April 22 (Bloomberg) — Chancellor of the Exchequer Alistair Darling today will deliver a U.K. budget with what may be the biggest deficit on record, limiting his ability to counter the worst recession since World War II.

The shortfall this year may jump to 160 billion pounds ($232 billion), or 11 percent of gross domestic product, according to a survey of 24 economists conducted by the Treasury. Darling, who estimated an 8 percent gap in November, will announce his figures to Parliament at 12:30 p.m. in London.

With an election a little more than a year away, Prime Minister Gordon Brown may be unable to spur growth through new spending because the Treasury has already more than doubled the value of its bond sales to 146 billion pounds this year. The deficit would be the biggest in Europe and the third largest in the Group of 20 nations behind the U.S. and India.

“The U.K.’s fiscal position is worsening so rapidly that any stimulus measures in the budget are likely to be modest,” said Michael Saunders, chief western European economist at Citigroup Inc. “When it is most needed, fiscal policy will not be able to act. This is a major policy failure.”

Darling today will announce 1 billion pounds of aid to homebuilders and another 1 billion pounds to people younger than 24 who have unemployed for than a year, people familiar with his plans said this week. He’ll introduce support for automakers, including incentives to buy electric cars; trade insurance for exporters and manufacturers, and a 50 billion-pound program to underwrite mortgage-backed securities, the people said.

Stimulus Spending

Britain’s 25 billion pounds of stimulus to date cost the government 1.4 percent of GDP this year, less than the programs worth 2 percent in the U.S. and 1.5 percent in Germany, the International Monetary Fund says. Next year, the U.K. and South Africa alone in the G-20 have penciled in fiscal contractions.

Last month, Brown retreated from calls for a new fiscal stimulus after Bank of England Governor Mervyn King said the Treasury should be “cautious” about the deficit, which Citigroup says is the biggest in more than a century, excluding the two world wars.

Bond prices are likely to extend their decline as borrowing needs increase. Yields, which move inversely to prices, on two- year government notes will rise to 1.99 percent in the second quarter of 2010, from the current 1.43 percent, according to the average of seven analysts’ forecasts compiled by Bloomberg.

Since modern record-keeping began in 1970, the deficit peaked at 9.2 percent of GDP in 1976, when the U.K. tapped the International Monetary Fund for emergency credit.

‘Targeted’ Aid

Brown says today’s measures, which cover the five fiscal years through March 2014, will be “targeted” at industries and groups suffering most.

Darling has said Britain’s economy won’t bounce back before next year, later than he anticipated in November, when the Treasury forecast a contraction of no more than 1.25 percent this year. The median forecast of analysts surveyed by the Treasury now is for a drop of 3.7 percent of GDP, the worst since modern growth records began in 1948.

“We are expecting pretty grim forecasts and deferment of economic recovery,” said Robin Marshall, director of fixed income at Smith and Williamson Investment Management. “Investors will look to Darling for some reassurance that they will make it sustainable. I’m not sure it will be easy for him to assuage the fears.”

The government yesterday signaled spending restraint when the Treasury announced plans to save 15 billion pounds through cost cuts and efficiency.

Facing Voters

That may not do anything to help Brown in an election he must call by June 2010. He was 19 points behind the Conservative opposition in a survey by BPIX Ltd. this week. His pledges to support those without jobs or struggling to pay the mortgage will go unheard unless he can point the way out of recession, said Andrew Cooper, chief executive of Populus Ltd., a polling company.

“Voters are intensely cynical about budgets,” Cooper said. “It will have a bit more impact this time because it will update them on how frightened they should be. Is there a sign that things are getting better, that the government has a clue what to do about the situation?”

The IMF predicts Britain will suffer the deepest recession among the Group of Seven nations. Unemployment is headed to 10.3 percent next year, the most since 1994, the Confederation of British Industry says.

The Trades Union Congress representing 6.5 million workers wants Darling to spend 2 billion pounds on programs to give job experience to people who are long-term unemployed. Brown last week pledged “a budget for jobs.”

