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France’s trade deficit narrowed 22 percent last year on lower energy costs and as companies such as Airbus SAS boosted exports after the worst recession since World War II.

The trade gap fell to 43 billion euros ($58.9 billion) from 55.1 billion euros in 2008, the customs department in Paris said today in an e-mailed report. December’s deficit was 4.27 billion euros compared with 5.3 billion euros the previous month.

France’s performance “is due to our specialization in sectors that were less affected by the crisis: pharmaceuticals, airplanes and agriculture,” Trade Minister Anne-Marie Idrac told a Paris press conference today. The decline in the trade gap was also due to a “smaller energy deficit,” she said.

France and neighboring Germany have benefited since the second quarter of last year as global demand for their goods helped fuel the recovery. The French economy expanded 0.3 percent in the last two quarters of 2009 and will grow 1.4 percent this year, the government forecast last month.

The euro-region “recovery will be to a large extent export-led,” said Stephane Deo, an economist at UBS Securities in London. “Trade will indeed support growth this year.”

Exports of Airbus aircraft last year rose 2 percent from 2008 to reach “their highest level” for a total of 16 billion euros, today’s report showed.

Overall, French exports were little changed in December after growing 5 percent in November, according to the report.

“In 2010, French exports should benefit from a rebound in economic activity as well as from structural reforms this government has carried out,” such as cutting some business taxes and providing tax credits for research, Idrac said.

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Gov. Arnold Schwarzenegger’s proposed $82.9 billion state budget replaces furloughs with pay cuts, slashes health care and social services for the poor and relies on $4.5 billion in fund shifting to back-fill government programs.

The proposed spending plan mostly protects education at the currently level of funding.

It also looks to the federal government for $6.9 billion in additional funding — and includes an ominous list of programs that will be axed completely if the money doesn’t come through. Some tax hits will be extended to fill the gap, too.

The state is facing a $19.9 billion budget deficit over the next 18 months. That amount includes a $6.6 billion shortfall in the current fiscal year, a $12.3 billion projected shortfall for 2010-11 and money needed for a $1 billion reserve.

Assuming the feds come up with the money — a premise many think is iffy, at best — major cuts include:

• $1.4 billion in compensation for state workers
• $2.4 billion cuts in health and human services, including cuts in Medi-Cal services, wages for In-Home Supportive Services workers and new restrictions on eligibility for CalWorks, the state welfare program and
• $1.2 billion in cuts in prison funding.

The current furlough program for state workers would end June 30, replaced by a 5 percent cut in all salaries. Department directors are ordered to cut their payrolls by 5 percent by July 1, when employees’ monthly retirement contribution will increase by 5 percent.

The change in pension contribution and pay reduction will require collective bargaining and statute changes.

“I know many of these cuts are painful,” Schwarzenegger said at a press conference Friday morning on the budget proposal. “Believe me, these are the hardest decisions a governor can make.”

It could get much worse.

Schwarzenegger and legislative leaders will travel to Washington later this month to demand $6.9 billion to the federal share of the cost of health care services to the poor, federal education mandates and incarceration of undocumented immigrants payday loans guaranteed no fax.

“We are not looking for a federal payout; we are looking for federal fairness,” Schwarzenegger said.

The proposed budget has a trigger mechanism to backfill for every dollar the state is unable to squeeze out of the feds. It includes up to $4.6 billion in program cuts and $2.4 billion in tax adjustments on business.

Major program cuts include:

• $1 billion from elimination of CalWorks
• $847 million by using Proposition 63 funding to finance existing mental health services
• $532 million by reducing Medi-Cal eligibility to the minimum allowed under federal law and axing most of the remaining optional benefits
• $495 million from elimination of the In-Home Supportive Services Program
• $280 million from elimination of non-court required inmate rehabilitation programs, moving some felons from prisons to jails and increasing parole agents’ caseloads
• $126 million from elimination of the Healthy Families Program
• $115 million from elimination of various health services programs funded by Proposition 99
• $111.9 million from elimination of funding for enrollment growth at the University of California and California State University and
• $100 million from an unallocated reduction in funding for trial courts.

Major programs to enhance revenue include $1.2 billion from suspension of a business’s ability to reduce taxable income by applying net operating losses from prior years and $504 million from cutting tax credits for dependents to $102 from $319.

