Shoppers checkout at a Target store in Falls Church, Virginia May 28, 2010. U.S. consumer spending was unexpectedly flat in April but real disposable incomes recorded their biggest increase in nearly a year a government report showed on Friday.

WASHINGTON | Fri Sep 28, 2012 4:31pm EDT

WASHINGTON (Reuters) - U.S. households stretched to pay for costlier gasoline on meager income growth in August, undercutting spending on other items and pointing to lackluster economic growth.

Other data on Friday showed factory activity in the Midwest contracted this month for the first time in three years.

The Commerce Department said consumer spending rose 0.5 percent last month after gaining 0.4 percent in July. The increase was the largest in six months, but it reflected a rise in gasoline costs that pushed inflation up by the most in nearly 1-1/2 years.

Adjusting for the jump in prices, spending edged up a scant 0.1 percent. With inflation wiping out their buying power, consumers curbed their saving to fund purchases -- a potentially bad omen for future spending.

"Consumers are supporting the recovery, but they are just not able to lead it because of the soft jobs market and little income. They are running low on fire power," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Income ticked up 0.1 percent but was down 0.3 percent after accounting for inflation and taxes. It was the first decline in real disposable income since November.

With inflation-adjusted spending barely rising last month, real consumer spending, which accounts for about 70 percent of U.S. economic activity, is unlikely to grow much more than the tepid 1.5 percent annual pace recorded in the April-June period.

Walgreen Co, the largest U.S. drugstore chain, posted a lower quarterly profit on Friday and said it had faced a challenging year in which consumers cut back on everyday purchases. At stores open at least a year, sales fell 8.7 percent in Walgreen's latest quarter.

FACTORIES LOSING STEAM

Separately, the Institute for Supply Management-Chicago said its Midwest factory barometer found activity contracted this month for the first time since September 2009, reflecting weak new orders and a slowdown in hiring.

It was consistent with other recent reports flagging a cooling in manufacturing, a sector that had been the pillar of the economy's recovery.

"To the extent that the moderation in manufacturing activity is reflecting weakening domestic and global demand, it may be a harbinger of continued sup-par GDP growth," said Millan Mulraine, a senior economist at TD Securities in New York.

But households appear little perturbed by the gathering dark clouds. Consumer confidence touched a four-month high in September, boosted by higher stock market prices and gains in home values. That resilience could be a boost to President Barack Obama as he seeks a second term in November.

Economists, however, cautioned that household morale could sour towards the end of the year if the U.S. Congress fails to avoid the so-called fiscal cliff -- $600 billion or so in expiring tax cuts and government spending reductions set to take hold in 2013.

The mixed data sent U.S. stocks lower. However, Wall Street recorded its best third quarter since 2010. Prices for U.S. Treasury debt pushed higher, supported by doubts over the chances for success of debt-ridden Spain's 2013 budget. The dollar rose against the euro, advancing for a second straight week.

TROUBLE GAINING STEAM

Slower consumer spending and a drop in farm inventories due to a severe drought in the Midwest held gross domestic product growth to a 1.3 percent pace in the second quarter, a step down from 2 percent in the first three months of the year.

Growth estimates for the third quarter range from 1.2 percent to 2.1 percent. Spending last month was funded by cutting back on saving, which economists said put households on shaky ground, particularly if income taxes go up in January.

"It highlights how imperative it is that Congress deals with this issue. This is not an economy that can bear the burden of fiscal tightening right now," said Julia Coronado, chief North America economist at BNP Paribas in New York.

Inflation pressures picked up last month on the back of the 28.2 cents per gallon rise in gasoline prices. A price index for personal spending increased 0.4 percent, the largest rise since March last year, taking the 12-month gain up to 1.5 percent from 1.3 percent in July.

However, a measure which strips out food and energy costs, rose only 0.1 percent from July. Year-on-year that core measure was up 1.6 percent, the same as in July and the fifth straight month of increases below 2 percent.

The Federal Reserve has a 2 percent inflation target and the still-moderate pace of inflation should give it comfort to maintain its accommodative monetary policy stance for a while as it seeks to spur job growth and domestic demand.

