Vivian Taibi Posts

US wholesale prices fell 1.9 percent in December amid a further plunge in energy costs and weak economic conditions that have put downward pressure on prices, official data showed Thursday.

The 1.9 percent drop in the Labor Department’s producer price index (PPI) in the last month of 2008 was in line with analysts’ expectations and followed a drop of 2.2 percent in November and a 2.8 percent fall in October.

The report showed a fifth straight month of falling wholesale prices, highlighting fears of a deep economic slump that some analysts say could lead to a crippling deflationary cycle.

For the whole of 2008, producer prices fell 0.9 percent compared with a 6.2-percent advance the year earlier.

“The 2008 downturn is mostly attributable to energy prices, which dropped 20.3 percent after rising 17.8 percent a year earlier,” the Labor Department said in a statement.

WASHINGTON – Retail sales plunged far more than expected in December, a record sixth straight monthly decline as consumers were battered by a recession, a severe credit crisis and soaring job losses, none of which are likely to ease anytime soon.

The Commerce Department reported Wednesday that retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline that Wall Street expected.

For the entire year, retail sales were down 0.1 percent, a sharp turnaround after a 4.1 percent gain in 2007. It was the first time the annual retail sales figure has fallen on government records going back to 1992. Before 2008, the weakest year for retail sales had been an increase of 2.4 percent in 2002, the year after the 2001 recession.

The weakness in consumer spending has been a prime contributing factor to the economy’s current swoon and analysts say they don’t see that turning around soon. They predict the current recession, already the longest in a quarter-century, will continue at least until the second half of this year.

In a separate report, the Commerce Department said businesses cut their inventories by 0.7 percent in November, the largest decline in seven years and the third straight month that stockpiles were reduced as companies scramble to cope with huge declines in sales. Total business sales fell by a record 5.1 percent in November, the government said.

The worry is that the current downturn will be intensified if businesses keep slashing inventories, which will trigger further cutbacks in production and increased layoffs.

On Wednesday, regional department store chain Gottschalks Inc. put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy. The Fresno, Calif.-based company said it has negotiated $125 million debtor-in-possession financing from a group of lenders led by GE Capital, which if approved in bankruptcy court, will fund its employee wages and benefits, some vendor payments and other operating expenses while it reorganizes.

Last week, Macy’s Inc. said it will close 11 underperforming stores in nine states, affecting 960 employees. The department-store operator also lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.

The 2.7 percent December plunge in sales, which followed a November drop revised downward to 2.1 percent, confirmed private sector reports that retailers had suffered their worst holiday shopping season since at least 1969.

Since consumer spending accounts for about two-thirds of total economic activity, the weakness is a major factor depressing overall economic activity. The country fell into a recession in December 2007, reflecting a severe slump in housing.

The economy’s weakness intensified in the fall when the financial system was engulfed in its biggest crisis since the 1930s as billions of dollars of losses on mortgages and other types of loans forced the government to put together a massive rescue effort to try to get banks to resume more normal lending.

President-elect Barack Obama has promised to push a sweeping economic stimulus program of around $800 billion through Congress in the next few weeks, but even with that assistance, economists say the country is facing a prolonged period of weakness.

Many analysts believe the overall economy, as measured by the gross domestic product, plunged at an annual rate of 6 percent in the just-completed fourth quarter after dropping by 0.5 percent in the third quarter.

On Wall Street, stocks fell sharply in morning trading. The Dow Jones industrial average lost over 200 points, and all the major indexes were down more than 2 percent.

For December, virtually all areas of retail sales showed declines. Auto sales fell by 0.7 percent and are down a huge 22.4 percent from a year ago.

Excluding autos, retail sales were down a record 3.1 percent. This reflected declines at department stores, specialty clothing stores, furniture stores, hardware stores, restaurants and service stations. The 15.9 percent drop at service stations was heavily influenced by the steep decline in gasoline prices during the month.

Automakers closed out a dismal 2008 with General Motors Corp. having its worst year in nearly a half-century and both GM and Chrysler LLC having to take emergency loans from the government’s bailout fund.