Declining Revenue

Darling has to fund those demands with plunging tax receipts. Profits in the U.K.’s financial services industry, which provides more than a quarter of the nation’s corporate tax revenue, have suffered from the banking crises. Bonuses to London bankers have fallen 62 percent, according to recruiter Napier Scott Search Group, curtailing income tax payments.

“Any hopes that this budget might deliver a significant boost to the economy have probably been dashed,” said Roger Bootle, an economist at Deloite & Touche LLP. He expects “a sizable and no doubt onerous fiscal consolidation when the economy finally emerges from this recession.”

As housing prices collapsed last year, the epicenter of the crisis quickly moved to the London offices of the previously little-known AIGFP. When AIG said in September it couldn’t make good on the huge sums it owed AIGFP counterparties like Goldman Sachs, the U.S. Treasury Department took an 80% stake in the company rather than watch those contracts unravel disastrously.

Yahoo said last October it would cut about one-tenth of its workforce, or about 1,600 jobs. The company finished 2008 with roughly 13,600 employees and said it would take severance charges from the new round of layoffs during the second quarter.

Yahoo said its operating cash flow, excluding certain items, was $409 million in the first quarter, at the high end of the $365 million to $415 million range it forecast in January.

Yahoo shares were up 54 cents at $14.92 in after-hours trading on Tuesday. The company’s stock is up roughly 9 percent from its Monday close of $13.66.

Yahoo’s financial report comes as speculation has mounted that the firm has restarted discussions with software giant Microsoft Corp (MSFT.O) about an Internet search partnership, following last year’s failed merger negotiations.

Bartz, who replaced Yahoo co-founder Jerry Yang in the top job in January, declined to comment on anything related to Microsoft during the conference call on Tuesday.

But she reiterated her belief that search is a very valuable part of Yahoo’s business.

“I’m well-versed enough in the search business at Yahoo to say it’s absolutely critical to Yahoo,” Bartz said in response to a question regarding whether she is now familiar enough with the business to respond to an offer for search.

AIM TO KEEP COSTS IN LINE

In the first full quarter under Bartz’s leadership, Yahoo generated revenue of $1.58 billion, down 13 percent from the year-ago period

U.S. stock markets plunged yesterday after several major firms cautioned that the recession continues to weigh on their businesses, prompting investors to lock in profits from the past month’s rally.

The Dow Jones industrial average fell 3.6 percent, or 289.60 points, to 7841.73. The broader Standard & Poor’s 500-stock index dropped 4.3 percent, or 37.21 points, to 832.39, while the tech-heavy Nasdaq composite index was down 3.9 percent, or 64.86 points, to 1608.21.

Stocks have rallied in recent weeks after hitting historic lows in March. The S&P has risen for six consecutive weeks, the longest run in two years. But the sell-off yesterday signaled that many investors remain skeptical that the economy has turned the corner. A report yesterday by the Conference Board showed that leading economic indicators fell 0.3 percent in March, the ninth consecutive decline.

“It’s a question of still some uncertainties out there, and that’s causing investors to take a more cautious outlook,” said Peter Cardillo, chief market economist with Avalon Partners in New York.

Bank of America reported profit of $4.25 billion during the first quarter, 3 1/2 times what it made in last year’s first quarter. The company attributed the gains to trading in financial products and a rush to refinance homes as interest rates drop. But the bank also warned that the economy continues to face “extremely difficult challenges” as the unemployment rate rises. Bank of America’s stock fell 24 percent, or $2.58, to $8.02.

The news dragged down the rest of the financial sector, which fell 6.6 percent. Citigroup plummeted 19 percent, while Wells Fargo fell 16 percent. J.P. Morgan Chase dropped 11 percent.

“The news from Bank of America really hit investors over the head with a cold shower that there are still some banks that are going to have troubles,” said Len Blum, managing director for Westwood Capital. “Credit losses aren’t over.”

Larry Smith, chief investment officer at Third Wave Global, said investors should expect volatility, particularly in financial stocks, as the markets digest the rapid gains of the past month. But he said the worst is over. “I don’t think we’re returning back to the type of scenario that people are referring to as a meltdown.”

