Flat incomes, weak consumer spending raise concern

By MARTIN CRUTSINGER (AP) – 4 hours ago

WASHINGTON — Flat incomes suggest more weakness ahead in consumer spending, reinforcing concerns about a ho-hum holiday shopping season and a sluggish economic recovery.

"This recovery is going to be very weak. Consumers are in no position or mood to spend. Their wages are down and they can't get credit," said Sung Won Sohn, an economics professor at California State University's Smith School of Business.

Concerns about the economy sparked by disappointing government data on spending and incomes sent stocks down Friday, erasing the previous day's big gains. The Dow Jones industrial average lost about 250 points, and broader indexes also fell.

The Commerce Department reported that personal incomes were stagnant in September while the all-important wage and salary category dropped 0.2 percent, as unemployment rose.

Consumer spending — which accounts for 70 percent of total economic activity — dropped 0.5 percent, the first decline in five months and the biggest since December.



The spending retreat reflected a sharp falloff in auto sales following a spike in August from the government's Cash for Clunkers program.

The overall economy, as measured by the gross domestic product, actually grew at a 3.5 percent rate from July through September, signaling an end to the longest recession since the 1930s.

But analysts said the income and spending report underscored fears about a weak recovery. The most pessimistic worry the nation could be headed for a double-dip recession as consumers, concerned about further job losses and their tattered investment holdings, refrain from spending.

Some analysts believe that GDP growth, which received a big boost from the government's stimulus programs in the third quarter, will slow to 2 percent or less in the current quarter.

David Wyss, chief economist at Standard & Poor's in New York, said a recent spike in energy prices and other problems will depress sales in coming weeks, giving the nation's retailers another lackluster shopping season.

Gasoline prices have risen for 17 straight days to a new high for this year of $2.695 per gallon, according to auto club AAA. The increase will add about $50 a month to the typical customer's gas bill, meaning less to spend at stores during the holidays.

Sliding incomes and rising energy costs further darken the outlook for consumer spending during the holidays. People who do spend will stick to discounters like Wal-Mart Stores Inc. and Target Corp., and continue shying away from big-name department stores like Macy's, said John Lonski, chief economist of Moody's Capital Markets Group. Price will be key again this year.

"It most definitely limits the upside for consumer spending and scares the wits out of retailers," Lonski said, adding that consumers are "going to spend as though the economy is still in a recession."

"If you don't make it, you can't spend it, especially with the access to credit much reduced," he said.

A second report Friday showed that wages and benefits including health care rose just 1.5 percent for the 12 months ending in September. That's the smallest increase for the Labor Department's Employment Cost Index on records that date to 1982.

The Obama administration also released a new report that said about 650,000 jobs had been saved or created under the government's $787 billion economic stimulus program. Congress is currently debating expanding certain elements of that program including unemployment benefits and the first-time homebuyers tax credit. Many private economists said the new income and spending report showed the need to do that.

Unemployment, currently at a 26-year high of 9.8 percent, will edge up to 9.9 percent when the government releases the October jobless report next week and will peak at 10.5 percent in the middle of next year, Wyss said.

Last month's spending drop resulted in a boost in the savings rate to 3.3 percent of after-tax incomes, from 2.8 percent in August. Many analysts believe households will keep striving to increase savings and replenish nest eggs that were crushed by last year's stock market crash. That also would hold back spending in the months ahead, weakening the recovery.

But inflation remains in check. An inflation gauge tied to consumer spending edged up just 0.1 percent in September, after a 0.3 percent August rise. Excluding food and energy, the gauge rose 1.3 percent over the past year, well within the Federal Reserve's comfort zone.

Fed officials meet next week and economists believe they will again keep a key interest rate at a record low.

AP Economics Writer Christopher S. Rugaber in Washington, AP Retail Writer Emily Fredrix in Milwaukee and AP Energy Writer Mark Williams contributed to this report.

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UPDATE: US Stocks Close Sharply Lower; DJIA Ends Month Flat

By Donna Kardos Yesalavich
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--U.S. stocks tumbled Friday, with Bank of America, JPMorgan Chase and Alcoa leading the Dow Jones Industrial Average's components lower as investors again grew concerned about the economy after the short-lived excitement over Thursday's good report on gross domestic product.

The Dow Friday posted its biggest one-day point drop since April 20, and ended October just 0.45 point above where it began. Other major measures, including the Standard & Poor's 500 and the Nasdaq Composite, ended the month in the red, marking their first monthly declines since February.



The Dow closed down 249.85 points, or 2.51%, at 9712.73, marking its 10th triple-digit movement this month. Five of them were down and five up, reflecting how volatile the market has gotten as investors try to get a handle on whether the 48% surge in the Dow since March can be justified by economic fundamentals. For the week, the Dow fell 259.45 points, or 2.6%, marking its second consecutive week in the red.

Among the Dow's big movers Friday, Bank of America tumbled 1.15, or 7.3%, to 14.58, while JPMorgan slid 2.58, or 5.8%, to 41.77, and Alcoa dropped 58 cents, or 4.5%, to 12.42.

Across other measures, the Nasdaq Composite fell 52.44, or 2.50%, to 2045.11. It was down 5.08% for the week, and 3.65% for the month.

The Standard & Poor's 500 dropped 29.93, or 2.81%, to 1036.18. For the week, it dropped 4.02%; it was down 1.98% for the month.

Friday's declines come as the latest measure of consumer spending came in weak, reflecting the biggest drop since December 2008, although it was in line with economists' expectations.

