Finance and Economic

GRANITE CITY — In this gritty steel town, the coconut cream pie and twice-baked potatoes at Jerry’s Cafeteria serve as unlikely gauges of the national economy.

During the boom times, back when the steel mill hummed with the metal sheets to make all the new cars and fridges consumers were snatching up with easy credit, the pies and potatoes really moved. Same for the fried chicken and Jell-O salad and breaded pork chop, too.

"Going gangbusters," recalls cafeteria owner Jerry Roderick.

The same term is used by steel workers to describe what was happening a couple of blocks down at Granite City Works, the massive steel mill with soaring cobalt-blue walls so large that they appear to envelop the town.

More than 2,000 people worked there. An additional 4,000 held jobs related to the mill. They all needed to eat. And they did not have to go far. You can see the plant’s smokestacks from Jerry’s parking lot.

And then … You know what happened. People stopped buying much of anything. Manufacturers stopped needing steel. In December, the steel mill was idled. Almost everyone was laid off.

"And it all rolled downhill," Roderick says.

It rolled downhill and across city streets, a wave of economic bad news hitting everything in sight, down 20th Street and over to Edison Avenue, where Jerry’s sits in a low-slung block building with newspaper racks and a daily specials sign out front.

"It was like someone closed the door," says Roderick, 67, whose parents opened a restaurant in Granite City in 1945. He started the cafeteria in 1986.

Sitting in his office behind the kitchen, past a wall plastered with his grandchildren’s photos, a rack of pies cooling outside his door, Roderick wonders how long he can hold on. Six months? A year? Things need to turn around. It’s the mindset everywhere, from the steel mill’s corporate offices across the street to the union hall — across the nation, too. How long can this go on?

One sign of hope: Union officials said recently that they expect nearly half of the steel mill’s workers to be rehired soon. But a full recovery could take several months, possibly years.

Roderick has never seen it like this.

He is missing not just the steel workers.

He misses the salesmen no longer stopping by for a bite between calls to the steel plant.

And the outside warehouse workers.

And the truck drivers picking up meals-to-go before hauling away another batch of steel.

"They’re gone," Roderick says, wistfully.

Roderick still does a decent Sunday business. Lots of churchgoers. Catering for weddings "has been pretty good fast payday loans. Don’t know if in another six months that’s going to be true." He’s found a market catering to pharmaceutical sales reps visiting doctors’ offices. He still sees the familiar faces from the local engineering firm, the law firm girls, workers from City Hall and the Prairie Farms dairy.

"The lunch business is kind of there," Roderick says. "It’s puny. But it’s there."

Walking into Jerry’s Cafeteria, it smells like melted butter and green beans. The food line is at the back, past the dining room’s green carpet, red chairs and tables. White trays on the right. The salads — fruit, lettuce, Jell-O — are first. Then the fried chicken and the vegetables. Then the pies. Fifteen different varieties. Banana cream. Chocolate cream. Custard. Pecan. Cherry. $1.95 a slice.

Cafeterias like Jerry’s seem to belong to another era. Roderick reads the newspaper obits and says, "I think I’m losing another customer." Young people have been slow to take up the slack. But he has hung around.

So have his workers. Some have been with him more than 20 years. Roderick has tried to avoid layoffs, instead cutting hours here and there.

"You feel you have an obligation to keep them employed best you can," he says.

But the tough times had to be passed on in some way. So last month he posted a sign in the window: "Due to the economic downturn, we will no longer be making donations until further notice."

No ad this year in a Catholic church’s family digest. No money for the Shrine Club. Or various golf tournaments. People asked for money to send a local hockey team to Russia, and sponsor their daughter in a contest, and fund a local softball team. No, no, no.

"It seemed like everyone was coming to us at one time," says manager Sheila York, who has worked at Jerry’s for 24 years.

"That’s all out the window," Roderick says.

Roderick still feeds people who show up at his cafeteria hungry but too poor to pay. He was out there with free coffee and doughnuts during a steelworkers rally earlier this year.

And the steelworkers have not forgotten Jerry’s Cafeteria.

Vicky Guth was laid off from Granite City Works in December. Money is tight. But when she goes out to eat, she makes a point of stopping at Jerry’s for the twice-baked potatoes.

"It’s just one meal," Guth said. "But it’s going to give them some hope."

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WASHINGTON–Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending.

The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending.

The Commerce Department said Friday that consumer spending rose 0.3 per cent in May, in line with expectations. But incomes jumped 1.4 per cent, the biggest gain in a year and easily outpacing the 0.3 per cent increase that economists expected.

