Banks step up Fed borrowing, Wall Street passes

By JEANNINE AVERSA, AP Economics Writer
Thu Jul 24, 4:34 PM ET

WASHINGTON - Banks stepped up their borrowing over the past week from the Federal Reserve's emergency lending program, while Wall Street firms didn't draw such loans.

A Fed report released Thursday said commercial banks averaged $16.4 billion in daily borrowing over the past week. That was up from $13.9 billion in the previous week.

Investment houses were given similar loan privileges as commercial banks after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy. The situation raised fears that other Wall Street firms might be in jeopardy.

Bear Stearns was eventually taken over by JPMorgan Chase & Co. in a deal that involved the Fed's financial backing.

For the week ending July 23, Wall Street firms didn't borrow from the Fed's emergency facility, the report showed. It marked the second time since the Fed opened its emergency program to investment firms on March 17 that they didn't draw such loans.

In the prior week, firms averaged just $9 million in daily borrowing. Such borrowing rose as high as $38.1 billion in early April.

The identities of commercial banks and investment houses are not released. Commercial banks and investment companies now pay 2.25 percent in interest for the loans.

In the broadest use of the central bank's lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. Chairman Ben Bernanke said the Fed is considering extending those loan privileges — which currently are supposed to last only through mid-September — into next year.

Trying to stem eroding investor confidence, the Fed earlier this month said mortgage giants Fannie Mae and Freddie Mac could draw emergency loans from the central bank if they needed. There was no indication in the weekly report that they had done so. Shares of the mortgage giants were clobbered last week as investors grew worried about the companies' financial shape.

Separately, as part of efforts to relieve credit strains, the Fed auctioned nearly $25 billion in Treasury securities to investment companies Thursday. Firms had placed bids requesting $51.7 billion worth of the super-safe Treasury securities.

In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.

The auction program, which began March 27, is intended to make investment companies more inclined to lend to each other. A second goal is providing relief to the distressed market for mortgage-linked securities and for student loans.

___

On the Net:

Federal Reserve: http://www.federalreserve.gov/

Chain Grocers Put a Face on Food

By Candice Novak Thu Jul 24, 4:00 PM ET

Locally grown produce is in vogue as even the biggest grocers try to appeal to shoppers and save on fuel costs. Among the big names selling homegrown food are Whole Foods Market, Safeway, Tesco, and Wal-Mart. As gas prices remain high and the popularity of local food grows--the number of local farmers markets has more than doubled in the past decade, the Department of Agriculture says--grocers are reviving the old practice of buying from smaller regional farms.

Wal-Mart's former produce plan involved an international network of large farms with which shoppers had little or no contact. For the most part, customers didn't even know where their foods were coming from. The company, now the nation's largest buyer of locally grown produce, labels all its produce--every peach and potato--by its state of origin. And it doesn't stop at the store. On the company's website, customers can look up farms to see pictures of their owners and read their stories, and view an interactive map.

When shopping for produce, customers have higher expectations than for other goods, says Kelly O'Keefe, professor and executive education director in Virginia Commonwealth University's advertising program, Brandcenter. They "don't want the bottom-of-the-barrel product," O'Keefe says. Chain grocers and big box stores are catering to that mentality, he says, by revamping their produce sections to reflect the region in which the goods are sold, while also continuing to import produce from abroad.

Celia Gould, director of Idaho's Department of Agriculture, says she has heard from many shoppers who say "they love buying produce that came from right here in Idaho."

Some Wal-Mart competitors are also putting a face on food. Safeway has partnered with several states to sell regionally grown food, using labels like "Colorado Proud" on produce. At Tesco, shoppers can recommend farmers they like to buy from. Whole Foods features farmers by region and facilitates "local producer loans" at interest rates of 5 to 9 percent to fund farming projects that could ultimately result in local produce being sold at a Whole Foods store. Each project is displayed online with photos and project details.

Home sales at 10-year low, jobless claims jump

By Alister Bull Thu Jul 24, 11:05 AM ET

WASHINGTON (Reuters) - Jobless claims jumped last week and the pace of existing home sales tumbled to a 10-year low as slowing growth hit hiring and a glut of unsold homes weighed on the real estate market, data on Thursday showed.

The number of U.S. workers filing new claims for jobless benefits jumped 34,000 last week, the Labor Department said, in part reflecting seasonal volatility typical at this time of year, but also indicating that jobs were hard to find.

A separate report from the real estate industry said that home sales dropped 2.6 percent in June, dragging the annual sales pace to the lowest since early 1998.

Government bonds, which benefit from signs of economic weakness, extended gains on the data while the dollar lost ground against the euro and yen. The Dow Jones Industrial Average (.DJI) was down more 1 percent.

Sliding house prices and mounting losses from the subprime mortgage market sparked a credit crunch last year that has chilled growth and hiring, despite aggressive interest rate cuts by the Federal Reserve.

"The message from claims is that unemployment is still rising," said James O'Sullivan, economist at UBS Securities in Stamford, Connecticut.

Initial claims for state unemployment insurance benefits rose to a seasonally adjusted 406,000 in the week ended July 19, from a revised 372,000 the prior week, the Labor Department said. It was the highest reading since late March and above forecasts of 376,000 new claims.

A Labor Department official noted that estimates were being impacted by annual auto plant shutdowns, the end of the quarter, and the shorter July 4 holiday reporting week.

The four-week average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, rose to 382,500 from 378,000.

"The average is still hanging right around that 375,000, which denotes a slow-growth economy, a pretty flat economy, not quite a recession," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.

The number of people remaining on the benefits roll after drawing an initial week of aid declined 9,000 to a lower-then-forecast 3.107 million in the week ended July 12, the most recent week for which data is available.

Analysts estimated so-called continued claims would be 3.14 million. It was the 13th straight week that claims were above 3 million, in a sign that the slowing economy is making it harder to find jobs.

HOUSING WOE

Housing is at the heart of the U.S. slowdown and officials hope conditions will start to gradually improve once it finds a bottom, although economists warn this may still be some way off.

The pace of existing home sales in the United States fell in June to a 4.86 million-unit annual rate, according to the National Association of Realtors.

"Anecdotally, there's a lot of foreclosed properties coming to the market. This is telling us any bottoming in the housing market will be very long and drawn out. It will take a long time for inventories to return to normal," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

Economists polled by Reuters were expecting home resales to fall to a 4.93 million-unit pace, from the 4.99 rate initially reported for May. The June rate was the lowest since a 4.83 million rate in early 1998, the Realtors said.

The inventory of homes for sale held steady at 4.49 million homes or 11.1 months of supply at the current sales pace, down only slightly from the record level of supply in April.

The median national home price declined 6.1 percent from a year ago to $215,100

In other news from the housing market, the U.S. Census Bureau said that the share of U.S. homes owned but sitting empty inched down to 2.8 percent during the second quarter from 2.9 percent in the first quarter.

(Additional reporting by Patrick Rucker and Joanne Morrison in Washington, Herb Lash and Richard Leong in New York; editing by Tom Hals)

How to Want Less Stuff

By Dayana Yochim Thu Jul 24, 10:17 AM ET

Gas prices and GDP woes may have us Americans tightening our belts, but that doesn't mean we're happy about it.

We sure love our stuff -- shopping for it, setting it up, displaying it, and demonstrating its superiority (speed/capacity/color/taste/size) to the other lesser stuff out there.