Schwarzenegger declared another fiscal emergency and called for another special session of the Legislature.

“California is resilient,” he said. “We will … get through this challenge.”

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For six months, I attended every "investment seminar" offering a free lunch that I found advertised in the newspaper or in postcards I got in the mail.

I soon realized I would learn little about investing but a lot about high-pressure sales tactics for high-commission products. Although I had no intention of buying anything, I continued attending to gather material for my columns.

After a while, the seminars became so predictably unpleasant that I stopped going. Now, based on a study by AARP and the North American Securities Administrators Association, I see that little if anything has changed.

"Many people go to these seminars hoping to learn about ways to create a more secure retirement, but instead are pitched financial products that are fraudulent or unsuitable for them." said Jean Setzfand, director of financial security at AARP, the advocacy group for people 50 and over.

I must emphasize that some investment seminars are indeed educational. I’ve attended many, including several sponsored by investment firms and featuring talks by economists and money managers. My main concern — and that of regulators — is with solicitations for "free lunch" seminars that prey on seniors’ fears by implying they risk financial catastrophe if they don’t do what the presenter says.

An estimated 5.9 million Americans 55 and older have attended a seminar offering a free lunch or dinner in the past three years, with mail as the most common method of solicitation. Of those solicited by mail or e-mail, 27 percent have received 10 or more invitations.

In response to such solicitations, AARP, in collaboration with NASAA, which is an organization of state securities regulators, launched a "Free Lunch Monitor" program in October 2008. Armed with checklists, 180 volunteer monitors attended these seminars and reported what they saw Internet Payday loans. (To learn more about the program or to volunteer, see www.aarp.org/nofreelunch.)

The volunteers’ findings, together with the responses to a telephone survey of 1,012 Americans 55 and older, are summarized in a new study titled "Protecting Older Investors: 2009 Free Lunch Seminar Report."

For example, 78 percent of people who attended seminars expected they would focus on opportunities to learn more about financial issues. However, once at the seminar, half said they were asked for personal information; 46 percent said the presenter tried to make a follow-up appointment at their home; and 39 percent said the presenter tried to sell them something during or after the seminar.

Many of the seminars focused on annuities. Two-thirds of the volunteer monitors said the presenter did not discuss surrender charges or tax penalties if annuities are cashed in early, and 48 percent said the presenter did not discuss any annuity risks.

Attendees were consistently promised the products were low risk and would yield high rates of return (54 percent of the volunteer monitors said they were promised returns of 7 percent or more. I assure you no annuity today can guarantee that).

This is definitely not a knock against annuities. In fact, I own several. But these can be complex products, and there are many types of annuities, each with its own risks.

"Low risk, high reward is a red flag warning for possible investment fraud," said Denise Voigt Crawford, NASAA president. "I encourage all seniors to investigate before they invest in any offer served at a free lunch seminar," including checking the presenter’s credentials with securities regulators.

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U.S. consumer credit plunged more than five times as much as forecast in July as banks restricted lending terms and job losses made Americans reluctant to borrow.

Consumer credit fell by a record $21.6 billion, or 10 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $15.5 billion in June, more than previously estimated. Credit fell for a sixth month, the longest series of declines since 1991.

The credit crunch, stagnant incomes and declines in household wealth are casting doubt on the strength of the economic recovery. The arrival of the government’s “cash for clunkers” program in late July wasn’t enough to keep credit that covers car loans from plummeting by a record amount, as consumers delayed other purchases.

“Lenders are restricting access to credit because risk has increased and that is intersecting with households reducing their leverage,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose forecast of a decline of $12 billion was the most pessimistic among economists surveyed. “Cash-for-clunkers is to some extent shifting demand from one place to another, not creating it.”

Economists had forecast consumer credit would drop $4 billion in July, according to the median of 31 estimates in a Bloomberg News survey. Projections ranged from declines of $12 billion to no change from the previous month. The Fed initially said consumer credit decreased by $10.3 billion in June.

Credit Cards

Revolving debt, such as credit cards, fell by $6.1 billion in July, the Fed report showed. Non-revolving debt, including loans for automobiles and mobile homes, plunged by $15.4 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

Consumer spending rose 0.2 percent in July, following a 0.6 percent increase in June, government data showed on Aug. 28. Excluding cars, purchases were little changed.

