Flooding Cripples Subway System

By Sewell Chan (NYTimes)

Flooding from torrential overnight rains crippled the New York City subway system this morning. As of noontime, the majority of the subway lines were either disrupted or beset by severe delays. The Metropolitan Transportation Authority said its efforts were focused on restoring normal service by the evening rush. Its Web site was frequently unavailable this morning, and its subway service advisories were not updated for about two hours this morning.

One woman was killed on Staten Island got killed after her car got stuck in an underpass. “Another car came along and hit her and she died as a result of her injuries,” Mayor Michael R. Bloomberg announced this afternoon.

The thunderstorm caused havoc across the region, forcing thousands of people, like the pedestrians who crowded the Manhattan Bridge in both directions, to walk to work or work from home.

The National Weather Service was investigating whether a tornado had touched down, but Jeff Warner, a meteorologist at Pennsylvania State University, said radar showed “spinning” associated with the storm but no tornado. According to Consolidated Edison, the storms toppled electric wires in parts of Brooklyn and Staten Island. Meteorologists warned about scorching heat this afternoon, while in Bay Ridge, Brooklyn, high winds damaged rooftops and toppling trees.

Alfonso Quiroz, a Consolidated Edison spokesman, said that about 4,000 customers throughout the city were without power — including 1,500 on Staten Island and 1,000 in the Bronx — largely because the storm knocked down power lines.

At 9:55 a.m., transit officials warned that the subway system would not be back until noon at the earliest — and possibly not until the evening rush. “We can pump a lot of water out of the system — we do, on a daily basis — but when we have this much rain in the system at one time, our ability to pump the water out into the sewer system is hampered because that system is overwhelmed,” Paul J. Fleuranges, a New York City Transit spokesman, told NY1 News.
busA knot of commuters squeezed onto a southbound bus outside Time Warner Center at around 8:45 this morning. (Photo: David W. Dunlap/The New York Times)

In the NY1 interview, Mr. Fleuranges acknowledged that the M.T.A. Web site was down much of the morning. “It’s not an excuse,” he said. “We can do better. We should do better.”

The information was changing so quickly, Mr. Fleuranges said, that transit officials struggled to respond.

For much of the morning, the M.T.A.’s news office had only one employee on duty; the others were trying to get in. Charles F. Seaton, a spokesman for the agency, said at 10:35 a.m. that he had just reached the office after trying to do so for three hours.

As of 9:15 a.m., the Long Island Rail Road reported scattered disruptions, and delays of up to a half hour throughout its system, but the Metro-North Railroad reported at 8:50 a.m. that service on all three of its lines had been restored, although significant delays coming in to Grand Central Terminal remain. Delays were also reported on New Jersey Transit and PATH commuter lines.

The region’s three major airports — La Guardia, Kennedy and Newark — reported flight cancellations and delays.

The New York Times is interested in any photographs readers may have taken of the disruptions or damage caused by the heavy rains. Readers are invited to send to e-mail their photos (in JPG or TIFF format) to cityroom.nyt@gmail.com.

Despite the heavy rains overnight, the New York region was not expected to get cooler.

At 4:09 a.m., the National Weather Service issued a heat advisory for 1 to 6 p.m. today in southeastern New York and northeastern New Jersey. “The combination of temperatures rising into the lower to mid 90s, along with high humidity, will result in heat-index values around 100 degrees for several hours in the afternoon,” the weather service said. In New York City, the thermometer is expected to reach 94 degrees.

The weather service warned that the thunderstorms moving into the area this morning would produce “gusty winds and locally heavy rainfall, resulting in minor urban and small stream flooding.” There is a slight chance of thunderstorms this afternoon, as well.

At 8:45 a.m., an increasingly impatient crowd of 60 or 70 people stood outside the Time Warner Center, waiting for southbound buses to round their way into Columbus Circle. Knots of would-be passengers formed outside both the front and rear doors, but because the buses were already packed, most people had to give up and settle for the bus after that. Or the bus after that. Or the bus after that.

After a packed-to-the-gills A train pulled into a packed-to-the-gills 34th Street station this morning, the conductor offered some words of advice over the loudspeaker to the grumbling passengers struggling to get on and off the train: “Write a letter to Mayor Bloomberg and tell him to clean the drains!”

Around 9 a.m., the Crossroads Cafe, which sits atop the Fort Hamilton Parkway stop in the F line, in Windsor Terrace, Brooklyn, was packed with commuters who gave up on waiting for the train and decided to get coffee and wait out the delays.

