Obama plan’s start slow; foreclosure alternatives added

WASHINGTON – The Obama administration on Thursday outlined an expansion of its housing rescue plan that will help homeowners who face foreclosure because they are ineligible for current assistance programs.

Officials also provided a report card of sorts on how the home-loan modification and refinancing efforts are going since the housing rescue plan was announced in February.

The expanded program includes:

• Foreclosure alternatives. Homeowners unable to qualify for a modification will see a more streamlined process for pursuing short sales and deeds-in-lieu of foreclosures, which transfer a home back to the lender. The goal is to help homeowners avoid a foreclosure that could lead to a severe hit on their credit scores.

A short sale occurs when a home is sold for less than the remaining mortgage, but lenders agree to consider the debt paid.

• Protections for homeowners whose home value has fallen. Under a $10 billion program, new incentives will be provided to lenders to help them make modifications in regions where home prices have had steep drops.

The Obama administration has said it expects up to 9 million homeowners to get help through mortgage refinancing and loan modifications.

But the complexity of the program has made for a slow start and done little to dampen foreclosures, which have risen as banks ended temporary moratoriums on foreclosures.

“It’s been slow. The foreclosure problem is not going away,” said Mark Zandi, with Moody’s Economy.com.

DETROIT – A day after Chrysler LLC told a quarter of its dealers that it won’t renew their contracts, owners of General Motors Corp. dealerships are awaiting word on whether they will be next.

GM said it will notify 1,100 U.S. dealers on Friday that their franchise agreements will not be renewed. Dealers expect to hear either by telephone or FedEx letters that will begin arriving Friday morning.

GM spokeswoman Susan Garontakos said the company will not make public a list of dealers to be cut, leaving the decision to release information to individual business owners.

The company has scheduled a conference call for noon Friday to explain its dealer reduction strategy.

The cuts will come just a day after crosstown rival Chrysler announced it was dropping 789 of its roughly 3,200 dealerships by around June 9. Both companies have too many dealerships for too few sales are slashing costs as they race to restructure.

Dealers around the country nervously awaited news Friday morning, with some saying they were in the dark about how they would be notified. In Richmond, Va., Royal Chevrolet co-owner Del Mugford was slightly relieved when he sifted through FedEx packages Friday morning and hadn’t received any bad news from General Motors. But he knew his future could be determined by a phone call or a piece of mail.

“This is absolutely nerve wracking. It’s like a death sentence. It’s the worst feeling in the world,” said Mugford, 45, who bought the dealership with his younger brother in 2002 after owning an Oldsmobile franchise down the street. GM closed its Oldsmobile line of cars in 2004.

John Rogin, who owns a Buick dealership and GMC truck dealership in the Detroit area, was also awaiting word. But he said he’s not worrying. His Buick store, he said, has been among the top 10 performers in the country for 15 years.

“I’m just selling cars. I’m still a loyalist, and for the most part a purist as far as GM goes,” he said.

Many dealers, though, will fight the cuts in court, he said.

“Most of the dealer body realizes that just because you get a letter doesn’t mean it’s all over,” he said. “This company isn’t in bankruptcy.”

GM’s dealer cuts are part of the company’s plan announced last month to cut more than 2,600 dealers by 2010. The remaining cuts will come from closed Saturn and Hummer dealers, along with 400 dealers that the company expects will close voluntarily. Another 500 would be consolidated into other dealerships.

The GM dealer cuts are likely to have a much greater impact than Chrysler’s. While many Chrysler dealers also sell other brands and will stay open after losing their franchises, a large number of GM dealers sell only GM vehicles. So if their franchises are revoked, they run a greater risk of closing for good.

In both cases, the cuts will cost thousands of jobs, create holes in local tax bases, eliminate community pillars and create economic ripple effects across the country.

Chrysler is operating under bankruptcy protection, so it is likely to have an easier time tearing up its franchise agreements with its dealers than GM. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York for the judge to determine whether to approve Chrysler’s motion to fire its dealers.

Chrysler executives said Thursday the company is trying to preserve its best-performing dealers and eliminate ones with the weakest sales. More than half of the dealerships being eliminated sell less than 100 vehicles per year, they said, and account for 14 percent of U.S. sales.

Chrysler has received $4 billion in government aid, while GM has received $15.4 billion. GM is continuing to restructure out of court and faces a government-imposed deadline of May 31 for doing so. Several difficult hurdles remain, and many experts say that it is all but inevitable that it will follow Chrysler into Chapter 11 bankruptcy.

To remake itself outside of court, GM must persuade its bondholders to swap $27 billion in debt for 10 percent of its risky stock. In addition, it must work out deals with its union, announce factory closures, cut or sell brands and shutter dealers.

Swapping its bond debt for equity may be its most difficult task. The company is trying to get 90 percent of its bondholders on board for the so-called debt-for-equity swap. A committee representing the bondholders has rejected the swap, saying it unfairly favors the government and the United Auto Workers union. They have counteroffered seeking a 58 percent ownership stake, which the automaker in turn rejected.

On Thursday, GM said that bankruptcy is possible if it doesn’t get enough takers on the exchange. If that happens, it likely would sell most of its assets to a new company and liquidate the rest, the automaker disclosed in a regulatory filing.

The automaker also says it could seek court approval of its reorganization plan even if creditors vote against it.

Shares of GM wobbled between $1.13 and $1.16 in morning trading Friday.

By Tom Krisher, Dan Strumpf

WASHINGTON – The nation’s industrial production fell in April by the smallest amount in six months, fresh evidence that the pace of the economy’s decline is slowing.

Output by U.S. factories, mines and utilities fell by 0.5 percent last month, after revised declines of 1.7 percent in March and 1 percent in February, the Federal Reserve said Friday. Analysts expected a drop of 0.6 percent in April.

