NEW YORK — As expensive long-term care insurance policies slip in popularity, offerings that combine coverage with life insurance are getting attention as a possible method of economizing.

Typically, these hybrids involve what are called accelerated benefits: If the insured needs long-term care, a portion of the life policy’s death benefit is paid out to cover expenses, and the death benefit is reduced by the same amount.

The most longstanding of these products are single-premium policies, where policyholders make one large lump-sum payment — say, of $100,000. Lincoln Financial Group, Genworth Financial Group (GNW) and New York Life Insurance and Annuity Corporation offer these policies, which typically are aimed at older Americans.

They include a guaranteed minimum death benefit, allow policyholders to recoup at least the principal if they decide to cancel the policy, and may also include a rider that extends the long-term care benefits that are paid beyond the death benefit up to a specified amount. Inflation protection may be offered for an additional fee.

More recently, to attract younger clients, other insurers have added long-term care riders to their most popular permanent life insurance policies for individuals. In these combination policies, policyholders pay premiums monthly or annually rather than as a lump sum upfront.

Hartford Financial (HIG) is planning to also make its Life Access rider available on some of its survivorship policies for couples as early as June, says Mike Roscoe, senior vice president of product management in the company’s individual-markets group.

Stand-alone long-term care policies are expensive and, if policyholders never need care, the money spent on premiums is lost, making it a hard sell in today’s economy. In the fourth quarter of 2008, sales of individual long-term care insurance fell by 23% compared with the same period the previous year.

Combination policies may offer a better deal. Although they cost even more than a stand-alone long-term care policy, the life insurance coverage may more than make up for that.

“They create an instant estate and provide cover if the insured needs long-term care,” says Robert Quinlan, an independent insurance agent who practices in the New York City area.

Though small, the market for life insurance/long-term care combinations is growing: In 2007, 12,150 policies were sold, up 24% from the previous year, says Elaine F. Tumicki, corporate vice president of product research at LIMRA, a financial-services research organization.

Not For Everyone

Hybrid policies aren’t suitable for all individuals, though.

“A key consideration is whether the client needs permanent life insurance,” says Scott J. Witt, a fee-only insurance adviser and founder of Witt Actuarial Services LLC, who receives client referrals from financial advisers and other professionals.

They are not available in combination with the much-cheaper term policies that many individuals have and which only provide a death benefit if the policyholder dies while coverage is in effect. Term coverage can be purchased for periods of one to 30 years. In contrast, permanent life insurance is designed to provide coverage an entire lifetime. Permanent insurance has a death benefit and a tax-deferred build-up in cash value. Most combination products are based on universal life or whole life.

If permanent life insurance is appropriate, adding a long-term care rider may be a cost-effective option. For instance, with the Hartford’s universal life policy, a 55-year-old man would pay $14,477 a year for the life premium on a policy with a $1 million death benefit and $1,570 for the long-term care rider. By comparison, a three-year comprehensive long-term care policy with a daily benefit of $150 today would cost $2,260 a year (this policy includes inflation protection of 5% a year with compound interest).

Typically, in a combination with a permanent life policy, the maximum monthly benefit under the rider is between 1% and 5% of the death benefit, up to the tax-free limit set by the Internal Revenue Service — $280/day in 2009, says Carl A. Friedrich, a consulting actuary and principal at Milliman who is an expert on combined insurance products.

These types of hybrid policies usually don’t include inflation protection, so purchasers must do their own advance planning in terms of health-care costs and estates. Nursing care costs about $6,360 a month now — but would be $17,300 a month in 20 years if those costs increase at an average of 5% a year.

In light of a recent flurry of downgrades, it’s crucial for clients to go with an insurer on a sound financial footing, especially in the case of a permanent policy. National ratings agencies such as Standard & Poor’s, Moody’s Investors Service, Fitch Inc. or A.M. Best Co can provide the latest insight.

By Victoria E. Knight
A DOW JONES NEWSWIRES COLUMN

Health insurers selling coverage to seniors may reduce benefits and exit markets to protect their margins under the Obama administration’s proposals to cut funding for private Medicare Advantage plans.

Amid the prospects of meaningful government cuts, insurers are contemplating their 2010 plans before the open enrollment season later this year. Should deep cuts occur, next year or later, their options include reducing benefits, departing some markets and focusing more on Medicaid, the government program that provides coverage to poor and disabled Americans.