Still, investors are growing hungry for economic data to start showing improvement and strength, rather than simply being above or in line with expectations. In addition, they are starting to wonder how much of the economic growth that was reported Thursday would have been there if it weren't for all the government support through such programs as the "cash for clunkers" funding for automobile purchases.

Nonetheless, some market participants said Friday's decline was typical of a market in recovery, and therefore no major cause for concern.

"It's not unprecedented after having such a strong rally," said Mary Ann Bartels, head of U.S. technical and market analysis at Bank of America Merrill Lynch. "Markets need to consolidate in order to achieve new recovery highs, and a correction will broaden out the base-building process we've been in since last year," giving stocks more support for a move higher, she said.

Life insurers fell in an exaggeration of the declines across the market, as the sector is exposed to equities through its variable-annuity guarantees and other equity-linked retirement-income products. MetLife was among the decliners, slumping 2.81, or 7.6%, to 34.03, after it swung to a third-quarter loss on $1.4 billion in investment losses. The life insurer's stock had climbed 7.8% Wednesday ahead of the report.

McAfee declined 1.87, or 4.3%, to 41.88, after the security-software company said its third-quarter profit fell 25% as higher costs led to lower margins.

Stereo maker Harman International Industries was a bright spot, surging 4.61, or 14%, to 37.61, after the company reported fiscal first-quarter sales above Street expectations. The company said its markets are stabilizing and it is gaining market share.

Estee Lauder also rose, climbing 1.36, or 3.3%, to 42.50, after its fiscal first-quarter profit more than doubled as the beauty-products company posted higher earnings across all of its businesses. Goldman Sachs raised its investment rating on the stock to neutral from conviction sell.

ITT fell 3.66, or 6.7%, to 50.70, after the defense and industrial conglomerate reported a 73% drop in third-quarter profit, stemming from a $131 million charge for asbestos-liability claims.

Cummins was down 2.86, or 6.2%, to 43.06, after the engine maker reported its third-quarter earnings fell 59% from last year's record results as it struggles in the face of weak North American and European trucking and construction markets.

Beckman Coulter fell 2.73, or 4.1%, to 64.33. The maker of biomedical instrument systems and test equipment posted a 94% plunge in third-quarter earnings as restructuring and acquisition costs masked higher sales and margins.

Universal Health Services' latest quarterly earnings beat analysts' expectations, but its shares fell 5.07, or 8.4%, to 55.65, as investors focused on the hospital operator's growing bad debt, which climbed more than analysts had been expecting. The news weighed on Tenet Healthcare, which fell 37 cents, or 6.7%, to 5.12.

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Stock futures point to modestly lower opening

By STEPHEN BERNARD
AP Business Writer

NEW YORK -- Stocks are headed for a moderate decline Friday, erasing some of the big gains racked up a day earlier after the government said the economy grew more than expected in the third quarter.

Overseas markets were mixed.

Investors welcomed a report showing the economy grew at 3.5 percent in the third quarter, but much of that growth was fueled by government stimulus programs. With those programs winding down, the economy might not be able to sustain such rapid improvement after the economy shrank for four straight quarters.

A Labor Department report due out Friday at 8:30 a.m. EDT on personal spending and income from September will provide further details into the health of the consumer. The strength of consumers is considered vital to a recovery because their spending accounts for more than two-thirds of all U.S. economic activity.



Without government incentives and stimulus programs, it is widely expected consumer spending will have to rise significantly to extend the economic recovery.

Economists polled by Thomson Reuters expect consumer spending dropped 0.5 percent last month, following a 1.3 percent jump in August. August's growth was fueled by the government's Cash for Clunkers auto program.

Spending likely dropped as income was flat in September after rising 0.2 percent in August.

Ahead of the opening bell, Dow Jones industrial average futures fell 45, or 0.5 percent, to 9,858. Standard & Poor's 500 index futures fell 5.30, or 0.5 percent, to 1,056.30, while Nasdaq 100 index futures declined 2.00, or 0.1 percent, to 1,705.50.

Stocks surged Thursday on the gross domestic product report, posting their best day in three months. The Dow rallied nearly 200 points, or 2.1 percent, after recording triple-digit losses in three of the four previous sessions.

The S&P rallied 2.3 percent on Thursday, while the Nasdaq jumped 1.8 percent.

Meanwhile, bond prices mostly rose Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.47 percent from 3.50 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.06 percent from 0.05 percent.

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

Overseas, Japan's Nikkei stock average rose 1.5 percent. In afternoon trading, Britain's FTSE 100 gained 0.3 percent, Germany's DAX index fell 0.4 percent, and France's CAC-40 declined 0.2 percent.
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Hillary Clinton wraps up tough mission in Pakistan

Hillary Clinton, the US secretary of state, talks to tribesmen from Pakistan's north-western areas in Islamabad. Photograph: EPA/AP of Pakistan

The US secretary of state, Hillary Clinton, wrapped up one of the toughest missions of her diplomatic career tonight after three days of bruising encounters with Pakistanis enraged by US drone attacks in the tribal areas.

The visit was never going to be easy for Clinton, who flew into Islamabad with the goal of blunting anti-Americanism in a country that seethes with hostility towards Washington.



In meetings with journalists, students and other leaders she came armed with a determined smile and a willingness to engage that disarmed even strident opponents. On the drones, she had no answer.

Time and again Pakistanis pressed her about the covert missile strikes by Predator or Reaper aircraft that have killed up to 1,000 people since 2006, according to one estimate.

"I can't answer that question," she told students in Lahore, according to one guest present. "It's a military to military matter."

The CIA-operated drone strikes have been embraced by the Obama administration, which considers them a key tool in disabling al-Qaida's ability to plot attacks from its tribal haven.