Of course, no discussion of stuff is complete without a reference to George Carlin's famous monologue about it. "The whole meaning of life is trying to find a place for your stuff," he says. "That's all your house is... a pile of stuff with a cover on it." (Watch it here. PG-13 rating, FYI.)

Good point, George.

• The only reason most people move is to find a bigger place for their stuff.
• When someone breaks into your house, they're not interested in your 4th grade mementos. No. They're after the good stuff.
• Stuff is so important to us that an entire industry exists simply to keep an eye on it.

A while ago my colleague Selena Maranjian wrote about stuff and gave advice on how to want less of it. She quotes a nice four-step system provided by "NaggingFool" from our "Living Below Your Means" discussion board:

Step 1: Avoid people who want you to want more stuff.

• Throw away catalogs without reading them.
• Don't watch commercials on television.
• Don't read the adverts in the weekly paper.
• Don't hang out in shopping areas for recreation.

Step 2: Realize how much junk you have now, and how much trouble it is.

• Take a complete inventory of your house contents for insurance purposes.
• Do a weekly "27-fling boogie" a la Flylady (go through the house and find 27 things that you don't want to keep anymore).
• Visualize moving all of your stuff to a new home, or your heirs going through everything after your death.

Step 3: Learn to appreciate the stuff you have.

• Keep warranties.
• Perform basic repair and maintenance.
• Loan things you don't use frequently to other people.

Step 4: Think about what else you might want, instead of more stuff.

Hi ho, it's off to the mall we go anyways
Of course, at some point you're going to have to replenish the pantry, replace some lightbulbs, and maybe even buy some stuff to keep the other stuff you have in good working condition.

Before you reach for your wallet, do some pre-shopping prep so you acquire only as much stuff as you really need:

• Retail Tricks that Make You Overspend
• 5 Ways to Stop Buying Stupid Stuff
• How-To Guide: Spend Smarter

Dayana Yochim is the Motley Fool's personal finance expert and would love to have less stuff.

New layoff filings jump as companies retrench

By JEANNINE AVERSA, AP Economics Writer Thu Jul 24, 8:35 AM ET

WASHINGTON - The government reports that the number of newly laid off people filing claims for unemployment benefits bolted past 400,000 last week as companies trimmed their work forces to cope with a slowing economy.

he Labor Department reported Thursday that these new applications rose by 34,000 to 406,000 for the week ending July 19.

That matches the level seen in late March. The last time claims were higher was after the devastation of the Gulf Coast hurricanes in mid-September 2005. Then, they spiked to 425,000.

Ford posts $8.7 billion second-quarter loss on truck slump

By David Bailey and Kevin Krolicki Thu Jul 24, 4:12 PM ET

DETROIT (Reuters) - Ford Motor Co (F.N) posted a record $8.7 billion quarterly loss on Thursday as it wrote down the value of slumping truck and SUV operations and revamped plans in a bid to break its reliance on the gas-guzzlers that have been its franchise vehicles for a decade.

The second-quarter loss was deeper than analysts had forecast and Ford shares fell by 15 percent. Its bonds also traded lower.

Ford cautioned that it did not expect a U.S. economic turnaround until 2010 with oil prices remaining "high and volatile" and no relief for the high prices for steel and other commodities that have hit automakers hard.

In response to the sudden premium on fuel efficiency, the No. 2 U.S. automaker said it would retool truck plants in Michigan and Kentucky to make small cars in addition to an already announced conversion for a Mexican truck plant.

In addition, Ford will bring four previously unannounced small cars to North America, including a Mercury-branded derivative of its popular Focus. It also said it would double its hybrid output in 2009 and double its capacity to make fuel-saving four-cylinder engines by 2011.

Analysts have increasingly focused on whether Ford and rival General Motors Corp (GM.N) have the cash needed to ride out the economic downturn in a market moving away from the light truck segment the U.S. automakers have dominated.

Ford ended the second quarter with a cash position of $26.6 billion down $2.1 billion from the first quarter.

"We're confident that we have enough liquidity to get through," Chief Financial Don Leclair told reporters.

Calyon Securities Mark Warnsman said in a note he was "cautiously optimistic" about Ford's future but said the time it would take the automaker to complete its turnaround represented a risk for investors.

The collapse in demand for trucks and SUVs since the start of the year forced major automakers, including industry leader Toyota Motor Corp (7203.T), to cut production. One analyst warned that Ford's results were a warning sign for GM.

"We think the quarter has a negative read across for GM, as the shortfall to Ford earnings seems to have been largely a function of a weaker (economy) not cost execution," Goldman Sachs analyst Patrick Archambault said in a note.

Ford said it was on track to cut 15 percent of its white-collar expenses by August 1 and would cut more deeply in 2009 after reducing recurring costs by $5 billion by year end.

Executives declined to offer a timeline for returning to profitability after more than $15 billion of losses the past two years, citing the industry's continued uncertainty.

"I think it really goes with the economy both with the United States and worldwide," Chief Executive Alan Mulally told analysts.

TRUCK LOSSES WEIGH HEAVILY IN CHARGES

Ford's net loss, which included $8 billion in charges, amounted to $3.88 per share, compared with net income of $750 million, or 31 cents per share, a year earlier.

Total revenue fell to $41.5 billion, from $44.2 billion a year ago.

The quarterly charges underscored Ford's exposure to the rapid decline in U.S. light truck sales, a segment where Ford's sales dropped 18 percent in the first half.

"The magnitude of the special items reported by Ford suggests that the company is striving to get the bad news behind it," Calyon's Warnsman said. "The problem is that this has been done in the past and yet the company is now taking further write-offs."

Ford took a $2.1-billion charge to write down the value of leases written by its Ford Motor Credit finance unit. About 85 percent of the charge reflected a sharper-than-projected decline in the resale values of light trucks.

Ford also took a $5.3-billion charge to write down the value of its North American operations to reflect its more cautious view that the boom for trucks and SUVs that took off in the 1990s will not return.

Standard & Poor's equity analyst Efraim Levy warned the shift to smaller vehicles would be costly, but said Ford's plan would deliver lower costs and better flexibility over time.

Cars historically have generated lower profits than trucks and SUVs and Ford will have to invest heavily to convert the truck factories starting in December.

Ford plans to maintain production of its Ranger compact pickup truck until 2011, keeping a Minnesota plant open two years longer than previously planned.

Ford said it would keep its Mercury brand and revitalize the nameplate with new products after analysts had questioned its commitment to the brand.

The latest turnaround plan assumes that Ford's three core brands -- Ford, Lincoln and Mercury -- would maintain about a 14-percent market share in North America.

In May, Ford abandoned a long-standing goal of returning to profitability in 2009 and said it would delay the launch of its redesigned F-150 truck by two months to sell down inventory.

Ford also cut its North American production plans in the third and fourth quarters sharply and slashed its outlook for 2008 U.S. industry sales by 700,000 vehicles to a range of 13.7 million to 14.2 million.

The cuts reflect "the rapid pace of deterioration in the North American volume and mix environment," Archambault said.

Ford shares were down 92 cents at $5.11 in late Thursday trading on the New York Stock Exchange.