“I think we’ve planned for different scenarios,” Aetna Inc. (AET) spokesman Mohit Ghose told Dow Jones Newswires. “The slope of that line matters,” he said, noting that cuts taking place over a longer time frame would allow insurers to minimize disruptions.

Ghose noted it’s early to tell what next year’s Medicare Advantage rates will be, but that cuts could affect Aetna’s ability to provide extra benefits like vision, dental and hearing. WellPoint Inc. (WLP) voiced similar thoughts. Insurers say Medicare Advantage offers care coordination and would prove valuable even with cuts. Critics say Medicare shouldn’t pay private plans more for the extra benefits.

In February, the Centers for Medicare and Medicaid Services proposed a much smaller-than-expected rate increase for 2010 for Medicare Advantage, surprising the industry and market, and signaling the Obama administration’s intent to quickly move on the issue. After adjustments, the proposed rate would amount to a nearly 5% cut, analysts say.

The final 2010 Medicare Advantage rates won’t be published until April 6, and could prove less dramatic. In the meantime, insurers are letting the government know their views and are girding for the possibility of cuts for fiscal 2010, which starts Oct. 1.

Since the proposed rates were announced Feb. 20, the Standard & Poor’s 500 managed-care subindex is down 19% but has recovered in recent days with the broader market.

In addition to the 2010 cuts, the president proposed competitive bidding for Medicare Advantage in an effort to save more than $175 billion over 10 years. Obama complains the government spends 14% more on Medicare Advantage than it does on traditional Medicare coverage. Competitive bidding could result in fewer and less generous Medicare Advantage plans, industry observers have said.

Should Medicare Advantage subsidies be eliminated in 2012, as Obama seeks, HealthSpring Inc. (HS), Humana Inc. (HUM) and Coventry Health Care Inc. (CVH) could see reductions of 34%, 18% and 12%, respectively in estimated per-share earnings, Wachovia predicted.

While a 2010 rate cute and 2012 subsidy elimination would erode margins and enrollment, Medicare Advantage would remain viable for well-run insurers, Wachovia added, calling the intense selloff of a few weeks ago overdone.

Humana Key

Humana, with the large exposure to Medicare, “could be one company to watch as a potential indicator” of how managed-care players may respond to cuts, Deutsche Bank analyst Scott Fidel said. He estimates Humana will generate $15.7 billion of revenue from Medicare Advantage this year, or 51% of its total projected revenue.

Humana didn’t immediately answer questions for this story about its strategy to address increasing pressure on Medicare Advantage. Its shares are down 36% since Feb. 20.

After Obama released his budget plan in late February, the company said “given the size of the proposed Medicare Advantage cuts, this proposal must be based on the assumption that millions of seniors would lose important benefits and pay far more for their health care.”

Fidel expects Humana to conduct a rigorous county-by-county analysis for 2010 to see where it may need to change Medicare Advantage premiums or benefit levels, exit markets, or stay put and accept lower margins. Humana has told Fidel it supports the company’s 5% pretax Medicare Advantage margin; the analyst doubts the proposed 2010 cuts would support it.

Healthcare economist Paul Ginsburg, president of the Center for Studying Health System Change, said Humana “went into Medicare in a big way” and “may have to shrink a bit.”

Overall, Ginsburg said, if there are substantial reductions in premiums there will be less plan activity in Medicare Advantage and enrollment will fall.

Fidel thinks some health plans may shift their focus from Medicare Advantage to Medicaid, which is expected to receive greater funding under the Obama administration — although long term that program faces political risks as well.

Most publicly traded health plans already have Medicaid platforms and have discussed the program as a growth area, Fidel said. Medicare reimbursement risks “would only reinforce that view.”

By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES

Only 13% of the baby boomers born in 1946 have saved as much as they think they need to save to retire.

Researchers at the MetLife Mature Market Institute, Westport, Conn., have published that finding in a summary of results from a telephone survey of 1,072 boomers born in 1946 and a telephone survey of 1,000 boomers born in 1964.

About 2.7 million living U.S. residents were born in 1946, and 4.6 million were born in 1964, the researchers estimate.

Only 19% of the boomers born in 1946 have retired, and 50% continue to work full-time, the researchers report.

