Retail Sales in U.S. Probably Climbed as Incentives Propelled Auto Demand

Bloomberg

 

U.S. retail sales probably rose in July for the first time in three months as incentives spurred auto purchases, indicating merchants are relying on discounts to spark demand, economists said before reports this week.

The 0.5 percent increase in sales followed a 0.5 percent June decline, according to the median estimate of 58 economists surveyed by Bloomberg News before Commerce Department figures Aug. 13. Other reports may show consumer prices were restrained and the trade gap was little changed.

Companies added fewer workers than forecast last month, pointing to a pace of recovery in the labor market that will do little to boost consumer spending, which accounts for 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke and fellow central bankers will take into consideration the mounting signs of slower growth when they meet in two days.

“Consumer spending is going to be touch-and-go all quarter,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “Vehicle sales got off to a decent start but outside of autos, spending was generally weak in July.”

The Commerce Department’s report will show purchases excluding automobiles rose 0.3 percent last month, according to the survey median. Sales minus vehicles fell 0.1 percent in June and 1.2 percent the previous month.

Retailers reported July sales gains that missed analysts’ estimates as consumers cut spending ahead of the back-to-school season. Sales at 30 chains climbed 3 percent from a year earlier, less than the 3.2 percent average of analyst projections, Retail Metrics Inc. said last week. Department- store chain J.C. Penney Co.’s sales fell 0.6 percent.

Summer Merchandise

July is typically the slowest month of the third quarter for retailers as they clear out summer merchandise for the back- to-school season, the second-largest sales period after the year-end holidays.

Americans had already slowed their spending last quarter. Purchases rose at a 1.6 percent annual rate, less than the 1.9 percent in the first three months of the year, Commerce Department figures showed on July 30. The economy also cooled, growing 2.4 percent after a 3.7 percent pace from January through March.

The Standard & Poor’s Supercomposite Retailing Index of 90 retailers including Target Corp. and Macy’s Inc., is down 16 percent from this year’s peak on April 26. The broader S&P 500 has fallen 7.9 percent from its April 23 high.

“The economic environment remains uneven” and “card members are borrowing less and paying down more of their outstanding debt,” Kenneth I. Chenault, chairman and chief executive officer of American Express Co., the biggest U.S. credit card issuer by purchases, said in a July 22 statement.

Auto Sales

One source of strength for the Commerce Department’s retail figures may be car sales. Vehicle purchases rose to an 11.56 million annual rate in July, the third-highest this year, as model-year closeout deals drew customers back to showrooms. Demand would be up from an 11.08 million pace the prior month, according to industry data.

“We had an outstanding retail month from a consumer standpoint,” George Pipas, chief U.S. sales analyst for Ford Motor Co., said in an interview last week with Bloomberg Television. “Still, it is a fragile situation.”

Economic data pointing to slower growth have intensified debate among economists whether the Fed will take an incremental step at their Aug. 10 policy meeting toward providing more stimulus.

Bernanke on Economy

“The slow recovery in the labor market and the attendant uncertainty about job prospects are weighing on household confidence and spending,” Bernanke said last week in a speech in Charleston, South Carolina. While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth.”

Companies added 71,000 jobs in July after a gain of 31,000 the prior month that was smaller than initially estimated, Labor Department figures showed. Total employment fell 131,000, reflecting the dismissal of temporary government workers as the decennial census wound down, the Labor Department reported Aug. 6.

Central bankers are facing little risk of inflation. The Labor Department may report Aug. 13 that consumer prices increased 0.2 percent in July from the prior month, while prices excluding food and energy rose 0.1 percent, according to the median estimate in a Bloomberg survey.

A report from the Commerce Department on Aug. 11 may show the U.S. trade deficit held at $42.3 billion in June, according to the Bloomberg survey. Imports may have increased as companies spent more on capital goods and boosted inventories, while exports probably also picked up.

Chicago Bank Failure Makes 109 this Year

Bloomberg / Business Week

 

Ravenswood Bank, a Chicago-based lender with $265 million in assets, was shut by regulators as the number of U.S. failures this year reached 109.

Northbrook Bank & Trust Co. acquired Ravenswood’s $270 million in deposits and two branches, according to a statement posted today on the Federal Deposit Insurance Corp. website. The failure cost the FDIC’s deposit-insurance fund $68.1 million.

Regulators may close the most banks this year since 1992 as borrowers struggle to keep up with payments amid weak hiring and bad residential and commercial loans impair capital levels. Failures in 2010 will surpass last year’s total of 140, FDIC Chairman Sheila Bair said last month in a Bloomberg Television interview.

“If the economy remains weak and we don’t see material workouts of these problematic commercial loans, we would expect to see a material number of failures spilling into 2011,” Frederic Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said today in a phone interview.

Ravenswood is the 13th Illinois lender shut this year, the statement said. The FDIC included 775 banks with $431 billion in assets on the confidential list of problem lenders as of March 31, an increase from 702 banks with $402.8 billion at the end of the fourth quarter.

No Shortage of Wheat, But Prices may Rise

NY Times

 

The price of wheat had been falling since the last great spike in 2008, but in April, Guy Lapointe seeded 2,200 acres of hard red spring wheat anyway on his rolling land in Alberta.

Now, as prices jump skyward, he is about to send his two John Deere combines into his fields and relishes the higher price he will reap.

“It is looking up,” said Mr. Lapointe, 46. “One farmer’s misfortune is another’s fortune.”

The drought afflicting Russia’s plains and the Kremlin’s sudden decision Thursday to halt exports of wheat will undoubtedly have unexpected consequences across the globe. Farmers from the Midwest to France will fill the void left by Russian exporters, but food processors could get caught by rising costs. The higher prices could be passed to consumers of foods including pizzas, bread and bagels.

If prices rise further, the situation could resemble 2008, when drought in Australia and embargoes across Asia in foodstuffs like rice disrupted the global food supply and prompted some rioting.

But there is an important difference between the current situation and that last price spike: the Russian drought and ban on wheat exports, in contrast to the global shock in 2008 that drove wheat prices up to nearly $13 a bushel and created tensions in Indonesia and Pakistan, are occurring when global wheat production is plentiful and stocks in the United States are at a 23-year high, analysts said.

“This is still going to be the third-largest wheat crop in world history, even with the Russian shortfall,” said Daniel W. Basse, president of AgResource, an agricultural consultant firm in Chicago. “The question becomes, Will the drought persist, and will there be problems elsewhere, in other big producers like Argentina or Australia?”

Wheat prices have risen by about 90 percent since June because of the Russian drought and other factors like floods during the planting season in parts of Canada. As the price shock ripples through the supply chain, small food producers may be unprotected because they tend to buy flour on the spot market.

Larger companies, like Piantedosi Baking Company of suburban Boston, have hedged against cost inflation.

“Now that we are hitting the storm here, we are locked down fairly far, to the end of the year practically,” said Joseph A. Piantedosi Jr., who runs the company with two cousins.

Papa John’s Pizza said it had locked in its wheat purchases through the first quarter of 2011, and Domino’s Pizza said it had also hedged.

The drought this summer had already pushed the price of wheat futures to their highest level since 2008. Amid growing nervousness on Monday, the number of wheat futures and options contracts traded on the Chicago Board of Trade reached record highs, beating the previous record set in 2008, and more than double the daily average so far this year.

