Durable goods demand shows economy strengthening (Reuters)

WASHINGTON (Reuters) – The economy appears to be heading into the fourth quarter with solid momentum with demand for a range of long-lasting U.S.-made goods rising at the fastest pace in six months in September and businesses stepping up spending plans.

Other data on Wednesday also underscored the economy's improved tone, with new homes sales in September the strongest in five months and mortgage applications rising last week.

"The worries about a double-dip recession were a bit overdone, but slow growth is likely to be with us for some time to come," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Orders for durable goods, excluding transportation items, rose a stronger-than-expected 1.7 percent last month after falling 0.4 percent in August, a Commerce Department report showed. The gain was the largest since March.

At the same time, non-defense capital goods orders excluding aircraft -- a closely watched proxy for business spending -- jumped 2.4 percent, which was also the biggest rise in six months.

"Most businesses feel a little bit better about the economy than consumers do right now," said Vitner. "That means investment spending and economic growth are likely to hold up reasonably well."

While shipments of non-aircraft, non-defense capital goods fell, economists said that did not materially change their expectations for a pick-up in growth in the third quarter.

The government is expected to report on Thursday that GDP grew at an annual pace of 2.5 percent in the July through September period, according to the median of a Reuters poll. That would mark a sharp acceleration from the 1.3 percent logged in the second quarter.

NEW HOME SALES RISE

In a second report, the Commerce Department said new home sales increased 5.7 percent to a seasonally adjusted 313,000-unit annual rate.

But the median price for a new home fell 3.1 percent to $204,400 last month, the lowest since October 2010, indicating the market was far from recovering. Prices were down 10.4 percent from a year earlier.

"While the housing market still has a pulse it will not be back on its feet until there is significant job growth," said Mitchell Hochberg, Principal, Madden Real Estate Ventures in New York.

Applications for U.S. home mortgages rose last week as demand for both purchases and refinancing perked up, the Mortgage Bankers Association said in separate report.

U.S. financial markets were little moved by the data ahead of a meeting of European leaders to tackle the region's debt crisis. Stocks on Wall Street were mostly up, while prices for Treasury debt fell. The dollar rose against a basket of currencies.

TRANSPORTATION FALLS

Though demand for transportation equipment fell last month, reflecting weak autos and civilian aircraft, gains in new orders for durable goods -- items meant to last three years or more -- were broad-based.

Economist said this should continue to aid manufacturing, a sector that has been the pillar of support for the recovery despite a 0.8 percent drop in overall orders.

"Demand for big-ticket items seems to be alive and well," said John Ryding, chief economist at RDQ Economics in New York.

Transportation orders fell 7.5 percent, the largest decline since April. Orders for motor vehicles and parts fell 2.7 percent, while civilian aircraft bookings tumbled 25.5 percent.

Orders for machinery, primary metals, electrical equipment and computers and electronic products all rose solidly.

(Editing by Andrea Ricci)

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Social Security raise welcomed in tough economy (AP)

WEST PALM BEACH, Fla. – For some, the just-announced increase in Social Security checks amounts to an extra meal out, a little more cash for clothes or a new pair of shoes, some added comfort in retirement. For Elizabeth Davis, it's a crucial boost to the only thing keeping her afloat.

The 71-year-old Miami woman grew up picking cotton on her family's South Carolina farm, raised four children and has worked all her life, even now at a preschool. She is divorced, and her small 401k account "went down the drain," she said. So she counts the days to the third Wednesday of each month, when her $668 Social Security check arrives, and she is able to pay her bills.

"I could live a little better," she said of the 3.6 percent raise announced this week, the first in two years. "I don't have anything to look forward to until that check every month."

The reaction the cost-of-living adjustment has garnered illuminates the divide between the rich and poor among America's oldest residents. Social Security represents a staggering share of income for lower- and middle-class seniors — made evident just this week in a new government report — and for whom any increase can make a world of difference. For upper-income seniors, it's simply a nice plus.

Starting in January, 55 million Social Security recipients will get increases averaging $39 a month, or about $467 a year. In December, more than 8 million people who receive Supplemental Security Income, the disability program for the poor, will get increases averaging $18 a month, or about $216 a year.

Davis felt the effects of no raise the past two years. Her only other income is a small stipend for her work that averages about $232 a month. She's been using her credit card more and building debt. She's already trimmed as much as she can — from cutting her cable plan to limiting her phone usage to keeping the air conditioning off. She owns her home, but taxes, insurance, utilities and groceries eat up nearly all her income. As those costs rise, there was no wiggle room.

In Seattle, Joseph C. Visintainer, 63, lives alone with his cat in a U.S. Department of Housing and Urban Development complex, where rent is kept affordable. The retired restaurant worker said he keeps his expenses low in part by taking the bus instead of driving, and eating TV dinners instead of buying meat. Visintainer lives off Social Security and keeps some investments just for emergencies.

"I have to watch what I spend. I don't go out a lot like I used to," he said. "If I get an increase, I'll say thank you."

For John Bowker, 81, a retired executive, it's simply a little something extra. He and his wife, Linda, a retired computer programmer, live in the sprawling southwest Florida retirement community of Sun City Center, largely off their savings and investments. But a raise in Social Security adds some padding.

"We can do a little more on our weekends," Bowker said. "We'll feel a little less squeamish about going out and spending 40 or 50 bucks a month for a meal."

For many of the Bowkers' neighbors, though, it's different. He said some have even had trouble coming up with the modest $256-a-year dues residents of Sun City Center must pay on top of their mortgage or rent. Across the income spectrum, though, he said he hears wide acknowledgement from his neighbors that seniors are better off with Social Security.

"Even for us rock-red Republicans," he said, "this is one of the government programs that we would hurt very badly if it were not available to us."

The government formally announced the raise Wednesday, two days after the Government Accountability Office put out a report on income security among seniors that shed light on just how crucial Social Security payouts are.

The report found that household income rose 5 percent from 2007 to 2009 for those 65 and up, even though it fell 6 percent for those aged 55 to 64 who are just shy of retirement. Likewise, poverty rates increased among the younger demographic but decreased among those 65 and older. Many cite Social Security as a key factor.

Frank Chicoine, 80, of Stuart, Fla., receives a pension from his years working at a utility company, but that check's amount is fixed, never rising. The cost-of-living adjustment, or COLA, is the only raise he gets.

Medicare premiums cost him and his wife nearly $200 a month, and their supplemental health insurance is another $600 a month. His homeowner's premium went up by $600 to $2,000 this year as insurers have been granted hefty rate hikes. All his expenses seem to keep going up.

"I consider myself one of the lucky ones," he said. "But if I lost that $1,700 or $1,800 a month, it would change my life."

Chicoine isn't alone in seeing his income eaten up by higher medical costs. As much as one-quarter of the raises to Social Security beneficiaries could be wiped out by higher Medicare premiums, according to projections. Those premiums, for Medicare Part B, which covers doctor visits, could be announced as early as next week.

Richard Birch, 84, and his 72-year-old wife, Carol, said they spend thousands of dollars a year on medical treatments and roughly $300 a month on prescription medications after each survived bouts with cancer. They said their Social Security raise would likely be eaten up by the Medicare increases, so the couple will continue to live frugally as they've done for years.

The Birches have lived in their Geneva, Ill., home outside Chicago for 40 years and have driven the same car for 25 years. Despite earning a pension in addition to Social Security, they've changed many of their habits since the economic downturn.

