Seeing red

and Timothy Lamer

Borrowing less, working better The great American spending juggernaut may have hit a speed bump this summer. Consumer credit declined by $1.6 billion in June, according to a Federal Reserve report released last week. It was the first time credit use fell in almost four years. "I think consumers are now finally adjusting to the slower economic climate and the fragile state of the labor market and are acting in a more tight-fisted manner," said economist Richard Yamarone. "Consumers are borrowing less and paying off some debt." Still, the United States hasn't suddenly become a nation of savers. The June drop followed a $6.9 billion rise in consumer credit in May. Meanwhile, the Labor Department reported that worker productivity in the second quarter grew at an annual rate of 2.5 percent, the largest increase in a year. The agency also revised the productivity numbers from 1996 through 2000, reporting that worker output grew at an average of 2.5 percent instead of the 2.8 percent originally reported. Many economists had argued that productivity gains during the late 1990s were the result of a "new era" spawned by the high-tech revolution. "The revisions put a dent in the new era thesis," said David Orr, chief economist at First Union. But new era economists remained undeterred. "Those who argue that the revised data deny the productivity miracle are just being silly," said Bruce Steinberg, chief economist at Merrill Lynch. From 1973 through 1995, productivity growth averaged just over 1 percent per year. Plunging profits Profits at the nation's biggest firms dove during the second quarter to their lowest ebb in more than a decade, according to a Wall Street Journal report. Total net income for more than 1,100 firms tracked by Dow Jones fell 67 percent from second-quarter earnings last year. Seventeen companies, mostly technology firms, each posted losses of more than $500 million. Corporate operating income-another carefully watched measure that closely reflects true corporate health-also dropped sharply in the second quarter. Standard & Poor's 500 firms reported a 17 percent decline in per-share operating income in the second quarter, bringing total losses to more than 23 percent for 2001. Analysts say the net profit and operating income figures raise again the specter of recession, as firms look now not to economic recovery, but to survival. "Legitimate" scams Many investment scams carry the twin red flags of little risk and high return. But while fake securities and pyramid schemes won't fool most consumers, some legitimate investments can, in the hands of unscrupulous brokers, morph into swindles that take in even savvy investors. The North American Securities Administrators Association (NASAA) publishes a "top 10 scams" list that includes the following "legitimate" investments: