Consumer spending up for second straight month

WASHINGTON (AP) -- The government says consumers increased spending for a second straight month in February even though their incomes slipped due to continuing massive layoffs.
The Commerce Department reported Friday that consumer spending edged up 0.2 percent in February, in line with expectations. That follows a huge 1 percent jump in January that was even better than the 0.6 percent rise originally reported.

But the report says incomes fell by 0.2 percent in February, the fourth drop in the past five months, declines that reflected the sizable number of job layoffs that have been occurring because of the recession.

After-tax incomes also fell in February, edging down by 0.1 percent. With incomes down while spending rose, the personal savings rate dipped slightly to 4.2 percent in February, compared to 4.4 percent in January. Still, the latest two-month performance marked the first time that the savings rate has been above 4 percent for two consecutive months in more than a decade.

Economists believe that the deep recession, already the longest in a quarter-century, will continue prompting consumers to do more to trim spending and boost their savings. However, that development could make it more difficult for the country to pull out of the recession since consumer spending accounts for about 70 percent of economic activity.

The back-to-back increases in consumer spending in January and February had followed six straight declines in spending that occurred from July through December. Consumer spending in the fourth quarter fell at an annual rate of 4.3 percent, the biggest decline in 28 years, and was the major factor pushing overall economic activity down by 6.3 percent during that period.

Many economists believe that the gross domestic product will drop by around that amount in the current January-March period and will continue falling in the spring although at a slower pace. Many analysts are not looking for the current recession, which began in December 2007, to end until the second half of this year.

A price gauge tied to consumer spending rose by 0.3 percent in February and was up 0.2 percent excluding food and energy, indicating that the recession has contributed to a significant moderate in inflation pressures.

Obama says automakers need 'drastic changes'

WASHINGTON (AP) -- President Barack Obama plans to announce a new aid package for General Motors and Chrysler in the coming days and says the carmakers must make "pretty drastic changes" to save their industry.
Obama gave a preview of his administration's approach to fixing the struggling U.S. auto industry during an online town hall meeting Thursday, promising additional aid only if the Detroit change its ways and receives concessions from stakeholders.

"We will provide them some help," Obama said. "I know that it is not popular to provide help to auto workers -- or to auto companies. But my job is to measure the costs of allowing these auto companies just to collapse versus us figuring out -- can they come up with a viable plan?"

He added: "If they're not willing to make the changes and the restructurings that are necessary, then I'm not willing to have taxpayer money chase after bad money."

General Motors Corp. and Chrysler LLC have received $17.4 billion in federal loans since December and are seeking billions more to stay afloat. A task force created by Obama has been meeting with industry officials and studying restructuring plans submitted by the companies, which employ thousands in Ohio, to put them on the path to long-term profitability through tough concessions.

"Everybody is going to have to give a little bit -- shareholders, workers, creditors, suppliers, dealers -- everybody is going to have to recognize that the current model, economic model, of the U.S. auto industry is unsustainable," Obama said.

The president said he agreed with a questioner at the town hall -- a Maryland woman with family members who work for GM and Ford Motor Co. -- that "there's been a lot of mismanagement of the auto industry over the last several years."

Obama stressed that the industry must be preserved, not only symbolically but because of the large number of jobs connected to the companies and suppliers. Obama said his job was to protect U.S. taxpayers and he wouldn't spend federal dollars on "a model that doesn't work."

"A lot of it's going to depend on their willingness to make some pretty drastic changes. And some of those are still going to be painful," he said.

The government can recall its loans to GM and Chrysler if they fail to sign deals for debt restructuring and other concessions from stakeholders, including the United Auto Workers union, by March 31. But the administration has not indicated it plans to do so. Efraim Levy, an auto analyst with Standard & Poor's Equity Research, said the companies likely will need to come close to the terms of the loans.

"There's going to be grading on a curve," Levy said. "They've got to show a plan that's close enough to get it."

The loan terms call for debt holders to accept equity in the companies for two-thirds of the automakers' debt. GM owes roughly $28 billion to bondholders, while Chrysler owes about $7 billion in first and second-term debt, mainly to banks.