"We think twice about driving places because of the price of gas, we don't buy clothes and we almost never go out to eat or have steak at home any longer," Carol Birch said with a smile and shrug.

The report from the GAO this week showed that among the bottom fifth of people 65 and older, Social Security comprised 83 percent of income. For the middle tier, it made up 64 percent. Among the most well-off, it represented less than 20 percent of their income.

The annual cost-of-living adjustment is tied to an inflation measure released Wednesday. The measure, which was adopted in the 1970s, produced no raises in 2010 or 2011 because inflation was too low. Those were the first two years without such a raise since automatic increases were enacted in 1975. Social Security recipients did, however, receive a one-time $250 payment from the economic stimulus package passed in 2009.

Doris Miller, 79, lives in the Tulsa, Okla., suburb of Broken Arrow and takes seven prescription medications every day for high blood pressure, arthritis and asthma. She also is recovering from a back injury. To pay for them, she's been charging all her prescriptions at the end of each month on credit cards and puts off seeing her doctor because she's afraid he will give her a new prescription to pay for.

She said she is worried that she could be close to maxing out some of those credit cards. With the cost of living increase, Miller hopes she can afford to pay cash for at least some of the drugs.

"Anything helps when you haven't had (an increase) in two years," she said.

___

Associated Press writer Justin Juozapavicius in Tulsa, Okla., Manuel Valdes in Seattle and videojournalist Robert Ray in Chicago contributed to this story.

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Zoellick: World economy in new danger zone (Reuters)

WASHINGTON (Reuters) – The head of the World Bank said Wednesday the world had entered a new economic danger zone and that Europe, Japan and the United States all need to make hard decisions to avoid dragging down the global economy.

"Unless Europe, Japan, and the United states can also face up to responsibilities they will drag down not only themselves but the global economy," World Bank President Robert Zoellick said in a speech at George Washington University.

"They have procrastinated for too long on taking the difficult decisions, narrowing what choices are now left to a painful few," he said, according to a prepared text of his remarks, which come ahead of meetings of the World Bank and International Monetary Fund next week.

The meetings of global finance and development leaders in Washington will focus on Europe's debt crisis and the risk of a Greek default, which has led to growing alarm in financial markets.

Mixed signals from European leaders have escalated concerns the 17-nation euro zone may be unable to unite behind a common approach to tackle the crisis.

Zoellick said European countries were resisting difficult truths about their common responsibilities, Japan had held off on needed economic and social reforms, and political differences in the United States were overshadowing efforts to cut record budget deficits.

Just as those very countries had called on China to be a responsible global stakeholder as a rising economic power, so too should they act responsibly to get a handle on their own economic problems, Zoellick said.

"The time for muddling through is over," Zoellick said.

"If we do not get ahead of events; if we do not adapt to change; if we do not rise above short-term political tactics or recognize that with power comes responsibility, then we will drift in dangerous currents."

The World Bank chief said emerging market nations would not sit on the sidelines as advanced economies try to right themselves.

"The story then won't be about tectonic shifts that have made emerging markets the new engines of the global economy," he said. "It will be about tectonic shifts that have left developed countries slamming on the brakes."

TECTONIC SHIFTS

Zoellick focused on the shifting global landscape in which emerging economies were playing a greater role in the world economy -- and in development.

He said developed countries had yet to fully recognize the global shifts and still operated under a "do what I say, not what I do" policy. They preached fiscal discipline but failed to rein in their own budgets, and advocated debt sustainability while their own debts were at record highs, he said.

Zoellick also said it was time to rethink foreign aid.

While aid remained a life or death issue for millions of people around the world, it had also become a vehicle for helping poorer countries develop and grow, he said.

"In a world 'Beyond Aid' assistance would be integrated with -- and connected to -- global growth strategies, fundamentally driven by private investment and entrepreneurship," he said. "The goal would not be charity, but a mutual interest in building more poles of growth."

He said development also meant tapping the power of women by eliminating gender inequality.

"We will not release the full potential of half of the world's population until globally we address the issue of equality; until countries, communities, and households around the world acknowledge women's rights and change the rules of inequality," Zoellick said.

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Data shows softening in economy, no recession (Reuters)

NEW YORK (Reuters) – The pace of U.S. private sector job growth slowed in August for the second month in a row, but factory activity in the Chicago area continued to expand, suggesting the economy would dodge a recession.

Private employers added 91,000 positions this month, payrolls processor ADP National Employment said on Wednesday, broadly in line with expectations.

Separately, the Institute for Supply Management-Chicago said its business barometer fell to 56.5 in August, the lowest since November 2009, from 58.8 the month before.

Still, it was better than economists' forecasts for a reading of 53.5, and suggested that factory activity might not be slowing as fast as had been flagged by other regional manufacturing surveys.

Orders for manufactured goods increased 2.4 percent in July after a 0.4 percent fall in June, the Commerce Department said in a third report.

"For those of us who don't believe the economy is in a free fall, we have got some support, said David Resler, chief economist at Nomura Securities International in New York.

"It is consistent with the belief ... that manufacturing activity is advancing, but it is advancing unevenly across regions."

But the Institute for Supply Management's index of national manufacturing activity probably fell to 48.5 in August, according to a Reuters survey, from 50.9 in July. A reading below 50 indicates a contraction in manufacturing.

The August ISM survey will be published on Thursday.

Major U.S. stock indexes added to gains after the factory data, while U.S. government debt prices fell. The dollar rose against the yen and the euro.

The ADP figures come ahead of the U.S. government's much more comprehensive labor market report on Friday, which includes both public and private sector employment.

While the ADP report has a poor track record of predicting the national nonfarm employment count, it suggested that businesses had not responded to the sharp stock market sell-off and loss of both business and consumer confidence this month by holding back on hiring.

Nonfarm payrolls are expected to have increased 75,000, according to a Reuters survey, slowing from July's 117,000 rise. The anticipated slowdown in payrolls growth will largely be the result of a strike at Verizon Communications.

"The non-farm payrolls figure is still likely to be a bit weaker because it will be affected by the strike by 45,000 Verizon workers last month," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

"The ADP survey counts people as employed as long as they were on the payroll, whereas the official payroll survey only counts people as employed if they were paid during their normal pay period that includes the 12th of the month."

While fears the economy is falling back into recession have increased this month, some of the recent data has been consistent with a slow-growth scenario rather than a contraction.

Slower than expected economic growth has fueled speculation the Federal Reserve could launch another round of bond buying -- known as quantitative easing -- but such a move would likely face political opposition both domestically and abroad.

A separate report earlier on Wednesday showed the number of planned layoffs at U.S. firms declined in August after rising for three months in a row, but the cuts were still up sharply from a year ago amid government job losses.

Employers announced 51,114 planned job cuts, down 23 percent from 66,414 in July, according to the report from consultants Challenger, Gray & Christmas, Inc. July's figure had been a 16-month high.

The Mortgage Bankers Association said on Wednesday applications for U.S. home mortgages tumbled last week as demand for refinancing sagged for the second week in a row.

(Reporting by Leah Schnurr and Lucia Mutikani)

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U.S. budget improves, economy weighs: CBO (Reuters)

WASHINGTON (Reuters) – A sweeping U.S. budget deal has brightened the country's fiscal outlook but unemployment will remain high over the near term, nonpartisan congressional forecasters said on Wednesday.

The report by the Congressional Budget Office is likely to add fuel to the debate over jobs and the economy that is set to dominate Washington through the 2012 elections.

