The Philadelphia Inquirer from Philadelphia, Pennsylvania on August 31, 2006 · Page C02
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The Philadelphia Inquirer from Philadelphia, Pennsylvania · Page C02

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Thursday, August 31, 2006
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Page C02
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C2 B www.philly.com THE PHILADELPHIA INQUIRER Thursday, August 31, 2006 NATIONAL INTERNATIONAL BUSINESS Second-quarter GDP exceeded earlier estimate NG HAN GUAN Associated Press A Chinese construction worker in Beijing earlier this month. Higher-than-expected output led China to revise 2005 growth to 10.2 percent. China: A bigger boom It rose at a 2.9 annual rate, which was called "pretty healthy." Wages were up at a 7.6 rate. FROM INQUIRER WIRE SERVICES WASHINGTON The U.S. economy did a bit better in the second quarter than previously estimated, and incomes jumped, the government reported yesterday. The Commerce Department said the nation's gross domestic product rose at a 2.9 percent annual rate in the April-to-June quarter. That was a slight improvement over the government's first estimate a month ago of a 2.5 percent growth rate, but it still provided vivid evidence of just how much momentum the economy has lost since last winter. In the January-to-March quarter, the economy had grown at a brisk 5.6 percent pace, the fastest spurt in 212 years. The GDP, which measures the output of all goods and services produced in the United States, is the broadest gauge of the nation's economy. "We are slowing down, but this number may help us keep it in perspective," Federal Reserve Bank of Dallas president Richard Fisher said yesterday. "We could not have kept growing at the rate we were growing in the first quarter." He called the second-quarter figures "pretty healthy," after "that tremendous boost in the first quarter." Fisher also said yesterday that "inflation indicators are not presently well-behaved as I would like them to be." The main culprits in the spring slowdown: belt-tightening by consumers and businesses, the fallout from high energy prices, and a cooling of the once-sizzling housing market. Economic growth in the second half of this year is expected to stay subdued, at about 2.5 percent to 3 percent, according to some analysts' projections. Economists hope the soft spell does not morph into a more dangerous slowdown. Even though the economy slowed in the second quarter, inflation moved higher. An inflation gauge closely watched by the Federal Reserve showed that core prices excluding food and energy increased at a rate of 2.8 percent in the second quarter, compared with a 2.1 percent pace in the first quarter. The second quarter's increase matched that in the first quarter of 2001, and there has not been a higher increase since the third quarter of 1994, when this inflation measure rose at a 3.2 percent pace. The report also said that Americans' wages increased at an annual rate of 7.6 percent in the second quarter after a 13 percent surge in the previous three months. Not only do faster wage gains give Americans the means to overcome higher fuel costs, but they also pose a risk that companies will need to raise prices. The economic report also showed that second-quarter corporate profits after taxes rose 2.1 percent from the first quarter. In the 12 months ended in June, profits were up 19.5 percent. With the economy slowing, the Federal Reserve halted a rate-raising campaign this month that began more than two years ago. The decision was a "close call," minutes of the meeting revealed. The Fed is scheduled to meet next Sept. 20. Its policymakers' actions could mean more breathing room for borrowers or more rate pain. 2005's growth was faster than originally thought. A new rule was announced to curb the economy. year ago. The World Bank and other outside experts say growth this year could be as high as 10.4 percent. The newly revised 2005 figures raise output by about 70 billion yuan ($8.8 billion) to 18.3 trillion yuan ($2.3 trillion), the Statistics Bureau said on its Web site. The revision reflects the struggles of China's communist planners to keep up with rapid changes in an increasingly capitalist-style economy. In December, the government increased the official size of China's economy over the last decade after carrying out the first nationwide survey of private businesses and finding higher-than-expected output from emerging service industries. Also yesterday, the government announced yet another By Joe McDonald ASSOCIATED PRESS BEIJING China's booming economy grew even faster last year than originally thought, the government said yesterday, as authorities announced another measure meant to rein in the growth they fear could create problems. The Chinese economy grew 10.2 percent in 2005, more than the previously estimated 9.9 percent, the National Bureau of Statistics said. It cited higher-than-expected output in industries including farming, manufacturing and services. Such rapid growth in what already is the world's fourth-largest economy has alarmed Chinese leaders. Worried about a possible upsurge in inflation or financial problems, they have raised interest rates twice this year to cool off a boom in construction and borrowing. President Hu Jintao's government wants to keep overall growth fast to reduce poverty. But it worries about excessive investment in real estate, textiles, auto manufacturing and other industries, and it has targeted them with special restrictions. The official growth target for this year is 8 percent, but communist leaders appear to be willing to accept much higher rates so long as inflation stays low. The Statistics Bureau said consumer prices rose 1 percent in July from a After big cutbacks in textiles and tobacco, Dillon, S.C., is seeking to attract jobs. Ailing hometown to honor Fed chief measure aimed at cooling off the economy, raising the amount of foreign-currency deposits that Chinese banks must hold in reserve and thus reducing the amount available for lending. That follows an earlier move to raise reserve ratios for Chinese-currency deposits. Banks will have to keep 4 percent of their foreign currency on deposit with the central bank as of Sept. 15, up one percentage point from the previous requirement, the government said. The impact should be modest because only a small fraction of China's bank accounts and loans are in foreign currency, the official Xinhua News