Finance Blog number 1

Federal Reserve Chairman Ben S. Bernanke said the central bank will be prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.”

“My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period,” Bernanke said at a Board of Governors conference yesterday in Washington, echoing language from last month’s meeting of the Federal Open Market Committee. “At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.”

The Fed chairman didn’t enter into the debate among his colleagues on the FOMC over the pace or timing of a change in monetary policy. Fed Governor Kevin Warsh said Sept. 25 interest rates may need to rise “with greater force” than usual, while New York Fed President William Dudley said Oct. 5 the recovery’s pace “is not likely to be robust” and inflation risks are “on the downside.”

The FOMC reiterated its pledge last month to keep the benchmark lending rate at around zero “for an extended period” to boost a weak recovery that has yet to create jobs. The unemployment rate rose to 9.8 percent last month, the highest level since 1983. Bernanke didn’t discuss the outlook for the economy in his prepared remarks, which outlined the Fed’s response to the financial crisis.

‘More Pointed’

“He could not have been more pointed when reminding his worldwide audience that the low-rates promise is conditional,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Money is free and easy right now, and the minute the job losses halt, you can bet the Fed will stop talking about exit strategies, including lifting the Fed funds rate, and start implementing them.”

Any move to tighten policy over the next year may run into opposition from the White House, which has said it doesn’t want to end fiscal or monetary stimulus quickly, the New York Times reported today, without citing anyone.

The Fed chairman, responding to an audience question about the effect of the $787 billion fiscal stimulus package on monetary policy, said he is assessing the impact of the spending on growth.

Capacity

“Looking at the amount of excess capacity in the economy, looking at the low rate of inflation, we believe that conditions will warrant policy accommodation for an extended period,” he said.

Bernanke’s comments come as a global recovery prompts officials around the world to debate the timing of exit strategies. Australia raised rates this week, the first Group of 20 nation to do so since the crisis intensified a year ago. Bank of Japan Governor Masaaki Shirakawa said Oct. 3 the need for the bank’s corporate bond purchase programs has eased.

In Europe, the Bank of England and the European Central Bank both kept rates unchanged yesterday and have signaled little willingness to immediately rein back emergency measures. China’s banking regulator, Liu Mingkang, said in Hong Kong today it’s “ far too early to talk about an exit.”

The U.S. currency strengthened to 89.29 yen as of 9:13 a.m. in Tokyo from 88.39 yen in New York yesterday, while it has dropped 0.6 percent this week. The dollar climbed to $1.4725 per euro from $1.4794, paring its decline on the week to 1 percent.

Stocks Gained

U.S. stocks gained as Alcoa Inc. started the earnings season with an unexpected profit and jobless claims decreased more than forecast. The Standard and Poor’s 500 Index rose 0.8 percent to 1,065.48. Yields on U.S. 10-year notes increased 8 basis points to 3.26 percent. A basis point is 0.01 percent.

The Fed staff is fine-tuning mechanisms designed to drain or neutralize excess cash in the banking system following a doubling of the central bank’s balance sheet. Those tools range from paying interest on bank reserves deposited at the Fed to reverse repurchase agreements, where the Fed pulls cash out of the financial system through a temporary sale of securities.

Bernanke said in the question-and-answer period the Fed could also conduct reverse repurchase agreements with Fannie Mae and Freddie Mac to soak up their excess cash balances guaranteed payday loan.

Money Growth

U.S. central bankers boosted their balance sheet by $1.2 trillion after the collapse of Lehman Brothers Holdings Inc. in September 2008. The Fed has provided emergency credit to markets for commercial paper and asset-backed securities, expanded loans to banks and financed a $30 billion pool of high-risk securities to facilitate the merger of Bear Stearns Cos. with JPMorgan Chase & Co.

The Fed chairman said the bank reserves created through these operations haven’t created growth in broader measures of money. Still, he said Fed actions have improved liquidity and reduced lending spreads, two measures of success for a policy he calls “credit easing.”

“The unstinting provision of liquidity by the central bank is crucial for arresting a financial panic,” Bernanke said. “By backstopping these markets, the Federal Reserve has helped normalize credit flows for the benefit of the economy.”