The recent budget deal, passed earlier this month after months of acrimonious debate, will help slash projected budget deficits nearly in half over the next 10 years, CBO said.

But economic growth will remain sluggish through 2012, CBO said. It said the unemployment rate, currently at 9.1 percent, will only fall to 8.5 percent by the time voters head to the polls in November 2012.

The economic picture is probably even worse as grimmer data has emerged since the office completed its work in early July, CBO Director Doug Elmendorf said.

"The pace of the recovery has been slow, and the economy remains in a severe slump," Elmendorf wrote in a blog post.

That could complicate President Barack Obama's re-election hopes and give more ammunition to Republican rivals who have criticized his economic policies.

Obama plans to unveil a job-creation package next month to help boost an economy that threatens to slide back into recession. At the same time, lawmakers on a special congressional committee will try to squeeze more budget savings from the tax code and popular benefit programs like Medicare.

Policymakers will have to balance austerity and stimulus efforts over the coming months, Obama's fellow Democrats said.

The report "underscores the need for the Joint Committee to propose a plan to help put America back to work, coupled with a blueprint to reduce the long term deficit," said Democratic Representative Chris Van Hollen, one of 12 lawmakers named to the bipartisan panel.

Republicans said the report showed that Obama's efforts to boost the economy in the wake of the 2008-2009 financial crisis have not borne fruit.

"A slight decrease in the projected deficit is nothing to celebrate, particularly when it is accompanied by the grim news that CBO expects the national unemployment rate to continue to exceed 8 percent well past next year," House of Representatives Speaker John Boehner said in a statement. "The president's policies were supposed to keep that from happening."

BUDGET DEAL YIELDS BIG SAVINGS

The United States will rack up $3.487 trillion in cumulative deficits over 10 years, some $3.3 trillion below its previous projection, CBO said.

Nearly two-thirds of that savings is due to the deficit-reduction deal, which passed earlier this month as part of a package to raise the national debt limit. Another one-fifth is attributable to lower projected interest rates during the coming decade, CBO said.

Stocks rose as much as 1 percent and Treasury bond prices fell as the figures revealed a stronger fiscal outlook than previously thought. Both markets later flattened out as other factors overtook early enthusiasm about the CBO data.

The economic picture could worsen considerably if Congress extends temporary tax cuts that were passed under President George W. Bush.

CBO's budget projections assume that those cuts will expire at the end of 2012. Democrats want to extend them for middle and low income taxpayers, while Republicans want to extend the tax cuts for the wealthiest households as well.

An aging population and rising healthcare costs will force Congress to raise taxes or pursue further spending cuts if it wants to keep deficits and debt under control, Elmendorf wrote.

In the current fiscal year, which ends on September 30, the government will spend $1.284 trillion more than it collects, according to CBO's latest estimate. That is a $115 billion improvement over its last estimate in March.

Gross domestic product will grow by an annual rate of 2.4 percent this year and 2.6 percent next year, CBO said.

(Additional reporting by Richard Cowan in Washington and Chris Sanders in New York; editing by Deborah Charles and Vicki Allen)

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Analysis: World economy wobbles as markets push policymakers (Reuters)

By Alan Wheatley, Global Economics Correspondent Alan Wheatley, Global Economics Correspondent – 2?hrs?42?mins?ago

LONDON (Reuters) – The message from this week's market rout is crystal-clear: investors have lost confidence in their politicians, who urgently need to do something dramatic to reduce risks to the global economy.

By some measures, the world economy is in better shape to withstand shocks than it was in the aftermath of the failure of investment bank Lehman Brothers nearly three years ago.

Corporate earnings are robust, banks have thicker capital cushions, big emerging markets are still expanding strongly and there has been no repeat of the global liquidity squeeze that sent the dollar soaring in late 2008.

Indeed, after this week's 8.5 percent slump in global equities, a rebound might not be far off. Wall Street initially rose on Friday after the U.S. economy created 117,000 jobs last month, more than expected, only to slide back into the red.

Any relief is likely to be short-lived until politicians get ahead of the markets and show they are tackling the root cause of the malaise -- excessive sovereign debt.

"People have just become spooked by a crass failure of political leadership," said George Magnus, senior economic adviser at UBS in London.

In Magnus's view, the first-half slowdown in U.S. growth -- an important contributor to the current loss of confidence -- was inevitable given how long it will take households to reduce their own debt mountain and rebuild savings.

But he said markets wanted an end to the "political dysfunction" all too evident in the protracted wrangling over the U.S. debt ceiling and the euro zone's inadequate response to the debt crisis gripping the periphery of the 17-member group.

"There are economic solutions to economic problems, but no politicians are stepping up to the plate," he said.

NO URGENCY

The Group of 20 leading economies and the Group of Seven rich nations impressed investors in late 2008 and 2009 by coordinating interest rate cuts and expanding fiscal policy to cushion the post-Lehman freefall in the global economy.

But now, deficit-spending is the perceived problem, not the solution, in both the United States and the euro zone, while interest rates are already close to zero. With little ammunition left in the armory, governments are displaying concern but not enough urgency for the likes of impatient investors.

"There is probably no consensus within the G7 on how to address this," said a source in Japan familiar with G7 negotiations. "Each country is too busy with their own problems to talk about cooperation."

Market mayhem leading to weaker growth in the rich world would naturally be negative for emerging economies.

Jun Ma, an economist with Deutsche Bank in Hong Kong, estimated that a downward revision of 1 percentage point to growth in the United States and the European Union would trim Chinese growth by 1 percentage point, too.

So what happens next?

In the United States, with budget policy now effectively off limits until after the November 2012 presidential election, some analysts believe the Federal Reserve will eventually embark on a third round of large-scale asset purchases, dubbed quantitative easing (QE), if unemployment remains too high for comfort.

The unemployment rate dipped to 9.1 percent from 9.2 in July, but that was because discouraged job-seekers gave up the hunt for work.

"With fiscal policy close to exhaustion and any remaining scope for flexibility apparently compromised by the recent bipartisan agreement on the debt ceiling, the responsibility for providing any additional support to the U.S. economy rests very much with the Fed," said Russell Jones, an economist with Westpac in Sydney.

In a note to clients, Jones said it was probably too early for the Fed to announce a full programme of QE at its policy-setting meeting next week.

But he said the central bank could reinforce its easy policy stance in the interim by taking steps to anchor long-term interest rates in order to spur investment and spending.

COMMON EURO ZONE BONDS TO COME?

As for the euro zone, heavy selling this week of Spanish and Italian bonds is raising pressure on European leaders to massively expand the bloc's emergency financial rescue fund.

Currently at 440 billion euros, it would need to be doubled or tripled to cover economies as big as Italy and Spain, whose cost of borrowing hit fresh euro lifetime highs on Friday. The two countries' 10-year bonds were yielding about 4 percentage points more than those of Germany, the euro zone benchmark.

Magnus at UBS said that, apart from expanding the fund, the issuance of common euro zone bonds was a minimum requirement if political leaders wanted to end the crisis once and for all.

European Economic and Monetary Affairs Commissioner Olli Rehn said on Friday officials would look at longer-term options, including the idea of euro zone bonds, and would present a report after the summer.

But big powers Germany and France have hitherto opposed such a radical step, arguing that it would sap fiscal discipline and raise their own borrowing costs, alienating voters.

