Here we go again higher oil & gas prices !

Oil, Gas, Gasoline Rise in Special Nymex Session Before Gustav
By M. Habiby
(Bloomberg) -- Crude oil, natural gas and gasoline rose in a special trading session today as Hurricane Gustav approached the Gulf of Mexico, halting most oil and gas output and shutting local refineries.
Gustav will make landfall along the Gulf Coast sometime tomorrow as a ``major'' hurricane, according to the U.S. National Hurricane Center. It forced the mandatory evacuation of New Orleans and shut refineries operated by Valero Energy Corp., ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp.
``It's a huge storm, and it's got the potential to cause all kinds of problems,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``There's a lot of concern that this is something that could really, really damage infrastructure badly, and this could be another instance of Katria-Rita or worse.''
Crude oil for October delivery rose $2.21, or 1.9 percent, to $117.67 a barrel at 3:27 p.m. on the New York Mercantile Exchange. Prices are up 20 percent this year.
Natural gas for October delivery rose 0.7 cent to $7.95 per million British thermal units.
Gasoline for October delivery gained 9.08 cents, or 3.2 percent, to $2.945 a gallon on the exchange.
To see oil ``up two and a half dollars is a muted reaction to what they're calling the mother of all storms,'' Beutel said.
Electronic trading opened early today to allow traders to respond to Gustav. Trades will be dated Sept. 2 because of the U.S. Labor Day holiday tomorrow.
Gustav was about 270 miles (520 kilometers) from the mouth of the Mississippi River at 1 p.m. New Orleans time and was packing winds of 115 miles an hour. The storm, which may reach Louisiana as early as midday tomorrow, is forecast to strengthen as it crosses the Gulf.
Refinery Capacity
Gulf Coast refineries have cut at least 1.48 million barrels a day of production, 23 percent of regional capacity and 9.3 percent of the U.S. total. Seven refineries have announced shutdowns, and five have reduced capacity.
Personnel from more than 70 percent of the platforms and rigs in the Gulf have been evacuated as the storm approaches, the U.S. Minerals Management Service said today in a statement on its Web site. About 1.25 million barrels a day of oil, and 6.09 billion cubic feet of gas have been shut, or more than 96 percent of offshore oil output and 82 percent of gas production.
The Gulf of Mexico accounts for 26 percent of U.S. oil production and 14 percent of natural-gas output. The Gulf produces 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the agency, part of the U.S. Interior Department.
``We're more prepared for this storm than we ever have been for any hurricane that I remember,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``We're better prepared, and demand isn't that strong anyway, so I'm about as optimistic as I can be in this type of disastrous situation.''
Katrina
Hurricane Katrina, which reached Category 5 status, the strongest type of hurricane, closed 95 percent of offshore output in the Gulf of Mexico. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by hurricanes Katrina and Rita in 2005.
``You get a couple of rigs shut down, keeled over from this hurricane, and this is going go take days or weeks to fix,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``The bigger problem is on the refining side and the potential impact on all the refineries that string along the Gulf Coast.''
Almost half of U.S. refining capacity is centered along the Gulf Coast, and refineries have been operating at less than 90 percent of capacity all year, according to the Energy Department.
Regular gasoline, averaged nationwide, rose 0.5 cent to $3.687 a gallon, AAA, the nation's largest motorist organization, said today. Prices reached a record $4.114 a gallon on July 17.
Gasoline cost $3.676 a gallon in Louisiana, up from $3.655 yesterday

When will we learn ?? cant we build more refineries and start drilling in Alaska And other coastal areas ??

Hurricane Gustav is threatening Gas prices ??

As America hits the road over the long Labor Day weekend, Hurricane Gustav is threatening to wreak havoc at the gas pump.