To keep longer-term interest rates low, the Federal Open Market Committee is also conducting a $1.75 trillion purchase program of Treasury, housing agency and mortgage-backed securities.

Lower the Cost

“The principal goals of our recent security purchases are to lower the cost and improve the availability of credit for households and businesses,” Bernanke said. “The programs appear to be having their intended effect.”

The average rate on a 30-year fixed-rate mortgage fell to 4.87 percent, the lowest since May, Freddie Mac said yesterday. The Fed’s auctions of term loans to banks are also reducing pressures in the market for interbank loans.

The Fed won’t begin raising interest rates until the third quarter of 2010 as the recovery is likely to be too weak to lift employment and incomes, according to a September survey of 57 economists by Bloomberg News.

Richmond Fed President Jeffrey Lacker told reporters at a separate event in Washington yesterday that the risk the economy will slide back into recession “has diminished substantially” yet is “not entirely zero.”

Lacker also said Oct. 1 in a Bloomberg Radio interview that the growth and consumer spending outlook are “more fundamental” to the decision on when to tighten than “labor- market conditions.”

‘Extended Period’

Fed Governor Daniel Tarullo said yesterday in a speech in Phoenix that the strength of the U.S. recovery shouldn’t be exaggerated, while reiterating that rates are likely to remain low for “an extended period.”

“This turnaround is certainly welcome, but it should not be overstated,” Tarullo said. “Although we can expect positive growth to continue beyond the third quarter, economic activity remains relatively weak.”

The economy will expand at a 2.2 percent annual pace this quarter, the economists estimated. Housing markets have stabilized and manufacturing is picking up as companies re- stock lean inventories. Employers cut 263,000 jobs in September, pushing the unemployment rate up to 9.8 percent.

“The unemployment rate is much too high and it seems likely that the recovery will be less robust than desired,” New York Fed President William Dudley said Oct. 5. “This means that the economy has significant excess slack and implies that we face meaningful downside risks to inflation over the next year or two.”

Six Straight Months

Consumer prices have fallen for six straight months from year-earlier levels, the longest stretch of declines since a 12- month drop from September 1954 to August 1955, according to the Labor Department.

The core consumer-price index, which excludes food and energy, rose 1.4 percent in August from a year earlier, down from a 2.5 percent increase in September 2008.

“There is still downward pressure on core inflation and with the unemployment as weak as it is, there is a lot of room, as the Fed sees it, to maintain exceptionally low interest rates,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. LLC.

– With assistance from Gabi Thesing in Frankfurt. Editors: James Tyson, John Fraher

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Job openings in the U.S. fell in August to the lowest level in at least nine years, signaling the economy hasn’t improved enough to prompt companies to take on more staff.

The number of unfilled positions fell by 21,000 to 2.39 million, the fewest since records began in 2000, the Labor Department said today in Washington. Openings were down by 2.4 million, or 50 percent, since peaking in July 2007.

The report showed hiring and firing both slowed in August, indicating last month’s acceleration in payroll losses may have been due to a lack of employment rather than a pick up in dismissals. Labor Department figures last week showed employers cut staff by a net 263,000 workers in September and the unemployment rate increased to the highest level since 1983.

“We’re not going to signal the all-clear on the jobs market until we see hiring pick up,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Firing has cooled off but firms have not really ramped up hiring activity.”

The rate of job openings in August held at 1.8 percent, matching July’s reading as the lowest in records dating back to 2000. The pace of hiring fell to 3.1 percent after increasing in July for the first time this year. The separations rate dropped to 3.3 percent, also matching the lowest on record.

The September payroll decrease exceeded the median estimate of economists surveyed by Bloomberg News and followed a 201,000 drop the prior month, last week’s Labor Department report showed. The unemployment rate climbed to 9.8 percent from 9.7 percent in August.

Obama on Jobs

President Barack Obama said Oct cheap pay day loans. 2 he is “working closely” with his economic advisers to “explore any and all additional options and measures that we might take to promote job creation.”

