WASHINGTON — U.S. job losses accelerated the last two months, pushing the unemployment rate to 14-year highs in October, a government report showed, suggesting the economic downturn has taken a turn for the worse toward a deep recession.

The data, which included a small rise in wages, may prompt Federal Reserve officials to consider lowering interest even further in coming weeks to half-century lows.

Nonfarm payrolls, which are calculated by a survey of establishments, tumbled a larger-than-expected 240,000 in October, the U.S. Labor Department said Friday, the 10th-straight decline pushing total job losses for the year to 1.2 million. More than half of this year’s job losses occurred in the past three months alone.

September was revised sharply lower to show a job loss of 284,000, the biggest drop since November 2001. The pullback was broad-based, including manufacturing, construction and most service industries. Excluding a rise in government payrolls, private-sector employment plummeted even further last month.

The unemployment rate, which is calculated using a separate survey of households, soared 0.4 percentage point to 6.5%, the highest since March 1994. Economists think the jobless rate, which was just 5% as recently as April, could approach 7.5% or 8% in coming months.

According to the household survey, employment fell by 297,000 while unemployment rose by 603,000. The labor force grew by over 300,000.

Average hourly earnings increased $0.04, or 0.2%, to $18.21. That was up just 3.5% from a year earlier, suggesting the economic downturn is making it much harder for workers to demand higher wages, further restraining household spending.

“A consumer-led recession is upon us, and it promises to be a serious one,” said MFR Inc. economist Joshua Shapiro.

Wall Street economists had expected a 200,000 decline in payrolls last month and only a 6.3% jobless rate, according to a Dow Jones Newswires survey.

Reflecting the broad-based nature of the employment slump, companies including Whirlpool Corp. (WHR), Chrysler LLC, Goldman Sachs Group Inc. (GS) and Merck & Co. (MRK) have announced layoff plans in the past month.

The jobs report supports Wall Street interest rate-cut expectations. Last week, Fed officials lowered the fed funds rate by 0.5 percentage point to just 1%, its lowest since 2004. In an accompanying statement officials left the door open to further cuts, a view amplified by San Francisco Fed President Janet Yellen who said last week that the Fed “could go a little bit lower” than the current 1% target if needed.

Some economists expect another rate cut at the Fed’s December meeting, which would bring rates down to levels not seen since the 1950s, a forecast that will gain traction in the wake of the employment data. The report also bolsters the case for a second stimulus package. President-elect Barack Obama is to meet Friday with his economic advisers.

“The report highlights the intensifying downside risks for economic activity and suggests that further policy stimulus is necessary,” ING Bank economist James Knightly said in a research note.

Friday’s numbers cap a series of bleak economic reports this week suggesting that after escaping a serious downturn so far, the U.S. economy looks like it’s heading for the type of severe recession that occurred in the early 1980s rather than the relatively mild ones of the early 1990s and 2001.

The Institute for Supply Management’s October manufacturing index, released Monday, fell to its lowest level since the 1982 recession, and automobile sales declined last month to rates not seen since the early 1980s.

According to Friday’s report, hiring last month in goods-producing industries fell 132,000. Within this group, manufacturing firms cut 90,000 jobs, led by losses at carmakers and aerospace firms — the latter reflecting a 57-day strike at Boeing Co. (BA) that ended Monday.

Construction employment was down by 49,000.

In a particularly worrying sign, service-sector employment fell sharply for a second-straight month. Labor-intensive services make up the vast majority of employment and usually cushion downturns. Yet business and professional services companies shed 45,000 jobs — the ninth drop in 10 months — and financial-sector payrolls were down 24,000.

Retail trade cut over 38,000 jobs, with losses concentrated at automobile dealers and department stores. Retail hasn’t added jobs since November 2007, reflecting the pullback in consumer spending. Leisure and hospitality businesses, meanwhile, shed 16,000 jobs.

Temporary employment, which economists consider a bellwether for future job prospects, fell more than 50,000.

Continuing a recent trend, job gains were concentrated in health care, which tends to be more labor intensive and less productive than manufacturing and other services. Health services employment rose 26,000.

The government added 23,000 jobs.

The average workweek was unchanged at 33.6 hours. A separate index of aggregate weekly hours fell 0.3 point to 105.9.

-By Brian Blackstone; Dow Jones Newswires

WASHINGTON — The Federal Reserve on Wednesday slashed interest rates to four-year lows, capping a dramatic policy turn in October as the U.S. confronts a severe financial crisis and almost-certain recession.