Gasoline prices have been falling nationwide for weeks, bringing drivers needed relief from this summer's record highs. But now Gustav has taken aim at the Gulf Coast, threatening to tear through the region's gasoline refineries and offshore oil platforms. More than one-quarter of all the oil produced in the United States comes from the gulf.
Forecasts show Gustav taking a path uncomfortably close to Hurricane Katrina's, which smashed into New Orleans three years ago and sent gasoline prices soaring throughout the country.
"It could be a big threat," said John Kingston, who directs oil coverage for the Platts energy information service.
If Gustav damages the gulf's network of oil wells, pipelines and refineries, the country could face another severe gas price spike. If Gustav veers from its expected course - a strong possibility with notoriously unpredictable hurricanes - prices will likely continue their slow slide.
"Even though the track has been pretty consistent, you just don't know," Kingston said. "Two hundred miles off isn't much for a hurricane."
California's gas prices are still falling, although the pace slowed this week. The state's average for a gallon of regular, which peaked in June at $4.61, dropped to $3.92 on Friday, according to the AAA auto club. In San Francisco, drivers pay an average of $4.10, in San Jose, $4.
The nationwide average ticked up by a penny Friday to hit $3.67, after falling steadily for weeks. But analysts blame that small increase on the holiday, not the hurricane.
"I'm not sure that's a huge worry or a signal that something's changing in the market," said Michael Geeser, spokesman for AAA of Northern California. "We usually do see a bump right before a holiday weekend."
Gasoline prices this year have followed the rise and fall of crude oil prices, which shot to record highs above $145 per barrel before tumbling. Oil sold on the New York Mercantile Exchange rose earlier this week as traders cast a nervous eye on Gustav, but by Friday, most of those fears had been factored into the price. Crude fell 13 cents on Friday to close at $115.46.
"The formation of Gustav has really put a stop to the drop in crude oil," said Denton Cinquegrana, who tracks West Coast gasoline markets for the Oil Price Information Service. "If we didn't have this storm, we could be talking about crude oil dropping below $110."
The hurricane's full effect on oil prices won't become clear until early next week. Friday's forecast from the National Weather Service showed the storm possibly making landfall west of New Orleans either late Monday or early Tuesday.
By Friday, most of the oil companies that operate in the gulf were evacuating employees from rigs and ships in the Gulf of Mexico, shuttling them to shore via helicopter. San Ramon's Chevron Corp., which has 3,000 employees in the gulf, reported Friday that it had shut some of its offshore oil fields because pipelines carrying crude from those fields had been closed.
"We don't like to say it's routine, but we've been through it many times," said Chevron spokesman Mickey Driver.
If Gustav misses the oil fields, gasoline prices may continue drifting downward, especially because prices typically drop in autumn. But they probably won't fall as low as they were a year ago, when California's average for regular gas was $2.80.
"We generally pay the lowest we pay for gas all year in the next few months, so barring a hurricane, drivers can probably look forward to that," Geeser said. "But remember, the trend of the last few years is prices never go down as far as they went up."

