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Wholesale prices in the U.S. increased in October for just the second time in the past four months, indicating inflation will not be a concern for the Federal Reserve.

The 0.3 percent increase in prices paid to factories, farmers and other producers was smaller than forecast and followed a 0.6 percent drop in September, according to Labor Department data released today in Washington. Excluding food and fuel, so-called core prices unexpectedly dropped 0.6 percent, capping the smallest 12-month gain in five years.

Near-record excess capacity will probably prevent suppliers from passing on the recent rebound in commodity costs for months to come. The report underpins Fed expectations, reiterated yesterday by Chairman Ben S. Bernanke, that inflation will be “subdued,’ allowing policy makers to keep interest rates low for a long time.

“Core measures of inflation continue to be remarkably tranquil, if not trending downward,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report. “I think this gives the Fed all the leeway they require to stand on the sidelines.”

Economists forecast prices would rise 0.5 percent, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from no change to an increase of 1.3 percent.

Excluding Food, Fuel

The decrease in prices excluding food and energy last month was the biggest since July 2006. The core measure was forecast to rise 0.1 percent after a 0.1 percent drop a month earlier, according to the Bloomberg News survey.

Compared with a year earlier, companies paid 1.9 percent less for goods today’s report showed. Core costs were up 0.7 percent from a year earlier, the smallest 12-month gain since March 2004.

Prices overall were buoyed by 1.6 percent increases in both food and fuel as the cost of everything from gasoline to vegetables and fruit climbed.

Declining prices of light trucks and passenger cars, which reflected the switch to the 2010 model year, pushed core costs lower.

Producer prices are one of three monthly inflation gauges reported by the Labor Department installment payday loans. The cost of imported goods rose 0.7 percent in October and increased 0.4 percent excluding energy. The government is scheduled to release its consumer price report tomorrow.

‘Subdued’ Inflation

“Inflation seems likely to remain subdued for some time,” Bernanke said yesterday in a speech to the Economic Club of New York. He also said “significant economic challenges remain.”

One challenge is trying to absorb excess capacity. The share of plants in use reached 68.3 percent in June, the lowest level since records began in 1967, according to Fed data. Economists track operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

Fed policy makers this month reiterated plans to keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.

Some companies still see pressure to hold down costs. Wal- Mart Stores Inc. Chief Executive Officer Michael T. Durke said the company continues “to experience ongoing deflation across our businesses.”

Falling Prices

Huntsman Corp., a chemical maker, said Nov. 4 that third- quarter sales fell 23 percent to $2.11 billion as a 3 percent increase in volumes could not make up for a 25 percent drop in prices.

Nonetheless, a falling dollar and expanding global economies are forcing up commodity costs.

The U.S. last week raised its forecast for crude-oil prices this year and next on speculation that demand will rise as the global economy improves.

“Commodity prices are responding to the weak dollar by rising but core measures are responding to economic slack,” Woodley Park Research’s DeKaser said.

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Japan’s trade minister disclosed market sensitive third-quarter GDP figures to oil industry executives on Monday ahead of its official release, a source within the ministry said, in an embarrassment for a government that took power two months ago.

The much-stronger-than-expected third-quarter growth figures caused Japanese bond prices to dip after the official release by the Cabinet Office at 8:50 a.m. (2350 GMT), although they later recovered as analysts warned the outlook was less rosy.

Masayuki Naoshima, the head of the Ministry of Economy, Trade and Industry, mentioned GDP data in a speech in a meeting with the industry leaders ahead of the release time, the source, who attended the meeting, told Reuters.

Kyodo News reported that the minister had made a mistake.

“I did not know about the embargo time,” Kyodo quoted Naoshima as telling reporters.

An official at Naoshima’s office told Reuters on the phone that they are trying to confirm what was said.

Japan’s economy grew 1.2 percent in the third quarter, its fastest pace in more than two years as stimulus lifted consumer spending and capital spending bottomed out.