Fed officials even left the door open to additional rate cuts to levels not seen in a half-century, putting rates on a once-unthinkable path towards zero.

The Federal Open Market Committee voted unanimously to lower the target federal funds rate at which banks lend to each other by 0.5 percentage point to 1%, its lowest since between June 2003 and June 2004. That outcome was universally expected by Wall Street economists in a Dow Jones Newswires survey.

The Fed also reduced the discount rate charged for direct loans to banks by 0.5 percentage point to 1.25%, responding to requests from Fed district banks in Boston, New York, Cleveland and San Francisco.

“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the FOMC said in a bleak assessment of the economy, while the financial crisis “is likely to exert additional restraint on spending.” Officials also alluded to “weakened” industrial production in recent months and “damping” prospects for U.S. exports.

Though the fed funds rate was 1% as recently as 2004, few if any on Wall Street had thought officials would revisit those levels again.

After all, the 2001 to 2003 easing campaign was seen by some, in hindsight, as an overreaction to the mild 2001 recession and over-hyped deflation fears. Those cuts and the slow pace of tightening thereafter were criticized as the root cause of the ensuing U.S. housing bubble, the collapse of which is at the heart of the current economic storm.

But this time is different. Far from a mild downturn, the U.S. economy is poised to contract sharply. Economists expect third quarter gross domestic product figures, due for release Thursday, to show a 0.5% contraction, at an annual rate. The forecasting firm Macroeconomic Advisers expects an accelerated decline of 2.8% in the current quarter followed by another GDP dip in early 2009.

The Fed “can go below 1%”on fed funds,said Brian Bethune, economist at IHS Global Insight. “They can go to 0.5% and they can even go to zero if they have to,” he added.

“We’re in the eye of the storm so they’ve basically got to use all of the ammunition they have to turn the situation around,” Bethune said.

Meanwhile, the unemployment rate is expected to climb well above 7% in coming months from its current level of 6.1%. And inflation rates, though still quite elevated on an annual basis, should come down quickly in response to falling oil and gasoline prices.

“In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability,” the Fed said. Wednesday’s statement made no reference to inflation risks as previous ones had.

As recently as the FOMC’s last scheduled meeting, on Sept. 16, officials had warned that inflation remained a “significant” concern. But as the credit crunch claimed more victims and showed signs of spilling over to consumer and business spending, Fed officials on Oct. 8 — in an unprecedented joint rate cut with other major central banks including the European Central Bank and Bank of England — lowered official rates by 0.5 percentage points.

Those global actions as well as Wednesday’s rate cut and “extraordinary liquidity measures’ should promote a return to moderate economic growth, the Fed said, though “downside risks to growth remain.”

Fed officials will monitor the economy and markets and “act as needed” to promote economic growth and price stability, the Fed said.

“The door is open to further easing,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics. He expects another half-percentage-point fed funds reduction at the next FOMC meeting on Dec. 16.

The Fed has also announced a series of programs to help ailing short-term debt markets, particularly by easing corporations” access to loans they need to fund their daily operations. The market for those IOUs, or commercial paper, has suffered as money market funds — the largest group of investors in the market — remain spooked in wake of the collapse of Lehman Brothers. Some money funds had incurred significant losses from defaulted Lehman debt.

Under the Money Market Investment Funding Facility the Fed announced last week, the Fed will provide funding to help money market funds purchase certificates of deposits and commercial paper. And through its Commercial Paper Funding Facility, a complementary program that started Monday, companies such as American Express (AXP) and General Electric (GE) can sell their three-month commercial paper to the Fed.

The Fed has also extended loans to banking organizations to purchase asset-backed commercial paper, started paying interest on banks” required and excess reserve balances and boosted the size of its Term Auction Facility auctions — all in effort to encourage lending.

There are preliminary signs the Fed’s backstop programs are working. A key lending rate, the London interbank offered rate, for instance, was lower Wednesday, extending a streak of consecutive daily declines over the past two weeks.

“The real story regarding the Federal Reserve is its various liquidity operations; the federal funds rate is second fiddle,” said Miller Tabak bond strategist Tony Crescenzi in a research note before the FOMC decision.

Still, the fed funds rate remains a powerful tool given the new global nature of rate cuts. Until recently, the U.S. was largely alone in easing rates given that the root cause of the global downturn has been the bursting of the U.S. housing bubble.

And even if the Fed is entering the final phase of its 13-month fed funds easing cycle, other central banks may just be starting. China’s central bank lowered rates Wednesday for the third time in two months, following an unexpected rate reduction on Monday by the Bank of Korea. Norway’s central bank also lowered rates Wednesday.