But Philip Whyte, a senior research fellow at the Center for European Reform in London, said it was illusory to believe that Italy -- the latest target of uneasy investors -- could restore confidence by its own reform commitments alone.

"The fate of Italy - and, by extension, the euro zone - is likely to be determined as much as by decisions in Berlin and Brussels as by those in Rome. It is becoming harder to see how the polarization of yields within the euro zone can be reversed unless European leaders adopt a common Eurobond," he said in a note.

The political implications of such a development would be momentous. But it would not be the first time that muscular markets have forced policy makers to do their bidding.

"As Lenin once said, 'there are decades when nothing happens, and there are weeks when decades happen'. We fear that the current unraveling in Europe means that we might be in the latter category," GaveKal Dragonomics, a research outfit based in Hong Kong, said in a report.

(Additional reporting by Leika Kihara in Tokyo, editing by Mike Peacock)

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Unemployment rate dips, economy adds 117K jobs (AP)

By CHRISTOPHER S. RUGABER, AP Economics Writer Christopher S. Rugaber, Ap Economics Writer – 25?mins?ago

WASHINGTON – Hiring picked up slightly in July and the unemployment rate dipped to 9.1 percent. The modest improvement may ease fears of another recession, but it wasn't enough to prevent another wild day of trading on Wall Street.

Employers added 117,000 jobs last month, the Labor Department said Friday. The job figures were better than the past two months, which were also revised higher.

Retailers, factories and health care firms were among the many industries that added workers. Even government job cuts weren't that bad after considering the bulk of them were caused by the temporary shutdown in Minnesota, which has since ended.

The brighter outlook on hiring sparked a brief stock market rally one day after the Dow Jones Industrial Average lost 500 points. But after gaining 171 points after the market opened, the Dow erased those gains and fluctuated throughout the day. Investors seemed focused on Europe's response to its debt crisis.

The jobs report beat most economists' expectations. But other recent economic data show the U.S. economy remains weak and is not generating enough jobs to lower unemployment rate.

The annual rate of growth for the first half of the year was less than 1 percent. Consumers cut back on spending in June for the first time in 20 months, burdened by higher gas prices and stagnant wages. Manufacturers are barely growing.

At least 250,000 net new jobs per month are needed to rapidly reduce unemployment. The rate has topped 9 percent in every month except two since the recession officially ended in June 2009.

"This pauses the conversation on the U.S. slipping back into recession, it does not end the conversation," said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

President Barack Obama used the modest job gains to press Congress to extend a Social Security tax cut enacted this year that put an extra $1,000 to $2,000 in most workers' pockets. He also called for a renewal of emergency unemployment benefits, which provide up to 99 weeks of support.

The tax cuts and extra benefits are scheduled to expire at the end of this year. Economists have cautioned that the end of the two programs could weaken economic growth in 2012.

In July, businesses added 154,000 jobs across many industries. Governments cut 37,000 jobs last month, the ninth straight drop. Still, 23,000 of those losses were almost entirely because of the shutdown of Minnesota's state government.

The government revised the previous two months' totals to show hiring wasn't as weak as first estimated.

The economy added 53,000 in May, up from an earlier estimate of 25,000, and 46,000 in June, up from 18,000. June's total was still the weakest in nine months.

"These numbers are not great," said Ian Shepherdson, an economist at High Frequency Economics, in a note to clients. "But they are a long way from recession territory."

Hiring in July was broad-based. Manufacturers added 24,000 jobs in July, as auto companies laid off fewer workers in July than usual. Retailers hired a net total of 26,000 employees. Employment in health care grew 31,000. Hotels, restaurants, and other leisure and hospitality companies added 17,000.

The unemployment rate fell from 9.2 percent in June partly because some unemployed workers stopped looking for work. That means they are no longer counted as unemployed.

As a result, the number of unemployed people fell to 13.9 million, down from 14.1 million. Still, that's nearly double the total before the recession.

The participation rate, which measures the percentage of people working or searching for jobs, fell to 63.9 percent, the lowest in 27 years.

Workers did see some pay gains last month. Average hourly wages rose 10 cents to $23.13.

The number of people working part time who would prefer full-time work declined, while those who've given up looking increased. Including both groups, the under-employment rate declined to 16.1 percent from 16.2 percent.

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Debt deal offers only small blessings for economy (Reuters)

WASHINGTON (Reuters) – The tentative deal to avoid a crushing debt default is at best a mild relief for the U.S. economy that nearly stalled in the first half of the year and has yet to show signs of any realistic pickup.

The plan for $2.4 trillion in spending cuts over a decade, if backed by lawmakers, would help lift some of the uncertainty that has weighed on investors, businesses and consumers unsettled by talk about a possible new and deep U.S. financial meltdown.

Still, it does not decisively remove the threat that the nation's AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating.

"This will have minimal impact on the economy. The cuts are not there for the first couple of years, which really makes you wonder if they're really going to happen at all," said Peter Morici, an economics professor at the University of Maryland.

The prospect of spending cuts is the last thing the U.S. economy needs right now, many commentators say.

Economists were stunned on Friday when data showed the U.S. economy grew just 0.4 percent in the first three months of this year -- perilously close to contraction -- and picked up unimpressively to 1.3 percent in the second quarter.

Against the backdrop of the weak economic recovery, the divided political parties in Congress appear to have agreed on one thing early on in their dispute over how to raise the U.S. debt ceiling: that spending cuts to narrow the deficit should be phased in slowly. They will be phased in from 2013.

President Barack Obama told reporters on Sunday that the initial discretionary cuts, expected to be about $917 billion, "wouldn't happen so abruptly that they'd be a drag on a fragile economy." He added that "job-creating" investments in education and research would be preserved.

But the bulk of the austerity has yet to be defined.

About $1.5 trillion of the planned savings will be decided by a bipartisan congressional commission, leaving unanswered the question as to whether the United States has the political will to tame the country's growing debt pile once and for all.

Troy Davig, U.S. economist at Barclays Capital, estimated that the deal would only cut $25-30 billion from government spending in the first year, which could shave about a tenth of a percentage point off economic growth.

"It's not a major drag on growth but when the economy is only growing a point and a half, a lot of economists feel that this is not the right time to be finding fiscal restraint. We will be shifting from massive stimulus to massive restraint."

Steeper and faster spending cuts could have dealt a knockout blow to an economy reeling from high fuel prices, bad weather, Japan's earthquake and a depressed housing market, plus a labor market that shows few signs of recovery.

LITTLE SCOPE FOR STIMULUS

Proposals discussed just a week ago included possible new fiscal stimulus measures, such as extending payroll tax cuts for employees and offering them to employers as well.

There appeared to be no room for them in Sunday's preliminary deal which is expected to be voted on in the Senate on Monday and sent to the House of Representatives for approval. The bipartisan panel, which must draft more cuts by November, could revisit the issue.

There could be some relief among U.S. employers and consumers that taxes won't rise under the new, hard-fought deal and that the worst-case scenario has been avoided.

The talks have been punctuated by warnings from the Obama administration that financial chaos would ensue if the $14.3 trillion federal borrowing limit is not raised by Tuesday.

That angst has added to a pile of worries slowing consumer spending decisions such as car purchases, according to Detroit executives. Existing home sales in June fell sharply due a big jump in canceled sales contracts.

Obama, too, said he has been concerned about the debt limit battle's impact on consumer and business confidence. He said he hoped Sunday's deal "will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy."