Other companies reporting earnings yesterday included the pharmaceutical company Eli Lilly, which announced that first-quarter profit rose 23 percent, to $1.3 billion, beating analysts’ expectations. Its stock closed down 2.3 percent. The energy firm Halliburton edged up 0.1 percent after reporting a 35 percent drop in earnings. The company said profit was affected by severance packages for employees.

Tech stocks were also big movers yesterday. Oracle announced a $7.4 billion deal to buy Sun Microsystems after IBM abandoned its bid for the software company. Sun’s stock shot up 37 percent, to $9.15, in heavy trading. Oracle, however, fell 1.3 percent, to $18.82. The technology sector was down 3.5 percent for the day.

“The more merger activity that we see going forward,” Smith said, “the better it will be for the equity markets.”

Stocks also slid in Japan, with the Nikkei 225 down as much as 3 percent during morning trading.

Unemployment climbed to 7.5 percent, and payrolls fell by 530,000, the 13th afterwards decrease, according to the average appraisal in a Bloomberg News analysis advanced of Activity Department abstracts Feb. 6. Other letters may appearance manufacturing, casework and apartment shrank further, signaling added firings ahead.

Plunging appeal and arctic acclaim are causing companies from Caterpillar Inc. to General Motors Corp. to carve jobs and achievement to anticipate unsold appurtenances from axle up. Concern that the recession will deepen afterwards the abridgement apprenticed at the fastest clip in 26 years endure division is bidding President Barack Obama to advance for quick access of his bang plan.

“The activity bazaar will attending abhorrent for a while,” said Sung Won Sohn, a assistant of economics and accounts at California State University Channel Islands, in Camarillo, California. “If the bottomward drive is not arrested, the after-effects could be disastrous. Policy makers allegation to act quickly.”

The abandoned amount in December accomplished 7.2 percent. Administration cut 524,000 workers from payrolls that month, bringing absolute job losses in 2008 to 2.6 million, the a lot of aback 1945.

This week’s address may aswell appearance manufacturers cut 143,000 jobs afterward a abridgement of 149,000 in December that was the better aback 2001, according to the Bloomberg survey.

Factory Slump

The Institute for Supply Management’s branch index, due tomorrow, fell to 32.5 in January, the everyman akin aback 1980, from a account of 32.9 the above-mentioned month, according to the analysis median. A account of 50 is the abacus band amid advance and contraction.

The Tempe, Arizona-based group’s barometer for account industries, which accomplish up about 90 percent of the economy, apparently fell to 39 from 40.1. That address is due Feb. 4.

Caterpillar, the world’s better maker of bulldozers and excavators, said on Jan. 30 that it will abolish 2,110 branch workers, abacus to the 20,000 job losses it appear on Jan. 26.

“Depending on business conditions, added layoffs and separations may be appropriate as the year unfolds,” the Peoria, Illinois-based aggregation said in a statement.

Businesses aswell are slashing spending on new equipment. Branch orders fell 3 percent in December, the fifth afterwards decline, economists anticipation advanced of a Commerce Department address Feb. 5.

Auto Cutbacks

Automakers including GM, Chrysler LLC, Ford Motor Co. and Toyota Motor Corp. are ascent aback North American output. GM, which already bankrupt a lot of of its 22 plants in North America in January, said it’ll annihilate accouterment in the additional division at plants in Ohio and Michigan and cut about 2,000 jobs.

The abridgement apprenticed at a 3.8 percent anniversary amount endure division as customer spending connected to slide. The slump acquired unsold appurtenances to accumulation up, advertence added cutbacks are in the offing.

The abridgement is “a continuing disaster” for families, Obama said on Jan. 30 as he active controlling orders to strengthen unions and put Vice President Joe Biden in allegation of a assignment force on the average class.

“The recession is deepening and the coercion of our bread-and-butter crisis is growing,” said Obama, who is acute to addition spending on basement projects and lower taxes to actualize and save jobs. The House anesthetized an $819 billion bang plan endure week, alive absorption to the Senate.

Fed Action

The Federal Reserve endure anniversary larboard the criterion absorption amount as low as aught and said it was able to aggrandize accomplish to animate lending. Policy makers aswell warned that aggrandizement may abate too bound and that downside risks to advance “are significant.”