Matthew A. Brown, 30, an architect, read a novel, ate a croissant and sipped coffee. “I waited for five trains,” he said. “You couldn’t get on. There were little tiffs, like: ‘Hey buddy, there’s no room.’ I decided not to fight it.”

John Han, 50, a financial adviser, decided to walk home from the station with his wife, after they waited from 7:45 to 8:45 a.m. as a few packed trains passed by. “It looked like a sardine can,” he said. “We’re going to go home and take a shower and try again later, because we’re very sweaty.”

On this blog, readers have already posted a variety of comments below. SH wondered why there was not more information on the morning news programs about the delays. “I walked to the 1 train to find the station was closed,” SH wrote. “Of course the MTA woman there was completely useless.”

Liz wrote, “I went for a morning jog across the brooklyn bridge for the first time this morning and was wondering the whole time if something was going on or do this many people walk to work every morning!”

El Jones wrote, “I am stunned how unreliable the New York Transit system is. For the price it must be the most poorly run system in the world; For half the system to be knocked out by a night of heavy rain is embarrassing. Even worse is the announcements/notifications that they give their PAYING customers. I entered the subway today, and there was no announcement, sign, employee, or anything else that would warn me that something was wrong, or which track to use. Once on the track, there was also no announcements or warnings.”

Roy Jones wrote: “It was crazy here in Canarsie/East New York. The rain was pretty bad but I think the worst part of it all had to be the lightning. I’m talking about lightning strikes every 10-20 seconds. Somewhere around 6:00 I saw a big flash of lightning, and then poof the power went out. I have to say it was kind of scary but yet impressive. Did anybody hear the 5 big cracks of thunder back-to-back? It was wicked man!!!!!

Eric wrote, “The drive to JFK from Prospect Heights Bklyn was nearly impossible at 5:30 this morning (S Conduit, Belt, everything flooded) — return home was worse! Then to try to get the subway to lower Manhattan was crazy — 2, 3, 4, 5, N, R, B, D, A, C — nothing running. Had a nice breakfast outside Borough Hall waiting for something to resume! The 4 finally made it to Bowling Green.”

As of 8:45 a.m., the Long Island Rail Road reported 25- to 30-minute delays across the rail network, caused by flooding in several locations. The Port Washington branch was suspended in both directions because of flooding in Bayside, Queens. The railroad was trying to arrange for alternate bus service. Service to Hunterspoint Avenue, in Long Island City, Queens, was restored after being suspended earlier this morning because of water conditions.

The L.I.R.R. Main Line was delayed by up to 30 minutes because of “high water conditions” just east of the Mineola station. The Oyster Bay Branch was temporarily suspended after an injured person was found on the tracks near East Williston, N.Y.

Michael Cooper, David W. Dunlap and Ann Farmer contributed reporting.

The Nardelli Era Starts at The New Chrysler

David Kiley (Business Week)


Just back from the Chrysler press conference at which Bob Nardelli (right)was introduced as chairman and CEO. I counted at least four times that he put his hand on former CEO Tom LaSorda’s (left)shoulder or back as the two presented a love-in to fix Chrysler.

LaSorda is staying on as president and vice chairman. And I’ll have to be proved wrong. But I get the impression that LaSorda, whom Nardelli referred to as “Tommy” at one point, is in some way happy that Nardelli has come on to take the spotlight and pressure off him.

I’ve spent a little time around LaSorda the last few years. He has an ego, like any manager who gets to be CEO. But LaSorda also has a pragmatic, realistic side that I have seen come out too. With Cerberus Capital Management now controlling Chrysler, it was unlikely that LaSorda was going to run the show. He’d been handpicked by DaimlerChrysler chief Dieter Zetsche, and the two of them mangled Chrysler’s comeback over the last two years.

Bu they need LaSorda. The son of a Canadian Auto Worker, LaSorda is a key man in Chrysler negotiations right now. He is also a key guy with the network of plant managers and, increasingly, dealers. A manufacturing and production guy, LaSorda will also be a guy who focuses on one of Chrysler’s biggest shortcomings—product and design quality. And he can do so, backed up Nardelli’s well-known Six Sigma whip and without having to worry about the financial/accounting part of the job.

