Finance & Business World

The Bank of Japan said it's ready to provide more cash after pumping 5.5 trillion yen ($51.8 billion) into money markets unsettled by the U.S. financial crisis.

“The bank will continue to strive to ensure smooth settlement of funds and maintain market stability,'' it said in a statement after Governor Masaaki Shirakawa and his colleagues left the target for the overnight lending rate at 0.5 percent.

Central banks from Frankfurt to Sydney added more than $200 billion this week to make sure banks keep lending to each other following the collapse of Lehman Brothers Holdings Inc. and rescue of American International Group Inc. World market turmoil may crimp global growth, reducing demand for Japan's exports and weakening an economy that's on the brink of a recession.

“The BOJ is sending a message that its best approach to the market turbulence is to provide as much liquidity as needed, not to change interest rates,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “The bank is trying to figure out how badly the external shocks will affect the economy at home.''

Global stock markets have rebounded since reeling from Lehman's bankruptcy this week. The Nikkei 225 Stock Average advanced from a three-year low today after the U.S. government said it would take over New York-based AIG, the country's largest insurer, to save the firm from collapse.

“Economic growth has been sluggish against the backdrop of higher energy and material prices and weaker growth in exports,'' the Bank of Japan said, repeating language introduced last month. “Tensions in global financial markets have increased and there are downside risks to the world economy.''

`Functioning Well'

The yen traded at 105.97 per dollar at 2:30 p.m. in Tokyo from 105.99 before the announcement. The Nikkei rose 1.1 percent.

The Bank of Japan injected 3 trillion yen into the banking system today after the overnight rate surged to 0.65 percent, and yesterday added 2.5 trillion yen. “Japan's money market has been functioning well,'' the central bank said.

The policy board may want more evidence that weakening global growth will derail the world's second-largest economy before deciding whether to cut borrowing costs, already the lowest in the industrialized world. The bank today reiterated that prolonging a low-rate policy could hamper the nation's prospects for sustainable growth in the long term cash advance usa.

Protracting the policy may “lead to swings in economic activity and prices,'' the bank said. Shirakawa made similar remarks in speeches in August and this month.

Japan's economy will recover after slowing for the time being, the central bank repeated today, adding that it will implement policy flexibly.

No Move By June

Today's rate decision was unanimous, and predicted by all 33 economists surveyed by Bloomberg News. Of 29 who gave predictions through June, 24 said there will be no move by then. Four estimated higher rates and one forecast a cut.

Gross domestic product shrank an annualized 3 percent last quarter, the sharpest contraction since 2001. Exports, the main driver of Japan's six-year expansion, fell for the first time in three years.

“We think the Japanese economy is already in a recession and now the focus is on how much damage the latest external shock will cause,'' said Yoshimasa Maruyama, a senior economist at BNP Paribas Securities Japan Ltd. in Tokyo. Still, “a rate cut isn't among the bank's options because BOJ policy makers have said monetary conditions are already very accommodative.''

Faster Inflation

Since the seven-member board met last month, reports showed inflation accelerated and the ratio of jobs available to applicants fell to the lowest level in four years. Consumer prices excluding fresh food rose 2.4 percent, the fastest rate in a decade, outpacing wage growth.

The central bank said it's watching “inflation expectations of households and the price-setting behavior of firms in addition to developments in energy and materials prices.''

Crude oil has tumbled 35 percent since exceeding $147 a barrel for the first time on July 11. Cheaper oil won't provide immediate respite, economists say.

“Commodity markets are going through an adjustment, but core consumer prices will hover around 2 percent because companies continue to pass on food and energy costs,'' said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “The BOJ won't cut rates to spur growth nor raise them to contain inflation for the time being.''

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Friends Against Counterproductive Taxation, a hospitality group fighting the 10 percent Allegheny County drink tax, is interpreting Monday’s decision by Judge Joseph James to throw out the organization’s referendum as another expected hurdle in a legal fight it expects to take to the Pennsylvania supreme court.

“An appeal is being filed as we speak,” said Kevin Joyce, owner of The Carlton Restaurant Downtown as a member of the executive board of FACT. “We fully expected it.”

Judge James ruled against that FACT’s referendum initiative, which seeks to give Allegheny County’s voters the option to reduce the 10 percent tax to 0.5 percent, throwing it out along with a competing referendum measure established by county council and approved by Allegheny County chief executive Dan Onorato, this morning faxless online payday advances.