Then on Thursday, the announcement of the embargo by Prime Minister Vladimir V. Putin caused a further sharp swing — prices hit their upper limits on all three of the exchanges where wheat futures are traded in the United States, in Chicago, Kansas City and Minneapolis.

“It was a really crazy day,” said Frank Stone, 55, of the Kansas City Trading Group.

On Friday, the futures prices fell again, this time hitting the lower limits on all three exchanges, on tentative reports that Russia might honor some of its export contracts after all or at least postpone the embargo until after its wheat harvest.

According to Interfax, First Deputy Prime Minister Igor Shuvalov said on the Ekho Moskvy radio station, “The decision to ban exports could be adjusted, depending on the harvest.”

By close of trading on Friday, wheat futures for September delivery on the Chicago Board of Trade had dropped 60 cents, to $7.25 a bushel, still sharply higher than a few weeks ago.

Cash prices for wheat have risen less significantly than futures prices, traders and analysts said, reflecting the fact that wheat is in healthy supply around the world.

“We do have a lot of wheat in the U.S.,” said Erica Olson, marketing specialist at the North Dakota Wheat Commission, a trade group. “We have wheat left over from last year and a good harvest this year.”

This is in contrast to the big supply shock in 2007 and 2008. In 2007, for example, worldwide stocks had already fallen sharply. By 2008 they had fallen to the lowest level in 30 years because of falling production and higher consumption, Ms. Olsen said, quoting Department of Agriculture data. Stocks had recovered by May 2010, she said.

Maximo Torero, at the International Food Policy Research Institute, said the market reaction was overdone. Russia represents only 11 percent of the world’s wheat exports, he said, and any shortfall could be met by major wheat exporters like the United States, Australia or Canada.

The real concern, he said, was that other countries would follow Russia’s lead and stop exporting, a domino reaction around the world similar to the one in 2008 that could cause a sharper increase in prices.

Jack Scoville, vice president of Price Futures Group, a futures brokerage in Chicago, said importers around the world who had agreed to buy wheat from Russia and now faced the prospect of broken contracts would have to look for more expensive supplies elsewhere.

“There will be higher prices for them,” he said.

Saudi Telecoms test Fix to Avert BlackBerry Ban

Reuters

Saudi Arabia told the kingdom's telecom operators on Saturday to test a proposed fix to the perceived national security threat posed by Research In Motion's (RIM.TO) BlackBerry smartphones, and said it would not ban service if the test was successful.

The government had threatened to cut off BlackBerry's Messenger function to Saudi users on Friday, but so far has allowed the service to continue.

RIM has come under increasing scrutiny from countries including India, the United Arab Emirates, Lebanon and Algeria that want access to the Canadian company's encrypted network so they can monitor messages they say might signal a potential security threat. RIM had said earlier in the week that third-party access to its network was impossible.

On Saturday, the Saudi Communications and Information Technology Commission said it gave the three telecom operators -- state-controlled Saudi Telecom 7010.SE, Mobily 7020.SE and Zain Saudi Arabia 7030.SE -- 48 hours to try out "the proposed solutions and fulfill the requested regulatory requirements."

CITC said it would decide whether to allow the service to continue or not "depending on the results achieved by the service providers."

The regulator's brief statement did not say what the solution was, but a source told Reuters on Friday that RIM was testing the use of servers in Saudi Arabia to address government concerns. [ID:nLDE6750Q7]

Using local servers would give the Saudi authorities better access to messages that have been handled exclusively through servers in Canada and the United Kingdom.

With about 700,000 BlackBerry users, Saudi Arabia is RIM's biggest Middle East market.

Neighboring UAE, with 500,000 users, has proposed a ban starting Oct. 11 targeting email and Web browsing, as well as the Messenger service, on the device.

The U.S. and Canadian governments have expressed concern about the implications of banning such services.

Recession-Battered States Cut Funding for Disabled

USA Today

 

Blane Beckwith wants to keep living at home with his mother and younger brother in Berkeley, Calif.

For that to happen, Beckwith, 54, who has spinal muscular atrophy and uses a wheelchair, relies on an aide paid by the state to get him in and out of bed, bathe him, feed him, dress him and do everything he can't do for himself.

Now that kind of help is in jeopardy. California, facing a $19.1 billion budget gap, is considering a reduction in funding that pays for home care aides for the disabled. It already cut funds last year.

Beckwith worries that under the new, tighter rules, he might no longer qualify for his aide and other assistance and that he'll end up in a nursing home.

"I'd rather be dead," he says. "Twenty years after the Americans With Disabilities Act was signed, things are getting worse for us. States want to save money by cutting services to the most vulnerable people. That's us, the disabled."

Last month, the nation celebrated the 20th anniversary of the Americans With Disabilities Act (ADA), a law that for 50 million disabled people is the equivalent of Brown vs. the Board of Education, the landmark Supreme Court ruling that ended racial segregation in schools and paved the way for the civil rights movement.

The ADA prohibits discrimination against people with disabilities in employment, public accommodations, transportation and state and local services.

Now, though, gains made under the ADA are running into recession-battered state budgets. At least 17 states have cut into funding for assistance to the disabled since 2009 or are planning to do it this year, says Phil Oliff, a policy analyst with the Center on Budget and Policy Priorities, which analyzes the effect of public spending on low-income people. The cuts include cash, home nursing services and grants to agencies that help the disabled live independently.

Under the ADA and a 1999 Supreme Court decision upholding it, the disabled have a right to live in their communities. States, within their resources, must provide community-based services that make it possible.

That means states are up against opposing mandates: Under the ADA, the court said, states must provide care that best integrates a person into the community — as long as the states can pay for it. However, Medicaid rules require them to pay for nursing home care, but not home care, for people with disabilities.

"I think every state wants to provide more community-based care, but they just can't afford it," says Ann Kohler, executive director of the National Association of State Medicaid Directors, which manages services to the disabled. In Michigan, clients are at risk of losing physical therapy in Detroit.

About 3 million Americans who need long-term care live at home and get state-paid services, according to the Kaiser Commission on Medicaid and the Uninsured.

"States are in terrible fiscal constraints right now," Kohler says. "The one thing they can cut are optional services and rates (that states pay for optional and mandatory services), and they are doing both. Home-based care is optional. Personal care is optional. Those things are going down."

The Obama administration argues that, budget constraints or not, states have to provide home services. The Justice Department has filed lawsuits and, in other cases, supporting briefs in 11 states.

Not being able to afford the community-based services is not an excuse, says Thomas Perez, assistant attorney general for civil rights. He says his department has been working with the Department of Health and Human Services to find more funding for some of the states it is going up against in court.

"People with disabilities want to be free and independent and robust participants in the community," Perez says. "It's hard if not impossible to accomplish that if you are warehoused in an institution."

Rahnee Patrick of Chicago knows about independent living. Patrick, 36, has psoriasis and arthritis so severe that she cannot use her arms and hands. She and her husband, Mike Irvin, 53, who uses a wheelchair because of multiple sclerosis, live in their own home but need aides.

Now, Illinois plans to reduce services to the disabled as part of $1.4 billion in budget cuts. She doesn't know what the impact of the reduction will be on her or her husband, but she says that without the services, she'd still be living with her parents and would not have married her husband of four years.

"I get to live the life I never dreamed for myself," she says. "These cuts would take that away."