Any relief, however, is likely to be short-lived. U.S. jobs data on Friday will probably prove another reminder of the weak U.S. economy. Unemployment is expected to remain at 9.2 percent, according to a Reuters poll.

The budget deal "does nothing to restore household and corporate confidence," said Mohammed El-Erian, chief executive of bond fund investment giant PIMCO.

"So unemployment will be higher than it would have been otherwise, growth will be lower than it would be otherwise, and inequality will be worse than it would be otherwise," El-Erian told ABC's This Week with Christiane Amanpour.

Just as Washington's political leaders have run out of money to throw at the U.S. economy, the Federal Reserve looks lacking in ammunition too.

The U.S. central bank waged an massive experiment in monetary policy over the last few years to prevent the 2007-2009 recession from spiraling into a depression, slashing interest rates to zero and pumping $2.3 trillion into the ailing economy by buying debt,

The Federal Reserve is not expected to rush in to make up for the loss of any stimulus to boost growth.

Atlanta Federal Reserve President Dennis Lockhart said on Friday there would be a "very high bar" for more stimulus.

At least the deal taking shape in Washington would push the scary prospect of a U.S. debt default out until after the 2012 presidential election. But investors worldwide will still worry about the ability of the United States to avoid future downgrades of its debt, a move that would probably push up borrowing costs and act as yet another drag on the economy.

"Talk about kicking the can down the road, this is probably the biggest can that's ever been kicked -- appointing another commission to do the heavy lifting another day," Yale University economist Stephen Roach told Reuters Insider.

(Reporting by David Lawder; Editing by Anthony Boadle)

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Factory growth slows, casts shadow on economy (Reuters)

WASHINGTON (Reuters) – Manufacturing grew at its slowest pace in two years in July as new orders contracted, a troubling development for the faltering economy.

The Institute for Supply Management said on Monday its index of national factory activity fell to 50.9, the lowest level since July 2009, from 55.3 in June.

Economists had expected a reading of 54.9. A reading below 50 indicates contraction in manufacturing.

The economy almost ground to a halt in the first half of the year, government data showed on Friday, with output rising at a tepid a 1.3 percent annual pace in the second quarter after advancing just 0.4 percent in the prior period.

The ISM report suggested the much-anticipated bounce back in growth in the second half would probably be feeble.

"These are the types of numbers that are consistent with what we saw with the GDP numbers," said Keith Hembre, chief economist at Nuveen Asset Management in Minneapolis.

"Absent a governmental shock, we would dredge forward with this stagnant economic performance. We'll be mired in this 1 to 2 percent (growth) environment we have been in."

Congressional leaders were scrambling to line up Republican and Democratic votes for a White House House-backed deal to raise the U.S. borrowing limit and avert a debt default.

The deal, which raises the $14.3 trillion debt ceiling and cuts about $2.4 trillion from the deficit over the next decade, was hammered out on Sunday.

Stock indexes turned negative after the factory data while bond prices rose. The dollar fell against the yen and the Swiss franc, but rose against the euro.

Manufacturing, which accounts for about 12 percent of gross domestic product, has shouldered the weak recovery from the 2007-09 recession.

Activity last month was held back by weak new orders, whose index fell to 49.2 from -- the lowest in two years, from 51.6 in June. Prices paid index fell to 59 from 68, while the employment index fell to 53.5 from 59.9.

Nonfarm jobs likely rose 85,000 in July, according to a Reuters survey, after June's paltry 18,000 gain. The Labor Department will release its monthly jobs data on Friday.

A separate report from the Commerce Department showed construction spending advanced 0.2 percent to an annual rate of $772.32 billion, the Commerce Department said. May's construction spending was revised to a 0.3 percent increase rather than the previously reported 0.6 percent decline.

Economists had expected construction spending to be flat in June. Overall construction spending fell 4.7 percent from a year ago.

Private construction spending rose 0.8 percent to a seven-month high as an increase in nonresidential outlays offset a second straight month of declines in spending on residential projects.

Spending on public construction projects dropped 0.7 percent to $278.91 billion, the lowest level since March 2007. The decline reflected weak spending on federal projects, which dropped 2.2 percent. State and local government spending fell 0.6 percent to the lowest level since November 2006.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

(This story is corrected in the fifth paragraph to read "second half" rather than "second quarter.")

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Obama unveils sharp increase in auto fuel economy (Reuters)

WASHINGTON (Reuters) – President Barack Obama on Friday formally unveiled standards that would dramatically increase U.S. fuel economy standards for cars and trucks by 2025.

The plan, which is the result of months of negotiations between the Obama administration and auto makers, would require motor company fleets to average 54.5 miles per gallon by 2025.

"This agreement on fuel standards represents the single most important step we've ever taken as a nation to reduce our dependence on foreign oil," Obama said at an event announcing the new standards.

Flanked by top auto maker executives, Obama said the new rules would lower the country's oil use by 2.2 million barrels a day over next 15 years and save U.S. consumers almost $2 trillion in fuel costs.

In addition to lowering oil use, the standards are also expected to cut more than 6 billion metric tons of carbon pollution during the life of the program -- more than the entire amount of carbon the United States emitted in 2010 -- the White House said.

The compromise reached with auto makers is slightly less than the administration's original proposal for corporate average fuel economy, or CAFE, standards.

But it is a major step up from current standards that require auto makers to achieve 35.5 mpg by 2016.

Earlier, the administration had proposed increasing the CAFE target to 56.2 mpg between 2017 and 2025, but that plan ran into opposition from the industry and some lawmakers.

(Additional reporting by Malathi Nayak and Emily Stephenson in Washington and Ben Klayman in Detroit; Editing by Alden Bentley)

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President announces deal to boost fuel economy (AP)

By DINA CAPPIELLO and TOM KRISHER, Associated Press Writers Dina Cappiello And Tom Krisher, Associated Press Writers – 2?hrs?7?mins?ago

WASHINGTON – Ushering in the largest decrease in auto fuel consumption since the 1970s, President Barack Obama and automobile manufacturers Friday announced a deal that will save drivers money at the pump and dramatically cut heat-trapping gases coming from tailpipes.

The agreement pledges to double overall fuel economy to 54.5 miles per gallon by 2025, bringing major under-the-hood changes for the nation's automobiles starting in model year 2017. Cars and trucks on the road today average 27 miles per gallon.

"This agreement on fuel standards represents the single most important step we have taken as a nation to reduce our dependence on foreign oil," Obama said, sharing the stage with top executives of the major auto makers before a backdrop of some of the most cutting-edge cars on the road.

"Just as cars will go further on a gallon of gas, our economy will go further on a barrel of oil," Obama said.

When achieved, the 54.5 mile-per-gallon target will reduce U.S. oil consumption from vehicles by 40 percent and halve the amount of greenhouse gas pollution coming out of exhausts.

For American families, the president said the agreement — which will be subject to a mid-course review — means filling up the car every two weeks, instead of every week. That would save $8,000 in fuel costs over the life of a vehicle, he said.

The deal was less than what environmentalists and public health advocates wanted, but more than the Detroit Three automakers desired. In a letter to the president last week, Michigan lawmakers called the higher proposal "overly aggressive," after automakers had said they'd work to get vehicles averaging 42.6 to 46.7 miles per gallon. Green groups, meanwhile, had pushed for a 62 miles-per-gallon target by 2025.

For Obama, who watched his campaign promise on this issue die when Republicans retook control of the House, the compromise provides a way around political roadblocks and offers an opportunity to affect climate change.

