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Snail mail might soon get even slower.

The cash-strapped U.S. Postal Service announced Tuesday that it will incur about $238 billion in losses in the next 10 years if Congress doesn’t permit it to revamp its outdated business model.

The agency is proposing an adjusted mail service schedule, which will likely cut Saturday delivery, and eliminating its prepaid retiree health benefits. That alone, it says, will cut $90 billion in costs over the next 10 years.

The challenges hurting USPS’s bottom line reflect a "macro change in society," Postmaster General Jack Potter said at a press conference Monday previewing the proposed changes. "All posts around the world are challenged, just as we are, by the diversion of hard copy to electronic medium."

USPS unveiled a list of cost cutting measures, including closing some branches and raising its prices, two moves which would both require Congressional approval. The agency also said that it expects to save another $123 billion between now and 2020 by renegotiating transportation contracts, cutting work hours, and expanding use of self-service kiosks in grocery stores and other popular retail spots — measures that don’t require Congressional approval.

USPS is trying to curb steep losses. It posted a $3.8 billion loss in its 2009 fiscal year, the latest in a multiyear string of whopping losses. Mail volume was down 12.7% for the year, a trend the agency expects to continue over the next decade as more consumers opt for online bill payments and message delivery.

The Post Office was $10 billion in debt as of Sept. 30 — not far off from its $15 billion debt limit, which the agency expects to hit in its 2011 fiscal year.

USPS spent $4.8 million on studies by outside consultants, Accenture, the Boston Consulting Group and McKinsey and Co. to forecast a 10-year outlook and present a plan that the agency calls both "ambitious and aggressive." Any changes to the government agency’s business model would have to be reviewed by the Postal Regulatory Commission, presented in a series of public hearings and approved by Congress.

The Post Office, an independent government agency, does not receive taxpayer dollars and is funded entirely by its own revenue. However, the Postal Reorganization Act of 1970 constrains the agency’s operations. It prohibits USPS from closing small branches based solely on economic factors, and prevents the agency from expanding its services beyond postal delivery free credit report online.

Post offices in some countries, including Italy and Japan, have boosted their sales by offering ancillary services, like banking. But unless Congress steps in, USPS cannot expand beyond the postal-mail realm.

Postmaster General Potter said relaxing some of the agency’s stringent regulations could allow it to tap into its strengths as one of the largest retail networks in America, as well as "The Most Trusted Government Agency" — a title USPS has won the last five years in a row.

With 32,000 post offices throughout the country, USPS has more retail locations than McDonald’s (MCD, Fortune 500), Starbucks (SBUX, Fortune 500), Wal-Mart (WMT, Fortune 500) and Walgreens (WAG, Fortune 500) combined, Thomas Dohrmann, partner at McKinsey & Company, said in the presentation Monday. That said, the average foot traffic for a post office is about one tenth of that at Walgreens — a mere 600 weekly customers.

USPS has already begun taking the axe to its budget. The agency made $6 billion in cuts last year, reducing its workforce by about 40,000 employees and chopping overtime hours, transportation costs and other expenses. Congress passed legislation allowing the organization to cut retiree health benefit payments by $4 billion.

Despite those measures, the agency still expects a net loss of $7.8 billion in fiscal 2010.

USPS employs about 600,000 workers and currently has a nationwide hiring freeze. Additionally, Chief Financial Officer Joseph Corbett says he expects to reduce its payrolls by the equivalent of 50,000 full-time employees in fiscal 2010 through natural attrition and by reducing overtime hours. The agency also wants to renegotiate its contracts with four unions in order to gain greater flexibility in scheduling part-time workers and moving employees across departments.

A significant postal price hike is also under consideration, although the price most consumers care about — the rate for a first-class stamp — is locked in at 44 cents for 2010.

"At the end of the day, I’m convinced that if we make the changes that are necessary, we can continue to provide universal service for America for decades to come," Potter said. "We can turn back from the red to the black, but there are some very significant changes that are going to have to be made." 

