House speaker urges 'confidence' to boost economy

House Speaker Nancy Pelosi said confidence by lenders, investors and borrowers is the key missing ingredient holding back a rebounding of the shakey US economy.

"The word of the day is a word that is important to our economy every day, and that word is confidence," she told reporters after meeting with several leading economists.

"Confidence in market, confidence in lending, confidence in financial institutions."

"It's clear we have to stabilize the financial institutions," added Pelosi, the top Democrat in the US House of Representatives.

Lagging investor confidence sent US stocks to a 12-year low Monday, but stock prices surged Tuesday, after beaten-down financial giant Citigroup offered an upbeat earnings outlook.

Pelosi said President Barack Obama was "turning around the ship of state (but) it takes time."

One of the economists at the meeting, Mark Zandi, chief economist and co-founder of Moody's Economy.com, endorsed the 787 billion dollar stimulus packaged passed by Congess last month, calling it a "good package."

"It's large, it's well designed," he said, adding that he thought its impact on the job market would be evident by mid year.

Bernanke urges global strategy on finance regulation

Federal Reserve chief Ben Bernanke called Tuesday on governments to forge a global strategy to regulate the financial system to tackle the worst crisis since the Great Depression.

Speaking ahead of a weekend summit, Bernanke warned that a sustainable recovery from the global economic slump "will remain out of reach" until governments stabilized the financial system.

"We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components," he told the Washington-based Council on Foreign Relations ahead of the Group of 20 finance ministers and central bank chiefs meeting in London.

"In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim," he said.

Bernanke said a key pillar of any oversight strategy of the global financial system should address the problem of financial institutions "deemed too big -- or perhaps too interconnected -- to fail."

US and European governments have moved to rescue large private institutions, mostly banks, reeling from the current stock market meltdown and credit crunch triggered by a US home mortgage crisis.

The home foreclosure crisis plunged the world's biggest economy into prolonged recession, sending the unemployment rate to a 25-year high, pushing stocks to 12-year lows and forcing government rescues of blue-chip companies such as AIG, Citigroup and General Motors.

"Indeed, in the present crisis, the too-big-to-fail issue has emerged as an enormous problem," Bernanke said, citing the heavy cost borne by taxpayers on government rescues of mega firms that had taken excessive financial risks.

He said policymakers should address the issue by "better supervising systemically critical firms to prevent excessive risk-taking" and by "strengthening the resilience of the financial system to minimize the consequences when a large firm must be unwound."

As many large and complex financial firms are global in nature and subject to complex regulatory structures, any new regime must be structured to work as seamlessly as possible with other domestic or foreign insolvency regimes, he said.

Bernanke said another key pillar for better oversight of the global financial system was strengthening "financial infrastructure," such as rules that govern trading and settlement in financial markets, to ensure that it would "perform well under stress."

He also sought a review of regulatory policies and accounting rules and the possibility of setting up an authority specifically charged with monitoring and addressing "systemic risks" to "help protect the system."

"In the near term, governments around the world must continue to take forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit," he said.

Amid the festering financial crisis, International Monetary Fund managing director Dominique Strauss-Kahn warned Tuesday that the global economy could contract for the first time in 60 years in 2009.

Differences have also surfaced ahead of the G20 talks between key emerging and industrialized nations designed to coordinate a global response to the worsening credit crunch.

The White House Monday denied a rift with Europe over whether economic stimulus or regulatory reform offers the best path to revival of the global economy.

Washington is pressing its transatlantic allies to emphasize stimulus. But the European Union has failed to forge a common approach, and some EU leaders led by France are pressing for a comprehensive rewrite of global regulation.

Canada to emerge from crisis first: PM

Prime Minister Stephen Harper predicts Canada will emerge from the global financial crisis faster than any other country but said there won't be a recovery until the U.S. financial system is repaired.

Harper promoted Canada's economy Tuesday in what his officials called a major speech.

"Canada was the last advanced country to fall into this recession. We will make sure its effects here are the least severe, and we will come out of this faster than anyone and stronger than ever," Harper said.

Canada has avoided government bailouts and has not experienced the failure of any major financial institution.

There has been no crippling mortgage meltdown or banking crisis north of the border where the financial sector is dominated by five large banks.

