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Bank of England policy maker Andrew Sentance said the bank’s economists anticipate data today to show a “small” drop in U.K. second-quarter gross domestic product as the recession nears its end.

The contraction will be “much less than we saw in the first quarter” and will precede “evidence of positive growth in the second half of the year,” Sentance said in an interview yesterday in London.

GDP figures due at 9:30 a.m. in London will probably show a 0.3 percent decline from the first three months of 2009, the least in a year, the median forecast of 32 economists in a Bloomberg News survey shows. Former policy maker David Blanchflower told Bloomberg Television the drop may be as big as 0.4 percent and may be revised to show a bigger contraction.

The pound rose and the yield on the U.K. 10-year gilt climbed above 4 percent for the first time since June 12 after Sentance said that the bank will consider pausing bond purchases if forecasts justify it. Barclays Capital and Credit Suisse AG predict that policy makers will suspend the 125 billion-pound ($206 billion) asset-purchase program at the Aug. 6 decision.

Bank of England Deputy Governor Charles Bean said this week that the economy, which contracted 2.4 percent in the first quarter, may now have stopped shrinking.

Sentance said yesterday that policy makers may shift the bond-buying plan to a “watching” stance if new quarterly growth and inflation forecasts published next month show a recovery may be in train.

August Options

“Even if we decided not to do any more in August, there’s still the option of returning to this policy instrument in the future,” Sentance said in an interview. The question will be “whether we’re now going to move into a phase where we’re watching and observing what happens in the economy life insurance.”

Evidence is mounting that the global economy is recovering from recession. Canada’s central bank said yesterday that the nation’s slump is ending this quarter, while Federal Reserve Chairman Ben S. Bernanke said this week that the worst housing slump eight decades appears to be moderating.

Sentance said it is difficult to predict exactly when the economy will start growing again.

“There are negative drags, in particular problems in the banking sector,” he said.

Blanchflower, in an interview recorded yesterday, said any economic recovery will be “ pretty anemic, pretty slow for a year or two.” He said the bank must keep expanding its asset- purchase program, and should consider spending as much as 300 billion pounds in newly printed money. That’s twice as much as the current total authorized by the government.

‘Early Days’

“It’s very early days to say that you know the endgame is even in sight,” Blanchflower said, speaking from Dartmouth College in Hanover, New Hampshire, where he is professor of economics. “My worry is that the tightening comes too soon and people kill off any recovery that’s coming.”

Withdrawing stimulus prematurely, either by unwinding the bond-purchase program or by raising the key interest rate from the current record low of 0.5 percent, risks pushing unemployment higher, Blanchflower said. The International Labour Organization measure of joblessness may rise by a further 1 million people to reach 3.4 million, he said.

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Global investors give Federal Reserve Chairman Ben S. Bernanke top marks for combating the worst financial crisis since the Great Depression and overwhelmingly favor his reappointment amid optimism that the world economy is on the mend.

Sixty-one percent of investors surveyed in the first Quarterly Bloomberg Global Poll say the world economy is stable or improving and almost 75 percent take a favorable view of the 55-year-old chairman. By almost a three-to-one margin, they say Bernanke has earned another four-year term when his current one expires in January.

“He’s the best, maybe around the world,” said Wallace Lin, an investment manager with Euro Asset Management in Hong Kong, who participated in the poll. Investors ranked Bernanke higher than his counterparts at other major central banks, including European Central Bank President Jean-Claude Trichet.

The vote of confidence strengthens Bernanke’s hand as he faces congressional criticism that the Fed overstepped its authority by helping to rescue failing financial institutions in the midst of the crisis. It also gives his bid for another term a boost. President Barack Obama has praised Bernanke’s performance atop the central bank without saying whether he wants him to stay.

Market Repercussions

“If he weren’t renominated, it could have potentially very serious and severe repercussions on the stock market and the economy,” said Jack Liebau, a poll participant and president of Pasadena, California-based Liebau Asset Management Co.

Investors consider recession a bigger threat to the U.S. economy than rising prices over the next two years, the poll showed. Sixty-one percent cite recession as the greater risk, compared with 37 percent who name inflation.