The U.S. economy may grow at an average 2.8 percent pace annual pace in the second half of the year, according to the median estimate of economists surveyed by Bloomberg News this month. Consumer spending, after rebounding last quarter as auto sales jumped because of the government’s “cash-for-clunkers” plan, will probably decelerate in the last three months of the year as the jobless rate reaches 10 percent, the survey showed.

Federal Reserve Chairman Ben S. Bernanke last week said economic growth next year probably won’t be strong enough to “substantially” bring down unemployment. The jobless rate will “still probably be above 9 percent by the end of 2010,” Bernanke said.

Dell Inc. is among companies still trimming staff to cut costs. The world’s second-largest maker of personal computers said this week it will shut a North Carolina factory by January, putting about 600 employees out of work.

Windstream Corp., a Little Rock, Arkansas-based fixed-line phone company, said last week it plans to trim about 350 positions, or 4.9 percent of its workforce, by the end of the year. The cuts are needed as the company changes its business model, Chief Executive Officer Jeff Gardner said in a Sept. 30 statement.

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The number of Americans filing first- time claims for unemployment benefits fell last week to the lowest since January, a sign the labor market is deteriorating more slowly as the economy emerges from the recession.

Applications fell by 33,000 to 521,000, lower than forecast, in the week ended Oct. 3, from a revised 554,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance dropped in the prior week to the least since March.

While the figures indicate improvement, government data last week showed more job cuts than forecast for September and a rising jobless rate. President Barack Obama pledged to “explore any and all additional measures” to spur growth, as last week’s report underscored that gains in consumer spending may be hard to sustain once stimulus programs expire.

“Companies are now in a situation where they’ve cut enough jobs, but they’re still not hiring enough,” said Harm Bandholz, a U.S. economist at UniCredit Global Research in New York. “Consumer spending will be very slow until the middle of next year. We’re in a moderate recovery.”

U.S. stocks extended gains as the report bolstered optimism that the economy is pulling out of the worst slump since the Great Depression. The Standard & Poor’s 500 Index was up 0.6 percent to 1,063.84 at 10:17 a.m. in New York.

Forecasts

Economists forecast weekly claims would drop to 540,000 from a previously reported 551,000, according to the median of 45 projections in a Bloomberg News survey. Estimates ranged from 530,000 to 560,000.

Continuing claims dropped by 72,000 to 6.04 million in the week ended Sept. 26 from 6.11 million in the prior week.

A Commerce Department report today showed inventories at U.S. wholesalers dropped in August for a 12th consecutive month, clearing the way for a pickup in orders as sales improve. The 1.3 percent decrease in stockpiles was larger than anticipated and followed a revised 1.6 percent drop in July. Sales climbed 1 percent, the biggest gain since June 2008.

The jobless claims report showed the four-week moving average of initial applications, a less volatile measure, fell to 539,750 last week from 548,750.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, decreased to 4.5 percent in the week ended Sept. 26, from 4 quick pay day loan.6 percent the prior week.

States and Territories

Twenty-seven states and territories reported a decrease in claims, while 26 reported an increase. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to rise as job growth — measured by the monthly non-farm payrolls report — slows.

The Labor Department said last week that employers cut 263,000 jobs in September after a 201,000 drop in August, while unemployment climbed to 9.8 percent, the highest level since 1983. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

The government also projected that payrolls may have fallen by 824,000 more than previously thought in the year ended March.

Nonetheless, economists surveyed by Bloomberg in September estimated the U.S. returned to growth last quarter after contracting in the first six months.

Tepid Growth

Growth next year probably won’t be strong enough to “substantially” bring down unemployment, which may remain above 9 percent at the end of 2010, Federal Reserve Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Companies looking to add staff include Richfield, Minnesota- based Best Buy Co. The world’s largest electronics retailer last month said it plans to hire more seasonal holiday workers this year to help meet demand for Internet-connected flat-panel televisions and mobile phones.

Those cutting jobs include Windstream Corp., a Little Rock, Arkansas-based fixed-line phone company, which said last week it plans to trim about 350 positions, or 4.9 percent of its workforce, by the end of the year. The cuts are needed as the company changes its business model, Chief Executive Officer Jeff Gardner said in a Sept. 30 statement.

Legislation to extend unemployment benefits is being delayed in the U.S. Senate by a dispute among lawmakers over which states ought to receive the relief.