(Reporting by Sumio Ito; Writing by Yoko Kubota; Editing by Rodney Joyce)

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Small business lending has been in freefall since the recession began. Concerned about the obstacles that places in the way of economic recovery, President Obama recently proposed a new federal effort to give community banks access to ultra-cheap government loans, which they can then use to expand their local business lending.

One hitch: Bankers are lukewarm on the idea.

Obama’s plan, announced Oct. 21, calls for letting banks with less than $1 billion in assets borrow money from the government at a 3% dividend rate. To qualify, banks will need to submit a plan illustrating how they’ll use the borrowed money to expand their small business lending. The cash will come from the Treasury’s Trouble Asset Relief Program (TARP).

That’s raising red flags with banks that have previously borrowed from TARP.

For instance, Monadnock Community Bank CEO William Pierce took $1.8 million in TARP funding in December for his Peterborough, N.H., bank. He’s not interested in another round.

"For a bank our size, it is too much extra regulation," Pierce said. "We have 25 full-time equivalent employees here, and most of them are working with customers and actually making loans, so to deal with the regulations is very taxing on a small organization."

Capital Pacific Bancorp in Portland, Ore., received TARP funds late last year totaling $4 million. The bank took the loan to boost its capital reserves and grow its balance sheet, but CEO Mark Stevenson is leery of the public backlash the program has sparked since then.

"TARP was advertised to healthy banks: an investment we would use for appropriate purposes," Mark Stevenson said. But now, "TARP has a negative stigma — it is associated with ‘bad bank, bailout.’"

The Treasury Department is still working out the details of Obama’s proposed lending plan — the coffers aren’t open yet. Program specifics will be available "very soon," Treasury spokeswoman Meg Reilly said.

Even if the program terms are attractive — and a 3% rate is pretty tough to beat, Stevenson acknowledged — banks face another hurdle: Finding qualified borrowers. At many small businesses, sales are down, and the ongoing economic weakness has reduced the value of real estate, inventory and other assets business borrowers typically use as collateral against loans.

Capital Pacific’s loan portfolio has been flat this year. Demand from existing clients is down, and the community bank has been working to shore up its balance sheet, cutting the credit lines of customers likely to default. But the bank is still issuing new loans to qualified borrowers: In the first nine months of this year, $26 million of the bank’s $135 million in total lending went to brand-new customers.

"I don’t know whether we would or we wouldn’t [take more TARP], because our capital is still strong today," Stevenson said.

Shane Bell, CFO of First Bank in Strasburg, Va., is in a similar spot faxless payday loans. "It is interesting what you hear on the news compared to what you hear on Main Street," he said. "There isn’t a lot of loan demand."

First Bank borrowed $13.9 million from TARP in March. Even at lower rates, the bank might not go back for more money, Shane said. It already has enough capital on hand to meet the loan demand from the credit-worthy borrowers in its community.

"There is not a whole lot walking in the door right now," he said.

Rescue redux

Obama’s new lending program could find itself caught in the same bind that has plagued another high-profile government effort to shore up small business lending: The America’s Recovery Capital (ARC) loan program. Created in February as part of the Recovery Act and run by the Small Business Administration, the ARC program offers participating banks a 100% guarantee on small banks made to viable but struggling businesses.

It took four months for the government to create guidelines for the ARC program, and once it did, relatively few banks signed on. The program is a safe one for banks — if the borrower defaults, the government will repay the loan — but it carries heavy administrative overhead for a fairly scant profit. And because the government doesn’t want to lose too much taxpayer money paying off loans that go bad, it set the qualification standards for ARC loans fairly high. The end result was a program that frustrated both borrowers and lenders.

As it crafts regulations for the new lending program, the Treasury will be hard-pressed to steer clear of similar pitfalls. An earlier Treasury program intended to add liquidity to the small business lending market by purchasing SBA-backed loans from banks stalled in part because small banks didn’t want to tangle with TARP red tape.

