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The U.S. recovery may be slow to develop as a gauge of business activity dropped unexpectedly and a private report showed employers cut more jobs than forecast in September.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 46.1, lower than the most pessimistic forecast, from 50 in August. Readings below 50 signal a contraction. Companies cut payrolls by 254,000 jobs in September, according to ADP Employer Services.

Stocks fell on concern a rebound may be uneven as the government winds down incentives such as the “cash-for- clunkers” program that lifted sales at automakers including Detroit-based General Motors Co. With excess capacity close to a record, companies have little reason to hire new workers or ramp up production until they see stronger gains in demand.

“The pace of improvement will probably slow,” said Rob Carnell, chief international economist at ING Financial Markets in London, whose forecast for a reading of 49.5 for the Chicago index was the lowest among 61 economists surveyed. “You strip away a lot of the stimulus and we’re not seeing a whole lot of improvement in the U.S. economy.”

The Standard & Poor’s 500 Index lost 0.4 percent to 1,056.51 at 12:42 p.m. in New York. The Dow Jones Industrial Average fell 44.58 points, 0.5 percent, to 9,697.62. More than two stocks fell for each that rose on the New York Stock Exchange.

Gross on Growth

The economic recovery will be characterized by “new normal” annual growth rates of 1 percent to 2 percent and very little inflation, Bill Gross, manager of Pacific Investment Management Co., the world’s biggest bond fund, said in an interview yesterday with Bloomberg Radio.

Gross said he’s been buying longer-maturity Treasuries in recent weeks as protection against deflation, or a broad decline in prices, and that total returns on equities will average about 5 percent annually.

Economists forecast the Chicago gauge would rise to 52, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 49.5 to 55. The ADP report was forecast to show a decline of 200,000 jobs, according to the median of 33 estimates.

A report from the Commerce Department showed the worst U.S. recession since the 1930s eased more than anticipated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, according to revised figures. Gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.

National Manufacturing

Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy.

The national Institute for Supply Management, which is not affiliated with the Chicago group, is scheduled to release its September factory report tomorrow. According to a Bloomberg survey, that measure will show manufacturing expanded at the fastest rate in more than three years.

U.S. auto sales in September probably fell to the second- lowest pace this year after the federal government ended its $3 billion incentive to trade in gas-guzzlers for more fuel- efficient vehicles. Automakers report September sales tomorrow.

Smaller inventories may contribute to a rebound in output this quarter and next as companies restock shelves. Stockpiles dropped at a record $160.2 billion annual rate in the second quarter, the Commerce Department’s GDP report showed. Automakers General Motors and Ford Motor Co. are among firms boosting production in coming months.

Unemployment Forecast

The ADP employment report comes two days before a Labor Department release forecast to show the unemployment rate rose to 9.8 percent in September, the highest since 1983, while employers cut 180,000 jobs.

ADP includes only private employment and doesn’t take into account hiring by government agencies. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.

The economy has lost 6.9 million jobs since the recession began in December 2007, the most of any economic slump since the Great Depression.

The drop in GDP, the sum of all goods and services produced, was less than the 1.2 percent median forecast in a Bloomberg survey of 78 economists. The government previously calculated the pace of contraction for last quarter at 1 percent.

Worst Recession

The world’s largest economy shrank 3.8 percent since last year’s second quarter, making this the deepest recession since the 1930s.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 0.9 percent pace last quarter, less than the government previously estimated. The median forecast of economists surveyed projected spending would be unrevised at a 1 percent drop.

The economic recovery is “slow but certain,” FedEx Corp. Chief Executive Officer Fred Smith said this week, adding he has “guarded confidence” about an improving global outlook.

“Recovery is not a straight line up, but a zig-zag with a few steps forward and backward,” Smith, the founder of the second-largest U.S. package-shipping company, said at FedEx’s annual meeting in its hometown of Memphis, Tennessee.

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Group of 20 leaders built on the common front they forged in fighting the financial crisis to chart a shared path toward a more stable banking system and a stronger global economy.

President Barack Obama and his counterparts ended their Pittsburgh meeting yesterday promising to “raise standards together” to ensure banks restrain pay and build up capital buffers. They also established a peer-review process to monitor individual efforts to rebalance economies and to hand emerging nations a greater say in managing world growth.

“There is much more work to be done, but we leave here today more confident and more united in the common effort of advancing security and prosperity for all of our people,” Obama told reporters after hosting his first summit.

Enacting the proposals may prove difficult. Banks buoyed by rising stock prices may resist or find a way around the new regulations; countries may ignore policy advice from others and the G-20 itself may be too unwieldy to deliver on its goals.

“The G-20 has to prove itself,” said Simon Johnson, a former chief economist of the International Monetary Fund. “They need to establish legitimacy and get things done.”