The ruling by Judge James is the second setback in two weeks for the referendum, following a decision the week before by a substitute election board that the two referendum measures violated Allegheny County’s authority to make all decisions regarding taxation.

Joyce argues the organization is on firm legal grounds with its referendum, for which the organization collected more than 40,000 signatures in order to put the measure on the November ballot.

FACT’s next appeal will be before Pennsylvania Commonwealth Court, Joyce said.

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The last hours, minutes really, of one the world’s largest investment banks make for a pretty unusual spectacle.

I’m standing outside Lehman Brothers (LEH, Fortune 500) headquarters on 7th Ave and 50th street in New York City, watching Lehman Brothers die.

Employees, some in suits, others in casual clothes, are filing out with all they can carry as time runs out.

They are walking down the sidewalk past police barricades as scores of New Yorkers and tourists gawk, some asking, "Which star is coming out?" - not knowing what’s going on.

A big cop issues the standard "keep moving" line to those of us who stop to gaze. He tells the crowd, "Go home. There is no one famous coming out. You are looking at a whole bunch of people who just lost their jobs."

Some of the people behind the barricades are loved ones - their faces distraught, their cars waiting to pick up their significant others and their boxes. One banker carries out a pair of green Lehman umbrellas, a paltry trophy.

Few parting employees are in a mood to talk - either they’re still adhering to CEO Dick Fuld’s tight-lipped, ‘We’re all in this together’ policy or they’re just exhausted and in major pain.

"No comment," is the standard line cash advance. A TV producer tries in vain to get interviews. I managed to ask one guy how he felt: "Look at all of us with boxes," he said with a grimace. "What do you think?"

As the night wears on, dozens of younger workers start coming out of the building. One yells, ‘Jackals," not knowing that the crowd is made up mostly of relatives or clueless onlookers. A pair of employees walk out carrying orchids.

Six months earlier and five blocks away, a similar scene played out as Bear Stearns collapsed. Tonight I’m wondering how many more crash and burn nights like this Wall Street, the markets and our economy can take. 

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The world may face “Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.

Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.

“Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. “Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''

An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.

The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.

`More Severe'

“If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. “A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''

Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.

Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand faxless payday loan. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.

Emerging Markets

Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.

Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.

“Growth in emerging markets can be expected to remain relatively robust,'' he said. “Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''

A rising “middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.

Natural Resources

“International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. “Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''

Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.

Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.

“Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.

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Sales at U.S. retailers unexpectedly dropped in August and prices at the wholesale level fell for the first time this year as Americans cut spending in the face of job losses and record foreclosures.

The 0.3 percent decline in purchases followed a 0.5 percent drop in July, the Commerce Department said today in Washington. Excluding automobiles, purchases were down 0.7 percent, the most this year.

The figures signal faltering consumer spending will keep inflation in check, buttressing speculation that the Federal Reserve may have to resume lowering interest rates as soon as the end of this year. Futures trading indicates about a 40 percent chance that the Fed will ease credit by December. Stocks fell and Treasuries were little changed.

“Consumer weakness is the single-biggest risk to a recession right now,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia, who forecast sales would drop 0.4 percent. “We can't depend on the consumer for any discernable growth. We don't see any catalyst for higher spending.''

Prices paid to producers decreased 0.9 percent, more than forecast, as energy costs fell by the most in almost two years. Petroleum, home heating oil, natural gas and gasoline prices all retreated. So-called core producer prices, which strip out fuel and food costs, rose 0.2 percent, in line with forecasts.

Consumer Sentiment

The lower fuel prices were reflected in a measure of consumer sentiment, which showed a bigger-than-expected gain in September. The Reuters/University of Michigan index increased to 73.1 this month from August's reading of 63. The measure averaged 85.6 in 2007.

Economists in a Bloomberg News survey taken from Sept. 2 to Sept. 9 forecast consumer spending will stall this quarter.

The Standard & Poor's 500 Index gained 0.2 percent to close at 1251.7. Benchmark 10-year notes fell, pushing the yield up to 3.72 percent at 4:27 p.m. in New York, from 3.64 percent late yesterday.