The savings rate, which was hovering near zero in early 2008, surged to 6.9 per cent, the highest level since December 1993.

The income increase reflected temporary factors relating to the $787 billion economic stimulus program that President Barack Obama pushed through Congress in February to fight the recession. That program included one-time payments to people receiving Social Security and other government pension benefits.

"Personal tax cuts and government income support have brought consumers back from the dead, but the recuperation period promises to be a long one," said Sal Guatieri, an economist at BMO Capital Markets.

The big jump in the savings rate also made Wall Street investors nervous. The Dow Jones industrial average lost about 60 points in morning trading. Broader indices also edged down.

The stimulus package also featured reductions in payroll tax withholding designed to get people to start spending more money and boost the economy. Those factors helped increase after-tax incomes 1.6 percent in May. However, without the special factors, after-tax incomes would have risen just 0.2 percent.

The savings rate, which is a percentage of disposable income, rose to 6.9 per cent from 5.6 per cent in April. Last month's savings rate was far above recent annual rates, which dipped below 1 per cent from 2005 through 2007 as a booming economy and soaring home prices pushed Americans to spend most of what they earned.

Those factors have been reversed amid the longest recession since the Second World War. Triggered by a housing bust, the downturn has depressed home prices by the largest amounts since the Great Depression.

Still, private economists viewed the 0.3 per cent rise in spending in May as encouraging after no change in April and a 0 payday loans.3 per cent drop in March. April had originally been reported as a drop of 0.1 per cent. It was the best monthly performance since spending rose by 0.4 per cent in February.

Consumer spending is closely watched because it accounts for about 70 per cent of total economic activity. Economists are hoping that improved spending will help support a rebound in economic activity.

Nigel Gault, chief U.S. economist at IHS Global Insight, forecast that consumers would remain cautious going forward but that even dampened increases in spending should be enough to jump-start economic growth.

"We do expect spending to creep slowly higher in the second half of the year as the labor market deterioration becomes less severe," he said in a research note.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 5.5 per cent in the January-March quarter, slightly less severe than the 5.7 per cent decline estimated a month ago.

However, the 5.5 per cent drop in the first quarter followed a 6.3 per cent decline in the last three months of last year, the worst six-month performance for the GDP in more than a half-century.

Economists believe that the 0.3 per cent rise in spending in May will help bolster the economy in the second quarter and will translate into a smaller drop in GDP of around 2 per cent during this period. Economists believe that GDP will begin growing again in the second half of this year, signaling an end to the recession that began in December 2007.

However, the rebound is expected to be subdued. That's because unemployment, already at a 25-year high of 9.4 per cent, is expected to continue rising, pushing worried households to save even more against the threat of further layoffs.

Reduced spending has been tough on the nation's retailers, who have been forced to lay off workers and shut stores. Drugstore operator Rite Aid Corp. said Wednesday that it narrowed its fiscal first-quarter loss by closing stores and trimming other operating costs as it works to eliminate $6 billion in debt.

Still, the weak economy has kept a lid on prices. An inflation gauge tied to consumer spending edged up 0.1 per cent in May compared with April.

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The Missouri Insurance Department is forbidding the Universal Casualty Company from writing new insurance policies in the state, following a rash of consumer complaints.

The Chicago-based company writes auto insurance and collects $5.9 million in premiums a year in Missouri.

The department says the company is slow to respond to claims and refuses to send insurance adjusters to inspect damage, relying instead on car owners to send in photos and police reports. Universal makes "low ball" settlement offers and sometimes refuses to pay claims without conducting a reasonable investigation, the insurance regulators say personal loans for poor credit.

A company spokesman declined comment.

The Insurance Department reports receiving 63 complaints against the firm this year, 13 times the number it would expect from a company its size. The company will be allowed to continue servicing existing policies.

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DETROIT — General Motors Corp. will give the United Auto Workers up to 20 percent of its common stock, $6.5 billion of preferred shares and a $2.5 billion note to fund a trust that will take over retiree health care costs starting next year as part of an agreement the automaker made while it tries to reorganize outside of bankruptcy.

The union’s trust also will get a seat on GM’s new board of directors, although that seat will have to vote at the direction of the other independent directors. Plant-level union officials met in Detroit on Tuesday to hear details of the agreement that GM, the UAW and the government reached last week. Several local presidents said after the briefing that they voted unanimously to recommend that members approve the concessions when they vote today and Thursday.

Local UAW leaders say the health care trust fund agreement did not identify 14 factories that GM intends to close. Those are part of GM’s restructuring plan to be submitted to the government by a Monday deadline, said one official, who spoke on condition of anonymity because the details of the meeting have not been presented to union members no fax quick cash. The company did commit to reopening three closed assembly plants and one stamping factory if demand warrants, according to the summary sheet. Those factories were not identified.