One above annoyance is housing, now in its fourth year of a slump as home ethics abatement and foreclosures surge. The National Association of Realtors’ basis of awaiting home sales was banausic in December afterward a cord of three afterwards declines, according to the average anticipation advanced of a address due Feb. 3.

A day earlier, Commerce abstracts may appearance spending on architecture projects fell for the third afterwards month, economists said.

Also on Feb. 2, Commerce may address customer spending alone in December and incomes aswell beneath as the job bazaar deteriorated.

Bloomberg Survey

================================================================

	                        Release    Period    Prior     Median

	Indicator                 Date               Value    Forecast

	================================================================

	Pers Inc MOM%             2/2       Dec.     -0.2%     -0.4%

	Pers Spend MOM%           2/2       Dec.     -0.6%     -0.9%

	PCE Deflator YOY%         2/2       Dec.      1.4%      1.0%

	Core PCE Prices MOM%      2/2       Dec.      0.0%      0.0%

	Core PCE Prices YOY%      2/2       Dec.      1.9%      1.7%

	ISM Manu Index            2/2       Jan.      32.9      32.5

	ISM Prices Index          2/2       Jan.      18.0      18.0

	Construct Spending MOM%   2/2       Dec.     -0.6%     -1.2%

	Pending Homes MOM%        2/3       Dec.     -4.0%      0.0%

	ADP Payroll ,000’s        2/4       Jan.      -693      -530

	ISM NonManu Index         2/4       Jan.      40.1      39.0

	Productivity QOQ%         2/5        4Q       1.3%      1.2%

	Labor Costs QOQ%          2/5       4Q P      2.8%      3.0%

	Initial Claims ,000’s     2/5     Jan. 31     588       580

	Cont. Claims ,000’s       2/5     Jan. 24     4776      4790

	Factory Orders MOM%       2/5       Dec.     -4.6%     -3.0%

	Nonfarm Payrolls ,000’s   2/6       Jan.      -524      -530

	Unemploy Rate %           2/6       Jan.      7.2%      7.5%

	Manu Payrolls ,000’s      2/6       Jan.      -149      -143

	Hourly Earnings MOM%      2/6       Jan.      0.3%      0.2%

	Hourly Earnings YOY%      2/6       Jan.      3.7%      3.6%

	Avg Weekly Hours          2/6       Jan.      33.3      33.3

	Cons. Credit $ Blns       2/6       Dec.      -7.9      -4.0

	================================================================

The groups fabricated “sufficient progress” during talks yesterday, Lynne Baker, a United Steelworkers spokeswoman, said in a blast interview. The rolling 24-hour addendum began at 12:01 a.m. U.S. Central Time today and renews anniversary 24 hours until the two abandon ability an acceding or the abutment terminates the arrangement and gives 24 hour apprehension that it will strike.

“When you go to rolling 24-hour extensions, it appears they wish to ability a settlement, which will accumulate the abutment alive afterwards abolition refinery operations,” said Andy Lipow, admiral of Lipow Oil Associates LLC in Houston.

The negotiations awning workers at 86 plants apery about 64 percent of U.S. adorning capacity, including operations endemic by Exxon Mobil Corp., Valero Energy Corp., BP Plc and Chevron Corp. as able-bodied as Shell. Gasoline futures prices soared about 10 percent endure anniversary on affair over a walkout.

“The USW has agreed to extend the absolute arrangement accustomed that negotiations abide to be advantageous and advance is getting made,” Stan Mays, a Shell spokesman, said in an e-mail. “Shell is committed to absolute the actual issues at the negotiating table. We are optimistic that a mutually satisfactory acceding can be accomplished with the USW.”

Rejected Offer

The abutment alone on Jan. 30 Shell’s third offer, which included giving workers a three-year arrangement with a $500 signing benefit and 2.5 percent allowance increases in the additional and third years, according to a Jan. 28 announcement broadcast by the union. Advisers would accept a 75 cent-an-hour access in the aboriginal year.

No fourth action was made, Baker said. Associates accustomed a bang in October. The arrangement asleep at 12:01 a.m. today.