D. Baker

Oil Companies are getting ready for Hurricane Gustav

Aug. 30 (Bloomberg) -- Royal Dutch Shell Plc and BP Plc plan to finish shutting oil and gas production platforms in the Gulf of Mexico and Enbridge Energy Partners LP will close pipelines as Hurricane Gustav gains strength and moves toward the region.
Shell and BP aimed to complete the shutdown of the equivalent of 800,000 barrels a day of oil production today. Enbridge said it will halt Gulf gas shipments effective 9 a.m. local time. Oil producers have shut at least 6.6 percent of output in the Gulf of Mexico, according to U.S. government figures at midday yesterday. Shell plans to halt 510,000 barrels a day and BP said it will stop about 290,000 barrels.
Fields in the Gulf produce 1.3 million barrels a day of oil, about a quarter of U.S. production, and 7.4 billion cubic feet a day of natural gas, 14 percent of the total, government data show. Hurricane Katrina in 2005 closed 95 percent of regional offshore output and, along with Hurricane Rita, idled about 19 percent of U.S. refining capacity.
``We have to wait and see how this storm strengthens, but the industry can fare better than it did three years ago,'' Sara Banaszak, senior economist at the American Petroleum Institute, said on Bloomberg Television. Energy companies installed back-up electricity and purchased emergency supplies to avoid the kinds of disruptions caused by Katrina and Rita, she said.
Oil Prices
Crude oil futures in New York fell 13 cents to $115.46 a barrel in New York yesterday on speculation supplies will be adequate to meet demand after the storm passes. Natural gas futures fell 10.7 cents to $7.943 per million British thermal units on the exchange.
When a hurricane hits, it can curtail demand for oil and natural gas by damaging refineries, lowering temperatures, cutting power lines and reducing the need for power generation and closing businesses, said Kyle Cooper, an analyst at IAF Advisors in Houston.
``The question is, where does it hit, and how much demand does it take out when it does that,'' Cooper said.
Energy producers have idled 6.6 percent of oil output and 1.8 percent of natural-gas production in the Gulf because of Gustav, the U.S. Minerals Management Service said yesterday in a statement on its Web site.
Personnel from 17 rigs and six production platforms had been evacuated as of 12:30 p.m. yesterday in Washington, according to the statement. The shutdowns halted 86,000 barrels of oil and 136 million cubic feet of gas a day.
Storm Forecast
Gustav, now a Category 3 hurricane with winds of almost 115 miles (185 kilometers) per hour, picked up speed as it headed toward western Cuba and the U.S. Gulf Coast, the National Hurricane Center in said in a bulletin. The storm was about 255 miles east-southeast of the western tip of Cuba at 5 a.m. local time.
Exxon Mobil Corp., the world's biggest oil company, began evacuating non-essential personnel from oil and natural-gas platforms expected to be in the path of the storm. Other companies with operations connected to its platforms have shut in ``minimal'' production, the company said in a statement.
Exxon Mobil hasn't cut output at refineries and chemical plants along the Gulf coast, though it's preparing them to weather the storm, the company said.
Chevron Evacuations
Chevron Corp., the second-largest U.S. energy company, began evacuating essential personnel from oil and natural-gas platforms. Some production has been halted because of the shutdown of pipelines operated by other companies, San Ramon, California-based Chevron said yesterday on its Web site.
Anadarko Petroleum Corp. said it plans a full shutdown of all its drilling rigs and operated facilities by tomorrow. It plans to evacuate all non-essential personnel by today and all of its 600 employees and contractors currently working in the Gulf by tomorrow. It pumps more than 150,000 barrels a day of oil equivalent from the Gulf.
ConocoPhillips said it suspended drilling in southern Louisiana Aug. 28. It expected to complete the evacuation of Magnolia, its only offshore platform in the Gulf, by today. It shut the platform Aug. 28.
Swift Energy Co. planned to halt production from Cote Blanche Island yesterday, and said remaining output will be shut-in by tomorrow if storm conditions dictate, according to a company statement.
Helicopter operator ERA Helicopters LLC said it will complete its evacuations of offshore rigs and platforms today. It said evacuations for Hess Corp., Noble Corp., Helix Energy Solutions Group and ATP Gas & Oil Corp. were under way.
The Louisiana Offshore Oil Port, the nation's biggest oil import terminal, is preparing to shut its marine operations today, said Barb Hestermann, a spokeswoman for the LOOP, as the port is known. The port will continue to make deliveries by pipeline from storage facilities, she said.
Murphy Oil Corp., Devon Energy Corp., and Apache Corp. were also working on evacuation plans.

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Clean Energy expanding !

Clean Energy Fuels buys methane project developer
Clean Energy Fuels buys landfill gas project developer Dallas Clean Energy for $19.1 million

NEW YORK (Associated Press) - Clean Energy Fuels Corp., which provides natural gas used to fuel vehicles, on Monday said it acquired Dallas Clean Energy LLC. for approximately $19.1 million in cash from U.K.-based Camco International Ltd.
Clean Energy is partnered with Cambrian Energy, a landfill gas project development and management company which owns 30 percent of Dallas Clean Energy.
Dallas Clean Energy owns the McCommas Bluff landfill gas processing plant, which processes methane from the landfill owned by the city of Dallas. Atmos Energy Pipeline Co. distributes the gas collected there.
The landfill, which opened in 1975 and is scheduled to close in 2042, is expected to produce pipeline-quality methane gas for about 30 years after the landfill closes, Clean Energy said.
To finance the acquisition and expected future capital improvements at the landfill, Clean Energy entered into a $30 million credit facility with PlainsCapital Bank in Dallas.
Andrew Littlefair, Clean Energy president and chief executive, said the deal is a "major strategic action" for the company.
"Use of biogas as a vehicle fuel has enormous potential to both reduce carbon emissions and reduce our dependence on foreign oil by displacing the use of petroleum fuel," he said in a statement.
Shares of Clean Energy Fuels rose 16 cents to $13.69 in morning trading.