Still, the report shows that U.S. industry remains weak. Industrial production has fallen in 15 of the 17 months since the recession began in December 2007, and is down 16 percent since then.

That has led industrial companies to idle more of their plants and equipment. The overall operating rate for factories, mines and utilities fell to 69.1 percent last month from a revised 69.4 percent in March. That’s the lowest rate on records dating to 1967.

That also compares with the 80 percent rate usually seen during a healthy economy. It stood at 80.6 percent when the recession began.

A 3.2 percent drop in mining output as oil and gas production fell, contributed to the overall decline, the Fed said. Utilities boosted their output 0.4 percent last month.

Manufacturing production fell 0.3 percent, as the factory operating rate dipped to 65.7 percent from 65.8 percent. That’s the lowest on records dating to 1948.

Auto factories actually increased production 1.4 percent after cutting back sharply in January. But the increase isn’t expected to continue as Chrysler LLC and General Motors Corp. are closing plants in May and June.

Manufacturers have been forced to reduce production as companies seek to clear stockpiles of unsold goods. The effort to reduce inventories also leads to fewer orders for new goods.

Businesses cut inventories 1 percent in March, the seventh straight decrease, the Commerce Department said Wednesday. Still, the reductions in stockpiles eventually should help businesses get their inventories more in line with reduced sales. If that occurs, any strengthening in consumer demand should lead to increased production.

Industrial production plummeted at a 19.2 percent annual rate in the first three months of this year, the Fed said, but some economists expect that pace to slow to less than 10 percent in the current quarter.

The steep drops in the first quarter contributed to a 6.1 percent decline in gross domestic product, the broadest measure of the economy. Analysts expect a smaller decline of about 3 percent in the current quarter.

NEW YORK – Stocks were set to open moderately lower on Friday, with investors reluctant to get too enthusiastic about economic data.

Stock futures pared their losses after the Labor Department said consumer prices in April were flat, as economists predicted. Excluding declining energy and food prices, core consumer prices edged up 0.3 percent, a bit higher than forecast.

Investors were also relieved by reports that New York-area manufacturing activity and industrial production contracted less than economists expected. They also shrank significantly less than they did earlier in the year, fitting in with the trend seen in most data since early March: that the economy continues to slide, but at a slower pace.

But investors are still awaiting a midmorning report from the University of Michigan on consumer sentiment, as well as readings next week on the housing market. After European countries reported on Friday a massive 2.5 percent contraction in the first quarter, investors remain nervous about pushing stocks higher.

Wall Street’s huge spring rally has hit a lull. The government’s stress tests of banks are done, earnings reports are winding down and the first wave of April economic data has been released. Investors are growing concerned that perhaps they got too optimistic when they saw signs of the economy bottoming.

Before the market’s opening, Dow Jones industrial average futures fell 16, or 0.2 percent, to 8,271. Standard & Poor’s 500 index futures fell 3.60, or 0.4 percent, to 885.90. Nasdaq 100 index futures fell 4.00, or 0.3 percent, to 1,349.00.

In mixed news for the market, the Treasury Department agreed to extend billions in bailout funds to six major life insurers. The move was positive because it means the insurers will get more capital, but negative because it implied that the insurers’ problems posed a serious risk to the financial system.

The Hartford Financial Services Group Inc. said it is eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP, while Lincoln National Corp. said it has been initially approved for a $2.5 billion injection.

Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc. have also been approved for funds. The capital invested in the six companies will total less than $22 billion, The Wall Street Journal reported Friday, citing a person familiar with the situation.

Meanwhile, the ailing auto industry continues to face challenges. General Motors Corp. says it will notify 1,100 U.S. dealers on Friday that their franchise agreements will not be renewed. GM said the closures — which come a day after Chrysler LLC cut ties with a quarter of its dealers — must be made as part of its government-ordered restructuring plan.

Earnings data was also troubling. Blockbuster Inc. reported late Thursday a sharp decline in first-quarter profit, sending the video rental chain’s shares tumbling about 20 percent in premarket trading.

Bond prices fell after the inflation data. The yield on the 10-year Treasury note rose to 3.11 percent from 3.09 percent late Thursday.

The dollar was mixed against other major currencies, while gold prices edged slightly lower.

Light, sweet crude fell 67 cents to $57.85 a barrel in electronic trading on the New York Mercantile Exchange.

In overseas stock trading, Japan’s Nikkei stock average rose 1.9 percent. In midday trading, Britain’s FTSE 100 was down 0.6 percent, Germany’s DAX index was down 0.6 percent, and France’s CAC-40 was down less than 0.1 percent.

WASHINGTON – Consumer prices were unchanged in April as both food and energy costs declined to offset gains elsewhere. Prices over the past year fell by the largest amount in more than a half-century, the government said Friday.

The disappearance of inflation has been a product of the country’s deep recession as surging job layoffs dampen wage pressures and weak consumer demand keeps a lid on price increases. Some economists are worried about a dangerous bout of falling prices, but most say that possibility remains remote because the Federal Reserve has responded with force to combat the current downturn.

Meanwhile, the Fed said the nation’s industrial production fell in April by the smallest amount in six months, more evidence that the pace of the economy’s decline is slowing.

The Labor Department said its Consumer Price Index was flat last month, meeting economists’ expectations. The docile inflation performance reflected a second monthly drop in energy costs and a third straight decline in food prices.

Over the past year, consumer prices have fallen 0.7 percent, the largest 12-month decline since a similar drop for the 12 months ending in June 1957.

A destabilizing period of falling prices has not been seen in the U.S. since the Great Depression of the 1930s, although Japan suffered through a period of deflation in the 1990s.