(Additional reporting by Jessica Wohl in Chicago; Editing by Tim Ahmann and Kenneth Barry)

View the original article here

NEW YORK | Fri Sep 28, 2012 5:45pm EDT

NEW YORK (Reuters) - Tim Buckley, who takes over as chief investment officer at The Vanguard Group in January, has never managed money in his 20 years at the firm. He has no plans to make big market calls and he won't micro-manage his team's thinking or strategies.

There isn't any of the swagger you might expect from a guy charged with running the money at the No.1 U.S. fund company. Instead, the 43-year-old father of three says his top priority is to focus the firm's 300-strong group of portfolio managers, analysts and traders to be more efficient.

That's something Buckley says is crucial to help Vanguard maintain its place as the lowest-cost provider of mutual funds and exchange-traded funds. "There is only one firm that is lowest cost," Buckley said.

Vanguard's approach, whether seen as cheapskate or value for money, has helped the firm surpass rival Fidelity Investments to become the largest U.S. provider of open-end and closed-end mutual funds and ETFs. Vanguard, based in suburban Philadelphia, has $1.9 trillion in mutual fund, closed-end and variable annuity assets, up from $1.33 trillion five years ago, according to Lipper, a unit of Thomson Reuters.

Vanguard offers actively-managed equity funds - most are managed by outside firms like Wellington Investments and PRIMECAP Management Company. But its bread and butter has been in passive management, which has been popular in recent years after many active managers failed to deliver returns.

"Vanguard owns the low-cost attribute in the public's minds," said Don Phillips, president of Morningstar's investment research division. "Whereas Fidelity wanted to own equity performance, Vanguard wanted low cost, and that gave it a leg up."

Much of Vanguard's recent growth has come from its exchange-traded fund business. The firm's U.S. market share in ETFs has increased 29 percent in the past two years. It now holds 17.9 percent of the market, whittling away at the dominance of competitor BlackRock Inc, which has seen its market share fall to 40.6 percent from 46.6 over the same period.

BlackRock and others are slashing costs on ETFs to match or undercut Vanguard. Early in September, BlackRock's Chairman and CEO Laurence Fink announced that the firm will lower expenses on a number of its ETFs to better compete with Vanguard. And on September 20, Charles Schwab Corp. chopped fees by as much as 59 percent on its ETFs - with some being offered at a mere 7 cents for each $100 invested.

On average, Vanguard's ETFs cost 17 cents for every $100 invested, with the cheapest ETF costing 5 cents for $100 invested.

Buckley, who was on Harvard University's premier rowing team all four years, welcomes the competition and has no intention of giving up ground over prices.

"If you undercut us today, be prepared to do it again tomorrow," he said. "We won't just lower costs on one or two funds, we will do it across the board."

Since most of Vanguard's funds track indexes, having an investing expert as chief investment officer may not be necessary. What's more, Buckley's razor sharp focus on the bottom line may be exactly what Vanguard needs right now, Phillips said.

HOMEGROWN CIO

Buckley, who has held a variety of roles at Vanguard - including chief information officer and head of the retail group - will be fighting the market share battle while also trying to maintain Vanguard's no-frills culture. It's something firm founder Jack Bogle worries could be impeded by Vanguard's growth and size.

"With bigness you can get bureaucracy and complacency," said Bogle, emphasizing the importance of Vanguard remaining "a place where judgment has a fighting chance against process." Bogle, who retired from Vanguard in 1996, continues to give speeches and write books emphasizing the importance of long-term investing and sharing his views about the state of the mutual fund industry.

During his senior year at Harvard, Buckley, who majored in economics, considered pursuing a career in medicine like his mother, a nurse, and his father, who headed the cardiac surgical unit at Massachusetts General Hospital.

But then he met Bogle, and he realized he could go into finance and serve a purpose. As CEO Bogle's assistant, Buckley handled a number of projects, including helping Bogle research his first book. Buckley returned to Harvard for an M.B.A., but came back to Vanguard after graduation.