Retail sales were projected to rise 0.2 percent after an originally reported 0.1 percent drop the prior month, according to the median estimate in a Bloomberg News survey of 80 economists. Forecasts ranged from a drop of 0.5 percent to a gain of 1.1 percent.

Non-auto sales were forecast to drop 0.2 percent from the prior month, according to the median of 76 forecasts. Estimates ranged from a 0.6 percent gain to a drop of 0.6 percent.

Gasoline Sales

Electronics, building material, clothing and department stores all saw a drop in sales last month. Service station receipts also fell as gasoline prices retreated.

Excluding gasoline, purchases were unchanged last month after a 0.6 percent decline in July.

Automakers boosted incentives in August to revive demand as the economy lost jobs for an eighth straight month and the unemployment rate reached a five-year high of 6.1 percent guaranteed approval cash advance loans. Sales at car dealers and parts stores increased 1.9 percent, the first gain since January and the biggest in a year.

General Motors Corp. offered all customers the same prices paid by employees, helping boost sales in the second half of the month. GM this month said it will extend the incentive through September and has offered 72-month, no-interest financing on some vehicles since late June.

“Not only is the U.S. in a recession, but the rest of the world is slowing down,'' Ford Motor Co.'s Chief Executive Officer Alan Mulally said in a speech this week. “I've never seen anything quite like it.''

Prices Retreat

Filling station sales decreased 2.5 percent in August after a 0.2 percent gain the prior month, today's report showed. The average pump price of a gallon of regular gasoline dropped to $3.76 last month from $4.06 in July, according to AAA.

The 1.5 percent decrease in purchases at department stores was the biggest since April 2007. Sales at non-store retailers, reflecting demand from Internet merchants and catalogs, declined 2.3 percent, the most since March 2007.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales fell 0.2 percent, the most this year. The government uses data from other sources to calculate the contribution from the three categories excluded.

Industry figures earlier this month showed demand weakened at retailers such as Gap Inc., Target Corp. and Abercrombie & Fitch Co., signaling merchants may be heading for the worst back- to-school season in seven years.

Back to School

Sales at stores open at least a year climbed 1.7 percent in August, the smallest gain in five months, the International Council of Shopping Centers said last week. Purchases from July through September, retailing's second-biggest season after Christmas, may climb 1 percent, according to the ICSC. That would be the smallest gain since 2001.

“The rebates have come and gone and even though oil prices have fallen, we are seeing a drop in retail sales,'' Stuart Hoffman, chief U.S. economist at PNC Financial Services Group in Pittsburgh, said in an interview with Bloomberg Television. “This does not bode well for the holiday season. I do not expect a second-half recovery.''

Consumer spending will stall from July to September, three months earlier than predicted last month, according to the median estimate of economists polled by Bloomberg this month. The slump will slow growth to less than half the prior quarter's 3.3 percent annual pace.

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Anheuser-Busch said Wednesday that a lawsuit filed in an attempt to block InBev’s $52 billion takeover of the Budweiser-maker lacks merit.

“We believe that the claims alleged in the lawsuit are without merit and we intend to vigorously defend against them,” said Gary Rutledge, vice president of legal and government affairs, in a statement.

Joseph Alioto, a prominent San Francisco antitrust lawyer, filed a lawsuit Wednesday in a federal court in St. Louis on behalf of 10 Missouri beer drinkers, alleging that the takeover hurts consumers with higher prices and smaller selections.

The beer market is “plainly a market ripe for probable if not certain collusion and a galloping tendency toward monopoly,” the lawsuit says. “If InBev is allowed to purchase Anheuser-Busch, there no longer would be any significant major potential competitor to influence pricing and marketing practices in the United States anywhere near the degree to which InBev, as the largest brewer in the world, is able to do.”

St cash advance loan. Louis-based Anheuser-Busch Cos. Inc. (NYSE: BUD), through its Anheuser-Busch Inc. subsidiary, is the leading domestic brewer, holding a 48.5 percent share of U.S. beer sales. The company accepted a $52 billion takeover offer from Belgian InBev, which will create the world’s largest brewer when the deal closes.

Anheuser-Busch is the top domestic competitor to MillerCoors, the merged Miller Brewing of Milwaukee and Coors Brewing of Golden, Colo.

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Mervyn King said the Bank of England's planned money-market reforms won't provide long-term assistance to banks to unfreeze lending and any decision on the matter should be left to Prime Minister Gordon Brown.

