Finance news. My opinion.

Problems with Toyota cars are cropping up faster than the automaker can deal with them. Following two different recalls for problems involving accelerator pedals on various models comes the revelation of braking problems in the iconic Prius.

Here’s a rundown of the problems, the cars involved and what to do if your car’s caught up in any of this.

Prius brakes

What’s the problem? Under certain conditions, particularly at relatively low speeds when traveling over rough or potholed roads, drivers have complained of a brief, but significant, delay in brake performance.

Is it being blamed for crashes? Yes, at least four crashes in the U.S. have been reported, allegedly as a result of this problem.

What cars are involved? 2010 model year Toyota Priuses made before January, 2010. Toyota is also investigating whether the Lexus HS250h hybrid, which shares its mechanical parts with the Toyota Prius, might have a similar problem.

Is there a recall? No, at least not yet.

Is there a fix for it? None has been announced yet, but Toyota has fixed the problem on cars coming off the assembly, so there does seem to be some sort of solution. Now Toyota has to figure out how to get that change made to cars already on the road.

What should I do? The safest thing to do, of course, would be not to drive the car until the problem has been fixed. If you do drive, be aware of the problem and allow extra following distance and be begin to stop a little sooner for red lights and stop signs, especially if the road is choppy.

David Champion, Consumer Reports’ head of auto testing, also reminds drivers not to lift off the brake pedal if they feel a loss of power. Instead, keep your foot pressed down hard on the brake pedal and don’t pump the brakes.

Sticky gas pedals

What’s the problem? Over time, gas pedals in some cars become sticky. At first, they just become a little harder to push down and when you lift your foot off the gas, they’re slower to come back up. In the worst case, the pedal on these cars can become stuck part way down.

Is it being blamed for crashes? There have been no crashes or injuries reported as a result of this problem.

What cars are involved? Toyota’s 2009-2010 RAV4, Corolla and Matrix models; the 2005-2010 Avalon; 2010 Highlander; 2007-2010 Tundra and the 2008-2010 Sequoia; and some 2007-2010 Camrys (only those with gas pedal assemblies made by a specific Toyota supplier; your dealer can check). No Lexus or Scion models are involved.

Is there a recall? Yes , 2.3 million vehicles.

Is there a fix for it? Yes. Toyota dealers can install a small metal plate that reduces wear on the plastic parts involved.

What should I do? Get your car fixed as soon as you can. If your gas pedal starts to feel sticky, stop driving immediately, Toyota says. Pull over in a safe place, then call a dealer.

If the pedal becomes stuck part way down, applying the brakes should be enough to slow the car and bring it under control. Don’t pump the brakes, though. That will just weaken your power brakes. Instead, press and hold the brakes. Also, at the same time, you can shift the transmission into neutral, which will stop the engine from driving the wheels.

Keep in mind that these situations are rare occurrences.

Floor mat pedal entrapment

What’s the problem? In some cars, gas pedals can become stuck on the edge of afloor mat, particularly when thick all-weather floor mats are used or when floor mats are stacked on top of one another. In this case, the pedal can be stuck almost all the way to the floor, creating a particularly dangerous situation.

Is it being blamed for crashes? Yes, there have been crashes and some deaths on account of this problem.

What cars are involved? 2008-2010 Highlander, 2009-2010 Corolla, 2009-2010 Venza, 2009-2010 Matrix, 2009-2010 Pontiac Vibe (a version of the Matrix), 2007-2010 Toyota Camry, 2005-2010 Avalon, 2004-2009 Prius, 2005-2010 Tacoma, 2007-2010 Tundra and the 2007-2010 Lexus ES350, 2006-2010 IS250 and the 2006-2010 IS350.

Is there a recall? Yes 5.3 million vehicles have been recalled for floor mats.

Is there a fix for it? Yes. Dealers will alter the shape of the gas pedal to prevent it becoming stuck on the floor mat even when thick or stacked floor mats are used. In some cars, the floor area under the gas pedal may also be reshaped slightly to make more room.

What should I do? Get your car fixed as soon as possible. If your car hasn’t been fixed yet remove your floor mats.