In football terms, I have gotten the idea that being the head coach is not as critical to LaSorda as it is to Nardelli, and that he is one of those guys who can happily step back to being, for example, the Defensive coordinator. LaSorda is happy to be in the car business. It’s his life. He knows what he, and they, can do now outside the glare of Wall Street and with the running room afforded the management team by being private. If he is successful in fixing the thing with Nardelli, he will become richer and probably see his stock rise to be CEO of another car company. In short, LaSorda seems to know that Nardelli can teach him some things and is humble enough to go back to school.

Nardelli can be a back-breaker to the managers who report to him. That’s his reputation. What we’ll be looking for is whether the unpleasant and somewhat humiliating exit from Home Depot last January translated into any management lessons to the former GE exec, or whether this opportunity to run Chrysler back into sustained profitability is all part of a revenge plan to prove Nardelli’s naysayers wrong.

It’s more than a coincidence that Cerberus reached out to Nardelli about the same time it found some $10 billion plus in debt sitting on the shelf with no buyers. Even with the debt markets suddenly sinking, there was tepid interest and enthusiasm for a debt tied to a Chrysler comeback.

Nardelli is a brand name manager, like him or not. And it appears that Cerberus felt that Nardelli’s well-known brand of operational discipline and back-breaking style is what is needed to hot-foot confidence in this turnaround idea…The New Chrysler.

Toy recall shows challenge China poses to partners

Mattel's recall of lead-tainted toys illustrates the potential risks firms face as they seek to benefit from low-cost Chinese goods. U.S. and Chinese officials agreed to work more closely to promote product safety.

Jane Spencer And Nicholas Casey, Wall Street Journal

Mattel Inc.'s recall of nearly one million lead-tainted toys shows the challenge Chinese companies increasingly pose for U.S. partners: how to benefit from low-priced goods without getting torpedoed by safety and regulatory risks.

The Mattel recall, comprising 83 types of toys from its Fisher-Price unit, involves excessive levels of lead paint in toys -- a common problem in China despite lead-paint regulations both there and in the U.S.

China makes nearly 80% of the toys that come into the U.S. and is a leading exporter of products from electronics to apparel to auto parts. Recent weeks have brought a spate of quality-control concerns about Chinese exports, from pet food to toothpaste to tires, which besides spooking consumers has heightened existing trade tensions with Washington. The events also are triggering questions about the role Western companies should play in monitoring the complex supply chain that links them to low-cost production facilities in China.

The Chinese government has tried to reassure consumers about the safety of its products. Chinese Minister of Commerce Bo Xilai said this week that more than 99% of Chinese exports are safe and of good quality.

The toy industry, along with other businesses, has moved so much manufacturing to China, in order to cut costs, that it remains exposed to problems despite laws and efforts on the ground to contain them. Public-health experts say Chinese manufacturers repeatedly revert to lead paint regardless of the rules because it is cheap and readily available, and helps factories meet relentless pressure to contain costs. Such violations slip through because of regulatory gaps in both nations.

While the recent recalls have ignited health worries in the U.S., lead exposure is a major public-health problem in China, where millions of children have unsafe levels of lead circulating in their blood. One 2004 study by researchers at Peking University in Beijing found 34% of young children in China had blood-lead levels that exceed the safe limit set by the World Health Organization, though exposure rates have improved in recent years.

"We're obviously concerned about the toys reaching the U.S.," says Scott Clark, a professor of environmental health at the University of Cincinnati. "But there are kids in China who are exposed to this stuff all over the place." He has found unsafe levels of lead paint in India, Indonesia, Ecuador and Nigeria.

In the U.S., a crescendo of lead-related product recalls has encouraged calls for more-rigorous, standardized product testing for toys made in China. About a third of the 967,000 toys being recalled in the U.S. -- which include popular Elmo, Dora the Explorer and Sesame Street characters -- reached stores this spring and summer before Mattel began the recall process last month.

Mattel won't publicly name the manufacturer until the El Segundo, Calif., company completes an investigation of how the toys were tainted. But Jim Walter, the company's senior vice president of world-wide quality assurance, said, "It's my understanding that they are producing toys for other companies." He said if products from the factory were sold to other companies, it would be the responsibility of the factory owner, not Mattel, to alert them.

"We have no right to go in there to ask, 'Who else are you producing for, and what else are you making?' " Mr. Walter said. He added that he had personally received no calls from toy companies seeking the name of the factory. The Toy Industry Association, which has close ties to Mattel, said it hadn't asked for information on the toys' source.