(Editing by Derek Caney and Carol Bishopric)

Toyota outsells GM worldwide in first half

By DEE-ANN DURBIN, AP Auto Writer Wed Jul 23, 7:31 PM ET

DETROIT - General Motors Corp., pummeled by falling U.S. sales and high gas prices, lost the global sales lead to Toyota Motor Corp. in the first half of this year, but the churning market makes it difficult to predict which automaker will end the year on top.

Toyota sold 4,817,941 vehicles globally during the first six months of the year, company spokesman Hideaki Homma said Wednesday, beating GM by 277,532 vehicles. Toyota said its global sales rose 2 percent from the same period the year before, while GM's sales fell 3 percent.

It's the second time Toyota has beaten GM in sales in the first half of the year. In 2007, Toyota outsold GM by about 50,000 vehicles, although GM eked out a win for the full year, retaining its 77-year position as the world's largest automaker by sales.

Toyota didn't release regional sales totals, but the weakened U.S. market appeared to be the biggest battleground. With its reputation for small, fuel-efficient cars and less exposure to the plummeting truck and SUV market, Toyota's U.S. sales fell 6 percent, compared with a 16 percent drop for GM. Industrywide sales fell 10 percent.

"The U.S. is definitely the sore spot," said Erich Merkle, an auto analyst with Crowe Chizek and Co., a Grand Rapids accounting and consulting company. "Toyota is not doing not well in SUVs and pickups either, but it's in a pretty good position in the small car and midsize sedan segments."

Outside North America, GM's sales grew 10 percent. The automaker reported exploding sales in emerging markets like Russia, where sales were up 34 percent in the second quarter, and China, where sales rose 14 percent. GM said that despite the tough sales environment in mature markets like the U.S. and Japan, it predicts industrywide global sales will rise 2.5 percent this year to a new record of 72 million vehicles.

"The growth momentum in emerging markets is still strong," said Mike DiGiovanni, GM's executive director of global market and industry analysis.

Investors shared that optimism, pushing GM shares up 14 percent before they tapered off later in the day. GM shares rose 30 cents, or 2.1 percent, to $14.62 in Wednesday trading. Toyota's U.S. shares fell 95 cents to $91.92.

Still, GM said its gains elsewhere have yet to make up for its losses in North America, where sales fell 20 percent in the second quarter. The automaker blamed high gas prices, which have caused a steep decline in U.S. truck and SUV sales, as well as a nearly three-month strike at American Axle and Manufacturing Holdings Inc. that shut down much of GM's production.

In response, GM is closing four North American assembly plants, cutting thousands of jobs, selling assets and suspending its dividend in an effort to raise cash. GM has $24 billion in cash and access to $7 billion in credit but has been burning through about $1 billion per month.

DiGiovanni said GM also is struggling in Japan, where consumer confidence is at record lows and sales have hit their lowest levels since 1982. Industrywide sales in Western Europe also fell 7 percent, the result of high fuel prices and falling home values.

Toyota hasn't been immune to those troubles. Toyota's profit for the January-March quarter sank 28 percent from the previous year as a strengthening yen and lagging North American sales chipped away at the Japanese automaker's earnings. The company also said it expects sales to drop for the first time in nine years for the fiscal year that ends in March 2009.

Toyota's U.S. sales also took a surprising 21 percent dive in June, prompting the company to make major manufacturing changes at its U.S. plants. Toyota plans to suspend truck and SUV production for three months starting in August and will start building the Prius hybrid in the U.S. for the first time in 2010. U.S. Prius sales have fallen in recent months as Toyota has failed to keep up with demand.

Toyota also said last week that its European sales fell 7 percent in the first half, a dip it vowed to reverse with a series of new, more fuel-efficient products. Merkle said that unlike the U.S., Toyota has a lot of room to grow in Europe.

"They're finally getting the right product mix there," he said.

Toyota also is an aggressive player in emerging markets. Last week, it said it is acquiring land in Brazil for a second plant that would start making compact vehicles as early as 2011. GM said its sales in Brazil were up 20 percent in the second quarter.

Toyota has said it expects to sell 9.85 million vehicles worldwide this year, up 5 percent from last year. But it may lower that target when it updates its strategy next month. GM doesn't release full-year sales forecasts.

DiGiovanni said GM now expects the first quarter of 2009 to be the low point of the U.S. housing crisis, and that home prices and auto sales will see some recovery after that. He said oil prices also are starting to show some signs of stability, which could give a big boost to consumer confidence.

"If people see the price stays in some finite range, they feel better about the future," he said.

___

AP Business Writer Yuri Kageyama in Tokyo contributed to this report.

Is Upside Surprise In Store For GDP?

Ibd Wed Jul 23, 6:45 PM ET

Economy: Everyone agrees the economy's in the tank and headed for recession -- if not already in one. The first quarter was weak, and the second quarter will be weaker, the argument goes. Hold on just one minute.

We said in December 2007 that the economy's not in recession, that it has plenty of momentum that will be helped if the Fed aggressively cuts interest rates to keep the housing mess and high oil prices from dragging us into a downturn. No need to panic.

So far, so good.

To be sure, the first three months of this year were weak, with GDP growing at a tepid 1% pace. And businesses did cut 325,000 jobs in the first half, lifting unemployment to 5.5%.

Given all this glum news, it seems, we must be in recession. A recent national poll by the American Research Group found that 68% of those queried thought the U.S. was in a recession. Indeed, a casual survey of Google News returned 46,137 hits for the word "recession." It's in the air.

But the prevailing gloomy consumer sentiment seems to be at odds with what's actually happening right now in the economy, at least as far as the data go.

John McCain's adviser, economist and former Sen. Phil Gramm, got canned for suggesting that the only recession we had was "mental."

Turns out, he's right.

The U.S. in the second quarter, while not booming, seems to be growing quite nicely, thank you. Not even close to recession.

A consensus estimate of economists by Bloomberg puts second-quarter GDP at about 2.2%. First Trust Advisors' Brian Wesbury, who is admittedly at the extreme end of the expectations spectrum, thinks GDP growth will be 3%.

Not only not a recession, but quite respectable.

This isn't based on wishful thinking, but on hard data. Many of the core elements of gross domestic product -- consumer spending, business investment, government spending and trade, to name a few -- are all growing. They will add a lot to GDP this quarter.

Autos and housing? Yes, clearly they're in big trouble right now, suffering double-digit sales declines and huge layoffs. The more than doubling of oil prices hasn't helped.

But the rest of the economy seems to be doing OK -- not spectacularly well, but OK.

We might add that the Fed seems to have put a bottom under the economy by slashing interest rates from 5.25% to 2% in less than a year, and by pumping hundreds of billions of dollars in liquidity into the ailing financial system. President Bush's tax cuts clearly continue to bolster consumers, another key bit of support.

In short, people may think we're in a recession, but we aren't.

Nor is it clear we will be this year. Investors increasingly see the U.S. weathering the storm. As the Intrade.com futures chart above shows, investors just months ago gave a nearly 80% chance of recession hitting the U.S. in 2008; today, it's down to a 17% probability.

Each day we're not in a downturn makes it less likely we will enter one. And someday, those who perpetually forecast economic Armageddon in the very next quarter, and who are wrong, will have to admit it. The economy's more resilient than they think.

Title insurer Fidelity National's net sinks 92 percent

Wed Jul 23, 5:58 PM ET

NEW YORK (Reuters) - Fidelity National Financial Inc (FNF.N), which controls one of the largest U.S. title insurers, said on Wednesday second-quarter profit tumbled 92 percent as the housing slump cut into home sales and refinancings.