Georgia & Russia Snarl , Can u make money ?? ( Gold & Oil )

WHAT A SHAME! IT WOULD HAVE BEEN A DREAM TICKET: Edwards and Spitzer. They'd have been a cinch in 2012, if Obama doesn't make it this year, to walk away with the votes of the all-important hot-hormones group, 18-to-29-year-old males. (You know, the coveted cohort that TV networks salivate over as viewers, and not the least of reasons television is not fit for human consumption.)

Just think about what a terrific ad campaign that well-known agency, Smirk and Smirk, would have created showing Edwards and Spitzer winking atop the catchy slogan spelled out in big bold letters: "Vamoose, Viagra! The country needs a real man as president!"

But then Edwards, nary a hair nor a dimple out of place, does his mea culpa bit on the tube and that's a sure turnoff for the testosterone voter, who likes his hamburger raw and his candidate unrepentant. Hang in there, guys, and don't be disconsolate: If history is any guide, you can bet your last dollar we'll never run out of straying Democrats.

Still, we can understand the widespread disappointment. It'd be a wonderfully refreshing change if, when a candidate talked about foreign affairs and conquests, he wasn't boring us to tears with all that guff about realpolitik or boasting about sending in the marines, but, instead, chortling about the liaisons he struck up at the latest boondoggle summit and the sweet nothings he whispered into the ear of one comely lass or another. À la the current president of France.

Alas, the way the world turns these days, there's scant time or inclination for a president to display what Dubya's daddy called a kinder, gentler mien, much less regale the public with accounts of his romantic dalliances. Last week furnished a telling example of the omnipresent pressures the nation's chief executive is prey to.

No sooner was Mr. Bush settling into his privileged perch at the Olympics, poised to enjoy a rare day of fun and games, with his old pal Vladimir Putin nearby, than came the news that the Russians were beating up on their feisty little neighbor, Georgia.

Had the president, as he is wont to do, been able to peer into Mr. Putin's eyes, he might have spotted the venomous black hole where the Putin soul was supposed to be and would have been able to alert the world that serious trouble was brewing. But the wily Russian had slipped on his shades, thus denying Mr. Bush the chance to perform one of his famous soul-searches and perhaps forestall Moscow's power play.

One could argue that Georgia is the latest casualty of Iraq. For if we weren't so inextricably tied down in Iraq or, at least, if our involvement hadn't been so poorly planned and ineptly pursued, it's more than a little doubtful that Russia would have been tempted to flaunt its revived fortunes by unveiling its iron fist.

Maybe it was the competition for traders' attention from the Olympics or that Wall Street merely shrugged it off as a not a really serious business, but the Russian strike and the growls from Washington it triggered caused nary a ripple in markets, whether financial or commodities. Or, it could be that all the nervous types took the week off, giving their frazzled nerves a badly needed vacation.

Stocks ambled on in their by-now familiar unpersuasive fashion, desperately seeking any shred of an excuse to go higher. Oil had the briefest respite from its persistent vertigo, on hopes that the Georgia fracas would interrupt the flow of crude and natural gas, but quickly became discouraged and resumed its skid, hitting a fresh low for the past three months.

Even gold, which feeds on the world's misery and ordinarily would get a nice lift from a confrontation between global heavyweights, extended its swoon. That's the kind of thing that really tests a man's faith: If you can't trust gold to react with quivers (and quantum leaps) when the U.S. and Russia snarl at each, what can you believe in?