Martin Feldstein, a professor of economics at Harvard University who was considered for the position of Fed chairman before Bernanke took over in 2006, praised the policy maker. Bernanke has “done a very good job and I think he should be reappointed,” Feldstein said in an interview yesterday on Bloomberg Television.

The first Quarterly Bloomberg Global Poll is a survey of investors and analysts on six continents. It is based on interviews from July 14 to July 17 with a random sample of 1,076 Bloomberg subscribers, who represent leading decision makers in markets, finance and economics.

Trichet, King, Zhou

The poll showed Trichet received a favorable rating of 54 percent, while Bank of England Governor Mervyn King garnered 50 percent approval and China’s central-bank governor, Zhou Xiaochuan, received 42 percent. Bernanke outpolled the other central bank chiefs even in their own regions.

Bernanke also received a higher rating than U.S. Treasury Secretary Timothy Geithner, who formerly ran the New York Federal Reserve Bank. The Treasury secretary got a 57 percent rating worldwide — even though a majority of investors in the U.S. view him unfavorably. More than 52 percent of American respondents take a negative view of Geithner, compared with about 32 percent in Europe and 24 percent in Asia.

Bernanke has countered the credit crisis with actions unprecedented in the central bank’s 95-year history. He cut the benchmark lending rate to as low as zero and expanded credit to the economy by $1.1 trillion over the past year.

U.S. Banks Recovering

More than three-quarters of investors expect U fast cash.S. financial institutions will be in better shape a year from now, though only 2 percent say they will be back to full health. Just 10 percent think they will be in worse shape.

Respondents aren’t as sanguine about European banks, with 23 percent saying their condition will deteriorate in the next year.

Investors in Asia are more optimistic than those in the U.S. and Europe about the outlook for the global economy, the poll showed. More than three-quarters of Asian investors say the world economy is stable or improving, compared with 62 percent in Europe and 50 percent in the U.S.

Regional differences in the global outlook “may be a matter of what they see around them,” said J. Ann Selzer, president of Selzer & Co. of Des Moines, Iowa, which conducted the poll for Bloomberg. Half of Asian investors “say the economy in their region is improving — more than three times as many as say that in the U.S.,” she said.

The International Monetary Fund said July 8 that emerging- market economies including China will help pull the world out of the deepest contraction in six decades.

China’s Recovery

China’s gross domestic product grew 7.9 percent in the second quarter, the government reported last week in Beijing, making the nation the first major economy to rebound from the global recession.

“Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work,” Jim Owens, chief executive officer of Caterpillar Inc., said in a statement yesterday. Peoria, Illinois-based Caterpillar, the world’s largest maker of construction equipment, reported second-quarter profit that exceeded analysts’ forecasts.

More than half the investors polled expect long-term interest rates to rise over the next six months as global growth picks up. Among equity investors, 52 percent foresee higher yields, compared with 49 percent of fixed-income investors.

Higher Long-Term Rates

“I don’t see them going anywhere but up,” said David Jaderlund, municipal bond portfolio manager with Jaderlund Investments in Albuquerque, New Mexico. Currently, he said, Treasury securities “aren’t paying anything.”

Benchmark 10-year notes yielded 3.48 percent at 5:15 p.m. yesterday in New York, compared with an average 4.56 percent over the last decade.

Investors expect short-term interest rates to be little changed over the next six months, the poll showed. Almost three quarters say central banks will hold rates near current levels to support growth.

“Monetary policy remains focused on fostering economic recovery,” Bernanke said in his semi-annual report to Congress yesterday. The Fed intends to maintain a “highly accommodative” monetary policy for “an extended period,” he said.

“The U.S. economy may be ailing,” said Selzer. “But these financial leaders agree the man at the helm of the economy is the right guy for the job, for now and for another term.”

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The Bank of Japan raised its view of the economy for the first time in almost three years on signs that a record contraction in the first quarter represented the worst of the recession.

“Economic conditions have been deteriorating, but exports and production are beginning to level out,” the bank said in a statement in Tokyo today. Previously it said the world’s second-largest economy had “deteriorated significantly.”

The central bank also decided to accept foreign currency- denominated sovereign bonds as collateral to make it easier for lenders to get cash. The first upgrade in the economic assessment since July 2006 indicates Governor Masaaki Shirakawa and his board may be reluctant to further expand a program of buying corporate and government debt, even as deflation looms.

“The upgrade of the economic assessment simply came as an endorsement to the recent set of data which had already signaled signs of a bottoming out,” said Izuru Kato, chief economist at Totan Research Institute Ltd. in Tokyo. Adding foreign currency-denominated debt as collateral should be taken as “one of many other tools for a rainy day,” Kato said.

The yen traded at 94.15 per dollar at 2:44 p.m. from 94.23 before the announcement and close to a nine-week high of 93.87 reached earlier today. The Nikkei 225 Stock Average fell 0.7 percent, heading for a weekly loss.

‘Leveling Out’

The central bank said “the pace of deterioration in economic conditions is likely to moderate gradually, leading to a leveling out of the economy.”

Industrial production and exports began to stabilize at the end of the first quarter, when gross domestic product shrank an annualized 15.2 percent, the steepest decline since records began in 1955.

The policy board unanimously voted to keep the benchmark overnight lending rate at 0.1 percent today. Since cutting the rate in December, it has begun buying commercial paper and corporate bonds from lenders, helping to ease a funding squeeze for companies.

Kintetsu Corp., an operator of rail and bus services in western Japan, will sell 10 billion yen ($106 million) of debt, the first sale of BBB-rated bonds in Japan since September, according to Bloomberg data. The difference between three-month commercial paper rated A1 against government financing bills of the same maturity was 11 basis points today from 141 on Dec. 16.

‘Easing of Tension’

“Financial conditions have remained tight, although there has been some easing of tension compared to some time ago,” the central bank said. It will accept bonds issued by the U.S., U.K., Germany and France in exchange for loans to lenders as part of a program to keep credit flowing in the economy payday advance lender.

The central bank’s assessment improved even as prospects for a global recovery darken.

The U.K. had the outlook on its AAA debt rating cut by Standard & Poor’s yesterday, and Treasury yields rose on speculation the U.S.’s rating may also be under threat. Treasury Secretary Timothy Geithner committed to cutting the budget deficit in an interview with Bloomberg Television.

The Chinese government said today that a recovery in factory output has yet to solidify as exports falter and firms struggle with “serious” overcapacity and falling profits.

Japanese Finance Minister Kaoru Yosano said this week that the GDP report signaled the “worst may be over, but efforts still need to be made to put the economy on an upward trend.” The government will also lift its economic assessment in a report on May 25, the first increase since February 2006, the Nikkei newspaper said this week, without citing sources.

Hurdles Remain

Japan still faces hurdles, including a swine flu outbreak and gains in the yen that threaten to exacerbate exporters’ losses. The currency has surged 4.7 percent against the dollar this month, and today climbed to the highest since March 19 after Yosano said the government isn’t considering intervening in the foreign-exchange market.

“Japan’s economy will probably return to a cyclical expansionary path later this year,” said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “But it will be an L-shaped recovery rather than a full-fledged one” as spending by consumers and businesses falters, he said.

The recession, while moderating, is spreading to households as companies including Toyota Motor Corp. and Hitachi Ltd. fire workers and slash wages to minimize losses. Mid-year bonuses will plunge a record 19.4 percent this year, according to the Keidanren business lobby group.

Deflation Concern

The Bank of Japan may face pressure to step up its debt purchases should weakening domestic demand exacerbate a decline in prices, ushering in a return of the deflation that plagued the country for a decade until 2005. The central bank forecasts consumer prices will fall 1.5 percent this fiscal year and keep sliding even when the economy resumes growing next year.

“Growing slack in the economy is increasing deflationary pressure,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo and a former central bank official. “If the BOJ is seriously committed to averting deflation, the bank would have no other choice but to aggressively buy risk assets.”

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Australian bank lending growth unexpectedly stalled in February, adding to signs the nation’s economy may be in its first recession since 1991.

Total loans provided by banks and other finance companies were unchanged from January, when they rose 0.6 percent, the Reserve Bank of Australia said in Sydney today. The median forecast of 18 economists surveyed by Bloomberg News was for a 0.5 percent gain.

