In this issue:

U.S. Trade Deficit Soars Again in First Half of Year

In Bankruptcy Plan, U.S. Airways To Cut Fleet

Wall Street Journal Worries Consumers Aren't Spending Enough

Wall Street Police Blotter

Steel Industry Ratchets Down Another Notch

New York State Budget Will Rely on Casino Gambling Revenues


From the Vol.1, no.25 issue of Electronic Intelligence Weekly

U. S. Economic News Digest

U.S. Trade Deficit Soars Again in First Half of Year

The U.S. trade deficit increased by 8.1% to $206 billion in the first six months of 2002, compared to 2001, the Commerce Department reported Aug. 20. The second quarter of 2002 had the three highest monthly trade deficits on record: In June, the total deficit, at $37.2 billion, was the third-highest ever, only slightly lower than the record set in May, helped by the decline in the dollar, on exports of $82.0 billion and imports of $119.2 billion, with a goods deficit of $40.8 billion. Year to date, the goods portion of the trade deficit is $229 billion.

In Bankruptcy Plan, U.S. Airways To Cut Fleet

U.S. Airways—the sixth-largest in the U.S.—will cut 13% of its flights, 11% of its fleet, and an unspecified number of jobs, as part of bankruptcy reorganization, according to Reuters Aug. 22. About 200 daily flights will be eliminated, and the fleet will be cut to 280 from 311 by the end of the year.

Wall Street Journal Worries Consumers Aren't Spending Enough

The Wall Street Journal is wringing its hands over the fact that Americans, who supposedly have piles of money "sloshing around" in their bank accounts from refinancing their home mortgages, aren't spending it fast enough. Writing in the Aug. 22 Journal, Jesse Eisinger warns that consumers had better start spending some of that money soon because, so far, there are signs that they "are slowing down their spending." The following stores (all discount)—the only retail outfits to report strong sales before—are now showing problems for the third quarter, and also for July: RadioShack, Target, BestBuy, and even the "untouchable" Wal-Mart.

Wall Street Police Blotter

AOL is under investigation by the Securities and Exchange Commission, for pumping up its share prices with optimistic forecasts, while its executives were selling stocks. Fifteen senior executives and directors of AOL made almost $500 million in profits, by selling shares between February and June 2001, while the company insisted it would meet earnings targets set after the AOL-Time Warner merger was announced in January 2000.

Citigroup's lucrative financing deal with AT&T: New York State Attorney General Eliot Spitzer has widened his probe of Salomon Smith Barney to see whether Citigroup CEO Sandy Weill pressured Jack Grubman, then a Salomon telecom analyst, to raise his rating on AT&T in order to win a spot in underwriting a large stock offering of AT&T's wireless business. Citigroup's brokerage unit, and Merrill Lynch and Goldman Sachs, each pocketed $45 million in fees for the $10.62-billion stock offering in April 2000. Weill "nudzhed" Grubman to give AT&T a "fresh hearing," unnamed sources told the Journal.

The Justice Department got its first Enron scalp Aug. 21 when former executive Michael Kopper pleaded guilty to fraud and money-laundering, agreeing to pay $12 million in restitution and cooperate with authorities. Kopper worked for chief financial officer Andy Fastow and was heavily involved in the off-balance-sheet partnerships that have been the subject of the various Enron investigations. Under Federal sentencing guidelines, according to Bloomberg, Kopper faces up to 10 years in jail, but no doubt has been promised a significantly reduced sentence if he helps the Feds nail Fastow. He also faces civil suits.

With Kopper turning state's evidence, the next target is clearly Andy Fastow. If Fastow is indicted, he in turn will likely be provided the opportunity to rat out former chief executive Jeffrey Skilling. Any attempt to nail Skilling, who has been described as a "control freak" who had hands-on control over Enron's financial maneuvering, could become quite interesting, given his vague but pointed references in his Congressional testimony to systemic financial problems.

Steel Industry Ratchets Down Another Notch

Three thousand desperate steel workers swarmed into Weirton, W. Va., to apply for 150 jobs, AP reported Aug. 17. The 150 vacancies opened up in the Weirton steel mill, when more workers than expected opted for retirement. Although the jobs were advertised only in West Virginia's northern Panhandle area, steel workers from bankrupt LTV, as far away as Cleveland, along with laid-off workers from Pennsylvania, got word of the openings, and piled into cars to travel long distances just to file applications.

Ironically, the Weirton facility has, like most other steel mills, been drastically cutting back its workforce and is on the edge of bankruptcy. The company posted a loss of over $30 million for the last quarter.

Further illustrating the disintegration of the steel industry, Bethlehem Steel has begun to make good on its threat to cut retiree benefits for steelworkers. The company has asked the bankruptcy court to appoint a committee representing union and salaried employees to help devise a plan to reduce the company's $3 billion in legacy costs owing to 95,000 retired employees, spouses, and dependents. Under the terms of its bankruptcy reorganization, the company has until January to reach a new labor agreement, but Bethlehem CEO Steve Miller has indicated that the company may file a new reorganization plan by the end of September.

Miller has threatened that if the United Steelworkers union does not offer concessions on the legacy issue, he will liquidate the company and let them take their chances with a new owner who has no contractual obligations. The liquidation of LTV resulted in a complete wipeout of retirees' health benefits, and no contract has yet been negotiated between the new management (ISG) and the USWA, despite the fact that the mills began reopening last spring.

New York State Budget Will Rely on Casino Gambling Revenues

The $88.6-billion New York State budget proposed by Gov. George Pataki Aug. 20 will drain all reserves and rely on casino-gambling revenues. In order to paper over the official $6.8-billion two-year revenue shortfall which he has characterized as a "financial nightmare" and a "horrific condition," Pataki is proposing to empty accounts originally earmarked for other purposes, and to impose cuts in state operations. The state workforce is scheduled to be cut by 5,000, supposedly through early retirement plans, and there will be a freeze on spending for education. Pataki's proposals for "economic stimulus," the "Empire plan," will borrow from the state general fund against projected revenues from expanded casino gambling projects to be built in western New York State. Pataki is proposing that the state take 25% of slot-machine revenues from casinos to be operated by the Seneca Indian tribe, a level of "revenue sharing" that has never been approved by the Federal Bureau of Indian Affairs. A coalition of officials from the Saratoga Chamber of Commerce and anti-gambling members of the Seneca tribe are challenging the casino gambling plan in Court.

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