Local unions negotiating plant-specific affairs that asleep at 12:01 a.m. were aswell asked to convention 24-hour rolling extensions, Baker said. Lyondell Chemical Co. agreed to such an addendum with its bounded acceding committee, David Harpole, a agent for Lyondell, said in an e-mail.

The endure civic refinery bang happened in 1980 with the exhibit abiding for about three months. Abutment workers accustomed a 23 percent accession in pay and allowances over two years, while declining to get aggregation acceding to armamentarium approaching medical allowance exceptional increases, Business Anniversary appear at the time.

Baker beforehand beneath to say the areas in which advance was fabricated and what issues are still to be resolved. She said the talks focused on assurance and health-care issues. Talks are demography abode in Austin, Texas.

“While our focus is on extensive an agreement, we do accept affairs to cautiously accomplish in the accident of plan stoppages,” Mays said in an beforehand e-mail.

Valero’s Plans

Valero, the better U.S. refiner, has a accident workforce on website at its refinery in Port Arthur, Texas, Bill Day, a aggregation spokesman, said in an interview. It’s fabricated up of non- abutment workers and managers, he said.

“Valero is still negotiating with unions at the bounded level, and we’re hopeful that a plan abeyance can be avoided,” Day said afterwards the abutment appear the extension.

Valero affairs to accumulate Port Arthur accessible if there is a bang and shut its refineries in Delaware City, Delaware, and Memphis.

“We accept agreements with the unions at Memphis and Delaware City that if they alarm for a plan stoppage, advisers will break on the job for 72 hours to advice complete a safe and alike abeyance of the plants,” Day said.

The Memphis refinery can action about 182,000 barrels of oil a day, according to Energy Department data. The Delaware City bulb can action 190,200 barrels a day, while the Port Arthur bulb can action about 294,000 barrels a day.

BP Bulb Closures

BP, Europe’s second-largest oil company, has estimated that a exhibit could affect four of its U.S. refineries processing about 1.3 actor barrels of awkward a day, said Scott Dean, a spokesman. The aggregation affairs to shut plants area there is a strike.

The abutment at BP’s Texas City, Texas, refinery accomplished an acceding on bounded issues with the London-based company, said W.E. Sonny Sanders, the sub-district administrator for the accompaniment of Louisiana.

Lyondell Chemical “continues to arrangement in acceptable acceptance and will abide as continued as we accomplish progress,” David Harpole, a aggregation spokesman, said yesterday. About 500 of the 950 workers at its Houston refinery are abutment members.

Lyondell has been training salaried cadre for the accomplished year to be backup workers “who can cautiously accomplish the refinery” in the accident of a strike, Harpole said. “They are able to yield over if necessary. There would be no appulse to operations.”

Shell, Exxon Mobil

Shell and Exxon Mobil are advancing to accumulate their U.S. plants active in a walkout, application managers and added non-union advisers to accumulate sites operating. Prem Nair, a backer for Exxon Mobil, the world’s better ammunition maker, beneath to animadversion bygone on the cachet of the negotiations.

Chevron, the second-biggest U.S. oil company, may accumulate operating its refineries in the accident of a strike.

A bang could affect 58 percent of the workers amenable for the nation’s ammunition supply, abutment backer Baker said. The accepted arrangement was accomplished in 2002 and was continued in 2005.

The union’s civic acceding action calls for college wages, including a cost-of-living adjustment, as able-bodied as abounding medical, dental and vision-care allowances for workers and retirees. Bounded unions aswell may alarm strikes if they don’t ability acceding on issues such as plan schedules and overtime

Fourth-quarter net assets rose 8.7 percent to $225 million, or 52 cents a share, the Seattle-based aggregation said bygone afterwards markets closed. Sales climbed 18 percent to $6.7 billion.

Amazon.com had its bigger anniversary division ever, application low prices, shipment promotions and artefact alternative to allure shoppers during a recession. At EBay, anniversary sales fizzled, with annual acquirement bottomward for the aboriginal time in the company’s history. Amazon.com’s addition and chump account gave it an edge, said Collins Stewart LLC’s Sandeep Aggarwal.

“They are the arch e-commerce amateur out there,” said the San Francisco-based analyst, who recommends affairs the stock. Aggarwal now expects the allotment amount to ability $68, up from an beforehand anticipation of $65. “Their investments in chump account and addition accept paid off.”