Incomes were unchanged in July after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers. Wages and salaries posted the first gain of the year in July, increasing 0.1 percent after dropping 0.3 percent.

Tighter Standards

Plunging home values and stock prices have fueled a record $13.9 trillion loss in household wealth in the U quick payday loans.S. since the middle of 2007.

U.S. banks tightened standards on all types of loans in the second quarter and said they expect to maintain strict criteria on lending until at least the second half of 2010, a Federal Reserve report showed on Aug. 17.

Most banks cited reduced risk tolerance and “a more uncertain economic outlook” as the main reasons for restricting credit to businesses, with 35.2 percent saying they “tightened somewhat,” the Fed said in its quarterly Senior Loan Officer survey.

Since the survey, economists have raised their outlook for economic growth as data suggested home sales and manufacturing were stabilizing, and the Fed has said that the economy is “leveling out.”

Jobless Rate

A Labor Department report last week showed payrolls in August fell the least in a year. At the same time, the jobless rate rose to the highest in 26 years, a reminder that hiring will take longer to rebound, restraining consumer spending.

The economy has lost 6.9 million jobs since the recession began in December 2007, the biggest drop in any post-World War II economic downturn.

Credit-card defaults fell in July after breaking records for five straight months, according to Fitch Ratings statistics released on Aug. 31. Charge-offs, the cost of loans that card issuers have given up on collecting, fell to 10.55 percent as consumer credit quality showed “signs of life,” Fitch said.

Defaults are less likely to rise in the fourth quarter, as they typically do, as delinquencies stabilize and monthly payment rates improve, according to Fitch.

“The economic situation may have caused some front- loading of losses this year,” analyst Cynthia Ullrich said Aug. 31 in a statement accompanying the release of Fitch’s Prime Credit Card Charge-off Index.

Sales of cars and light trucks rose to an 11.3 million annual pace in July, according to Woodcliff Lake, New Jersey- based industry research firm Autodata Corp, in part because of the government’s trade-in incentive program. Sales increased again in August to a 14.1 million annual pace, the highest since May 2008. That compares with February’s 9.1 million rate, which was the lowest since 1981.

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The host for central bankers attending the Federal Reserve conference this weekend to discuss the financial crisis is a regional Fed chief who’s making waves with his proposal for letting big U.S. banks fail.

Thomas Hoenig, the Kansas City Fed president, will welcome Fed Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet and dozens of other central bankers to the annual symposium in Jackson Hole, Wyoming, starting today. Hoenig said he hopes the gathering will serve as a model for handling crises in the future.

Bernanke has urged Congress to back part of Hoenig’s proposal for dealing with faltering big banks, which would wipe out shareholder equity in any that receive government aid. The Treasury Department’s so-called resolution authority plan, while likely to result in stockholder losses, doesn’t require it.

“Tom is leading the mainstream on this,” said former Fed Governor Lyle Gramley, now senior economic adviser with New York-based Soleil Securities Corp. “He’s ahead of the curve.”

Hoenig, 62, took office in 1991 and is soon to be the longest-serving Fed policy maker. Out of the 12 regional Fed presidents, he is one of two to have served as a head of bank supervision. Hoenig is tougher than his colleagues on inflation, having dissented from interest-rate votes four times since 1995, always for tighter policy.

Alternative to Bailouts

Companies with weak capital or investor confidence shouldn’t be bailed out, Hoenig said in a private talk in Omaha, Nebraska, in March. He said the government instead should declare them insolvent, replace managers, remove the bad assets and require shareholders to take losses. Hoenig broke from his usual practice of speaking from notes on index cards for non- economic comments and released written text entitled “Too Big Has Failed.”

Senator Sam Brownback of Kansas asked for a copy of the speech after reading a newspaper article about it. He invited Hoenig to testify at an April hearing of the Joint Economic Committee, where Brownback is the ranking Senate Republican. Brownback said he had received “huge numbers of calls” from constituents angry about bank bailouts.

“Tom putting it out there, said, ‘You’re frustrated and you’re mad and there’s a way to address it,’” Brownback said in an interview. “It gave it, I think, a realistic, regulator approach from a respected individual.” He said he would like Hoenig to address lawmakers again this year.