U.S. retailers and toy makers, including Mattel, have attempted to devise processes to prevent products with lead contamination and other problems from reaching shelves. But the systems vary, and they haven't kept problem toys from slipping through the process. Sometimes, toys that have passed inspection more than once are later found to contain excessive levels of lead paint -- a sign Chinese companies may have been able to game the safety inspections.

In Mattel's case, its own inspection process -- praised for being an industry standard -- also failed. Mattel allowed the manufacturer to perform its own tests, the company said, because it has a trusted 15-year relationship with it. Mattel says it performed monthly audits of the manufacturer's toys, which sometimes involved testing samples and other times involved reviewing the manufacturer's own testing records. "They didn't perform the testing they should have," said Mr. Walter. "And the audit we performed didn't catch it."

"We're certainly taking a hard look as an industry for a common set of requirements or procedures," Mr. Walter added.

Such incidents are one reason for calls to mandate independent third-party testing.

Meanwhile, some critics say U.S. regulators such as the Consumer Product Safety Commission are ill-equipped to police toy imports from China. "The CPSC does not test the products in advance," says Ed Mierzwinski, the consumer-program director at the U.S. Public Interest Research Group. "Even if it were ordered to, it's underfunded, understaffed and has inadequate authority to even impose recalls."

Last month, acting CPSC Chairman Nancy A. Nord sent a letter to members of Congress asking them to help modernize the commission. It was last reauthorized in 1990, said agency spokeswoman Julie Vallese, and its regulatory powers weren't written for a globalized marketplace. The reauthorization didn't include how to deal with purchasing over the Internet, for instance, Ms. Vallese said, adding that the CPSC is "seeking 21st-century tools for 21st-century problems."

At the same time, Chinese regulators are seen as lax in enforcing their own lead-paint standards. China has laws banning lead paint from consumer products. But a lack of regulatory enforcement means such laws are routinely ignored. Over the past three years, Mr. Clark at the University of Cincinnati has tested 38 paint samples from China, representing 11 brands. He found more than 25% had lead levels exceeding the U.S. safe limit of 0.06% for paint.

Lead is a neurotoxin that hijacks the developing brain. It causes damage by mimicking helpful metals found naturally in the body, such as calcium, iron and zinc. Lead displaces those and disrupts brain circuits critical for learning. Occasional exposure to small amounts is unlikely to have serious health effects, but repeated exposure can cause declines in IQ and, in extreme cases, severe brain damage. New research suggests there is no safe level of lead exposure, and the World Health Organization has tightened its guidelines over the past year.

That has sharpened concern over whether industry or governments can stop Chinese manufacturers from using lead paint. A series of recalls so far this year has involved not just Mattel, but millions of pieces of children's jewelry, Thomas & Friends trains made by RC2 Corp. and other goods. The recalls can be costly for companies -- Mattel, which had 2006 sales of $5.65 billion, said today it expects to take a charge of $30 million for the second quarter for the incident.

Mattel could face liability lawsuits over the recall, even though the toys were made by a third party. RC2 faces several suits, with allegations including negligence and unfair and deceptive trade practices. Some plaintiffs are asking for funds to medically monitor children who played with the toys.

An RC2 spokeswoman said the company believes it has taken "the right steps to protect the safety of the children...and assure their parents the safe, high quality products they expect."

Lead can make paint more resistant to corrosion, stabilize it and fend off mold. It also helps it dry quickly, speeding up production and reducing costs.

Two decades ago, Mattel was one of the first U.S. companies to move manufacturing to China. The gritty industrial province of Guangdong in southern China now has more than 5,000 toy factories, where the majority of the world's toys are made.

Lead experts say the scale of the recall suggests the use of lead paint wasn't uncommon at the factory at issue in the Mattel recall. "From the size of the recall, we're not talking about accidental use of paints," says Paul Mushak, a toxicologist at PB Associates, a Durham, N.C., risk-assessment firm specializing in toxic metals. "We're talking about something that's been a conventional practice."

Mattel disputes this claim.

How to prevent lead-paint use has bedeviled U.S. toy makers. In 2003, for example, Toys "R" Us Inc. voluntarily recalled 50,000 lead-laden sticks of sidewalk chalk. Afterward, the company ramped up safety measures by evaluating products before full-scale manufacturing, as well as enlisting third-party labs to perform spot-checks. An internal team was also established to bring products beyond CPSC standards.

Even so, lead contamination has remained an issue for the retailer. In March, Toys "R" Us voluntarily recalled about 128,700 military toys produced by Toy Century Industrial Company Ltd. of Hong Kong that were found to contain high levels of lead paint.