Amazon.com rose $8.82 to $58.82 at 4 p.m. New York time in Nasdaq Banal Bazaar trading, the bigger jump in 18 months. EBay fell 23 cents, or 1.9 percent, to $12.02.

Amazon.com’s advance outpaced the blow of the e-commerce bazaar over the accomplished two years and that’s acceptable to continue, according to JPMorgan Chase & Co. Even as the U.S. abridgement absent 2.6 actor jobs endure year, the aggregation additional sales.

Better Treatment?

“Amazon is a aggregation that treats its barter bigger than EBay,” said Scott Devitt, an analyst at Stifel Nicolaus & Co. in Manassas, Virginia. He advises affairs the shares, which he now expects to ability $65 aural a year. “From a aggressive standpoint amid the two, I don’t anticipate there’s any axis back.”

First-quarter net acquirement will acceleration to amid $4.53 billion and $4.93 billion, an access of as abundant as 19 percent, the aggregation said. Analysts had estimated sales of $4.55 billion, according to a Bloomberg survey. They had projected accumulation of 38 cents a allotment and sales of $6.45 billion for the fourth quarter.

Amazon.com will abide to focus on low prices and chargeless shipment to ammunition revenue, Chief Executive Officer Jeff Bezos said yesterday. Still, those sales will backpack lower accumulation margins. Operating income, a admeasurement of profitability, will abatement as abundant as 37 percent to $125 actor this quarter, from a year ago, the aggregation said.

EBay Sales

EBay, an online appointment that lets sellers bargain items or set anchored prices, appear a 6.6 percent sales abatement endure week. The San Jose, California-based aggregation abhorrent the all-around e-commerce slump.

Chief Executive Officer John Donahoe had approved to addition sales by alteration EBay’s advertisement fees and bolstering the company’s payments unit. EBay now takes a abate cut if anyone lists a artefact on its website and a bigger agency if the artefact sells.

Donahoe is aggravating to addition the amount of fixed-price listings, putting EBay in afterpiece antagonism with Amazon.com and Wal-Mart Stores Inc.’s Web site. The aggregation aswell has afflicted its seek feature, which now mixes fixed-price after-effects with bargain listings. The changes accept alienated some merchants.

Amazon.com sells articles in added than three dozen categories, alignment from ability accoutrement to agreeable instruments. Once just a book seller, the aggregation opened a website endure year that offers added than 300,000 locations and accessories for motorcycles and all-terrain vehicles.

Kindle Device

Bezos aswell has broadcast sales of agenda media, such as music and video files. The aggregation alien the Kindle digital-book accessory in 2007 to animate book, annual and bi-weekly downloads. Kindles accept awash out for two beeline years advanced of the anniversary arcade season.

U.S. online retail sales advance will apathetic this year to 11 percent, or $156 billion, from 13 percent endure year, according to Forrester Research Inc.

Amazon.com has “discounted heavily in adjustment to advance bazaar allotment and drive revenue,” Fred Moran, an analyst at Stanford Group in Boca Raton, Florida, said in a Bloomberg Television interview. “Given the environment, that ability be the appropriate way to go.”

The 3.8 percent annual pace of contraction was less than forecast, with a buildup of unsold goods cushioning the blow. Excluding inventories, the decline was 5.1 percent, the Commerce Department said today in Washington. A survey of purchasing managers also indicated today that business in January was the weakest in almost 27 years.

“The economy carried a lot of negative momentum into the first quarter,” former Federal Reserve Governor Laurence Meyer said in an interview with Bloomberg Television. Without President Barack Obama’s planned stimulus, the deepening recession will cause the jobless rate to soar to 9.5 percent or higher, he said.

Job cuts announced this month by companies from Starbucks Corp. and Pep Boys – Manny, Moe & Jack to Eastman Kodak Co. mean there’ll be little respite in the first half of this year, economists said. The Obama administration used today’s figures to reinforce its call for Congress to pass a stimulus package in excess of $800 billion to arrest the economy’s decline.