The Fed says output by the nation’s factories, mines and utilities fell 0.5 percent last month, after revised declines of 1.7 percent in March and 1 percent in February. Analysts expected a drop of 0.6 percent last month.

Still, the report showed U.S. industry remains weak. Industrial production has fallen in 15 of the 17 months since the recession began in December 2007, and is down 16 percent since then.

Core inflation, which excludes food and energy, rose 0.3 percent last month, the biggest jump since July. However, 40 percent of April’s gain came from a huge rise in tobacco prices, reflecting an increase in federal taxes.

Consumers in the U.S. and overseas — fearful of losing their jobs or homes — likely will remain cautious spenders in the months ahead, a Fed official said Friday.

“Under these conditions, I envision a slow recovery,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in prepared remarks to a banking convention in San Antonio, Texas. “Not a V-shaped snapback — nor even a U-shaped one — but a very slow slog as we find a more sensible and sustainable mix between consumption and savings and investment.”

Energy prices dropped 2.4 percent in April and are down 25.2 percent over the past 12 months, as prices retreat from record-highs set last spring and summer. Food costs fell 0.2 percent in April as the price of dairy products dropped sharply.

Most economists believe inflation will not be a threat for a prolonged period. The CPI followed a report Thursday that wholesale prices rose 0.3 percent in April, but fell 3.7 percent over the past 12 months, the biggest decline since 1950.

The concerns about deflation are muted in this country because of the aggressive actions taken so far by the Fed. The central bank has pushed a key interest rate to a record low near zero and has taken a number of other measures to flood the banking system with cash to deal with a severe credit crisis.

There are more worries about deflation in other parts of the world. Prices have been falling again in Japan, China and India as the global economy deals with what the International Monetary Fund has said will be the worst global downturn since the 1930s.

A year ago, the Fed was worrying about the threat of runaway inflation as prices for crude-oil and other energy products hit record-highs. But since last fall when the financial crisis hit, the Fed switched its focus to boosting economic growth.

“The recent pressures have been to the deflationary side, though we seem to have beaten that back,” Fisher said.

Federal Reserve Chairman Ben Bernanke, speaks to a meeting of the Atlanta Federal Reserve Bank Monday. Referring to the federal stimulus, Bernanke said, "You have to take away the punchbowl, as someone once said, in order to avoid the inflation risk."

The federal government has committed trillions of dollars to domestic bailouts and propping up the recessionary economy, much of it borrowed, much created out of thin air by the Federal Reserve.

How much longer can all this go on? That’s the pressing question facing policymakers, and one without a clear answer.

At some point, “You have to take away the punchbowl, as someone once said, in order to avoid the inflation risk,” said Federal Reserve Chairman Ben Bernanke, paraphrasing William McChesney Martin Jr., who served as Fed chairman in the 1950s and ’60s under five presidents.

But change course too soon, and it could nip a fragile recovery in the bud. Wait too long, and runaway inflation and gargantuan federal debt could be the sequel to the worst downturn since the 1930s.

While nobody thinks the current combination of near-zero interest rates, bank and auto bailouts and trillion-dollar annual deficits is a sustainable economic model, knowing just when to take away the punchbowl is the problem.

For now, the Bernanke Fed is still filling the punchbowl. And President Obama and the Democratic-controlled Congress are doing the same with government spending.

One reason the Fed has been so aggressive in slashing rates and taking unconventional recession-fighting steps is because “we are trying to avoid another form of price instability, which is deflation,” Bernanke told a Fed financial conference in Jekyll Island, Ga., earlier this week.

The risk of deflation – a widespread and prolonged decline in retail prices, wages and real estate and other asset values – is “receding, but it certainly needs not to be ignored,” Bernanke said.

Despite some recent glimmers of hope, evidence is mixed on whether things are getting better or still worse. Disappointing reports Wednesday on falling retail sales and a jump in foreclosures fueled continuing uncertainties and helped push stocks down.

“You’ve got to take the stimulus off at some point. I don’t think that point is this year,” said David Wyss, chief economist at Standard & Poor’s in New York. He said Wednesday’s economic reports point to a continuing recession, despite some recent signs of encouragement.

Government and most private economists expect the recession, which began in December 2007, to end later this year, although they expect high levels of joblessness to continue beyond.

In the meantime, recent developments are complicating efforts to tame the deficit once the recession does end:

• White House budget officials said this week that the deficit would widen to a record $1.8 trillion this year, $89 billion more than their estimate in February. They blamed the recession.

• With nearly 80 million baby boomers nearing retirement, the government reported that Medicare and Social Security will face insolvency sooner than previously projected because of the recession – for Medicare in 2017 and for Social Security in 2037.

• A potential $90 billion shortfall opened up in paying for Obama’s health care proposal. The gap comes from congressional reluctance to go along with his proposal to help pay for the plan by limiting high-income families’ charitable-giving and other tax deductions. House Speaker Nancy Pelosi said the health care bill will be on the House floor before the August recess.

• The administration asked Congress on Tuesday to add $100 billion in new U.S. contributions to the International Monetary Fund as part of a war-spending bill.

Obama proposed just $17 billion in new spending cuts last week, representing savings of less than one-half of 1 percent in his $3.4 trillion budget. Republicans scoffed and even some top Democrats criticized him for targeting popular programs in recessionary times.

By some accounts, the sum of all the U.S. grants, loans, guarantees and new money created electronically by the Fed since the financial crisis began totals some $11 trillion – roughly equal to the country’s national debt.

That sum does include loan guarantees that might not be needed, money that hasn’t been spent, various revolving accounts and U.S. investments in bad mortgages and other toxic, hard-to-value securities that could someday return money to taxpayers. Still, staggering amounts are involved.