If your gas pedal becomes stuck in the "floored" position, immediately shift the transmission to "Neutral" and press hard on the brake pedal. Don’t pump the brakes but apply even, firm pressure. 

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Starbucks Corp.’s fiscal first-quarter profit soared and topped Wall Street’s forecast Wednesday as the upscale coffee retailer boosted its outlook for 2010.

The world’s largest coffee chain reported a profit of $241.5 million, or 32 cents per share, during the three months ended Dec. 27, which was a nearly four-fold rise from a year ago.

Stripping out restructuring charges, Starbucks posted an adjusted profit of 33 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their forecasts, expected 28 cents per share.

The Seattle-based company’s quarterly sales rose to $2.7 billion, a 4% climb compared with the same period in the prior year. The revenue beat analysts’ forecast of $2.6 billion.

"Continued innovation, the successful enhancement of the customer experience and a transformed, more efficient cost structure have brought Starbucks to a significant milestone — a return to positive growth," said Howard Schultz, chairman, president and chief executive of the company, in a statement.

During a conference call, Shultz added that Starbucks’ performance during the holiday season was the best in the company’s history, with the Caramel Brulee Lattee, which was launched during the season, lifting beverage sales by 30%.

He also said that Starbucks’ new line of instant coffee called Via outperformed expectations and was a highlight for the quarter.

Same-store sales, which measure sales at stores open at least a year and are a key gauge of customer traffic, grew for the first time since 2007, with a 4% uptick worldwide and a 4% boost in the United States fast cash online. In its last forecast, Starbucks said it expected a rise in same-store sales in 2010.

While analysts expected the pick-up in sales, the increase was a surprise said Buckingham Research’s Mitchell Speiser, who expected a 2% hike.

From mid-2008 to 2009, Starbucks closed 800 stores in the U.S. and 100 international locations, laid off workers, revamped its food menu and tinkered with drink prices. The company’s cost-cutting initiatives saved $580 million in 2009.

"Starbucks’ combination of value initiatives, improved food quality and focus on wellness, and new loyalty programs that are encouraging frequency helped it deliver a high quality earnings report," Speiser said. "They’ve brought it all together this quarter and that will give them momentum going forward."

Starbucks raised its outlook and said it expects to earn between $1.05 and $1.08 per share for the full year. In its last forecast, the company said it expected to earn between 92 and 96 cents per share in 2010.

As announced last fall, Starbucks maintains its target to open 100 stores in the United States and 200 in international markets during 2010.

Shares of Starbucks (SBUX, Fortune 500) surged more than 3% in after-hours trading, after falling 1.2% during regular hours.  

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The Toronto stock market started the trading week off positive Monday, led by higher commodity and financial stocks.

The S&P/TSX composite index closed up 65.17 points to 11,750.54 after a lukewarm start to the U.S. quarterly earnings season and moves by China to cool its economy had pushed the main index down more than two per cent last week to below where it started the new year.

“When China raised the reserve requirements (for banks), it was unexpected,” said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

“All of a sudden, you say: is some of the global stimulus going to be removed quicker than I thought?”

The TSX Venture Exchange climbed 12.25 points to 1,605.72.

Volumes were lower than normal as New York markets closed for the Martin Luther King holiday.

A day before the Bank of Canada makes its scheduled announcement on interest rates, the Canadian dollar moved 0.28 of a cent higher to 97.42 cents US. The central bank is widely expected to leave rates — which hover near zero — alone until at least the end of the second quarter.

The base metals sector was up 1.39 per cent. Late Monday afternoon, the March copper contract on the New York Mercantile Exchange rose five cents to US$3.41 a pound in electronic trading. Regular trading on the New York Mercantile Exchange was also closed Monday for the King holiday.

Teck Resources (TSX:TCK.B) added 43 cents to $41.23 while Labrador Iron Mines Holdings (TSX:LIM) ran up 69 cents to $5.57.

The February crude contract rose 25 cents to US$78.25 a barrel shortly before the TSX closed, taking the energy sector ahead 0.63 per cent. EnCana Corp. (TSX:ECA) improved 46 cents to $35.67 while Imperial Oil (TSX:IMO) gained 46 cents to $41.10.