The House approved legislation last week that would extend benefits by 13 weeks for people in 27 states with jobless rates of at least 8.5 percent in August. Democrats had said they wanted to forward the bill to Obama by the end of September, when benefits ran out for about 400,000 Americans.

Seventeen senators objected to the House plan because their states would be excluded.

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Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank should start raising interest rates “sooner rather than later,” and such tightening wouldn’t derail the U.S. economic recovery.

“Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy,” Hoenig said yesterday in a speech in Denver. “I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later.”

Hoenig’s comments parallel those by Fed Governor Kevin Warsh, who said on Sept. 25 the Fed may need to tighten “with greater force than is customary,” and Richmond Fed President Jeffrey Lacker, who said on Oct. 1 that rates may need to be raised even with unemployment near 10 percent.

“We all know that the neutral rate is not zero,” said Hoenig, who doesn’t vote on monetary policy this year. “Equally obvious to me is that a rate of 1 or 2 percent is not tight monetary policy. It is still very accommodative.”

In contrast, New York Fed President William Dudley said this week the central bank needs to focus in the near term on keeping rates low, citing concern inflation could slow too much.

The Federal Open Market Committee said last month the U.S. economy has “picked up” following the deepest recession since the 1930s. Officials slowed the purchase of $1.45 trillion in mortgage-backed securities and housing debt, while pledging to keep the benchmark interest rate near zero for an “extended period.”

Economy Shrank

Economic growth will average 2.6 percent in the second half of this year, according to a Bloomberg News survey of economists last month. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, according to government figures.

The U.S. jobless rate climbed to 9.8 percent in September, from 9.7 percent in August, the Labor Department reported on Oct. 2. That brings total jobs lost since the recession began in December 2007 to 7.2 million, the most since the Great Depression.

“We are in recovery,” Hoenig said at a forum hosted by the bank’s Denver branch. Stimulus to the economy will probably “prevent a double-dip recession.”

“Consumer confidence is rebounding, and we are starting to see improvement in business and manufacturing,” he said. “Additionally, yield spreads between low-risk assets, such as Treasuries, and higher risk assets are narrowing.”

Almost Zero

The Fed lowered its main interest rate almost to zero in December, switching to asset purchases and credit programs as the main policy tools. Chairman Ben S. Bernanke is leading plans to buy $1.25 trillion of mortgage-backed securities and as much as $200 billion of federal agency debt by March, along with $300 billion of long-term Treasuries by October.

Hoenig also called for Congress to address the problem of creating a resolution mechanism for banks that are so large they could, in the event of failure, damage the financial system. A proposal before Congress for a regulatory overhaul is inadequate, he said.

“The proposal does not adequately address the too-big-to- fail problem in that it still provides too much latitude to rescue failing firms,” he said. “It confirms the practice of addressing failure of the largest firms in an ad hoc manner with individuals rather than the rule of law deciding which firms get rescued and which do not.”

Rescue Firms

Hoenig, the Kansas City Fed’s president since 1991 and the longest-serving Fed policy maker, said large U.S. banks have carried lower capital ratios than their smaller rivals because investors assumed the government will rescue big financial institutions that fail.

“My view is that we do not have to subsidize or ‘learn to live with’ the financial oligarchy that exists,” he said in his speech.

“You can’t keep them from failing,” Hoenig said in response to an audience question. “The unintended consequences of this are just devastating.”

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Nobel Prize-winning economist Joseph Stiglitz said unemployment is going to keep rising and should be the main focus for policy makers, and that gains in the stock market indicate investors have been “irrationally exuberant” about a recovery.

“There’s a lot of risk going ahead of some big bumps,” he said today in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers’ inability to pay off credit cards because of job losses. “There’s a very big risk that markets have been irrationally exuberant.”

The U.S. has lost 7.2 million jobs since the recession began in December 2007, and the unemployment rate reached a 26- year high in September, a Labor Department report last week showed. Joblessness is likely to reach 10 percent by the end of the year, according to economists surveyed by Bloomberg News last month.

It’s “pretty clear that the situation will continue to get worse,” Stiglitz said today, citing elements of the jobs report such as the number of people who can’t find a full-time job and the pace at which Americans are dropping out of the labor force.