“We are creating a government debt bubble that we’re going to have to deal with in a massive way,” suggested Rep. Kevin Brady of Texas, the senior Republican on the Congressional Joint Economic Committee.

History shows the dangers of calling the end of economic downturns too soon.

President Franklin D. Roosevelt made this mistake in 1936 when, believing the Depression largely over, he sought to pare back public spending and to balance the federal budget. It torpedoed a fragile recovery and pushed the economy back under water in 1937.

Japanese leaders made a similar mistake in the 1990s when they prematurely – and temporarily – withdrew government stimulus spending, helping to prolong Japan’s recession to one that lasted a full decade.

At the White House, presidential spokesman Robert Gibbs dismissed suggestions by some analysts, including Liz Ann Sonders, chief investment strategist for brokerage Charles Schwab, that the recession may have already ended.

“I can report nobody has intoned that message” at daily White House economic briefings, Gibbs said. “There’s much work to be done.”

Veteran budget analyst Stanley Collender said increases in public spending are an important fiscal tool and that “a bigger deficit is justified in the current economic environment.”

Furthermore, Collender added, if Obama doesn’t push his agenda for more health care, energy and education spending now, when will he?

“He’s got a 60-percent-plus approval rating. And Democrats are willing to work with him. He should go for it now. He’s never going to get a better chance,” Collender said.

Tom Raum covers politics and the economy for The Associated Press.

No Tucson dealerships are affected in Chrysler LLC’s plan to eliminate a quarter of its dealers across the U.S.

Chrysler is targeting five dealerships in Arizona for elimination as part of its bankruptcy court proceeding.

Dealers got the news Thursday.

In a bankruptcy court motion filed in New York, Chrysler said it wants to eliminate 789 dealerships by June 9. The motion said the dealerships sell too few cars and trucks, or compete with themselves.

The five Arizona dealerships picked for elimination are Arnold Motor Sales in Superior, Brothers Motors in Flagstaff, Darner Motor Sales in Mesa, Jones Dodge Chrysler Jeep in Wickenburg and Performance Dodge in Phoenix.

Dealers can appeal the Chrysler decision.

Jim Click Chrysler-Jeep at the Automall, Tucson Chrysler-Jeep, Jim Click Dodge and Tucson Dodge are not on the list.

The automaker has about 3,200 dealers but says that’s too many. It wants to have stronger, more profitable dealers with better facilities.

NEW YORK – Stocks traded modestly higher Thursday morning amid a worse-than-expected weekly unemployment report left investors with little reason to continue a two-month rally.

The Labor Department’s weekly jobless claims data showed more workers filed last week for benefits than anticipated. New claims jumped to 637,000, above what economists had anticipated.

The number of people overall seeking unemployment benefits also grew faster than expected, increasing to 6.56 million, while continuing claims hit a 15th consecutive record.

Stocks had tumbled on Wednesday, sending the Standard & Poor’s 500 index down 2.7 percent, after the Commerce Department said retail sales unexpectedly fell in April for the second straight month, while a separate report showed home foreclosures on the rise.

The twin hits to two key areas of the economy — consumer spending and the ailing housing market — led investors to drop stocks and seek the shelter of bonds, putting on hold a two-month rally that has sent the Dow Jones industrial average spiking 31 percent off of 12-year lows reached in early March, the markets biggest short-term jump since the Great Depression.

A separate report Thursday also showed inflation at the wholesale level jumped more than expected in April. Wholesale prices rose 0.3 percent last month, larger than the 0.1 percent analysts had expected.

Market indicators gave up some early gains and were trading in a narrow range.

In morning trading, the Dow Jones industrial average rose 38.94, or 0.47 percent, to 8,323.83. The Standard & Poor’s 500 index rose 5.14, or 0.58 percent, to 889.06, while the Nasdaq composite index rose 16.53, or 0.99 percent, to 1,680.72.

A two-month rally has stalled in recent days amid worries that the economy would not recover as quickly as hoped.

Investors also received some insight into consumer spending as retailer Wal-Mart Stores Inc. reported first-quarter results that met analysts’ expectations. Wal-Mart earned $3.02 billion, or 77 cents per share.

Wal-Mart had been performing better than most retailers during the ongoing recession. It shares fell 4 cents to $49.99.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 187.7 million shares.

The market was battered Wednesday by a worse-than-expected report on monthly retail sales for April. Economists had been expecting sales to remain flat in April, but they instead fell 1.2 percent. March figures were also revised lower.

Also, department store chain Macy’s Inc. reported Wednesday that its first-quarter loss widened from the year-ago period, a further sign consumer spending is not rebounding. Consumer spending accounts for about two-thirds of U.S. economic activity, so a rebound in sales is a key indicator that the economy might be strengthening.

Bond prices were mixed after rising a day earlier. The yield on the benchmark 10-year Treasury note fell to 3.10 percent from 3.12 percent late Wednesday. The yield on the three-month T-bill rose to 0.17 percent from 0.16 percent late Wednesday.

The dollar mostly rose against other major currencies, while gold prices fell.

The Russell 2000 index of smaller companies fell 1.45, or 0.31 percent, to 470.37.

Overseas, Japan’s Nikkei stock average fell 2.6 percent. In afternoon trading, Britain’s FTSE 100 fell 0.1 percent, Germany’s DAX index dropped 0.6 percent, and France’s CAC-40 slipped 0.2 percent.

———

ON THE WEB

New York Stock Exchange: www.nyse.com

Nasdaq Stock Market: www.nasdaq.com

WASHINGTON – House Democrats are looking at big health care changes, including federal aid to help families earning up to $88,000 pay for insurance and a requirement that all must carry coverage.