The deal also provides an answer on the issue of oil dependency. It promises reduced demand at a time when Republicans in Congress have criticized Obama for being too slow to drill and not opening up more areas to oil and gas exploration after the massive Gulf oil spill last year.

And at a time when a consensus in Congress is elusive on the debt ceiling and curbing the federal deficit, the president said the fuel economy deal was a "valuable lesson to" Washington.

"You are all demonstrating what can happen when people put aside differences," Obama said. "These folks are competitors, you've got labor and business. But they said we are going to work together to achieve something important and lasting for the country."

For automobile manufacturers, particularly the Detroit Three, the deal signals a turnaround from the days when they resisted boosting fuel economy targets, arguing that consumers would not buy smaller and more efficient cars, and the technology to reduce fuel dependency was too expensive.

The dynamics were also changed by the $62 billion bailout of GM and Chrysler by taxpayers, making it harder for automakers to say no to the White House.

Some environmentalists lauded the agreement Friday, but said that manufacturers owed taxpayers a bigger deal after the multibillion-dollar bailout.

"An auto industry that owes its survival to taxpayer bailouts ungratefully flouted the public's demand for fuel efficiency and less pollution, fighting for loopholes until the bitter end," said Dan Becker, Director of the Safe Climate Campaign. "We will use every opportunity, including the midterm review that the automakers demanded, to strengthen the standards."

For consumers, the new requirements are well beyond the gas mileage of all but the most efficient cars on the road today.

By the time the new standards take effect, the government expects gas-electric hybrids to make up about half the lineup of new vehicles, with electric vehicles making up about 10 percent of the fleet.

Currently hybrid and electric vehicles combined amount to less than 3 percent of U.S. vehicle sales, according to J.D. Power and Associates.

The standards also could force auto companies to get rid of some less-efficient models as they try to boost the gas mileage of their lineups. But that depends on how quickly new technology can be developed.

Automakers already are moving toward boosting gas mileage by cutting weight and with new engine and transmission breakthroughs. They're also adding electric cars to their lineups. General Motors and Nissan are selling mass-market electric vehicles, while Mitsubishi, Ford, Toyota and others are about to enter the market.

Nissan's vice president Scott Becker in a statement said the Obama administration has issued some extremely challenging greenhouse gas reduction and fuel economy improvement targets, but Nissan was "up to the task."

Nissan introduced the LEAF - the world's first and only 100-percent electric car for the mass market - in December 2010. More than 4,000 of the 99 miles-per-gallon vehicles are already on the road.

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Krisher contributed reporting from Detroit

Follow Dina Cappiello on Twitter: (at)dinacappiello

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Ford profits despite economy, rising costs (Reuters)

DEARBORN, Michigan (Reuters) – Ford Motor Co's profit held up well in a second quarter marked by the impact of Japan's earthquake, the shaky U.S. economy and high commodity costs, but the automaker remained cautious about consumer demand going forward.

Ford, the only U.S. automaker that did not accept a government bailout in 2009, has posted a net profit for eight straight quarters. It racked up net losses of $30 billion from 2006 through 2008 when it cut jobs, sold unprofitable brands and reshaped a lineup laden with large SUVs and pickup trucks.

"These results are pretty good considering some of the stumbling blocks in the economy," said Mirko Mikelic, senior portfolio manager with Fifth Third Asset Management, which owns Ford shares.

"Even after we came out of the recession, this is still a fragile recovery," he added. "It's really tied to employment and the housing market."

However, Ford, scheduled to begin talks on Friday with the United Auto Workers union for a new labor deal, also said it expects U.S. industry sales this year to finish at the low end of its previous forecast.

Ford shares were down 1.5 percent at $12.97 on Tuesday afternoon, after rising as much as 2 percent in the morning. The S&P 500 index at the same time was down 0.3 percent.

Smaller rival Chrysler also reported on Tuesday, posting a wider second-quarter net loss after the U.S. automaker repaid $7.6 billion in debt stemming from its 2009 federal bailout.

North America was the only region where Ford's profit improved but pricing rose in every region, helping to offset higher commodity costs. North America was particularly strong, with higher prices for vehicles accounting for $900 million in gains, almost evenly split between higher prices and lower incentives.

"While pricing has been a positive story for Ford for much of this cycle, the pricing gains have accelerated despite heightened incentives at selected Korean manufacturers," Jefferies analyst Peter Nesvold said in a research note.

He said the auto business saw pricing rise $1.1 billion over last year, almost double his estimate.

Ford's net income in the second quarter fell to $2.4 billion, or 59 cents per share, from $2.6 billion or 61 cents per share as it reduced debt by $2.6 billion to $14 billion.

Lowering debt saved Ford $700 million in interest payments in the first half of 2011 compared with the same period in 2010.

In North America, Ford's pretax profit for the second quarter rose 0.5 percent to $1.91 billion.

"They're doing a great job holding (market share)," said Citi analyst Itay Michaeli. "That's why you're seeing a quarter like this, where they're realizing $900 million in positive pricing on a year over year basis in North America. We were expecting $700 million."

Excluding one-time items, Ford's quarterly profit of 65 cents per share was 5 cents better than what analysts polled by Thomson Reuters I/B/E/S had expected.

Revenue rose 13 percent to $35.5 billion. Analysts had expected $31.6 billion.

"In contrast to the earnings and guidance volatility seen to date this automotive earnings season, Ford delivered a quarter that was, like some of its cars over the years, boring but reliable -- and we mean that as a compliment," Barclays Capital analyst Brian Johnson said in a research note.

Ford Chief Financial Officer Lewis Booth told reporters. "This wasn't the easiest of quarters. We've gotten through the Japanese tsunami issues very well. We lost some units (vehicle production) in Asia Pacific, but managed to lose a lot less than we expected and we didn't really lose any significant units anywhere else in the world."

However, Booth added Ford now sees U.S. sales for the full year at the bottom end of its previous forecast of 13 million to 13.5 million vehicles. Earlier in the year, Ford had expected the higher end of the range.

Ford's forecast includes medium and heavy trucks, which account for 250,000 to 300,000 in annual sales.

The shift in outlook echoed comments previously made by rival General Motors Co and comes after disappointing U.S. industry sales in May and June.

Booth reiterated comments that Ford expects the second half of 2011 to show weaker financial results than the first half, in part because of seasonal factors.

INVESTMENT GRADE PROGRESS

Ford is striving to return to an investment grade rating by the major ratings agencies. Booth said he could not predict when the company might return to investment grade, but expects that to occur "sooner rather than later."

Most major agencies have Ford rated two notches below investment grade. Ford was last at investment grade in May 2005.

However, Booth said he expected a reexamination by the agencies once talks for a new labor deal with the UAW are completed. The union represents about 41,000 Ford hourly workers. [ID:nN1E76N0DA]

Ford's hourly "all-in" labor cost per worker is about $58, compared with about $50-$51 per hour for Chrysler and about $57 per hour at GM.

The gap between Ford and its Japanese rivals with U.S. plants has narrowed from about $25 to $30 in 2007 to about $5 to $10 now, according to the Center for Automotive Research of Ann Arbor, Michigan.

Ford's labor costs are higher than Chrysler mainly because it has hired fewer than 100 so-called second-tier workers who make about half the pay of veteran UAW-represented workers, while about 12 percent of Chrysler's 22,800 union auto workers make the lesser wage.