The US has carried out over 80 strikes since 2006, half of them since the start of this year. One such strike last August killed the Taliban leader Baitullah Mehsud.

Civilian casualties and the perceived infringement of sovereignty enrage most Pakistanis. The attacks enjoy only 9% support, according to a Gallup poll taken last August.

The level of civilian casualties is hotly disputed. But one recent study by the New America Foundation estimated that US drones have killed between 750 around 1,000 people in Pakistan since 2006, about one third of them civilians.

The deep public hostility to drones feeds latent anti-Americanism and leaves the Pakistani government in a difficult position. Although ministers publicly criticise the strikes, their officials privately assist the American spies and military officials who orchestrate them.

Analysts said Clinton's folksy but steel-edged charm worked well in public meetings - particularly in comparison with the more blunt style of Washington's envoy to the region, Richard Holbrooke. "In a bad situation she put up a sterling performance," said one.

One tribal leader who met her said afterwards he was impressed. But in a television interview later, one woman in the audience said the drones amounted to "executions without trial". Another asked Clinton if she considered drone strikes to be an act of terrorism similar to the bombing that killed more than 100 people in Peshawar on Wednesday. "No I do not," Clinton replied.

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STIMULUS WATCH: Stimulus Jobs Overstated in Report

The White House is promising that new figures being released Friday will be a more accurate showing of progress in President Barack Obama's economic recovery plan. It aggressively defended an earlier, faulty count that overstated by thousands the jobs created or saved so far.
Ed DeSeve, serving as Obama's stimulus overseer, said the administration has been working for weeks to correct mistakes in early counts that identified more than 30,000 jobs paid for with stimulus money. He said a new stimulus report Friday should correct many mistakes an Associated Press review found that showed the earlier report overstated thousands of stimulus jobs.
"I think you'll see a pretty good degree of accuracy," DeSeve said in an interview.
White House spokesman Robert Gibbs downplayed errors in job counts identified by the AP's review, telling reporters, "We're talking about 4,000, or a 5,000 error."


The AP reviewed a sample of federal contracts, not all 9,000 reported to date, and discovered errors in one in six jobs credited to the $787 billion stimulus program — or 5,000 of the 30,000 jobs claimed so far.
Even in its limited review, the AP found job counts that were more than 10 times as high as the actual number of paid positions; jobs credited to the stimulus program that were counted two and sometimes more than four times; and other jobs that were credited to stimulus spending when none was produced.

For example:
— Some recipients of stimulus money used the cash to give existing employees pay raises, but each reported saving dozens of jobs with the money, including one Florida day care that claimed 129 jobs saved.
— A Texas contractor whose business kept 22 employees to handle stimulus contracts saw its job count inflated to 88 because the same workers were counted four times.
— The water department in Palm Beach County, Fla., hired 57 meter readers, customer service representatives and other positions to handle two water projects. But their total job count was incorrectly doubled to 114.

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Celebrating Stock Market Bears Take a Major Hit

Yesterday we get some strong volume and blow through the 50-day exponential moving average on the Nasdaq. We fall only a bit below on the S&P 500 (4 points) and hold above it on the Dow. We didn't have all 3 major indexes trading below the 50-day exponential moving averages and that's what you want to see if you believe the market is ready for deeper selling than has already occurred. In addition, you don't want to clear by as little as we did on the S&P 500 as that's not a true breakdown. 4/10th's of 1% is not sufficient to say it's all clear for the bears.



So we had a nasty day and the bears were celebrating, but we also had something else take place and that's the reality that we got massively oversold on the 60-minute time frame charts. Stochastics below 5, and RSI's below 30, as low as 22, in fact, on the S&P 500. These types of oversold are conditions you NEVER add new shorts in to. Some type of bounce has to take place to unwind the oscillators and we sure did get that today. The thinking was you could add shorts on any move higher.

However, after studying the charts, WLSH, INDU, COMPQ, PowerShares QQQ (QQQQ), OSX, PowerShares DB US Dollar Index Bullish (UUP). It's clear to see that any move back down will create massive positive divergences. It'll also take place at very deeply compressed MACD cycle levels. That's not the best formula for shorting. It's in all likelihood the place to take some longs, even if just for a trade or two.

This is a very complicated market that's giving absolutely no one any satisfaction and that's the reason for so little on our end in terms of plays. When markets can't find a true trend near term, it's best to keep things extremely light. Always a time for aggressive playing in time. Patience is the hardest part of this game and unless you have lots of it, you can't do very well, especially in markets such as the one we're in now.

So what type of market are we in exactly!

It's a mature move up for sure. The very best of things have been seen for now. There's the lure or desire for more and it's very easy to get too caught in that. Conversely, there's the lure of thinking that because the move is mature, we should just start breaking down. Nice thought. No reality! Markets don't break that easily folks. Not after such a long protracted move higher over eight months. Folks are trained to buy weakness. The desire to get the next leg up. Distribution out, a bull in, to a bear, if that's indeed where we're headed, can take many months.

Yes, I said months.

That's not unusual. If you all would think back to 2000, the market started to mature in late 1999, but didn't top on the Nasdaq until March 9th, 2000. It was roughly four months of distribution before the house of cards came down. And we may not be headed back in to a bear. That's very unclear. Just stating that if we are, you can not expect a crash right back down. If you have been, you've been extremely disappointed with the results and will likely continue to be so for some time. We are in a mature market that's either handling out waiting for the next move higher in time, or is maturing and distributing. That will become very clear in time. For now things are very unstable and volatile. A market where less is more.