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Apple Inc. said in a report posted on its Web site Saturday that an audit of its suppliers found that three hired 11 underage workers to help build its iPhone, iPod and Macintosh computer in 2009.

“Apple discovered three facilities that had previously hired 15-year-old workers in countries where the minimum age for employment is 16,” the company said about its onsite audit of 102 factories.

The full report can be viewed by clicking here.

Apple (NASDAQ:AAPL) said the underage workers were “no longer in active employment at the time of our audit easy payday loans.”

The company said it also found eight cases where excessive recruitment fees were paid, three situations involving hazard waste disposal and three involving falsified records.

The company didn't name the suppliers where violations were found.

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Martek Biosciences Corp., fresh off its $200 million acquisition of Amerifit Brands Inc., is expanding its Columbia headquarters.

The company has leased an additional 22,000 square feet at the Columbia Business Center. Martek (NASDAQ: MATK), in taking the additional space, has also renewed its lease of 66,000 square feet at 6480 Dobbin Road.

The firm, which has other facilities in Colorado, Kentucky and South Carolina, was represented in its lease by Manekin LLC broker Adam Nachlas cash advance. Preston Partners brokers Danielle Schline and Athan Sunderland represented the landlord.

Lease terms were not disclosed.

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For all the right reasons, John Higdon bought into the dream of being the first in his immediate family to earn an undergraduate degree.

"All through high school and college, I thought, ‘I’ll get this piece of paper and it will open up doors that weren’t open to my parents, because they didn’t go to college,’" Higdon, 24, said over a cup of coffee last week.

Instead of opening wide, however, the door cracked after Higdon earned his bachelor’s in finance from Missouri State University in December 2008.

"I’m not where I thought I’d be almost a year after graduating," said Higdon.

Nor are thousands of others in the classes of 2008-09, who marched from the commencement stage into the teeth of the worst job market since the Great Depression.

Higdon did manage to land a job in his chosen field.

But earning a commission cold-calling potential commercial insurance clients is a far cry from employment as an analyst with a prominent financial or investment firm in the St. Louis area — the objective the Hannibal, Mo., native set for himself as an undergraduate.

Nor did his short-term goal include a plan to stay afloat financially by moonlighting behind a bar a few nights a week.

"That’s the norm now," he said. "All my buddies (from Missouri State) are working two jobs, too."

Adding insult to the insult of dual employment that netted him less than $20,000 in 2009 are the bills now coming due: The $315 monthly payments on his $42,000 student loan.

His college education, Higdon said dryly, "is definitely not paying dividends right now."

His won’t be the only one, according to some experts. Look for an exponential increase in the ranks of underemployed graduates struggling to cover an education they hoped would boost their earning potential, said Richard Vedder, an economics professor at Ohio University and executive director of the Center for College Affordability and Productivity. "It’s going to be a long-running crisis independent of the recession," Vedder predicted in a telephone interview from his office in Athens, Ohio.

The economic downturn, he continued, "exacerbates the fact that beginning salaries are lower and the ratio of the amount of (student) loans to those salaries is getting higher and higher. When that happens, you’re getting into problems."

The lag in processing comprehensive higher education data makes it impossible to know how many underemployed 2008-09 graduates are wrangling with student debt.

But the U.S. Department of Education announced in September that the default rate, 6.7 percent, was already on the rise in 2007 — a year before the recession took hold.

More and more students, Vedder said, are deferring payment (and incurring additional debt) by pursuing advanced degrees. The latest statistics from the Council of Graduate Schools bear him out.

From 2007 to 2008, the council said, first-time graduate school enrollment among U.S. students jumped nearly 5 percent — the largest increase since 2002 — according to its survey of schools serving 1.7 million grad students in 2008.

John Drenkhahn of Collinsville opted for graduate school after evaluating the odds of getting a job in electrical engineering following his 2008 graduation from Southern Illinois University-Edwardsville.