Harper noted that the World Economic Forum said recently that Canada had the soundest financial system in the world.

"Canada is receiving rare recognition these days in the United States and around the world for these strengths," Harper said.

"If there ever was a time to put away that legendary Canadian modesty it is now."

President Barack Obama said last month than the United States should "take note" of how Canada has shown itself to be a good manager of its financial system. Harper has said Canada has strong regulation that encourages a cautious culture in the banks.

Canada's dominant banks recently reported earnings that show they are doing far better than banks in the United States and Europe. The stock prices of Canada's banks are down but not nearly as much as U.S. or European bank stocks. Canada's financial system is dominated by five banks, unlike in the U.S. where there are scores of banks.

Canada's banks aren't as leveraged as their international peers. Canadians also pay much higher fees because of the concentrated banking system.

Harper received applause when he noted Canada's strong banks.

"Only a financial crisis can get Canadians to applaud the banks," Harper joked.

The prime minister said in spite of the strength of Canadian banks, the availability and cost of credit in Canada is being affected by the international financial crisis.

The crisis and the global sell-off of commodities have hit Canada hard. Alberta's once-booming oil sands sector has cooled as every major company has scrapped or delayed some expansion plans.

The Canadian economy contracted at a 3.4 percent annual pace at the end of 2008, but it wasn't as steep as the 6.2 percent drop in the United States, the 12.7 percent decline in Japan and the 20.8 percent pullback in South Korea.

"The American economy has been hit twice as hard as Canada. The same is true of the Europeans. The Japanese have been hit four times as hard," Harper said.

"We will not turn the corner on this global recession until the American financial sector is fixed. The immediate source of this global recession is the ongoing crisis of the financial sector in the United States and other advanced Western countries."

Harper's Conservative government unveiled a $32 billion economic stimulus package in January but the bill hasn't become law yet.

Canada lost a record 129,000 jobs in January. The U.S.-equivalent based on labor market size would be over a million jobs lost. The U.S. labor market is about 10 times the size of Canada's.

Canada's job report for February is released Friday.

Canada and the U.S share the largest trading relationship in the world. More than 70 percent of Canada's exports go to the U.S. But Harper said Canada is entering the most difficult period in memory in a position of significant comparative strength.

"Canada should avoid both significant deflation and renewed inflation, both of which are significant risks in other countries," Harper said.

The prime minister won re-election last October despite saying during the campaign that Canadians weren't concerned about their jobs or their mortgages.

He also said in October that the stock market was overreacting to bad news and that stocks were cheap. Canada's main stock exchange is down more than 30 percent since then.

Pelosi leaves door open to second stimulus

House of Representatives Speaker Nancy Pelosi on Tuesday left the door open to another stimulus bill to boost the ailing economy, although economists were split over the need for one.

Last month, Congress approved a $787 billion spending plan that included money for roads and bridges as well as tax cuts for individuals and small businesses, all aimed at reversing the economy's sharp downward spiral.

After meeting behind closed doors with prominent economists, Pelosi said that at the moment she would adopt a wait-and-see approach to a further economic stimulus, but noted that job losses would likely increase over the coming months.

"It will take a little time to get going, some of it's already in the works, but we must give it time to work," Pelosi told reporters flanked by economists and fellow Democrats who met to discuss the struggling economy.

"You have to keep the door open to see how this goes," she said.

Mark Zandi, chief economist of Moody's Economy.com, said that more funds would likely be needed to boost the economy as well as shore up the banking system, and potentially for the program to mitigate home foreclosures.

"We are going to need more taxpayer money up front," Zandi told reporters. "I think another stimulus package is a reasonable probability given where things are going."

He argued that spending the money up front could head off a larger economic catastrophe down the road which could be significantly more expensive. Already several million jobs have been lost since the recession began in December 2007.

"If we don't stem the crisis quickly, the economy will continue to slide away and cause more problems with respect to our deficits and budgets, and ultimately will cost us more," Zandi said.

However, another economist who participated in the briefing with House Democrats offered an different perspective.

"I don't necessarily think we're going to need more stimulus funds, I think we have to see how things go," said Allen Sinai, chief global economist at Decision Economics Inc. "Remember, a tremendous amount of stimulus is working in the economy."