Members of the Canadian Auto Workers union earlier this week approved wage reductions and other concessions in an attempt to allow GM to reorganize outside of bankruptcy court, but GM’s unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt. Analysts say it’s unlikely enough bondholders will approve the offer, meaning GM would still be forced into bankruptcy protection by Monday. GM’s bondholders have argued that the offer they’ve received gives them too small a stake for the amount they are owed.

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As tens of millions tank up and hit the road for Memorial Day weekend, gas prices are rising fast enough to revive painful memories of the $4-a-gallon summer of 2008.

Rest easy: The economic slack created by the recession all but guarantees prices won’t spike the way they did last year, analysts say.

The average retail gas price was $2.22 a gallon in the city of St. Louis and surrounding Missouri counties on Wednesday, according to the auto club AAA. That’s almost 30 cents a gallon higher than a month ago, but $1.43 less than the same date last year. In the Metro East, where taxes are higher, the average price at the pump was $2.37, compared with $3.91 last year.

Across the country, a gallon of unleaded averaged $2.36. That’s much cheaper than the $3.80 it cost this time last year, but prices are still up about 30 cents a gallon this month, enough to make drivers flinch.

"Uh oh," cab driver Jay Biyani said while filling up this week in Manhattan. "That’s the first thing I say when I pull into this gas station each day. Right now it’s not that bad, but it’s a lot worse than two weeks ago."

Even so, AAA estimates 32.4 million people, or about one in 10 Americans, will travel over the holiday, most of them driving. That’s a slight 1.5 percent increase from 2008.

Vacations make a lot more sense for many families than they did last year. Airfares, hotels and tourist attractions are cheaper this year because of the recession.

Gas is no exception online health insurance quotes. For much of this year, there has been a glut of gasoline in storage around the country, keeping prices low. But gasoline has jumped this month. Refineries are taking in less oil because of the glut in gas, and the cutbacks are showing up at the pump.

The trading markets are at work, too. By mid-February, the price of oil had fallen so far — below $34 a barrel, compared with a peak of $147 last July — that large investors couldn’t resist buying in.

Investing momentum feeds on itself, and government data suggest speculative trades are on the rise, meaning people are buying in simply because they know they can sell for a quick profit.

"Anyone who says speculators are not playing a role in this run is delusional," said Tom Kloza, publisher and oil analyst at the Oil Price Information Service.

The same thing happened last year, to a much greater extent. Because when the Wall Street crisis struck and the economy tanked, oil prices collapsed. Gas fell to $1.61 by the end of the year.

So how high will gas go?

Darin Newsom, senior energy analyst at DTN in Omaha, Neb., said he expects the average price for regular unleaded to push $2.80 a gallon this summer — higher than many other forecasts.

Jeff Tomich of the Post-Dispatch contributed to this report.

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There’s no shortage of deals for the consumer suffering the recession.

Automakers will make your car payments. Apartment complexes will look the other way should you decide to break your lease. A clothier will fork over a cash rebate for the new suit you just bought.

All you have to do to qualify is lose your job.

From corporate giants to obscure pet manufacturers, businesses are offering incentives to millions of Americans who are spending less out of fear they will lose their jobs. Companies are trying to remain viable until the economic pendulum swings the other way.

In that pursuit, it’s hello to

empathy and farewell to marketing that appeals to conspicuous consumption, sex appeal and other base interests.

"Marketers in general are not altruistic," said Mary Albrecht, a professor of marketing at Maryville University. "What they try to do is move people forward in the buying process. They realize that people perceive risk as a wall that can keep them from buying. They’re trying to show them a way over the wall."

General Motors and Ford, for example, are offering programs that cover the payments of vehicles purchased through company financing in the event a buyer is pink-slipped. The domestic automakers followed the lead of Hyundai of America, the first out of the block with such a plan.

No one has turned in a vehicle to date, Hyundai spokesman Jim Trainor said Thursday. Still, such incentives have been applauded by marketing experts because they give customers a little more security about their purchases.

Historically, companies that adapt to economic and social cataclysm are the ones that survive, said Terry Clark, a professor of marketing at Southern Illinois University Carbondale.

He cites Woolworth’s, the five-and-dime that remained in declining urban downtowns while its competitor, S.S. Kresge, re-christened itself "Kmart" as it followed the population to the suburbs.

Offering a perk to consumers when they are down, Albrecht noted, can engender good will and, possibly, continuing patronage paperless payday loans. Customers using the free health care in Walgreens "Take Care" clinics, for example, are likely to return to the pharmacy long after the service ends at the end of the year, Albrecht said.