The dollar has broken out of its wedge in a bullish fashion and is now in the process of back testing. If it's truly bottomed and if the market is truly topping, it should not fall back in to its wedge. If it does, it tells us that the move out was nothing more than a head fake and makes future moves difficult to trust. However, once a move like that fails, normally the next move will take a long time to happen, which, of course, would make our market that much more difficult. So far it’s held, thus we should see at least another move lower soon, but as I mentioned above, that move will open the door to strong positive divergences on the 60-minute time frame chart. Let's just say things aren't easy here. The dollar needs to be watched very closely here.

1047 remains the 50-day exponential moving average on the S&P 500. The small breach yesterday was a false breakdown. Until the bears can close this below this level by at least 1%, you can't trust the move with any real confidence. The Dow has yet to close below its exponential moving average at 9677. These levels can change slightly each day. 2083 is the number on the Nasdaq. The bears need all three of these major averages to close approximately 1% below those levels to feel they have proper confirmation. We know 1101 is the recent S&P 500 high and that will be incredibly tough here. We simply are trading between roughly those 50-day exponential moving averages and the recent highs on all the indexes with lots of head fake type moves to draw in your emotions. This tells us to keep things very light for now until we get some convincing evidence of what's to come.

Oh, and one last thing. Things change over time. Life is all about change. The landscape may have changed today, with that better than expected. Gross Domestic Product (GDP) number at 3.5% growth. It may not be real, or may not last, but that's not how we play. This is probably the reason for the large move up today and why any move lower will now set positive divergences.

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Stock Markets and Other Risky Assets Tumble on Recovery Fears

I concluded a post on stock markets over the weekend saying: “After equities’ seven-month climb, stock markets certainly look vulnerable for a decline. Two downside reversal days - on Wednesday and Friday - would seem to indicate that stocks could commence a pullback to work off the overbought condition, allowing fundamentals to reassert themselves.”

Global stock markets, as well as other risky assets, closed sharply lower over the past few days as concerns mounted over the sustainability of the global economic recovery and the outlook for central bank policy.
Source: StockCharts.com



A summary of the movements of major global stock markets since the March 19 peak, as well as various other measurement periods, is given in the table below.

The MSCI World Index and the MSCI Emerging Markets Index have declined by 5.3% and 6.2% respectively since the highs of October 19, with markets like Ireland (‑13.2%), Brazil (-10.5%), Austria (-10.8%) and Belgium (-9.0%) falling by significantly more. Also, higher risk indices such as small caps have borne the brunt of the selling, with the Russell 2000 Index down by 9.0%. This is a pattern that one would expect as investors shift the emphasis to higher quality.




The major moving-average levels for the benchmark US indices, the BRIC countries and South Africa (where I am based) are given in the table below. A number of indices, including the S&P 500 Index, have fallen below their 50-day moving averages over the past few days, but all the indices are still holding above their respective 200-day moving averages. The 50-day lines are also above the 200-day lines in all instances.

The October lows are also given in the table as a break below these levels would indicate a reversal of the uptrend since March, i.e. reversing the progression of higher reaction lows.

Over the past few days a number of commentators have made pronouncements about the extent of a possible decline. For example, Jeremy Grantham (GMO) expects the S&P 500 to drop by 15% to 25%, David Rosenberg (Gluskin Sheff & Associates) sees markets falling by 20% and Doug Kass is looking at -5% to -12%.

This brings me to the topic of valuations. Based on operating earnings (i.e. stripping out everything that is bad), the historical price/earnings (PE) multiple of the S&P 500 is 27.0; using “as reported” (GAAP) earnings the figure shoots up to a giddy 95.7! Getting past the loss-making fourth quarter of 2008 and calculating prospective multiples through December 31, 2009 reduce the valuations to 19.0 and 24.4 respectively. Looking further out to the end of 2010, the prospective PEs are 14.1 and 22.9 respectively - still hardly the type of valuations that will inspire one to be a buyer across the board. (The earnings estimates are courtesy of Standard & Poor’s.)

Another way of looking at valuation levels, and cutting through the uncertainty of having to forecast earnings, is by means of Robert Shiller’s cyclically adjusted price-earnings ratio (CAPE), effectively muting the impact of the business cycle by averaging ten years of earnings. Using rolling ten-year reported earnings, my research (based on Shiller’s methodology, but including some refinements) shows that the “normalized” price-earnings ratio of the S&P 500 Index is currently 18.7. This compares with a long-term average of just more than 16.3 and implies an overvaluation of 15%. Considering a geometric rather than an arithmetic average of earnings, the overvaluation increases to 25%. The graphs below show data since 1950, but the actual calculations date back to 1871

Meanwhile, David Rosenberg highlights that this is not the onset of a sustainable secular bull market as we had coming off the fundamental lows of prior bear phases, such as August 1982, when:

• Dividend yields were 6%, not sub-2%.

• Price-to-earnings multiples were 8x, not 27x.

• The market traded at book value, not more than twice book.

• Inflation and bond yields were in double digits and headed down in the future, not near-zero and only headed higher.

• The stock market competed with 18% cash rates, not zero, and as such had a much higher hurdle to clear.

• Sentiment was universally bearish; hardly the case today.

• Global trade flows were in the process of accelerating as barriers were taken down; today, we are seeing trade flows recede as frictions, disputes and tariffs become the order of the day.

• A Reagan-led movement was afoot to reduce the role of government with attendant productivity gains in the future, as opposed to the infiltration by the public sector into the capital markets, union sector, economy and of course, the realm of CEO compensation.

Back to charting, Adam Hewison (INO.com) also sounded a cautious note on the outlook for the S&P 500 as explained in one of his popular technical analysis presentations. Click here to access the presentation.