Crude prices fell every day last week, losing just over five per cent, as the first batch of fourth-quarter earnings and economic data pointed to signs of continued weakness in the U.S. economy.

Oil and gas explorer Enterra Energy Trust (TSX:ENT.UN) said Monday it will convert to a corporation by the end of May, changing its name in the process to Equal Energy Ltd. Calgary-based Enterra said Monday it wants to make the move before a change in the rules governing the taxation scheme for trusts takes effect in 2011. Enterra units jumped 56 cents or 25.93 per cent to $2.72.

Shares in Cirrus Energy Corp. (TSXV:CYR) dropped 68 cents or 24.46 per cent to $2.10 after delivering a disappointing update on its drilling activities at its subsidiary in Holland. A platform refurbishment was meant to allow “continuous uninterrupted production” from its well. Instead, production performance has steadily declined.

The financial sector moved up 0.65 per cent after losing ground at the end of last week in the wake of disappointing earnings results from American banking giant JPMorgan Chase. TD Bank (TSX:TD) was ahead 75 cents to $64.10 and Manulife Financial was up 22 cents at $20.54 .

The February gold contract was ahead $2.90 to US$1,133.40 an ounce and the gold sector edged up 0.19 per cent.

When Wall Street returns on Tuesday, the focus will turn towards the next batch of fourth-quarter corporate earnings figures, including those from Citigroup Inc. and IBM Corp.

So far, earnings have been fairly mixed, with upside surprises from the likes of Intel Corp. offset by disappointments elsewhere, most notably Alcoa Inc. and JPMorgan Chase.

“Are they going to meet their guidance? And how are they going to meet it? asked Nakamoto.

“Expectations have ratcheted up.”

In other corporate news, a group of bidders, including former Canadian senator Jerry Grafstein, says it’s preparing to make an offer for some of Canwest’s (CGS.V) newspapers, including its flagship National Post. The consortium of investors also includes former Global TV executive and Montreal Star editor Raymond Heard and writer and broadcaster Beryl Wajsman.

But Nakamoto said he expected there are funds and companies that would be interested in the whole newspaper chain.

“I would think there’s a bunch of private equity investors _ like even Onex Corp. (TSX:OCX). Why wouldn’t they look at it? It seems right up their alley. Or why wouldn’t the Ontario Teachers Pension Fund look at it? There’s a lot of money out there.”

Canwest shares were off one cent at 7.5 cents.

Mosaid Technologies Inc. (TSX:MSD) shares rose $1.45 to $21.51 after it said its revenue will be $3 million higher in the 2010 financial year than previously thought, rising to an estimated range of $68 million to $70 million. It said the improved performance is the result of a landmark licensing agreement between the Ottawa patent firm and Samsung Electronics Co., Ltd.

Heritage Oil Corp. (TSX:HOC) says that Tullow Uganda Ltd. has exercised its right to pre-empt Heritage’s sale of a 50 per cent interest of two blocks in Uganda to Italy’s Eni International B.V., and will pay more than US$1.35 billion for the assets. Heritage shares ran ahead $1.90 or 24.24 per cent to $10.20.

Financially troubled Coalcorp Mining Inc. (TSX:CCJ) says the proposed US$150-million sale of its La Francia coal mine in Colombia has been threatened by a company allegedly controlled by former Coalcorp directors. Coalcorp said Monday it received a letter from Blue Pacific Assets Corp. advising that it will ask a court to block the sale unless it receives about $2 million of royalties that are purportedly overdue and assurance that Coalcorp will terminate the proposed sale of La Francia to Goldman Sachs. Coalcorp shares were 1.5 cents higher at 19.5 cents.

New Flyer Industries Inc. (TSX:NFI.UN) said Friday it received orders for 711 buses in the fourth quarter for a total of $308 million. The company said the orders included 506 new firm and option orders and 205 exercised options for buses. Its units added 10 cents to $10.50.

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Weak demand for office space and an influx of new buildings has caused landlords to drop rents for commercial buildings in the GTA.