The 1946 vintage boomers said they will consider themselves to be “old” when they are 78.

When researchers polled the 1964 vintage boomers, they found that only 46% want to be called “baby boomers.” Many of the others would prefer to be associated with Generation X. They said they will think of themselves as being old when they are 71.

The 1964 boomers will not be eligible to collect full Social Security benefits until they are 67, but they said they believe they will be able to retire when they are 65.

Only 36% of the 1964 boomers said their retirement savings are on schedule.

By NU ONLINE NEWS SERVICE

Published 2/27/2009 

The financial crisis took a steep toll on corporate pension plans in 2008, wiping out five years of gains, according to a study released Tuesday.

The largest traditional pension plans operated by U.S. corporations recorded record losses of more than $300 billion, completely erasing all the gains racked up in the prior five years, says the ninth annual study run by actuarial and consulting firm Milliman.

The study, which looked at data from the 100 largest corporate pension plans in the U.S, showed plans’ funded status dropped to less than 80% at the end of 2008 from about 106% at the end of 2007. The losses have continued since, with more than a $30 billion decrease in the first two months of the year, bringing the funded status to 74%, the lowest level since May 2003.

The lower funded status in 2008 could increase pension expense for 2009 and create a charge to corporate earnings in excess of $70 billion, by Milliman’s estimates.

Employer contributions to the 100 plans in the study rose only slightly in 2008. The losses in funded status during 2008, in addition to new funding requirements under the Pension Protection Act, are projected to increase required contributions to more than $50 billion for 2009.

Asset allocation also changed in the plans during 2008, the study found, with the percentage invested in equities declining to 44% from 55%. The decrease is due mainly to market declines. A return to a 55% asset allocation by the end of this year would require a $100 billion investment in the equity markets.

By Lynn Cowan
Of DOW JONES NEWSWIRES

(From THE WALL STREET JOURNAL)
   By Kelly Greene
  Social Security Benefits Unlikely to Rise 
 
This year, we are likely to experience very low inflation or deflation, which got me wondering how Social Security benefits are adjusted in such an environment. 

Specifically, is there a minimum cost-of-living adjustment, i.e. a minimum amount by which Social Security benefits are adjusted? I can’t believe that adjusting downward would be possible, but maybe it is. And what if inflation is only, say, 0.5%? Will the increase be that low, or will it be raised some minimum amount that is higher than 0.5%? 

For the moment, Social Security recipients aren’t expected to get any increase in benefits next year, according to the Congressional Budget Office. 

Since 1975, Social Security recipients have received a cost-of-living adjustment each year based on increases in the consumer-price index, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, determined and published by the Bureau of Labor Statistics.

The lowest increase that Social Security recipients received since 1975 was 1.3% in 1987 and 1999, according to the Social Security Administration. (The 1983 increase was delayed six months to move the adjustment from starting in July to starting in January, says Mark Lassiter, a Social Security spokesman in Baltimore.) 

The cost-of-living adjustment would be calculated for the next year using the increase (if any) in the average CPI-W for the third quarter of this year compared with the third quarter of the previous year. So, a 2010 adjustment would be based on the average data for this coming July, August and September vs. the same months in 2008.

If there is deflation, Social Security benefits won’t be cut, Mr. Lassiter says.

The Congressional Budget Office “anticipates that the year-over-year change in consumer prices for the third quarter of 2009 will show a decline, which implies that next year’s cost-of-living adjustment for Social Security and most other benefit programs will be zero,” the CBO said in a January report. 
If there isn’t any cost-of-living adjustment — and if you are currently receiving Social Security, are already entitled to Medicare Part B, and aren’t subject to an income-related surcharge for Part B premiums — by law your Social Security benefit can’t be reduced, even if Part B premiums increase, Mr. Lassiter says. If you become entitled to Medicare Part B for the first time in 2010, you would have to pay the full Part B premium, he adds. Even when retirees get a decent cost-of-living increase, such as the 5.8% increase this year, it doesn’t necessarily cover rising health-care and housing costs. 

“The CPI as it is now doesn’t reflect seniors accurately,” says Barbara Kennelly, president and chief executive of the National Committee to Preserve Social Security and Medicare, an advocacy group in Washington.