I conclude with a comment from David Fuller (Fullermoney) who said: “At this stage of the bull cycle, I think a correction of approximately 10-15% for developed country stock markets and somewhat more for emerging markets would be good news for investors with cash to invest. Such a mean reversion towards rising 200-day moving averages would blow the recent froth off valuations and stem talk of an early change in monetary policy.”

I will bide my time while the fundamentals play catch-up. Meanwhile, caution remains the operative word.

By Dr Prieur du Plessis

Dr Prieur du Plessis is an investment professional with 25 years' experience in investment research and portfolio management.

More than 1200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns (including his blog, Investment Postcards from Cape Town : www.investmentpostcards.com ). He has also published a book, Financial Basics: Investment.

Prieur is chairman and principal shareholder of South African-based Plexus Asset Management , which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and other African countries.

Plexus is the South African partner of John Mauldin , Dallas-based author of the popular Thoughts from the Frontline newsletter, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.

Prieur is 53 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town , South Africa . His leisure activities include long-distance running, traveling, reading and motor-cycling.

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Cockpit distractions go beyond laptops

By Alan Levin, USA TODAY
The laptops that triggered two Northwest Airlines pilots to fly 91 minutes without talking to the ground may be relatively new technology, but distractions in the cockpit have led to accidents and incidents since the dawn of aviation.

As lawmakers and federal regulators called this week for banning laptops and certain other electronic devices in airline cockpits, experts who study why pilots make mistakes said the problem may be much more fundamental: People don't multitask very well.

Distractions ranging from a disgruntled passenger to a burned-out light bulb have been behind scores of crashes, according to federal accident reports and researchers.



DELTA CEO: 'Clear violation' involved in wayward flight
NORTHWEST: Investigators seek answers

"This has been recognized for decades now," said John Lauber, a former NASA researcher in human behavior who also served as a member of the National Transportation Safety Board (NTSB).

The pilots on Northwest Flight 188, which initially flew past its destination of Minneapolis on Oct. 21, told the NTSB that they were working on a new airline-issued computer program and didn't realize they had flown so far without talking to air-traffic controllers.

Distractions have been involved in numerous other airline accidents. The distractions range from frivolous conversations to pilots becoming overwhelmed by regular duties. Examples:

• On Dec. 28, 1978, 10 people died when a United Airlines jet ran out of fuel and crashed in Portland. The pilots were so focused on diagnosing a problem with the landing gear that they forgot to monitor their fuel, the NTSB found.

• On Aug. 27, 2006, pilots on a Comair regional jet tried to take off from a dark, closed runway in Lexington, Ky. The runway was too short, and the jet hit trees and burst into flames, killing 49 of the 50 people aboard. The NTSB concluded that the pilots' conversation about seeking other jobs contributed to the error.

Though he could not comment on the Northwest pilots, Key Dismukes, a NASA aviation researcher in human behavior, said that increasingly automated aircraft make distractions a potentially greater problem. Modern jets can fly for hours without any input from pilots, making distractions seem less critical.

"It's not astonishing to me at all that people get absorbed in a task and lose track of time and where they are," Dismukes said.

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U.S. economy stabilized but risks remain: Geithner

CHICAGO (Reuters) - The U.S. economy's return to growth during the third quarter shows stability has been regained but recovery is fragile and needs nurturing, Treasury Secretary Timothy Geithner said on Thursday.

The government estimated that gross domestic product grew at an annual rate of 3.5 percent from July through September. Still, Geithner said the government must be ready to reinforce growth if needed to avoid risks of a credit crunch.

In a one-hour question-and-answer session at the Economic Club of Chicago, Geithner said the United States can't borrow-and-spend its way to health and pledged every effort to encourage an investment-led recovery.



"The (GDP) number today was really encouraging....it was broad and strong and it wasn't just cash-for-clunkers and it wasn't just economic stimulus...but it's important to remember that it's very early," said Geithner.

U.S. economy grew in the third quarter for the first time in over a year as stimulus spending helped lift consumer spending and home building, fueling an unexpectedly strong advance.

BACK ON FIRM GROUND

"The economy is stabilized. You can see signs of growth here and around the world," Geithner said.

But he added: "It's going to be very hard going forward still. The important things that we're going to have to do are to recognize that recovery's going to have to be led by the private sector and it's going to have to be driven by private companies, private businesses."

Given the hefty budget deficits the government is running, which would be unsustainable over a long period, Geithner said it will be more important than ever that the private sector step up to keep growth going.

"It's going to have to be investment-led and led by exports to a greater extent than in the past because we're not going to be able to borrow-and-spend our way out of this," he said.

Geithner said there was still "a substantial amount of additional reinforcement" still to come from the $787-billion economic stimulus program that the government introduced earlier this year, only about half of which has been spent.

"That'll provide some ongoing support but we're going to have to continue to reinforce that process," he said.

"In the financial system, although there's been a remarkable improvement in confidence and credit is much more easily available...you face the classic risk of a credit crunch slowing the pace of recovery so we're going to have to reinforce the basic process of healing."

REAL ESTATE WOES MANAGEABLE

He expressed confidence problems in the U.S. commercial real-estate sector would not drag down the wider economy

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Boeing picks South Carolina for Dreamliner plant

WASHINGTON — US aerospace giant Boeing has chosen the state of South Carolina as the location for a second production line for the troubled 787 Dreamliner long-haul jet, a move slammed by a union leader.

The move "will expand our production capability to meet the market demand for the airplane," Jim Albaugh, president and chief executive of Boeing Commercial Airplanes, said in a statement late Wednesday.