The central bank “will not and cannot solve the shortage of funding to finance bank lending, including mortgage lending'' over the long term, Governor King told lawmakers in London today. “Only private savers or taxpayers via the government can provide such funds.''

King's central bank will next week unveil proposals to revamp its money-market operations to better cope with financial-market turmoil. With Brown under pressure to ease the U.K.'s housing slump, King is distancing the central bank from any plan to prop up the mortgage market with public funds.

Chancellor of the Exchequer Alistair Darling is scheduled to make a decision on how to help the market for home loans in coming weeks and King said today the minister still has an “open mind'' on the matter. A Treasury-commissioned report said in July that Brown could consider guaranteeing mortgage-backed securities.

King today edged away from comments made last month opposing such a guarantee, saying he was just outlining what such a move would mean for taxpayers' funds. Still, he was forced to deny that he is giving too much advice to the finance minister.

“I am not giving the chancellor a public lecture,'' said King in testimony to Parliament's Treasury Select Committee. “It is perfectly reasonable to explain what central banks can and can't do and that is what I am doing.''

`Stressed' Conditions

The Bank of England will publish proposals to change its money-market rules at the end of next week. King said in June they will be designed to cope with both “normal'' and “stressed'' conditions.

“The objective of the new facility will be to provide short-term liquidity insurance to smooth the adjustment of financial institutions hit by unexpected shocks,'' King said faxless cash advance. It will only help banks trying to cope with “temporary'' problems, he said.

The new system would succeed the Special Liquidity Scheme, which allows banks to swap securities damaged by the credit crisis for government bonds. King said today takeup of the program, announced in April, was “significant'' and the central bank will provide further details when it expires next month.

Tighter Lending

U.K. banks are restricting lending as they cope with a yearlong credit rout, making it harder for potential homebuyers to find mortgages. That's exacerbating a slide in house prices and eroding support for Brown's government. Home values plunged 12.7 percent in August from a year earlier, HBOS Plc said on Sept. 4, in the biggest drop since at least 1983.

King said the “financial sector is facing the worst situation since the 1930s.'' Deputy Governor Charles Bean said the crisis has some time to run yet.

The Bank of England's ability to cushion the housing market with interest-rate cuts is limited after inflation accelerated to more than double its 2 percent target. U.K. inflation expectations reached the highest since at least 1999 last month, a Bank of England survey showed today. Consumer prices rose 4.4 percent in July from a year ago and Bean said the weaker pound may add to inflation pressures.

“It would be most surprising if, next week, I were not required to write a further open letter to the chancellor explaining why inflation is more than a percentage point away from target,'' King said today. The Bank of England's mandate requires the governor to write to the chancellor if inflation exceeds its target by more than one percentage point and stays there.

While Bank of England policy maker David Blanchflower said that growth prospects have probably deteriorated in the past month, King said the economy may rebound in a year.

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Access to Federal Reserve loans means Lehman Brothers Holdings Inc., which has plunged this week on concern about its capital, may have breathing room that Bear Stearns Cos. lacked before its abrupt collapse.

The program instituted in the aftermath of the Bear Stearns debacle, the Primary Dealer Credit Facility, could be used for funding while officials, regulators and executives find alternative sources of cash, Fed watchers said.

“The PDCF could be used to keep Lehman operating until a broader solution was found,'' said Brian Sack, a former Fed research manager who's now senior economist at Macroeconomic Advisers LLC in Washington. “The challenge is figuring out what the broader solution is.''

Lehman can borrow overnight from the central bank, with escalating costs if it keeps using the program. Because it's a stopgap, speculation may mount that the government will again intervene to prevent a large financial company from failing, after the Bear Stearns rescue and takeovers of Fannie Mae and Freddie Mac.

“Given what was done with Freddie and Fannie and Bear Stearns, it's hard to distinguish why Lehman is not too big to fail as well,'' said Robert Eisenbeis, chief monetary economist at Cumberland Advisors, and a former research director at the Atlanta Fed. “My guess is that everyone will blink again and Lehman too will be saved. We are in for a rough ride.''

Talking to Officials

The Fed is getting updates on Lehman's capital and leverage positions from its examiners, who have been reviewing the company's finances and those of other major investment banks since the formation of the PDCF in March. Treasury officials are “in regular contact with market participants,'' spokeswoman Jennifer Zuccarelli said.

