Economic conditions took turn for worse, Fed says

The Federal Reserve found that economic conditions around the country worsened in June and early July, while the Commerce Department said orders for big-ticket manufactured goods managed only a 0.7 percent rise last month, the latest signals that the economy was slowing.

The Fed's survey, compiled from its 12 regional bank districts, showed that retail sales, especially for autos, weakened over the last two months.

Meanwhile, the Commerce Department reported that orders to U.S. factories for big-ticket durable goods eked out a lower-than-expected gain in June, reflecting a surge in orders for military aircraft, following declines in April and May.

Oil prices eased today, a day after hitting a 21-year high in U.S. trading because of a threat by Russian authorities to shut down most of the production from that country's largest oil company.

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September contracts of U.S. light crude spiked 3 percent higher on Wednesday to $43.05 a barrel on the New York Mercantile Exchange -- the highest level since the exchange began offering the light, sweet crude contract in 1983. Prices eased slightly later in the day to settle at $42.90 a barrel.

In electronic trading today before the New York exchange opened, the September oil contracts were down 45 cents at $42.45 a barrel.

The market had reacted to developments in the battle between the Russian government and Yukos, the country's largest oil company.

Yukos, battered by a gigantic overdue back taxes bill, said it might have to halt its main production units within a few days because of a bailiffs' order.

The company says it does not have the cash to pay its tax debt, and court orders have frozen assets that it could tap to raise money. Yukos officials repeatedly have warned that the company, which produces 2 percent of the world's oil, is being driven toward bankruptcy.

Crude supplies are already extremely tight, with Iraq's output hampered by saboteurs and most producers already pumping as much as they can. Saudi Arabia, the only producer that still has significant spare capacity, has recently boosted its production by about 1 million barrels, but much of this fresh oil has yet to reach customers and replenish their depleted inventories.

In the week ending July 24, the advance figure for seasonally adjusted initial claims was 345,000, an increase of 4,000 from the previous week's revised figure of 341,000. The 4-week moving average was 336,250, a decrease of 1,000 from the previous week's revised average of 337,250.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending July 17, an increase of 0.1 percentage point from the prior week's unrevised rate of 2.2 percent.

The advance number for seasonally adjusted insured unemployment during the week ending July 17 was 2,960,000, an increase of 174,000 from the preceding week's revised level of 2,786,000. The 4-week moving average was 2,889,750, an increase of 750 from the preceding week's revised average of 2,889,000.

The White House will project soon that this year's federal deficit will exceed $420 billion, congressional aides said, a record figure certain to ignite partisan warfare over President Bush's handling of the economy.

The annual summertime analysis is expected out this Friday, said several congressional aides speaking on condition of anonymity Tuesday. That would be well after the frequently ignored legal deadline of July 15.

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Last year's deficit was $375 billion, the worst ever in dollar terms. The White House has said the numbers are manageable because they only equal about 4 percent the size of the U.S. economy — well below the 6 percent ratio reached under President Reagan.

The nonpartisan Congressional Budget Office projected in January that this year's shortfall would be $477 billion. In May, citing higher than expected revenue collections, it said it believed the red ink would be smaller but offered no figure.

Two weeks ago, the Treasury Department said the deficit for the first nine months of this budget year was $327 billion. That was more than 20 percent larger than the $270 billion shortfall for the same period last year.