"If I hadn’t gone back to school, I would have been competing with other (graduates) along with (experienced) people," said Drenkhahn, 25, who planned to graduate this summer.

While the market hasn’t improved much for graduates, Drenkhahn’s decision appears to have paid off: He landed a job.

"They agreed I’m a little overqualified in terms of education for this position," said Drenkhahn, who will handle customer support for a technical product sold by a company he did not want to name.

Although the master’s degree may not have been the difference in getting the job, Drenkhahn said he found the education useful and expects the advanced degree will help as he tries to move up the ladder. He said his new employer indicated there may be opportunities for advancement.

"That’s all I’m looking for," Drenkhahn said. "That’s all anybody who is graduating right now is looking for."

He said he was thankful to find a job with a local company. Otherwise, he was prepared to expand his search outside the area where he has lived his entire life.

Higdon, meanwhile, is staying put.

He and his girlfriend, a teacher, recently scraped together the down payment on a small condo in Valley Park. A wedding, Higdon said, will start taking shape once his employment situation is settled.

A year into the business, Higdon doesn’t rule out continuing in the insurance field, perhaps as a broker.

As he considers his options, Higdon’s eyes are on two components of the employment market — job openings in the local financial sector and the influx of graduates poised to compete for those positions.

The National Association of Colleges and Employers reports the job outlook for the Class of ‘10 is slightly better than it was for the two preceding classes. Then again, it couldn’t get any worse than 2009, when campus hiring dropped more 20 percent from the year before.

Higdon hopes there’s room in the slightly improved market for him.

"I know it’s a matter of timing, but it’s also a matter of increasing costs," he said. "I didn’t go to Dartmouth or Harvard, I went to a school that cost about $13,000 a year. I thought it was affordable, but it doesn’t pay for itself if your job prospects are poor."

Michele Munz of the Post-Dispatch contributed to this report.

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When faced with a financial crisis, consumers more often are opting to pay their credit-card bills first before turning to their mortgage payments, according to a report released by Trans Union Wednesday.

In the past, strapped consumers typically would let their credit cards slide and make sure their mortgages were covered, said Sean Reardon, the study’s author and a consultant at the Chicago-based credit bureau. But those priorities flipped in the first quarter of 2008, according to the study, and the trend has been picking up steam.

In fact, 6.6% of consumers were delinquent on their mortgages, but current on their credit cards in the third quarter of 2009, according to the most recent data available. Meanwhile, just 3.6% were behind on their credit cards and current on their mortgages.

Why the change? A "perfect storm" of deteriorating housing prices and rising unemployment is likely the reason, Reardon said. It’s much easier for consumers to walk away from mortgage payments when their homes aren’t building equity, he said, than to neglect their credit cards when that may be the only way they’re covering daily expenses.

Just two years earlier, in the third quarter of 2007, the situation was reversed: 3.95% of consumers were delinquent on their mortgages, and current on their credit cards, while 4.6% were behind on their credit cards and current on their mortgages.

In California and Florida — two of the states hit hardest by the burst housing bubble — consumers were even more likely to pay their credit cards before their mortgages.

In California, 10.2% were delinquent on their mortgages but current on their credit cards in the third quarter of 2009, vs. 2.7% in the reverse situation. In Florida, 12.4% were behind on their mortgages and current on their credit cards, compared to 3.9% in the opposite situation.

Trans Union conducted the study among consumers that had at least one credit card and one mortgage, and examined 30-day credit card and mortgage delinquency data between the second quarter of 2008 and the third quarter of 2009.  

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Sales of existing U.S. homes plunged more than anticipated in December, showing the dependence of the housing market on a government tax credit.

Purchases slumped 17 percent the month after a government tax credit was originally due to expire, the biggest decline since records began in 1968, to a 5.45 million annual rate, the National Association of Realtors said today in Washington. The median sales price increased for the first time in two years.

First-time buyers rushed to complete deals before the $8,000 government incentive was due to end, pushing sales up 28 percent in the three months to November. The subsequent extension and expansion of the credit to include closings through June signal demand will strengthen in the first half of 2010, while raising the risk the market will then slow anew should jobs remain scarce.

