Federal Reserve Keeps Interest Rate Steady
The Federal Open Market Committee, in announcing it would keep the base federal funds rate anchored at 2 percent, issued the following statement last Tuesday:

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

The federal funds rate affects the cost of an array of consumer-credit purchases, including mortgages and car loans. Last week's decision not to raise the rate was the second consecutive time that the Federal Open Market Committee left the rate unchanged. Before that, the Fed had cut rates seven times between last September and May of this year, sparking fears of inflation.

U.S. Weekly Jobless Claims Rise More Than Expected
The number of workers filing initial claims for jobless benefits rose to 455,000 in the week ending Aug. 2, a gain of 7,000 from the 448,000 claims reported a week prior, according to the United States Dept. of Labor on Thursday.

"The latest snapshot of layoff filings was worse than analysts expected," the Associated Press reports. "They were forecasting new claims to drop to around 430,000."

The four-week average of new claims rose by 26,750 to 419,500, the highest since July 2003. Continuing unemployment claims rose by 31,000 to 3.3 million.

U.S. Productivity Slows in Q2
U.S. productivity in the second quarter of 2008 rose at its slowest pace since the last quarter of 2007, the Labor Department said in a preliminary report on Friday.

Non-farm productivity increased at an annual rate of 2.2 percent in the second quarter, reflecting a 1.7 percent jump in output and a 0.5 percent decline in hours worked. Unit labor costs rose 1.3 percent as expected, down from the 2.5 percent increase in unit labor costs in the prior quarter.

In the manufacturing sector, productivity fell at a 1.4 percent annual pace in the second quarter, as output fell faster than hours worked. Unit labor costs for manufacturers rose 6.1 percent in the quarter, the largest increase seen since the fourth quarter of 2006.

Ford Meets Job-Cutting Goal
Ford Motor Co. has met its goal of cutting 15 percent of North American salaried costs by Aug. 1, according to Mark Fields, Ford's president of the Americas. The Associated Press reports that although Fields "wouldn't say how many salaried workers will leave the company," he did confirm that "the company met its goal."

The automaker "has been cutting jobs and scaling back U.S. production as conditions in the U.S. market continue to deteriorate." Through July, sales for this year "were down 11 percent. . . and July sales were the worst in 16 years."

The automaker last week also agreed to pay a $1.4 million fine to settle an air-pollution complaint at its Cleveland Casting Plant in Ohio, according to another Associated Press report: "The Ohio Environmental Protection Agency says Ford failed to upgrade pollution control equipment at the plant scheduled to close in 2010." Ford says that it decided to suspend the upgrade when it decided to idle the plant.

Toyota Profits Tumble 28 Percent
Even Toyota Motor Corp. has succumbed to the strain of high gas prices, a stronger yen and a weak U.S. economy, as Japan's top automaker last week reported a 28 percent slide in first-quarter net profits. The Los Angeles Times reports it is Toyota's worst profit decline in five years.

The automaker said net profit came to 353.66 billion yen (US$3.2 billion) in the three months to June, dropping for a second straight quarter. Operating profit dropped 38.9 percent as revenue declined 4.7 percent.

Still, as the New York Times points out, the Japanese automaker's "overall results were hardly comparable to the $15.5 billion loss reported by General Motors and the $8.7 billion loss by the Ford Motor Company." Moreover, the Times says, Toyota "improved its market share in the U.S. to 17.4 percent in the quarter, even as its sales volumes declined."

First 787 Order Canceled
"The Boeing Co. has lost its first 787 order since the company announced in October a series of costly and embarrassing delays," the Seattle Post-Intelligencer reports. The carrier Azerbaijan Airlines, which ordered three 787s in early 2007, "will take only two."

However, as part of a compensation package" that Boeing negotiated with the airline to make up for the 787 delays, "the airline has ordered two 767-300ERs," one of which "will substitute for the canceled 787," the Seattle paper says. "The airline also ordered two 737-900ERs."

The Post-Intelligencer continues, "Boeing has not said how much it will pay those customers for missing delivery dates, but industry analysts have estimated that the figure will run at least several billion dollars."

German Factory Orders Fall in June
German manufacturing orders in June fell for a seventh straight month. According to preliminary data released by the Economy Ministry in Berlin last week, new factory orders in Germany fell by 2.9 percent in June from May when adjusted for price and seasonal effects.

Germany accounts for around a third of Eurozone industrial output, and the country's new export orders "fell 5.1 percent as German companies struggled to find new business amid slowing global demand and a strong currency that makes German goods more expensive," the Wall Street Journal reports. "The 5.1 percent drop, the steepest since 1992, was far sharper than economists had expected."

$35 Billion Aerial Tanker Contract Reopens for Bidding
The Defense Department opened a second round of bidding last week for a $35 billion Air Force tanker contract following an "error-plagued first attempt that featured bitter competition between Northrop Grumman Corp. and Boeing Co.," the Associated Press says. The contract will be to replace 179 aerial refueling planes.

Bloomberg News adds that the Pentagon said it "will give preference to a plane that carries more fuel, a decision that may aid Northrop Grumman Corp.'s original winning bid over Boeing Co." In addition, "the tanker's long-term cost over 40 years" will be assessed, rather than 25 years, and the evaluation "will give extra credit for exceeding goals on the amount of fuel supplied."

New bids are due Oct. 1, and a decision is expected by the end of the year. The International Association of Machinists and Aerospace Workers is calling on Secretary of Defense Robert Gates "to ensure that the new round of bidding does not include any residual bias from the initial competition," according to GovPro.com.

In Iraq, Surplus is Disproportionate with Rebuilding
Rising oil prices will leave the Iraqi government with a budget surplus of as much as $79 billion by year's end, according to a new report.

The New York Times reports:

Soaring oil prices will leave the Iraqi government with a cumulative budget surplus of as much as $79 billion by year's end, according to an American federal oversight agency. But Iraq has spent only a minute fraction of that on reconstruction costs, which are now largely borne by the U.S.

The report from the Government Accountability Office estimates that Iraqi oil revenue from 2005 through the end of this year will amount to at least $156 billion. From 2005 to 2007, the report says, Iraq devoted only 1 percent of the operating expenses in its budget to maintaining reconstruction projects that had been built with either Iraqi or American money.