The ECB and BOE are expected to cut interest rates further when those central banks meet next month.

Text Of Federal Reserve’s Interest Rate Decision

NEW YORK — The following is the text of the Federal Reserve’s decision on interest rates released Wednesday, Oct. 29:

The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1%.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4%. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.

-By Brian Blackstone and Maya Jackson Randall, Dow Jones Newswires

Many older 401(k) plan participants have entered the bear market with most of their plan assets invested in stock.

That point emerged today during a House Education and Labor Committee hearing on the effects of the steep drop in the stock market on employees who participate in defined benefit pension plans and defined contribution retirement plans.

“It’s clear that their retirement security may be one of the greatest casualties of this financial crisis,” Rep. George Miller, D-Calif, chairman of the committee, said today at the hearing. “The current financial and housing crises are stripping wealth from American families at a record rate.”

“Particularly for those workers whose savings were held in too risky a portfolio for their savings goals, or for those who were not well-diversified, these are difficult times,” said Rep. Howard McKeon, R-Calif., the highest ranking Republican on the committee.

Jack VanDerhei, research director at the Employee Benefits Research Institute, Washington, noted that conventional wisdom holds that older workers should shift toward bonds, cash and other conservative asset classes as they near retirement age.

But, in 2006, 27% of the oldest 401(k) participants – participants who were ages 56 to 65 – had 90% or more of their 401(k) assets in stock or stock funds, and another 21% had 80% to 90% of their 401(k) holdings in stock or stock funds, VanDerhei said.

Target-date funds, which are supposed to adjust portfolios as investors with similar expected dates of retirement age, “are likely to become much more common,” especially as the Pension Protection Act, which allows for automatic enrollment of employees in a 401(k) plan, is fully implemented, VanDerhei said.

Target-date fund portfolio diversification “can help avoid excessive exposure to financial market risks,” said Peter Orszag, director of the Congressional Budget Office. “By design, however, workers in defined contribution plans must inevitably bear the risks associated with broad market fluctuations.”

The difficulties created by the market meltdown also affect those guiding employee retirement plans, said Jerry Bramlett, president BenefitStreet Inc., San Ramon, Calif.

“Given how this turmoil is impacting large insurance companies and banks, plan fiduciaries need to make sure that, when offering a so-called stable value or fixed interest fund, such funds are diversified across a large number of financial institutions,” Bramlett told the committee. “What we have learned over the last couple of weeks is that very large institutions can fail no matter how stable they may appear on the surface.”

Bramlett reported that some retirement funds, including some real estate investment funds, have announced that they are frozen and not available for distributions to participants due to a lack of liquidity from their underlying assets.

“This means that current participants cannot change their investment and retirees cannot get distributions,” Bramlett said. “Congress should examine whether investments subject to this susceptibility are appropriate.”

BY MATT BRADY
Washington Bureau

NEW YORK — U.S. consumer confidence fell to an all-time low in October, after a slight rise a month earlier, and expectations are even bleaker, a report released Tuesday said.

The Conference Board, a private research group, said its index of consumer confidence for October dropped to 38.0, compared with a revised reading of 61.4 in September. Economists surveyed by Dow Jones Newswires expected a reading of 51.5.

The 23.4 point drop in the index was the third largest monthly drop in the series’ history, the board said.

The consumer expectations index for the state of economic activity over the next six months declined to 35.5 in October from 61.5 in September.

“The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” said Lynn Franco, director of the Conference Board Consumer Research Center. “Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news doesn’t bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”

The sharp confidence fall is causing economists to cut their estimate for consumer spending in the fourth quarter.

Ian Shepherdson of High Frequency Economics estimated that if the expectation index remains at 35.5, real consumer spending would fall at an annual rate of about 3.5% this quarter, worse than the 3% drop he expects in the third quarter.

But what may help the outlook, he said, is the decline in gasoline prices and the belief that stock prices won’t continue to fall as badly as they have already.

Even so, the damage to household finances has already been done.

“A consumer-led recession is upon us, and it promises to be a serious one,” said Joshua Shapiro of MFR.

The present situation index, a gauge of consumers’ assessment of current economic conditions, fell to 41.9 from 61.1 in the prior month.

Consumers took a very dismal view of the current job market. The percentage who think jobs are hard to get rose to 37.2% in October from 32.2% in September. At the start of 2008, only 20.6% thought jobs were hard to get.