According to Rick Ruppert, the company's executive vice president for product development and global sourcing, the toys had originally passed two safety inspections: first before they were put into production, and then on the first shipment. No lead was found. Subsequent shipments aren't always tested, Mr. Ruppert said, but periodic spot-checks were done by a third-party inspector as well as annual tests. It was during one such spot check that a Hong Kong lab detected the lead.

Since the most recent incident, Toys "R" Us says it has stepped up testing for lead and has increased its quality-assurance budget by 25%.

But Mr. Ruppert said the cost of moving operations from China were too high given China's unique ability to produce high toy volume. "The cost of the transition would be disruptive," he said.

McDonald's Corp., one of the world's largest toy buyers, says the problem of lead paint is so widespread in China that the company has developed a system to monitor paint all the way through the supply chain back to the paint suppliers. The company requires its Chinese toy makers to agree to use only those suppliers.

"We never go on the open market, so we know exactly who we're dealing with," said Walt Riker, vice president of corporate communications.

P&G 4Q Net Up 19%, Plans Buyback Up To $30 Billion

By Anjali Cordeiro Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Procter & Gamble Co.'s (PG) fourth-quarter profit jumped 19% despite hefty commodity-cost pressures, as sales jumped in the consumer giant's razor and home-care businesses.

The maker of Pampers diapers and Oil of Olay beauty products also said it will buy back $24 billion to $30 billion of its shares over the next three years at a rate of $8 billion to $10 billion a year. That is sharply higher than the company's fiscal 2007 repurchases of $5.6 billion.

Procter & Gamble's stock has had a weak performance this year, and the buyback may be a positive for the shares going forward. "Net net it's going to be good for the shares," said Sanford Bernstein analyst Ali Dibadj. The improved topline and margins also could make investors more comfortable about P&G's performance, he said. Still, the company's first-quarter guidance was slightly below analysts' average estimate, he pointed out.

The consumer company's sizable share repurchase comes at a time when shaky credit markets have derailed several buyouts and even caused one large company, online travel concern, Expedia Inc. (EXPE), to slash the size of its proposed stock buyback by 79%. Standard & Poor's said in a statement that its rating and outlook on P&G are unaffected, and the buybacks are expected to be funded mostly through free cash flow with some incremental debt.

However, P&G projected fiscal first-quarter and fiscal 2008 earnings just below analysts' mean estimates. For the first quarter, the company anticipates earnings of 88 cents to 90 cents a share, with overall sales increasing 6% to 8% and organic sales - a closely watched measure that excludes the effect of acquisitions and exchange rates - rising 4% to 6%. Mean estimates of analysts surveyed by Thomson Financial were for earnings of 91 cents a share on 6% revenue growth to $19.95 billion.

Procter & Gamble also projects fiscal 2008 earnings of $3.44 to $3.47 a share, revenue growth of 5% to 7% and organic sales growth of 4% to 6%. Analysts were expecting, on average, earnings of $3.48 a share on revenue growth of 6% to $ 80.69 billion.

P&G's stock recently was up 12 cents to $63.42 in premarket trading.

The Cincinnati consumer and health-care products company had fourth-quarter earnings of $2.27 billion, or 67 cents a share, up from $1.9 billion, or 55 cents a share, a year earlier.

Procter & Gamble said net sales for the quarter ended June 30 rose 8% to $ 19.27 billion from $17.84 billion a year ago.

Analysts surveyed by Thomson Financial expected, on average, earnings of 66 cents a share on revenue of $19.11 billion.

The company's organic sales growth rose 5%. The weaker dollar added 3 percentage points to overall sales.

During the quarter, P&G reorganized into three divisions - beauty care, global health & well being, and household care. The company plans to expand further into health and beauty products, which generate higher margins than the household line.

Sales at P&G's beauty segment, which includes Pantene shampoo and Olay skin- care products, increased 8% to $5.87 billion as volume rose 4%.

Sales of global health & well-being products jumped 11% to $2.19 billion amid high-teens growth at P&G's oral-care business.

Sales of fabric and home-care products climbed 10% to $4.8 billion as volumes increased 8%, thanks to double-digit gains in developing nations.

As the integration of Gillette nears completion, it continues to drive P&G's bottom line - during the quarter, blade and razor sales jumped 18% to $1.4 billion on a 6% volume increase.