They’re right to be wary, said Monadnock Bank’s Pierce. Two months after the first TARP loans went out, the Treasury placed executive compensation caps and other regulatory restrictions on banks that had accepted the funds. While his bank wasn’t seriously affected by the changes, Pierce was annoyed to have the government changing the rules after the fact.

But the biggest hurdle will simply be finding qualified borrowers. Hit by rising defaults and determined to shore up their underwriting standards, many of the nation’s biggest banks have scale back their small business lending. Community banks, traditionally more conservative, have been cautious as well.

"We are still lending if there is a business that meats our reasonable requirements for risk," said Shane of First Bank.

"A lot of the small businesses are holding back — they are reluctant to make additional investments in their companies," Pierce said. "There is plenty of money around to loan. We would love to do it." 

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A tug-of-war between American Airlines and Delta Air Lines for Japan Airlines as a global partner underscores the importance of international alliances to the embattled U.S. airline industry.

For AMR Corp’s American, which is seeking to keep JAL in the Oneworld alliance, the stakes are especially high. The carrier is working to improve its competitive positions against Delta and UAL Corp’s United Airlines — both U.S. powerhouses on Asian routes.

Delta, meanwhile, hopes to lure JAL out of Oneworld and into its SkyTeam group. A tie-up with JAL could give Delta a major boost after buying Northwest last year, and would allow the world’s largest carrier greater access to island nations in Asia that depend on air travel.

“American has a lot to lose with its Pacific presence if JAL defects to SkyTeam,” said Stifel Nicolaus analyst Hunter Keay.

“I think American is going to do whatever they can to keep JAL in the Oneworld alliance,” Keay said. “It would surprise me more if Oneworld would allow JAL to defect.”

Last month, SkyTeam lost a major partner when Continental Airlines, which has a sizable presence in Asia, joined the rival Star Alliance.

The Wall Street Journal, citing an unidentified source, reported on Wednesday that Delta was willing to cover the cost of moving JAL to SkyTeam quick cash advance. Delta did not respond to a request for comment.

On Wednesday, AMR’s chief financial officer, Tom Horton, told reporters in Tokyo that private equity firm TPG could partner with AMR on a minority investment in JAL to prevent its defection.

For its part, American has escalated its talk against a JAL departure from Oneworld recently, but the carrier has not said what JAL’s absence would mean for its revenue.

“We obviously think that would be a very bad idea for Japan Airlines. That would be very bad for us — but we don’t control their decision-making process,” AMR Chief Executive Gerard Arpey said at an internal management conference last month. “We can just make the best case for them staying with American, and staying in Oneworld.”

Arpey noted that American currently has five flights a day to Tokyo’s Narita airport, which handles a majority of international traffic to and from Japan.

“If you look at the composition of our traffic on those five flights, the equivalent of two full airplanes now connects to JAL in Narita and goes beyond on their network,” he said.

(Editing by Steve Orlofsky)

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Alison Cooper is set to become the youngest female chief executive of a FTSE 100 company as she looks to put sales growth at the top of her agenda for the world’s No 4 cigarette group Imperial Tobacco Plc

Cooper, 43, was widely tipped to take over the top job at the maker of Lambert & Butler and Gauloises cigarettes next year after shadowing current CEO Gareth Davis for eight months.

Davis is set to retire next May, the day before his 60th birthday.

“Alison has worked closely on all the big deals with Gareth so the transition at the top of Imperial would appear to be very smooth,” said one tobacco industry analyst.

When she takes over, Cooper will join three other female CEOs of Britain’s top 100 companies, and become the second woman to run a big tobacco company following Susan Ivey at United States-based Reynolds American Inc.

In her ten years at Imperial, Cooper has worked closely on the two big acquisitions that transformed Imperial into a world tobacco player - Reemtsma and Altadis — but as big tobacco deals start to dry up her emphasis will be on sales growth.

“Imperial’s highlights have been on acquisitions and cost control, now we will look for growth with our expanded business in different geographies,” Cooper said on a conference call.