Also, the UAW needs to swap equity in the companies for 50 percent of the companies' cash contributions into a union-run trust fund for retiree health care. GM owes roughly $20 billion to its trust, while Chrysler owes $10.6 billion.

Bondholders have been reluctant to go along with the cuts, saying they're being required to sacrifice more than other parties, but have been holding discussions about the changes.

The union has agreed to other terms of the loans, including work rule changes and reducing total hourly labor costs to be comparable to those at Japanese automakers with U.S. factories.

On Capitol Hill, lawmakers who have talked to members of the task force in recent days said they expected the administration to provide additional loans to GM and Chrysler, but it would be the first in a series of announcements and would carry strict conditions.

"I expect them to support additional funding related to specific actions," said Sen. Debbie Stabenow, D-Mich. "I think it will be tied to specific actions that need to be taken."

The president said the industry has been hamstrung by the sharp decline in auto sales. Last year the industry sold 13.2 million new vehicles in the U.S., but the annual sales rate has dropped to around 9 million for both January and February. Obama said many Americans are struggling to get auto loans and are wary of big-ticket purchases as jobs disappear.

The president said that even as the economy bounces back, Detroit can't focus on "trying to build more and more SUVs and counting on gas prices being low."

In that vein, the administration on Friday is expected to announce plans to raise fuel efficiency standards by 2 miles per gallon to 27.3 mpg for new cars and trucks in the 2011 model year, an administration official said Thursday. That would be the first increase in passenger car standards in more than two decades.

Under the changes, new passenger cars will need to meet 30.2 mpg for the 2011 model year and pickup trucks, sport utility vehicles, and minivans will need to reach 24.1 mpg, according to the official, who spoke on condition of anonymity because the person was not authorized to speak in advance of the announcement.

White House spokesman Robert Gibbs said Obama will announce his strategy for the auto industry before he leaves for Europe on Tuesday. The announcement is likely to come on Monday.

Gibbs said Obama still thinks U.S. automakers build cars that Americans want to buy. Both he and the president own Ford Escape hybrids. "It's a nice car," Gibbs said. "It really is."

Associated Press writers Ben Feller and Philip Elliott contributed to this report. AP Auto Writer Tom Krisher reported from Detroit.

KB Home reports loss in 1Q

LOS ANGELES (AP) -- KB Home is reporting a narrower-than-expected net loss for its fiscal first quarter as the homebuilder cut costs and took smaller accounting charges.
The Los-Angeles based homebuilder reported a fiscal first quarter net loss of $58.1 million, or 75 cents a share, compared with a net loss of $268.2 million, or $3.47 a share, in the same period the year before.

Total revenues were $307.4 million, down 61 percent from $794.2 million in the year-ago period.

Included in the net loss charges for inventory and joint venture impairments, and abandoned land option contracts, totaling $32.3 million.

Analysts polled by Thomson Reuters predicted a loss of 81 cents per share on revenue of $348 million.

Stocks point to lower open after week's big rally

NEW YORK (AP) -- Wall Street was set to pare its huge gains Friday after a dip in personal incomes and gloomy news from Google Inc. and Johnson Controls Inc.
The Commerce Department said personal spending rose 0.2 percent in February, as expected, but personal incomes fell 0.2 percent. Economists surveyed by Thomson Reuters/IFR had predicted an income drop of 0.1 percent.

Signals out of the corporate world, meanwhile, were downbeat.

Auto parts maker Johnson Controls said it will cut jobs and close 10 manufacturing plants. And late Thursday, Internet powerhouse Google said it is laying off nearly 200 workers, while technology consulting and outsourcing firm Accenture lowered its outlook for the quarter and the year.

The negative announcements sapped strength from technology companies in particular. Tech stocks had surged Thursday and pushed the Nasdaq composite index into positive territory for the year.

Given that the Dow Jones industrial average has soared 21 percent in fewer than three weeks. investors appeared eager to cash in gains. But they were also showing some caution -- while more positive news fed the market's huge rally, many investors are well aware that the economy and also the banking system still have many trouble spots.