“We’ll see a pickup in existing home sales in the next couple of months,” said Adam York, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who forecast a 5.4 million sales pace. Although “we’re past the bottom,” he said, “I don’t think there’s going to be a lot of buyers out there looking for a home outside of the tax-induced effects until they feel more comfortable with the labor market.”

Stocks trimmed earlier gains following the report. The Standard & Poor’s 500 Index rose 0.5 percent to close at 1,096.78. The S&P Supercomposite Homebuilder Index was up 0.2 percent.

Less Than Forecast

Economists forecast existing home sales would fall to a 5.9 million rate in December from a 6.54 million pace the prior month, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 5.4 million to 6.75 million.

For all of 2009, existing home sales rose 4.9 percent to 5.16 million, the first gain in four years, from 4.91 million in 2008. The median price last year was $173,500, down 12 percent from 2008, the biggest annual drop on record and probably the largest since the Great Depression, NAR chief economist Lawrence Yun said in a news conference.

The median value in December was $178,300, up 1.5 percent from the same month in 2008. The increase was the first since August 2007 and the biggest since May 2006, the agents’ group said. A decline in the number of first-time buyers, who usually purchase less expensive houses, helped push up the median value last month, Yun said.

First-Time Buyers

The share of homes sold to first-time buyers fell to 43 percent in December from 51 percent the prior month, Yun said, indicating the expected end of the tax credit played a role in the drop in sales no fax payday loans.

President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include current homeowners. Even so, some economists believe the original measure pulled sales forward, restraining demand for a few months.

Yun said he was “generally pleased” with the December outcome since he feared an even larger drop following the expected expiration of the tax credit. “There is an increase in home-buyer confidence,” he said, adding “there is some sustainable momentum” in sales. Even with the decline, sales were still up 15 percent from the same month last year, signaling a general improvement, he said.

The number of previously owned homes on the market decreased 6.6 percent to 3.29 million, the lowest level since March 2006. At the current sales pace, it would take 7.2 months to sell those houses, compared with 6.5 months at the end of November.

Fed Action

The end of Federal Reserve purchases of mortgage-backed securities aimed at keeping borrowing costs low represents a challenge for the industry. The program is scheduled to expire by March 31.

Policy makers are scheduled to meet this week to discuss the direction of the benchmark lending rate between banks. The emergency programs were being wound down “in light of ongoing improvements in the functioning of financial markets,” central bankers said in their Dec. 16 statement.

Joblessness and foreclosures are other concerns. Unemployment is forecast to average 10 percent this year, the highest level in seven decades. A record 3 million U.S. homes will be repossessed by lenders this year, RealtyTrac Inc. forecast on Jan. 14. That is up from 2.82 million in 2009, the most since the company began compiling data in 2005.

Competition with foreclosures has been especially daunting for homebuilders. KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, said Jan. 12 that fourth- quarter revenue dropped 27 percent.

KB Home’s orders rose 12 percent to 1,446 from 1,296 in the year-earlier quarter, while completed sales dropped 22 percent to 3,042. The company is “not going to make money in the first quarter” and plans to “restore profitability” in the second half of 2010, Chief Executive Officer Jeffrey Mezger said Jan. 12 in a conference call with analysts and investors.

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Flying into Pearson International Airport offers a view of the GTA that would make even the least excitable solar entrepreneur salivate.

What’s the big deal? In a word: rooftops. Thousands of flat rooftops on hotels, manufacturing plants, warehouses, apartment and office buildings, schools, hospitals and shopping malls. Each is a sunlight sponge with the potential to take the sun’s rays and convert them into emission-free electricity.

In a province prepared to pay richly for solar power, it’s no surprise then that the race is on to lock up leases on prime rooftop real estate across the Greater Toronto Area and the rest of Ontario.