The debate has been fueled by multibillion dollar government rescues of financial companies including Citigroup Inc. and American International Group Inc. Lawmakers in line with Hoenig include Alabama Senator Richard Shelby, the top Republican on the Banking Committee.

Shifting Risk

“Our regulatory reform effort must place the risk back where it belongs, on the risk takers and not on the taxpayers,” Shelby said in a statement.

Bernanke echoed Hoenig’s views in recent congressional testimony. In July 24 remarks to the House Financial Services Committee, the Fed chief indicated support for the Treasury’s resolution plan while adding that Congress might want to add some constraints such as requiring shareholders to bear losses.

“People are starting to sit up and take notice of his remarks,” said Camden Fine, president of Independent Community Bankers of America, a Washington-based trade group. “It’s influencing the debate.”

Not everybody agrees with Hoenig’s recommendation of setting strict guidelines to handle financial failures.

“You have to trust the authorities with some ability to change the rules when they need to,” said William Isaac, former head of the Federal Deposit Insurance Corp car insurance. and now chairman of the global financial services unit of LECG Corp., an economic and financial consulting company based in Emeryville, California.

Vigorous Debate

While Hoenig’s plan may not be covered in the formal discussions at Jackson Hole, his fingerprints extend past the brief remarks he delivers: Hoenig approves topics and speakers, with an eye to fostering debate.

“It has to be vigorous,” Hoenig said during an interview in a conference room next to his 14th-floor office at the bank’s new limestone-and-glass headquarters building in Kansas City. “I don’t think we’ll get better if we don’t listen to our critics as well as to those who praise us.”

Scheduled speakers include Bernanke tomorrow, along with Trichet, Bank of Japan Governor Masaaki Shirakawa, and less- well-known professors such as Carl Walsh of the University of California at Santa Cruz and Ricardo Caballero, chairman of the Massachusetts Institute of Technology’s economics department.

“I’m hoping that this becomes, in a sense, a lessons- learned and a beginning of a blueprint,” Hoenig said.

Roots in Iowa

Thomas Michael Hoenig grew up in Fort Madison, Iowa, the second of seven children of a plumber and homemaker. After being drafted into the Army and serving in Vietnam, he completed graduate studies in economics at Iowa State University in Ames. Unlike most students, Hoenig was ready with his dissertation topic, bank competition.

“He decided what he wanted to write his dissertation on and came in and told me,” recalled Dudley Luckett, a retired professor who was Hoenig’s adviser.

Hoenig joined the Kansas City Fed as an economist in 1973. He played basketball there with another young economist, Donald Kohn, who’s now the central bank’s vice chairman.

One of Hoenig’s defining experiences occurred in 1982, when he was on the front lines during the failure of Oklahoma City’s Penn Square Bank, which triggered a national banking crisis and helped precipitate the 1984 government takeover of Continental Illinois National Bank & Trust Co.

Principles Approach

“We learned lessons about concentrations of credit,” Hoenig said. That and subsequent events helped shape his view that setting hard rules for banks was better than the so-called principles-based approach, which favors wide-ranging edicts such as treating customers fairly. The U.K.’s financial regulator held itself out as a principles-based regulator until this year.

“There’s nothing in this crisis that I haven’t seen before,” Hoenig said.

Warning about dangers posed by big banks isn’t new for Hoenig. In a 1999 speech, Hoenig said the rise of “mega financial institutions” created a risk of a “less stable and a less efficient financial system” because the government would be reluctant to close troubled companies, creating implicit guarantees for some depositors and creditors.

Hoenig will become the longest-serving Fed policy maker this year when Minneapolis Fed President Gary Stern, who has also made a name studying too-big-to-fail, retires.

“I don’t ever recall him being so vocal on a subject like this,” said Douglas Lee, who runs Economics from Washington, a consulting firm in Potomac, Maryland. “He will certainly be a voice that will be listened to.”

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Confidence among U.S. consumers unexpectedly fell in August as concern over jobs and wages grew.

Today’s figures, including an unchanged reading in the cost of living, underscore the damage that the biggest drop in gross domestic product in any recession since the 1930s has had on households and retailers. With little sign that $1 trillion of injections into the banking system is feeding through to inflation, Federal Reserve policy makers are forecast to sustain their efforts until a recovery is secured. Stocks tumbled.