The Center for Automotive Research also said Ford's estimated U.S. auto production labor costs are about $5.1 billion annually.

Booth said Ford's profit was hampered by higher commodity costs related mainly to higher oil prices. He said prices for plastics, steel, aluminum, cooper and precious metals are all on the rise and affecting profit margins.

"As we continue to see growth in Asia, commodities stay under pressure," he said.

In its home U.S. market, the No. 2 U.S. automaker had a 16.9 percent market share through the first half of this year, compared with 17 percent a year ago.

"We continue to expect commodities and structural costs to each increase by about $2 billion compared with 2010," Booth said.

He said the higher structural costs are linked to product development, a key for Ford's business plan, and that as a percentage of net revenue those costs will be less than in 2010.

Ford's sales in the first half of the year rose 12 percent versus a 17 percent rise for GM and 20 percent for Chrysler Group LLC.

(Additional reporting by Ben Klayman; Editing by Derek Caney and Matthew Lewis)

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World economy to keep strong but risks abound: Reuters poll (Reuters)

LONDON (Reuters) – The world economy should expand steadily this year and next thanks mainly to prospering emerging powers, a Reuters poll showed, but fiscal troubles lurking in Europe and potentially the United States risk blowing this view apart.

The quarterly survey of more than 350 economists from all over the world showed a dimmer outlook for most of the rich-world Group of Seven economies since the last survey in April.

Only Germany, booming thanks to buoyant exports, is expected to post growth averaging more than 3 percent this year. Elsewhere, fiscal austerity in Europe and growing debt fears have soured analysts' sentiment.

By contrast, emerging powers like China have enjoyed near double-digit annual growth rates since the global recession -- but they face risks of their own, struggling to contain rampant inflation that has accompanied fervent growth.

Economists pointed to the fiscal crisis raging in the euro zone's peripheral countries and the political deadlock in the United States surrounding an increasingly urgent lift to the country's legal debt ceiling as the biggest risks to global economic growth.

"If the (euro zone) debt crisis is mishandled, it's a major threat. But it's a threat comparable to the mishandling of the U.S. sovereign debt crisis. It's six and two threes," said Willem Buiter, chief economist at Citi.

The poll showed the world economy expanding 4.1 percent this year and 4.3 percent next year, little changed from April's survey.

Buiter said that authorities in emerging markets are largely behind the curve in monetary policy, which could leave open the prospect that their boom could become a bubble and then a bust -- but not for a couple of years.

While economists cut their U.S. economic outlook compared with a poll published last month, they still see the United States performing better this year than struggling European peers like Britain, Italy and France.

They saw the U.S. economy growing an average 2.5 percent this year, before picking up to 3.0 percent next year -- comfortably in excess of the sub-2 percent growth rates seen for this year for Europe's G7 members, excluding Germany.

"It was the surge in oil and gasoline prices that hurt the (U.S.) economy the most in the first half, and now that they're down, that should take the weight off," said Mark Zandi, chief economist of Moody's Analytics.

The dimming U.S. outlook has had a knock-on effect for Canadian growth prospects this year, with economists applying a hefty downgrade to their quarterly growth profiles.

DEFAULT?

Still, the focus over the next few months will be averting sovereign defaults in both the euro zone and the United States. While the euro zone question is one of fundamental solvency, most notably in Greece, the U.S. problem is a political one.

Economists remain confident that U.S. lawmakers will reach a deal to raise the government's debt ceiling. All but two of 40 economists polled said a deal would be reached.

"They will squeak something out, but the odds of failure have increased," said Chris Lowe, chief economist for FTN Financial and one of the economists surveyed.

The poll was conducted from Friday to Wednesday and was completed before House Republican leader Eric Cantor said President Barack Obama walked out of a meeting on Wednesday evening, escalating concerns about the negotiations.

Lawmakers disagree over budget deficit reduction measures that are a condition for extending the legal $14.3 trillion borrowing limit -- needed so the U.S. government can fund its commitments next month.

In Europe, Greek Prime Minister George Papandreou said the euro zone and International Monetary Fund must quickly approve a bailout to avoid a collapse of Greece's economic reform plans.

While Germany has recently topped the European -- and G7 -- growth charts, peripheral strugglers like Greece, Ireland, Spain and Italy will drag hard on the euro zone's economic performance.

The 17-nation bloc's economy will probably grow just 0.4 percent per quarter from here until next April. That would be slower than the 0.8 percent rise seen in the first quarter of this year.

Economists in the poll also left their 2011 and 2012 growth forecasts unchanged at 2.0 and 1.7 percent, respectively. By contrast, the German GDP growth outlook for this year and next was 3.4 percent and 1.9 percent.

"Germany's growth will remain above average, by historic and euro zone standards, so long as the euro zone doesn't totally fall apart and leave just a core group of countries remaining," said Timo Klein, an economist at IHS Global Insight.

Unlike Germany, Britain's economy probably struggled to generate meaningful growth in the second quarter and its prospects ahead look likely to be jaded by fierce fiscal austerity measures and high inflation.

JAPAN RECOVERS

Japan's recovery from the March 11 earthquake and tsunami that killed at least 21,000 people looks likely to proceed at a faster pace than thought even last month, helped by a restoration of factory output.

Although Japan, the world's third-largest economy likely contracted for a third straight quarter in April-June, it is likely to emerge from recession this quarter as it shakes off supply constraints more quickly than expected, according to the poll of around 30 economists.

"Automakers are pushing forward production plans and companies are making efforts to limit the impact of summer power shortages on output," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

"We expect factory output to normalize in July-September."

(Additional reporting by reporters in London, Toronto, Tokyo, New York, Berlin, Paris and Rome, Editing by Ross Finley, Anna Willard and Leslie Adler)

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Syrian protesters take aim at economy (AP)

BEIRUT – Syrians held general strikes in cities and towns across the country Thursday, part of a strategy to squeeze the economy as President Bashar Assad tries to crush a four-month-old revolt against his autocratic rule.

Security forces kept up their crackdown, however, and at least five people were killed.

The calls to strike have become a ritual every Thursday, a day before thousands take to the streets following Friday prayers. But activists said this week's response was the most widespread so far, suggesting a new momentum to the uprising.

"All the shops have closed, we have announced a general strike," said an activist in the eastern city of Deir el-Zour, speaking to The Associated Press by telephone. He asked that his name not be published for fear of retribution.

Security forces in Deir el-Zour, near the border with Iraq, opened fire from their cars on thousands of protesters demanding Assad's ouster, killing at least two people. Two others were killed in the central city of Homs when security forces backed by tanks raided neighborhoods, activists said.

A Syrian soldier also was killed in Homs, according to the London-based Syrian Observatory for Human Rights, which has a network of sources on the ground. The circumstances of the death were not immediately clear.

The uprising has proved remarkably resilient in a country known for its brutal dictatorship, backed up by pervasive security forces and a loyal military. Although Assad's regime is shaken, it still draws from a significant base of support.

So far, the opposition has yet to bring out the middle and upper middle classes in Damascus and Aleppo, the two economic powerhouses. But there will be little to prop up the regime if business comes to a halt, private enterprises go bankrupt and the government cannot pay state employees.

Unlike some Arab countries that have been able to stave off unrest with their oil wealth, Syria has little to fall back on.

Omar Idilbi, a spokesman for the Local Coordination Committees, which help organize the protests, said general strikes could attract Syrians who have been hesitant to join the uprising.