His next job was to help create a competitive analysis for Vanguard, detailing - and tracking - the firm's main rivals. That project gave Buckley perspective on how industry players compete and what gave Vanguard's model as a mutual company an advantage, he said.

Vanguard is owned by its customers, with profits invested back into the business. That makes it nearly impossible for publicly-traded competitors who answer to shareholders to compete on cost, experts said.

Vanguard is trying to maintain its pricing edge while also growing around the world. Over the past five years, the firm has gone from 12,000 employees in just six offices to 13,500 employees in 15 offices worldwide.

Since June, Buckley, who gets up every morning at 5 a.m. to ride a few miles on his bike before work, has been traveling to Vanguard's offices around the world to observe traders and managers at work so that he could find ways to increase efficiency.

He has identified that in certain regions the real-time systems Vanguard used to get cash flow into the funds are not necessarily being used in all of Vanguard's international locations.

Vanguard is in the middle of an effort to standardize its investment management IT across the globe.

Buckley's other priorities center around developing the firm's managers and establishing global best practices around that process.

Buckley's previous experience as chief information officer and head of Vanguard's information and technology division will help a lot in combating inefficiencies that crop up in global organization, said Gus Sauter, who Buckley is replacing as chief investment officer.

"My strength was more on growing the business and his strengths are more on managing a business," said Sauter, who is retiring after 25 years.

In some ways, Buckley's biggest challenge is to make sure he doesn't mess up a good thing, said Dan Wiener, who runs a newsletter for Vanguard investors.

"The biggest mistake they could make is to try to change anything," he said.

(Reporting By Jessica Toonkel; Editing by Jennifer Merritt, Lauren Young, Martin Howell, Bernard Orr)

View the original article here

BOSTON | Fri Sep 28, 2012 5:40pm EDT

BOSTON (Reuters) - Federated Investors Inc Chief Executive Christopher Donahue, who has fought increased regulation of money market funds, said on Friday he would support a limited reform proposal.

Donahue, whose Pittsburgh-based firm is one of the largest sponsors of money funds, said in an interview that he would back allowing funds to limit customer withdrawals in times of stress, a practice the industry calls "voluntary gates."

"That would work," he said. "It would be enhancing the resilience of the funds."

Forcing funds to adopt other reforms such as a floating net asset value would still be unacceptable, however, he said.

Donahue's comments come as federal regulators this week renewed their efforts to strengthen regulation of the $2.5 trillion money fund industry following the financial crisis, when dozens came under stress amid rapid withdrawals.

The revived talk of regulation hit Federated's share price, which dropped 5.4 percent this week, more than double the decline of competitors like BlackRock and Franklin Resources.

One member of the U.S. Securities and Exchange Commission, Daniel Gallagher, who had opposed a prior reform effort in August, said on Friday he hoped his agency would consider a fresh approach, even as the new U.S. risk council is exploring ways to also tighten regulations on the industry. Gallagher's openness to an alternative proposal may greatly increase the chances for new rules.

SEC Chairman Mary Schapiro and others have called for reforms that include requiring the funds to hold capital against potential future losses or move away from the traditional $1 per share fixed net asset value.

The changes proposed by Schapiro, a Democrat, faced strong industry opposition from Federated and other firms. Ultimately, Schapiro could not garner enough support from Gallagher and fellow Republican Commissioner Troy Paredes and Democrat Luis Aguilar last month.

Gallagher and Paredes have described optional withdrawal limits like those favored by Donahue as a way that money fund boards could avoid rapid and destabilizing withdrawals. Under a 2010 rule change, such limits could only be imposed if the fund was closed and put into liquidation.

Donahue said his firm has backed "voluntary gates" in the past, and that the device helped preserve capital at a $12 billion fund run by Putnam Investments before it was taken over by Federated at the peak of the crisis.

(Editing by Leslie Gevirtz)

View the original article here

n">(Reuters) - Rising foreclosures and delinquent real estate mortgages are threatening the credit quality of New Jersey's local governments, Moody's Investors Service said.

Cities, towns and other local governments in New Jersey and many other states rely on property tax collections as their main source of revenue. Abundant foreclosures keep the taxable value of property low, hurting that funding source, Moody's said in a commentary late Thursday.