“Twenty percent of those on Social Security, all they have is Social Security. So, with health care eating it up, this is getting more and more serious.” In fact, the Bureau of Labor Statistics has developed an experimental consumer-price index for Americans age 62 and older, referred to as the CPI-E.

In the 25 years from December 1982 to December 2007, federal research found that the CPI-E rose somewhat faster than the CPI-W, mainly because prices for medical care and housing, which are weighted more heavily in the CPI-E, increased more quickly than overall inflation. There was a small increase as well in that index from January 2008 to January 2009, the month for which the most recent data are available.
  —

The Federal Reserve ramped up its efforts to resuscitate the sagging economy, saying it would purchase up to $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.

By buying long-term government bonds and mortgage-backed securities, officials hope to push up their prices and bring down their yields, and thereby energize the economy. Interest rates on many corporate bonds and consumer loans are benchmarked to U.S. Treasury debt.

The move was a bold statement of force from the central bank, which during months of internal debate on the issue had been hesitant to begin buying long-term government bonds as the Bank of England recently began to do.

The Fed action underscores the central bank’s ability to move aggressively to combat the financial crisis without any action by Congress, an important attribute at a time when the political firestorm ignited by bonuses made to employees of American International Group Inc. (AIG). Other rescue efforts has made Congress hostile to approve any more taxpayer money.

Prices on U.S. Treasury bonds soared on the news and the yield fell sharply. Yields on 10-year treasury notes dropped, stock prices rose sharply and the dollar sank.

The Fed’s steps came against a gloomy economic backdrop. “Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending,” the Fed said in a statement after its two-day meeting. “Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession.”

The Federal Open Market Committee, the Fed’s policy-making arm, voted 10-0 to hold the target federal-funds rate for interbank lending in a range between zero and 0.25% and to continue using credit programs financed by an expansion of the Fed’s balance sheet to stabilize markets. Richmond Fed President Jeffrey Lacker, who dissented in January, went along this time. He had wanted the Fed to focus on Treasury purchases as opposed to targeting its lending on various corners of the credit markets. The discount rate that the Fed charges on direct loans to banks was unchanged at 0.5%.

With rates near zero, the Fed is now essentially printing money to increase the supply of credit in the economy.

The Fed said it will buy up to $300 billion in long-term Treasurys over next six months. The purchases of mortgage-backed securities guaranteed by Fannie Mae (FNM) and Freddie Mac (FRE) will push the maximum to $1.25 trillion, up from the previous $750 billion. The Fed also said it would increase the size of its potential purchases of the mortgage giants’ debt to $200 billion from $100 billion.

The Fed’s strategy appears to be to double down on the programs that it thinks work. In addition to commercial paper and money market mutual fund facilities, which appear to have stabilized those sectors, Bernanke has repeatedly highlighted the decline in mortgage rates in response to the agency and mortgage-backed securities facilities, calling it one of the “green shoots’ evident in some markets.

By expanding its securities purchase programs, the Fed also is effectively ramping up efforts they can control. The commercial paper program and a new consumer lending program that commences Thursday are driven by how much demand there is in the markets.

Demand has waned for the commercial paper program in recent weeks, a sign that the market is returning to health. Meantime, the new consumer lending program the Term Asset Backed Securities Loan Facility, or TALF, has gotten off to a slow start.

The U.S. economy is expected by economists to decline at an annual rate of 5% or more in the current quarter. It plunged at a 6.2% rate in the fourth quarter of 2008, the steepest in a quarter century. The economy is now shedding more than 650,000 jobs a month, pushing the unemployment rate to 25-year highs. One nugget of good news is that consumer-spending figures signaled some stabilization since the start of the year.

By Jon Hilsenrath andBrian Blackstone
Of THE WALL STREET JOURNAL

VIENNA — The International Monetary Fund on Wednesday said it expects the global economy to contract by even more than previously expected this year and that recovery is still many months away.

“We expect to show more downward revsions,” John Lipsky, the IMF’s first deputy managing director, told oil ministers and chief executives at a conference here.

Lipsky said the fund will update its global economic outlook in a few weeks, but didn’t detail what those revisions will look like. In January, the IMF forecast the world economy to contract by 0.5% in 2009.

“We expect it’ll be the middle of next year until we see clear signs of a global upturn,” Lipsky said.