Central bank Governor Glenn Stevens cut the benchmark interest rate between September and February by a record four percentage points to stoke an economy that shrank 0.5 percent in the fourth quarter. To spur domestic demand for homes and to prevent a slump in house prices, Prime Minister Kevin Rudd in October tripled a grant to first-time buyers of newly built dwellings to A$21,000 ($14,300).

“Business credit growth is choppy from month to month and on a weakening trend,” Bill Evans, chief economist at Westpac Banking Corp. in Sydney, said ahead of today’s report. By contrast, “housing credit growth” has been holding up, he said.

Australian sales of newly built homes rose 3.9 percent in February, with sales of detached houses gaining 4.7 percent, a report by the Housing Industry Association showed yesterday.

First-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier, a report on March 11 showed.

Interest Rates

Stevens and his board are forecast to lower borrowing costs by at least another quarter point on April 7, according to 12 of 16 economists surveyed by Bloomberg News on March 27. Four tip no change in the overnight cash rate target.

Policy makers left the benchmark rate unchanged at 3.25 percent this month for the first time since August, saying recent cuts are supporting the economy.

Since September, commercial banks have reduced the rate on variable home loans by 375 basis points cash advance loans. The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.

“It is clear that monetary policy has been effective in lowering borrowing rates in the Australian economy,” said Anthony Richards, head of economic analysis at the Reserve Bank said on March 26.

Treasurer Wayne Swan said yesterday Australian banks have so far this year sold as much as 10 percent of all global bonds guaranteed by governments, making Australia the third-biggest issuer of such debt behind the U.S. and France.

Job Losses

“This money is ensuring our banks continue to lend to businesses and households, which is providing vital support for Australian jobs and growth,” Swan said in Tokyo.

Still, there are signs demand for credit may wane in coming months as a deepening global recession erodes demand for natural resources from the world’s biggest shipper of iron ore and coal.

Recent reports showed business confidence held near a record low last month and the jobless rate rose to a four-year high of 5.2 percent as companies such as BHP Billiton Ltd. fired the largest number of full-time workers in almost two decades.

Lending to companies fell 0.6 percent in February, after advancing 0.7 percent in February, according to today’s central bank report. Total credit rose 5.4 percent in February from a year earlier, after gaining an annual 6.1 percent in the previous month.

Credit provided to consumers for purchases other than housing dropped 0.8 percent from a month earlier. Loans to consumers to buy houses rose 0.6 percent for an annual gain of 7.1 percent.

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With Pfizer Inc. about to acquire rival drug maker Wyeth and its expertise in making pricey and complex biologic drugs, Pfizer Chief Executive Jeffrey Kindler strongly supports allowing generic versions of them.

"Done right, with regard to the safety of the products, biological follow-ons are a very appropriate thing to do," he said in an interview with The Associated Press.

Top drug makers are piling into this area because biologic drugs, made in living cells, can cost $1,000 and more per month and so far haven’t faced lower-price generic competitors. But legislation was introduced last week to create a pathway for regulators to approve what have been called "biosimilar" drugs, and President Barack Obama has been touting the idea as one way to control health care costs.

Kindler said Pfizer’s increasing expertise in the area "could provide us with an opportunity to make biologic follow-ons" of its own, Wyeth’s and possibly rivals’ biotech drugs.

He also backs government-sponsored research comparing drug effectiveness, unlike many in his industry concerned that could cut into sales.

Kindler called it "an area with a lot of promise, if it’s done right," openly, and not "driven entirely by cost considerations but rather by considerations of value."

His somewhat contrarian views come as the drug industry is in upheaval, forced to slash jobs and other costs as a tidal wave of generic competition to 1990s’ blockbuster pills cuts revenue while research operations aren’t producing nearly enough replacements payday loans. Those two trends are behind the recent flurry of mergers, including Pfizer’s.

Meanwhile, the Obama administration is promising to revamp the nation’s health care system to help the 48 million Americans without health insurance. Such an overhaul could boost drug sales if millions more people get insured but could hurt drug makers if they lose pricing power.

Kindler was the only chief executive from the drug industry at the White House summit on health care reform two weeks ago.

"We have an obligation as an industry to participate (in reform) and try to contribute to the solution of these problems," said Kindler.