AT&T, Verizon to Target Visa, MasterCard With Smartphones

Bloomberg

 

AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, are planning a venture to displace credit and debit cards with smartphones, posing a new threat to Visa Inc. and MasterCard Inc., three people with direct knowledge of the plan said.

The partnership, which also includes Deutsche Telekom AG unit T-Mobile USA, may work with Discover Financial Services and Barclays Plc to test a system at stores in Atlanta and three other U.S. cities that would let a consumer pay with the contactless wave of a smartphone, the people said. The carriers have been searching for a chief executive officer.

The trial would be the carriers’ biggest effort to spur mobile payments in the U.S. and supplant more than 1 billion plastic cards in American wallets. Smartphones have encroached on tasks ranging from Web browsing to street navigation and now may help the phone companies compete with San Francisco-based Visa and MasterCard, the world’s biggest payments networks.

“This is definitely a game-changer,” said industry consultant Richard Crone of San Carlos, California-based Crone Consulting LLC. The firm advises card networks, issuers and phone companies. The mobile carriers “are the biggest recurring billers in every market. They are experts at processing payments,” Crone said.

Market Dominance

Visa and Purchase, New York-based MasterCard handled $2.45 trillion, or 82 percent, of U.S. consumer spending on general- purpose cards last year, according to the Nilson Report, an industry newsletter. That dominance has helped fuel profit growth for both companies. Visa’s annual operating income has grown sixfold since fiscal 2005 to $3.54 billion last year. MasterCard’s has surged more than fivefold to $2.27 billion.

Visa fell 1.5 percent to $72.23 at 4:15 p.m. in New York Stock Exchange composite trading and MasterCard declined 3.6 percent to $202.52, the worst performance in the Standard & Poor’s 500 Index.

The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to complete purchases in stores. They’d be processed through Discover’s payments network, currently the fourth-biggest behind Visa, MasterCard and American Express Co. Barclays would be the bank helping to manage the accounts, said the people, who requested anonymity because of confidentiality agreements.

‘Logical Next Step’

AT&T and Verizon Wireless are equal partners in the venture and T-Mobile has a smaller stake, one person said.

Representatives for the carriers, London-based Barclays and Riverwoods, Illinois-based Discover declined to comment on the venture.

“Mobile payments are the logical next step for consumers,” said Mark Siegel, a spokesman for Dallas-based AT&T. Siegel, Marquett Smith of Basking Ridge, New Jersey-based Verizon Wireless, and Peter Dobrow of the Bellevue, Washington- based T-Mobile unit, all said their companies “have nothing to announce.”

At Discover, spokeswoman Leslie Sutton said the company “is always evaluating technology solutions that make things faster, safer and more convenient.” Barclays spokesman Kevin Sullivan said, “facilitating mobile payments is a big part of Barclaycard’s strategy globally.”

The phone companies probably wouldn’t replace the biggest U.S. credit- and debit-card issuers, including JPMorgan Chase & Co. and Wells Fargo & Co., said Gary Townsend, CEO of Hill- Townsend Capital LLC, a Chevy Chase, Maryland-based hedge fund that specializes in financial firms.

Swipe Fees

“What is a cell phone, except a mechanism for consumers to address their lives in whatever way they choose?” Townsend said today in a telephone interview. “There’s certainly no reason if an AT&T account can effectively be carried on a phone that a JPMorgan or a Wells Fargo card can’t be there, too. In fact, the antitrust issues would demand that that be allowed.”

Retailers may be eager to help another network after years of fighting over transaction fees set by Visa and MasterCard. The merchants persuaded Congress last month to approve caps on interchange, or “swipe” fees, for debit transactions and filed a 2005 federal antitrust lawsuit that is still pending. The U.S. Department of Justice is weighing whether to bring a civil lawsuit against Visa for barring merchants from surcharging customers who use credit cards, according to the company.

‘Material, Adverse Effect’

“If we change our rules in these areas, this could cause a material, adverse effect on our business,” Visa said today in a regulatory filing.

Interchange fees on credit and debit cards exceed $40 billion a year and average about 1 percent to 2 percent of every transaction.

The people with knowledge of the carriers’ venture didn’t say how much merchants may be charged per transaction or when the trial will start.

“We have long argued that real competition is missing from today’s payments market,” said Brian Dodge, a spokesman for the Retail Industry Leaders Association, which represents merchants such as Wal-Mart Stores Inc., Home Depot Inc. and Target Corp. “The emergence of a secure and reliable competing network that serves the demand from consumers for mobility payment options and reduces retailers’ costs would be welcomed news.”

‘Tipping Point’

Visa and MasterCard are benefiting as people abandon cash and paper checks for cards and electronic payments, which account for more than half of U.S. consumer purchases, compared with 36 percent in 2003, according to the Nilson Report.

Mobile technology for banking and payments is reaching “a tipping point,” with younger consumers leading the way, Mercatus LLC, a Boston-based consulting firm, said in a June 7 study. More than half of U.S. consumers, and almost 80 percent of those between the ages of 18 and 34, will use mobile financial services within five years, according to Mercatus.

“Rapid and broad-based consumer adoption of mobile financial services is imminent,” as people rely on their phones to manage every aspect of their lives, said Mercatus Managing Partner Bob Hedges, former head of retail banking and payments at Fleet Bank. “Consumers want it to happen.”

MasterCard and Visa have been investing in their own mobile projects. Visa and Richardson, Texas-based DeviceFidelity, have developed technology that can transform phones consumers carry today, including Apple Inc.’s iPhone, into a payment device that can store multiple card accounts, said Bill Gajda, head of mobile for Visa.

Zong, Bling, Boku

“Visa is in discussions with a number of mobile operators around the world,” Gajda said in a July 28 interview. “We continue to believe that the best opportunity to create a secure, scalable, mobile-payment service is by working together, converging mobile and financial networks, and extending the value of electronic payments to the mobile channel.”

In June, New York-based Citigroup Inc. introduced MasterCard PayPass stickers that can be affixed to the back of mobile phones to make contactless payments at about 230,000 U.S. merchants, MasterCard spokeswoman Joanne Trout said in an e- mail.

Startups based near Silicon Valley, California, such as Zong, Bling Nation and Boku Inc., offer alternative payment solutions. Zong users enter their mobile phone numbers to make purchases on the Internet. Bling Nation works with community banks and local businesses, allowing customers to “tap-and- pay” with their devices. Boku lets online gamers buy “digital goods and social experiences,” the company says on its website.

‘Card Is Dumb’

Any new payment system may face barriers that prevent the technology from taking hold in the U.S., the Federal Reserve Bank of Boston said in a May policy paper.

Consumers won’t demand mobile payments “until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so,” the report said.

Merchants would have to spend an estimated $200 per reader, and updating mobile phones with embedded microchips would increase manufacturing costs by $10 to $15 per handset, according to the Boston Fed. That may be worthwhile if accepting mobile payments allows retailers to send rewards and information about promotions to their customers’ phones at checkout.

Contactless, or near-field communication, technology “is no less secure” than today’s plastic cards, according to the Fed. Consumers may also be able to sync their phones to a computer, allowing them to make purchases even if there’s no mobile signal or the battery dies.

“These are important issues if people are to be convinced to rely on this technology as an alternative to carrying a wallet,” the policy paper said.

The wireless carriers have an advantage over Visa and MasterCard in the race to control the U.S. payments market because the phone companies have access to their customers’ mobile numbers and bank account information, said Crone, the industry consultant.