"It’s kind of like a gold rush right now," said Justin Woodward, director of solar development for Toronto-based Greta Energy Inc., which is focusing its efforts on smaller towns outside the GTA.

Greta Energy is one of dozens of emerging ventures that are approaching commercial property owners with an offer that is difficult to refuse.

Give them 20-year access to your building’s unused rooftop and they’ll kindly compensate you for the space – similar to how farmers over the years have earned income by allowing wind turbines on their property.

With that secured access, companies will design, build and own the rooftop solar system at no expense or risk to the building owner. They’ll then apply to connect the system to the grid as part of the Ontario Power Authority’s feed-in-tariff program, which for large commercial rooftops pays between 53.9 cents to 71.3 cents per kilowatt-hour and guarantees quick connection to the grid.

Payment to the building owner can come in a number of ways: a percentage of annual electricity revenues from the system, or a fixed price per square-foot of rooftop being used to host the system.

Greta Energy prefers the square-footage approach, which can vary from 10 cents to $1 per square foot but on average lands at about 30 cents. This means a 250-kilowatt system that takes up 40,000 square feet (3,716 metres) of space would result in an annual payment of $12,000 to the building owner.

"The rooftop lease works out to about 10 per cent of (electricity) revenues," said general manager Chris Young of Ottawa-based Enfinity Canada

"At the end of the term the equipment is transitioned to the building owner’s hands so he can benefit from electricity production beyond the 20-year contract."

Alternatively, compensation might be a guarantee to supply solar-sourced electricity over two decades for less than what a building owner currently pays. CarbonFree Technology of Toronto takes this approach.

The market is increasingly becoming crowded, with Ozz Solar, Helios Energy, Rumble Energy and SunOne Energy Canada among a growing list of solar rooftop aggregators knocking on doors.

Woodward said he’s noticed a dramatic change since the Ontario Power Authority announced the province’s new feed-in-tariff program on Sept. 1. He estimated that for every 10 building owners that were cold-called three months ago there would be one that had already been contacted by a competing developer.

"It’s now probably one in four calls," he said. "Right now there are a lot of small players jumping into the market, people who just get business cards made up or foreign companies just cold-calling commercial property owners."

Building owners need to be cautious, said Young, warning that some "lease consultants" are merely accumulating rooftop real estate that can be flipped for a profit.

"If they sign on with someone who is going to flip the project to someone else, that’s money out of the building owner’s pocket," he said. "Property owners should be looking for people who have a strong financial track record and are capable of following through with the project they’ve contracted for."

He said rooftops must also be inspected to ensure they are strong enough to handle the weight of both the panels and winter snow. Enfinity, for example, builds the cost of insurance into its business model to take account of possible damage to a roof.

Ben Chin, a spokesman for the Ontario Power Authority, said it’s important for property owners to do their homework before entering any long-term leasing contract.

"You wouldn’t hire a plumber without experience," said Chin

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Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The figures track credit card debt and non-revolving loans, such as those to buy autos.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”

The series of 10 straight declines in consumer credit was the longest since record-keeping began in 1943.

Treasury two-year notes gained the most in three weeks after the Labor Department said today that companies reduced payrolls in December by 85,000 workers after adding 4,000 a month earlier. The unemployment rate held at 10 percent.

Stocks, Yields

Two-year Treasury yields dropped below 1 percent, to 0.97 percent at 4:52 p.m. in New York, from 1.02 percent late yesterday.

Consumer credit in October was revised from a previously reported $3.5 billion decline, and the forecast for November was based on the median of 32 estimates in a Bloomberg News survey. Projections ranged from decreases of $2 billion to $10 billion. Credit dropped at an 8.5 percent annual rate in November.

Revolving debt, such as credit cards, plunged by a record $13.7 billion in November, the Fed’s statistics showed. Non- revolving debt, including loans for autos and mobile homes, declined by $3.8 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

Auto sales in the U.S. climbed in November to a seasonally adjusted annual rate of 10.92 million, up from 10.45 million in October. The pace increased to 11.23 million in December, the strongest since 14.09 million in August, when Americans took advantage of government incentives.