He warned that the stimulus effort would probably fall short of creating or saving 3.5 million jobs within two years, saying it would instead probably take three years.

But one prominent Senate Democrat, Senator Ben Nelson of Nebraska who helped negotiate the smaller $787 billion package last month, said it was "way too soon" to be discussing another stimulus effort.

(Editing by Anthony Boadle)

Wholesale inventories fall again in January

Businesses slashed inventories at the wholesale level for a fifth straight month in January, the longest stretch since the last recession in 2001 and a warning signal that companies are likely to keep cutting production as they cope with the deepening downturn.

The Commerce Department said Tuesday that wholesale inventories fell 0.7 percent in January, which was slightly smaller than the 1 percent fall economists had expected. It followed a 1.5 percent drop in December that was initially reported as a 1.4 percent decline.

Sales at the wholesale level dropped 2.9 percent in January, the seventh consecutive decline.

Businesses have been struggling to slash stockpiles of goods on shelves and backlots in the face of plunging sales. That can have severe consequences for the economy because less stockpiling usually leads to cutbacks in production and layoffs.

The current recession — which began in December 2007, and already is the longest in a quarter-century — so far has eliminated 4.4 million jobs. The government last week said that the unemployment rate rose to 8.1 percent in February, the highest level in more than 25 years, with a net total of another 651,000 jobs lost.

Federal Reserve Chairman Ben Bernanke told a Washington audience Tuesday that there was a "good chance" the U.S. recession could end this year if the government succeeds in getting banks to resume more normal lending, something that has been severely restrained by the worst credit crisis to hit the country in decades.

The plunge in wholesale sales and smaller drop in inventories in January left the ratio of inventories to sales at 1.3, up from 1.27 in December and the highest since January 2002. That ratio means it would take 1.3 months to exhaust stockpiles at the wholesale level at the current sales pace.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.

Many economists believe businesses will keep cutting their stockpiles to help lower the amount of unsold goods. Some are forecasting a severe inventory correction that could cut the overall economy, as measured by gross domestic product, by 1 percent below what it otherwise would be this year.

The deepening recession is forcing more job cuts. L.L. Bean Inc., the Maine-based clothing and outdoor-goods retailer, told employees this week it expected layoffs this year after annual revenues dropped for only the third time since 1960.

Big impact from small health savings: White House

A healthcare overhaul that achieves small cost savings each year could have a big impact on the U.S. economy and federal budget in the long run, White House budget director Peter Orszag told Congress on Tuesday.

Orszag told the Senate Finance Committee that lawmakers need to focus on cutting health costs as they begin writing legislation to overhaul the $2.5 trillion U.S. healthcare system and cover an estimated 46 million uninsured Americans.

"If we could reduce the rate of health care spending growth by 1 percent a year ... the power of compound interest is so strong that, after 50 years, we would reduce health care spending as a share of the economy by 20 percent or so," he said.

Health care costs are rising much faster than the overall rate of inflation, leading to higher insurance premiums and putting financial pressure on consumers as well as employers who provide healthcare coverage to their workers.

President Barack Obama has made overhauling the system a top legislative goal this year and senior lawmakers said on Tuesday they expected to meet that challenge.

"We should put a health care bill on the president's desk by July 4," Senate Finance Committee Chairman Max Baucus said.

House Energy and Commerce Committee Chairman Henry Waxman said the House of Representatives would likely act on legislation by August.

Orszag promised the Finance Committee that the administration would find compromise. "Everything is on the table," Orszag repeatedly told the panel.

PUBLIC OR PRIVATE

Waxman, who will play a major role in writing the legislation, told an American Medical Association meeting that he wants a government insurance program to be part of the mix of plans available to consumers.

"Give people a place to go to get good accessible affordable and regulated coverage through a private plan or, if they prefer, through a public alternative," Waxman said. "The choice would be theirs."

Missouri Representative Roy Blunt, a leading House Republican voice on healthcare policy, expressed doubts about a new government insurance program. One similar to the Medicare program for ages 65 and up that would cover people below that age would have unfair advantages over private insurers to the point that they would be unable to compete, Blunt said.

For their part, employers asked that they not be forced to provide insurance.