Net income fell to $6.9 million, or 3 cents per share, from $84.8 million, or 38 cents a share, a year earlier. Revenue fell 21 percent to $1.18 billion.

Analysts on average expected profit of 13 cents per share on revenue of $1.17 billion, according to Reuters Estimates.

Chairman William Foley called the operating environment "difficult" as order counts weakened throughout the quarter, a period he said is "normally seasonally strong."

Foley also said Fidelity National eliminated more than 1,600 jobs in the quarter, but that most of the cuts came in June, too late to benefit results.

The Jacksonville, Florida-based company also increased its reserve for credit losses.

Title insurance guarantees that a property owner has title to a property and can legally transfer that title. The nation's housing slump has resulted in lower demand for and lower prices on homes, cutting into title insurers' revenue.

Fidelity National said title orders that closed fell 25 percent in the quarter to 307,500, while the number opened declined 26 percent to 462,600. Title and escrow premiums and fees fell 23 percent to $1.04 billion.

The company's shares closed up 30 cents at $14.43 on Wednesday on the New York Stock Exchange. They have fallen 1 percent this year. Fidelity National released results after U.S. markets closed.

(Reporting by Jonathan Stempel; editing by Jeffrey Benkoe and Andre Grenon)

Waiters pick up part of LongHorn's labor costs

By ELLEN SIMON, AP Business Writer Wed Jul 23, 5:36 PM ET

NEW YORK - With the cost of everything from air conditioning to whipped cream rising, many restaurants have been raising prices. LongHorn Steakhouse is passing on part of the tab to its servers.

LongHorn has instituted what its parent company Darden Restaurants Inc. calls "a more disciplined" tip-sharing plan — a policy servers say is cutting their earnings.

Under the program, waiters must give up a greater percentage of their total sales each shift to hosts and bartenders — 2.25 percent, up from 1 percent. So a server who sells $1,000 worth of food and drinks on a Friday night must "tip out" $22.50 to the hosts and bartenders.

The tip outs, which allow the company to pay bartenders and hosts a lower wage, were one factor helping Darden, one of the nation's largest restaurant companies, shave labor expenses as a percentage of sales by 0.6 percent in the fourth quarter, the company said in its latest earnings call.

The policy helped "offset wage pressure inside the restaurant," Darden President Drew Madsen said on the call. "It's a more disciplined tip share program than they've had in the past and as that progresses and we see results of that more broadly in more restaurants, that's something we can look at in all of our restaurants."

Darden has 1,702 restaurants; its chains include Olive Garden and Red Lobster.

The company's focus on tip sharing comes as restaurants scramble to trim expenses as customers eat out less and food prices climb. Adding to costs is a scheduled increase in the federal minimum wage, from $5.85 an hour to $6.55 on Thursday.

"A lot of employers are asking how they can get their hands on part of their waiters' tips to offset labor costs," said Paul Paz, an Oregon waiter who runs the Web site waitersworld.com.

Several LongHorn servers, speaking anonymously because they feared losing their jobs, say the policy has cost them money.

Darden, which bought LongHorn's parent company for $1.19 billion in October, says the change in the tip policy was not a specific response to the challenging economy and that LongHorn is structured slightly differently than its other restaurants.

The company says that even amid the sluggish economy, it hasn't raised prices or shrunk portions as other restaurants have.

"Our customers come to us for value," said spokeswoman Phyllis Hammond.

Other chains are finding savings elsewhere; Bob Evans cut its workers' hours by a total 2.6 million for fiscal 2008.

"When you're seeing minimum wage increases like we're seeing now, a restaurant really has two options: Raise prices, which no one wants to do, or reduce labor hours, which is what we did," said Dave Poplar, a spokesman for Bob Evans.

Despite the pressures, restaurants are still hiring. The Bureau of Labor Statistics said restaurants and bars added 16,000 jobs in June.

When Darden acquired LongHorn, the tip out policy increased. Similar policies elsewhere have been ruled legal.

Each servers' total sales at the 305 LongHorn restaurants are tracked electronically. At the end of every shift, LongHorn presents each server with an electronic tally: The company owes the server her credit card tips, while the server owes the company the total of bills customers paid in cash, plus 2.25 percent.

As a result of the tip share, LongHorn can pay hosts and bartenders less; some hosts have wages of $4 an hour. That's possible because in most states, minimum wage law allows tipped employees to earn wages as low as $2.13 an hour, as long as their wages plus tips add up to minimum wage.

Darden's overall wages paid increased for the year ending May 25, rising 18 percent to $2.13 billion from $1.81 billion in the same period the year before, as the new LongHorn Steakhouses and 29 Capital Grille restaurants added to labor expenses. Darden's other restaurants include Bahama Breeze and Seasons 52.

Sales grew to $6.63 billion from $5.57 billion during the same period, and net earnings grew to $377.2 million from $201.4 million.

Some restaurants, including Darden, say the federal minimum wage increase won't affect them, since 23 states require a higher minimum than the increased federal wage. Other chains say their pay bests even the higher state wages.

"The key for us is getting the right people," said Mike Serchia, vice president of human resources at Einstein Noah Restaurant Group, which runs Einstein Bros. Bagels. "If we have to pay a little bit extra to do that, we do, because that's the environment of the store we're trying to promote." He said the chain pays an average of $8 an hour.

___

Ellen Simon covers the economy. She can be reached at esimon(at)ap.org or via http://www.facebook.com/profile.php?id659954920

Paulson: Rescue bill key to solving housing crisis

By MARTIN CRUTSINGER, AP Economics Writer Wed Jul 23, 4:07 PM ET

WASHINGTON - Treasury Secretary Henry Paulson said Wednesday that agreement on a sweeping housing rescue bill will send a strong message to investors around the world and will be key to helping the nation turn the corner on the housing crisis.

Paulson said the bill had some "wasteful" provisions such as a $3.9 billion measure to provide federal help for homeowners facing foreclosure.

But Paulson said he had urged President Bush to drop his veto threat over this provision because of the other important elements in the bill that would provide support to Fannie Mae and Freddie Mac.

"It is a strong message that we are sending to investors around the world and in the United States that we understand the importance of these organizations to our capital markets and to our housing markets," he told reporters Wednesday at the Treasury Department. He said the legislation would play a key role in "helping us turn the corner" on the housing crisis.

After intensive discussions, congressional negotiators and the administration reached a deal late Tuesday. The House was expected to vote on the bill later Wednesday.

The proposal would provide the Treasury Department the power to extend to Fannie Mae and Freddie Mac an unlimited line of credit and buy their stock for 18 months if necessary to bolster investor confidence in the two mortgage giants. Fannie and Freddie either guarantee or own more than $5 trillion of mortgages — almost half of the nation's total.

Paulson said the deal would serve as an important confidence booster to financial markets, which have beaten down the value of the two companies' stocks in recent weeks over rising worries about how they will be able to cope with billions of dollars of losses on mortgage loans.

"The single most important thing that we can do to help get through this housing correction is a strong GSE bill," Paulson said of the measure, which will replace the current regulator for Fannie and Freddie with an agency with enhanced oversight powers. Fannie and Freddie are known as government sponsored enterprises.

Paulson said it was not difficult to convince the president to drop his veto threat because "he understands the importance of this topic."