The report was released as the Federal Reserve started a two-day meeting to set monetary policy. The sharp fall in confidence bolsters the view that the Fed will cut the fed funds rate by 50 basis points, to 1%.

-By Riva Froymovich, Dow Jones Newswires

The volatility in the financial markets has caused a lot of heartache in this country. From lost jobs to lost retirement dreams we have all felt the affects of the fallout in the financial markets both here and abroad.

As a financial professional I have been right in the thick of it. My daily radio reports are filled with bad news and after a while it is quite depressing. As I speak to people from all around the country you can sense the fear and concern. That sense of trust, that underlying feeling that things will be alright has been pulled right out from under people.

Even the wealthy are having the same feelings. I wonder whether the financial crisis has caused this, or just crystallized the feelings that perhaps our lives, our very way of living is somehow, unsatisfying. Is money the only measurement we truly use anymore to determine if we are happy?

The fact that our entire world, from wealthy to poor, from Asia to Europe to the great old US of A’s entire existence could be shaken and brought to it’s knees all for the mighty dollar. Why have we put our society and lives in a position that something like this could happen and have such consequences as it relates to our overall happiness.

Which brings me to my dog Daisy. Daisy is a sweet little black and grey Shih-Tzu. My other dog, Lilly, is also a Shih-Tzu and is white and tan. Both are sweet as sugar and never had a bad day in their lives.

One night last week after a bad day in the stock market I was up in the middle of the night checking out the latest quotes from Asia and looking for the next piece of news that would send the stock market tanking. I found myself in this position for several nights in a row. Daisy always follows me down and stares at me with a look in her eye that says, “Why are you up dad?”

On one of these nights after spending about an hour on the computer and feeling quite exhausted mentally and physically, I turned to look at Daisy and there she was, lying flat on her back, paws in the air, playing with a little piece of string and having just the greatest time. No worries, not a care in the world. It then dawned on me, we too could have carved a society that led the dogs life. We had a chance to create a list of priorities that included making life easy and less complicated. Instead we are worried about foreign oil production, interest rates and 401K’s. It seems like we just blew it.

Remember the line, “The best things in life are free”. For a while there this was the punch line of a generation fed a steady diet of greed and monetary reward. Don’t get me wrong, I like nice things just like the next guy, I guess somehow, I wish I didn’t.

My Daisy’s advice, raise some cash in your portfolios and let the rest sit. Kick back find a piece of string, a golf club or whatever makes you happy and let someone else worry about it for a while, it will all work its way back and you’ll feel better for it. Live a little.

WASHINGTON — The U.S. economy is likely either already in a recession or will be by the end of the year, according to a survey of economists released Monday by the National Association for Business Economics.

The economists expect a solid recovery by the middle of 2009, with gross domestic product growth approaching 3%, at an annual rate, by the end of next year.

Economists expect growth to “stall” in the fourth quarter, said Macroeconomic Advisers economist Chris Varvares, incoming president of NABE. “If financial conditions fail to improve quickly, near-term economic prospects could deteriorate markedly,” he said.

The NABE survey of 48 forecasters was released days after U.S. lawmakers approved a $700 billion financial market rescue plan. Under the plan, the Treasury Department will purchase illiquid mortgage-backed securities in hopes of unclogging credit markets.

Most of the NABE survey was taken between Sept. 8-19, weeks before lawmakers signed off on the package Friday. In a special question asked Oct. 1-2, the NABE panel said passage of the legislation “would blunt much of the economic decline that might otherwise develop.”

“The median expectation is that real GDP growth in 2009 would be about 0.75 percentage point lower without the government’s plan, and the unemployment rate at year-end 2009 would be 0.5 percentage point higher,” NABE said. Equity prices would be 10% lower by year-end without the plan, according to the NABE panel.

If credit conditions stay where they are, NABE economists expect GDP contractions this quarter and next, with the unemployment rate rising to 7%, according to some economists, and even as high as 8% by the middle of next year.

Assuming some improvement in credit conditions, NABE expects 0.1% GDP growth this quarter and 1.3% growth in the first quarter of 2009.

Even though the baseline scenario is for positive GDP growth, two out of three NABE panel members think the U.S. is either in a recession or will be by the end of the year, according to NABE. The National Bureau of Economic Research, an academic group, officially determines whether the economy entered recession based on several economic indicators.

The median forecast of the NABE panel is for the Fed to keep interest rates on hold at 2% until the second quarter of 2009, when it will start raising rates.