Established firms may view the recession as an opportunity to, as Clark puts it, "make a virtue out of necessity." But for fledgling companies, virtue is a way to get an otherwise obscure brand in front of the public.

A small California pet care concern, "Dogswell," will provide free bags of dry dog food to the first 10,000 jobless workers.

"There are really two bottom lines in business — profit and social awareness," said Marco Giannini, the founder of the five-year-old firm. "This is the second part, social awareness. We’re doing a small part to promote a social cause and its helping us profit, too."

So far, more than 5,000 people have taken advantage of the "Bow-Wow BailOut."

Giannini’s offer aside, consumer advocates are reminding customers to remain vigilant.

Scott Mulford, a spokesman for Illinois Attorney General Lisa Madigan, said consumers need to be particularly aware of enticements attached to the purchase of big-ticket items.

"We urge consumers to closely check the terms of any offer ask questions and, by all means, get it writing before they sign anything," Mulford said.

And while companies hope such enticements will lure more business, they must still overcome the doubts of people like Alicia Otera of Maryville, Ill. She ignored the incentives during a three-month stretch of unemployment. And she plans to continue to ignore them now that she has landed at Boeing Corp. as an independent contractor.

Working or not working, Otera said, now is not the time for a major purchase. "I don’t want to bet on my future with a $500 car payment and lose my home."

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DETROIT — Retirement health care for as many as three-quarters of a million Americans will be placed at high risk if conditions proposed as part of auto rescue loans are enforced by the incoming Congress and Obama administration, labor experts say.

At issue is a condition of the loans that calls for General Motors Corp. and Chrysler to use company stock or the equivalent to pay half, or $10.5 billion, of the cash owed to a union retiree health care trust.

"It’s as if we, as a nation, learned nothing from Enron, essentially risking the health care of retired and active workers in such a cavalier fashion," said Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues. "The great Enron lesson was: Don’t put all your eggs in one basket. … Putting half your eggs in the trust-fund basket is still a high level of risk."

Enron workers lost the lion’s share of their retirement savings when the company’s once fast-gaining stock became worthless. Workers received their matching contributions in Enron stock — then were prohibited from selling it until they were 50 — and many invested their 401(k) contributions in the shares.

Since Enron’s collapse, many corporations have limited the amount of company stock employees can hold in 401(k) accounts. Legislators and shareholder advocates argued for tougher regulations to protect individual investors.

That is why, Shaiken said, it is shocking that President George W. Bush "apparently bowed to political pressures from the Republican right in the Senate" and called for the retiree health care of so many Americans to be placed in jeopardy.

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Shaiken says he believes the new Democratic Congress and President-elect Barack Obama will revisit conditions placed on the UAW, and particularly on the funding of the voluntary employee beneficiary association when they take office next year.

But others say it may not be possible for the automakers to achieve the degree of cost-cutting required to meet conditions of the federal loans by the end of March without abiding by the terms set by Bush’s administration.

The White House agreed to provide as much as $17 payday cash loan.4 billion in loans to carry GM and Chrysler through the first three months of 2009. But the automakers must demonstrate viability by March 31 or they will be forced to immediately pay back the loans or file for bankruptcy. As part of the deal, the federal government set targets for restructuring including union wage concessions, the change in VEBA funding and cutting bond debt by about two-thirds.

While the automakers can deviate from these targets, "absent a near-term economic recovery," Citigroup auto analyst Itay Michaeli wrote in a note to investors this week, "we believe it would be difficult to deviate significantly from these targets and still demonstrate viability."

Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass., said that while the changes to VEBA funding are not optimal for the approximately 750,000 people for whom the new fund was supposed to provide health coverage beginning in 2010, it still may ensure more benefits than they otherwise would have received in retirement.

"I think this makes the best of a bad situation," Chaison said. "If they pay a portion of the VEBA now, they might have enough to pay for the health care benefits of the current retirees and they might get more later."

But, Chaison said, his impression even from the time the UAW and automakers agreed to the VEBA in late 2007 was that it was questionable whether the health care trust would last long enough to keep the commitments the UAW and automakers made.

Although the UAW described the VEBA as a solid plan to provide benefits to retirees and workers who were active as of the contract agreements last year, it was in part a defensive maneuver intended to protect workers from corporate bankruptcies that typically wipe out retiree benefits.

And it might not even have come to that, the UAW said when it pitched the VEBA to members. The automakers could have sought court approval to simply terminate retiree medical benefits.