A lot is at stake. While the international economy is showing signs of recovering from its worst recession since World War II, pockets of weakness remain, especially in the U.S. and other industrial countries. Demand for U.S. durable goods unexpectedly fell in August and loans to households and companies in Europe grew at the slowest pace on record, data showed yesterday. European and U.S. stocks posted their biggest weekly declines since July.

‘Slow Going’

The Standard & Poor’s 500 Index has dropped 2 percent since Sept. 18 and Europe’s Dow Jones Stoxx 600 Index has slipped 2.4 percent in the same period.

“It’s going to be slow going,” said former U.S. Treasury Secretary Paul O’Neill, who once ran Alcoa Inc., the largest U.S. producer of aluminum, from Pittsburgh and still lives in the city. “We’re getting a recovery but it won’t be fast.”

The third summit of G-20 leaders in the past year plotted a roadmap for revamping the banking industry after the two previous meetings, in Washington and London, focused on fighting market turmoil and reversing the spiral into recession.

“Given this is the third meeting of these people in 10 months, the fact that they’ve gotten as much substantively done as they have is quite impressive,” said Edwin Truman, a former adviser to Obama’s Treasury and a senior fellow at the Peterson Institute for International Economics in Washington.

Bonus Rules

After recording $1.6 trillion in losses and writedowns, banks were told to avoid “multi-year guaranteed bonuses” and a “significant portion of variable compensation” must be deferred, paid in stock, tied to performance and subjected to clawbacks if earnings flop. The G-20 stopped short of endorsing a French proposal to introduce specific caps on pay.

Awards must also be curbed if they are “inconsistent with the maintenance of a sound capital base.” Regulators should be allowed to modify the compensation practices of key firms. Banks will also have to increase the quality and quantity of capital they hold by the end of 2012.

“There is no going back to systems of bonuses that were based simply on short-term speculation and not on the long-term success of companies,” U.K. Prime Minister Gordon Brown said.

The growing influence of emerging economies such as China and Brazil was marked by the agreement that the G-20 would supplant the G-8 as the guardian of the world economy.

G-20’s Rise

The G-20’s new-found status reflects how the recent slump was sparked by the developed economies and the rebound is being powered outside their ranks. That’s a reversal from previous international crises when the G-8, whose genesis lies in the oil shock of the early 1970s, drove the recovery no fax cash advance.

The smaller group will continue to play a role in security and foreign-policy issues. China and other “underrepresented” economies will also gain greater sway at the IMF and World Bank through higher voting rights.

As the G-20 becomes the primary arena for politicians to forge pacts on the economy, officials agreed to establish a “framework for strong sustainable and balanced growth.”

Countries with significant deficits in their trade accounts promised to save more, while those with surpluses will strengthen domestic demand. The IMF will help them assess each others’ attempts to meet those objectives.

China-U.S.

The initiative could see China relying less on exports and more on its own spending, the U.S. cutting back expenditure and Europe increasing investment to even out lopsided flows of trade and investment that contributed to the credit boom and subsequent bust.

Some economists cast doubt on the pledges given no sanctions will be levied to enforce them and a similar push in 2006 by the IMF petered out.

“The jury is still out on the implementation side of this framework,” said Stephen Roach, chairman of Morgan Stanley Asia. “It boils down to whether sovereign nations are willing to abdicate national policy to the world’s collective interests.”

Another test for the G-20’s credibility may be whether regulators can enforce the new rules as the rebound in growth and stock markets since March helps banks regain lobbying strength.

If they can, the profits and share price of banks from Goldman Sachs Group Inc. to Barclays Plc will fall with their scope to invest and trade, said former Bank of England policy maker Charles Goodhart.

Declining Returns

“Regulation almost certainly means the size of the banking industry will contract and its rates of return will go down,” said Goodhart, professor emeritus of banking and finance at the London School of Economics.

The regulatory overhaul is “for real, but there will be plenty of argument over the detail of how it’s done,” Leon Brittan, vice chairman of UBS Investment Bank and former European Union trade commissioner, told Bloomberg Television.

The mixed economic environment and rising unemployment are leaving governments with no option but to keep up their support of banks and fiscal stimulus, which totals more than $2 trillion, even as their debt mounts. They promised to develop a plan for withdrawing the aid when expansion is secured.

Research In Motion Ltd., the Canadian BlackBerry maker, yesterday forecast third-quarter sales that fell short of analysts’ projections, while UBS AG’s Chief Executive Officer Oswald Gruebel said it will take “some time” for Switzerland’s biggest bank by assets to return to profitability.

Canada, Korea

Originally established in the 1990s as a forum for finance chiefs, the G-20’s leaders met for the first time in Washington last November and then in April in London. Canada will hold the next summit in June followed by South Korea in November and France in 2011.

The leaders agreed to phase out subsidies for fossil fuels in the “medium term,” without setting a deadline. They also plan to intensify their monitoring of tax havens from next month to ensure economies follow through on promises to comply with global standards.

The G-20 accounts for about 85 percent of global gross domestic product. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

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The index of U.S. leading economic indicators rose for the fifth straight month, capping the longest stretch of gains since 2004 and signaling a recovery is under way.