Among other changes, he supports more emphasis on preventive care, expanding government insurance and having an independent federal board oversee standards, coverage and pricing. And Kindler says it makes more sense to support beneficial changes than just to block ones the industry doesn’t like.
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Warren Buffett’s Berkshire Hathaway was stripped of its ‘AAA’ credit rating by Fitch, barely hours after S&P cut General Electric Co’s top-tier rating, as the global financial crisis pummels America’s corporate titans.

Citing concerns about Berkshire’s equity and derivatives investments, as well as Buffett’s tight grip on the company, ratings agency Fitch cut the insurance and investment company’s issuer default rating by one notch to ‘AA+’.

The downgrade is another setback to Buffett, 78, coming a day after the billionaire lost his position as the world’s richest man to Microsoft Inc founder Bill Gates, according to Forbes’ annual list. Buffett’s net worth plunged to $37 billion from $62 billion last year, the list said.

"Fitch views the company’s potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the ‘AAA’ level," the ratings agency said in its statement on Berkshire.

Those exposures include Berkshire’s equity investments, as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said.

Fitch is the first major credit agency to cut Berkshire’s ‘AAA’ rating. The move comes after General Electric Co. (GE, Fortune 500) was stripped of its ‘AAA’ rating by Standard & Poor’s on Thursday.

Berkshire invested $3 billion last year in GE, buying preferred shares with the option of acquiring another $3 billion in common stock at $22.25 per share.

Known as the Sage of Omaha for his long history of successful investments, Buffett was caught out by the global financial crisis.

Berkshire’s net worth tumbled $10.9 billion in the final quarter of 2008 and profits fell 96%, due mostly to losses on derivatives contracts tied to the stock market. Berkshire had $4.65 billion of net investment and derivative losses in 2008.

Tied to Buffett

Buffett has defended his use of the derivatives, which helped drive Berkshire’s annual profit to a six-year low.

Investors should distinguish Berkshire’s derivatives from others that dramatically increased financial leverage, made banks "almost impossible for investors to understand," and threatened the collapse of companies such as investment bank Bear Stearns Cos no fax payday loans. and mortgage financiers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Buffett said in his annual letter to Berkshire shareholders.

Fitch also noted Berkshire remains too closely linked to Buffett to merit a ‘AAA’ rating.

"Fitch views this risk as unrelated to Mr. Buffet’s age, but rather Fitch’s belief that BRK’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett," it said, referring to Berkshire.

Berkshire generates about half its results from insurance, including auto insurer Geico Corp, but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.

Fitch lowered Berkshire’s senior unsecured ratings by two notches to ‘AA’. However, it affirmed its ‘AAA’ insurer financial strength ratings on the company’s insurance and reinsurance subsidiaries. The ‘AAA’ ratings of the insurance subsidiaries "continue to reflect their strong capitalization and competitive positions, and underlying underwriting results," Fitch said.

The outlook for all of Berkshire’s entities is negative.

Fitch said the current ratings on Berkshire assume that the company will continue to aggressively deploy its cash and capital as companies look for investors with strong balance sheets.

Besides the cash infusion into GE (GE, Fortune 500), Berkshire has agreed to make a 3 billion Swiss franc investment in Swiss Re and has bought $5 billion worth of preferred shares of Goldman Sachs.

Berkshire Class A (BRK.A) shares closed on Thursday at $87,500 on the New York Stock Exchange. They have fallen 34% over the past year, while the Standard & Poor’s 500 has dropped 43%. 

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U.S. exports fell in November, capping the biggest four-month decline in more than a decade and signaling trade will contribute little to economic recovery, even as the recession depresses imports.

Exports decreased 15.2 percent from August to November, the most since at least 1992, according to Commerce Department figures released today in Washington. The trade deficit narrowed to $40.4 billion, the smallest since November 2003, as imports fell to the lowest level in three years.

“The key message from this report is bad news,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “It is slim comfort that the U.S. cut its demand for imports more rapidly than the rest of the world cut its demand for U.S. exports. That might cushion the U.S. downturn a little, but it is not a route to recovery.”