Average asking rents fell 9 per cent or from $17.83 in 2008 to $16.20 per square foot by the end of last year, according to a report by Colliers International Monday.

"The impact of the recession still lingers on Toronto’s office market," said the real estate services firm.

Office vacancies continued on an upward trend, hitting 6.1 per cent equal to 11.3 million square feet at the end of 2009 – a 20 per cent increase. Colliers says things will get worse before they get better, with vacancies hitting 6.9 per cent before the trend is reversed.

"Historically, there has been a lag between economic recovery and its impact on the GTA office market," said John Arnoldi, managing director with Colliers.

Another problem has been with sub-leases, where troubled companies looking to reduce overhead dump part of their office space back onto the market.

The sub-lease market is up 48 per cent from a year earlier, and is now above one million square feet.

That space now competes with existing vacancies and accounts for about 10 per cent of total vacancies.

Meanwhile, commercial landlords say their biggest concern during the recession is the financial stability of tenants as tough economic times are resulting in higher rent defaults.

In a survey of Canadian commercial investors by Colliers, 92 per cent of respondents said "tenant financial credit rating" was at the top of their list when it came to making a leasing decision. This compares to 33 per cent when the survey was last taken in 2007

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The European Central Bank will lend banks more money than economists forecast in its final tender of 12-month funds as some financial institutions try to lock in cash at a record low interest rate.

Banks bid for 96.9 billion euros ($141 billion), the Frankfurt-based ECB said today. Economists forecast that it would lend 75 billion euros, the median of 23 estimates in a Bloomberg News survey showed. The cost of borrowing is indexed to the average of the ECB’s benchmark rate rather than fixed at 1 percent, as it was in the previous two tenders.

President Jean-Claude Trichet said on Dec. 10 that market conditions are “stable enough” to allow the ECB to withdraw some of the emergency measures introduced to fight the financial crisis. While the decision to index the rate on the tender will increase banks’ funding costs should policymakers raise the benchmark rate from 1 percent next year, the demand suggests the majority don’t expect an increase next year.

“Banks’ bidding behavior suggests the majority of them don’t expect a change in the policy rate during the duration of the tender,” said Klaus Baader, co-chief European economist at Societe Generale in London. The size of demand “will cause the liquidity situation in money markets to stay relaxed. Overnight and short-term money-market rates will remain very, very low.”

The Eonia overnight rate, the rate European banks charge each other for overnight loans, has declined to about 0.35 percent from 2.2 percent at the start of the year.

The euro was little changed after the announcement, trading at $1.4558 at 12:11 p.m. in Frankfurt, from $1.4538 yesterday.

Flagship Policy

The ECB has flooded markets with cash to fight Europe’s worst recession since World War II and revive lending. It lent 75.2 billion euros at its last 12-month tender in September and a record 442 billion euros in June cash till payday.

The ECB said that 224 banks bid in the latest tender, compared with 589 in September and 1,121 in June.

The 12-month loans formed one of the ECB’s flagship policies this year. The bank will also discontinue its six-month loans after March and only guarantee unlimited funding in its other refinancing operations until April 13.

‘Orderly Unwinding’

The euro-region economy’s emergence from the recession in the third quarter is helping the ECB deploy exit strategies. The central bank earlier this month forecast the economy to expand around 0.8 percent next year and 1.2 percent in 2011 after contracting around 4 percent in 2009.

Still, council members have signaled that they’re in no rush to step up efforts on withdrawing stimulus. Austria’s Ewald Nowotny said in an interview on Dec. 14 that tenders “that we didn’t mention will go on for the time being.” Germany’s Axel Weber said on Dec. 9 that the ECB will have a “process of orderly unwinding” and that the bank will reduce liquidity “slowly and step-by-step.”

The ECB began lending banks as much money as they wanted in the aftermath of Lehman Brothers Holdings Inc.’s collapse last year, effectively assuming the role of the money market. In May this year, it announced it would extend the maximum maturity on its loans to 12 months.