The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.6 percent in August, in line with forecasts, after a 0.9 percent increase in July that was larger than previously estimated, according to data that the New York-based group released today.

The gains in stock prices, consumer confidence and homebuilding that are buoying the leading index bolster Federal Reserve Chairman Ben S. Bernanke’s view that the worst recession since the Great Depression has probably ended. At the same time, rising unemployment and tight credit are a reminder that a rebound will be slow and gradual.

The report “is another signal that economic growth is turning sharply positive this quarter,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “All of the elements for a robust recovery are falling into place. As we look ahead, job losses will end and the unemployment rate will stop rising, but we’re not there yet.”

The index was projected to rise 0.7 percent, according to the median forecast of 58 economists in a Bloomberg News survey, after an originally reported increase of 0.6 percent in July. Estimates ranged from unchanged to a gain of 1 percent.

Stocks Fell

U.S. stocks fell on speculation a six-month rally has outpaced prospects for profit growth. The Standard & Poor’s 500 Index was down 0.9 percent to 1,058.82 as of 10:43 a.m. in New York. Treasuries rose, pushing the yield on the 10-year benchmark note to 3.42 percent from 3.47 percent on Sept. 18.

Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in August after increasing 0.1 percent the prior month. The index tracks payrolls, incomes, sales and production.

Lagging Indicators

The gauge of lagging indicators fell 0.1 percent following a 0.5 percent drop in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Five of the 10 indicators in today’s report added to the leading indicators index, led by a gauge of supplier deliveries, interest-rate spreads and the stock market.

The Standard & Poor’s 500 Index has soared 57 percent since March 9, when it hit a 12-year low, as optimism grew that the U allstate insurance.S. was pulling out of the downturn. A jump during August in the S&P 500 average from July’s average added 0.3 point to the leading indicators gauge.

Building permits, a sign of future construction, and a gauge of consumer expectations also contributed.

Permits rose 2.7 percent to a 579,000 annual rate in August, the Commerce Department said on Sept. 17. The Reuters/University of Michigan index of consumer expectations six months from now, considered a proxy for future spending, rose to 65 in August and this month climbed to 69.2, according to a preliminary reading.

‘Improving Trends’

Officials at some companies are already seeing a pickup in demand. Best Buy Co., the world’s largest electronics retailer, raised its full- year earnings forecast last week even while reporting a drop in second-quarter profit, citing “improving trends” for sales.

“Customer traffic patterns have started to indicate signs of stability,” Jim Muehlbauer, chief financial officer for Richfield, Minnesota-based Best Buy, said in a Sept. 15 statement.

Money supply adjusted for inflation, which has the biggest weighting in the leading index and subtracted the most of any measure in the August report, took away 0.3 point.

The average number of weekly applications for unemployment benefits rose in August from the prior month, subtracting 0.09 point from the leading index and a reminder that consumer spending is unlikely to lead the recovery.

Jobless Rate

Economists predict claims will subside gradually. Claims dropped by 12,000 to 545,000 in the week ended Sept. 12, according to Labor Department data, while the total number of people collecting benefits rose.

The economic expansion projected to start this quarter won’t be enough to keep the unemployment rate from reaching 10 percent by the end of the year for the first time since 1983, according to a Bloomberg survey of economists this month. The rate rose to 9.7 percent in August, from 9.4 percent in July.

Unemployment rose in 27 U.S. states in August, with California, Nevada and Rhode Island reaching record levels of joblessness, the Labor Department reported Sept. 18 in Washington. California’s unemployment rate reached 12.2 percent and Nevada’s climbed to 13.2 percent.

“There’s still a fair amount of weakness in some of the larger states,” said Steven Cochrane, director of regional economics at Moody’s Economy.com in West Chester, Pennsylvania. “State finances are probably going to be among the last of all the various components of the broad economy to turn around.”

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The Bank of Japan raised its assessment of the economy and held the benchmark interest rate close to zero percent as it seeks to strengthen the recovery.

“Japan’s economic conditions are showing signs of recovery,” the central bank said in a statement in Tokyo today, after last month saying they had “stopped worsening.” Governor Masaaki Shirakawa and his colleagues kept the overnight lending rate at 0.1 percent at the policy board meeting.

Reports today showed the economy is rebounding from its worst postwar recession: manufacturers turned optimistic for the first time in almost two years and demand for services rose for a second month in July. The revival has been driven by global stimulus spending and Shirakawa said on Aug. 31 that he’s not yet confident it will continue to improve.

“Even though Japan’s economy is on a recovery path, demand is still weak and the bank seems to think it’s too early to normalize policy measures,” said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo, who used to work at the central bank. He said the policy board will keep the key rate unchanged at least until March 2011.

The yen was little changed, trading at 91.05 per dollar at 12:47 p.m. in Tokyo from 91.01 before the report was published.