“If consumers are lacking confidence, then they will not be able to help us spend our way out of this long, dark recession,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Households are still concerned about the jobs outlook, and certainly, Fed policy is also gearing off of the labor markets as no Fed has lifted interest rates while the unemployment rate is rising.”

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 this month, the lowest since March, from 66 in July. The measure reached a three- decade low of 55.3 in November. The Labor Department said its consumer price index was unchanged from June as forecast, and dropped by 2.1 percent — the most in six decades — from July 2008.

Economists had forecast the confidence index would rise to 69, according to the median projection in a Bloomberg News survey. Estimates ranged from 64 to 75.

Stocks, Treasuries

The Standard & Poor’s 500 Index declined 0.9 percent to close at 1,004.09. The gauge yesterday reached the highest level since October. Treasuries rose after the consumer price report showed no sign of inflation, and benchmark 10-year note yields fell to 3.57 percent from 3.60 percent late yesterday.

The worst employment slump in seven decades has caused salaries to stagnate, rocking even Americans who still have jobs. The need to rebuild savings following the record drop in wealth from the plunge in stocks and home values will keep limiting spending in coming months, analysts said paydayloans.

Retailers including Nordstrom Inc., Abercrombie & Fitch Co. and American Eagle Outfitters Inc. have used discounts to lure consumers on tight budgets.

Wal-Mart Stores Inc., the world’s largest retailer, said yesterday that sales at U.S. stores open at least a year fell 1.2 percent. Eduardo Castro-Wright, the company’s U.S. stores chief, attributed the drop to stronger than expected deflation in grocery prices.

Tame Inflation

“I don’t really see inflation as being much of a threat over the next several months because there’s just too much slack in the economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

The inflation report from Labor showed that excluding food and energy costs, the so-called core index rose 0.1 percent, also as anticipated.

Separate figures showed that industrial production rose for the first time in nine months in July as a federal “cash- for-clunkers” program spurred demand for cars and automakers completed mid-year overhauls of their factories. The Fed said output at manufacturers, mines and utilities increased 0.5 percent increase after a 0.4 percent drop in June.

“It’s a start of the recovery in manufacturing,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “A lasting recovery in manufacturing depends on whether the pickup in auto demand can be sustained.”

Capacity utilization, the proportion of factory volume in use, rose from its lowest level since record-keeping began in 1967, increasing to 68.5 percent from a revised 68.1 percent the prior month.

Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

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Japan’s opposition party, leading in polls ahead of next month’s election, said the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds.

“In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing,” Masaharu Nakagawa, the shadow finance minister in the Democratic Party of Japan, said in an interview in Tokyo on July 9. “Many countries are starting to diversify their reserves.”

Japanese investors are the biggest foreign holders of Treasuries after China with $685.9 billion of the securities in April, and Finance Kaoru Yosano said last month his trust in the bonds is “unshakable.” The DPJ yesterday beat the ruling Liberal Democratic Party in elections for Tokyo’s city assembly, boosting its prospects ahead of national polls that Prime Minister Taro Aso today called for Aug. 30.

“The current reality of Japan’s foreign-currency reserves is that their heavy weighting toward dollar assets means any fall in the dollar’s value leads to valuation losses,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “The DPJ is opposed to a foreign-currency reserve policy that is so wholly skewed to the dollar.”

The yen traded at 92.39 per dollar at 2:11 p.m. in Tokyo from 92.54 late July 10. It has gained 4.3 percent this month.

‘Unshakable’ Trust

Nakagawa said Japan should consider purchases of new bonds issued by the International Monetary Fund that will pay an interest rate pegged to the fund’s basket of currencies — the dollar, euro, yen and pound — and known as Special Drawing Rights. The dollar is the principal component of SDRs. The IMF said this month it would issue bonds to its 186 members for the first time.

“We should start considering that as an option,” Nakagawa said. “I am not saying we should do it right away. If everyone starts doing it all of sudden, it may sway the dollar.” He didn’t say Japan should sell any of its dollar holdings.

DPJ lawmaker Tsutomu Okubo, a director of the upper house’s financial committee, said there’s no consensus in the party on currency policy. Enhancing trust in the dollar and Treasuries is beneficial for Japan and the country shouldn’t change its currency reserve allocations for the time being, he said in an interview today.