“A mobile device is online, real-time interactivity that changes the customer relationship,” he said. “A card is dumb.”

Facebook Would-Be Owner Says He Owes His Claim to Arrest, Cuomo‏

Bloomberg

Paul Ceglia, who claims in a lawsuit that he owns 84 percent of Facebook Inc., said his case wouldn’t have been possible if state troopers hadn’t come to his house in October to arrest him for fraud.

Ceglia’s arrest and a suit by New York Attorney General Andrew Cuomo two months later, both the result of complaints related to his startup wood-pellet business, got him looking through old files to find assets to pay back customers, he said in an interview in his home in Wellsville, New York. One of those files held a forgotten 2003 contract with Mark Zuckerberg, now chief executive officer of Facebook, he said.

Ceglia, 37, a self-described environmentalist from western New York who wants to legalize drugs and has views on the evils of central banks, claims the contract entitles him to most of the company. If true, the claim, which would give him control of the world’s most-popular social networking service, would be worth about $21 billion, given estimates of the company’s value.

“If this thing hadn’t happened the way it happened, no way I would have ever started looking through these ancient folders,” Ceglia said of his pellet problems. “That contract would just be sitting in there gathering dust.”

In the weeks since Ceglia came to public attention with his lawsuit against Palo Alto, California-based Facebook and Zuckerberg, filed June 30 in New York state court, observers have been asking why he took so long to make his claim. His answer, it turns out, was he forgot about it.

Facebook said a photocopy of the contract, filed as an exhibit to the lawsuit, is a phony.

‘Absurd’

“Ceglia’s claims are absurd and his lawsuit is frivolous, if not outright fraudulent,” Facebook said in an e-mailed statement. “Ceglia has refused to produce the original contract and the copy we’ve seen is a forgery, with inconsistent margin sizes, inconsistent font sizes, and other glaring discrepancies,” the company said.

Ceglia, one of whose lawyers said the original is in a safe place, said he is eager to take on Zuckerberg, 26, and let a jury decide whether the contract is genuine.

“I’m coming after him,” Ceglia said. “A deal’s a deal.”

Ceglia’s claim is based on a two-page “Work for Hire” contract he claims Zuckerberg signed in April 2003, when the Facebook CEO was an 18-year-old freshman at Harvard University. According to the copy of the contract, Ceglia agreed to pay Zuckerberg $1,000 to write computer code for StreetFax LLC, a company Ceglia said he was trying to get off the ground at the time. The alleged contract also refers to a $1,000 investment by Ceglia in a project named in one place as “The Face Book,” and as “The Page Book” in another.

Ownership Promise

In return, the alleged contract gives Ceglia a 50 percent interest in “the software, programming language and business interests derived from the expansion of that service to a larger audience.” Another provision, Ceglia claims, gives him an additional 1 percent interest for each day after Jan. 1, 2004, that the launch of “The Face Book” was delayed.

Ceglia said he has more evidence of his claim than just the contract.

“We e-mailed each other for more than a year,” he said.

Lisa Simpson, a corporate lawyer for Facebook, said at a court hearing July 20 that Zuckerberg did sign some contract with Ceglia. Zuckerberg also worked for Ceglia on the StreetFax matter in 2003, she said.

What he didn’t do is sign over an interest in Facebook to Ceglia, she told U.S. District Judge Richard Arcara at the hearing. Facebook argued in court papers that Zuckerberg couldn’t have given Ceglia a share of a project he didn’t conceive of until the following year.

2004 Beginnings

Most book and journalistic accounts of Facebook’s short history say it was started in Zuckerberg’s Harvard dorm room in 2004 when he was a sophomore.

“Things change,” said Ceglia, standing outside the wood pellet-making shop he said he built himself, with the help of two local Amish men, in an enlarged two-car garage near his house. “Here I am in my little factory, and Zuckerberg is now a mogul. But it was a different story back in 2003.”

Ceglia said he found Zuckerberg by asking for bids for StreetFax coding work on Craigslist, the classified advertisement site. Zuckerberg was the low bidder, offering to do the work for $1,000, according to Ceglia. The two signed the contract at a hotel in Boston, he said. Ceglia claims that, in addition to the StreetFax work, Zuckerberg persuaded him to invest $1,000 in the “Face Book” idea.

By Aug. 6 the parties are scheduled to give Arcara a proposed order setting deadlines for Facebook to answer the complaint or move to dismiss it and for Ceglia to move to have the case sent back to state court.

Deadlines

Ceglia said he remembers the 18-year-old Zuckerberg as “probably one of the most difficult people that ever worked for me, in the sense that he simply could not finish his work. He just could not keep a deadline.”

Zuckerberg often made excuses for getting his work in late, including that he had to wash his father’s boat and that he’d left his laptop charger at home, Ceglia said.

“The work he did was really good,” Ceglia said. “He could code. I’d hire him today as a coder.”

Ceglia said he looks forward to a day when he might employ Zuckerberg again.

“If at some point in the future I start running Facebook, I guess I’m going to have to hire him to keep running the company,” Ceglia said. “I really don’t have much interest in it.”

After he filed his lawsuit, Ceglia did take enough interest in the company to sign up for a Facebook account on July 22, his birthday.

‘Great Service’

“I think it’s a great service,” he said.

Like many of the 500 million people who use Facebook, Ceglia said he’s gotten back in touch with some old high school friends.

“I like to think about myself as someone that is driven by trying to contribute in some way to increasing the consciousness on the planet,” Ceglia says on his Facebook page.

Ceglia said he’s surprised that his claim to own Facebook has gotten so much attention.

“I never expected it to get so much publicity,” said Ceglia. “It’s really gone sort of nuts.”

He said he mostly ignores the phone calls he’s been getting from journalists and radio talk-shows, such as those hosted by Howard Stern and Matthew Erich “Mancow” Muller.

“Once I picked it up because I thought I knew the number, and I’m like live on the Mancow show,” he said.

Wellsville

Ceglia, his wife Iasia, 31, and two sons, 6 and 7, live in a two-story, unpainted wood house on two acres near the top of a hill in Wellsville. The town, with a population of 8,200, is the biggest in rural Allegany County, about two hours drive southeast from Buffalo, where Ceglia’s suit against Zuckerberg and Facebook is pending in federal court after having been transferred from the state forum by Facebook.

Wellsville is also the hometown of Adelphia Communications Corp. founder John Rigas, whose Greek immigrant father started the Texas Hot restaurant that’s still open on Main Street. Rigas, 85, and his son Timothy Rigas were convicted in 2004 of conspiracy and securities fraud. John Rigas is serving a 12-year sentence in federal prison. Timothy is serving 17 years.

Ceglia said he and his wife started Allegany Pellets LLC in February with the goal of making pellets from reclaimed wood that could be used for environmentally friendly home heating.

“We felt like we had heard Obama’s call to help America become energy independent,” Ceglia said.

The Arrests

Nine months later, on Oct. 30, state police arrested the Ceglias at their home after receiving more than two dozen complaints from customers who said they’d paid for wood pellets but hadn’t received any. Paul and Iasia Ceglia were charged in state court with one count of first degree scheme to defraud and 12 counts of fourth degree grand larceny.