The Bank of Japan said consumer spending remains weak and companies are still reducing investment because of falling profits. Financial conditions are showing signs of improvement “with some severity lingering,” the central bank said.

Downside Risk

“While there are signs of a better-than-projected recovery in emerging economies, risks to the economy are still on the downside,” the bank said, adding it will pay “attention for the time being to the downside risks to economic activity and prices.”

Since its most recent rate cut in December, the central bank started buying corporate debt from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board extended the programs until Dec. 31 in July, saying funding conditions remain “tight.”

Japan’s economy grew in the second quarter for the first time in more than a year, helped by some $2 trillion in global stimulus that bolstered exports and household spending. Factories increased output for a fifth month in July as companies rebuilt inventories, and shipments abroad are showing signs of improving as the global recession eases.

Sentiment among large manufacturers rose to 15.5 points this quarter, the highest reading since the survey began in 2004, today’s joint survey by the Cabinet Office and Finance Ministry showed. The tertiary index, a measure of service demand, advanced 0 absolutely free credit report.6 percent from June, the Trade Ministry said.

Tankan Survey

The business confidence report offers a hint of the results likely in the Bank of Japan’s quarterly Tankan survey due Oct. 1. The Tankan will provide policy makers with information on companies’ hiring plans and ability to raise funds a year after the collapse of Lehman Brothers Holdings Inc. caused credit to dry up worldwide.

While some companies are optimistic, the rebound in global demand hasn’t spurred capital investment, and consumer spending may weaken amid record unemployment and falling incomes. The value of households’ financial assets slid 3 percent from a year earlier to 1,441 trillion yen ($15.8 trillion) last quarter, the Bank of Japan said today.

“Consumer spending will remain sluggish and deflationary pressure will be mount,” said Akio Makabe, a professor of economics at Shinshu University in Matsumoto, central Japan. “Companies will continue to carry idle capacity and face pressure to streamline operations.”

Hatoyama Government

Yukio Hatoyama became prime minister yesterday after his Democratic Party of Japan won an election on a pledge to support households. While the DPJ has said it supports the Bank of Japan’s independence, economists say the policy board may face pressure from the new administration to increase its monthly purchases of government bonds to fund its spending.

“The issue of an increase in the bank’s bond purchases may gain momentum if the government finds it has to sell more debt to make up for a shortage of revenue,” said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc.

The central bank currently buys 1.8 trillion yen ($20 billion) of the securities each month.

Deflation may provide an obstacle to raising interest rates even if the economy keeps growing. Japanese authorities will hold the key rate at 0.1 percent at least through the end of 2010, according to 14 of 16 economists surveyed this month.

Consumer prices excluding fresh food fell a record 2.2 percent in July, and policy makers are likely to forecast the slide will extend into 2011 in their twice-annual outlook next month. They consider prices to be stable within a range of zero to 2 percent.

“Japan’s consumer prices have been on a downward trend for a decade,” said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Chase & Co. in Tokyo. “Even if the economy achieves a moderate recovery, it’s difficult to expect expectations for deflation will wane anytime soon.”

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Factories in the U.S. expanded in August for the first time in 19 months, helping lead the economy out of the worst recession since the 1930s.

The Institute for Supply Management’s factory gauge increased to 52.9, exceeding forecasts and the highest level since June 2007, the Tempe, Arizona-based group said today. Fifty is the dividing line between expansion and contraction. Another report showed more Americans than anticipated signed contracts to buy existing homes in July.

The gains indicate Federal Reserve efforts to thaw credit markets together with the Obama administration’s “cash-for- clunkers” program and tax credits for first-time homebuyers are reviving demand. Factories and builders, which have accounted for half of all the jobs lost since the recession began in December 2007, may keep growing in coming months as sales rise.

“All the pieces are falling into place for a recovery to take hold,” Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “The stimulus should exaggerate the pace of recovery in the third quarter and then it’ll settle back down a little bit.”

Economists forecast the index would rise to 50.5 from July’s 48.9 reading, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from 49 to 53.5. Manufacturing accounts for about 12 percent of the world’s largest economy.

Pending Sales

Pending sales of previously owned homes climbed 3.2 percent in July, exceeding the 1.5 percent median forecast of economists surveyed by Bloomberg, a report from the National Association of Realtors also showed. The sixth consecutive increase marked the longest stretch of gains since records began in 2001.

Other reports today showed manufacturing was gaining speed worldwide. China’s factories expanded in August at the fastest pace in 16 months, while European industry shrunk by the least in more than a year.

The ISM’s production index jumped to 61.9, the highest level since October 2005, from 57.9 the prior month.

The group’s new orders measures increased to 64.9, the highest level since December 2004, from 55.3. A gauge of export orders climbed to 55.5 from 50.5.

Employment

The employment index increased to 46.4 from 45.6.

The index of prices paid increased to 65 from 55. Economists had projected that the measure, which averaged 66.5 last year, would rise to 57.8.