“The ECB was more or less successful with its measures to avoid too strong a use of the 12-month tender,” said Juergen Michels, chief euro-region economist at Citigroup in London. “That will make the liquidity drain easier in 2010.”

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All three working-age generations – Boomers, Generation X and Generation Y – agree that the youngest ones are more difficult to manage than other generations, a Conference Board of Canada analysis has revealed.

The two older generations, the board’s November study found, believed Gen Y workers "require more close supervision, are less likely to follow procedures and are less results-driven than other generations."

On the other hand, Gen-Y – people aged 18 to 29 – "may not understand why their Boomer or Gen-X colleagues fail to recognize how busy their lives can be," the report found.

The board did their own national workplace survey and analyzed other data about the consequences of a new wave of multigenerational angst sweeping Canadian workplaces.

Two factors were exacerbating the angst, the board said: an ever-aging workforce and a wrenching shift "away from hierarchical structures" that Boomers are comfortable with to "a more team-based approach" in workplaces that suits Gen-X and Gen-Y more.

"No longer are younger workers largely dependent on the older generations for information and knowledge," the board said. "Younger workers can now access information online and many are often the most expert person at a given skill or task."

Hence, the conflict is "arguably now even greater than before."

Statistics Canada data show that while 14.1 per cent of the Canadian workforce in 2001 was nearing retirement age, 16.9 per cent was by 2006 and more than 20 per cent will be by 2016.

Bosses have the delicate task of getting these three generations to cooperate at work and adapting the environment to get the best work out of each, the board said.

Standing in the way are ingrained myths and perceptions on all sides, which its study attempted to explode. The Conference Board warned against "managing by stereotype."

Boomers were defined as people age 45 to 64 and Gen-X as 30 to 44. For both, the world they grew up in shaped them, be it Sixties idealism or skepticism wrought by corporate downsizing and the political upheaval of 1989, the board said.

All three generations agreed Boomers are "less comfortable with technology, less open to change and less accepting of diversity." The difference was in the degree.

Among the Gen-Y myths the study exploded was their over-confidence. The results showed the youngest workers were more cautious than their older co-workers gave them credit for.

Gen-Y employees told the survey they "strive to have a life that will make them happy." They agreed they are "less willing to work hard and feel they are owed more." They admitted they "seem to have a negative effect on productivity but a positive effect on morale because they are younger, full of energy and complain less than other generations."

They know they’re "often unreliable, tend to do things their own way and do not always follow the rules," the study found. But there’s a good reason for that, Gen-Yers told the board: "One group strictly wants to follow processes while the other wants to get stuff done."

Another challenge for bosses, the study said, is to temper the perceptions each generation has of the other. Among them:

Gen-Y found Gen-X "annoying and aggressive."

Gen-X said Boomers are "have difficulty giving up control," while Gen-Y said Boomers "live to work rather than work to live."

Boomers described Gen-X as "loners" who "lack patience."

And Gen-X contended Gen-Y "think they know everything."

In particular, the study found, Gen-Y workers said they like someone to review their tasks, while Boomers absolutely don’t.

And while Boomers were uncomfortable with the other two generations’ reliance on emails to communicate, the study found the perception of younger generations as careless with spelling and grammar wasn’t true. While 88 per cent of boomers felt it was important to be careful with grammar and spelling, 83 per cent of Gen-Xers and 85 per cent of Gen-Yers agreed.

Similarly, 87 per cent of Boomers said they were careful with details, as did 81 per cent of Gen-X and 79 per cent of Gen-Y.

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Federal Finance Minister Jim Flaherty warned card companies and banks if they don’t comply with a proposed voluntary code of conduct for the multibillion-dollar credit and debit markets he would bring down the hammer of regulation.

The code, which was designed to address merchants’ claims they’re being gouged, won high praise from retailers and small business owners but drew more cautious response from credit card companies and banks.

While critics worry that a voluntary code would not be enforceable, Flaherty said Thursday he would not hesitate to get tough.

"If we are unsuccessful … with the voluntary code, then we can create an involuntary code," Flaherty said in Ottawa. "We have that power to do that.