Ahead of the market's open, Dow Jones industrial average futures fell 65, or 0.8 percent, to 7,784. Standard & Poor's 500 index futures fell 6.80, or 0.8 percent, to 820.50, and Nasdaq 100 index futures fell 9.50, or 0.8 percent, to 1,263.50.

Investors are awaiting the University of Michigan's final reading on March consumer sentiment.

And President Barack Obama will be meeting at the White House with chief executives of the nation's largest banks. Obama and Treasury Secretary Timothy Geithner are preparing to launch a partnership with private investors to buy banks' toxic assets.

The discussion also comes as Congress works on a bill to curb Wall Street bonuses, and Geithner plans to regulate the hedge fund industry more heavily.

In earnings news, homebuilder KB Home reported a narrower-than-expected quarterly loss thanks to cost cuts and smaller accounting charges.

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

Crude oil fell $1.68 to $52.66 a barrel in electronic trading on the New York Mercantile Exchange.

Government bonds rose in early trading. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.73 percent from 2.74 percent.

Overseas, Japan's Nikkei stock average fell 0.11 percent. In afternoon trading, Britain's FTSE 100 fell 0.32 percent, Germany's DAX index fell 1.02 percent, and France's CAC-40 fell 1.07 percent.

Obama seeks input of bank CEOs on recovery plans

The president was set to take the temperature of the bank CEOs on Friday at the White House. The session will be the latest in a series of such meetings Obama has had with financial industry representatives and business executives since taking office amid the worst economic downturn since the Great Depression.

The meeting follows a period marked by Obama's sharp language, and public outrage, over Wall Street excesses and $165 million in employee bonuses by American International Group, the large but troubled insurance company that has taken more than $170 billion in federal bailout funds.

It also comes days before Obama attends his first international summit, a meeting in London next week of the world's 20 major and developing economies, all struggling with the global recession.

This week, the administration unveiled its program to help banks clear their balance sheets of so-called "toxic assets," bad investments that are tying up capital and making it difficult for them to lend money. The administration also outlined its proposals to impose tighter regulations on the financial sector in an effort to avoid a repeat of the industry meltdown that contributed to the recession.

Obama in recent days has dialed down his rhetoric against AIG and Wall Street. The administration needs the industry's cooperation for its financial stability and financial regulation plans to work.

White House officials said Obama likes to hear directly from those who will be affected by his decisions.

"Our future is inextricably linked to these financial institutions, and their future is linked to the economic health of the country," said Valerie Jarrett, a senior adviser to Obama.

Press secretary Robert Gibbs said Obama looked forward to getting an update from the bankers on the activity they are seeing in real estate and commercial loans. They also are likely to discuss "stuff that's been in the news" in the past few weeks, including executive compensation, bonuses and "the notion that ... we have to change the culture of the way Wall Street works," he said.

Asked whether Obama would deliver as tough a message in private as he has in public, Gibbs replied, "Yes."

"The president isn't going to say one thing out here and a different thing in there," he said. "We're not going to get out of this financial crisis and we're not going to stabilize our financial system without healthy banks. That's part of what he hopes to talk to them about."

Larry Summers, Obama's chief economic adviser, said the meeting will focus on a broad approach to restoring the economy.

This week, the administration announced a plan to partner with private investors, the Federal Reserve and the Federal Deposit Insurance Corp. to take over up to $1 trillion in sour mortgage securities from banks. The goal is to help jump-start lending.

The administration also has proposed tighter regulation of the financial system, including giving the government broad power to take over major financial institutions that are not banks, such as insurance companies, like AIG, and hedge funds teetering on the brink of collapse.

Last week, Obama assailed AIG for "recklessness and greed" in its business practices.

He softened his tone a bit during a nationally televised news conference Tuesday night, saying the country "can't afford to demonize" every profit-seeking investor or entrepreneur because that is what fuels prosperity, and is what will get banks lending and the economy moving again.