The supplier delivery gauge, a measure of the time it takes to receive goods, increased to 57 instant payday loan.1 from 52 the prior month. The measure of orders waiting to be filled rose to 52.5 from 50.

The inventory index increased to 34.4 from 33.5. A figure below 50 means manufacturers are reducing stockpiles.

Industry reports today may show sales of cars and light trucks climbed to a 13.3 million annual pace in August, the most since August 2008, according to economists surveyed by Bloomberg.

Ford Motor Co, General Motors Co. and Honda Motor Co. were among automakers citing the popularity of the federal cash-for- clunkers plan in announcing production increases for the coming months.

Clunkers

The program, which ended Aug. 24, offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The program produced almost 700,000 auto sales before it ended, the Transportation Department said Aug. 26.

Ford, the second-largest U.S. automaker, posted its first monthly U.S. sales gain in July since 2007.

“We had a solid July sales month and we are headed toward an even stronger August,” Ford marketing chief Ken Czubay said last week in a statement.

GM last month called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosted second-half production, in part because of “cash for clunkers.”

Smaller stockpiles are also contributing to a rebound in output as orders rise to stock bare shelves. Inventories dropped at a record $159.2 billion annual rate in the second quarter, the Commerce Department said last week. They fell at a $113.9 billion pace in the first three months of the year.

Restock

Intel Corp., the world’s biggest chipmaker, is among companies benefiting as customers increase inventories back to more normal levels. The Santa Clara, California-based company last week increased its sales forecast for this quarter.

Intel joined computer-industry companies including Dell Inc. and Hewlett-Packard Co. in predicting a recovery, and has credited consumers in Asia for a rebound in orders for personal computers.

U.S. exports in May and June showed the biggest two-month gain in almost a year, signaling the worst global recession since World War II was easing.

– With assistance from Connie Guglielmo in San Francisco. Editors: Carlos Torres, Christopher Wellisz

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Japanese machinery orders rose for the first time in four months in June and the current-account surplus widened, the latest signs that the nation’s worst postwar recession is easing.

Orders climbed 9.7 percent from May, the Cabinet Office said today in Tokyo, more than the 2.6 percent expected by economists. The surplus more than doubled from a year earlier to 1.15 trillion yen ($11.8 billion), expanding for the first time since February 2008 as exports improved.

The Nikkei 225 Stock Average advanced, extending its rally in the past month to 13 percent as the global recession abated and cost cuts helped earnings at companies from Honda Motor Co. to Sony Corp. exceed analysts’ expectations. Even so, a separate report showed corporate bankruptcies increased in July, signaling unemployment may soon rise to a postwar high.

“We shouldn’t be too optimistic about capital spending yet,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “Companies are still burdened with excess labor and capacity and the outlook for the economy is uncertain.”

The Nikkei rose 1.1 percent, its highest close since Oct. 3. The yield on 10-year government bonds rose 2.5 basis points to a seven-week high of 1.455 percent. The yen traded at 97.25 per dollar at 3:26 p.m. in Tokyo from 97.39 before the machinery report.

Election This Month

Prime Minister Taro Aso is struggling to steer the economy toward a recovery as his ruling Liberal Democratic Party trails the opposition Democratic Party of Japan in polls ahead of an Aug. 30 election. A separate report today showed sentiment at merchants rose to a 22-month high, bolstered by the stock- market gains and Aso’s 25 trillion yen in stimulus spending.

Machine orders, an indicator of capital investment in the next three to six months, will fall 8.6 percent in the current quarter, the government said. June’s gain was mostly due to a purchase of equipment used to generate nuclear power. Without that, orders would have risen about 2 percent or 3 percent, said Shigeru Sugihara, head of statistics at the Cabinet Office.

Today’s figures add to signs the global economy is recovering from the worst recession since the Great Depression. The U.S. unemployment rate dropped for the first time in 15 months in July, prompting Nobel Prize-winning economist Paul Krugman to say yesterday that the economy “may be in the beginning of an upturn.” Analysts expect data next week will show the European economy shrank at a slower pace last quarter.

Global Stimulus

More than $2 trillion in spending by governments worldwide has stabilized global demand, helping Japanese manufacturers such as Kubota Corp online payday loans., which is selling more farming equipment in China. Japan’s factory production rose 8.3 percent last quarter, rebounding from a record 22.1 percent plunge in the previous period.

The current-account surplus rose 144 percent in June from a year ago, the Finance Ministry said. Exports fell 37 percent, less than the 42.2 percent in May. Imports slid 43.8 percent.

The world’s second-largest economy probably grew for the first time in a year last quarter, expanding at an annualized 3.8 percent pace after a record 14.2 percent contraction in the first quarter, according to the median estimate of 20 analysts.

Companies have raised earnings predictions and beaten analysts’ expectations over the past month. Some 15 percent of firms listed on the first section of the Tokyo Stock Exchange raised first-half earnings estimates since June, according to Tokyo-based Shinko Research, while 10 percent cut projections.