A document obtained by The Associated Press shows the plan being developed by the House Energy and Commerce Committee would also require employers to offer coverage to their full-time workers, or pay a percentage of their payroll to the government.

The committee summary is a first look at where House Democrats are headed as leaders try to meet an ambitious goal of passing a health care overhaul by the end of July. Energy and Commerce Chairman Henry Waxman, D-Calif., is expected to play a leading role in crafting the plan and steering it through negotiations with the Senate later in the year.

The three-page summary broadly tracks with the type of plan President Barack Obama outlined during the political campaign. The summary does not include any cost estimates, but independent experts have put the price tag for such a plan at $1.2 trillion to $1.5 trillion over 10 years, with some estimates ranging as high as $1.7 trillion.

Obama has said the final legislation must rein in costs, guarantee choice of health plans and medical providers, and ensure that all Americans have access to affordable coverage. The president has proposed a downpayment of $634 billion over 10 years to pay for expanding coverage. He’s also promising to hold hospitals, doctors, drug makers and other providers to their recent offer of $2 trillion in savings over 10 years.

The Energy and Commerce plan would build on the current system in which employers, government and individuals share responsibility for the cost of health insurance. But it would make major changes in the way Americans get and pay for coverage. Workers and employers would have new obligations to obtain coverage. Insurers would have to abide by new consumer protections to prevent sick people from being denied coverage.

The subsidies for health insurance would be offered on a sliding scale to those earning up to four times the federal poverty level, or $88,200 for a family of four, according to the document.

The House plan would set up a new insurance purchasing pool called an “exchange” to help make private coverage more affordable for individuals and small businesses. In its first year, the exchange would be open only to employers with fewer than 10 workers.

Health insurance plans that participate in the exchange would have to follow the same consumer protection rules. They would not be able to deny coverage to the sick, or charge them exorbitant rates.

The document also calls for creation of a new government insurance plan to compete with private companies. The government plan would probably be run by the Health and Human Services department, but it would have to compete on its own. The government insurance plan would be financed by premium payments, not taxpayer dollars.

By Erica Werner, Ricardo Alonso-Zaldivar

WASHINGTON – New jobless claims rose more than expected last week due partly to an increase in layoffs by the automobile industry, while the number of people continuing to receive unemployment benefits set a record for the 15th straight week

The Labor Department said Thursday the number of new claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week. That’s above analysts’ expectations of 610,000.

The increase comes after initial claims dropped in four of the previous five weeks, which raised hopes that the wave of layoffs announced earlier this year has crested and that the recession was nearing a bottom.

A department analyst said most of the increase was due to auto layoffs. Economists estimate Chrysler LLC has laid off 27,000 workers in the wake of its April 30 bankruptcy filing. General Motors Corp. has said it will temporarily shut 13 factories beginning later this month through July, potentially affecting 25,000 workers.

Still, many economists expect the downward trend in jobless claims to return once the impact of the auto industry’s job cuts has passed.

Also Thursday, the department said wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected. The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products.

Even with the larger-than-expected gain last month, wholesale prices over the past year have fallen 3.7 percent, the biggest 12-month decline since 1950. While falling prices can raise fears about deflation, economists believe the efforts by the Federal Reserve to combat the recession will prevent a dangerous bout of falling prices.

In another sign of labor market weakness, the tally of people continuing to receive benefits increased to 6.56 million from 6.36 million, setting a record for the 15th straight week and worse than analysts expected. The continuing claims data lags initial claims by one week.

The large number of people on the jobless benefit rolls is a sign that unemployed workers are having difficulty finding new positions.

Economists are closely watching the health of the labor market. If layoffs continue at a rapid pace, consumers could cut back further on spending and prolong the recession.

New applications for jobless benefits have declined since reaching 674,000 in late March, the highest level in the current recession. But claims remain elevated. Weekly initial claims were 375,000 a year ago.

The four-week average of claims, which smooths out volatility, rose to 630,500, after falling for four straight weeks. Still, the average remains nearly 30,000 below its high in early April, a drop that economists at Goldman Sachs and JPMorgan Chase & Co. have said indicates that the economic downturn is bottoming out.

There have been other signs the pace of job cuts is moderating, though still brutal. Employers eliminated 539,000 jobs in April, the fewest in six months and below the average of 700,000 in the first quarter of this year.

Still, more than 5.7 million jobs have been lost since the recession began in December 2007. The jobless rate rose to 8.9 percent in April, the Labor Department said last week. Many economists expect unemployment to hit 10 percent by year’s end.

More job cuts have been announced recently. Steel giant ArcelorMittal said Wednesday it will eliminate nearly 1,000 positions at an Indiana steel plant in July, while DuPont said last week it will cut 2,000 jobs.

Among the states, Illinois reported the largest increase in initial claims, which it attributed to layoffs in the construction and manufacturing industries. The next biggest increases were in Kansas, Puerto Rico, Indiana and Ohio.

New York reported the largest drop in claims of 13,386, which it said was due to fewer layoffs in the transportation and service industries. The next largest drops were in Michigan, North Carolina, Massachusetts and Connecticut. The state data is for the week ending May 2, one week behind the initial claims data.

SAN FRANCISCO – Nearly three-quarters of U.S. newspaper executives responding to a recent survey said their ability to inform readers has diminished with their steadily shrinking staffs.

The survey conducted by the Associated Press Managing Editors illuminated the doubts and concerns hovering over newspapers as the industry reels from a slump that has been worsening since last fall.

The 20-question survey got responses from 351 editors and publishers. Although a few newspapers provided answers from more than one editor, the survey still offered an unusually large sampling.