According to Cuomo’s office, which won a court order to shut the business down in December, the Ceglias took in $200,000 in prepaid orders from about 130 customers for 1,900 tons of pellets. Lawyers in the attorney general’s office said in a petition filed in state court that the Ceglias continued taking money and orders when they knew they wouldn’t be able to deliver as promised. They gave customers a series of fake excuses for why they weren’t getting their pellets, according to the petition. When they were arrested, Iasia Ceglia told police they’d filled only three orders and given refunds to 10 or 20 customers.

No Intent

The Ceglias claim they never intended to defraud anyone. They worked long hours trying to fill the orders and would have done so, if not for numerous mechanical failures, they said. They’re doing everything they can to pay back their customers’ money, they both said.

“I feel terrible,” Iasia Ceglia said. “We had many sleepless nights.”

Paul Ceglia said his pellet machines are now up and running. If Cuomo’s office would just let him start selling pellets again, he said he’d be able to pay the money back. For now, as he challenges Cuomo’s injunction, he’s working to mortgage property he owns to help pay for the refunds.

“The state’s really put us in a heck of a bind,” he said.

Ceglia, born in Wellsville in 1973, moved with his family to Ireland for six years as a child before returning to the town. As a senior at Wellsville High, he said he opened a video store in nearby Bath.

After high school, Ceglia said, he spent two years teaching at an alternative school in Taos, New Mexico, where kids studied whatever they chose and could vote to remove teachers. Back in Allegany County, he opened an ice cream stand in Scio, he said.

Another Arrest

In 1997 Ceglia was arrested in Carthage, Texas and pleaded guilty to possession of hallucinogenic mushrooms, according to court files. He was fined $15,000 and permitted to return to New York. He said he regretted the incident.

In recent years, Ceglia said he’s bought and sold real estate and constructed and renovated homes in Wellsville and the Bahamas. He helped start a non-profit environmentally friendly cemetery in Ithaca, New York, and was a founding member of the local Green Party, he said.

In 2001, Ceglia was contracted by a Massachusetts company, StreetDelivery.com, to photograph street intersections in New England, according to a civil complaint the company filed against Cegla in 2003 over rights to the pictures. StreetDelivery uploaded the photos from Ceglia and other photographers into a database, then sold Internet access to insurance companies investigating car accidents.

Florida Effort

Ceglia registered StreetFax in Nevada in 2003 and began trying to duplicate StreetDelivery’s business in Florida. In addition to Zuckerberg, Ceglia said he contracted with more than 20 workers, including Web designers, stenographers and photographers.

“We really struggled as a company,” Ceglia said.

“I don’t have much good to say about Ceglia,” Andrew Logan, StreetDelivery’s founder and CEO said in an interview. “He’s a nice enough guy, but man, he would talk one way and then do something completely different.”

Logan, who said StreetDelivery now does business in 27 states, claimed Ceglia was under contract to StreetDelivery in 2003 when he set up StreetFax and hired Zuckerberg. If Ceglia’s contract with Zuckerberg gives Ceglia an ownership interest in Facebook, that interest may belong to Logan, he said.

Logan, who called Ceglia “a real opportunist,” said his lawyers are looking at the old contracts and settlement papers with Ceglia.

“We’re going to lay claim that I own it,” said Logan. “He was under contract to me.”

Regulators close banks in Fla., Ga., Ore., Wash.

USA Today

 

Regulators on Friday shut banks in Florida, Georgia, Oregon and Washington, lifting to 108 the number of U.S. banks to fail this year as the industry has struggled to cope with mounting loan defaults and recession.

The Federal Deposit Insurance Corp. took over the banks: Bayside Savings Bank in Port Saint Joe, Fla., with $66.1 million in assets; Coastal Community Bank, based in Panama City, Fla., with $372.9 million in assets; NorthWest Bank and Trust, based in Acworth, Ga., with assets of $167.7 million; Cowlitz Bank in Longview, Wash., assets of $529.3 million; and LibertyBank, based in Eugene, Ore., assets of $768.2 million.

Centennial Bank, a subsidiary of Home BancShares Inc. based in Conway, Ark., agreed to assume the assets and deposits of Bayside Savings Bank and Coastal Community Bank. State Bank and Trust Co., based in Macon, Ga., is assuming those of NorthWest Bank and Trust.

Florida and Georgia are among the states with the highest concentrations of bank collapses and where the meltdown in the real estate market brought an avalanche of soured mortgage loans. The failures of Bayside Savings Bank and Coastal Community Bank brought to 20 the number of Florida banks that have fallen this year. Northwest Bank and Trust was the 11th Georgia bank to fail. Also high on the list of failure-heavy states are California and Illinois.

Heritage Bank, based in Olympia, Wash., agreed to assume the deposits and $329.5 million of the assets of Cowlitz Bank. Home Federal Bank, based in Nampa, Idaho, is assuming the deposits and $419.7 million of the assets of LibertyBank. In both cases, the FDIC will retain the rest of the assets for eventual sale.

The failure of NorthWest Bank and Trust is expected to cost the deposit insurance fund $39.8 million. Estimated costs for the others are: Bayside Savings Bank, $16.2 million; Coastal Community Bank, $94.5 million; Cowlitz Bank, $68.9 million; and LibertyBank, $115.3 million.

With 108 closures nationwide so far this year, the pace of bank failures far outstrips that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 69 banks.

The pace has accelerated as banks' losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.

The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.

The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul legislation recently signed into law by President Barack Obama.

Newsweek Editor Jon Meacham to Exit After Sale

The Wall Street Journal

Newsweek editor Jon Meacham is planning to announce Monday that he will resign from the magazine after its expected sale to audio equipment magnate Sidney Harman, according to a person familiar with the matter.

Mr. Meacham took over as editor of Washington Post Co.-owned publication in October 2006.

His resignation ends a 15-year career at Newsweek that began in 1995 when he joined Newsweek as a writer. He became national affairs editor soon after that and was named managing editor in November of 1998.

Mr. Harman's bid was attractive to Post Co. because it assured a higher degree of continuity than the other bidders were willing to offer, according to people familiar with the situation. However, the departure of Mr. Meacham, 41 years old, is bound to fundamentally transform the magazine.

His influence has been more pronounced in the last year as Newsweek shifted away from newsgathering to more opinion and analysis. Many of the cover stories, which he regularly writes, reflect his interest in politics and religion.

Texas on Top of CNBC's Best States for Business List

CNBC

 

They say everything in Texas is big, and that sure goes for its stature in business.

With the biggest point total in the history of our study, Texas posts a big victory as America’s Top State for Business 2010.

Top Five

Texas reclaims the top spot from last year’s winner, Virginia, which slips to No. 2. Texas was last on top in 2008, and Virginia took the crown in the inaugural year of our study, 2007. That leaves Texas and Virginia dead even in the battle for bragging rights at two wins apiece.

Rounding out the top five are No. 3 Colorado, No. 4  North Carolina, and No. 5 Massachusetts, which makes its first appearance among America’s Top States for Business.

Scoring & Categories

Our fourth annual study of America's Top States for Business puts all 50 states to the test, measuring them on 40 different metrics in ten key categories of competitiveness. We developed these categories back in 2007 with the help of business groups including the National Association of Manufacturers. And we weight the categories based on how frequently states use them as selling points to attract business. That way, we hold the states to their own standards, and tell you how they measure up.

