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The Honolulu Advertiser

Posted at 12:53 p.m., Wednesday, March 28, 2007

Business highlights: Circuit City, recession, oil prices

Associated Press

BERNANKE DOESN'T FORESEE RECESSION

WASHINGTON — Federal Reserve Chairman Ben Bernanke doesn't believe the nation will slip into a recession, rejecting the notion raised by predecessor Alan Greenspan that the economy's expansion could be in danger of fizzling out.

But the good news for investors stops there.

Bernanke suggested Wednesday that Wall Street jumped too far last week in thinking that Fed policymakers had signaled interest rates might drop. That new comment sent stocks spiraling downward. The Dow Jones industrials lost 96.93 points to close at 12,300.36.

The Fed chief testified on Capitol Hill amid growing concerns that problems with risky mortgages and a painful housing slump could send the economy into a tailspin. Greenspan, who left the Fed last year, recently said there's a one-in-three possibility of a recession this year.

But Bernanke — while acknowledging there are risks — told Congress' Joint Economic Committee that the Fed does not see such negative forces pushing the economy into a recession.

CIRCUIT CITY LAYING OFF 3,400

NEW YORK (AP) — A new plan for layoffs at Circuit City is openly targeting better-paid workers, risking a public backlash by implying that its wages are as subject to discounts as its flat-screen TVs.

The electronics retailer, facing larger competitors and falling sales, said Wednesday that it would lay off about 3,400 store workers — immediately — and replace them with lower-paid new hires as soon as possible.

The laid-off workers, about 8 percent of the company's total workforce, would get a severance package and a chance to reapply for their former jobs, at lower pay, after a 10-week delay, the company said.

Analysts and economists said the move is an uncertain experiment that could backfire for the chain. The risks: Morale could sink and customers could avoid the stores. Also, knowledgeable customer service is one of the few ways Circuit City can tackle competitors that include Wal-Mart Stores Inc., they say.

OIL PRICES HIT SIX-MONTH HIGH

NEW YORK — Oil prices rose to a six-month high above $64 a barrel Wednesday amid rising tensions between Iran and the West and as inventories declined in the U.S.

Though denied by the U.S. military, it was rumored that Iran fired a missile at an American ship in the Persian Gulf.

Iran, one of the largest oil producers, is located along the Strait of Hormuz, through which much of the world's oil is transported. Traders worry that oil supplies could be disrupted if unrest escalates there.

Falling U.S. inventories of crude oil, gasoline and distillates added to supply concerns, keeping prices high.

Rumors about a military confrontation spurred panic buying in after-hours trading Tuesday, sending oil prices above $68 in a matter of minutes. Rising tensions between Iran and the West have created a potentially dangerous situation in the Gulf and markets are jumpy.

DEMAND FOR DURABLE GOODS SLOWS

WASHINGTON — Orders to factories for big-ticket manufactured goods posted a disappointing increase in February that raised new worries about the strength of the economy.

Demand for durable goods increased by 2.5 percent in February, the Commerce Department reported Wednesday. It was a weaker-than-expected rebound from a huge 9.3 percent drop in orders that occurred in January.

That January decline jolted financial markets around the world and contributed to a 416-point drop in the Dow Jones industrial average on Feb. 27 as investors grew more worried about a possible recession this year.

In the new reports, analysts were especially concerned about continued weakness in business investment, which fell by 1.2 percent in February, the fourth decline in the past five months.

UAW WON'T BUDGE ON HEALTHCARE CONCESSIONS

DETROIT — The head of the United Auto Workers said Wednesday that the union already has made healthcare concessions to General Motors Corp. and Ford Motor Co., and he implied that it won't give any more.

At the close of the union's two-day bargaining convention in downtown Detroit, President Ron Gettelfinger said the UAW made major concessions in 2005 that saved Ford and GM billions in long-term retiree healthcare obligations.

DaimlerChrysler AG's Chrysler Group didn't get the same concessions in 2005 because the UAW said the company was in better financial shape at the time. But Chrysler has since started losing money, and the UAW re-examined the company's books to determine if it would grant the same deal.

Under the 2005 agreement with GM, hourly workers contribute $1 per hour in future pay increases to a new fund to help pay for retirees' health coverage. Single retirees pay up to $370 a year in deductibles and fees for their coverage. And most retirees and all active hourly workers pay higher co-payments for prescription drugs.

In the deal with Ford, retired autoworkers will start paying monthly contributions, annual deductibles and co-payments for some medical services up to a maximum of $370 a year for individuals and $752 for a family.

ARGUMENTS HEARD IN ABUSIVE LITIGATION CASE

WASHINGTON — A stringent legal standard is needed for shareholders to meet when they accuse public companies of fraud and sue them for damages, attorneys representing the government and business interests argued before the Supreme Court on Wednesday.

But in a case that brought to mind a series of corporate scandals in 2002, a lawyer representing public pension funds and 32 states and territories contended that it would be wrong to choke off shareholders' claims at the initial stage of their cases by applying the tougher standard prescribed by some federal appeals courts.

Congress intended in a 1995 law to curb abusive litigation against companies, said Harvard law professor Arthur Miller.

Attorney Carter Phillips, one of those arguing the position of the Justice Department and the Securities and Exchange Commission and corporations, said that to be true to the 1995 law, courts must require shareholders in those cases to show a "high likelihood" of an intention to deceive on the part of companies or executives.

SOFTWARE MAKER LOSING TOP EXECUTIVE

BERLIN — Business software maker SAP AG said Wednesday top executive Shai Agassi, once considered a potential successor to Chief Executive Henning Kagermann, would leave the firm to pursue interests in alternative energy and environmental policy.

Agassi is the president of SAP's product and technology group and a member of the company's top management board.

Plattner said he earlier "had shared with Shai my plan that he should become successor to Henning Kagermann as a co-CEO for SAP." But with the extension of Kagermann's contract to 2009, "it became apparent that Shai was not comfortable committing to a 10- to 15-year period, which was not in keeping with his personal career timeline," Plattner was quoted as saying.