APME surveys typically elicit a smattering of responses to very specific questions about a topic in the news. But this one clearly touched a nerve as it sought to find out how newspaper management is coping with a downturn that has wiped out $11.6 billion, or nearly one-fourth, of the industry’s annual advertising revenue since 2005.

“These are the people out there on the front lines of this battle and they really don’t know how it is going to turn out,” said Bobbie Jo Buel, the APME’s president and executive editor of the Arizona Daily Star in Tucson.

Seventy-one percent of the survey participants said cutbacks have “somewhat affected” or “greatly affected” the quality of their newspapers’ coverage. Just 20 percent said their newspapers’ staff reductions had little or no effect.

The comments accompanying the responses were filled with resignation, frustration, anger, despair, confusion and even some gallows humor that reflected the depressed state of the U.S. economy as more people lose their homes because they can’t afford their mortgages.

“Our newspaper’s biggest revenue source today is foreclosure notices,” wrote Clifford Buchan, editor of the Forest Lake Times, a free weekly newspaper in Minnesota. “We have uncertainty once that run ends, as it most surely will.”

To cope with the hard times, 65 percent of the survey respondents said they have laid off workers since January 2008. Nearly 30 percent said they have lowered wages.

Total employment in the newspaper industry averaged 407,000 people during 2008, a 20 percent decline from 508,000 in 2005, according to the Bureau of Labor Statistics. Newspapers have eliminated thousands more jobs so far this year.

Now editors are worried they won’t have the adequate resources and skills to keep newspapers relevant as more readers turn to the Internet for information.

Nearly 68 percent of the respondents cited staffing shortages as the chief impediment to change; more than 57 percent said they didn’t have enough money to innovate. Thirty-one percent said their personnel didn’t have the skills to change with the times.

“It’s not worth complaining about having too few people because the staffing status quo of two years ago isn’t coming back,” wrote Jeff Gauger, executive editor of The Repository, a daily newspaper in Canton, Ohio, with a circulation of about 65,000.

Newspapers have been shrinking, largely because their audiences and advertisers have been defecting to the Web. The U.S. recession that began in December 2007 has accelerated the slide in ad revenue and may also be contributing to a circulation drop as more households try to save money.

Many editors seem to be having second thoughts about the industry’s practice of giving away stories and photos on their Web sites. Twenty-eight percent of the respondents said they plan to charge for online content. About 20 percent said they will offer some coverage exclusively in their print editions to reward their paying customers.

With so much information readily available online for free, more newspapers are concentrating coverage on community issues unlikely to attract the attention of other media outlets. Nearly 40 percent of the respondents said they are devoting more space to “hyper-local” news while decreasing the pages devoted to national and international stories.

Despite the challenges facing newspapers, 72 percent of the survey’s participants said they are staying in the industry because they believe in “the mission of journalism.” Just 6 percent said they were sticking it out because the pay was too good to give up.

Fifty-nine percent of the respondents predicted their publications will find ways to be profitable. But nearly 17 percent said they’re worried their newspapers will die.

While most newspapers seem to be trying different ways to engage readers and drum up revenue, 25 percent of the respondents said their publications are mostly “hunkering down” until the economy recovers.

“We’re all in this together,” wrote Steve Bagwell, managing editor of the News-Register, a newspaper in McMinnville, Ore. “All oars are pulling in the same direction.”

To bolster staff morale, many survey respondents said they are going out of their way to praise outstanding work and occasionally serving free lunches or snacks.

Other editors are reminding their reporters and photographers that they are fortunate to still have their jobs after so many of their colleagues have been ushered out the door.

“Aren’t we lucky to continue doing what we love while others are forced to leave the industry?” wrote Eric Petermann, managing editor of The Journal-Standard, a newspaper in Freeport, Ill., with a circulation of about 11,500. “This is gut-check time. Our `new reality’ is a time of separation. Love what you are doing, and be the best, or find a job as a PR flack.”

———

ON THE WEB

Associated Press Managing Editors: www.apme.com

WASHINGTON – The Obama administration will use bailout money repaid by large banks to provide additional capital infusions to smaller banks, Treasury Secretary Timothy Geithner said Wednesday.

Banks with less than $500 million in assets will have six months to apply for the funds, Geithner said in remarks to the annual meeting of the Independent Community Bankers of America. They also will be able to apply for larger amounts than banks were allowed to request during the current round of investments.

The administration first indicated that the repaid funds would be used for further injections earlier this month when regulators announced the results of the “stress tests” conducted on the nation’s 19 largest banks. Those tests found that 10 of the banks, including Bank of America Corp. and Citigroup Inc., needed to raise additional capital to survive a worsening recession.

Geithner also said the administration will propose an overhaul of the financial regulatory system in the “next couple” of weeks. The reforms will simplify and streamline the existing oversight structure, which he said is “too complex.”

Due largely to the government’s efforts, “the financial system is starting to heal” and “a substantial part of the adjustment process is now behind us,” he said.

Still, the administration wants to move on an overhaul of the nation’s financial rule book “while memory of the crisis is still acute,” Geithner said.

WASHINGTON – Retail sales fell for a second straight month in April, a disappointing performance that raised doubts about whether consumers were regaining their desire to shop. A rebound in consumer demand is a necessary ingredient for ending the recession.

The Commerce Department said Wednesday that retail sales fell 0.4 percent last month. Many economists had expected a flat reading, and the April weakness followed a 1.3 percent drop in March that was worse than first estimated.

Retail sales had posted gains in January and February after falling for six straight months, raising hopes that the all-important consumer sector of the economy might be stabilizing. But the setbacks in March and April could darken some forecasts because consumer spending accounts for about 70 percent of economic activity.