"Even in the best of times we have wafer-thin profit margins," Neil Trautwein of the National Retail Federation told a House of Representatives Education and Labor Committee hearing. Forcing all employers to provide insurance would lower wages and force job cuts, he said.

"We would urge consideration instead of an individual mandate to secure health insurance coverage," Trautwein said.

The cost of healthcare for large employers has doubled since 2001 to $8,863 per employee per year in 2009 and will rise $13,326 per employee by 2014, James Winkler of consultants Hewitt Associates, told the House hearing.

John Sheridan, chief executive officer of Cooper University Hospital in Camden, New Jersey, said employers are paying now for people without insurance.

"The uninsured typically use hospitals for less-acute primary care-type services," Sheridan told the House hearing.

His hospital shifts those expenses to people with health insurance, so that patients with employer-sponsored insurance make up 30 percent of those getting treatments and incur 30 percent of costs to the hospital, but provide 40 percent of the revenue, he said.

(additional reporting by Will Dunham and Maggie Fox; Editing by Cynthia Osterman)

United Tech to cut 11,600 jobs

United Technologies Corp, whose products range from elevators to jet engines, plans to cut 11,600 jobs as it adapts to an economy that has grown worse than it expected just three months ago.

The diversified U.S. manufacturer also cut its 2009 profit forecast by roughly 13 percent and lowered its revenue target as it is no longer relying on an economic recovery later this year, its chief executive said on Tuesday.

United Tech shares rose about 6.7 percent amid a broad stock market rally as Wall Street had regarded the company's profit target set in December as optimistic.

"Conditions have gotten very challenging," CEO Louis Chenevert told investors in a presentation that was monitored over the Web. "We intend to be fully prepared for a deeper and longer deterioration in market conditions."

Combined with 2008 job cuts, the latest restructuring plan will reduce the Hartford, Connecticut-based company's workforce by about 18,000 positions.

As of December, United Tech employed about 220,000 people.

"The economic recovery previously anticipated in the second half of 2009 now appears unlikely," Chenevert said.

The world's largest maker of elevators and air conditioners said it expected to earn $4 to $4.50 per share in 2009, lower than the $4.65 to $5.15 it previously forecast.

Analysts were looking for profit of $4.60 per share, according to Reuters Estimates.

United Tech said it expected $750 million in restructuring costs this year, partly offset by $200 million to $350 million in gains. All told, one-time items will weigh profits down by 30 to 40 cents per share for the year.

The company, which also makes Sikorsky helicopters, now looks for revenue of $55 billion this year, down from a prior forecast of about $57 billion. It said it would cut its planned budget to repurchase shares by half to $1 billion.

It plans to reduce capital spending about 20 percent from 2008 levels, to below $1 billion.

One investor said the moves were a sign that United Tech was trying to stay a step ahead of a deteriorating world economy.

"The more you can get ahead of the ball, rather than behind it, you're going to get ahead in this marketplace," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio, which owns United Tech shares.

AVIATION, CONSTRUCTION WEAK

United Tech's Carrier air conditioning business is being hard hit by a slumping construction market, while its Pratt & Whitney jet engine arm is feeling the pinch of fewer people flying, both on commercial jets and private planes.

"We are seeing significant pressure on commercial building installations and business-jet related markets," wrote Deutsche Bank analyst Nigel Coe, in a note to clients.

United Tech, which also makes Sikorsky helicopters, said it was holding its targeted takeover budget steady at $2 billion.

"There are some really good values out there for certain properties," Chenevert said. "We are a willing buyer and as long as we encounter a willing seller at some point in time, deals will be made."

But he cautioned the company would be shying away from hostile bids. The company last year unsuccessfully pursued a takeover of Diebold Inc, a maker of automated-teller machines.

"I don't think this is a good environment for hostile activity," Chenevert said.

United Tech's competitors include Eurocopter, a unit of EADS, in helicopters; General Electric Co in jet engines and ThyssenKrupp in elevators.

Its shares were up $2.52 at $40.08 on the New York Stock Exchange on Tuesday afternoon.

At Monday's close, the stock had fallen 44 percent over the past year, in line with the 45 percent slide of the Dow Jones industrial average.

(Editing by Steve Orlofsky and Matthew Lewis)