Lehman hasn't used the PDCF since April, a person briefed on the matter said today on condition of anonymity. The company today reported a $3.9 billion third-quarter loss and said it plans to sell a majority stake in its investment-management unit.

Fed spokeswoman Michelle Smith in Washington declined to comment.

New York-based Lehman, the fourth-biggest U.S. securities firm, tumbled 45 percent yesterday in New York trading after talks about a capital infusion from Korea Development Bank ended. The shares fell 54 cents to $7.25 today and have lost 89 percent this year.

The cost of buying protection against default on Lehman debt reached a record 6.10 percentage points earlier today, credit- default swaps showed, according to broker Phoenix Partners Group.

No Repeat

Fed Chairman Ben S. Bernanke said he wanted to avoid an episode similar to the Bear Stearns rescue in March, when the central bank agreed to lend $29 billion to secure the investment bank's takeover by JPMorgan Chase & Co. That was part of an agreement crafted in part by New York Fed President Timothy Geithner, after consultations with Treasury Secretary Henry Paulson overnight payday loans.

“The financing we did for Bear Stearns is a one-time event,'' Bernanke said in April. “It's never happened before and I hope it never happens again.''

The PDCF offers the 19 primary dealers that trade Treasuries with the New York Fed access to direct loans at the same rate as commercial banks, now 2.25 percent. Dealers can submit collateral including Treasuries and asset-backed debt, corporate bonds and municipal bonds with investment grades.

For seven of the past nine weeks there has been no borrowing from the PDCF, with average weekly balances of $3 million and $9 million for the other two. The Fed releases its weekly borrowing statistics each Thursday at 4:30 p.m. New York time.

`Fragile' Markets

In July, the Fed extended the PDCF through Jan. 30 because of “continued fragile circumstances in financial markets.'' It was originally set to end as soon as this month.

The PDCF “should help a lot'' for Lehman, former Fed Governor Lyle Gramley said. If Bear Stearns had had access to the funding, it's “conceivable'' the firm might not have been pushed into its acquisition by JPMorgan, said Gramley, now senior economic adviser at Stanford Group Co. in Washington.

Both Bear Stearns and Lehman suffered from the collapse of the mortgage-backed securities market in the wake of a record surge of delinquencies on U.S. home loans. The crisis then spread to other markets, including for some types of student-loan and municipal debt.

Lehman is trying to raise capital and dump devalued real- estate assets after $8.2 billion in writedowns and credit losses in the past year.

`Unusual' Circumstances

For the Fed, the Bear Stearns and PDCF lending marked the first extension of credit to nonbanks since the Great Depression, using emergency authority to act in “unusual and exigent circumstances.''

Any Fed rescue of Lehman may deepen criticism among some current and former central bankers about the danger of moral hazard — where firms take on more risk in anticipation of government aid if their bets go wrong. Richmond Fed President Jeffrey Lacker and his Philadelphia counterpart Charles Plosser both raised those concerns in June.

“The Fed has shown a willingness to lend liberally,'' said Gerald O'Driscoll, a former vice president of the Dallas Fed and now a scholar at the Cato Institute in Washington. The Bear Stearns lending “left markets unsure what the Fed would do in the future. Each time you do it, you reinforce the view that it will be done again,'' he said.

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Lehman Brothers Holdings Inc plans to sell a majority stake in its asset management unit and spin off commercial real estate holdings, hoping to restore investor confidence and ensure its survival after reporting a record quarterly loss of about $4 billion.

Shares failed to rebound on Wednesday morning after plunging 45 percent a day earlier, reflecting Wall Street disappointment that Lehman did not announce more concrete actions.

“What you are dealing with is a confidence issue,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey, “What people are saying is that there has been no resolution of the problem.”

Stocks globally fell toward two-year lows Wednesday as Lehman’s problems fed fears that banks might struggle to raise needed capital.

Lehman said it intends to sell 55 percent of a portion of its investment management division, including asset management unit Neuberger Berman and the private equity and wealth management businesses faxless payday advance. It said it was in “advanced discussions with a number of potential partners” on a sale.

The company also said it intends to spin off $25 billion to $30 billion in commercial real estate assets into a new publicly traded company, Real Estate Investments Global, in the first quarter of 2009.