"The aim is to push more people to join the uprising in a way that does not endanger their lives," he said. "The other aim is to pressure the regime economically."

Syria has banned most foreign media and placed tight restrictions on reporters, making it nearly impossible to independently confirm accounts out of Syria.

It was difficult to determine the extent of Thursday's protests, but residents and activists said they were most pronounced in Homs, the Damascus suburb of Douma, Deir el-Zour, as well as towns in northern and southern Syria.

Some security forces attacked shops that took part in the strike in Homs, shooting up windows and setting fires, Idilbi said.

Assad is trying to crush the rebellion with a deadly government crackdown that activists say has killed some 1,600 people since the middle of March.

The government disputes the toll and blames the bloodshed on a foreign conspiracy and "armed gangs." The regime has acknowledged the need for reform, however, and has promised to enact sweeping changes, including constitutional reform.

But protesters say the gestures are empty promises.

Syria's state-run news agency SANA, a mouthpiece for the regime, said masked gunmen tried to cut roads in Deir el-Zour Thursday and forced shop owners to close their stores. It added the gunmen terrorized people and vandalized some shops whose owners refused to close.

The report also said gunmen abducted two police officers and a student in Hama.

SANA's reports often contradict witness accounts.

Ammar Qurabi, head of the National Organization for Human Rights, said the violence is proof that the regime is escalating its crackdown against anyone who dares protest and that the promises of reform were merely "ink on paper."

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Zeina Karam can be reached on http://twitter.com/zkaram

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Bernanke "prepared to respond" if economy worsens (Reuters)

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank is ready to ease monetary policy further if the economy weakens and inflation moves lower, hinting policymakers are actively mulling further stimulus.

While holding to a view that recent economic softness would eventually pass, he appeared less confident in that projection -- and more willing to entertain the possibility of another round of stimulus.

"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Bernanke told the U.S. House of Representatives Financial Services Committee.

Bernanke specifically noted Fed forecasts for June, which were already revised down significantly from April, had not incorporated recent data, particularly last Friday's dismal employment report. It showed job growth essentially ground to a halt in May and June, while jobless rate rose to 9.2 percent.

U.S. stocks, which have taken a drubbing over the last week on worries about Europe's debt troubles and on concerns about the U.S. economic outlook, rallied 1.2 percent, while Treasury bond prices and the dollar tumbled.

Asked whether the Fed would be willing to launch another bond purchase program if the economy slumps, Bernanke said: "We have to keep all the options on the table. We don't know where the economy is going to go."

Pressed on the budget, Bernanke reiterated his warning that a failure to raise the U.S. debt ceiling would deal a severe blow to the global economic recovery.

"Cutting programs or raising taxes in ways that will reduce aggregate demand ... is going to slow the economy," he said.

Minutes from the Fed's June meeting, released on Tuesday, showed some policymakers believe the Fed should stand ready to provide more support to the economy if the recovery flags, rekindling the threat of a debilitating downward spiral in prices and wages.

Others on the policy-setting Federal Open Market Committee, however, felt inflation risks might force the central bank to withdraw stimulus sooner than is currently anticipated.

DOOR OPEN TO QE3

Still, given the change in tune, some investors were betting the more dovish members of the committee would win the day in pushing for a third round of quantitative easing if the economy continues to deteriorate.

"My initial reaction was 'QE3 here we come'," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "We suspected the Fed would come up with some sort of QE3 in light of the disturbance surrounding the sovereign debt markets."

Bernanke did not go into great detail regarding Europe, but the Fed chief's outlook on U.S. growth prospects was understandably cautious.

After recovering from the steepest recession in generations beginning in the summer of 2009, the U.S. economy has lost momentum in recent months. Gross domestic product expanded just 1.9 percent in the first three months of the year, and the second quarter does not look to have been much better.

Bernanke held to the view that recent weakness was due in part to temporary factors like high energy costs and the effects on global industry from Japan's earthquake and tsunami.

But he acknowledged the labor market remains weaker than the Fed would like.

"The most recent data attest to the continuing weakness of the labor market," Bernanke said.

Bernanke defended the second round of bond buys against critics who said it had been ineffective.

He said the Fed estimates round two of quantitative easing, or QE2, lowered long-term interest rates by between 0.1 and 0.3 percentage point, which Bernanke said would be roughly equivalent to a 0.40 to 1.20 percentage point decline in the federal funds rate, which is currently set in a range between zero and 0.25 percent.

Regarding inflation, Bernanke reiterated the recent rise in prices was mostly linked to transitory factors such as higher energy and commodity prices, and should trend back down.

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Biden out front in defending Obama on the economy (AP)

COLUMBUS, Ohio – The longest walk parents can make, Vice President Joe Biden often says, is upstairs to tell the children they've lost their job.

"Millions have been stripped of their dignity," Biden told an Ohio audience last year. "It's time to restore their dignity."

Biden, who spoke frequently of his blue-collar roots in Scranton, Pa., during the 2008 presidential campaign, is reprising his role as one of the Obama administration's top surrogates on the economy and an empathetic voice in industrial Midwestern states hard hit by the recession.

The former Delaware senator is expected to play a similar role in the 2012 campaign, focusing on Ohio, Michigan, and Pennsylvania. President Barack Obama carried them in 2008, but each elected Republican governors in 2010.

A large swath of the Midwest, including Iowa, Indiana and Wisconsin, which Obama also won, are considered prime targets for Republicans next year.

"He obviously has deep, deep roots in the industrial Midwest running from Pennsylvania right across and he'll be very valuable there," Obama strategist David Axelrod told reporters in Chicago this past week.

Biden, who was scheduled to speak at the Ohio Democratic Party's annual dinner Saturday, has assailed moves by GOP governors in Wisconsin and Ohio to strip away collective bargaining rights from most public workers.

He's also criticized efforts by Republicans in Congress to turn Medicare into a program with federal subsidies for beneficiaries who would seek coverage from private insurers.

The vice president has defended Obama's handling of the economy, pointing to tough decisions to seek an economic stimulus package and rescue U.S. automakers. But his pitch often turns personal, drawing on his father's decision to move the family to Delaware in the 1950s in search of a job.

"There's still a long way to go. There are still millions of women and men who are like the family I was raised in," Biden told Democrats in New Hampshire last month. "When a recession hit, we knew someone sitting around my dad's kitchen table ... was going to lose their job."

Former Ohio Gov. Ted Strickland said Biden "has the ability to express what a lot of people feel when it comes to their anxieties over the economy and job loss, their kids. I think he does a really good job of identifying with those concerns and expressing them."

Ahead of Biden's visit, Republicans countered that Obama's policies led to GOP gains in 2010 and have failed to revitalize the economy.

"All the visits in the world from President Obama, Vice President Biden and other top-level surrogates won't change the administration's job-killing policies," said Republican National Committee spokesman Ryan Tronovitch.

Largely under the radar, Biden has maintained a busy travel schedule, appearing in more than 150 political events in 2009 and 2010, including 20 in Ohio and 14 in Pennsylvania. In 2011, he had appeared at more than a dozen political events before the Ohio dinner.

Fundraisers planned for Monday in Atlanta and Nashville, Tenn., were postponed so Biden could meet with Senate leaders about efforts to increase the government's borrowing limit, aides said.

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Associated Press writer Deanna Bellandi in Chicago contributed to this report.

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Ken Thomas can be reached at http://twitter.com/AP_Ken_Thomas

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