Agency said, citing unidentified analysts. That step is expected to remove $1.6 billion from the economy, Xinhua said. RadioShack lays off 400 employees - by e-mail Workers had been told to watch for notices online. ASSOCIATED PRESS FORT WORTH, Texas RadioShack Corp. notified about 400 workers by e-mail that they were being dismissed immediately as part of planned job cuts. Employees at the Fort Worth headquarters got messages Tuesday morning saying: "The workforce reduction notification is currently in progress. Unfortunately your position is one that has been eliminated." Company officials had told employees in meetings that layoff notices would be delivered electronically, spokeswoman Kay Jackson said. She said employees were invited to ask questions before Tuesday's notification on a company intranet site. Derrick D'Souza, a management professor at the University of North Texas, said he had never heard of such a large number of terminated employees being notified electronically. He said it could be seen as dehumanizing to employees. "If I put myself in their shoes, I'd say, 'Didn't they have a few minutes to tell me?' " D'Souza said. Laid-off workers got one to three weeks' pay for each year of service, up to 16 weeks for hourly employees and 36 weeks for those with base pay of at least $90,000, the company said. The company said Aug. 10 that it would cut 400 to 450 jobs, mostly at headquarters, to cut expenses and "improve its long-term competitive position in the marketplace." RadioShack has closed nearly 500 stores, consolidated distribution centers, and liquidated slow-moving merchandise in an effort to shake out of a sales slump. ' NELL REDMOND Bloomberg News Downtown Dillon, S.C., above, hometown of Federal Reserve Chairman Ben S. Bernanke. It will honor him with Ben Bernanke Day tomorrow, seven months after he took charge of the Fed. Below, a large statue of South of the Border symbol Pedro and part of the souvenir shops near Dillon along Interstate 95. Bernanke waited tables at a South of the Border restaurant as a teenager. Global competition prompted manufacturing layoffs here over the last 15 years, led by Mohawk Industries Inc.'s closing in 1995 of a carpet factory whose workforce had shrunk to 380 from 1,000. Bernanke has praised globalization as a way to boost productivity, although he also has said competition creates "hardships for affected workers, their families, and their communities." The City of Dillon, 120 miles southeast of Charlotte, N.C., recently started an Internet site to promote economic development, citing abundant land and a small-town "Southern style." The town's best-known attraction is South of the Border, a village of souvenir shops along 1-95 that advertises with a profusion of garish billboards featuring a cartoon pitchman called Pedro. Bernanke waited tables at a South of the Border restaurant as a teenager. George Roberts, 31, works one seven-hour shift at a South of the Border shop stocking cigarettes and soft drinks, and a second shift at a Stuck-ey's candy store, earning $506 a week to help pay his $450-a-month mortgage on a double-wide mobile home. Neither he nor his wife has medical benefits. Roberts gets as little as three hours of sleep a night. "It is rough," said Roberts, who dropped out of school in 10th grade to work. "Companies don't want to hire you unless you've got high school and college degrees." "There is not an appreciation that education is so important," Doug Woodward, a University of South Carolina regional economist in Columbia, said of Dillon. Bernanke said in his July congressional testimony that learning was the path to prosperity. "Fundamentally, the increased importance of skilled jobs and of technology in our society puts a higher premium on people with more education, more experience and more skills," he said. Bernanke taught himself calculus from books because Dillon High School's highest math class was algebra, said his uncle, Mort Bernanke. The Fed chairman declined, through a spokeswoman, to comment for this article. By Steve Matthews and Chris Burritt BLOOMBERG NEWS Federal Reserve Chairman Ben S. Bernanke told Congress in July that he was disturbed by the growing chasm between the rich and the poor and that he wanted everyone to be able to pursue "the American dream." But the dream of greater prosperity has bypassed his hometown of Dillon, S.C., which is honoring its native son with Ben Bernanke Day tomorrow, seven months after he took charge of the nation's central bank. Mayor Todd Davis is trying to attract jobs by pitching Dillon's easy access to Interstate 95 and proximity to the Myrtle Beach area. A low-skilled workforce and poorly funded schools, however, are keeping high-paying employers away. The city of 7,000 people has not recovered from textile layoffs in the 1990s, prompted by competition from low-cost Asian imports, or from the decline of its tobacco crop. "We are one of the most economically distressed areas," said Davis, mayor since 2003 of the 118-year-old city, which is the seat of Dillon County. "The old tobacco money used to drive the town. It is gone. A lot of the textiles are gone." In June, Dillon County's unemployment rate was 9.7 percent, more than twice the national average, according to the U.S. Labor Department. Average income of $20,342 a year was just 62 percent of the U.S. average in 2004, according to the federal Bureau of Economic Analysis. "The trade policies haven't done anything to protect the manufacturing base here," said Gene Butler, director of the Dillon County Development Board. The town's economic decline is not crimping plans to laud Bernanke, 52, at the red-brick Dillon County Courthouse. The Fed chief is scheduled to attend a ceremony at which he will be awarded the Order of the Palmetto, South Carolina's highest honor, which is named for the state tree. More than 80 of his Dillon High School classmates plan to attend, Davis said. Dillon County's economy has changed since Bernanke graduated from high school in 1971. It had 215 tobacco farmers as recently as 1992, said Wes Daniels, the county's executive director for the U.S. Agriculture Department's Farm Service Agency. That has dropped to 45, with growers moving into cotton, peanuts and other crops as federal price supports for tobacco were ended. Dillon's per-capita income rose an average of 3.8 percent a year from 1994 to 2004, trailing increases of 4 percent statewide and 4.1 nationwide.

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