But even once recovery takes hold, global growth will be sluggish and won’t return to the lofty levels seen earlier this decade for some time, he said.

In the fourth quarter, economic activity in advanced economies like the U.S. and Germany crumbled by 7%, the sharpest quarterly drop on record, Lipsky said.

Asked if the IMF believes the world economy has reached a bottoming out, Lipsky said: “I’m afraid the answer seems to be, we don’t think so.”

“Unfortunately that means we’ll be seeing rising unemployment rates into next year,” Lipsky said.

-By Spencer Swartz, Dow Jones Newswires; +44 (0)207 842 9357

NEW YORK — It’s not just about the “nanny tax.” When using an in-home health care, it’s crucial to understand the business relationship that exists between you and the caregiver to minimize tax and legal liabilities.

With more baby boomers seeking help for aging parents, the in-home care industry is booming with a wide range of service providers, from geriatric care managers to home health-care agencies and matching services.

Contractual arrangements and employment policies vary just as widely. So it’s wise for consumers to ask questions up front about tax obligations and insurance coverage.

“Families need to be aware of all the ramifications,” says Bernard A. Krooks, a Certified Elder Law Attorney and founding partner of Littman Krooks LLP, a New York law firm.

Some families elect to privately hire a caregiver because they want to choose the person they think will be the best to provide the care. Others go to an outside party, such as home health-care agency, to find the help they need. But that doesn’t always mean they are off the legal hook.

Many nurse registries and employment agencies don’t actually employ or supervise workers — they simply find them and place them in a home setting. Under such arrangements, the family may end up being the official employer, responsible for pay, taxes and other obligations. Employing a relative or friend can put a family in the same situation.

“Household help is anyone who does help in or around your home,” says Jill Senso, education coordinator with the National Association of Tax Professionals, or NATP. “The worker becomes your employee if you control what work is done and how it is done.”

If you dictate when the caregiver is on duty and supply the equipment to provide care, you’re building an employer-employee relationship. Even a part-time caregiver can be considered an employee, especially if the caregiver doesn’t provide the same type of service to others, according to Krooks.

If you pay a household caregiver, who is your employee, more than $1,700 in 2009, the tax code requires you to withhold and pay Social Security and Medicare taxes. (The Internal Revenue Service makes some exceptions, but they typically don’t apply to situations in which adult children hire caregivers for aging parents).

If you pay the caregiver wages of more than $1,000 in any quarter, federal unemployment taxes must also be paid. State and unemployment taxes must be withheld and paid as well.

If the taxes are unpaid, the taxpayer must pay what’s owed, and will face late filing penalties of between 5% and 25% of the underpayment plus interest, according to the NATP.

Consumers can avoid tax snags if they pay an agency directly, and the agency is the caregiver’s official employer. For instance, the National Private Duty Association, NPDA, requires its members to assume all responsibility for payroll and all related taxes, according to executive director Kim Stoneking. Another option is to hire a geriatric care manager who screens, arranges, monitors and pays the caregiver on your behalf.

Employers are also responsible for verifying that workers are legally entitled to work in the U.S. An Employment Eligibility Verification form — I-9 Form — must be completed and kept on file by the employer.

Employee injuries pose one of the biggest financial risks. Federal and state laws require employers to take out workers compensation insurance; if there is none, and a caregiver is hurt on the job, the family is responsible for medical expenses and disability payments.

Consumers shouldn’t assume their homeowner’s insurance will cover this, as policies may exclude household help. They may need to buy general liability insurance.

Discrimination or harassment suits from caregivers pose another risk. An umbrella policy with a discrimination rider can provide protection, but it’s expensive, says Krooks.

Sometimes financial advisors can help families who want to hire caregivers privately. For example, Wells Fargo & Co.’s (WFC) Private Bank offers subscribers to its Elder Services program access to an outside firm, Risk Management Strategies Inc., which acts as an employer of record.

By Victoria E. Knight
A DOW JONES NEWSWIRES COLUMN

 Corporate dividends were once sacred, but no longer. As the economy declines, so have the regular cash payouts that both companies and stockholders considered untouchable. Some of the biggest names in U.S. business have cut or eliminated dividends — choosing not to share the wealth either because they need the money now or think they will later.