The hope had been that consumers were starting to feel better about spending, helped by the start of tax breaks included in the $787 billion stimulus bill. Households had spent the fall hunkered down in the face of thousands of job layoffs and the worst financial crisis since the 1930s.

The latest retail data “are yet another illustration that, although the worst is now over, there is still no evidence of an actual recovery,” Paul Dales, U.S. economist with Capital Economics in Toronto, wrote in a research note.

While anecdotal evidence suggests some improvement in sales in recent weeks, “to offset the plunge in wealth, the household saving rate still needs to double from the current rate of 4 percent,” Dales wrote. “With falling employment hitting incomes, this can only be achieved by a further retrenchment in spending.”

The jobless rate rose to 8.9 percent in April when a net total of 539,000 jobs were lost and 13.7 million people were unemployed, the Labor Department said last week.

Wall Street tumbled after the weaker-than-expected retail sales report. The Dow Jones industrial average lost about 130 points in morning trading, and broader indices also fell.

In a separate report, the Commerce Department said business inventories fell 1 percent in March, a decline that matched economists’ expectations. It marked the seventh straight decrease, the longest stretch since businesses cut inventories for 15 straight months in 2001 and 2002, a period that covered the last recession.

Businesses are continuing to cut their stockpiles in the face of declining sales, a development that has intensified the current economic downturn. Still, the reductions in stockpiles held on shelves and in backlots eventually should help businesses get their inventories more in line with reduced sales. If that is the case, any strengthening in consumer demand should lead to increased production.

The April retail sales dip came despite a 0.2 percent increase in auto sales, which fell 2 percent in March. Excluding autos, the drop in retail sales would have been 0.5 percent, much worse than the 0.2 percent gain economists expected.

Sales outside of autos showed widespread weakness last month. Demand at department stores and general merchandise stores fell 0.1 percent and sales at specialty clothing stores dropped 0.5 percent.

Department store operator Macy’s Inc. on Wednesday reported a wider loss for the first quarter due partly to restructuring charges. Still, the company expects to see an improvement in sales from its localization efforts beginning in the fourth quarter of 2009, and in the spring of 2010.

Liz Claiborne Inc. reported a first-quarter loss that was worse than Wall Street expected. The apparel maker said its quarterly loss swelled on restructuring charges and a drop in same-store sales stemming from lower consumer spending and an extra week of sales in the year-ago period.

Sales also fell in April at furniture stores, electronic and appliance stores, food and beverage stores and gasoline stations, according to the Commerce Department.

The performance at department stores and specialty clothing stores came as a surprise since the nation’s big chain stores had reported better-than-expected results for April. Same-store sales, rose 0.7 percent last month compared with April 2008. It was the first overall increase in six months, according to the tally by Goldman Sachs and the International Council of Shopping Centers.

For April, some mall-based clothing stores saw their declines level off and Wal-Mart Stores Inc., the world’s largest retailer, had reported its same-store sales rose 5 percent, excluding fuel, which beat expectations. Same-store sales, or sales in stores open at least one year, is considered a key metric of a retailer’s financial health.

The chain store sales report last week showed that Gap, American Eagle and Wet Seal posted smaller sales declines at their established locations than analysts had forecast.

The Children’s Place, T.J. Maxx owner TJX Cos. Inc. and teen retailer The Buckle saw bigger gains than expected. But luxury stores again were hard hit as their higher-end wares find fewer takers.

Consumer spending grew 2.2 percent in the first quarter of the year, after posting back-to-back quarterly declines in the last half of 2008.

Economists believe the overall economy, as measured by the gross domestic product, will show a decline of around 2 percent in the current quarter. That would represent an improvement from the steep declines of 6.3 percent in the fourth quarter of last year and 6.1 percent in the first three months of this year, the worst six-month performance in a half-century.

NEW YORK – Wall Street fell sharply in early trading Wednesday after the government reported weaker-than-expected retail sales in April.

The market has put a two-month rally on hold amid concern that an economic recovery won’t come as fast as once hoped. The disappointing retail sales report added to investors’ uneasiness.

The Commerce Department said retail sales fell 0.4 percent. Economists had forecast sales would be flat for the month. March sales figures were revised lower as well, to a decline of 1.3 percent from a previous estimate of 1.1 percent.

Consumer spending accounts for about two-thirds of economic activity. Without improved spending, the economy is more likely to remain mired in a recession.

In morning trading, the Dow Jones industrial average fell 141.29, or 1.67 percent, to 8,327.82. The broader Standard & Poor’s 500 index fell 15.14, or 1.67 percent, to 893.21, while the Nasdaq composite index declined 24.92, or 1.45 percent, to 1,691.00.

The market is “unwilling to absorb anymore good news, so it’s absorbing some bad news,” Joe Clark, managing director of Financial Enhancement Group in Anderson, Ind., said of the retail sales data and the market’s pullback in recent days. “The consumer is not broke, just unwilling to spend in some areas.”

However, Clark did note the market is unlikely to test the lows seen in early March before the rally began.

Declining issues outnumbered advancers by about 8 to 1 on the New York Stock Exchange, where volume came to 248.9 million shares.

Department store chain Macy’s Inc. said its first-quarter loss widened to $88 million, or 21 cents per share, during the first quarter. But excluding restructuring charges, losses totaled 16 cents per share, better than analysts’ expectations for a loss of 20 cents per share. Analysts don’t typically include charges in estimates.

Macy’s affirmed its 2009 outlook excluding restructuring costs, which is shy of analysts’ expectations. However, the company said it will beat its own outlook if the economy improves in the second half of the year.

Shares of Macy’s fell 53 cents, or 4.3 percent, to $11.82.

Improvement in the housing sector is also seen as a key to an economic recovery, but investors got another dose of disappointing news Wednesday, when a new report showed the number of U.S. households facing foreclosure jumped 32 percent in April. More than 342,000 households received at least one foreclosure notice during the month, according to RealtyTrac Inc.