American exports and imports are both contracting as the global economy faces the first simultaneous recession in the U.S., Japan and the euro region in the postwar era. While plummeting demand helps trim the nation’s purchases of foreign goods, falling exports of U.S.-made products will hobble American factories and jobs.

Trade has contributed to growth in the U.S., the world’s largest economy, since the first three months of 2007.

Americans bought 12 percent fewer goods and services from abroad, reducing imports to $183 payday loans.2 billion as demand for foreign crude oil, automobiles, computers and televisions sagged. Exports dropped 5.8 percent to $142.8 billion in November, today’s figures showed. Foreign purchases of automobiles were the lowest since October 2006.

Decline in Trade

“The real story is the contraction in important export volumes that underscores the decline in world trade,” John Ryding, chief economist at RDQ Economics LLC in New York, wrote in a note to clients. “An economy cannot grow its way out of a recession by reducing imports, especially one the size of the U.S.”

Slumping demand for American-made computers and semiconductors contributed to the drop in November exports. Intel Corp., the world’s largest chipmaker, said this month that fourth-quarter sales dropped 23 percent, more than it projected in November, as the global recession intensified.

Intel Chief Executive Officer Paul Otellini, 58, has said he expects the current U.S. recession will be the worst of his lifetime. The Santa Clara, California-based company’s chips run about 80 percent of the world’s PCs, making it a bellwether for technology spending.

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The engines that have lifted the U.S. economy out of every recession since World War II will be of little help this time around.

Inventory rebuilding, household spending, home construction and payroll growth — the forces that powered, to a greater or lesser extent, each recovery since 1945 — may remain missing for much of 2009. A glut of unsold properties may keep housing depressed, while shriveled savings will discourage consumers. Companies may be reluctant to restock and rehire while their profits are squeezed.

“There are no obvious drivers of growth from the private sector,” says Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York.

The result: A recovery, whenever it comes, may be anemic and heavily dependent on low-cost lending by Federal Reserve Chairman Ben S. Bernanke and stepped-up spending by new President Barack Obama. Short-term interest rates might have to remain around zero throughout the year, while the federal budget deficit stays at or near record highs into 2010.

“If we don’t act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment,” Obama said in his weekly radio address on Jan. 3. The jobless rate stood at 6.7 percent in November.

UBS Securities LLC forecasts that gross domestic product will contract at a 3 percent annual pace this quarter after shrinking 4.5 percent in the final three months of 2008.

‘Policy Blitz’

James O’Sullivan, senior economist at UBS in Stamford, Connecticut, says the economy is likely to stop eroding in the second quarter, thanks to an unprecedented “policy blitz” by the Fed and the Obama administration. The second-half recovery, though, will be weak, he says: growth of 1.5 percent in the third quarter and 2 percent in the fourth, as tight credit continues to pressure consumers and companies.

That’s in contrast to past rebounds, where growth was boosted by a robust revival of private-sector demand.

Inventory swings played a key role in the 16-month recession of 1973-75 and the recovery that followed. Companies slashed stocks in 1974 and 1975 as demand dropped, and then rebuilt them rapidly the following year. That raised 1976 GDP by 1.4 percentage points, the biggest such contribution in 21 years.

Consumer spending and housing powered the economy out of recession in 1983, as pent-up demand sent purchases of cars and homes soaring. Payroll growth was also strong, with 1.1 million jobs created in September alone.

Help From Housing

In 1992, housing again was a big help. Along with capital spending, residential construction spurred the biggest contribution to growth from investment since 1984.

Homebuilding and consumer spending played a more modest role in the economy’s revival in 2002, but that’s because they never declined in the previous year’s recession, which was the mildest since World War II.

All those factors may be missing in action this time around.

With just-in-time inventory management, the downs — and ups — of the stockpiling cycle are more muted than before. Companies are quicker to pare stockpiles when demand wanes, limiting the buildup in unwanted products both at their own sites and those of their customers.

Clearing Out Inventories

For example, Corning, New York-based Corning Inc., the largest maker of glass for flat-panel televisions, said last month it will cut prices to clear out excess inventories.

The downside of this rapid response is that the economy won’t get as much of a pop from businesses restocking as demand recovers no fax cash advance. “There is a lack of a big inventory cycle,” O’Sullivan says.