Seems like a case of mass narcosis is afflicting investors just about universally. We thought we'd try that one out on some supposedly knowledgeable shrinks, only to discover that in August they all flock to Cape Cod, and studiously leave their cellphones behind.

JUST ABOUT THE LUCKIEST PEOPLE we've ever come across happen to toil in Wall Street and Washington. They vary across a wide spectrum in how much money they make and in the usual distinctions of height, weight, age, intellect and amiability. What they share are three things which are closely related. The first is that, in some significant way, either directly or as mouthpieces, their professional terrain is economics.

The other two things they have in common are: They never need bestir themselves, lay down the book or turn off the television set or tear away from their computer and go out to buy anything, no matter how trivial or important; someone else -- a wife, a husband, say, or an assistant, or perhaps an indentured slave -- performs that task. And, last but not least, they're all of a single mind on inflation -- namely, for all intent and purpose, there isn't any.

Not content with letting the data tell its story (lest, we can only assume, it doesn't comport with their perception), they've devised an alternative to the standard price indexes called "core" inflation, which conforms to what they deem a proper (inevitably sharply lower) measure of inflation. Core is nicely constructed to exclude energy and food, which account for nearly a quarter of consumer expenditures, and occasionally other categories where prices show an untoward tendency to rise.

Last month, reports the Labor Department, consumer prices shot up a scorching 0.8%, twice the consensus guess, and the sharpest rise in 17 years. The core cabal were quick to take comfort in the fact that core inflation was up a much more demur 0.3%, and pooh-poohed the big jump in headline inflation (that's what they snootily dub the consumer-price index, to give it a tabloid veneer, which makes it seem inherently unreliable). Their feverish fetish for the core number also permitted them to blithely ignore that consumer prices in the past 12 months scored the biggest rise since January 1991.

The truth is that inflation, if not rampant, is ubiquitous and gathering strength. It may not be up to the wild inflation we experienced in the 1970s, but it's plenty mean enough and getting worse. It's now firmly embedded in the economy, and it's not going to vanish magically because crude is down to "only" $113 a barrel, or the dollar has inched its way off the bottom, or even if one of the core faithful waves his wand and says Abracadabra!

Getting a true read on consumer prices isn't just an academic exercise. John Williams, proprietor of Shadow Government Statistics, has built rather a brilliant career out of analyzing the official data and showing in exquisite detail where they depart from reality. He points out, moreover, that an awful lot is dependent on the CPI, not least Social Security and other forms of compensation.

On that score, he reckons that changes made over the years aimed at understating inflation have reduced current Social Security payments to half of what they otherwise would have been. In other words, today's Social Security checks would be double what they are, were it not for that serendipitous tinkering, especially during the Clinton years. Ah, well, the geezers never knew what hit them.

Or, as John puts it ever so sweetly, "The CPI worked reasonably well into the early 1980s. In recent decades, however, the reporting system increasingly succumbed to pressures from miscreant politicians, who were intent upon stealing income from Social Security recipients, without ever taking the issue of reduced entitlement payments before the public or Congress."

After World War II, the consumer-price index was included in Detroit's contracts with the auto workers and then "found its way not only into other union agreements, but also into most commercial contracts that required consideration of cost/price changes or inflation." Obviously, then, its reach extends into any number of nooks and corners in the economy.

The changes in the CPI, not a few of them made with the malicious intent of hiding the true rate of inflation, have, John figures, understated inflation by roughly seven percentage points. What this means simply is that the 5.6% rise over the past 12 months officially reported was actually, by his meticulous figuring, a whopping 13.4%. That makes complacency among the core cabal willfully silly.

Or as John neatly puts it, "The Pollyannas on Wall Street like to play games with the CPI...It is common to hear financial pundits cite annual 'core' inflation as a way of showing how contained inflation is. Such comments are moronic and such commentators are due the appropriate respect."

As you can readily tell, we're kinder than John, so, as intimated early on in this screed, we ascribe the core gang's benign view toward inflation not necessarily to a deficient IQ but to their failure to buy even so much as a toothpick on their own.