The categories and weightings, for a total of 2,500 points, are:

    * Cost of Doing Business (450 points)
    * Workforce (350 points)
    * Quality of Life (350 points)
    * Economy (314 points)
    * Transportation & Infrastructure (300 points)
    * Technology & Innovation (250 points)
    * Education (175 points)
    * Business Friendliness (175 points)
    * Access to Capital (50 points)
    * Cost of Living (25 points)

We use publicly available data on the metrics in each category to score the states, and then add up those scores to rank America’s Top States for Business.

2010 Dynamic

Coming out on top is always an accomplishment, and never more so than this year. The national economy is anemic, and state budget pressures are growing across the country. In fact, even top-ranked Texas is struggling to make ends meet. The state faces a Texas-sized, $4.6 billion budget shortfall for fiscal 2011, according to the non-partisan Center on Budget and Policy Priorities. That is more than 12 percent of the state budget.

Add to that a sluggish job market across the country, and even the top states cannot afford to rest easy.

In No. 3 Colorado for example, unemployment in May was a relatively low 8 percent. But KUSA-TV reporter Greg Moss in Denver says the unemployment rate does not tell the full story.

“Although ours is way below the national average, it's remained pretty flat. So we're seeing a lot of long-term unemployed," Moss says.

In runner-up Virginia, which has a built-in cushion of technology and government jobs, particularly in the northern part of the state, the employment picture statewide is somewhat shaky.

“The recession of the past two years has hit manufacturing rather hard,” says reporter Tom Schaad of WAVY-TV. “Here in Hampton Roads, International Paper in Franklin closed a major mill, putting 1,100 people out of work. That’s one example.”

What separates the top states from the rest is their ability to cope with those types of economic stress, offering environments that allow businesses to thrive even in a slowdown.

Texas By The Numbers

Texas powers past the tough times on the strength of its economy—top-ranked in our Economy category four years in a row. The Texas economy is the 15th largest in the world, according to government figures; larger, for example, than all the Scandinavian nations combined.

The Lone Star State is home to 64 Fortune 500 companies, more than any other state, in a wide variety of industries. So while the state’s last win in 2008 came with oil at a record $145 a barrel—a natural tailwind for the largest industry in Texas—the state managed to do even better this year despite the fact that oil is trading at roughly half that price.

Texas has also managed to avoid the worst of the real estate crisis, according to reporter Ashanti Blaize of KXAS-TV. “While in other major cities we’ve seen condo high-rise projects either slowed or come to a screeching halt, in Dallas we've seen an influx of some of those projects,” says Blake.

However, that economic strength has a side effect. Rising commercial rents and high wages hurt the state in the all-important Cost-of-Doing-Business category, where it comes in at number 30.

Virginia Still Impresses

Virginia comes in second overall this year, but the Old Dominion State still has plenty for which to be proud.

In the Business Friendliness category, which measures the states’ legal and regulatory climates, Virginia is second only to neighboring Delaware. And Virginia offers a diverse economy, making it chock-full of business opportunities, from imports and exports to government contracts in the state that is home to the Pentagon.

“Hampton Roads has the third largest port in the country. That, along with heavy military presence usually provides for a stable economy,” says WAVY-TV’s Schaad, who also notes that federal stimulus money, particularly in the area outside Washington, D.C., is keeping overall unemployment well below the national average.

But with pockets of severe joblessness hampering growth—including in tourism-dependent Williamsburg—Virginia dropped four places to number 11 in the “Economy” category. Virginia also lost critical points in the “Education” category, dropping six places to number 13 as class sizes rose and school spending fell.

While Texas and Virginia duke it out for the top spot year after year and Colorado stays consistent at No. 3, the rest of the rankings are less predictable.

Carolina Comeback

North Carolina, which finished a disappointing ninth in 2009, jumped to No. 4 in 2010. The corporate home of a number of giant financial institutions, including Bank of America and BB&T, North Carolina’s business climate and Raleigh real estate benefited from the easing of the financial crisis, according to WCNC-TV’s Jeff Campbell in Charlotte.

“There are also lessons the state has learned from the recent crisis, and that’s really helping the state diversify towards some other industries like clean energy and tourism,” says Campbell.

As a result, North Carolina has seen a surge of investment, pushing the state to number 10 in our Access to Capital category, up from number 36 last year. That was enough to propel the Tar Heel State back into the top five overall for the first time since 2007.

Massachusetts Moves Up

Massachusetts never ranked among America’s Top States for Business before 2010. Its ranking this year also marks the first time a northeastern state has finished among the top five.

But the Bay State has always been a contender—it finished No. 8 overall last year. Massachusetts’ greatest strength is its schools. The state boasts the best performing K-12 schools in the country, as well as some of the top universities in the world, placing it at the top in the Education category.

The strong education system helps Massachusetts capture near top rankings in Technology & Innovation (number three, up from number five last year) and Access to Capital (number two for the second year in a row). Even in Business Friendliness—not generally considered a hallmark of New England states—Massachusetts finishes a respectable 14th.

Notable Mention

This year’s most improved state is Pennsylvania, which jumped a whopping 13 places to No. 20 overall, from number 33 last year. However, it is unclear whether the Keystone State truly bettered itself, or if others simply got that much worse. Pennsylvania’s best category was Economy, where the state improved to number 15 compared to a 37th place ranking in 2009. Yet the state still faces persistent unemployment and a $4.1 billion state budget shortfall.

The biggest drop came in Vermont, which fell seven places overall to No. 37. While economic conditions have improved in the Green Mountain State, business costs have gone up and the quality of the workforce has declined according to our study.

Two states drop out of the top five in 2010.

Iowa falls to No. 6 from No. 4 last year, and Utah, a consistent player in previous years, moves into a tie for eighth place with Minnesota.

Our study scores all 50 states, so if there are going to be Top States, it stands to reason that there will also be bottom states. Alaska is America’s bottom state for business again this year, hampered by its high cost of living, relatively high cost of doing business, and a weak infrastructure.

After Alaska, there is a big change among the also-rans. Rhode Island drops to No. 49 overall, following its 48th place finish in 2009. The Ocean State is among the least friendly to business, and ties with Nevada for the worst overall economy.

Rhode Island’s drop is good news for those other islands—Hawaii, which climbs to 48th place overall. No great surprise, the Aloha State is number one for Quality of Life. Unfortunately, you get what you pay for. Hawaii ties with California as the most expensive state in which to live, and is second only to New York in the cost of doing business.

Americans Splurge on IPads While Broke in New Abnormal Economy

Bloomberg

 

In March, Ralph Ronzio went to a warehouse in a seedy part of Orange County, California, and watched a man auction off his condo for half what he’d paid for it. Ronzio had bought the place for $329,000 in 2005, when he moved to Southern California from Rhode Island to take a job at a data-storage company. It was the first place he’d ever owned.

“It was totally my bachelor pad,” he says. “Not much inside other than the usual leather couch and the big screen TV. My fiancée made me sell the couch.”

That wasn’t the only thing that changed when Ronzio got engaged. His fiancée had two young children, and there wasn’t enough room in the condo for all four of them. So last year, Ronzio bought a house nine miles (14 kilometers) away and they all moved in. He figured he could rent the condo and cover his costs. He figured wrong, Bloomberg Businessweek reports in its Aug. 2 issue.

The more he thought about the money he was losing, the more it stressed him out. Finally, Ronzio enlisted the help of a firm called You Walk Away and did exactly that from the remaining $319,000 on his condo mortgage. When the bank foreclosed, he says he felt a sense of relief. He also had more cash. He and his fiancée took the kids to Disneyland. Ronzio, 31, gave himself a treat as well.