Investors had been shaking off weak economic reports over the past two months, pushing stocks sharply higher. But that trend hasn’t continued this week. On Tuesday, the Dow gained about 50 points, but broader indexes slid for the second straight day. The Dow fell Monday.

Meanwhile, bond prices were mixed early Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.12 percent from 3.18 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.18 percent from 0.17 percent late Tuesday.

The dollar mostly rose against other major currencies, while gold prices also rose.

The Russell 2000 index of smaller companies fell 11.54, or 2.33 percent, to 483.64.

Overseas, Japan’s Nikkei stock average rose 0.5 percent. In afternoon trading, Britain’s FTSE 100 declined 1.5 percent, Germany’s DAX index declined 2.2 percent, and France’s CAC-40 fell 2 percent.

———

ON THE WEB

New York Stock Exchange: www.nyse.com

Nasdaq Stock Market: www.nasdaq.com

BRUSSELS – The European Union fined Intel Corp. a record euro1.06 billion ($1.45 billion) on Wednesday, saying the world’s biggest chip maker used illegal sales tactics to shut out smaller rival AMD.

The fine exceeded a euro899 million monopoly abuse penalty for Microsoft Corp. last year. Intel called the decision “wrong” and said it would appeal.

Intel, based in Santa Clara, California, has about 80 percent of the world’s personal computer microprocessor market — and faces just one real rival, Advanced Micro Devices Inc.

The European Commission says Intel broke EU competition law by exploiting its dominant position with a deliberate strategy to keep AMD out of the market that limited customer choice.

It said Intel gave rebates to computer manufacturers Acer, Dell, HP, Lenovo and NEC for buying all or almost all their x86 computer processing units, or CPUs, from Intel and paid them to stop or delay the launch of computers based on chips from AMD, which is headquartered in Sunnyvale, California.

Intel president and CEO Paul Otellini said the company would appeal to the EU courts because “the decision is wrong” and “there has been absolutely zero harm to consumers.” The company promised to comply with the EU order but criticized it as extremely ambiguous.

AMD’s Europe president Giuliano Meroni said the EU order “will shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers.”

Regulators said the company also paid Germany’s biggest electronics retailer, Media Saturn Holding — which owns the MediaMarkt superstores — from 2002 to 2007 to only stock Intel-based computers.

This meant workers at AMD’s biggest European plant in Dresden, Germany, could not buy AMD-based personal computers at their city’s main PC store.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said EU Competition Commissioner Neelie Kroes. “Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”

Kroes joked that Intel would now have to change its latest global ad campaign — “sponsors of tomorrow” — to proclaiming “the sponsor of the European taxpayer.”

“I can give my vision of tomorrow for Intel here and now: Abide by the law,” she added.

EU regulators said they calculated Intel’s fine on the value of its European chip sales over the five years and three months that it broke the law. Europeans buy some 30 percent of the euro22 billion ($30 billion) in computer chips sold every year.

They could have gone even higher as EU antitrust rules allow them to levy a fine of up to 10 percent of a company’s annual global turnover for each year of bad behavior. Intel’s worldwide turnover was euro27.9 billion ($38.8 billion) in 2007.

European consumers group BEUC welcomed the fine and said Intel should be held to account to consumers through civil suits in European courts. So far these are rare but the EU is urging victims of antitrust action to seek damages.

“Intel should be liable to compensate the victims of its illegal practices,” said Monique Goyens, head of the group. “Consumers have been paying too much for their computers and they should be compensated.”

The manufacturer rebates started in 2002, the EU said, with most ending in 2005 — apart from a 2007 deal for one unidentified company to only source notebook computer chips from Intel.

Regulators said rebates that give discounts for large orders are illegal when a monopoly company makes them conditional on buying less of a rival’s products or not buying them at all.

Manufacturers depend on Intel to supply most of the chips they need and faced higher costs if they lost most or all of a rebate by choosing AMD chips for even a small order.

Hewlett-Packard buys a fifth of Intel chips with Dell taking 18 percent, according to market research from Hoovers.

The discounts were so steep that only a rival that sold chips for less than they cost to make would have any chance of grabbing customers, the EU executive said.

It said AMD offered 1 million free chips to one manufacturer — which could not accept because that would lose it a rebate on many millions of other chips. It only took 160,000 free chips in the end, regulators said.

Intel’s payments to manufacturers ordered the company to delay the European launch of AMD’s first business desktop by six months. They were also paid to only sell the AMD line to small and medium companies and to only offer them directly to customers instead of to retailers.

Other manufacturers were paid to postpone the launch of AMD-based notebooks by several months, from September 2003 to January 2004 and from September 2006 to the end of 2006 — missing the key Christmas market.

The European Commission said Intel tried to conceal the conditions attached to these payments and details only emerged from e-mails that regulators seized in surprise raids on the companies.

Regulators refused to rule out returning to other parts of their probe where they had investigated Intel’s behavior in the server market and allegations of below-cost pricing designed to hurt AMD. Intel strongly denies these charges.

The EU charges also cover a time when AMD managed to take market share from Intel by launching higher performance microprocessors for servers in 2003, previously an Intel stronghold.

Intel fought back successfully by rolling out Core chips. More recently, it has grabbed more market share with Atom chips for netbooks.

EU regulators are not the only ones chasing Intel — South Korea fined the company $21 million last year.

And the U.S. may be stepping up action. The Federal Trade Commission upgraded a probe into Intel last year — and as the Obama administration is set to take a more aggressive approach against monopoly abuse by reversing a strict interpretation of antitrust law that saw regulators shun such cases.