"This decision allows us to continue building on the synergies we have established in South Carolina with Boeing Charleston and Global Aeronautica," he said, the latter being a company 50-percent owned by Boeing.

Boeing's South Carolina plant already assembles and installs parts of the 787 fuselage sections. Almost all Boeing planes are manufactured at its Everett plant outside Seattle, in the northwest state of Washington.

Delivery of the first 787 Dreamliner -- to Japanese launch customer ANA -- is now set for late 2010, more than two years behind schedule.



The company said that until the second assembly line is brought up to speed, Boeing will "establish transitional surge capability" in Everett that will be phased out once South Carolina comes on line.

The move to South Carolina puts employees there out of the reach of the union in Washington state that has had several contentious labor disputes in recent decades with Boeing management.

Union leader Tom Wroblewski slammed the move across the country, saying Boeing "has betrayed our loyalty once again, walking away from our discussions.

"Instead of investing in our shared future and a highly talented workforce in a region ideally suited for aerospace, Boeing has decided to double-down on its failed 787 strategy and place an ill-advised, billion-dollar bet on a strategy that's a proven loser," Wroblewski said in a statement.

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WORLD FOREX: Euro Breaches Key Level, Could Sink Below $1.46

NEW YORK (Dow Jones)--The dollar hit a more than two-week high against the euro in afternoon trading Wednesday, as investors reassessed their riskier holdings and shifted out of stocks, commodities and high-yielding currencies.

The euro has since bounced off its lows after having sunk to $1.4712, but is still down on the day. Recently, the euro was at $1.4728, down from $1.4802 late Tuesday, according to EBS via CQG.

The dollar was at Y90.70, from Y91.82, while the euro was at Y133.54, from Y135.88. The U.K. pound was at $1.6430, from $1.6389. The dollar was at CHF1.0262, from CHF1.0219.

The Dollar Index, a trade-weighted basket of six currencies, was at 76.344, from 76.288 late Tuesday.

Breaching a key technical level of $1.4720 signals the euro could sink further, perhaps below $1.46, said Tom Fitzpatrick, chief technical analyst at Citigroup in New York.



"We went too far, too fast in a lot of these moves" in higher-yielding currencies and riskier assets, Fitzpatrick said. "We're shaky on a number of these, and there's a domino effect taking place," with stocks, commodities and high-yielding currencies all flagging, he said.

Markets slid across the board, with the Dow Jones Industrial Average down 55 points by midafternoon. Oil was trading at around $77.50, from $79.47 late Tuesday. Commodity-backed currencies, such as the Australian and New Zealand dollars, also fell back, with both currencies hitting a more than two-week low against the U.S. dollar.

Fitzpatrick said the rally in riskier assets may have gotten ahead of the economic reality on the ground. Concerns over the strength of the global economic recovery are bringing prices back to realistic levels, he said.

The fears come as investors gear up for the release of U.S. third-quarter gross domestic product Thursday. Goldman Sachs earlier Wednesday cut its GDP forecast to 2.7% from 3% in response to lower-than-expected durable goods shipments.

"Ongoing concerns over a budding recovery have pushed to one side the appetite for high yield" and is supporting the dollar, said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn.

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Euro dips under 1.48 dollars

LONDON — The euro fell below 1.48 dollars on Wednesday while the yen gained ground as fresh worries over the outlook for the global economy prompted buying of "safe-haven" units, dealers said.

Investors were also waiting for fresh US data due out later in the day, including durable goods orders and new home sales.

In London morning deals, the European single currency slipped to 1.4798 dollars, from 1.4810 dollars late on Tuesday.

Against the Japanese currency, the dollar sank to 91.06 yen from 91.77 yen late on Tuesday in New York.

A disappointing US consumer sentiment report on Tuesday sparked concerns that the world's largest economy may not be recovering as quickly as hoped, reducing demand for higher-risk but also higher-yielding currencies like the euro.



"The euro will likely keep falling for now because share markets are bearish and unstable again, pushing currency dealers back into risk-aversion mode," Yuichiro Harada, a dealer at Mizuho Corporate Bank, told Dow Jones Newswires.

Other high-yielding units also declined against the yen. These currencies usually weaken when risk appetite falters.

"The market mood has definitely soured this week and there is little sign of any turnaround. This is good for the dollar but bad for risk trades," Calyon analyst Mitul Kotecha wrote in a note to clients.

Investors are worried that a premature hike in global interest rates may hamper a nascent recovery at a time when major economies are still limping out of recession, dealers said.

Traders were jittery ahead of monetary policy meetings in Malaysia, Norway and New Zealand this week, following a recent rate hike in Australia that fuelled speculation that other central banks may follow suit.

Norges Bank was widely expected to raise rates when it meets later in the day, as its economy recovers faster than other European nations due to brisk global demand for its commodities.

The Reserve Bank of India kept interest rates on hold Tuesday but began unwinding extraordinary stimulus measures by requesting lenders to set aside more bonds as reserves in order to restrain credit.

In London on Wednesday, the euro was changing hands at 1.4798 dollars against 1.4810 dollars late on Tuesday, at 134.67 yen (135.89), 0.9053 pounds (0.9039) and 1.5121 Swiss francs (1.5125).

The dollar stood at 91.06 yen (91.77) and 1.0224 Swiss francs (1.0210).

The pound was at 1.6337 dollars (1.6380).

On the London Bullion Market, the price of gold fell to 1,034.15 dollars an ounce from 1,036.50 dollars an ounce late on Tuesday.

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U.S. welcomes yuan rise so far, wants more

GUANGZHOU, China/BEIJING (Reuters) - The United States welcomes the rise in the yuan's exchange rate in recent years but wants the currency to climb further, visiting Commerce Secretary Gary Locke said on Tuesday.