New Jersey has the second highest percentage of foreclosures in the United States behind Florida, Moody's said, citing an August report by the Mortgage Bankers Association.

And the percentage of seriously delinquent mortgages increased by 2.4 percent in New Jersey in the second quarter of 2012, while they declined nationally, Moody's said.

"Foreclosure rates in the state are likely to stay higher than the national average over the medium term because New Jersey's practice of administering foreclosures through the courts tends to be a slow and cumbersome process that tends to be prone to backlogs," Moody's said.

The scenario is likely to keep housing prices in the state low for years, because distressed properties usually sell at steep discounts, Moody's said.

The credit rating agency expects New Jersey's economy to recover more slowly than the rest of the nation from the recession.

The state's credit quality is also under pressure. On September 18, Standard & Poor's Ratings Services revised its outlook to negative from stable on New Jersey's "AA-minus" general obligation rating, citing a structural budget imbalance and optimistic revenue assumptions.

In August, the state's jobless rate was 9.9 percent, the fourth-highest rate in the country and the highest rate for New Jersey since 1977.

(Reporting By Hilary Russ; Editing by M.D. Golan)

View the original article here

An Apple IPhone 4s and Samsung Galaxy S are seen in this illustration photo in Berlin August 27, 2012.

SAN FRANCISCO | Fri Sep 28, 2012 1:57pm EDT

SAN FRANCISCO (Reuters) - A U.S. appeals court ruled on Friday that a lower court should reconsider a sales ban against Samsung's Galaxy Tab 10.1 won by Apple in a patent dispute with the South Korean electronics maker.

The injunction was put in place ahead of a month-long trial that pitted iPhone maker Apple Inc against Samsung Electronics Co Ltd in a closely watched legal battle that ended with a resounding victory for Apple last month on many of its patent violation claims.

However, the jury found that Samsung had not violated the patent that was the basis for the tablet injunction and Samsung argued the sales ban should be lifted. U.S. District Judge Lucy Koh said she could not act because Samsung had already appealed.

In its ruling on Friday, the Federal U.S. Circuit Court of Appeals in Washington said Koh could now consider the issue.

The decision comes just a month before the South Korean corporation is expected to unveil the second generation of one of its most successful devices, the stylus-equipped Note.

The Galaxy 10.1 is an older model, but the ban still hurts Samsung in the run-up to the pivotal holiday shopping season.

The world's top two smartphone makers are locked in patent disputes in 10 countries as they vie to dominate the lucrative market, which is growing rapidly.

A U.S. jury found during the just-concluded trial that Samsung had copied critical features of the iPhone and iPad and awarded Apple $1.05 billion in damages.

(Reporting By Dan Levine; Editing by Lisa Von Ahn. Editing by Andre Grenon)

View the original article here

Shoppers checkout at a Target store in Falls Church, Virginia May 28, 2010. U.S. consumer spending was unexpectedly flat in April but real disposable incomes recorded their biggest increase in nearly a year a government report showed on Friday.

WASHINGTON | Fri Sep 28, 2012 4:31pm EDT

WASHINGTON (Reuters) - U.S. households stretched to pay for costlier gasoline on meager income growth in August, undercutting spending on other items and pointing to lackluster economic growth.

Other data on Friday showed factory activity in the Midwest contracted this month for the first time in three years.

The Commerce Department said consumer spending rose 0.5 percent last month after gaining 0.4 percent in July. The increase was the largest in six months, but it reflected a rise in gasoline costs that pushed inflation up by the most in nearly 1-1/2 years.

Adjusting for the jump in prices, spending edged up a scant 0.1 percent. With inflation wiping out their buying power, consumers curbed their saving to fund purchases -- a potentially bad omen for future spending.

"Consumers are supporting the recovery, but they are just not able to lead it because of the soft jobs market and little income. They are running low on fire power," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Income ticked up 0.1 percent but was down 0.3 percent after accounting for inflation and taxes. It was the first decline in real disposable income since November.