Charter files for prearranged bankruptcy

ST. LOUIS (AP) -- Charter Communications Inc. said Friday that it filed a prearranged Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York.
The nation's fourth-largest cable operator, which is based in St. Louis and is controlled by Microsoft Corp. co-founder Paul Allen, had planned to file a prearranged Chapter 11 bankruptcy by April 1.

For years the company has ducked insolvency, but it is now coming up against tight credit and billions of dollars of debt coming due.

Charter had about $21.7 billion in debt at the end of 2008. Holders of $8 billion of the debt agreed to exchange it for almost full ownership in the new company, and some old debt was exchanged for new debt. After the bankruptcy, the company will have $13 billion mainly in bank debt, which expires from 2013 to 2016.

In a prearranged bankruptcy, a company enters into reorganization with a plan to emerge that has the approval of major stakeholders. The rest of the creditors will be dealt with through bankruptcy court.

In a statement, Charter Chief Executive and President Neil Smit said the restructuring "is good news" for the company and its customers.

"We look forward to an expeditious restructuring, and once completed, we believe that Charter will be a stronger company," Smit said.

Charter said that along with the bankruptcy filing it filed motions requesting permission to keep employee wage and benefits programs running and to continue customer programs without interruptions.

The company also named Gregory L. Doody as Chief Restructuring Officer. Doody has worked on restructurings for companies including Calpine Corp. and HealthSouth Corp.

Kirkland & Ellis LLP is serving as Charter's legal counsel, Lazard as its financial adviser and AlixPartners LLP as restructuring advisor.

Oil down below $54 amid concern over price outlook

Oil prices fell below $54 a barrel Friday, after this week hitting a high for the year, on concerns about the sustainability of recent gains and lingering doubts about the recovery of the global economy and oil demand.

Benchmark crude for May delivery fell 82 cents to $53.52 a barrel by midday in European electronic trading on the New York Mercantile Exchange.

In London, Brent prices fell 70 cents to $52.76 a barrel on the ICE Futures exchange.

Oil prices hit a new high for the year Thursday as investors wagered there would be a new run on crude supplies. The contract rose $1.57 to settle at $54.34 a barrel.

But those gains have left room for declines amid a volatile outlook, said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

"Do expect a bumpy ride in the near term. There could be some selling to take profits," Shum said.

He attributed crude's recent gains to "spillover from the equities market with no change in fundamentals."

Energy prices have been surging despite reports that continue to show the U.S. economy is shrinking and oil inventories are bloated with surplus crude.

Crude in storage last week rose 3.3 million barrels to 356.6 million barrels, according the Energy Information Administration announced Wednesday. The increase was much higher than expected.

Investors, however, have bid up prices on the expectation of a future shortage of oil, analysts including Stephen Schork have said. Schork, in his daily oil report Thursday, called the gains "an aberration" given the state of global demand.

The U.S. economy, the world's biggest oil consumer, shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century, government data showed Thursday. And in Japan, exports fell by nearly half in February from a year earlier -- a record drop.

Oil prices have mostly gotten support from the advance in global stock markets this month. In New York Thursday, the Dow gained 2.3 percent to reach its highest close in six weeks amid surprisingly good earnings from some major consumer brands. Asian markets closed mostly modestly higher Friday, while in Europe most indexes were in the red by 1 percent or less in early trading.

"The Dollar Index has been consolidating all week and is not providing anymore a sustained support to oil bulls so this leaves it to the stock markets," said Olivier Jakob at Petromatrix in Switzerland. "They have been able to maintain a positive momentum so far this week but this leaves only one leg of support for an attempt at $55 per barrel."

The strength in oil has also come as the Organization of the Petroleum Exporting countries has been trying for several months to squeeze off crude production in hopes of driving up prices. Members want to cut production by 4.2 million barrels per day.

In other Nymex trading, gasoline for April delivery fell 2.97 cents to $1.5014 a gallon, while heating oil dipped 1.86 cents to $1.4627 a gallon. Natural gas for April delivery fell 2.2 cents to $3.925 per 1,000 cubic feet.