Walmart Climbs 17% Higher on Profit !

The company raised its full-year forecast but said that its customers worldwide are feeling economic pressure and suppliers are pressing for price increases. It also said that investments to update systems for merchandising, finance and human resources will continue to meet headwinds for the rest of the year and for several years to come.

Net income at the world's biggest retailer rose to $3.45 billion, or 87 cents a share, from $2.95 billion or 72 cents a share a year earlier, the Bentonville, Ark.-based retailer reported. Revenue rose 10.4% to $102.7 billion.
WMT 58.68, +0.80, +1.4%) said it would have earned 86 cents a share. On that basis, analysts on average estimated that Wal-Mart would earn profit of 83 cents a share on sales of $101.8 billion, according to FactSet. It also has forecast a slower sales-growth rate in August and warned that shoppers are spending more cautiously with the last of the government's stimulus checks mailed out.
The company estimates a third-quarter profit of 73 cents to 76 cents a share and raised its full-year expectation to $3.43 and $3.50 from an earlier projection of as much as $3.43 a share. Analysts surveyed by FactSet estimated profit of 76 cents a share in the third quarter and $3.49 for the year.
"The guidance is appropriate," said Goldman Sachs analyst Adrianne Shapira in an interview. "It's tough out there. Their execution is very strong, and that won't fade."
Shares of Wal-Mart, part of the Dow Jones Industrial Average, rose 0.1% to $57.94 in midday trading. They've risen 22% this year, compared with a 4.2% decline in the S&P Retail Index.
'They've gone back to their roots. You have to give management some credit.'
— Matt Finn, Thrivent Investment Management
The economic downturn that's started in North America has spread to Europe and even to emerging markets, affecting Wal-Mart's customers and leading shoppers to change their behaviors like buying cheaper cuts of meat; in Puerto Rico, customers are eating more sandwiches and buying more private-label merchandise in the United Kingdom. In turn, rising food and energy costs are squeezing Wal-Mart's suppliers and leading them to pass price increases along to retailers, Chief Executive Lee Scott said Thursday in a previously recorded call.
Wal-Mart is managing inventory, keeping growth rate at less than half the rate of sales and leveraging its global-sourcing clout to keep costs down, according to Scott. He said that lowering capital spending also has allowed Wal-Mart to keep prices low.
In the United States, Wal-Mart has increased the number of temporary price cuts, known as rollbacks, in groceries to mitigate price increases, said the head of its namesake chain's U.S. business, Eduardo Castro-Wright.
"We continue to be diligent that any price increase is justified," Scott said on the call. "There's a great deal of pressure on the customers. What we see is a global economy that's difficult."
Strategy's working
Wal-Mart has benefited from its strategy of offering low prices, using its slogan "Save money. Live better" to lure economy-battered shoppers. It also has benefited from cashing 2.9 million of the U.S. government's tax-rebate checks and improving store layouts to make it easier to shop.
To spur the company's lagging apparel and home-goods sales after it failed to draw more higher-end shoppers, Wal-Mart has returned its focus to price and unveiled exclusives such as Hannah Montana, Ocean Pacific and l.e.i. junior apparel lines and Canopy bed sheets, analysts said.
U.S. sales at stores open at least a year rose 4.5%, excluding the impact of fuel sales and exceeding the company's own internal projection. Wal-Mart chain stores were up 4.6% while Sam's Club rose 3.7%, excluding fuel.
The company also has touted meals for families of four for under $10, clothing below $10 and attractions such as $4 generic-prescription drugs. In addition to exclusive products, Wal-Mart made itself a more-desirable shopping destination by adding major brands like Sony and Apple to its electronics lineup, according to analysts.
'There's a great deal of pressure on the customers. What we see is a global economy that's difficult.'
— CEO Lee Scott
"They have a strong competitive position," said Matt Finn, who helps manage $73.2 billion in assets at Thrivent Investment Management, which owns shares of Wal-Mart. "Their apparel is doing better than they've been for years. They've gone back to their roots. You have to give management some credit."

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Consumer Spending slowed down ??