With inflation-adjusted spending barely rising last month, real consumer spending, which accounts for about 70 percent of U.S. economic activity, is unlikely to grow much more than the tepid 1.5 percent annual pace recorded in the April-June period.

Walgreen Co, the largest U.S. drugstore chain, posted a lower quarterly profit on Friday and said it had faced a challenging year in which consumers cut back on everyday purchases. At stores open at least a year, sales fell 8.7 percent in Walgreen's latest quarter.

FACTORIES LOSING STEAM

Separately, the Institute for Supply Management-Chicago said its Midwest factory barometer found activity contracted this month for the first time since September 2009, reflecting weak new orders and a slowdown in hiring.

It was consistent with other recent reports flagging a cooling in manufacturing, a sector that had been the pillar of the economy's recovery.

"To the extent that the moderation in manufacturing activity is reflecting weakening domestic and global demand, it may be a harbinger of continued sup-par GDP growth," said Millan Mulraine, a senior economist at TD Securities in New York.

But households appear little perturbed by the gathering dark clouds. Consumer confidence touched a four-month high in September, boosted by higher stock market prices and gains in home values. That resilience could be a boost to President Barack Obama as he seeks a second term in November.

Economists, however, cautioned that household morale could sour towards the end of the year if the U.S. Congress fails to avoid the so-called fiscal cliff -- $600 billion or so in expiring tax cuts and government spending reductions set to take hold in 2013.

The mixed data sent U.S. stocks lower. However, Wall Street recorded its best third quarter since 2010. Prices for U.S. Treasury debt pushed higher, supported by doubts over the chances for success of debt-ridden Spain's 2013 budget. The dollar rose against the euro, advancing for a second straight week.

TROUBLE GAINING STEAM

Slower consumer spending and a drop in farm inventories due to a severe drought in the Midwest held gross domestic product growth to a 1.3 percent pace in the second quarter, a step down from 2 percent in the first three months of the year.

Growth estimates for the third quarter range from 1.2 percent to 2.1 percent. Spending last month was funded by cutting back on saving, which economists said put households on shaky ground, particularly if income taxes go up in January.

"It highlights how imperative it is that Congress deals with this issue. This is not an economy that can bear the burden of fiscal tightening right now," said Julia Coronado, chief North America economist at BNP Paribas in New York.

Inflation pressures picked up last month on the back of the 28.2 cents per gallon rise in gasoline prices. A price index for personal spending increased 0.4 percent, the largest rise since March last year, taking the 12-month gain up to 1.5 percent from 1.3 percent in July.

However, a measure which strips out food and energy costs, rose only 0.1 percent from July. Year-on-year that core measure was up 1.6 percent, the same as in July and the fifth straight month of increases below 2 percent.

The Federal Reserve has a 2 percent inflation target and the still-moderate pace of inflation should give it comfort to maintain its accommodative monetary policy stance for a while as it seeks to spur job growth and domestic demand.

(Additional reporting by Jessica Wohl in Chicago; Editing by Tim Ahmann and Kenneth Barry)

View the original article here

Fri Sep 28, 2012 6:38pm EDT

n">(Reuters) - Education reform film "Won't Back Down" opened Friday to terrible reviews - and high hopes from activists who expect the movie to inspire parents everywhere to demand big changes in public schools.

The drama stars Maggie Gyllenhaal as a spirited mother who teams up with a passionate teacher to seize control of their failing neighborhood school, over the opposition of a self-serving teachers union.

Reviewers called it trite and dull, but education reformers on both the left and right have hailed the film as a potential game-changer that could aid their fight to weaken teachers' unions and inject more competition into public education.

Private foundations, nonprofit advocacy groups and the U.S. Chamber of Commerce have pumped more than $2 million into advocacy efforts tied to "Won't Back Down," including 30-second ads, promotional bookmarks, websites, private screenings and a six-month, cross-country discussion tour that will keep the film in circulation long after it leaves theaters.

Their goal: To attract new foot soldiers who will help them fight for legislation that allows parents to seize control of local schools, as dramatized in the film; eliminates tenure protections for veteran teachers; and opens the door for more competition to neighborhood schools in the form of charters, which are publicly funded but privately run.