Paulson refused to be drawn into an analysis released Tuesday by the Congressional Budget Office which gave a rough estimate of $25 billion as the potential cost to taxpayers of the support effort for Fannie and Freddie.

The CBO gave a wide range of what the costs might ultimately be — from zero if markets stabilize and the two institutions do not have to draw on the federal support, to a small chance the two institutions could lose $100 billion.

"Congressional (budget) scoring is a mystery to me," Paulson said. "We are talking about the authority to lend against collateral, to make investments ... and so I leave the scoring to the scorers."

(This version CORRECTS and expands Paulson quote. )

Consumer confidence rebounds from 28-year low

Fri Jul 25, 9:58 AM ET

NEW YORK (Reuters) - U.S. consumer sentiment recovered from early 1980s lows in July as Americans received tax rebate checks from the government but remained pressured by high gasoline prices and falling home values.

he Reuters/University of Michigan Surveys of Consumers said its final index of confidence rose to 61.2 in July from 56.4 in June. Analyst forecasts had pointed to no change from last month.

Both perceptions of current economic conditions and expectations improved somewhat on the month. Yet the outlook was far from rosy, according to the survey.

"The data still indicate an ongoing downturn in spending that will last well into 2009," the report said.

Inflation expectations one year out held steady at 5.1 percent, while looking further out at a five-year horizon they dipped to 3.2 percent from 3.4 percent.

(Reporting by Pedro Nicolaci da Costa; Editing by James Dalgleish)

New home sales fall but stronger than expected

Fri Jul 25, 10:34 AM ET

WASHINGTON (Reuters) - Sales of newly constructed U.S. single-family homes were stronger than expected in June, and inventories shrank to three-and-a-half-year low, a government report showed on Friday, providing a glimmer of hope for the beaten-down housing market.

U.S. new home sales fell 0.6 percent to a 530,000 annual pace last month from a revised 533,000 rate, the Commerce Department said. Economists polled by Reuters were expecting sales to slow to a 500,000 seasonally adjusted annual sales rate from a previously reported 512,000 pace in May.

"We are approaching a bottom, but we are not there yet," said Michelle Meyer an economist at Lehman Brothers in New York.

U.S. stocks and the dollar gained on the stronger-than-expected report and on a survey showing a revival of consumer sentiment. Treasuries steepened losses and markets boosted expectations the Federal Reserve would begin to raise benchmark interest rates in September to ease inflationary pressures.

The inventory of homes available for sale shrank 5.3 percent to 426,000, the lowest since December 2004. The June sales pace put the supply of homes available for sale at 10 months' worth.

The median sales price rose to $230,900 from $227,700 from May, but was down 2 percent from a year earlier, the government said.

(Reporting by Mark Felsenthal, Editing by Neil Stempleman)

Consumers, home sales paint less gloomy picture

By Burton Frierson Fri Jul 25, 11:24 AM ET

NEW YORK (Reuters) - Consumer sentiment rebounded in July from a 28-year low and business investment rose unexpectedly last month, according to data on Friday that showed rare signs of resilience for the U.S. economy.

Data from the struggling housing market also contributed to the less gloomy picture. New home sales in June were not as weak as expected, though few doubt it will take time for housing to recover from its worst slump since the Great Depression.

The Reuters/University of Michigan Surveys of Consumers said its final index of confidence rose to 61.2 in July from 56.4 in June.

The June reading was the lowest since 51.7 in May 1980, which was also the weakest reading ever. The index dates back to 1952, though the survey has been conducted since 1946.

Analysts saw plenty of reasons to be skeptical of a long-lasting recovery in sentiment, seeing much of the improvement linked to government economic stimulus efforts and falling energy prices -- both of which may be temporary.

"It's too early to say that we've turned the corner because the tax rebates are temporary," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri.

"We are getting some lower energy prices but we're heading into the hurricane season so there's some risk that energy prices could rise again if there's a major hurricane."

On Wall Street, stocks added to their earlier gains after the stronger-than-expected consumer sentiment and housing data, while the dollar rose against the euro and yen.

Government bonds, which perform better during times of economic weakness, extended their losses.

THE HOME FRONT

Sales of newly constructed U.S. single-family homes fell 0.6 percent in June to an annual pace of 530,000 annual pace. Economists polled by Reuters expected sales to slow to 500,000 from a previously reported 512,000 in May.

Earlier, mortgage finance giant Freddie Mac (FRE.N) reporting its retained mortgage portfolio jumped by more than a 33 percent annual rate in June to about $792 billion.

The pace at which Freddie Mac, and its larger counterpart Fannie Mae (FNM.N), expand their mortgage purchases is seen as critical at a time when the government is relying heavily on the two companies to stabilize the housing market.

Investor concern has centered on whether Freddie Mac and Fannie Mae have sufficient capital to keep buying mortgages at a robust clip as losses mount from rising loan delinquencies.

The U.S. Senate voted on Friday to limit debate on a bill aimed at shoring up both the housing market and mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), paving the way for a final vote expected on Saturday.

Earlier this week, the White House lifted a threat to veto the measure, which has already passed the U.S. House of Representatives. The bill includes provisions for the Treasury Department to offer Fannie and Freddie a bigger line of credit and buy stakes in the companies, if needed.

Data earlier in the day shed light on the depressed state of the housing market, with U.S. home foreclosure filings up 14 percent in the second quarter, according to real estate data firm RealtyTrac.

Meanwhile, new orders for long-lasting U.S. manufactured goods rose unexpectedly in June on a surge in defense orders, while a gauge of business investment was also higher than forecast, a government report showed.

Durable goods orders rose 0.8 percent in June, after a revised 0.1 percent gain in May. Non-defense capital goods excluding aircraft, viewed as a barometer of business spending, jumped 1.4 percent after a revised 0.1 percent decline in May.

"The overall pattern of business investment in the U.S. is holding up pretty well," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.

(Reporting by Burton Frierson; Editing by Theodore d'Afflisio)

Ask AP: Candidates' salaries, Alaska's pricey gas

By The Associated Press Fri Jul 25, 12:16 PM ET

An awful lot of the oil produced in the United States comes from the nation's northernmost state. So why are gas prices at Alaska's filling stations among the highest in the country?

That's one of three questions in this edition of "Ask AP," a weekly Q&A column where AP journalists respond to readers' questions about the news.

If you have your own news-related question that you'd like to see answered by an AP reporter or editor, send it to newsquestions@ap.org, with "Ask AP" in the subject line. And please include your full name and hometown so they can be published with your question.

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Are sitting senators — i.e. John McCain, Barack Obama, Hillary Clinton — paid their full salaries when they are campaigning for office and spending so little time on their senatorial duties?

Brenda Esslinger

Springfield, Ill.

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No senator has ever given back any of his, or her, Senate salary — currently $169,300 a year — while running for president, according to Senate historian Donal Ritchie. He said senators still run their offices and carry out many of their duties to constituents even when they are off on the presidential campaign trail.

The 1996 Republican nominee took a different approach. Former Sen. Bob Dole, R-Kan., resigned as majority leader and gave up his Senate seat when he ran against Bill Clinton. Dole said he couldn't carry out the daily responsibilities of running the Senate and campaign effectively at the same time.

In the early days of the nation, members of Congress were paid by the day. After it was found that they stayed in session longer in order to paid more, their compensation was changed to an annual salary.