Honda, Sony

Honda Motor, Japan’s second-largest carmaker, last month reported net income of 7.5 billion yen in the quarter ended June 30, compared with a 40 billion yen loss forecast by analysts. Sony posted a net loss of 37.1 billion yen, half the 80 billion yen shortfall analysts predicted.

“The worst is definitely over in terms of earnings, but the incentive to invest is very limited in a world in which production levels are so low,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo.

Toyota Motor Corp. last week narrowed its loss forecast for the current business year, citing government incentives introduced in Japan, the U.S. and Europe to encourage car- buying. The company still estimates it will sell 3 million fewer cars than it has the capacity to build. The automaker plans to cut capital spending 36 percent this year.

Smaller firms are struggling to get access to cash that would keep them in business. Corporate bankruptcies climbed 1.02 percent in July from a year earlier to 1,386 cases, Tokyo Shoko Research Ltd. said in Tokyo today.

“Financial conditions aren’t stable yet on the whole,” said Masayuki Kichikawa, chief Japan economist at Merrill Lynch & Co. in Tokyo. “Corporate funding is improving among large companies, but not yet at small businesses.”

Kichikawa said the increase in business failures puts pressure on the unemployment rate, which climbed to a six-year high of 5.4 percent in June, close to a record 5.5 percent.

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The debate over whether the $787 billion stimulus package is sufficiently large or efficiently designed obscures a broader question, some economists say: Can any fiscal measure pull the economy out of the recession?

With credit still crimped and the outlook for consumer demand gloomy due to rising unemployment and increased personal saving, no amount of government intervention will be able to stanch the hemorrhaging of jobs and quickly ease the U.S. out of its deepest recession in a half-century, they said.

“Many households that want to borrow can’t, and many that can borrow won’t because they now must save for retirement the old-fashioned way,” said Richard Clarida, global strategic adviser at Newport Beach, California-based Pacific Investment Management Co., the world’s biggest bond-fund manager. “As a result, the multiplier from even a well-designed stimulus package is likely to be quite modest.”

The stimulus plan passed in February “is executing pretty much as expected,” yet it “won’t affect the economy’s primary problems, which are falling values of assets like homes and stocks,” said Doug Holtz-Eakin, who was director of the Congressional Budget Office from 2003 to 2006 and is now president at DHE Consulting LLC in Washington. So far, about $60 billion in spending and $43 billion in tax relief has been dispensed, accounting for 13 percent of the plan’s total.

Bond Yields

The slow pace of recovery has driven bond yields lower as investors continue to seek the safety of U.S. government debt. Ten-year note yields are down 38 basis points, or 0.38 percentage point, since June 10.

The outlook for many companies also is clouded. Second- quarter profit at General Electric Co., the world’s biggest maker of power-generation equipment and services, probably fell by more than 50 percent, according to the average estimate of 13 analysts surveyed by Bloomberg. Most benefits from the stimulus plan won’t arrive until next year, the Fairfield, Connecticut- based company’s chief executive officer, Jeffrey Immelt, told investors May 19.

Proponents of the stimulus said the economic situation and the prospects for recovery would be much bleaker if no fiscal response had been put in place.

“It’s working, it’s demonstrably working,” said Jared Bernstein, chief economic adviser to Vice President Joseph Biden, whose office is overseeing the stimulus rollout.

Even though a second stimulus package is unlikely at this point, those advocating such a measure said it may be needed precisely because the effects of the first have been so modest.

‘Multiplier Effect’

The combination of rising unemployment and thrifty consumers “definitely lowers the multiplier effect” of every stimulus dollar spent, said Dean Baker, a co-director of the Center for Economic and Policy Research in Washington. “That just means you need more stimulus. There’s really no alternative.”

Obama administration officials such as Treasury Secretary Timothy Geithner said the measure needs time to work and are appealing for patience.

“The stimulus program was designed to make a contribution over a two-year period and the biggest impact on investment will come in the second half of this year,” Geithner said yesterday in an Internet chat with Les Echos newspaper in Paris.

Martin Feldstein, a professor of economics at Harvard University in Cambridge, Massachusetts, and former head of the National Bureau of Economic Research, said the stimulus may provide a short-term boost that will quickly ebb.

‘Fade Out’

“We’ll get that bounce for a couple of quarters but then it will fade out,” Feldstein said.

It’s too early to consider another round of fiscal priming, Geithner said. “I don’t think we’re in a position yet to make that judgment.”

For the moment, the initial measure has shown little impact. The net worth of households has fallen almost 22 percent, by almost $14 trillion, since 2007, to the lowest level in five years. House prices have fallen more than 32 percent from their 2006 peak, according to the S&P/Case-Shiller national index, while the Standard & Poor’s index of 500 stocks is 40 percent below its October 2007 level payday loans.