However, that part of the NABE survey was conducted before recent employment and Institute for Supply Management data signaling the economy is in or near a recession. Those figures, as well as the credit crisis, have caused many economists to forecast rate cuts as soon as this month.
-By Brian Blackstone; Dow Jones Newswires;

NEW YORK — The outlook for U.S. monetary policy among Wall Street’s biggest banks is unusually fragmented right now, but most banks expect rate cuts to be coming soon.

In a survey of primary dealers conducted Friday and Monday by Dow Jones Newswires, the median projection of responding banks was that the Federal Reserve will cut its current 2% overnight target rate to 1.50% by the time of the late October policy meeting. Primary dealers are banks that deal directly with the Fed and underwrite Treasury debt auctions.

Some banks in the survey even believe the odds are high that a rate cut could come before the month-end meeting. Other banks consider the situation so fluid they do not have settled monetary policy forecasts.

The case for cutting rates comes in the wake of dismal hiring data and rapidly accumulating evidence that intensifying credit market problems are weighing heavily on the economy. Most forecasters are relatively certain the economy’s performance now meets the technical definition of a recession.

Even though rates are already historically low, high market-based borrowing rates remain restrictive of growth. The central bank needs to counter that with even easier monetary policy, the argument goes.

The debate at the October Fed meeting is likely “to revolve around what size rate cut should complement the latest round of liquidity enhancing measures,” JPMorgan chief economist Bruce Kasman told clients in a note.

Goldman Sachs economists said Friday they believe the Fed is likely to cut its overnight target rate to 1% by the time this renewed easing cycle is done. “The extent of the monetary easing is not constrained by inflation worries, which are receding rapidly,” they wrote, adding “we would not rule out a move to even lower rates.”

Meanwhile, Deutsche Bank also believes the Fed will cut rates, although it expects a different timetable for the action. “While we expect the Fed to wait until year-end to cut rates — they will need the monetary powder ahead of what could be a very difficult year-end — market conditions may force their hand sooner,” said Joe LaVorgna, chief U.S. economist with the bank.

By Michael S. Derby
Of DOW JONES NEWSWIRES

Bought any credit default swaps lately? For most of us the answer is, “No, and what is a credit default swap?”

But just because you haven’t purchased any doesn’t mean that it isn’t going to affect you. In fact given the press the financial markets have been getting, all of us are feeling the heat one way or the other. Whether you are concerned about your bank going bust or a decline in your 401K or your business being able to tap a line of credit you’ve had for years, we have all felt the negative effects of this crisis.

We are all to blame from those that pushed for more home ownership to those that profited from it, to those that didn’t make their mortgage payments. We can, as a group, each share some of the blame. Wall Street further exasperated the problem by packaging these mortgages up into groups and selling them off to customers as safe investments backed by the property and in theory they were, unless you added in the possibility that home prices might decline, then you have a problem.

Many borrowed against this mortgage bet from home equity to hedge funds but when the value of those mortgages fell apart and those that borrowed had to pay it back, well they just didn’t have enough to do it and the whole shebang started to unzip.

Investment banks and traditional banks were left holding the bag. They tried to sell the investments but nobody wanted to buy them. They were too risky and nobody could figure out what they were really worth.

Banks are required to mark to market. Which means if the bank has a billion dollars worth of bonds and I sell $10,000 worth at .50 cents on the dollar because I just wanted out, the bank would have to mark down their portfolio to 50 cents on the dollar, and take a half a billion dollar hit. Hardly seems fair but yet those are the rules.

This has been going on now for months and the values have just been dropping and dropping to the point where the mortgage bonds are worth practically nothing. Not because the properties are worth nothing, but because nobody is willing to buy the mortgages. The banks are afraid to part with any money incase they might need it for themselves. Here is where Main Street feels the heat.

Since the banks are hording cash to protect themselves, they don’t have enough money for home loans, further depressing home prices making the problem worse. They won’t loan for autos causing the car market to implode. They won’t give home equity loans or loans to start a new business.

If you are a business that has a line of credit that you tap from time to time as you wait to collect receivables, that line of credit has been shut down. If you can’t fund your business with short-term loans, then you go out of business. Your employees become unemployed as do you.
This inability for business to borrow short term is choking off the businesses themselves. Your pensions are gone, your income is gone, your children’s education is threatened, and there is no one to borrow money from.

By helping the banks free themselves of the mortgage mess they created may seem like it is helping Wall Street, but the one who pays for it in the end is Main Street. For those in retirement now, that have watched their investments deteriorate, it is especially unnerving. They are not in a position to recoup what they have lost. 