Lehman also said it is in talks to sell $4 billion of its U.K. residential mortgage portfolio to BlackRock Inc, and expects a sale in the next few weeks. The deal would cut residential mortgage exposure by 47 percent to $13.2 billion.

The company also will slash its annual dividend to 5 cents per share from 68 cents, saving $450 million a year. 

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A record spending spree by U.S. consumers will come to an abrupt end this quarter as job losses cause Americans to hunker down, a Bloomberg News survey predicts.

Personal spending, the biggest part of the economy, will stall from July to September, three months earlier than predicted last month, according to the median estimate of 49 economists polled from Sept. 2 to Sept. 9. The slump will slow growth to less than half the prior quarter's pace.

“The seemingly resilient U.S. consumer is finally buckling,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York, who cut spending forecasts for this quarter and the next. “We're getting pretty close to a full-blown recession.''

Eight months of job cuts, wages that haven't kept up with inflation, falling property values and restricted access to credit are likely to depress spending into 2009, the survey showed. The bailout of Fannie Mae and Freddie Mac will, at best, only prevent growth from slowing even more, economists said.

The world's largest economy will expand at a 1.2 percent annual pace this quarter after growing 3.3 percent from April to June. Last quarter was boosted by a narrowing of the trade gap and a rise in spending propelled by the government's tax rebates. Growth will slow to a 0.7 percent rate in the last three months of 2008, the survey showed.

After stagnating this quarter, consumer spending will grow at a 0.4 percent pace to end the year, and expand at a 1 percent rate in the first three months of 2009, the survey showed. Purchases grew 3 percent per quarter on average in the previous five years and have been rising since 1992, the longest string on record.

Payroll Slump

The job market is sending the surest signal the economy is contracting. Payrolls have shrunk by more than 600,000 workers so far this year and the jobless rate shot up 1.1 percentage points from May to August, the biggest four-month jump in almost 27 years, the Labor Department reported last week.

“There will shortly be a sea change in the consensus economic outlook for early next year, and it won't be an upward revision,'' said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis, who forecast spending would drop this quarter and next and the economy would shrink in the last three months of 2008. “Too many households are just one job loss away from default and foreclosure.''

Foreclosures accelerated in the second quarter to the fastest pace in 29 years and the share of loans with one or more payments overdue rose to the highest since records began in 1979, the Mortgage Bankers Association reported last week http://paydayloans-on.com.

Fannie, Freddie

The government's takeover on Sept. 7 of Fannie Mae and Freddie Mac, which make up almost half the $12 trillion U.S. mortgage market, may ease borrowing costs. That would prevent the housing downturn from deepening and further restricting growth.

“It takes away one of the worst-case scenarios for the economy,'' Lehman's Harris said.

Big-ticket items like automobiles have been the hardest hit by the surge in food and fuel costs. Vehicle sales over the last three months were the weakest since 1993.

“Not only is the U.S. in a recession, but the rest of the world is slowing down,'' Ford Motor Co. Chief Executive Officer Alan Mulally said in a speech this week in Dearborn, Michigan. “I've never seen anything quite like it.''

The jobless rate will reach 6.3 percent by mid-2009, according to this month's survey median, matching the peak reached in 2003 following the last recession and higher than previously anticipated. The rate rose to a five-year high of 6.1 percent in August.

`Reason to Worry'

“The consumer is more cautious, more concerned,'' said John Lonski, chief economist at Moody's Investors Service Inc. in New York. “There's far more reason to worry than reason to expect the economy will be improving by 2009.''

Exports are likely to remain a bright spot, even as the U.S. slowdown spreads overseas, softening demand for American- made goods.

“Strength in exports is helping economic growth keep its head above water,'' Lonski said.

The odds that the U.S. is, or will soon be, in a recession remained at 51 percent in the latest survey.

Economists also predicted inflation pressures will cool as the economy slows. Consumer prices will rise 2.7 percent over the 12 months to June 2009 after peaking at a 5.3 percent gain in the year ending this month, according to the survey median.

The slowdown in growth and inflation will prompt Federal Reserve policy makers to keep the benchmark interest rate unchanged at 2 percent through the first three months of 2009, according to the median forecast. Central bankers will probably start raising the rate in next year's second quarter.

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