Consumer spending in the US slowed in June, official figures have shown, as Americans were hit by the biggest price rises since 1981.
Inflation-adjusted spending fell 0.2% in June, the Commerce Department said.
Its inflation gauge rose 0.8% in the month, which was the biggest increase since February 1981's reading of 1.0%.
On Tuesday the Federal Reserve will announce its latest interest rates move with economists saying that inflation will make the decision tough.
The Fed is expected to keep interest rates unchanged, but there will be much interest in whether its statement expresses concerns about rising prices - which have reduced the impact of the government's $168bn (£85bn) stimulus programme.
Factory orders rise
In other economic news, the new orders received by US factories grew by 1.7% in June, which was much higher than had been expected.
One of the biggest contributors was heavy demand for military equipment, which rose by 16.9%.
There was also a 5.2% rise in orders for primary goods such as steel.
The cash value of orders for refined petroleum products were also up, reflecting their increased prices.

Are we in a Recession???

The American economy expanded more slowly than expected from April to June, the government reported Thursday, while numbers for the last three months of 2007 were revised downward to show a contraction — the first official slide backward since the last recession in 2001.


The New York Times


Economists construed the tepid growth in the second quarter, combined with a surge in claims for unemployment benefits, as a clear indication that the economy remains mired in the weeds of a downturn. Many said the data increased the likelihood that a recession began late last year.
The next major piece of data comes Friday, when the government is to release its monthly snapshot of the job market. Analysts expect the report to show a loss of 75,000 jobs, signifying the seventh straight month of declines.
“We already knew the economy was weak, and now you have both a negative growth number coupled with job losses,” said Dean Baker, a director of the liberal Center for Economic and Policy Research. “There’s a lot of real bad times to come.”
President Bush zeroed in on the positive growth in the second quarter — a 1.9 percent annual rate of expansion, compared with an anticipated 2.3 percent rate. That follows growth of 0.9 percent in the first quarter. He claimed success for the $100 billion in tax rebates sent out by the government this year in a bid to spur spending, along with $52 billion in tax cuts for businesses.
“We got some positive news today,” the president said in West Virginia, addressing a coal industry trade association. “It’s not as good as we’d like it to be but I want to remind you a few months ago, there were predictions, and — that the economy would shrink this quarter, not grow.”
But the snapshot of disappointing economic growth released by the Bureau of Economic Analysis on Thursday morning provided no comfort to Wall Street, where a broad sell-off commenced. By the end of business, the Dow Jones industrial average was down 206 points to close at 11,378, a drop of nearly 2 percent.
The rout may have been explained in part by significant changes the government made to historical data on the profitability of American businesses. According to the revised numbers, corporate profits earned in the United States by American companies rose much more swiftly than previously recorded from 2005 through 2007, making the recent decline appear much steeper.
That the economy grew at all this spring is a testament to two bright spots — increased consumer spending fueled by the tax rebates, and the continuing expansion of American exports.
Consumer spending, which amounts to 70 percent of the economy, grew at a 1.5 percent annual rate between April and June, after growing at a meager 0.9 percent clip in the previous quarter.
“Clearly the tax rebates did give some oomph to the economy,” said Robert Barbera, chief economist at the research and trading firm ITG.
Exports expanded at a 9.2 percent annual pace in the second quarter, up from 5.1 percent in the first three months of the year. Foreign sales have been lubricated by the weak dollar, which makes American-made goods cheaper on world markets.
Adding to the improving trade picture, imports dropped by 6.6 percent, as Americans tightened their spending. Imports are subtracted from economic growth, so the effect was positive.
Over all, trade added 2.42 percentage points to the growth rate from April to June. Without that contribution, the economy would have contracted.
But many economists are dubious that consumer spending and exports can keep growing robustly in the face of substantial challenges that are now entrenched in the United States and are gathering force in many other major economies. Japan and much of Europe appear headed into downturns, damping demand for American-made products.
“The trade improvement doesn’t look sustainable,” said Jan Hatzius, an economist at Goldman Sachs in New York. “In an environment where the global economy is clearly slowing, you’re not being able to get that export growth in future quarters.”