Last week, the nation’s major chain stores reported dismal sales results for December. Even Wal-Mart Stores Inc. reported smaller gains than economists expected. Among the retailers reporting big declines were Sears Holdings Corp., which operates Sears and Kmart stores, luxury retailer Saks Inc. and Gap Inc.

Departing Wal-Mart Chief Executive Lee Scott on Monday told the annual National Retail Federation convention that while a new economic stimulus package from the government will have “some impact” on the economy, he doesn’t expect a quick rebound since “fundamental changes” in consumer behavior — an increased focus on saving and less buying — will likely linger.

Scott, who was making his last public speech as CEO and president of the world’s largest retailer, predicted that the first half of 2009 will be “extremely challenging,” and said he hopes the second half would be a little easier.

Americans lost 2.4 million jobs last year. And more workers are worried about getting a pink slip any day now.

This economic blizzard has many people in both groups — as well as retirees — wondering how safe their workplace retirement funds are.

If you’re laid off — or, even worse, your employer folds — how do you get your pension benefits? How about your 401(k) account? Is there anything you can do now to protect access to workplace retirement assets after a layoff or bankruptcy?

In a season of bleak headlines, the good news is that at least limited safeguards exist for both traditional pensions as well as 401(k) plans.

And the more you know in advance, the easier it can be to maintain unimpeded access to your retirement benefits and unimpeded control over your 401(k) account.

No one protects you from market impact on investments in your account. But any difficulties faced by your employer, including bankruptcy or going out of business, should not interfere with your access.

“It’s your money inside the account,” said Barbara Fallon-Walsh, head of Vanguard group’s institutional retirement plan services. “You are not a creditor of the company. You don’t have to get into a line of creditors to get your own assets.”

In almost all cases, plans are run by companies separate from your employer. “The record keeper doesn’t fold just because your employer might,” Fallon-Walsh said. “So you can still get information about your account. The record keeper’s name, phone number and maybe Web site are on your statements.”

Typically, a second financial firm has custody of your assets.

Even if your employer goes through a rough patch, you can check with your record keeper to confirm that your 401(k) contributions make it into your account.

“By law, your contributions are not supposed to be mingled with company funds,” Fallon-Walsh said. “The law requires it to be put in your account as soon as practical.”

Silver Lining

If your employer’s problems get bad enough to force it to terminate your 401(k) plan, there’s a silver lining. “If you’re not fully vested in your company match yet, you become fully vested when the plan terminates,” Fallon-Walsh said.

If your plan terminates, you’ll get a chance to tell the plan where to directly transfer your assets. That’s almost certainly into an IRA.

The plan may just send you a check for the balance. In that case, you have 60 days to deposit the money into an IRA. If you don’t meet the deadline, the IRS will treat the money as taxable income.

If you have an outstanding loan from your 401(k) account, it becomes due when your plan closes or, typically, if you’re laid off.

You’ll have 60 days to come up with the money and repay yourself by putting it into an IRA. Otherwise, it’s taxable income.

Certain rules apply to traditional pension plans too. For one, a layoff should not interfere with your ability to collect benefits that are due.

If your employer folds? Most private companies have so-called qualified plans. That means if your employer and its plan close, the Pension Benefit Guaranty Corp. takes control of the plan.

The PBGC will pay you up to $54,000 in yearly benefits.

“The PBGC bases payments on benefits you’ve earned,” said Bob McBride, vice president of Diversified Investment Advisors, based in Purchase, N.Y. “It won’t pay you for benefits you haven’t earned yet if, for example, you’re laid off before earning full benefits.”

The most important precaution you can take is to make sure your current or former employer’s human resources department has your correct address and identification information, such as Social Security number.

“Your plan may have been with a company that was taken over. And maybe that company was also later taken over,” said Ethan Kra, worldwide partner and chief actuary, retirement, of consulting firm Mercer.

If you don’t receive annual reports from your plan, contact it.

Matching Calculations

While keeping in touch, check to make sure the company’s calculation of benefits matches yours.

If you think there is no successor plan, contact the PBGC. Make sure the agency has your contact information.