The crisis reminded Americans that home values can fall as well as rise and that bull markets don’t last forever, causing consumers to stash away a much larger portion of their incomes. Government data showed that the household savings rate rose to 6.9 percent in May, from zero in April 2008. The May figure is the highest in almost 16 years.

Personal Savings

Nouriel Roubini, an economist at New York University who is chairman of RGE Monitor, and Richard Berner, co-head of global economics at Morgan Stanley in New York, forecast the rate could rise to 10 percent. Economists Reuven Glick and Kevin Lansing of the Federal Reserve Bank of San Francisco estimated in a May 18 paper that Americans would continue to boost their rate of savings, which could reach 10 percent by 2018. Such a jump would trim three-quarters of a percentage point per year from consumer spending.

“There’s been a fundamental change in people’s behavior,” said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.

Rising joblessness could further damp the ability of consumers, whose spending in recent years has made up more than two-thirds of the economy, to continue to shoulder that burden.

Contractions in industries such as autos, construction and financial services have helped shrink payrolls by 6.5 million since the recession began in 2007, Labor Department figures show. The June jobless rate reached 9.5 percent, the highest since 1983.

Jobless Rate

Federal Reserve officials are anticipating a jobless rate of 9.8 percent to 10.1 percent this year, according to the central bank’s latest economic forecast. In an interview last month, President Barack Obama also said the jobless rate would exceed 10 percent before turning for the better.

In addition, the rolls of the long-term unemployed are growing, with 29 percent of the jobless out of work for more than 26 weeks, the most since records began in 1948. A broader measure of underemployment that includes those who want full- time positions but work part-time has almost doubled over the past two years, to 16.5 percent.

Consumer spending is forecast to rise 1.5 percent in the fourth quarter and 1.7 percent for all of 2010, according to a July Bloomberg survey of more than 50 economists. The average quarterly increase from 1997 through 2007 was 3.5 percent.

‘Consumption Animal’

The U.S. consumer “clearly is not going to be the consumption animal that he was for the last 10 or 20 years,” Joshua Shapiro, chief U.S. economist at MFR Inc. in New York, said in a July 6 interview with Bloomberg radio.

Retailers such as San Francisco-based Gap Inc., operator of the Old Navy and Banana Republic chains, and Abercrombie & Fitch Co., a teen-clothing franchise based in New Albany, Ohio, are feeling the pinch. Both reported June sales declines steeper than analysts estimated.

Airlines including Fort Worth, Texas-based AMR Corp., parent of American Airlines, are suffering as business travel declined. The world’s second-largest carrier’s traffic, measured in miles flown by paying passengers, fell 8.2 percent for the quarter, as American and other airlines discounted fares to fill planes. American filled 81.8 percent of its available seats in the second quarter, down from 82.5 percent a year earlier.

Credit, which consumers often turn to during recessions, remains difficult to obtain for many Americans.

About 50 percent of domestic banks tightened credit standards on prime mortgages in the first months of 2009, up from 45 percent in January, according to a survey of bank loan officers conducted by the Federal Reserve in April.

“Although financial market conditions had improved, credit was still quite tight in many sectors,” the central bank said in minutes of the Federal Open Market Committee’s June 23-24 meeting, released earlier this week.

What this means, Clarida said, is that “you’re not going to get the bang per buck that some of the stimulus proponents hoped for.”

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CLAYTON — Nine months after a renovation costing $12.5 million and reopening, the Clayton on the Park luxury senior living high-rise confirmed Tuesday that it will suspend its operations.

A spokesman for Sunrise Senior Living, a partner in the project, said the facility will close Aug. 17. Letters were sent to residents on Monday, and the staff is meeting with each of them. Twenty of the 208 apartments now are leased and occupied, said Stacy Tew-Lavosz, executive director of Clayton on the Park.

On Tuesday, Sunrise, based in McLean, Va., released a statement saying it would do its best to make the transition "as easy and comfortable as possible for all of our residents." The company said it would work with its partner, Conrad Properties of Clayton, to determine the future of the building.

"At this time, we are not able to speculate on the future of the building or when, or if, operations will resume at the community," said Sara Krueger, spokesman for Sunrise.

Last year, Sunrise and Conrad completed transforming the then nine-year-old Clayton property from a luxury boutique hotel and apartments into an independent senior-living residence with top amenities. The building’s first three floors, including the area where the old Finale nightclub had been located, were gutted and refurbished into senior residences.

The remodeled high-rise boasted original art, a theater, wellness center, a spa, a rooftop veranda and top-flight dining. From the location at Bonhomme Avenue and Brentwood Boulevard, the building offers clear views of downtown Clayton’s business towers and Shaw Park’s public pool and gardens free credit report. Rents began at $2,800 a month for a studio up to $9,200 for the six three-bedroom, two-bathroom units.

Sunrise managed the senior living operation and has an ownership interest in the property. The company said it has no plans to close any of its 400 communities nationwide, including three others in the St. Louis area.