Last year was the worst ever for dividend reductions among Standard & Poor’s 500 stock-index companies. In the final three months of 2008 alone, $15.9 billion worth of S&P 500 dividend payouts were whisked off the table.

That quarterly record has already been eclipsed in the first two months of 2009 with more than $30 billion in dividends wiped out, most notably General Electric Co.’s (GE) move late last month to slash its quarterly distribution by more than two-thirds.

For investors who depend on dividend income, or who expected the cash would cushion the bear-market’s blows, the setback has been sobering. The cuts have been particularly unkind to shareholders of dividend-focused mutual-funds and exchange-traded funds who’ve suffered losses in both take-home yield and investment returns.

“Dividend investors have now joined the rest of investors in looking for safer harbors, and there are not many out there,” said Howard Silverblatt, senior index analyst at Standard & Poor’s Inc.

Big Payers Cutback

The comedown is especially hard for dividend cutters that not long ago were considered highly predictable payers — so-called dividend aristocrats — such as Bank of America Corp. (BAC), Pfizer Inc. (PFE) and GE.

Dividend investing itself also has been tarnished. Dividend growers historically have been defensive stalwarts, outperforming less-generous corporate rivals and the U.S. market as a whole through good times and bad, and with less risk.

S&P 500 companies that raised dividends gained 8.8% on average annually between January 1972 and last November, according to Ned Davis Research Inc. Index members that cut dividends or paid no dividends finished the period with essentially flat returns.

Still, shareholders who temper their expectations can find cash-rich companies that are increasing dividends. The battered financial-services sector is being necessarily frugal, but some commodity-related and consumer-staples companies have breathing room.

Recently, for example, agricultural bellwethers Archer-Daniels Midland Co. (ADM) and Monsanto Co. (MON), along with soft-drink giant Coca-Cola Co. (KO), retailer Wal-Mart Stores Inc. (WMT) and paper-goods supplier Kimberly-Clark Corp. (KMB) boosted payouts.

“Dividends are an endangered species, but nowhere near extinct,” Silverblatt said. “You’ve got to do a lot more homework. Pick the company first, the dividend second. A high yield won’t do you any good if the company can’t sustain it.”

Against this grim backdrop, managers of funds that focus on dividend-payers are facing the most challenging conditions many have ever experienced.

“Clearly this environment has created some stress,” said Don Taylor, lead manager of Franklin Rising Dividends Fund (FRDPX). He screens for companies that have raised dividends in at least eight of the last 10 years, and then chooses only those whose dividends have doubled over a decade.

“A lot of companies that previously met the rising-dividend screen no longer do,” he added.

Some managers are tightening the screws. Judith Saryan, who oversees the Eaton Vance Dividend Builder (EVTMX) and Dividend Income (EDIAX) funds, is analyzing corporate financials for signs of cash shortfalls.

“You want to avoid companies paying the highest yield because they’re the ones that are most at risk,” she said. “Even a very good company that needs to access the credit market might raise a red flag.”

Financial-services companies comprise the bulk of distressed dividend payers, and these high-yielding stocks often show up in the equity-income fund category, which has been broadsided as a result.

Roam The Market For Payers

“Equity-income is under a cloud because of the feeling that these companies are not secure, their finances are eroding, and they probably would cut the dividend,” said Mark Salzinger, editor of the No-Load Fund Investor newsletter.

Salzinger recommends vehicles that roam the broad market for dividend growers, such as the mostly large-cap Vanguard Dividend Growth Fund (VDIGX). An ETF sibling, Vanguard Dividend Appreciation (VIG), also highlights dividend standouts but sports a much different portfolio.

Other proven dividend-oriented stock funds, in addition to the Franklin and Eaton Vance portfolios, include T. Rowe Price Dividend Growth Fund (PRDGX) and Alpine Dynamic Dividend Fund (ADVDX).

Choices among ETFs include: PowerShares Dividend Achievers (PFM), WisdomTree Large Cap Dividend (DLN), SPDR S&P Dividend (SDY), and the largest of the group, iShares Dow Jones Select Dividend Index (DVY).

In the search for dividends, remember that high quality, not high yield, counts most in this market.

“You really need companies that have the most quality balance sheets you can possibly find,” Salzinger said. “A good dividend-growth fund would invest across industries in stocks that yield between 1% and 3% and have the capacity to increase those dividends over time.”