China’s Reserves

China, India, Brazil, Mexico and South Africa last week challenged the U quick payday loans.S. dollar as the primary denomination of world reserves. In China, whose foreign-exchange reserves probably topped $2 trillion for the first time in the three months to June 30, Premier Wen Jiabao this year said he was concerned that his nation’s dollar assets may decline as the U.S. sells record amounts of debt to fund stimulus spending.

Japan holds $1.02 trillion in foreign reserves, also the world’s largest after China’s. Losses on the holdings stood at about 21 trillion yen ($227 billion) at the end of May, according to the Finance Ministry’s estimate.

Shifting reserves away from dollars “may be difficult for Japan” because it would weaken the U.S. currency and reduce the value of the country’s remaining dollar holdings, said Masafumi Yamamoto, head of foreign-exchange　strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo.

“If Japan and China do that, the impact will be huge,” said Yamamoto, a former Bank of Japan currency trader.

Samurai Bonds

Nakagawa, 59, said Japan’s government should ask the U.S. to sell debt denominated in yen, so-called samurai bonds, as a way to diversify reserves and promote the globalization of the yen. Japan should also aim to strengthen the Chiang Mai Initiative, an Asia-wide foreign-reserve pool, and seek the creation of an Asian Monetary Fund, he said.

Nakagawa said intervening in the currency market to smooth abrupt and volatile moves is an option, though Japan shouldn’t try to push the yen up or down to achieve a prescribed level.

“If the yen were to appreciate or depreciate very steeply and the market becomes volatile, direct government intervention might be understandable,” Nakagawa said. “Intervention shouldn’t be used to strengthen or weaken it to a certain level.”

The yen gained against all 16 of the world’s major currencies in the past year. A stronger yen hurts Japanese exporters by making their products less competitive. It also lowers import costs for companies and consumers. Japan last stepped into the foreign-exchange market to sell yen in 2004.

Parliament will be dissolved July 21 to prepare for the lower-house election, Jun Matsumoto, deputy government spokesman, told reporters in Tokyo today.

A total of 23 percent of voters said they would choose the LDP, less than the 41 percent who favor the DPJ, according to a Yomiuri newspaper poll published July 10. The LDP has governed for all but 10 months since 1955. The DPJ already controls the upper house.

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Sentiment among U.S. consumers, whose spending is critical to an economic recovery, dropped in July after four months of gains as unemployment approached 10 percent.

The Reuters/University of Michigan preliminary index of consumer sentiment fell by more than forecast to 64.6 from 70.8 in the prior month. A separate report from the Commerce Department showed the trade deficit unexpectedly narrowed in May to the lowest level in almost a decade.

Unemployment is rising even as economists predict an end to the recession in coming months. Consumers in the survey said they are less likely to buy cars or appliances, suggesting that the recovery may be weaker than anticipated.

“There’s a lot of concern about job losses, and people think they won’t be able to earn more,” said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. “Until the employment picture clears up, we can’t anticipate persistent gains in consumer spending.”

The confidence index was forecast to dip to 70, according to the median of 59 economists surveyed by Bloomberg News. A gauge of expectations for six months from now, which more closely projects the direction of consumer spending, plunged to 60.9, the biggest drop since October, from 69.2.

The report helped send stocks lower, with the Standard & Poor’s 500 Index falling 0.4 percent to 879.13 for its fourth straight weekly loss. The Dow Jones Industrial Average declined 0.5 percent to 8146.52

Trade Deficit

The trade deficit narrowed 9.8 percent to $26 billion, the smallest gap since November 1999, from a revised $28.8 billion in April, today’s Commerce Department report showed. The gap was projected to widen to $30 billion, from an initially reported $29.2 billion in April, according to the median forecast in a Bloomberg News survey of 71 economists.

A shrinking deficit signals trade will add more to U.S. gross domestic product as exports to emerging economies such as Brazil increase. U.S. demand for imported auto parts was held down by production cutbacks and factory shutdowns by Detroit- based General Motors Corp. and Chrysler LLC, based in Auburn Hills, Michigan, two of the three largest U.S. automakers.

“Demand in the rest of the world is stabilizing sooner than in the U business cards.S.,” Basile said. “If it continues like this, trade could wind up adding to growth.”