Despite the apparent failure of Clayton on the Park, the overall market for senior living is strong, said Maureen Smallwood, who specializes in marketing senior housing. Still, opening a luxury facility in a sour economy may have proven fatal, she added.

"For that high end a product, they just hit the market at the wrong time," Smallwood said Tuesday.

Smallwood serves on the Home Builders Association’s 50-Plus Housing Council, which was created because of the high demand for senior housing. Many senior independent living projects in the area at or over 90 percent occupancy, Smallwood said, adding that she expects demand to remain strong.

But the market for higher-end properties carries more risk, Smallwood noted, even for well-established senior-living companies like Sunrise. "In this climate, people are being more cautious," she said.

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Orders for Japanese machinery fell to a 22-year low and producer prices tumbled the most since 1987 as dwindling profits forced companies to cut costs amid the worst postwar recession.

Bookings, an indicator of capital investment in the next three to six months, fell 5.4 percent to 688.8 billion yen ($7.1 billion) in April, the lowest since 1987, the Cabinet Office said today in Tokyo. Wholesale prices, the costs companies pay for energy and raw materials, slid 5.4 percent in May from a year earlier, the Bank of Japan said.

The collapse in global demand has forced manufacturers to cut production by more than a third from last year’s peak. Companies aren’t ready to start spending again as plunging profits force them to cut workers and salaries, damping the prospect of a rebound in the world’s second-largest economy.

“Companies aren’t willing to increase investment because the recovery in demand is slow,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The economy will probably return to growth this quarter, but it may be temporary because capital investment and consumer spending are slow to recover.”

The yen traded at 97.53 per dollar at 11:30 a.m. in Tokyo from 97.46 before the reports were published. Shares of machinery makers were mixed, with Fanuc Ltd. and Advantest Corp. declining, while Tokyo Electron Ltd. advanced. The Nikkei 225 Stock Average rose 1 percent to 9,885.13 at the morning close in Tokyo.

Demand in China

Reports released in the past month suggest gross domestic product may grow this quarter, after plummeting at a record 15.2 percent pace in the first three months of the year. Japan’s manufacturers have gotten a lift from revived demand in China, where the government is spending $586 billion on roads, hospitals and low-cost housing. Exports and production rose in March and April on a month-on-month basis.

Still, only about half the nation’s factory capacity is being used, putting pressure on managers to cut costs and delay investments.

A survey published this week by the Nikkei newspaper showed that Japanese companies plan to cut capital spending by an unprecedented 15 approved payday advance.9 percent this business year. The previous record was an 11.8 percent decline that came in 1993 when the bursting of Japan’s asset bubble left companies saddled with plant and equipment they no longer needed.

Output Decline

Jet-engine maker IHI Corp. said last week order delays from airlines have forced the company to slash production of parts for Airbus SAS and Boeing Co. The Tokyo-based company, which forecasts output will fall this year by 20 percent from 2007 levels, says it will delay investments in production capacity for as long as four years.

Postponed investments and a weak global demand are causing prices to fall and some economists say the economy has already slipped into deflation.

“Though we are recently seeing some signs of an economic recovery, we should assume price declines will worsen in coming months,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “Japan is already in deflation.”

Expectations of lower prices ahead may prompt companies and consumers to delay purchases, eroding profits and forcing firms to cut wages. Consumer prices excluding fresh food, the central bank’s key gauge of inflation, fell for a second month in April.

Toyota Motor Corp. estimates it will sell only 7.3 million vehicles this year, less than the 10 million it has the capacity to build. The company, expecting its second year of losses, will cut capital spending this year by 36 percent, according to the Nikkei.

Cost Cuts

Cost cuts by Toyota and other companies including television-maker Sharp Corp., which is closing older factories that produce screens for mobile phones, may limit the scope of Japan’s rebound, according to former Economic and Fiscal Policy Minister Hiroko Ota.

“More layoff and investment cuts could mean the economy falls back into negative growth,” Ota said last week.

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Job discrimination complaints hit record levels in fiscal 2008 nationwide, the U.S. Equal Employment Opportunity Commission reported.

There were 95,400 workplace discrimination claims filed for the year ended Sept. 30, the most recent data available. That’s up from 82,800 the previous year.

Complaints based on race, gender, age and religion all saw year-over-year gains.

Workers can file discrimination complaints with the commission, which can seek to remedy the situation including via lawsuits. Some of the complaints lead to financial settlements and mediation, while others are determined to have no merit.

Employment attorneys expected the increase as businesses cut back on hiring and increase layoffs because of the weak economy bad credit payday loans.

"It is no surprise that the number of charges have increased," said John Lomax, a labor and employment shareholder with the law firm Greenberg Traurig.

"During our annual labor seminar in October 2008, we projected that we would see an increase in the number of discrimination charges due to the fact that companies, for numerous reasons, would be forced to cut back in light of the current economic conditions; however, what is a bit surprising is the rate at which that number is increasing," Lomax said.

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