"This movie has the potential to be one of the most transformative vehicles in the history of education reform," said Ben Austin, a longtime Democratic activist.

Austin now runs Parent Revolution, which promotes "parent trigger" laws allowing parents unhappy with struggling schools to take control, fire teachers and bring in private management.

His organization is holding 35 private screenings of "Won't Back Down" in states from Georgia to Utah to New York over the next month to rally more parents to the cause. "This movie is telling a story that's relevant to hundreds of thousands of parents across America," Austin said.

Union leaders, for their part, have slammed the movie as a propaganda film that bears little resemblance to reality.

Randi Weingarten, president of the American Federation of Teachers, has called it "egregiously misleading" and complained that several scenes seemed designed for "the sole purpose of undermining people's confidence in public education, public school teachers and teacher unions."

Parent groups that support teachers' unions have organized protests outside some screenings. And they've been gleefully posting negative reviews of "Won't Back Down" on Facebook and Twitter.

PUSH FOR CHARTER SCHOOLS

So far, the reform coalition has ignored the bad reviews and pushed ahead with their marketing efforts.

The drive to capitalize on the movie grows out of lingering disappointment within the education reform community over the last major film to carry their message, the documentary "Waiting for 'Superman.'"

Produced by Walden Media, which is also behind "Won't Back Down," the documentary chronicled dysfunction in urban schools and the desperation of parents trying to find alternatives for their children.

"Waiting for 'Superman'" was well-received and widely viewed, thanks to backing by the Gates Foundation. But activists hoping for a big boost from the film were disappointed.

"We didn't feel we captured anyone," said Matt David, a consultant to Michelle Rhee, former chancellor of Washington D.C. public schools and a major figure in the reform movement. Many viewers walked out angry at the public school system, he said, but had no way to channel that emotion into action.

This time, Rhee is moving quickly to provide a channel. Her advocacy group, StudentsFirst, has bought 30-second ads to run before showings of "Won't Back Down" in 1,500 theaters and sponsored marketing efforts to drive viewers to her website.

That website has been revamped to feature an "action center" where people moved by the film can sign up to join StudentsFirst, view short videos about its agenda (including one from comedian and newly appointed board member Bill Cosby), and share their own experiences with public schools.

The Center for Education Reform's website urges viewers to launch their own charter schools to compete with public schools. "You don't need a PhD or a teaching degree to start a school," the center's website advises. "Remember, you can do it now."

The most enduring campaign linked to the film may be the six-month "Breaking the Monopoly of Mediocrity" tour arranged by the Institute for a Competitive Workforce, an affiliate of the U.S. Chamber of Commerce.

Drawing on a $1.2 million grant from the Daniels Fund, the group plans to stage private screenings and discussion forums for business and civic leaders in cities from Memphis, Tennessee, to El Paso, Texas, to Trenton, New Jersey.

The American Federation of Teachers is countering with its own series of town hall meetings and workshops across the country designed to present teachers - and unions - as natural allies of parents seeking to better their schools.

(Reporting By Stephanie Simon; editing by Todd Eastham)

View the original article here

n">(Reuters) - Ken Follett's "Winter of the World" debuted at the top spot on Publishers Weekly's bestseller list on Thursday.

The list is compiled using data from independent and chain bookstores, book wholesalers and independent distributors nationwide.

Hardcover Fiction Last Week

1. "Winter of the World" by Ken - (Follett Dutton, $36.00)

2. "A Wanted Man" by Lee Child 1 (Delacorte, $28.00)

3. "The Time Keeper" by Mitch Albom 2 (Hyperion, $24.99)

4. "Gone Girl" by Gillian Flynn 5 (Crown, $25.00)

5. "Low Pressure" by Sandra Brown - (Grand Central, $26.99)

6. "Zoo" by James Patterson/ Michael 4 Ledwidge (Little, Brown, $27.99)

7. "Severe Clear" by Stuart Woods - (Putnam, $26.95)

8. "Delusion in Death" by J.D. Robb 3 (Putnam, $27.95)

9. "The Tombs" by Clive Cussler 6 (Putnam, $27.95)