However, a Chinese trade official said that despite pressure for the yuan to appreciate, the currency would probably not see a major adjustment until the country's exports improve noticeably.

"We think more progress needs to be made in that area," Locke told a news conference in Guangzhou, the capital of southern Guangdong province, which accounts for nearly a third of China's exports.

China has in effect re-pegged the yuan to the dollar since mid-2008 to help its exporters, who were hit hard by a slump in orders as the global financial crisis intensified.



Beijing revalued the yuan by 2.1 percent against the dollar in July 2005 and, over the following three years, gradually let it climb by another 19 percent before calling a halt to its rise.

"We're pleased with the movement so far, but of course more needs to be done," Locke said.

Speaking at a separate forum in Beijing, Jiang Jianjun, a deputy director with the Ministry of Commerce's Department of Foreign Trade, cited China's rising share of global output and its swelling foreign exchange reserves as pressures on the yuan to strengthen.

"However, according to our projections, until there's a noticeable improvement in exports, the exchange rate will not see a major adjustment," Jiang said.

He said it would take two or three years for China's combined exports and imports to regain pre-crisis levels.

COOPERATION ON ENERGY

The U.S. commerce chief will participate on Wednesday and Thursday in trade talks in Hangzhou, along with U.S. Trade Representative Ron Kirk and Chinese Vice-Premier Wang Qishan.

Locke said he expected the meetings to pave the way for "significant improvements and progress in the trade relationship between the two countries" when President Barack Obama visits China next month for talks with President Hu Jintao.

Locke did not delve into detail but said that energy co-operation would be a "big topic" between the two presidents, with U.S. firms seeking easier access to the potentially lucrative China market for clean energy, alternative fuels and energy-efficient products.

The yuan's exchange rate has dropped down the U.S. diplomatic agenda in the past year as Washington has looked to China for help in hauling the world economy out of recession.

The Obama administration said on October 15 that it continued to believe the yuan is undervalued but declined to declare that China was manipulating its currency.

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DreamWorks' quarterly results beat low expectations

DreamWorks Animation SKG posted a 48% decline in third-quarter profit, but the results were nonetheless better than what Wall Street had been expecting.

The Glendale studio also announced that it would not be producing a sequel to its latest movie, "Monsters vs. Aliens," which received a tepid response in keyoverseas markets.

DreamWorks reported net income of $19.6 million, or 23 cents a share, on revenue of $135.4 million in the quarter ended Sept. 30. That compared with net income of $37.4 million, or 41 cents a share, on revenue of $151.5 million during the same quarter in 2008, when the studio benefited from its hit film "Kung Fu Panda."

Analysts were expecting earnings of 16 cents a share on revenue of $129.3 million, according to the average estimate compiled by Thomson Reuters.



DreamWorks did not release a movie in the third quarter of this year. Instead, the studio's results were driven by home video and pay television revenue from its 2008 films "Madagascar: Escape 2 Africa," "Kung Fu Panda" and "Monsters vs. Aliens," which was released on home video Sept. 29. The film has sold an estimated 4.6 million units, in line with what several analysts had been expecting.

Some analysts have expressed concern that the anemic DVD market could hurt sales for "Monsters vs. Aliens," which came out in theaters in March. All the major studios have been buffeted by an industrywide slowdown in DVD sales as the recession forces consumers to curtail spending. U.S. sales of DVDs and high-definition Blu-ray discs dropped nearly 14% in the third quarter, according to Digital Entertainment Group.

DreamWorks executives, however, have repeatedly stressed that the studio's computer-animated movies are less vulnerable to the DVD downturn than live-action films. Chief Executive Jeffrey Katzenberg continued that theme Tuesday, telling analysts during a conference call that "Monsters vs. Aliens" was off to a "strong start in its initial home video release."

Katzenberg declined to give a forecast for DVD sales, saying it was too early to estimate future sales. "Madagascar 2" has sold 11.3 million units to date, while "Kung Fu Panda" reached 16 million units through the third quarter.

Katzenberg also said the studio did not plan to produce a sequel to "Monsters vs. Aliens," which generated $380 million at the box office but did not fare well in some key international markets.

When asked why, he said: "I'd like to tell you there's a perfectly rational, clear and easy answer as to why not, but there isn't."

"There was enough of a consensus from our distribution and marketing folks in certain parts of the world that we'd be pushing a boulder up a hill," Katzenberg said of the decision not to pursue a sequel.

The studio did not revise its outlook for the year, saying it expected earnings to be up slightly or flat from a year ago.

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Biden to visit GM plant amid reports of reopening

WASHINGTON (Reuters) - Vice President Joe Biden plans on Tuesday to visit a closed General Motors plant in Wilmington, Delaware, for an announcement, according to the White House.

The visit to the Boxwood plant comes amid media reports that start-up firm Fisker Automotive Inc is in talks to buy the plant to build plug-in electric hybrid cars.

The Wall Street Journal and the Detroit Free Press both reported on Friday that the talks for the purchase were at advanced stages and that an announcement was likely on Tuesday.

The White House statement announcing Biden's visit said he planned a major announcement about the assembly plant's future but gave no other details. Delaware is Biden's home state.

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Brown: I will take us out of recession

Gordon Brown has vowed to lead the UK out of recession by the end of the year and announced a crackdown on sharp practice by credit card providers.

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Gordon and Sarah Brown at the Labour Party Conference, Brighton 2009
Recession busting: Gordon Brown insists he can lead the UK out of recession this year
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The Prime Minister said he would continue to act on excessive bonuses in the financial sector following the news that the UK economy was stuck in its longest ever recession.