At the time the UAW agreed to it, workers and analysts believed a VEBA would protect them from the risk of bankruptcy. While an automaker’s default seemed possible, just a year ago, few thought it would happen before the VEBA was funded and took effect in 2010.

But with the risk of illiquidity now an imminent possibility, the UAW on Dec. 3 agreed to postpone until 2012 the VEBA payments that were due from GM and Chrysler in 2010.

Now the government is asking the trust to accept half cash and half stock.

A UAW spokesman declined to comment.

GM retiree Ralph Herndon said he isn’t worried about getting half of the VEBA funding from GM stock — he has faith the company will survive.

"GM stock doesn’t bother me," he said. "I’m not going to worry about the VEBA, because all the worrying we do is going to change nothing. I’m cautiously optimistic it will work out. … But if you expect me to save for my own retirement, someone needs to manage the managers on Wall Street better."

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Fannie Mae, the largest provider of money for U.S. residential mortgages, on Wednesday said its regulator named nine board members, including a former Morgan Stanley executive.

The appointment of David Sidwell, who was Morgan Stanley’s (MS, Fortune 500) chief financial officer from March 2004 to October 2007, and eight others comes after the government in September forced the company and rival Freddie Mac into conservatorships under their regulator, the Federal Housing Finance Agency.

Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have lost billions of dollars as the housing slump boosted delinquencies, raising alarm among regulators and lawmakers who are counting on the companies to help stabilize the market for U.S. home mortgages.

The other directors are Fannie Mae Chief Executive Officer Herb Allison; Dennis Beresford, former chairman of the Financial Accounting Standards Board; William Thomas Forrester, former CFO of the Progressive Corp (PGR, Fortune 500) cash advance.; Brenda J. Gaines, former CEO of Diners Club North America, a subsidiary of Citigroup Inc (C, Fortune 500).; Charlynn Goins, former chairman of New York City Health and Hospitals Corp.; Frederick "Bart" Harvey III, former chairman of the board of trustees of Enterprise Community Partners; Egbert Perry, chairman and CEO of the Integral Group LLC; and Diana Taylor, a former managing director for Wolfensohn & Company.

Beresford and Gaines have served as Fannie Mae directors since 2006. Harvey has been a director since August 2008. 

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GMAC won Federal Reserve approval to become a bank holding company Wednesday, enabling the auto lender to tap the Treasury’s $700 billion financial bailout fund and help keep General Motors Corp. in business.

To comply with rules about who can own a bank, GMAC’s majority owner, Cerberus Capital Management LP, agreed to distribute its stake to its investors, and minority owner GM will cede all control.

The Fed order said the plan would benefit the public by strengthening GMAC’s ability to fund the purchases of vehicles manufactured by GM.

Saving GMAC may improve the chances of salvaging General Motors, which received $9.4 billion in U.S. loans this month to stave off collapse at least until January. That package didn’t include support for GMAC, which finances about 75 percent of the inventory at GM dealers. The lender also served as a major source of loans to GM car buyers until it was frozen out of credit markets after losses totaling $7.9 billion.

GMAC’s request was approved even though the Detroit-based lender didn’t satisfy the capital requirements laid out when it applied to become a bank in November payday loans.

GMAC said it needed three-quarters of investors that held $38 billion in bonds to exchange the notes as part of a plan to reduce debt. As of Dec. 17, holders of 58 percent of eligible notes had tendered and with two days until the deadline, GMAC hadn’t provided an update. GMAC has been unable to raise cash by selling bonds backed by auto loans since May as concerns mount that cash-strapped households will be unable to pay bills.

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JPMorgan Chase & Co., the largest U.S. bank by assets, will cut 9,200 Washington Mutual Inc. jobs nationwide as it acquires the Seattle-based lender, a spokesman said.

The bank will eliminate 4,000 jobs and put 5,200 employees on a transition team. Those employees will help integrate the banks, and some will remain in the positions until the end of next year, JPMorgan spokesman Thomas Kelly said in an e-mail.

JPMorgan paid $1.9 billion in September for most of Washington Mutual, including the branches and deposits, after the thrift was taken over by the Federal Deposit Insurance Corp.

New York-based JPMorgan expects to keep most of the WaMu branch employees and will shutter less than 10 percent of the combined company’s retail outlets free credit reports.

WaMu’s former Seattle headquarters will account for 3,400 of the job cuts, the Seattle Times reported. The bank is also cutting 1,600 jobs in California, mostly in back-office operations.

Washington Mutual had more than 43,000 employees at the end of June.

JPMorgan dropped $5.54, or 18 percent, to $26.12 in New York trading. The shares have fallen 40 percent this year.

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