A Labor Department report today showed prices of goods imported into the U.S. rose 3.2 percent in June, the fourth monthly gain, as oil costs jumped by the most in a decade.

Inflation Outlook

Consumers in the University of Michigan survey said they expect an inflation rate of 3 percent over the next 12 months, compared with 3.1 percent in the prior month’s survey. Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 3.1 percent rate of inflation, compared with their 3 percent forecast last month.

An index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, fell to 70.4 from 73.2.

Employers reduced payrolls by 467,000 last month, more than anticipated, government figures showed last week. Economists surveyed by Bloomberg this month predicted the unemployment rate will surge to 10 percent by the end of the year, from 9.5 percent in June.

The same survey said the economy will expand faster than previously forecast in the second half of this year and in 2010. Growth will average 1.5 percent in the July-to-December period, compared with last month’s 1.2 percent projection, according to the median of 57 forecasts taken from July 2 to July 8.

Retail Sales

Sales reports at retailers reflect caution among consumers, who are shifting purchases to discount stores.

June sales at stores open at least a year rose at Ross Stores Inc., the Pleasanton, California-based owner of the Ross Dress for Less discount chain, and Framingham, Massachusetts- based TJX Cos., owner of T.J. Maxx stores.

Same-store sales fell more than forecast for clothing retailers Abercrombie & Fitch Co., based in New Albany, Ohio, and Gap Inc., based in San Francisco.

The preliminary Reuters/University of Michigan consumer confidence report reflects about 300 responses, compared with 500 households for the final survey.

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Australia’s trade deficit widened in May as a drop in coal shipments pushed exports to the lowest level in 14 months, signaling economic growth may slow.

The shortfall swelled to A$556 million ($448 million) from a revised A$282 million in April, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg survey of 20 economists was for a A$125 million gap. Exports fell 5 percent.

Prices for iron ore and coal have declined, damping a mining boom that drove Australia’s 17-year economic expansion. BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Group have pared output, fired workers and cut capital expenditure in response to the slowdown in world demand.

“The global recession is starting to hit Australian export income,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney. “That will flow through the economy. Growth is likely to be weak and patchy in the quarters ahead.”

Australia avoided a technical recession in the first quarter as government stimulus and interest-rate cuts stoked consumer spending. The economy expanded 0.4 percent from the fourth quarter, when it shrank 0.6 percent.

The Australian dollar traded at 80.63 U.S. cents at 12:28 p.m. in Sydney from 80.76 cents before the report was released. The two-year bond yield was little changed at 3.87 percent.

Imports fell 4 percent to A$20.95 billion from April. Imports of capital goods, such as trucks and machinery, dropped 14 percent and consumer goods slipped 1 percent.

Coal Prices

Exports declined to A$20.39 billion, the lowest since March 2008. Shipments of non-rural goods, which include metals and minerals, fell 5 percent. Agricultural sales dropped 3 percent. Coal sales slumped 15 percent and shipments of cereals declined 7 percent.

BHP Billiton agreed to a 58 percent cut in annual coking coal contract prices after demand for the steelmaking material fell, according to a company statement last month.

“Changes in annual contracts and pricing arrangements are expected to flow through to export prices over a number of months,” Australia’s central bank said in a report this week cheap payday loans.

Rio Tinto, the world’s second-largest iron-ore exporter, agreed to a 33 percent cut in contract prices with Japanese and Korean steelmakers this year. It has yet to agree on prices with China, the world’s biggest consumer of iron ore. BHP Billiton has yet to announce any agreed contract prices this year.

Investment Drop

Australian businesses cut spending on machinery and equipment in the first quarter by 9.6 percent, the most since 1991, amid faltering global demand. Rio Tinto slashed its global spending by more than half to $4 billion this year and BHP shut its $2.2 billion Ravensthorpe nickel mine.

Still, even as miners are buffeted lower commodity prices, a recovery in global demand may support Australia’s export earnings.

Reports this week show China’s manufacturing expanded for a fourth month, Japan’s business confidence improved and South Korea’s factory production climbed for a fifth month. China and Japan are Australia’s largest export markets.

“We are seeing better economic numbers out of our major trading partners and that’s good news for exports,” said Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney. “That will help mitigate the decline in export prices.”