‘Well Short’

Economic growth this year and next will “fall well short of what we need to stop unemployment from growing,” he said. The likelihood that the U.S. economy will be “out of the woods” before most of the measures in the Obama administration’s stimulus package expire in 2011 is “very small,” he also said.

Employers cut 263,000 workers from payrolls in September, while the jobless rate rose to 9.8 percent from 9.7 percent the prior month, the Labor Department said Oct. 2.

In a separate Bloomberg Television interview today, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said the International Monetary Fund meetings in Istanbul are “stuck” in an outdated mentality that doesn’t reflect the rising power of emerging economies following the global financial crisis.

O’Neill also said the dollar probably isn’t the No. 1 concern for U.S. policy makers, and predicted 4.1 percent growth for the global economy next year.

Many countries will be “surprising” in their economic growth in 2010, he said, while adding that there is a potential for more “positive surprises” that could help fuel global expansion.

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Treasury Secretary Timothy Geithner said signs of economic recovery are “stronger” and have appeared “sooner” than expected, while reiterating it’s not yet time to roll back stimulus programs.

Financial conditions have improved “dramatically,” particularly in the U.S., where the housing market has stabilized, Geithner said in a statement issued in Istanbul today. Still, jobless rates are “unacceptably high” and the financial system remains damaged. As a result, it’s too soon for governments to withdraw stimulus, Geithner said.

“Planning for an eventual exit is the responsible and necessary thing to do, but we are not yet in the position where it would be prudent to begin to withdraw fiscal and monetary policy support,” Geithner said in remarks released after a meeting of finance ministers and central bankers from the Group of Seven nations.

“Exit will not be like flipping a switch,” he said fast pay day loans. “Instead, as conditions stabilize and growth strengthens, we will unwind the extraordinary policy measures we’ve taken, phasing them out carefully to avoid a damaging cliff.”

G-7 policy makers meet at the end of a week in which officials from France to Canada voiced concern that a sliding dollar is threatening to impede their recoveries from the deepest global recession since World War II. The dollar has dropped 14 percent against a basket of seven currencies since early March.

Geithner didn’t mention currencies in his prepared remarks. In his recent public comments, he has reiterated that the U.S. doesn’t intend for the dollar’s role in the global economy to diminish.

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Finance ministers from the Group of Seven meet in Istanbul today pushing for a “strong dollar” amid concern its slide will impede their recoveries from the deepest global recession in the postwar era.

“Everyone needs a strong dollar,” French Finance Minister Christine Lagarde told reporters yesterday before leaving for the talks. That sentiment is “not unique to Europe,” Canadian Finance Minister Jim Flaherty signaled, saying in Istanbul that “the Australians are concerned, we’re concerned in Canada about upward pressure on the Canadian dollar because of the weakness of the U.S. currency.”

Lagarde’s comments came four days after similar remarks from European Central Bank President Jean-Claude Trichet. U.S. Treasury Secretary Timothy Geithner also has pledged support for a “strong” currency. Flaherty said he expected the G-7 to issue a communique following their meeting, after members earlier debated the need for one.

The dollar’s 14 percent slide this year against a basket of seven currencies since early March threatens economic recoveries outside the U.S. by making their exports more expensive. At the same time, Geithner is being forced to defend the dollar’s status as the world’s sole reserve currency.

Traders Watching

“Market-moving announcements could be forthcoming,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “We expect to hear renewed commitments to the U.S. strong dollar policy and the European delegation may be tempted to communicate their worries on further rises in the euro.”

The dollar, which tumbled about 10 percent against the euro and yen in the past two quarters, slid further after a government report yesterday showed U.S. job losses accelerated in September. It traded at $1.4578 per euro and 89.77 yen late yesterday in New York.

“We’ll have a chance to discuss this in the coming days,” Lagarde said in Gothenburg, Sweden, yesterday before her departure for Istanbul, referring to the dollar.

G-7 members have discussed whether to break with tradition and not release a communique given that G-20’s leaders did so just a week ago after meeting in Pittsburgh. The G-7 is gathering in Istanbul before next week’s annual meetings of the International Monetary Fund and World Bank and its officials will brief reporters from 6 p.m.