“This is a continuing disaster for America’s working families,” Obama said at the White House today. “They need us to pass the American Recovery and Investment Plan,” designed to save more than 3 million jobs, he said. House lawmakers passed the stimulus Jan. 28, moving action to the Senate next week.

Stocks, Treasuries

Stocks slid, after futures rallied initially as some investors were encouraged by the smaller GDP drop than forecast. The Standard & Poor’s 500 Stock Index fell 1.8 percent to 829.99 at 11:27 a.m. in New York. Treasuries advanced, sending benchmark 10-year note yields to 2.82 percent from 2.86 percent late yesterday.

Today’s report underscored the hit to households from the biggest wealth destruction on record. Consumer spending, which accounts for about 70 percent of the economy, dropped 3.5 percent following a 3.8 percent fall the previous three months. It’s the first time decreases exceeded 3 percent back-to-back since records began in 1947.

The Institute for Supply Management-Chicago said today its business barometer decreased to 33.3 from 35.1 the prior month. The index has remained below 50, the dividing line for contraction, for four months. Meanwhile, consumer confidence rose less than forecast this month, a Reuters/University of Michigan index showed. The gauge climbed to 61.2 from 60.1 in December.

Employment Costs

A separate report today showed that employment costs in the U.S. rose at the slowest pace in almost a decade in the fourth quarter as companies limited wage gains and benefits. The Labor Department’s employment-cost index rose 0.5 percent.

GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News.

“Without the stimulus plan, the economy would be flat to declining in the second half of the year,” said Meyer, who is now vice chairman of Macroeconomic Advisers LLC in Washington. With the recovery package, the unemployment rate may peak at 8 percent instead of 9.5 percent or higher, he added.

The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.

Economists at Morgan Stanley and Deutsche Bank Securities Inc. in New York lowered their forecasts for growth in the first three months of 2009 following the report. They both now estimate the economy’s worst drop will occur this quarter.

For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.

Inflation Measure

The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Federal Reserve’s preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.

Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.

“This is a severe, steep, broadly based recession” with “no quick fix,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in a Bloomberg Television interview from Davos, Switzerland today.

Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million. The unemployment rate last month was 7.2 percent, up from 4.9 percent a year before.

Job Losses

More cutbacks are on the way. Kodak, Target Corp. and Texas Instruments Inc. are among U.S. companies that announced thousands of layoffs this week.

Target, the second-biggest U.S. discount retailer, said this week it will slash 600 existing jobs and 400 open positions, mainly in its hometown of Minneapolis. It also said it will close a distribution center in Little Rock, Arkansas, later this year that employs 500 workers.

“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions,” Chief Executive Officer Gregg Steinhafel said in a Jan. 27 statement.

The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.

The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.

PPG Pain

PPG Industries Inc., the world’s second-biggest paint maker, said this week that it may cut as many as 4,500 employees, or 10 percent of its workforce, because of weak global demand from automakers and homebuilders.

“We are probably looking at the sharpest downturn that anyone working at our company has seen,” Chief Executive Officer Charles E. Bunch said in an interview Jan. 27. “The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis.”

The slowdown in global demand indicates American exports are unlikely to contribute to growth in early 2009. World growth will be 0.5 percent this year, the weakest postwar pace, the International Monetary Fund said Jan. 28.

Inventories grew at a $6.2 billion pace in the fourth quarter, the first gain in more than a year. Its contribution to growth was the biggest since the fourth quarter of 2005.

The Fed this week said it’s prepared to purchase Treasury securities to shore up lending and warned inflation may recede too rapidly. Fed policy makers voted to leave the benchmark interest rate as low as zero.

The GDP report is the first for the quarter and will be revised in February and March as more information becomes available.

There is “no conflict” with Turkey, Israel’s closest Muslim ally in the Middle East, Peres said at a meeting with reporters in Davos. He said bilateral relations with Turkey “will remain as they are” and that Turkey offers a moderate alternative in the Muslim world.

Erdogan, 54, walked out of the panel discussion in protest after clashing with Peres over Israel’s incursion into the Gaza Strip. He was attempting to respond to Peres’s defense of the military offensive when the moderator cut him off because the session had run over its scheduled time. Erdogan protested that he was being given less time than Peres and left the stage, saying he would not return to Davos.