Consumer Spending

Consumer spending increased in November for the sixth time in seven months as Americans took advantage of discounts during the holidays, Commerce Department figures showed Dec fast payday loans. 23. Faster growth in sales and improvement in households’ balance sheets depends on job creation.

“U.S. consumer credit quality remains under considerable stress due to persistently weak labor market conditions,” said Michael Dean, managing director at Fitch Ratings. A report from Fitch on Jan. 5 showed delinquent balances on credit cards at a record level.

At American Express Co., defaults and delinquencies fell to 2009 lows. AmEx was the only one of the “Big 6” credit-card issuers to post November declines in write-offs and delinquencies, the New York-based lender said in a Dec. 15 regulatory filing.

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the largest U.S. lender needs to reduce the loss rate on credit cards, which ranked highest among the nation’s six biggest card companies in November. Bank of America’s card defaults are “still very high,” Moynihan, 50, said.

‘Significant Bubble’

“As an industry, we over-lent and customers over-borrowed, and that led to a fairly significant bubble,” Moynihan said Jan. 4 in an interview on Bloomberg Television in Raleigh, North Carolina. “We have to help lead the economic recovery. At the same time, we have to be responsible lenders.”

Banks have responded by tightening credit standards, for consumers and companies. Fed Governor Elizabeth Duke said in a Jan. 4 speech that total loans on banks’ books fell at an annual rate of more than 11 percent in the third quarter. While banks are reducing lines of credit and tightening lending standards, small businesses are also losing their business relationships with banks as firms fail, merge or reduce their loan portfolios, Duke said.

Broken Relationships

“When existing lending relationships are broken, time may be required for other banks to establish and build such relationships, allowing lending to resume,” Duke said.

Britt Beemer, chairman of consumer polling firm America’s Research Group, said in a Dec. 21 interview that if lenders weren’t cutting customer spending limits and rejecting more credit-card applications, holiday sales would have been stronger.

December same-store sales climbed 3 percent, the biggest gain since April 2008, Retail Metrics Inc. said yesterday in an e-mailed statement.

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EVERETT, Wash. — Boeing’s new 787 jetliner finally got airborne Tuesday, the long-delayed inaugural flight of the world’s first commercial plane constructed with half its components made from lightweight composite materials.

The jet lifted off from Everett’s Paine Field on a flight over Washington state, beginning an extensive testing program needed to obtain Federal Aviation Administration certification.

The two-member crew performed a variety of basic system checks before landing at Seattle’s Boeing Field about three hours later.

Deteriorating weather brought the plane back about an hour earlier than planned, but company spokeswoman Lori Gunter said the pilots managed to test the landing gear and flaps.

The plane is the first of six 787s Boeing will use in the nine-month flight-test program that will subject the planes to conditions well beyond those found in normal airline service.

Chicago-based Boeing, which has orders for 840 of the jets, plans the first delivery to Japan’s All Nippon Airways late next year.

The 787 is a radical departure in aircraft design. Where other passenger jets are made mostly from aluminum and titanium, about half of the 787 is made of lightweight composite materials such as carbon fiber payday loan lenders.

Those materials have long been used on individual parts such as rudders, and on military planes, but the 787 is the most ambitious use of the technology aboard a passenger plane.

Boeing says the aircraft will be quieter, produce lower emissions and use 20 percent less fuel than comparable planes, while giving passengers a more comfortable cabin with better air quality and larger windows.

Boeing has relied on suppliers to build huge sections of the plane, which are later assembled in Everett. But that approach so far has proved problematic, with ill-fitting parts and other glitches hampering production.

The first flight was supposed to be in 2007. Boeing was forced to push that back five times — delays that have cost the company credibility, sales and billions of dollars.

The version being tested will be able to fly up to 250 passengers about 9,000 miles. A stretch version will be capable of carrying 290 passengers and a short-range model up to 330.