“I bought myself an iPad,” he says.

Latest Apple Gadget

It used to be that someone like Ronzio could be fairly certain of the outcome when spending a few hundred thousand dollars on real estate. Housing prices were headed in only one direction. You could surf the boom and borrow against your home equity to pay for all manner of splurges -- a vacation, a flat- screen television, or the latest Apple Inc. gadget. Considering that housing prices almost doubled from 1999 to 2006, there was always an escape hatch: Sell your house and make enough money to pay it all back.

That was the old normal. Last year, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., manager of the world’s biggest bond fund, declared a “new normal,” a global realignment in which the U.S. consumer, no longer a hungry monster, became cautious and subdued.

The current circumstances might be better described as the new abnormal, in which no one knows anything. In June, the Conference Board Consumer Confidence Index fell 9 points after an 11 percent drop in the S&P 500 the month before. New housing starts were at an eight-month low. Meanwhile, the unemployment rate still hovers near double digits. That’s 14.6 million Americans out of work. Federal Reserve Chairman Ben Bernanke added to the anxiety with a July 21 declaration that the economic outlook is “unusually uncertain.”

‘Liquidity-Constrained’

So who are all those people at the mall? It’s easy to forget that a 9.5 percent unemployment rate means that about 9 out of 10 Americans in the workforce are still employed.

“Some consumers are probably liquidity-constrained,” says Kenneth Rogoff, Harvard University professor and former chief economist at the International Monetary Fund. These are “the ones who are probably not the ones buying iPads. But 90 percent of Americans do have a job, and maybe 70 percent are confident about them. And maybe half of those have liquidity.”

On a recent afternoon, Lucy Johnston, 37, an accountant from Tulsa, Oklahoma, could be found at the Fashion Show mall on the Strip in Las Vegas. She’s cutting back on shopping and eating out because of the recession.

“It’s really tough right now,” Johnston says. “I don’t do many full-on spa days anymore.”

Yet there she was, shopping and vacationing in Vegas with her husband.

“We’ve pulled out all the stops. We’re staying at the Bellagio,” she says.

Schizophrenic Consumers

The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S.

Bifurcated Market

“Last September, retail started to recover on a very narrow basis,” says Michael Niemira, chief economist for the International Council of Shopping Centers. “Most of the industry was really weak. It wasn’t until the end of the year that you saw any momentum. It was all dollar stores and luxury. You have this bifurcated market. This year, it started to move to the middle a little. Now it’s kind of moved back to the edges.”

Some of this is a reminder that the rich have been largely shielded from the recession’s ravages.

“All of my customers think we are out of the recession,” says Marika Baca, an associate in the women’s department at the Barneys New York store. “This time last year, it was bad. But now the women who were reluctantly picking up one piece are easily buying three.”

Aspirational middle-class consumers say they are also yearning to get their hands on the same high-end merchandise, just as they did in better times.

Family Dollar Stores

In such an environment, optimism about the economic future ebbs and flows constantly, with far-reaching consequences for a nation in which consumer spending accounts for 70 percent of the gross national product. It’s an economy that suggests an EKG- shaped recovery -- a sequence of mini booms and busts as consumer fads and pent-up demand drive sales, until the impulses fade. Erratic behavior is everywhere, even at Matthews, North Carolina-based Family Dollar Stores Inc.

“My feeling is that you can see week-to-week differences today that are far more volatile than what we have been seeing,” says R. James Kelly, the company’s president and chief operating officer, reporting a quarter with a 19 percent increase in net income.

Consumer confidence was edging up earlier this year. The stock market had rebounded. It looked like the economy took on aspects of normal behavior -- and then it all fell apart. In June, the stock market gave back 4 percent of its value. Like teenagers suffering mood swings, consumers lost their nerve all over again.

‘Dark Cloud’

On July 27, the Conference Board reported that confidence was at a five-month low, which it blamed on job insecurity.

“Concerns about the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves,” Lynn Franco, director of the board’s consumer research center, says in a statement.

Not everybody’s consumer diagnosis is the same, though. Shortly before the Conference Board released its finding, Consumer Reports, the 74-year-old magazine, unveiled the results of its monthly telephone survey about economic issues. It found that consumers had ramped up their retail spending by an average of $40. Though major purchases like cars remained unlikely, Americans were planning to spend more on appliances and electronics.

“We just focus on what’s happening this month,” says Ed Farrell, a director of the Consumer Reports National Research Center. “We don’t ask people what they think the business climate is going to be like in a year. If these people could tell us that, we’d all be very well off.”

Consumer Survey

American Express Co. released the results of its consumer survey on July 13, showing more willingness to spend, damped somewhat by guilt and despair on the part of some of these same respondents. The New York-based credit-card company found that 51 percent of consumers had fallen behind on their annual savings plan, in part because they were either making impulse purchases or simply spending beyond their means. There it is: gloom, muted optimism, and wild abandon.

What if these things aren’t exclusive in the new abnormal? Frank Veneroso, an investment strategy adviser in Portsmouth, New Hampshire, follows the nation’s saving rate. It was his opinion that high debt levels and economic fears would force Americans to rein in their spending and increase their savings.

‘Celebratory Spending Spree’

In the early part of the recession, that’s what happened. Then it stopped happening. Veneroso writes in a report that the nation’s wealthier citizens were so relieved when the stock market rallied last year after the financial crisis that they went on a “celebratory spending spree.” The recent market turmoil will put a stop to it and savings will start to inch back up, Veneroso says.

Except market rallies aren’t the only thing that emboldens consumers. Market dips can also loosen up purse strings, says Dan Ariely, a professor of behavioral economics at Duke University and author of “Predictably Irrational: The Hidden Forces that Shape Our Decisions.” When people fret about market gyrations, they see the advantage of shopping over putting money into a mutual fund that might tank, Ariely says.

“If they lose money by spending it on something, at least they have something to show for it,” he says.

For consumers looking for a reason, ups and downs can both provide a justification for spending. Stephanie Redmond, a 25- year-old electronics worker, talked about her financial woes as she shopped at the Dolphin Mall in Miami. She described herself as pessimistic about the economy.

Need New Car

“I don’t see it getting any better,” she said. “I need a new car, but I don’t plan on getting one anytime soon.”

Instead she recently bought a plane ticket to New York and stayed in a Times Square hotel.

“It was my first time, so it was a lot of fun,” she said.

At the Woodfield Shopping Center in Schaumburg, Illinois, Michelle Rodriguez, 39, a part-time cafeteria worker at a local high school, said she cut back considerably after losing her old full-time job two years ago as a receptionist at Kraft Foods Inc.

“I think the economy has a ways to go,” she said. “I don’t make nearly as much as I used to make.”

Yet she said she bought a 46-inch flat-screen Sony TV in the last year. And now she was waiting for help in the Genius Bar line at the Apple Store.

Apple Revenue

One way of understanding Apple’s recent success -- the company announced “all-time record” revenue of $15.7 billion for its quarter ending on June 26 -- is that the iPad is positioned as a compromise product for people who crave the kick of a new Apple gadget and don’t want to spring for a Mac.

“I was talking to someone recently who said to me, ‘I bought the iPad because I can’t afford a new iMac,’” says Carla Serrano, chief strategist for TBWA/Chiat/Day, Apple’s advertising agency. “O.K., fine. But the iPad does hardly anything that an iMac can do.”