Companies may also be reluctant to ramp up production in the face of what many economists expect to be a slow increase in consumer demand.

Allen Sinai, chief global economist at Decision Economics in New York, says households are in hunker-down mode after suffering $10 trillion in losses in wealth from sagging home prices and shrinking investments. “They know they have to save more; they have no choice,” he says.

The Conference Board’s index of consumer confidence fell in December to the lowest level on record as anxiety about job losses overcame the beneficial effects of a 60 percent decline in gasoline prices since July.

Unemployment

U.S. companies cut 533,000 jobs in November, the most in 34 years. Economists surveyed by Bloomberg News forecast that figures out on Jan. 9 will show a further 500,000 reduction in payrolls in December and an unemployment rate of 7 percent.

Joblessness is likely to continue to rise throughout 2009 and perhaps into 2010. “We’ll probably have a good chance of seeing unemployment hit 9 or 10 percent,” says Kenneth Rogoff, a former chief economist for the International Monetary Fund who’s now a professor at Harvard University.

Consumers have also been shaken by the plunge in the value of homes, for many their biggest asset. Home prices in 20 major U.S. cities declined 18 percent in October from a year earlier, the biggest drop on record for the S&P/Case-Shiller index that goes back to 2001.

The collapse in property values is damping expectations for an early rebound in the housing market. “We’re in the midst of a downward spiral and the momentum is building,” Stuart Miller, chief executive officer of Miami-based Lennar Corp., which builds homes in 14 U.S. states, said on a Dec. 18 conference call.

A Glut of Properties

A glut of unsold properties is prolonging the industry’s pain. The number of previously owned homes on the market at the end of November would take 11.2 months to sell at the current pace. That’s the highest inventory level in at least 10 years.

“Housing starts and building permits are in free-fall,” Nouriel Roubini, chairman of Roubini Global Economics and a professor at New York University, said in a Bloomberg Television interview on Dec. 23. “There’s no bottom.”

Hopes that exports would buoy the economy have been dashed by the spread of the U.S. recession overseas. Japan’s economy, the world’s second-largest after the U.S., probably shrank at an annual 12.1 percent pace last quarter, the sharpest drop since 1974, according to Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo.

That’s left it up to U.S. policy makers to try to pick up the slack.

The Fed cut the main U.S. interest rate to a target range between zero and 0.25 percent on Dec. 16 and pledged to do whatever is necessary to end the longest recession in a quarter century. The incoming Obama administration, meanwhile, is working on a two-year stimulus package worth as much as $850 billion in increased government spending and lower taxes.

“The U.S. is in the midst of a long, deep and severe downturn,” Sinai says. “When we do recover, the engine will be government spending, not home building or the consumer.”

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Treasury Secretary Henry Paulson urged Congress to release the second half of the $700 billion financial rescue fund after the government exhausted the first $350 billion in less than three months.

Congress, which passed the Troubled Asset Relief Program on Oct. 3, “will need to release the remainder of the TARP to support financial market stability,” Paulson said today in a statement released in Washington.

The Treasury today agreed to lend $13.4 billion to General Motors Corp. and Chrysler LLC, after spending $335 billion mostly to increase bank capital. Lawmakers, who can vote against giving Paulson the remaining funds, have criticized the Bush administration for not using the rescue package to help stem foreclosures.

Paulson’s call for the other $350 billion may set off a debate in Congress, where some members have demanded more help for struggling homeowners. House Financial Services Committee Chairman Barney Frank said today he’s crafting legislation to unlock the unallocated money.

Today’s statement from Paulson wasn’t a formal request for the funds, a move President George W. Bush or his successor would have to make. Paulson intends to consult with Congress and President-elect Barack Obama’s staff on the strategy for officially requesting the next $350 billion, a Treasury official told reporters on a conference call. The official, who spoke on condition of anonymity, said he expected talks to begin soon.

Need Agreement

“We should have an agreement among Obama, Paulson and the congressional leadership to release the $350 billion with conditions on how it’s spent,” Frank said in an interview. “We need the second $350 billion, but it can only be done if there’s an agreement as to how to do it.”

Obama said yesterday that Paulson would need to explain to his staff how the funds would be disbursed.