In this case, even if it goes against your beliefs and infuriates you very last nerve, this bailout in the end might just keep the “For Sale” sign off of your home or business. You can cry all you want, that’s just the way it is.

NEW YORK — The collapse of the U.S. real estate market and ensuing banking crisis have rattled even the wealthiest Americans and caused some to worry they’ll run out of money, according to research released Thursday.

Families have grown more pessimistic about their futures but are making plans to ride out this economic downturn, according to data from marketing and research consulting firm Harrison Group and the American Express Publishing Corp. a division of the American Express Co. (AXP).

Researchers in late September surveyed 614 people with discretionary incomes, or incomes after mortgage, taxes and other obligations, of at least $100,000. They were a subset of the 1,800 high-income individuals the researchers surveyed at the end of 2007.

More than 70% of respondents said the current economic turmoil has affected their sense of financial security and the value of their assets. And more than half are worried about depleting their financial resources.

Three-quarters of the respondents believe the U.S. is in a recession and 60% believe it will last more than a year.

High-earning Americans are looking to save and cutting back their spending on jewelry, fashion, accessories and other personal items. But spending on items for their families, such as cars, travel, children’s clothing and home decor is rising.

About 20% of families say they plan to cut back on gift giving this holiday season so they can make charitable donations to families in need, religious institutions and organizations that focus on health issues.

Respondents will place a higher priority on spending time with family, friends and their communities during the holidays than spending on gifts, the researchers said.

The number of respondents who describe themselves as Republicans has decreased over the past couple of years, while the number of independents has risen.

The surveyed households represents 10% of the U.S. population but hold about 80% of the country’s nonretirement assets and account for half of all retail sales, the researchers said.

By Kristen McNamara, Dow Jones Newswires

In this environment it is fair for families to question whether or not the insurance that they have paid into for years and years will be there when they need it. The upheaval of the financial services industry which sparked the demise of Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac Merrill Lynch and AIG, the first insurer to go off the board, is sparking fear amongst the owners of insurance policies and it is quite understandable.

While Senator’s Obama and McCain are running around trying to make political hay from the situation by blaming this person or that for the problems we find ourselves in, many of us are looking for real answers to real questions that will affect our lives and our families. We’re not looking for a promise to do this or that that will probably be forgotten in a week or two.

So lets clear a few things up.

State laws are designed to protect the interest of policyholders first, before investors. The number one job of state insurance regulators is to make sure that the insurance companies that operate within their state are financially sound. If there is the possibility that a company will not be able to fulfill the promises it made to it’s policy holders, the regulators will step in.

The regulators have numerous actions they can take to prevent failures. This includes taking over management of the insurance company through a conservation or rehabilitation order with the goal of being able to get the company back into a strong financial position.

Claims from individual policyholders are given priority over other creditors. In the event that there is not enough money in the insurance companies accounts to pay a claim, the state has a safety net in place to protect the consumer and it’s called the state guaranty fund.

Every state has a fund of this type. Insurance companies pay for the fund with a fee of 1-2% of the net insurance it sells in that state. So every state is different. If an insurance company is unable to pay a claim, the guaranty fund will pay instead subject to certain limits. These limits are different for every state but upon investigation $300,000 for property casualty and $500,000 for life insurance and annuity contracts seem to be the norm.

Each state has its own plan though and it can vary substantially from those limits I mentioned above. For instance, some states don’t cover annuity benefits at all, and some do. Some may have a limit per person, or a limit per policy so someone may own three policies and get paid for all three.

It is important to remember that these do not replace your current policy, more so back up your policy with another type of substitute coverage. If you have a $2,000,000 life insurance policy, you may only collect $500,000 if the state is required to use the state guaranty fund to pay you.

Client’s assets invested in variable annuity separate accounts are not subject to creditors  and are segregated by law and protected although still subject to market performance.

Fixed annuity accounts and all fixed products are invested in the insurer’s general account and subject to creditors. These assets may be used upon the approval of state regulators for liquidity concerns of the insurance company.

Death benefits on both annuities and life insurance are funded in part by the insurers’ general account and may be reduced if the insurer goes into receivership.

If there was ever a time to educate yourself about your state’s policies for paying a claim from the state’s guaranty fund, it is now. Insolvency is an unfortunate reality. Things may calm down or may get worse. I will not be the one to predict that, but I want all to understand that when it comes to your ability to collect a claim from a troubled insurance company, your state has an option and it’s best to understand your states particular rules and claims paying practices.