The recession is making people think they need to come up with that she describes as “post-rational” justifications for their extravagant purchases, she says.

The performance of Seattle-based Starbucks suggests that everyday luxuries have also not been wiped out. On July 21, the coffee chain announced a “record” quarter with same-store sales growth of 9 percent, the biggest increase since the second quarter of 2006, the peak of the old normal.

CEO Howard Schultz highlighted Starbucks’ new products, like the “customizable Frappuccino campaign,” as well as Via, the new instant coffee, which is pitched as a budget item, though not exactly priced like one when compared with other instant competitors. A 12-packet box of Via goes for $9.95.

‘Every day!’

Starbucks is the lower-end corollary to Apple, a purveyor of expensive treats. Stephanie Redmond, the Miami electronics worker, may not buy the new car she needs, but give up Starbucks? Never. She says she has to have it “every day!”

Mass marketers have a tougher time seducing consumers with psychological value. Burt Flickinger, a retail consultant based in New York, says Procter & Gamble Co. is struggling to keep people from abandoning its Ivory soap and Crest toothpaste for generic brands. According to Flickinger, better-educated shoppers understand how little difference there is in quality on many household items.

They may also be sneaking into discount retailers for these deals.

Cheap Towels

“The dollar store is the new Target,” says Al Moffatt, CEO of Worldwide Partners, a Denver-based advertising company. “You go in there to buy shampoo for a buck so you can go to Starbucks and justify spending $3 for a coffee.”

Moffatt says that he and his wife recently did their own variation on this recessionary theme. On a trip to Oregon, they bought cheap towels at a discount store before hitting a pricey spa.

Ran Kivetz, a professor of marketing at Columbia Business School, has done research on consumer psychology. He says that consumers’ brains lack a line that separates spending from saving. We practice a certain amount of thrift so that we can justify blowing a large sum frivolously, he says.

Kivetz says the recent recession has made consumer thinking even more conflicted. In the short run, we feel good when we save. In the long run, we tend to regret the denial of a spending outlet.

“We feel guilty” about spending, Kivetz says, which can lead to more irrational purchasing.

Need to Spend

That’s is exactly what’s happening now, according to Kivetz. Consumers were quick to reduce spending when the recession arrived. Then the recession lasted longer than expected, and the new abnormal set in. The economy started to improve. Then it appeared to worsen. There is only so long we can suppress our need to spend, Kivetz says.

“It’s just been a slow walk out of the woods,” he says. “And it’s so complicated. The things going on in Europe are frightening. There are problems with China, with our government debt, and bank debt. At the end of the day, people are saying, ‘There is still risk. I gotta cut back.’ But this is not a typical one-year recession. Life has to have some normalcy. I have to have some luxuries.”

There was little evidence of the recession at a recent lunchtime in the Mall of America in Bloomington, Minnesota. The nation’s largest mall was full of shoppers drinking expensive coffee and toting bags of electronics and expensive shoes. Some of them were there on vacation. Why not? The Mall of America doesn’t just have 520-plus shops, it has an enormous amusement park and a 1.2 million gallon aquarium. Sales are up 9 percent so far this year.

Mellissa Williams, a 30-year-old teacher from Laredo, Missouri, was looking for sneakers with her two children at a sporting goods store.

“We’ll be looking at price tags a little more than we normally would,” she said.

And yet she had come a long way to look for deals. What was her biggest splurge in the last six months?

“Probably this trip,” Williams said.

Station Owners Divided over Scrapping the BP Brand

USA Today

 

BP gas station owners across America are divided over whether the oil giant stained by its handling of the Gulf spill should rebrand U.S. outlets as Amoco or another name as part of its effort to repair the company's badly damaged reputation.

Some who have seen their sales plunge because of protests say BP (BP) has already sought a fresh start by naming an American to replace its gaffe-prone British CEO, so why not change the name on gas station marquees as a further symbol of that culture shift.

Others worry that a name change is a big deal and risky given all the marketing dollars already spent building up the BP brand. They also believe a successful turnaround with the existing brand will have a bigger payoff.

In the aftermath of the oil spill, some BP-branded gas stations reported sales declines of 10% to 40% from Florida to Illinois. BP later responded by offering distributors of BP gasoline cash in their pockets, reductions in credit card fees and help with more national advertising.

The BP name and green-and-yellow sunflower logo took over after BP merged with Amoco in the late 1990s, replacing the Amoco name and its blue-and-red torch inside an oval logo.

There is precedent for such a drastic move to return to the Amoco name or to go with a new name. Think AirTran after the ValuJet crash and Xe Services after the killing of civilians by Blackwater Worldwide guards in Iraq.

John Kleine, who heads a trade group that represents distributors of BP gasoline in the U.S., told the Associated Press that interest in changing names has not reached a fever pitch by any means, but it has supporters and is percolating among station owners ahead of their annual convention with BP executives in October.

"Is it on the minds of people? Sure," Kleine said. "It would not be a topic of conversation if not for the oil spill."

Kleine noted that many distributors would still like BP to try to rebuild its existing brand, but if that cannot be done, then to consider alternatives.

Distributors in many cases also own and operate stations.

Two BP officials said in e-mails that the company is not considering rebranding U.S. gas stations.

BP owns just a fraction of the more than 11,000 stations across the U.S. that sell its fuel mostly under the BP banner. ARCO, a BP affiliate, is predominant in the West. Kleine said the Amoco name is no longer supposed to be used, but acknowledged in rare cases it may still exist in a few locations. Most BP-branded stations are owned by local people whose primary connection to the oil company is the logo and a contract to buy gasoline.

Bob Juckniess, who owns 10 BP-branded stations in the Chicago area, is in the camp that wants BP to consider rebranding to Amoco at U.S. outlets.

"The BP brand is very tarnished right now, not just the brand but the reputation as a company is tarnished," said Juckniess. He added, "Amoco was very well known and had a great reputation as a name and a brand."

Juckniess said he feels so strongly about the issue that he would "urge BP to look at the ramifications of such a change."

It is noteworthy that Bob Dudley, the American who will replace Tony Hayward as CEO on Oct. 1, worked for 20 years at Amoco.

On the other side of the debate is Jeff Miller, whose company owns, operates and supplies roughly 56 BP-branded stations primarily in southeastern Virginia.

He said that if BP does the job right and invests back in its brand and customer base, it stands to gain more by not changing the name at U.S. stations.

"When you look at all the case histories of all that have done it well, whether it is Toyota, Tylenol or Exxon, they have all reinvested in their brand and done a better job," Miller said. "If you just change the name and don't change the behavior, have you really gained anything?"

Miller said he has heard from a number of station owners who have suggested BP rebrand U.S. stations as Amoco, but he describes that as a "knee-jerk reaction."

"I think you get a better return by working on repairing your reputation than starting fresh," he said.

Jim Donnini, whose company owns, operates and supplies roughly 75 gas stations in Florida that fly under brands including Chevron, Exxon, Shell, Sunoco and Valero, said Amoco was a very strong brand in Florida.

"Everybody thought they missed their opportunity to keep it that way," Donnini said of BP, referring to the aftermath of the Amoco merger.

Donnini, who doesn't own any BP stations, said he has heard from owners of BP-branded stations in Florida who would like BP to consider a name change at U.S. stations.

"It's really a shame the independent businessmen that fly that BP flag are being victimized," Donnini said.