"But we’d rather do it in concert with the important stakeholders and arrive at a conclusion that will work for everybody rather than use the heavy hand of regulation. But if we have to, we would, of course."

The long-awaited code contains proposals that would give merchants more clout in dealing with global credit card giants, payment processors and big banks over card fees.

The Retail Council of Canada estimates such fees cost $4.5 billion a year and lead to higher prices for consumers.

Among other things, the code would give merchants the ability to cancel contracts without penalty following notification of a fee change, to offer a variety of discounts for different payment options – and control how debit transactions are processed. Additionally, banks could only issue premium credit cards to consumers on consent or request.

"This is the first time the card companies, the banks and their processors are going to have to compete for the merchants’ business. We’re no longer the milk cows. We’re the customer," said Diane Brisebois, president of the Retail Council of Canada.

However, critics say Flaherty missed an opportunity to go further by making the code mandatory and they’re worried the measures could get watered down during the 60-day public consultation period.

Liberal Senator Pierrette Ringuette said without enforcement, fines or penalties, Visa and MasterCard will be able to cherry-pick which measures to follow. "`Pretty please,’ will not make them abide," Ringuette said.

Liberal MP Dan McTeague said many merchants wouldn’t be able to opt out of their contracts for fear of losing customers. He was also disappointed consumers were not given the same opportunity to cancel their card contracts without penalty.

MP Glenn Thibeault, the NDP’s consumer protection critic, agreed that consumers have no one to complain to if provisions of the code are breached. "With this government, big business is the one that ends up always being on the winning end of any type of voluntary code of conduct."

Credit card companies expressed concern about the impact of the code on market competition.

This "should resolve a commercial dispute for which the global retail lobby operating in Canada has sought government intervention over private negotiation," said Kevin Stanton, president of MasterCard Canada. In particular, he noted the code "could alter the competitive landscape."

Visa said it was "disappointed that the code would allow merchants to supersede consumer choice at the point of sale," adding the announcement "significantly undermines" the introduction of competition in debit.

The proposed code could mean Visa’s new chip card readers, which accept its debit cards, may have to be reprogrammed and 2.5 million Bank of Montreal MasterCard Maestro debit cards already on the market may have to be reissued, a source said. It was not immediately clear who would bear those costs.

The Canadian Federation of Independent Business, which had lobbied for a voluntary code, called it "an early Christmas present."

The Interac Association welcomed the code but said it would work with government to "fill in" the details.

The Canadian Bankers Association said most of the measures don’t apply to banks. Still, it cautioned "customers are best served by an open, competitive marketplace."

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A stronger Chinese yuan is part of the reforms that Beijing needs to implement to increase domestic consumption and help ease global imbalances, the head of the International Monetary Fund said on Monday.

IMF managing director Dominique Strauss-Kahn said that the global economy appeared to have turned a corner toward recovery but that the biggest risk to the global outlook was a premature removal of stimulus measures.

In prepared remarks to a financial conference in Beijing, he added that, despite strains on the current global monetary system, he still expected the dollar to remain the principle reserve currency “for some time.”

(Reporting by Jason Subler; Editing by Ken Wills)

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Treasury Secretary Timothy Geithner on Saturday stressed the necessity of keeping global economic stimulus in place until recovery is assured and opposed the utility of a tax on financial transactions as a way to dampen risky bank behavior.

Speaking at the conclusion of a two-day meeting of Group of 20 finance minister and central bankers, Geithner said there was broad agreement that “growth remains the dominant policy imperative across our economies.”

He said high U.S. unemployment, which hit a 26-1/2-year high at 10.2 percent of the civilian workforce in October, highlighted a “very tough economic environment” that will a period of sustained growth to correct.

Earlier, British Prime Minister Gordon Brown had suggested that the G20 should levy on banks — blamed for the excessive risk-taking that led the world into a now-easing financial crisis — and used the proceeds to fund future bailouts.

Geithner played down that idea, noting that the Obama administration was already pushing an overhaul of financial market rules in Congress that would ensure that banks pay the costs of their failures in future from their own pocket.