The encounter underscored Erdogan’s criticism of Israel’s 22-day offensive against Hamas in Gaza that concluded on Jan. 18. Erdogan said yesterday indirect peace talks between Israel and Syria, which his aides mediated last year, have been “shelved.”

The U.S. sees the Turkish-Israeli relationship as a strategic axis that counters its political opponents in Iran, Syria and Lebanon.

Straining Ties

If Erdogan persists in criticizing Israel “relations between the two countries will be harmed,” Alon Liel, former foreign ministry director-general and Israeli charge d’affaires in Turkey in the 1980s, said in an interview late yesterday. “They have already been harmed.”

Two-way trade between Israel and Turkey grew 23 percent last year to $3.44 billion, according to Israel’s Central Bureau of Statistics. Turkey is also a popular travel destination for Israelis, with Turkey’s Tourism Ministry reporting 537,951 visiting in the first 11 months of last year, an increase of 9 percent from the same period of 2007.

Erdogan was received by thousands of flag-waving party supporters at Istanbul’s Ataturk airport on his return early today. The premier is preparing for local elections on March 29. More than two-thirds of Turks back his stance on Gaza, according to a Jan. 23 poll by Turkish research company Genar.

Peres and Erdogan spoke late yesterday by telephone and “consider the matter closed,” according to a statement released by the World Economic Forum.

Accusations

During the panel discussion, Erdogan accused Israel of not respecting the democratic rights of the Palestinians and of using excessive force in Gaza. Peres, 85, responded that Israel was trying to defend itself against Hamas rocket attacks and accused Hamas of being a “cruel, dictatorial regime.”

Israel and Turkey have close military ties. The two countries hold joint naval exercises in the Mediterranean and Israeli defense companies including Elbit Systems Ltd. supply the Turkish army with weapons and equipment.

The Israeli operation in Gaza left at least 1,375 Palestinians dead, according to the Palestinian emergency services department in the Gaza Strip. Thirteen Israelis were killed, the Israeli army said.

Tens of thousands of Turks have protested the Israeli action in Istanbul and other cities over the past month.

Speaking to reporters in Davos, Erdogan said he was annoyed that the moderator, David Ignatius, a Washington Post columnist, didn’t let him make his points. He said he “didn’t target” Jews, Israelis or Peres, though he called Peres’s arguments “untrue.” Erdogan added that he may reconsider returning to Davos. Ignatius declined to comment.

No Time

“We can’t start the debate again, we just don’t have time,” Ignatius said during the session as the other panelists, Arab League head Amre Moussa and United Nations General Secretary Ban Ki-moon, looked on.

After Erdogan left, World Economic Forum President and founder Klaus Schwab made a closing statement that attempted to end on a peaceful note. Spectators included Valerie Jarrett, a senior adviser to President Barack Obama. She was in the front row.

“Nobody can solve this problem with a temper tantrum any more than you can solve it with an Uzi or a Kalashnikov,” Eric Clemons, professor of management and information management at Wharton School at University of Pennsylvania. “I’m surprised — the rest of the day was so hopeful.”

The bank reported a loss of $10 million compared with net income of $108.8 million in the year-earlier period, the Manama, Bahrain-based bank said in an e-mailed statement late yesterday. Gulf Finance House did not provide fourth-quarter earnings per share.

“While the fourth quarter proved challenging, it is important to view our results in the context of the global economic crisis,” Chairman Esam Janahi said in the statement. The bank had an annual profit in “a difficult market.”

Banks in the Middle East are being hurt as the worst financial crisis since the 1930s, weakens capital-market activity and batters share prices. Bahrain’s benchmark share index slumped 27 percent in the fourth quarter.

Gulf Finance House’s full-year profit fell 14 percent to $291 million, it said in the statement. Profit in 2007 was boosted by a $84 million one-time gain from the sale of a 60 percent stake in Khaleeji Commercial Bank.

Gulf Finance House has over $1 billion in liquid assets and the bank’s venture capital and private equity business will seek to benefit from opportunities presented by undervalued assets in the region, the statement said.

Gulf Finance House shares have fallen 14 percent this year.