Macarthur Coal Ltd., the world’s biggest exporter of pulverized coal used in steelmaking, has received increased sales inquiries this year from China, not a traditional export market for Australian coal, Shane Stephan, chief development officer, said last month.

“We historically have never sold coal into China at all and just since February there has been increasing levels of inquiry from China,” he said. “That’s the major change.”

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The Bank of Japan said the nation’s worst recession since World War II is easing after exports improved and industrial output rose the most in 56 years.

“Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening,” the bank said in a statement in Tokyo today, after leaving the overnight lending rate at 0.1 percent. “In the coming months, Japan’s economy is likely to show clearer evidence of leveling out over time.”

Governor Masaaki Shirakawa may signal later today that it’s too soon to consider unwinding the bank’s policies of buying corporate debt and providing lenders with ample funds because the economy remains fragile. The yen rose, worsening the outlook for exporters, and stocks slumped the most in more than two months on concern a global recovery may be delayed.

“The BOJ is still cautious about the prospects for the economy and is still far away from an exit,” said Masaaki Kanno, chief economist in Tokyo at JPMorgan Chase & Co., who used to work at the central bank.

Japan’s currency gained 1.6 percent to 96.27 per dollar at 3:41 p.m. in Tokyo from 96.84 late yesterday. The Nikkei 225 Stock Average slumped 2.9 percent, the biggest drop since March 30, as a report on New York manufacturing damped optimism for a U.S. recovery.

The central bank said there are “continued high downside risks” facing Japan, citing developments in domestic and global financial conditions and the world economy.

G-8 Finance Ministers

Finance ministers from the Group of Eight nations said over the weekend that they need to begin considering how to roll back policies to counter the financial crisis as their economies show signs of recovering.

Atsushi Mizuno, a Bank of Japan board member, last month said central banks need to discuss how to “exit” their unconventional policy measures even though the global economy is still in a slump.

Since lowering the key rate to 0.1 percent in December, the central bank began to buy commercial paper and corporate bonds from lenders to channel cash to companies. It has also offered to lend to commercial banks limitlessly in exchange for sufficient collateral. The programs expire on Sept. 30.

Shirakawa will speak to the press at 3:30 p.m. in Tokyo.

Investor optimism that the economy is recovering has spurred an increase in government bond yields. The yield on Japan’s benchmark 10-year bond fell 2.5 basis points to 1.475 percent as of 1:08 p.m. in Tokyo. It reached an eight-month high of 1 payday advance loans.56 percent on June 11.

Long-Term Rates

Rising long-term interest rates would boost borrowing costs for companies and consumers, threatening to quash the global economy’s budding rebound.

“If the Bank of Japan and other central banks want to lower long-term interest rates, they could say it’s too soon to think about an exit,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo, who is a former central bank official. He’s not related to the governor.

Reports since the first quarter, when gross domestic product shrank a record 14.2 percent, suggest the nation is rebounding from its worst recession since World War II.

Industrial production climbed 5.9 percent in April from a month earlier, the biggest gain since 1953. Exports have improved two months running and bankruptcies fell in May for the first time in a year. Both the central bank and the government last month raised their evaluations of the economy for the first time since 2006.

Replacing Inventories

Shirakawa has said the rebound is being driven by inventory replacements and fiscal measures and the bank’s focus is on whether the economy can keep growing should the labor market and wages deteriorate further.

“With inventory adjustments having proceeded both at home and abroad, economic activity will be greatly influenced by developments in final demand,” the bank said. It reiterated a forecast for the world’s second-largest economy to start recovering sometime between October and March at the earliest.

A lack of interest in the bank’s programs indicates lenders are able to borrow from financial markets, analysts say. For the first time, no lenders bid to sell their commercial- paper holdings to the central bank last week. Bids for the bank’s corporate bond purchases have also failed to reach offered amounts since the program began in March.

Sony Corp. last week sold the biggest amount of bonds in its history while Toyota Motor Corp. plans to increase debt sales from the initially planned amount.

Even so, the central bank will probably extend corporate operations beyond Sept. 30 “as a safety net,” said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. Policy makers may also consider increasing the bank’s monthly government bond purchases from 1.8 trillion yen ($18.4 billion) should financial-market turmoil re-emerge, she said.

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