Jim Abrams

Associated Press Writer

Washington

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Given the large amount of oil drilled in Alaska, why is the price of gas at the pump in Anchorage so much higher than the national average?

Steve Nelson

Anchorage, Alaska

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According to Matthew Berman, an economist at the University of Alaska Anchorage, Anchorage's higher-than-average gas prices ($4.39 for regular unleaded at most stations in July) can be traced to a variety of factors, including the small size of the two refineries that supply nearly all of Alaska's gas stations and the high cost of shipping goods to the state.

Flint Hills outside Fairbanks and Tesoro in Nikiski refine crude oil, most of it from Alaska's North Slope and Cook Inlet, into gasoline and other products. Both are relatively small, meaning operating costs are higher in relation to output than at larger refineries in the lower 48.

Berman says the lack of competition allows the two refineries to charge gas stations at the rate it might cost to import gasoline. So, prices in Anchorage are above average because they correspond with the generally high cost of shipping goods to Alaska, even though the gas, for the most part, is not actually being brought in from outside.

Jeannette J. Lee

AP Business Writer

Anchorage, Alaska

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Remember the entertainer "Tiny Tim," who frequented the talk shows back in the late '60s and early '70s? What ever happened to him?

Michael Logan

Milwaukee

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Herbert Khaury, a native New Yorker who tried out a variety of stage names before settling on "Tiny Tim," died in 1996 of a heart attack in Minneapolis, where he was buried. He was 64.

Khaury's legacy will always be his falsetto, tongue-in-cheek "Tiptoe Through the Tulips," accompanied by his trusty ukulele. Truth is, Khaury was more than a novelty act — he was an amateur musicologist whose repertoire included everything from send-ups of Top 40 hits to deep Americana, and his natural singing voice was baritone, which gave him an uncanny range.

He survived his first heart attack in September 1996 and was told not to perform any longer, but he carried on until he was fatally stricken that November. Appropriately enough, the song he was performing when he fell ill: "Tiptoe Through the Tulips."

Josh Dickey

AP Deputy Entertainment Editor

Los Angeles

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Have questions of your own? Send them to newsquestions@ap.org.

US new home sales slip in June, but beat forecasts

by Veronica Smith

WASHINGTON (AFP) - New US home sales ticked down in June, government data showed Friday, but the better-than-expected figures sparked a glint of hope that the worst housing slump in decades may be scraping bottom.

The Commerce Department said new home sales slipped 0.6 percent to a seasonally adjusted rate of 530,000 units in June.

Though that marked a 33.2 percent decline from June 2007, the monthly pace topped analysts' consensus forecast of 505,000 units.

Analysts said the report indicates the market may be working toward a recovery more than two years after the collapse of a boom fueled by loose credit and speculation.

Falling house prices and tight credit have brought the world's largest economy to a crawl, driving up unemployment and shaking confidence.

"New home sales look to be reaching a bottom and that is good news for everyone," said Joel Naroff at Naroff Economic Advisors.

Sales of new houses and apartments in June were at their lowest level since March, but the 0.6 percent decline reflected a sharp upward revision in the May figure, to 533,000 units from 512,000 units.

The median price of a new home fell 2.0 percent in June from a year ago to 230,900 dollars, but was up 1.4 percent from May, the Commerce Department said.

The number of new homes for sale dropped 5.3 percent to 426,000 units, a 10-month supply at the June sales pace. In May, inventory stood at a 10.4-month rate.

"We are starting to see some positive signals that sales, although moving lower, are converging to a market bottom. Drastic reductions in builder supply are starting to have a meaningful impact on inventory levels," said Brian Bethune, an economist at Global Insight.

Naroff said: "While there are still way too many homes for sale and it is taking too long -- over eight months -- to sell a house, the declining inventory will allow the adjustment in the market to continue."

By region, the South was the hardest hit in June, as sales tumbled 2.0 percent to their lowest level since May 1995. Sales in the West fell 0.9 percent to their slowest pace since September 1982.

The Northeast saw the strongest surge, up 5.3 percent, while in the Midwest sales climbed 2.5 percent.

The much larger existing home sales market fared worse in June. The National Association of Realtors said Thursday that existing home sales fell 2.6 percent last month from May to a pace 15.5 percent lower than a year ago.

In another sign of trouble, research group RealtyTrac reported Friday that foreclosures leapt nearly 14 percent in the second quarter from the previous quarter and were 121 percent higher than a year ago.

On Wednesday, President George W. Bush dropped his threat to veto a broad housing rescue bill that offers aid to homeowners facing foreclosure and support to ailing mortgage-finance giants Fannie Mae and Freddie Mac, the government-sponsored and shareholder-owned companies that underpin half the US housing market.

The bill was overwhelmingly approved hours later by the House of Representatives; the Senate is expected to pass it.

"The expected speedy passage of the housing bill will provide some support for the market, but we do not expect this support to kick in for perhaps six to eight weeks," Global Insight's Bethune said.

"In the meantime, the situation in the housing and mortgage markets remains extremely fragile."

Yahoo's Zimbra Desktop Manages E-Mail, Documents

Barry Levine, newsfactor.com

Zimbra is offering an office productivity suite. The Yahoo-owned provider of open-source messaging and collaboration tools announced Thursday a free beta of Yahoo Zimbra Desktop, which offers a centralized location for managing e-mail even when a user is not connected to the Internet, plus a tool for creating documents and spreadsheets.

Satish Dharmaraj, cofounder of Zimbra and a vice president of Yahoo, said the new application takes the "world-class collaboration suite and makes it available for everyone for use anywhere, anytime, with any e-mail account."

Docs, Spreadsheets, Tasks

Yahoo said Zimbra Desktop is available for Windows, Mac and Linux users with access to the Zimbra Collaboration Suite, Yahoo Mail, Gmail, AOL, or any IMAP/POP-enabled server. The desktop is a downloadable application that doesn't run in a browser window and offers offline access to e-mail.

Using the same Zimbra interface as its previous messaging and collaboration incarnation, the desktop expands on such functions as mashups with other services so that, for example, a user can view an e-mail, see his or her schedule when hovering over a date, or see a flight's status when hovering over a flight number.

The desktop also provides document creation, spreadsheets, task management, and document storage as part of Yahoo's effort to play in the same arena as Google and Microsoft. With Zimbra Documents added to the desktop, users can embed photos and other objects into documents and spreadsheets and switch tasks without opening other applications.

To stay organized, there's also calendaring, task management, and online document storage. Zimbra Briefcase, part of desktop, enables users to store files online and Zimbra Tasks offers to-do lists with start and due dates, progress, percent complete, and priority ratings. The calendar uses the iCal standard for taking a calendar offline and e-mails can be labeled with advanced tagging.

'Huge Area of Competition'

Microsoft Office files can't be opened in Zimbra Desktop. So Microsoft may not have anything to worry about in the short run, said Gartner Vice President Michael Silver, although someday this will become "a huge area of competition."

At the moment, Silver added, most of the online-focused productivity products are "not yet mature enough to replace" or seriously compete with the king of the realm, Microsoft Office.

Microsoft hasn't entered this market in force yet, he noted, and Office can't be used online, although the company has introduced some collaborative features. But at some point, Silver said, "we think they will enter this market."

In the meantime, he said, users will start trying these online productivity products, using them for some things, and Microsoft Office for most other things -- but eventually these competitors "could become a long-term problem" for the software giant.