If you do get laid off, get the most recent plan statement. In addition to showing what benefits you’re entitled to, it will have the plan’s name, address and identification number.

“That will make it easier to track down your benefits if you need to make contact with it or the PBGC years later,” Kra said.

Europe’s single currency has come of age early. The euro turns 10 on Jan. 1, a milestone for one of the most powerful symbols of European identity. It has already endured a rite of passage over the past few months, as the global financial crisis battered European markets yet failed to fluster the euro. And, like any debutante, it has its suitors: a string of countries lining up to dump their national currencies and join the euro zone.

It’s a remarkable achievement for a currency whose only global rival is the U.S. dollar. The greenback has more than two centuries of history behind it. But it wasn’t until Jan. 1, 1999 that 11 E.U. countries locked their national currencies together into a fixed exchange rate. Three years later, physical coins and notes became available, replacing national cash in a massive changeover operation. (See the top 10 business deals of 2008.)

The euro zone is now 15 members large and has a combined population of about 320 million. However, many more people are directly affected by the currency, from would-be members whose money is already pegged to it, to countries like Montenegro and Kosovo, whose effective national currency is the euro. France’s former African colonies also peg their common currency to Europe’s. That means about 500 million people rely on the euro or euro-pegged currencies.

European Commission president José Manuel Barroso credits the euro for delivering lower inflation, lower interest rates and greater price stability, and helping to create 16 million jobs. More immediately, the euro is shielding member states in this time of economic turmoil, preventing a currency crisis in addition to the credit crunch. “The euro is sheltering businesses from the exchange rate volatility, which has battered them in previous downturns,” Barroso said on Monday. “To put it simply, the euro works.”

Before the euro, a financial crisis in Europe went hand in hand with currency woes: a run on weaker currencies, heavy intervention by central banks and finally a collapse of the parity system. “I’ve lived through currency devaluations, and they are fraught with anxieties,” says Hans Martens, chief executive of the European Policy Centre. “But the way the euro coped with the financial crisis was absolutely great. You have a big island of stability, with small nations protected when the big waves became rough.”

The euro’s 10th anniversary will see the euro zone take on a 16th member, Slovakia. Eight other central and East European countries have set the goal of joining within the next six years, including Poland, whose political establishment dropped its longtime opposition after a recent run on the Polish zloty. The euro has found some other unexpected converts too, thanks to the financial crisis. The Danes voted against joining the euro zone in 2000, but they are set to hold another referendum in March. Iceland — not even an E.U. member — is pondering “unilateral euroization” after seeing its krona plunge nearly 80% against the euro in September and October.

And the biggest prize of all, Britain, is said to be warming to the euro. Barroso recently claimed that London is “closer than ever before” to euro-zone entry and that “the people who matter in Britain” think it should join. That may be overstating things a bit, but a report by research group Chatham House warns that as the euro zone grows, the U.K. risks being excluded from “deeper intra-E.U. economic consultation and coordination, including in areas of significant national interest, such as financial market regulation.” (See pictures of the financial crisis in London.)

It doesn’t help that the pound is wilting. Two years ago, one euro was worth just £0.65. Now, humbled by bank crashes, government bailouts and a collapsing housing market that has forced massive interest rate cuts, Europe’s currency is within a pence or two of parity with the pound. “The debate has changed from a total fantasy in the U.K.,” says Jean Pisani-Ferry, director of Brussels-based think tank Bruegel. “The political obstacles still remain strong, but it has changed the perception of the U.K. as the perfect system.”

Pisani-Ferry says the financial crisis has been a defining moment for the euro, but he cautions against too much praise. The euro is still some way from dethroning the dollar as a global currency; just 27% of global foreign exchange reserves are held in euros compared with 62% in dollars.

And, he says, the euro’s first decade has been characterized by budget rows and debates about the European Central Bank’s monetary policy, when the focus should be on correcting big macroeconomic divergences, like Spain’s and Ireland’s recent (and ultimately doomed) property bubbles. “The euro zone needs more ability to act in times of real crises, or to prevent them,” Pisani-Ferry says. “It is a slow process.” But one that has come a long way in 10 years.