China Intransigence

Limiting the G-7’s scope to reverse the decline in the dollar is the absence of China from its ranks and the G-20’s push for a narrowing of global trade and investment imbalances such as the U empire payday loans.S. current account deficit.

Among policy makers expressing concern about the dollar this week were Japanese Finance Minister Hirohisa Fujii. He signaled Sept. 29 his government was open to acting to stabilize the foreign-exchange market, and denied he supported a stronger yen. He won’t discuss the yen’s gains at the G-7, Kyodo News reported yesterday.

Canon Inc., Japan’s biggest maker of office equipment, says every 1 yen appreciation against the dollar will lower its second-half operating profit by 4.2 billion yen ($47 billion). The company based its profit forecast of 110 billion yen on the assumption the yen would average 95 to the dollar in the last six months of the business year.

Lipsky on Currencies

Still, John Lipsky, the IMF’s first deputy managing director, told Bloomberg Television yesterday that at present “there is not a problem in broad terms of valuation of the principle currencies.”

Flaherty two days ago pushed China to let its yuan appreciate “more quickly” after keeping it little changed against the dollar for more than a year.

That view was echoed yesterday by IMF Managing Director Dominique Strauss Kahn, who said he still views the yuan as “undervalued.” The IMF was last week tasked by the G-20 with monitoring its members’ efforts to even out the world economy.

China has frequently ignored campaigns by the G-7 for a more flexible exchange rate. It took almost two years to heed a request to loosen a currency peg with the dollar, only doing so in July 2005. The inflexibility helps Chinese exporters and means other currencies shoulder the burden of the weaker dollar.

While the dollar’s slide may buoy the U.S. economy by boosting demand for its goods, World Bank President Robert Zoellick repeated yesterday that it may lose its rank as the only reserve currency if budget deficits aren’t curbed. For now, it should still attract investors as a haven, he said.

“The American public and the American political leaders take for granted the unique standards of having the reserve currency,” Zoellick said. “You could lose what is an incredible thing to have.”

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Manufacturing in the U.S. expanded less than anticipated by economists and more Americans filed claims for unemployment benefits, pointing to a recovery that will be slow to generate jobs.

The Institute for Supply Management’s factory gauge decreased to 52.6 in September from 52.9 in August, the Tempe, Arizona-based group said today. Fifty is the dividing line between expansion and contraction. The number of jobless claims climbed to 551,000 last week, more than economists forecast, figures from the Labor Department showed.

Coming a day before the September jobs report, the figures caused stocks to slump on growing concern the seven-month rally has outpaced prospects for economic growth. Consumer spending, boosted last quarter by government programs such as “cash for clunkers,” may not be able to keep rising as quickly once the stimulus expires and unemployment keeps climbing.

“The balance of data is still pointing to the economy getting better,” said Conrad DeQuadros, a senior economist at RDQ Economics in New York. “The consumer is still facing significant headwinds in the labor market. I wouldn’t look for the consumer to significantly boost growth over the next couple of months.”

The Standard & Poor’s 500 Index closed down 2.6 percent at 1,029.85 today in New York, a day after completing its biggest back-to-back quarterly rally since 1975. Treasury securities jumped, sending the yield on the 10-year note down to 3.18 percent from 3.31 percent late yesterday.

Unexpected Drop

The ISM index, which dropped for the first time this year, was forecast to rise to 54, according to the median of 80 estimates in a Bloomberg survey of economists. Projections ranged from 51.5 to 56. Manufacturing accounts for about 12 percent of the world’s largest economy.

“We’re still in positive territory but we’re just not advancing at quite the same rate,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “Retailers are anticipating a weak sales season and they’re playing it conservative on orders and hiring.”

The ISM report showed orders and production advanced at a slower pace last month, while the magnitude of reductions in inventories also cooled.

“The inventory correction, with the exception of a few industries,” has played out, Norbert Ore, chairman of the ISM’s factory survey, said in a press conference. “Overall, September was a good month. For the balance of the year, we should expect to see manufacturing holding this level, possibly improving from this level.”