By Jonathan Burton

WASHINGTON — The U.S. economy continues to hemorrhage jobs at monthly rates not seen in six decades, a government report showed, signaling that there’s still no end in sight to the severe recession that has already cost the U.S. over four million jobs.

The report suggests that households, already seeing the value of their homes and investments plunge, face added headwinds from the labor market, which could put more pressure on consumer spending in coming months.

Nonfarm payrolls, which are calculated by a survey of companies, fell 651,000 in February, the U.S. Labor Department said Friday, in line with economist expectations. However, December and January were revised to show much steeper declines. In the case of December, the revision was to a drop of 681,000, the most since 1949 when a huge strike affected half a million workers. However, the labor force was smaller then than it is now.

The economy has shed 4.4 million jobs since the recession began in December 2007, with almost half of those losses occurring in the last three months alone. And unemployment is lasting much longer. As of last month, 2.9 million people were unemployed more than six months, up from just 1.3 million at the start of the recession.

“The sharp and widespread contraction in the labor market continued in February,” said Keith Hall, Commissioner of the Bureau of Labor Statistics. Layoffs announcements continued last month across industries including Macy’s Inc. (M), Time Warner Cable Inc. (TWC), Estee Lauder Cos. (EL), Goodyear Tire & Rubber Co. (GT) and General Motors Corp. (GM).

The unemployment rate, which is calculated using a survey of households, jumped 0.5 percentage point to 8.1%, the highest since December 1983 and slightly above expectations for an 8% rate. Some economists think it could hit 10% by the end of next year. For many industries including manufacturing, construction, business services and leisure, the jobless rate is already in double digits.

“It is hard to see where the bottom is,” said Sung Won Sohn, a professor at California State University.

By some broader measures, labor-market conditions are much worse than the overall jobless rate suggests. When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers actually reached 14.8% last month, up almost six percentage points from a year earlier.

Average hourly earnings increased a modest $0.03, or 0.2%, to $18.47. That was up 3.6% from one year ago, as the recession has made it harder for workers to bid up wages. According to the Fed’s latest economic summary known as the Beige Book, “a number of reports pointed to outright reductions in hourly compensation costs.”

Friday’s numbers suggest that the economy hasn’t stabilized in the wake of the fourth quarter’s 6.2% slide in gross domestic product, which was the steepest since 1982. Economists expect a decline of similar or even greater magnitude this quarter.

One risk is that the stepped-up pace of layoffs may snuff out tentative signs of stabilization in consumer spending, which accounts for about 70% of GDP. Consumer spending rose in January, and retailers last month posted their first monthly rise in sales since September.

“Consumers and businesses are likely to become even more cautious after a bleak report such as this, and if they stop spending, the economy cannot get going again,” said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi.

There’s little Fed policymakers can do on the monetary policy side to stem the slump, given that official rates are already near zero. But the Fed has created a number of credit programs — financed through an expansion of its balance sheet — aimed at spurring new lending. Officials this week unveiled a long-awaited initiative aimed at stimulating consumer lending.

Ironically, some of the pressure on labor markets appears to be a byproduct of robust productivity, which is actually a big plus for the economy over the long run. But in the current environment, it seems to be making things worse for workers as nimble businesses shed labor in anticipation of falling demand, which could become a self-fulfilling prophesy.

Hiring last month in goods-producing industries fell by 276,000. Within this group, manufacturing firms cut 168,000 jobs bringing the total since the recession began to 1.3 million.

Construction employment was down 104,000 last month. The unemployment rate in that sector is now 21.4%, almost double where it was this time last year.

Service-sector employment tumbled 375,000. Business and professional services companies shed 180,000 jobs, the fourth-straight six-figure loss, and financial-sector payrolls were down 44,000.

Retail trade cut almost 40,000 jobs, while leisure and hospitality businesses shed 33,000 as households curtail nonessential spending.

Temporary employment, a leading indicator of future job prospects, fell by almost 80,000.

The sole bright spot among private sector industries was health care, which tends to be more labor intensive and less productive than manufacturing and other services. Health care payrolls rose 26,900.

The government added 9,000 jobs.

The average workweek was unchanged at 33.3 hours. A separate index of aggregate weekly hours fell 0.7 point to 101.9.

By Brian Blackstone
Of DOW JONES NEWSWIRES