S&P, Nasdaq up as data eases economic fear, Dow dips

NEW YORK (Reuters) - Stocks mostly rose on Friday as a drop in oil prices and stronger-than-expected data on consumer sentiment and housing eased concern about the economy and the outlook for profit growth.

But financial shares fell and helped drag the Dow slightly lower. Fannie Mae (FNM.N) and Freddie Mac (FRE.N) shares fell after Standard & Poor's said it may cut the subordinated debt and preferred stock ratings.

Home builders' shares rose after the data on new homes offered a glimmer of hope for the beaten-down housing market.

Big manufacturers, including United Technologies (UTX.N), were another standout sector after a report that showed an unexpected jump in orders for long-lasting durable goods.

"We have oil down, the better-than-expected economic indicators and yet we are not up very much," said Al Kugel, chief investment strategist at Atlantic Trust.

"One thing that is the dampening effect is that the financials are still not doing very well. Everybody is asking how much more bad news is out there."

The Dow Jones industrial average (.DJI) dipped 6.68 points, or 0.05 percent, to 11,342.60. The Standard & Poor's 500 Index (.SPX) was up 1.48 points, or 0.12 percent, at 1,254.02, while the Nasdaq Composite Index (.IXIC) was up 23.38 points, or 1.03 percent, at 2,303.49.

Juniper Networks (JNPR.O) shares jumped 17 percent to $26.41 on Nasdaq after it raised its full-year outlook on strong demand for network equipment. Shares of rival Cisco Systems Inc (CSCO.O) gained 2.8 percent to $22.37.

(Reporting by Kristina Cooke; Editing by Jan Paschal)

S&P, Nasdaq up as data eases economic fear, Dow dips

NEW YORK (Reuters) - Stocks mostly rose on Friday as a drop in oil prices and stronger-than-expected data on consumer sentiment and housing eased concern about the economy and the outlook for profit growth.

But financial shares fell and helped drag the Dow slightly lower. Fannie Mae (FNM.N) and Freddie Mac (FRE.N) shares fell after Standard & Poor's said it may cut the subordinated debt and preferred stock ratings.

Home builders' shares rose after the data on new homes offered a glimmer of hope for the beaten-down housing market.

Big manufacturers, including United Technologies (UTX.N), were another standout sector after a report that showed an unexpected jump in orders for long-lasting durable goods.

"We have oil down, the better-than-expected economic indicators and yet we are not up very much," said Al Kugel, chief investment strategist at Atlantic Trust.

"One thing that is the dampening effect is that the financials are still not doing very well. Everybody is asking how much more bad news is out there."

The Dow Jones industrial average (.DJI) dipped 6.68 points, or 0.05 percent, to 11,342.60. The Standard & Poor's 500 Index (.SPX) was up 1.48 points, or 0.12 percent, at 1,254.02, while the Nasdaq Composite Index (.IXIC) was up 23.38 points, or 1.03 percent, at 2,303.49.

Juniper Networks (JNPR.O) shares jumped 17 percent to $26.41 on Nasdaq after it raised its full-year outlook on strong demand for network equipment. Shares of rival Cisco Systems Inc (CSCO.O) gained 2.8 percent to $22.37.

(Reporting by Kristina Cooke; Editing by Jan Paschal)

Fortune Brands profit falls but tops lowered view

By Martinne Geller

NEW YORK (Reuters) - Fortune Brands Inc (FO.N) reported a quarterly profit that topped Wall Street's lowered expectations on Friday, after the consumer products maker had warned that weak consumer sentiment, the U.S. housing slump and higher taxes would depress earnings more than expected.

The maker of Jim Beam bourbon, Moen faucets and Titleist golf equipment said second-quarter net profit fell 41 percent to $136 million, or 88 cents per share, from $232 million, or $1.48 per share, a year earlier.

The results include a $60 million charge for items such as a write-down of the company's door business due to the housing slowdown.

Excluding special items, earnings were $1.25 per share, beating the analysts' average forecast of $1.20, according to Reuters Estimates.

Fortune also affirmed its full-year earnings outlook, raised its divided 5 percent and said it bought back a 10 percent stake in its spirits business owned by Sweden's Vin & Sprit (VSG.UL) for $464 million.

Its shares, which at Thursday's close were down 19 percent this year, were little changed on Friday.

Investor enthusiasm was probably muted as weakness across the company's portfolio drove operating earnings down 24 percent, according to Goldman Sachs analyst Judy Hong.

"We are neutral on the stock as we expect continued housing weakness and soft spirits results will be overhangs, but valuation is undemanding here," Hong wrote in a research note, adding that commodity cost inflation and debt reduction were also ongoing challenges.

Fortune Brands warned last month that quarterly earnings from continuing operations would probably decline at a steeper-than-expected percentage rate in the high teens to mid-20s. Among the reasons cited was an unexpected Australian tax increase on ready-to-drink spirits products, which raised the price of its popular Beam and Cola drinks by about 25 percent, causing sales to drop.

Quarterly net sales fell 8.6 percent to $2.10 billion as higher U.S. spirits shipments and strong golf and home products sales in Asia could not fully offset the impact of the U.S. housing slump and the softening consumer environment.

Excluding the impact of excise taxes and foreign exchange rates, net sales fell 10 percent.

Chief Executive Bruce Carbonari said the environment in the second quarter was tougher than expected.

"Clearly the U.S. housing market has been the biggest headwind we faced and it's been more challenging than we anticipated three months ago," Carbonari said on a conference call.

Sales at the home and hardware unit fell 14 percent while operating income fell 30 percent. Fortune said it now sees that unit's operating margins falling 2.5 percentage points this year.

SPIRITS, GOLF ALSO WEAK

Sales in the company's spirits business, which includes Sauza tequila and Courvoisier cognac, fell 1 percent while operating income fell 14 percent. Higher U.S. sales were offset by a decline abroad due to the Australian tax, a disruption with a Mexican distributor and a weak economy in Spain.

Despite the growth at home, Carbonari did note a shift in U.S. sales from bars and restaurants to home consumption.

The U.S. market has grown 2 to 4 percent in recent years and 2008 should grow at the low end of that range, Carbonari said.

The golf unit's sales fell 5 percent in the quarter while operating income fell 23 percent, due to brand investments and close-outs on certain items to make way for new introductions.

For the third quarter, the company said earnings, excluding special items, would be down in the mid-teens to mid-20s percentages from $1.34 a share a year ago.

For the full year, Fortune still forecast earnings before items falling at a percentage rate in the high single digits to the high teens, from $5.06 per share in 2007.

Analysts on average were expecting Fortune to earn $1.17 per share in the third quarter, down 12.7 percent from a year earlier, and $4.36 per share for the full year, down 13.8 percent from 2007.

Fortune shares were up 3 cents at $58.32 on the New York Stock Exchange in afternoon trading.

(Reporting by Martinne Geller; Editing by Gerald E. McCormick)

Destination retailers feel gas price pinch

By ASHLEY M. HEHER, AP Business Writer

CHICAGO - Consumer spending is down and gas prices are up. That's bad math for the scores of destination retailers across the country that want customers to fill up the tank for a gas-guzzling day of retail therapy.

So to cajole shoppers into stores, some of the nation's chains are changing marketing strategies, launching in-store classes and drumming up other special events aimed at getting road-tripping shoppers to pump up sales.