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Russia’s economic decline abated in the third quarter as companies began restocking inventories depleted during a record slump in the first half of the year.

Gross domestic product fell 8.9 percent from a year earlier, in line with the government’s estimate, after a 10.9 percent contraction in the second quarter, the State Statistics Service said on its Web site today. On the quarter, output grew a non-seasonally adjusted 13.8 percent.

“The model of economic development has rapidly changed,” said Anton Struchenevsky, an economist at Troika Dialog in Moscow. “Investors are much more sensitive to risk. The euphoric component has gone and this is impeding lending. There is a slight improvement, but it would be a great illusion to think we will return to the pace of growth we had before the crisis.”

The plunge in output is slowing in Russia after the government pumped $26 billion of stimulus into the economy in the first 10 months and oil prices rebounded from the start of the year. President Dmitry Medvedev has called the country’s dependence on oil “humiliating,” even as it pushes the economy toward a 1.6 percent expansion in 2010 after a forecast 8.5 percent drop this year.

Almost 9 percentage points of the 10.4 percent plunge in output in the first half was because of “a massive inventory adjustment,” says Martin Gilman, former head of the Moscow office of the International Monetary Fund, and OAO Gazprom, the world’s No. 1 gas producer, accounted for most of the slump. European consumers tapped stored gas as the delayed effect of dearer oil drove up gas prices earlier this year.

Worst Performance

Russia’s economy is the worst performer among the so-called BRIC group of emerging markets that include Brazil, China and India.

The ruble strengthened 1.3 percent to 30.0150 against the dollar at 1:01 p.m. in Moscow. The currency gained 1.2 percent versus the euro to 44.2867. Russian stocks pared gains after the report, up 0.3 percent to 1308.97 at 1.02 p.m., after earlier rising as much as 0.9 percent.

Gazprom said last month that sales volumes to Europe and other export markets fell 24 percent in the first half from a year earlier as the economic slowdown eroded demand. Since July, Gazprom’s exports were higher than in the same periods of 2007 and 2008, the company said.

‘Major Driver’

“A major driver of Russia’s sharp contraction was the inventory correction and we are seeing the end of that,” said Vladimir Osakovsky, an economist at UniCredit Bank in Moscow, before the data was released payday loans. “Any improvement in Russia’s overall economic performance is linked to this process.”

The price of Urals crude oil has rebounded 70 percent this year as global demand for commodities recovered. Energy, including oil and gas, accounts for about 70 percent of Russia’s export earnings.

The recovery may be slow. Nine interest rate cuts since April failed to spur bank lending and rekindle growth in industry and a slump in manufacturing deepened last month after export demand sagged.

VTB Capital’s Purchasing Managers’ Index fell to 49.1 from 49.6 in October. The index, which is based on a survey of 300 purchasing executives, in September rose above 50, signaling the industry’s first expansion in 14 months.

Output Contraction

A contraction in industrial output accelerated in October to 11.2 percent from 9.5 in the previous month, the statistics service said last month.

“Industry hasn’t returned to stable growth,” Finance Minister Alexei Kudrin said this week. “There are still problems.”

Lenders’ corporate loan books fell 0.5 percent in October, after declining 0.7 percent in September, according to data published on the central bank’s Web site Dec. 3. Lending to consumers dropped 0.7 percent for a ninth consecutive monthly decline.

The contraction this year may have been as much as 3 percentage points deeper without anti-crisis spending, Deputy Economy Minister Andrei Klepach said on Dec. 10. The economy will probably shrink between 8.5 percent and 8.7 percent this year, he said.

As of Nov. 1, the government had spent 784 billion rubles ($26 billion) of 1.14 trillion rubles earmarked for stimulus measures, Deputy Finance Minister Tatiana Nesterenko said the same day.

Next year “there will be growth, but it will be growth after a big fall,” Kudrin said. The recovery will be complicated as governments retract stimulus programs and raise interest rates. “In the next two to three years this will be a factor that increases the cost of money and slows growth.”

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