“A day-by-day financial transaction tax is not something we are prepared to support,” Geithner said in an interview with Sky News. In his concluding press conference, Geithner was asked repeatedly to say why he opposed such a tax on banks and indicated he doubted its effectiveness.

“This idea (of a bank transaction tax) has been around for a long time…I think frankly the experiences are mixed,” he said, expressing an American view that there was no widespread backing for such a tax.

Canadian Finance Minister Jim Flaherty was similarly skeptical.

“It’s one of the ideas that’s on the table, but is not particularly attractive to me as finance minister of Canada. We have been a government that has been reducing taxes,” Flaherty said.

ON DANGEROUS GROUND

Geithner’s key message was that recovery still remains on perilous ground and that it was too soon to discuss the timing for removing the massive fiscal and monetary stimulus that countries around the world have poured into their economies.

“Government policy has to provide a bridge to growth led by the private sector,” he said. “We’re now in the middle span of that bridge.”

That meant policymakers must move cautiously in trying to bring down huge budget deficits without choking off chances for growth led by consumer spending and business investment.

“If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Geithner said.

“It’s too early to start to lean against recovery.” 

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Home values in the U.S. kept stabilizing and consumer confidence rose, bolstering the case that an economic recovery is at hand, economists said before reports today.

The S&P/Case-Shiller index covering home prices in 20 cities fell 11.9 percent in August from a year earlier, the smallest drop in 19 months, according to the median forecast of economists surveyed by Bloomberg News. Sentiment this month climbed, a report from the Conference Board may show, even as Americans continue to fret over employment prospects.

Rising home sales, due in part to government programs including the first-time buyer credit and efforts to lower borrowing costs, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Sustained gains in household spending, the biggest part of the economy, may be harder to come by as joblessness mounts.

“Home prices are clearly in a bottoming-out process and we’ll be at much more comfortable levels by next year,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. “Consumers still face headwinds. The panic is over, but people need to see outright positive news on the horizon before we’ll get a big jump in confidence.”

The S&P/Case-Shiller figures, due at 9 a.m., would follow a 13.3 percent drop in the year ended July. Projections in the survey ranged from declines of 11 percent to 13.3 percent. Year-over-year records began in 2001. The gauge rose in June and July on a monthly seasonally adjusted basis.

Monthly Gain

Englund is among economists predicting the S&P/Case- Shiller report will show prices kept climbing in August compared with a month earlier. In July, the home-price index rose 1.2 percent from the prior month, the biggest gain since October 2005.

At 10 a.m., the New York-based Conference Board may report that its sentiment index rose in September to 53.5 from 53.1. Estimates in the Bloomberg survey ranged from 48 to 57.

In the latest evidence of rising demand, existing home sales in September jumped to a 5.57 million annual rate, more than economists forecast and the highest in more than two years, according to data from the National Association of Realtors issued last week.

Housing and manufacturing are leading the stabilization in the economy, the Federal Reserve said in the Beige Book survey of conditions in its 12 district banks during September and early October.

Fed Observation

“Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said.

One risk to the emerging stabilization is foreclosures, which worsen the property glut. Foreclosure rates will climb through late 2010, peaking only after the unemployment rate reaches 10.2 percent in the second quarter, Jay Brinkmann, chief economist at the Mortgage Bankers Association, said this month.

Unemployment, which is projected to exceed 10 percent by early 2010, according to the median estimate in a Bloomberg survey earlier this month, will also limit demand. Economists and industry groups are among those projecting home sales will also cool in the absence of the $8,000 credit for first-time buyers, due to expire Nov. 30. Lawmakers are debating extending the credit.

The Standard & Poor’s Supercomposite Homebuilding Index has climbed 22 percent since the beginning of July on the improving outlook for housing, compared with a 16 percent increase in the S&P 500 index. The builder index fell yesterday on concern that the tax-credit program may not be extended.

‘Low Level’

“The residential housing market appears to have stabilized, but it has done so at a very low level,” William Foote, chief executive officer of USG Corp., North America’s largest maker of gypsum wallboard, said Oct. 21 on a conference call. The Chicago-based company posted its eighth straight net loss last quarter as sales dropped 32 percent from a year ago.

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