He said: 'My pledge to you is to make reform of the financial sector a reality and to see Britain's economy return to growth by the turn of the year.'



Brown added that 'the battle to stop this global downturn becoming a second Great Depression is being won' but said caution was needed despite 'confidence beginning to return in some areas.'

The Prime Minister made his comments in a podcast released on YouTube and the 10 Downing Street website marking the 80th anniversary of the Wall Street Crash.

Brown criticised credit card companies and pledged further reform to the financial sector in the wake of the FSA's announcement of new mortgage proposals.

He said: 'We are announcing measures to make the credit and store card companies clean up their act to get you a fairer deal.

'Sharp practices by lenders - such as hiking interest rates on existing debts without explanation, sending out unsolicited credit card cheques and raising credit card limits without being asked - these sharp practices should end.'

In a rebuke to calls to cut Government spending and the Conservative's pledges to do so, Brown said: "Now, more than ever, is the time for steady and clear policies. That is why it would be suicidal to put recovery at risk by suddenly cutting off the funding and investment that is supporting young people, families and businesses through the most challenging times in a generation.'

The Prime Ministers comments followed a week in which anger has grown at the level of prosperity being enjoyed in the City. News of big bonuses is sweeping the banks and trading floors after investment banking divisions have reaped large profits from the recession and the stock market has leapt by 50% from its low in March.

Public anger has been directed at the perception that banks are returning to the practice of large bonuses rewarding short-term gains less than a year after most major financial institutions had to be bailed out and the sector required global government intervention to prop it up.

Brown added his voice to the criticism, saying: 'We must bring financial markets into closer alignment with the values that everybody holds: hard work, responsibility, integrity and fairness.'

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Will the U.S. buy Reva NXR, 120 miles per charge for $25,000?

Reva Electric Car has a lot to prove.

The India-based company announced a deal with Bannon Automotive to produce 20,000 Reva NXR’s a year at a New York facility. The site could be fully optional already by fall 2010.

But check out Bannon’s Web site: http:/bannonautomotive.com. This sure doesn’t look like a technologically savvy company ready to hire 200 some employees and produce thousands of electric vehicles a year.

Although Bannon has already announced plans to start manufacturing the vehicles, the Long Island company has yet find all the financing, according to http:/syracuse.com.



And are there really people out there looking to invest in a $25,000 car that will get a maximum of 120 miles per charge? Apparently there are in Europe, where the car is already being built. But just because it’s possible in the crowded streets of Paris, doesn’t mean there’s hope hear in the New World.
The $17,000 version of the Reva NXR would only go 55 mph and get 50 miles on a charge. The hatchback model would cost up to $8,000 more but peak at around 100 mph and 120 miles per charge. This doesn’t really compare to hybrids like the Chevy Volt, also expected out in 2010, which promises 40 miles of gas-free driving before the gas motor kicks in. Of course the much-anticipated Volt doesn’t have a price yet. But assuming it doesn’t start much over $30,000, I’m betting most consumers will see it as having more bang for their buck.


And even before financing is complete, New York Gov. David Paterson is incentivizing the project with taxpayer dollars to the tune of $6.8 million, with the federal government kicking in $52 million in loans and loan guarantees to Bannon. That’s quite a commitment to a company with about a dozen words on its Web site.

Yes, with high unemployment the government should be in the business of job creation. But no, officials shouldn’t jump at underdeveloped ventures.

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Earnings reports weigh on stocks

U.S. stocks posted their first weekly decline in three weeks as several major companies forecast earnings that trailed Wall Street estimates.

Boeing slid 6.2 percent, the steepest drop among companies in the Dow Jones industrial average, as it posted a loss that was bigger than analysts forecast and reduced its full-year profit projection. Boston Scientific posted its biggest drop since February on concerns that sales of heart devices are slowing. Burlington Northern, meanwhile, fell 8.4 percent -- the most since March -- on concerns that shipments of consumer products will remain weak.



"Given that the market has moved up so far, investors are looking for more demand," said Richard I. Sichel, chief investment officer at Philadelphia Trust. "The earnings get more difficult to beat when it needs to come from sales, rather than just cost-cutting."

The Standard & Poor's 500-stock index fell 0.7 percent, to 1079.6. The Dow fell 0.2 percent, to 9972.18. The Nasdaq composite index dropped 0.1 percent, to 2154.47.

The S&P 500 has climbed 60 percent since March 9, pushing the market value of its companies to more than 20 times their reported operating income, the most expensive level since 2004. More than 150 S&P 500 companies will report third-quarter earnings this week, including Exxon Mobil, Procter & Gamble and Verizon Communications.

The Treasury will auction $29 billion of three-month bills and $30 billion of six-month bills on Monday. They yielded 0.07 percent and 0.18 percent, respectively, in when-issued trading. The Treasury will sell one-month bills the next day.

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Dow finishes below 10,000

Stock markets in the United States fell yesterday, with the major indexes slipping for the first week in three, as industrial companies' weak results overshadowed robust earnings from tech and retail heavy-weights.

The blue-chip Dow average finished below 10,000 for the second time this week.

The Dow Jones industrial average lost 109.13 points, or 1.1%, to 9972.18, marking its second finish this week below the 10,000 mark. The S&P 500 fell 13.31 points, or 1.2%, to 1,079.60. The Nasdaq slipped 10.82 points, or 0.5%, to 2,154.47.

For the week, the Dow slipped 0.2% and the S&P 500 declined 0.7%, while the Nasdaq dipped 0.1%.

Read more: http://www.financialpost.com/story.html?id=2139516#ixzz0UyFBc8Uc
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