“At the point where the Treasury comes forward” with a request for the remainder of the TARP, “I would expect that they would provide a clear justification for why they need additional dollars and how they intend to use it,” Obama said in a press conference in Chicago bad credit pay day loans.

In his statement, Paulson said he would consult with congressional leaders and the Obama team “in the near future.”

The Treasury likely would need to come up with a program for helping homeowners before Congress signs off on a request for the funds.

Another $4 Billion

The loan package for the automakers released today has another $4 billion contingent on “drawing down the second tranche of TARP funds,” according to a White House statement.

“It’s not necessarily true that this administration in the remaining 31 days, I believe, will go back to Congress,” said Joel Kaplan, the White House deputy chief of staff, said in a press conference. “But in the very short term, we will need to go — we, or the next administration — will need to go to Congress to get the second $350 billion if they are to get the last chunk of the loan that’s being discussed today.”

Treasury officials have been working on programs designed to ease the housing crisis.

Most Republicans on Capitol Hill are opposed to giving Paulson any additional funds. Still, Democrats may take Paulson’s actions on housing and the car industry as positive steps and not mount a campaign against the request, lobbyists and congressional staff said.

Banking Stability

Securing the extra money would give the Treasury a cushion in case another bank or insurer neared collapse.

While the Treasury has allocated most of the first $350 billion, not all of it has actually been disbursed. Paulson said he was confident that “in the very short-term” the government has enough money on hand to “address a significant financial market event.”

To access the rest of TARP, Paulson has to report to Congress on how the funds would be used. Lawmakers then have 15 days to pass legislation blocking the money. The president could then veto the congressional vote, forcing lawmakers to come up with a bigger majority to prevent the disbursement.

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U.K. consumer confidence deteriorated in November to the weakest in at least four years as unemployment jumped and banks curtailed credit, Nationwide Building Society said.

An index of sentiment fell 6 points to 50, the lowest since the survey began in May 2004, Britain’s second-biggest mortgage lender said in a statement today. The reading, taken from a survey of 1,000 people from Oct. 20 to Nov. 16, compares with 83 a year earlier.

Chancellor of the Exchequer Alistair Darling proposed the government’s biggest fiscal stimulus in two decades to combat the recession on Nov. 24, after the survey was completed. The Bank of England will add to that effort by cutting the benchmark interest rate tomorrow to 2 percent, the lowest level since 1951, economists say.

Pessimism increased “against the backdrop of an emerging recession in the U.K. and continued global economic uncertainty,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “It remains to be seen whether the Chancellor’s recent announcement will greatly improve consumer confidence.”

Nationwide’s index of consumers’ attitude on their present situation fell 5 points to 30, and a measure of sentiment toward future expectations declined 7 points to 63. A gauge of willingness to spend rose to 64 from 56.

An index of permanent staff placements by recruitment companies fell to the lowest since at least 1997 in November, the Recruitment & Employment Confederation and Markit said in a report today. The number of U.K. unemployment benefit claimants rose to 980,900 in October, the most since March 2001 free credit report.

Services Shrink

Service industries probably contracted at the fastest pace since at least 1996 in November on an index compiled from a survey of about 700 companies, according to the median forecast of 33 economists in a Bloomberg News survey. Markit and the Chartered Institute of Purchasing & Supply will release that data at 9:30 a.m. in London.

Banks approved just 32,000 mortgages in October, matching the least since 1999. The home-loan shortage helped drive U.K. house prices to the lowest level since January, according to Hometrack Ltd.

Darling pledged on a 25.6 billion-pound ($38 billion) package of tax cuts and spending increases over two years to counter the recession, and said earlier this week he will “almost certainly” need to do more. He has already proposed a guarantee for mortgage-backed securities to boost home loans.

Policy makers reduced the key rate by 1.5 percentage points last month to 3 percent, the lowest level since 1955. The Bank of England may cut it by a further one percentage point tomorrow, according to the median forecast of 60 economists in a Bloomberg News survey.

The Trades Union Congress, which represents about 7 million workers, said today in a statement that the central bank should cut the benchmark rate “to 2 percent or lower.” Former policy maker Willem Buiter predicted yesterday that policy makers will reduce it to 1.5 percent, the lowest ever.

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