Customers at Bass Pro Shops drive an average of 100 miles to reach the company's 50 locations and many are known to drive up to 300 miles each way to spend time at the massive outdoor supercenters.

But with the average price of a gallon of regular gas above $4, getting even the most devoted customer to make the trip is becoming increasingly difficult.

That's why the Springfield, Mo.-based chain is launching a slate of events this weekend, offering outdoor skills workshops, s'mores-making, scavenger hunts and foam shooting competitions for shoppers.

Bass Pro Shops spokesman Larry Whiteley says foot traffic in stores is falling, but the company hopes this weekend's events give customers more than just one reason to make the drive.

"We're teaching them how, for less than $100, they can have their own camping outfit and they can go to a lake or a campground or they can use it in their own backyard," he said.

As gas prices rise and food prices soar, the American shopper is scaling back: driving less, postponing major purchases, putting off vacations, cutting back on their shopping expenses.

That means those shoppers who do make purchases are making them closer to home.

It's a trend George Rosenbaum, co-founder of Leo J. Shapiro and Associates, calls a retailing transformation.

"Any store that has significant dependence on drawing traffic from more than 30 miles is going to have pressure on it," he said.

WSL President Candace Corlett worries about what kind of long-term effect the changing shopping patterns could have on the nation's retailers — particularly those such as Ikea, Cabela's and far-flung outlet malls — whose bricks-and-mortar business models requires shoppers to spend hours in a car.

"Not only is it far away, so it's a gas-guzzling trip, they're selling merchandise that's a purchase that can be postponed, and they're the type of retailers where there's too much temptation," she said. "If you go into Ikea with nothing in mind, you come out hundreds of dollars later. This isn't a time when people are proud to be buying lots of stuff."

Just ask John Wallace and his wife Margot.

The Oliviehain, Calif. residents, who visited a Cabela's sporting goods store in Nebraska during a cross-country road trip to see family, say they can still afford the nearly $5-a-gallon gas in their hometown. But they're still bundling shopping trips into fewer stops, sharing rides with friends for longer journeys and scrapping visits to other faraway destinations altogether.

"I think everybody's trying to become a little more wise and savvy," said Margot Wallace, 50.

But not all destination retailers are feeling the squeeze.

American Girl stores — veritable wonderlands for doll-loving girls and their parents — are seeing increased traffic this summer. Stephanie Spanos, a spokeswoman for the dollmaker owned by Mattel Inc., attributed the increase to the movie "Kit Kittridge: An American Girl," showing in theaters nationwide.

"Given the timing, we're seeing probably a lift in store traffic," she said.

At the Mall of America in Bloomington, Minn., foot traffic is up, too — thanks largely to the 1.5 million international shoppers who were lured to the mega-mall in the past year by the weakened U.S. dollar.

But officials say they're still changing their advertising strategy, spending more money in markets a day's drive from the 520-store mall. They hope the targeted campaigns offset any potential decrease in far-flung shoppers deterred by the high price of fuel.

"We're always out there hustling to get the word out," said spokesman Daniel Jasper. "But we've been a little more aggressive this year, to be honest."

The same goes for Cabela's Inc., whose stores routinely draw shoppers from three hours away.

The Sidney, Neb.-based retailer known for its elaborate, one-of-a-kind stores is launching a new display advertising campaign with a gas-saving theme, encouraging shoppers worried about fuel prices to scrap in-store visits for online or catalog orders.

"We can hopefully direct customers to those channels so they don't have to fire up the car," said spokesman Joe Arterburn, who said the company is likely drawing fewer in-store shoppers from great distances. "Everyone is tightening their belt."

Stocks advance on upbeat economic reports

NEW YORK - Wall Street rose moderately Friday after better than expected economic data placated a market pummeled in the previous session by concerns about housing and the financial sector.

The Commerce Department's report on June home sales helped investors shake off some early uncertainty. The government said sales of new single-family homes fell by 0.6 percent to a seasonally adjusted annual rate of 530,000 units; the market expected sales to total 505,000. That report helped offset concerns raised by a weak reading on existing home sales on Thursday.

And there was good news about consumers, whose shyness about spending has troubled Wall Street. The Reuters/University of Michigan index of consumer sentiment for the first part of July came in at 61.2, while economists forecast a reading of 56.4, which was the level hit in June — a 28-year-low.

The Commerce Department also said orders for durable goods rose 0.8 percent last month, far better than the 0.4 percent decline economists expected. It was the best showing since a 1.1 percent rise in February and reflected strength in demand for heavy machinery, primary metals such as steel and even a slight rebound in the beleaguered auto industry.

Linda Duessel, equity market strategist at Federated Investors, said economic figures such as the durable goods numbers are important because they reveal continued demand from abroad, which could help U.S. companies continue to rake in profits even if the U.S. economy isn't running at full steam.

"That's good news for market participants as we try to find a footing in the market because we really don't want to see our weakness leak outside the U.S.," she said.

Meanwhile, a barrel of light sweet crude fell $2.11 to $123.38 on the New York Mercantile Exchange. Oil prices have fallen over $20 in recent weeks, alleviating some of Wall Street's concerns about the impact of inflation consumers' ability to spend.

In midafternoon trading, the Dow Jones industrial average rose 25.08, or 0.22 percent, to 11,374.36. The Dow, which fluctuated in early trading, fell more than 280 points Thursday.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 4.77, or 0.38 percent, to 1,257.31, and the Nasdaq composite index rose 24.31, or 1.06 percent, to 2,304.42.

Bond prices moved lower as investors shifted back into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.09 percent from 4.00 percent from late Thursday.

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

The stock market's volatility this week — rallying Tuesday and Wednesday only to erase those gains Thursday — illustrates tentativeness behind some of the bets investors are laying, said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. He said the market tends to react to whatever the latest headlines are.

"It's just news sensitive and the real question is 'What's the next news going to be? Good or bad?' That means that the market doesn't have a trend or a direction. It depends entirely on whether the news is going to be good or bad on any given day and that doesn't give you, as an investor, a lot of confidence," he said.

Johnson said the ride for investors will likely remain uneven as Wall Street awaits next Friday's government employment report for July.

"If the consensus is correct they'll have little choice but to leave interest rates unchanged," he said referring to the difficulties Federal Reserve policymakers would have in hiking rates to battle inflation without damaging the economy.

In corporate news, Juniper Networks Inc., the maker of networking equipment, reported a 40 percent increase in earnings for the second quarter, helped by a new product line. Results narrowly surpassed Wall Street projections. The stock rose $3.65, or 16 percent, to $26.22.

Chemicals maker Huntsman Corp. said it was approached by investors offering funding to help complete its $6.5 billion takeover by Apollo Management. Huntsman rose 70 cents, or 5.3 percent, to $13.97.

Fannie Mae and Freddie Mac declined as investors worried about the government-chartered mortgage finance companies' financial stability. Fannie Mae fell 61 cents, or 5.1 percent, to $11.41, while Freddie Mac fell 56 cents, or 6.4 percent, to $8.25.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 874.3 million shares.

The Russell 2000 index of smaller companies rose 7.45, or 1.06 percent, to 709.84.

Overseas, Japan's Nikkei stock average fell 1.97 percent. Britain's FTSE 100 rose 0.13 percent, Germany's DAX index slipped 0.06 percent, and France's CAC-40 advanced 0.67 percent.

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On the Net:

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