10. "Telegraph Avenue" by Michael 7 Chabon (Harper, $27.99)

Hardcover Nonfiction

1. "No Easy Day" by Mark Owen 1 (Dutton, $26.95)

2. "I Declare: 31 Promises to Speak" by - Joel Osteen (FaithWords, $21.99)

3. "The Price of Politics" by Bob 2 Woodward (Simon & Schuster, $30.00)

4. "Guinness World Records 2013" 4 (Guinness World Records)

5. "Divine Healing Hands" by Zhi Gang 3 Sha (Atria, $29.95)

6. "Joseph Anton: A Memoir" by Salman - Rushdie (Random House, $30.00)

7. "Killing Lincoln" by Bill O'Reilly & 7 Martin Dugard (Holt, $28.00)

8. "The Oath: The Obama White House" by - Jeffrey Toobin (Doubleday, $28.95)

9. "Free Market Revolution" by Brook/ - Watkins (Palgrave Macmillan, $27.00)

10. "Obama's America" by Dinesh D'Souza 5 (Regnery, $ 27.95)

Week ending Sept 23, 2012, powered by Nielsen BookScan (c) 2012 The Nielsen Company.

(Editing by Piya Sinha-Roy)

View the original article here

Employees make circuit boards at an electronic component factory in Hefei, Anhui province May 2, 2012.

BEIJING | Sat Sep 29, 2012 12:34am EDT

BEIJING (Reuters) - China's economy has almost certainly suffered a seventh straight quarter of slowing growth, with a new private sector survey of factory managers revealing a near year-long decline in business activity and a fresh fall in export orders in September.

The HSBC China Manufacturing purchasing managers index (PMI) showed overall factory activity shrank for an 11th consecutive month in September, despite the 47.9 final index level being slightly ahead of a preliminary, or flash, estimate of 47.8 and the August reading of 47.6.

It extends the longest run of readings below 50 - which separates expansion from contraction - in the survey's 8-year history, with the need for more pro-growth government policies signaled by a fall in the output sub-index to its lowest since March and a slide in export orders to a 42-month trough.

"The sharper contraction of new export orders and the lingering pressures on job markets mean that Beijing should step up easing to support growth and employment," Qu Hongbin, chief China economist for survey sponsor HSBC, said in a statement.

Two cuts to interest rates, the easing of bank reserve requirements that freed about 1.2 trillion yuan ($190 billion) for lending and the approval of infrastructure projects worth more than $150 billion have so far failed to arrest the decline in China's overall economic growth.

"Fiscal measures should play a more important role in the coming months," Qu said.

Analysts expect 2012 to be China's weakest full year of growth since 1999 at just 7.7 percent, according a Reuters poll which forecasts annual growth of 7.4 percent in Q3, down from Q2's 7.6 percent.

The slide in the PMI's export orders sub-index to a three-and-a-half-year low of 44.9 is a crucial gauge for the accuracy of that call.

EXPORT SLIDE

Exports generated 31 percent of gross domestic product in 2011, according to World Bank data, and support an estimated 200 million jobs - around a quarter of the country's workforce.

Export growth this year is averaging around 7.8 percent versus 2011. August's growth slumped to 2.7 percent compared with a year ago and the Commerce Ministry sees a risk that things get worse in the months ahead - jeopardizing the official 10 percent target for expanding trade this year.

An adviser to China's central bank conceded on Thursday that Beijing policymakers had underestimated the severity of this year's global economic slowdown and said that further cuts to interest rates or reserve requirements would hinge on any new deterioration in the external environment.

China's exports have been hit hard by the festering sovereign debt crisis in the European Union, where a slide back towards recession has sapped demand in the single biggest foreign market for Chinese factory goods.

Analysts say the destocking it has triggered has dragged down industrial production growth and will ultimately show up when Q3 economic data is published in mid-October.

"We expect the data to show that demand remained weak, destocking continued and the recovery has yet to happen," said Tao Wang, China economist at UBS in Hong Kong.

"We forecast that industrial production growth slowed to about 8.6 percent year-on-year in September, while Q3 GDP growth slowed to 7.3 percent year-on-year," she wrote in a client note.