Economists said the sharp drop in imports was largely a function of retailers delaying wholesale purchases in the midst of acute fears about declining American spending power — a dynamic that will eventually give way to new spending.
“This reflects sheer panic by retailers about what the next Christmas buying season is going to look like,” said Mark Zandi, chief economist at Moody’s Economy.com.
The tax rebates have mostly been distributed. While the checks appear to have bolstered spending, they have failed to generate activity that is likely to carry on even after the cash has cycled through the economy, say economists.
“They slowed the downturn, but it’s clear they didn’t really provide any spark,” Mr. Baker said.
Employers have not hired much, even as shopping has picked up, cognizant that the rebate checks are a one-time event. Businesses have not shelled out for new machinery. Indeed, investment for equipment fell 3.4 percent in the spring months, dropping for the second consecutive quarter.
Rather than stockpile more goods, businesses generally tried to sell what they already had on hand. Business inventories declined in the second quarter by $62 billion, a factor that shaved nearly 2 percent off the overall rate of economic growth.
As the impact of the rebate checks continues to wear off in the coming weeks, households will be left confronting the same set of troubles that have been dragging on the economy for many months: a deteriorating job market, rising prices for food and gas and plummeting housing values.
Tens of millions of Americans have in recent years borrowed aggressively against the value of their homes to finance trips to the mall, dinners out, vacations and new cars. As housing values continue to fall, that artery of finance is rapidly constricting.
Since last summer, when the mortgage crisis provoked panic on Wall Street and many Americans saw access to credit diminish, consumer spending on so-called durable goods like appliances, cars and furniture has been sliding. This spending barely grew in the last three months of 2007, fell at a 4.3 percent clip in the first three months of this year and dropped at a 3 percent pace in the second quarter.
Meanwhile, joblessness is growing, with new unemployment claims filed in the week that ended July 26 swelling to 448,000 — up 44,000 from the previous week. And the purchasing power of wages is being eroded by higher prices for food and energy. Prices paid for goods by Americans surged at a 4.2 percent annual rate in the second quarter, after climbing at a 3.5 percent annual clip over the first three months of the year, according to the report on Thursday.
Higher prices, fewer paychecks and less household wealth: It is not a recipe for free-spending abandon.
“Now, consumers have to sing for their supper,” said Alan D. Levenson, chief economist at T. Rowe Price Associates in Baltimore. “Spending growth is slowing and income growth is slowing.”
Democrats in Congress have begun devising a second package of measures to stimulate the economy, centered on aid to struggling states. But the Bush administration has resisted such proposals, and the political stakes of a presidential election year make compromise especially tricky.
The Federal Reserve has lowered interest rates in recent months to encourage businesses to invest and households to spend. But with concern growing about high prices — a trend fueled by lower interest rates — the Fed may not be able to deliver another round, even if growth slows further.
“Looking forward, I don’t think there’s anything to change the lousy trend for the domestic economy,” said Joshua Shapiro, chief domestic economist at MFR, a research firm.
With the last three months of 2007 now officially revised down — from an initial 0.6 percent annual rate of growth to a 0.2 percent decline — many economists expect that these tough times will officially be declared a recession. That label is affixed by a panel of economists at a private research institution, the National Bureau of Economic Research, though typically well after the fact.
President Bush derided such characterizations, along with the academic discipline known as the dismal science.
“You can listen to these economists,” Mr. Bush said in West Virginia. “On the one hand, they’ll say, and then on the other hand. If they had three hands, it would be on the one hand, the second hand and the third hand.”
But for many, the old debate about whether this is a recession has become purely academic, and eclipsed by the troubles at hand.
“All my cousins already know it’s a recession,” said Mr. Barbera, the ITG economist. “They have the luxury of not having Ph.D.’s. The auto companies are in dire straits, the airlines have been shutting down flights and firing pilots. The truckers are in near hysteria because of the price of diesel. If you round up the usual suspects, this is a bad circumstance. And the word we usually use for a bad circumstance is a recession.”