She is set the join Angela Ahrendts at luxury goods group Burberry Group Plc, Cynthia Carroll at mining group Anglo American Plc and Marjorie Scardino at publishing group Pearson Plc as female CEOs at FTSE 100 groups.

Davis has led Imperial since its demerger from the sprawling Hanson empire in 1996 where he embarked on a series of acquisitions to put the cigarette maker on a faster growth path than its arch British rival Gallaher no credit check payday loans.

Accountant-trained Cooper was appointed No 2 to Davis in March in a new role as chief operating officer, and with Davis long expected to retire around his 60th birthday it seemed only a matter of time before she got promoted.

Davis had dropped heavy hints about his hopes that his successor would come from within the Bristol-based cigarette maker because of the challenges and stoicism needed in a industry under attack from anti-health groups and governments.

“I am a massive advocate of internal succession,” Davis said in May soon after Cooper’s appointment as his number two.

Cooper has been at the heart of expansion of Imperial Tobacco buying Germany’s Reemtsma in 2002 and Franco-Spanish Altadis in 2008 which transformed Imperial into the world’s number four cigarette company from a largely domestic player.

Cooper joined the maker of Embassy and Richmond cigarettes in 1999 from accountants PricewaterhouseCoopers after having worked with Davis and his team for a number of years. She became group financial controller in 2001, before becoming director of finance and planning in 2003.

Cooper, married with two daughters, became sales and marketing regional director for Imperial’s Western Europe region in 2005 and, two years later, joined the four-strong Imperial executive board in a new role as corporate development director. 

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Bank regulators closed Gateway Bank of St. Louis, in St. Louis, Missouri, and Prosperan Bank, of Oakdale, Minnesota, on Friday, the 118th and 119th U.S. bank to fail this year.

The Federal Deposit Insurance Corp said Gateway Bank of St Louis had $27.7 million in assets and $27.9 million in deposits. The bank’s sole office will reopen on Saturday as a branch of Central Bank of Kansas City, Missouri, which assumed Gateway’s assets.

The FDIC entered into an agreement with Alerus Financial NA, of Grand Forks, North Dakota, to assume all of Prosperan’s $175.6 million in deposits and about $173.9 million of its $199.5 million in assets.

(Reporting by Charles Abbott; editing by Carol Bishopric)

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Congress should allow the U.S. Securities and Exchange Commission to retain the fees it collects and become self-funding, Commission Chairwoman Mary Schapiro said on Thursday.

Speaking at Harvard University, Schapiro said that large swings in the agency’s annual budget have made long-term planning difficult.

“It is truly critical that, if the SEC is to become the kind of regulatory agency that the American people have a right to expect, we have sufficient, stable long-term funding,” Schapiro said.

The SEC collects fees from the thousands of companies it regulates. Its budget, which is much smaller than the fees it collects, is determined annually by Congress.

“Virtually, every other financial regulator is self-funded, which gives them the flexibility to respond to market events through increased staffing and technology developments. Like them, the SEC should be self-funded,” Schapiro said advanced payday loan.

Schapiro also said she is increasing the agency’s focus on educating retail investors about voting in corporate proxy elections for boards of directors and other matters.

The agency plans to offer a “very aggressive program” to counter the trend of the declining participation of retail investors, she said.

That comment followed a speech Schapiro gave on Wednesday, in which she said the agency was in the midst of a full-scale review of shareholder voting procedures.

The review will look at the low rate of voting by retail shareholders, the accuracy of vote tabulations and the use of proxy votes, she said in a speech to the Practising Law Institute in Washington.

(Reporting by Aaron Pressman, writing by Ros Krasny, editing by Leslie Gevirtz)

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The U.S. services sector, which represents about 80 percent of U.S. economic activity, grew for the second consecutive month in October, while the labor market also showed signs of improvement in data published on Wednesday.

The U.S. Institute for Supply Management’s services index slipped to 50.6 last month from 50.9 in September, below economists’ median forecast for a rise to 51.5, with the dividing line between growth and contraction being 50.