Tao believes the deterioration is so entrenched that GDP growth will slow to an annual rate of 7.0 percent in Q4 before rebounding through the course of 2013.

The consensus view is that Q3 is the nadir of this cycle and the HSBC PMI offers some sign that this may be the case, despite the index having consistently pointed to a more bearish economic backdrop this year than China's official PMI.

The official PMI is set to be released by the National Bureau of Statistics (NBS) on October 1 and analysts polled by Reuters expect it to have rebounded to 49.8 from August's 49.2.

A difference in samples and survey methodology largely explain the discrepancy. The NBS captures data from China's biggest firms - the dominant state-owned enterprises - while Markit, the UK-based data provider that compiles the survey sponsored by HSBC, tracks mainly smaller private sector firms.

SOME SIGNS OF STABILISATION

Markit said its survey detected some signs of stabilization in manufacturing activity in September as the rate of deterioration in the sector eased.

Backlogs of work remained steady for 77 percent of respondents, while only 13 percent reported a decrease.

And it said the rate of job cuts reported was relatively modest, with nearly 85 percent of survey respondents indicating no change in employment levels on the previous month.

Unemployment is a vital indicator for China's ruling Communist Party, which is acutely sensitive to anything that could trigger discontent in the run-up to its party congress - expected later this autumn - when a new generation of leaders will be named ahead of a once-a-decade handover of power.

The loss of millions of Chinese factory jobs in a matter of months in late 2008 as world trade ground to a halt during the depths of the global financial crisis triggered a massive 4 trillion yuan ($635 billion) stimulus package from Beijing.

The lack of job cuts so far and persistent signs of tightness in the labor market are cited by analysts as one reason for the government's reluctance to open the stimulus taps this time around, along with attendant inflationary and speculative risks that it could unleash.

Credit ratings agency Fitch said on Friday it had downgraded its 2012 growth forecast for China to 7.8 percent, from 8 percent previously, on a combination of slowing exports and efforts to squeeze speculative risks from the economy.

But it said it did not expect Beijing to deploy any more than marginal monetary and fiscal tools to boost growth, unless there was a sudden deterioration in the labor market.

"The resilience of the labor market seen in current data suggests growth of 7.5-8.0 percent may be in line with the economy's potential rate," Fitch said.

(Editing by Alex Richardson)

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Cast member Arnold Schwarzenegger poses at the premiere of ''The Expendables 2'' at the Grauman's Chinese theatre in Hollywood, California August 15, 2012. The movie opens in the U.S. on August 17.

LOS ANGELES | Fri Sep 28, 2012 2:29pm EDT

LOS ANGELES (Reuters) - Arnold Schwarzenegger, talking about his affair with a family housekeeper for the first time in a television interview, said it was "the stupidest thing" he did in his marriage to Maria Shriver and said it "inflicted tremendous pain" on his family.

In a "60 Minutes" interview with reporter Leslie Stahl due to air on September 30, Schwarzenegger admitted that he lied to Shriver about the affair. CBS released a clip of the interview on Friday.

"I think it was the stupidest thing I've done in the whole relationship. It was terrible. I inflicted tremendous pain on Maria and unbelievable pain on the kids," Schwarzenegger said.

Schwarzenegger, 65, had been quiet in public about his affair with their housekeeper Mildred Baena. He and Baena had a son, Joseph, who grew up not knowing Schwarzenegger was his father until the scandal made headlines last year.

After the revelations, Shriver and Schwarzenegger began proceedings to end their 25-year marriage. They have four children together.

The interview coincides with the October 1 release of Austrian-born Schwarzenegger's autobiography, "Total Recall: My Unbelievably True Life." He told Stahl that he was determined to write a book that included his "failures" as well as his successes in bodybuilding, film and politics.

Since his term as Republican governor ended, Schwarzenegger has returned to movies with "The Expendables 2" last August, and he has five more films in the pipeline. He also inaugurated a global policy think tank in his name at the University of Southern California's Los Angeles campus.

(Reporting By Piya Sinha-Roy)

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