More Claims

Last week’s jobless claims figures overshot the median estimate of economists surveyed by Bloomberg News which projected an increase to 535,000, raising concern tomorrow’s jobs report will also disappoint expectations that payroll decreases are slowing.

The Labor Department may say tomorrow that job losses in September totaled 175,000, according to the survey median, while the unemployment rate rose to 9.8 percent, the highest since 1983.

The economy has lost 6.9 million jobs since the recession started in December 2007, the most of any downturn since the Great Depression. The 216,000 drop in payrolls reported for August, meanwhile, was the smallest in a year.

Autos, Houses

So far, the Obama administration’s $787 billion stimulus plan, which included the auto incentives and an $8,000 tax credit for first-time home buyers, is giving consumers reason to buy cars and houses.

Household purchases jumped 1.3 percent in August, the largest gain since October 2001, data from the Commerce Department also showed today. Incomes climbed 0.2 percent for a second month and inflation decelerated, the report also showed.

Inflation-adjusted spending on durable goods, including autos, furniture, and other long-lasting items, jumped 5.8 percent in August, also the most since the month after the 2001 terrorist attacks. Then, the introduction of zero-percent financing to revive sales boosted spending on durable goods by 14 percent.

Auto sales fell 35 percent in September from the previous month to a 9.2 million annual rate, after the clunkers plan expired, according to Bloomberg data.

Pending Sales

Lower home prices and mortgage rates combined with the first-time buyer credit have helped end the housing-market meltdown that sparked the financial crisis. The index of signed purchase agreements, or pending home sales, jumped 6.4 percent in August, a seventh consecutive increase, the National Association of Realtors said today in Washington.

The tax credit is due to expire at the end of November, raising concern sales will again slow.

Bed Bath & Beyond Inc., the largest U.S. home-furnishings retailer, last month said second-quarter profit rose 14 percent, fueled by rebounding home sales. The Union, New Jersey-based chain also increased its annual profit forecast.

Even so, “looking ahead to the remainder of our fiscal year 2009, we have assumed that the overall business climate will remain challenging,” Chief Financial Officer Eugene Castagna said on a conference call on Sept. 23.

Economists surveyed by Bloomberg earlier this month projected the economy will expand at an average 2.6 percent annual rate and grow 2.4 percent in 2010.

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Former Federal Reserve Chairman Alan Greenspan said he sees the U.S. economy slowing next year as the surge in stocks comes to an end.

“The odds are we flatten out,” Greenspan said today in a Bloomberg television interview, referring to the equity market. “That flattening out will put some sort of dull face on 2010.”

Greenspan said he expects the economy to grow at a 3 percent to 4 percent annual pace in the next sixth months before slowing down. As a result, unemployment isn’t likely to decline much from last month’s 9.7 percent rate, he said. Even so, he doesn’t expect the economy to relapse into recession next year.

The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, the Commerce Department said today. An unexpected decline in a gauge of business activity released today, along with a private report showing employers cut more jobs than forecast, indicate a recovery may be slow to take hold.

The Standard & Poor’s 500 Index has jumped 57 percent since its low for the year on March 9, an ascent that’s had a “very positive” impact on the economy, Greenspan said.

The stock index was down 0.2 percent to 1,059.13 at 1:44 p.m. in New York after falling as much 1.3 percent following the reports from the Institute for Supply Management-Chicago Inc. and ADP Employer Services.

Growth will be boosted in coming months by the inventory cycle as companies bring stockpiles of goods into line with sales, Greenspan said. The former Fed chief said the economic recovery won’t prevent continued downward pressure on consumer prices.

‘Disinflationary Environment’

“We are still by any measure in a disinflationary environment,” said Greenspan, 83.

Consumer prices have fallen for six straight months from year-earlier levels, the longest stretch of declines since a 12- month drop from September 1954 to August 1955, according figures from the Labor Department.

Greenspan said there’s a longer-term risk that inflation will accelerate if the Fed fails to rein in the stimulus it has pumped into the economy, adding that the central bank’s $2 trillion balance sheet is “not sustainable.”

He also voiced concern that political pressure would prevent the Fed from taking actions necessary to keep consumer prices in check.

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