The right of free speech does not include the right to force anyone to listen to you.") Debates are in. ("The most effective way for voters to make a clear choice is to hear both points of view at one event, where each side can respond to the other.") And when it comes time to choose? Card check is okay, as long as both parties agree. But the "better way," Bensinger and Schubert stress - assuming the campaign has been conducted ethically - is a secret-ballot election.

"The crux of the issue Richard and Dick face with their principles is the willingness of one side to step forward and endorse them ahead of the other side," says David Pace, former head of HR for Starbucks. Pace admires the principles, in theory. "Generally speaking, they hold up to ethical and moral review," he says. "The greater stumbling block becomes a willingness to expose a vulnerability that might have lasting implications." Besides, he adds, management has little incentive to depart from the status quo: "The reality is that the current approach, while, not perfect, allows management a greater degree of flexibility in managing campaigns."

Bensinger and Schubert have been honing their principles for years, searching all the while for a suitable test case. They thought they'd finally found one last spring in Catholic Healthcare Partners (CHP), a 47-facility hospital chain in central Ohio with 37,000 employees that had been locked in a bruising campaign with the Service Employees International Union (SEIU) since 2004. "We were going down the same old tired road of the acrimonious battles of they put out their information, we put out our information," says John Starcher, CHP's senior VP for human resources. "They make attacks on our reputation and motivations, we make attacks on their reputation, back and forth." Starcher says CHP had fought similar battles in the past ("tooth and nail, with help from consultants") but this time they asked themselves, "Is that the right thing for our employees, and is it the right thing for our ministry?"

Starcher found a willing partner in Scott Courtney, the union's lead organizer for the Catholic Healthcare campaign. Together they agreed to give a modified version of the principles a try. First, a small-scale experiment covering five bargaining units and 1,000 employees in Lorain, Ohio; management won three and the union won two. That set the stage for a much larger test in early March involving around 8,000 employees. But just before the vote, a rival union swept into town and accused SEIU, essentially, of sleeping with the enemy. The whole thing got called off.

"I think we found something that is smack in the middle," a hopeful Courtney had told Fortune a couple of weeks earlier. "That really does say we're both going to trust the employees to vote, we're going to live by the results, and we're going to hold ourselves to a standard much higher than and much greater than what the law says." Not yet, alas. Maybe some day. 


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AT&T to cut at least 22 workers by spring
Unemployment cash shortage

FDIC encourages banks to lend more

NEW YORK (CNNMoney.com) -- Federal banking regulators are considering a plan to dramatically expand a lesser-known bailout program that provides government guarantees to hundreds of billions of dollars of corporate debt.

The Federal Deposit Insurance Corp. will likely change its so-called Temporary Liquidity Guarantee Program later this month, by extending the maximum maturity of its payment guarantee on new "covered" bonds issued by banks to 10 years from three years.

Covered bonds are issued by banks, backed by collateral, like a mortgage or a consumer loan, that exists on the bank's balance sheet. It is different than an asset-backed security, which does not require banks to actually own the asset they use to back the debt issuance. The bonds are popular in Europe, but have only been offered on a limited basis in the United States.

Under the new extension, the program would cover secured debt issued from January 2009 until June 30, 2010.

The government's move is aimed at encouraging new lending, and, at the same time, protecting its own credit risk, said FDIC official Michael Krimminger on a conference call with reporters.

"Banks are looking at ways to get liquidity so they can lend it out," said Krimminger. "Longer-term financing for banks gives them longer stability in their funding sources."

Borrowers have been reluctant to take on debt from a company they're not sure will be on solid footing many years out, and the market has been wary of taking on assets of any kind recently. Subsequently, the issuance of longer-term debt backed by assets has been lagging, and the securitization market - the breaking up of loans into securities that sell like stocks - has remained moribund for many months, said Krimminger.

The new FDIC extension could help get around both of those problems, because it guarantees losses borrowers may suffer if the bank can't pay, and it helps banks issue loans despite holding assets that may scare some investors.

"Banks have a lot of assets on their balance sheets, but not access to liquidity based on those assets," Krimminger added.

Treasury Secretary Henry Paulson has also supported a covered bond market, saying in early 2008 that a widely-used covered bond market in the United States would help restore liquidity to the financial markets.

Furthermore, the FDIC only extended the guarantee for covered bonds - not unsecured debt - presumably because the government wants more assurance if it is going to make guarantees for 10 years.

"The FDIC doesn't want to be on the hook for unsecured guarantees for seven years," said Steve Van Order, fixed income strategist for Calvert Funds. "The FDIC wanted more coverage for that, and they got that with the collateral support offered by covered bonds."

Program has helped so far

The FDIC will continue to guarantee banks' issuance of unsecured debt, usually in the form of corporate bonds, for up to 125% of a bank's total debt outstanding as of Sept. 30, 2008 that was scheduled to mature on or before June 30, 2009. That program will remain at its current limit.

So far, the initiative has backed $232.2 billion in corporate debt for an estimated 1,600 banks.

The program does not solely cover the 8,500 banks the FDIC insures - the government automatically enrolled all depository banks, bank holding companies, financial holding companies and some financial institutions in the program, giving them the option to opt out. As of Thursday, 5,900 banks have opted out.

The FDIC's guarantee program has attracted numerous participants, including Citigroup (C, Fortune 500), General Electric (GE, Fortune 500) finance division GE Capital, JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500) and Goldman Sachs (GS, Fortune 500), which months ago applied for "bank holding company" status so it could receive government aid for banks.

Early indications show the plan is working. Corporate bond yields are down, making lending cheaper for businesses. And credit default swaps - insurance contracts on debt - have also become much less expensive.

The planned expansion of the Temporary Liquidity Guarantee Program was announced by the FDIC shortly after midnight Friday as part of the provisions of the Bank of America bailout, also announced Friday. The FDIC has not formally announced its plan, but said its board will propose rule changes at a meeting in late January.

In the end, the FDIC said it hopes to foster the growth of a truly private covered bond market in the United States after it stops issuing new guarantees at the end of June 2010. 


Despite slowdown, banks are still lending
Programs quietly easing credit crunch