Although the report showed growth in the sector, analysts were disappointed in the employment index, which fell to 41.1 in October from 44.3 in September.

“It’s disappointing that it didn’t hit the consensus number but the good news is that the index stayed above 50,” said John Canally, economist, with LPL Financial in Boston.

“New orders are very strong for two months in a row and inventories are being restocked. The big disappointment is the employment number which dropped as opposed to the manufacturing sector index earlier this week.”

The report was roughly in line with surveys in Europe earlier on Wednesday suggesting service sector activity expanded at its fastest in 22 months in October in the euro zone, and in Britain at its briskest since August 2007, when the global credit crunch struck.

LABOR MARKET HURTS LESS

In other U.S. data on Wednesday, private sector companies reduced jobs in October at the slowest pace in more than a year, shedding 203,000 positions, fewer than a revised 227,000 jobs lost in September, according to the ADP Employer Services LLC report.

The October private job loss was the smallest since July 2008.

“There are still a lot of people out there feeling pain,” said Macroeconomic Advisers’ chairman Joel Prakken. “But we are heading in the right direction.”

The ADP figures are seen by some analysts as a proxy for the government’s closely watched report on non-farm payrolls. The U.S. Labor Department will release its October labor report on Friday at 8:30 a.m. EST.

Analysts polled recently by Reuters projected U.S. payrolls likely shrank by 175,000 in October, compared with a 263,000 decline in September.

Economists do not expect job growth to take place until 2010.

“We did have a month-on-month improvement in ADP but we are still losing jobs, and the 10 percent unemployment barrier has huge psychological significance,” said Michael Woolfolk, senior currency analyst at BNY Mellon in New York.

Still, the pace of private job losses has slowed since the 736,000 drop in March, according to ADP data. 

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U.S. retailers are expected to post positive October sales results this week, but investors hoping for a clear signal on economic recovery could be in for disappointment, industry experts said.

Many top retail chains will report same-store sales results on Thursday, with the overall industry expected to post a 1.2 percent rise, according to Thomson Reuters data.

That compares with a 4.1 percent fall in October 2008, just weeks into a global financial markets collapse.

If the expected increase materializes, it will raise hopes that consumers are prepared to spend more during the crucial holiday season.

“Our forecast is that we are on a recovery path but the recovery path will be uneven,” said Frank Badillo, senior economist at Retail Forward. “From month to month some of these numbers will give false signals either way. We are seeing a recovery that is zigzagging in a positive direction.”

But high expectations mean any disappointment in sales results could fuel a retreat by investors on stocks that have risen in recent weeks, fueled by pockets of good news from a variety of retailers from J Crew Group Inc to TJX Companies Inc.

“If expectations are too high, even if the absolute number shows sequential improvements, the stocks will sell off,” said Needham & Co analyst Christine Chen.

The Standard & Poor’s Retail Index .RLX has risen 1 percent this month, and almost 37 percent since January bad credit payday loans. That has fueled a belief among some on Wall Street that along with positive sales, retailers may raise outlooks next week.

Cool weather and new merchandise in stores before the holidays have both fueled spending, continuing on advances made in September, and easy comparisons with year-ago results.

Drugstore operators are expected to have fared the best in October with an expected rise of 3.4 percent, according to the Thomson Reuters data. Teen retailers face an estimated 2.8 percent same-store sales decline, driven by lingering weakness at Abercrombie & Fitch Co.

DATA CONFUSES PICTURES

But while sales trends have improved from a disastrous October 2008, data on the economy and consumer spending show shoppers remain tight-fisted and cautious.

On Friday, the Commerce Department reported that consumer spending fell 0.5 percent in September, the largest drop since December, following the end of the government’s program to boost auto sales.

At the same time, the U.S. economy is officially out of recession with positive gross domestic product growth, according to data released on Thursday.

That means that optimism for October is tempered by realistic caution on the part of many, making sales numbers difficult to predict. 

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