P&G previously said that it continues to expect sales growth of 6% to 7% and per-share earnings of 64 cents to 66 cents for its fourth quarter.

Consumer-product companies continue to struggle with a difficult commodity cost environment. Procter & Gamble, like others in its sector, has been been fighting that pressure by aggressively cutting costs and raising prices for some products.

FBI Searches Sen. Stevens' Alaska Home

By DAN JOLING

ANCHORAGE, Alaska (AP) - Federal agents with cameras searched the home of U.S. Sen. Ted Stevens amid questions about an oil company official's involvement in a 2000 renovation project that doubled the home's size, law enforcement officials said.

Stevens, 83, is under a federal investigation for his connections to Bill Allen, founder of VECO Corp., an Alaska-based oil field services and engineering company that has reaped tens of millions of dollars in federal contracts.

Allen was convicted earlier this year of bribing state lawmakers. He also oversaw the renovation of Stevens' home in the ski resort community of Girdwood, contractors involved in the work say.

Agents from the FBI and Internal Revenue Service started their search at the senator's home Monday afternoon, said Dave Heller, FBI assistant special agent. He said he could not comment on the nature of the investigation.

About 15 agents took photos and video, climbing onto the roof at one point. They later carried out a garbage bag full of unidentifiable materials and loaded it into a van. The curtains were drawn during most of the search.

A law enforcement official familiar with the case confirmed the raid on Stevens' home was focused on records related to the ongoing VECO investigation. The official was not authorized to discuss the matter publicly and spoke only on condition of anonymity.

An e-mail statement issued by Stevens through his Washington, D.C., spokesman said federal agents had alerted his attorneys that they wanted to search his home.

Stevens said the interests of justice would be best served if he commented after the investigation.

"I continue to believe this investigation should proceed to its conclusion without any appearance that I have attempted to influence its outcome," Stevens said. "The legal process should be allowed to proceed so that all the facts can be established and the truth determined."

(AP) A federal agent takes photos at the home of U.S. Sen. Ted Stevens, R-Alaska's home Monday, July 30,...
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Located 40 miles south of Anchorage, Girdwood is nestled in a valley next to Mount Alyeska and has evolved from a gold mining town into Alaska's only year-round resort community.

The Justice Department's probe into Allen's relationships has led to charges against state lawmakers and contractors. Last year, FBI raids on the offices of several Alaska lawmakers included Stevens' son, former Alaska Senate President Ben Stevens.

Neither the U.S. senator nor his son has been charged.

Stevens has served since 1968 and is Alaska's most powerful elected official, responsible for bringing billions in federal dollars to a state that lacks infrastructure, from road money to basic sewer and water systems in remote villages. Anchorage's international airport is named for Stevens, and he has faced only token opposition in recent elections.

Alaska's only U.S. representative, Don Young, also is under federal investigation as part of an on-going corruption probe, a federal law enforcement official told The Associated Press last week, commenting only on condition of anonymity. Part of the Young investigation involves his campaign finance practices, the law enforcement official said.

Consumer Confidence Hits 6-Year High

By ANNE D'INNOCENZIO (AP Business Writer)

NEW YORK (AP) - Consumer confidence hit a six-year high in July, a widely watched gauge of sentiment showed on Tuesday, as Americans shrugged off falling home prices to focus on a healthy jobs market, instead.

The New York-based Conference Board said that its Consumer Confidence Index, rebounded to 112.6, its highest level since August 2001 when it recorded a 114.0 reading. That compared to a revised 105.3 in June. The July 24 cutoff for the preliminary survey of 5,000 U.S. households was before last week's stock market tumble, however.

"An improvement in business conditions and the job market has lifted consumers' spirits in July," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, consumers are more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months."

The Present Situation index, which measures how shoppers feel now about economic conditions, increased to 139.2 from 129.9 in June. That was the highest level since August 2001's 144.5 reading. The Expectations Index, which measures shoppers' outlook for the next six months, rose to 94.8 from 88.8.

Economists closely monitor confidence since consumer spending accounts for two-thirds of all U.S. economic activity.

The report on consumer confidence was encouraging and may help alleviate investor concerns about consumer spending amid a softening housing market that shows no sign of improvement. There have been also worries that high gasoline prices will continue to eat into consumers' ability to spend for other things. While prices at the pump have declined recently, they are still higher than a year ago and are expected to tick up after the Labor Day weekend.

"It is encouraging in light of high energy prices, volatility of the stock market and the weak housing market that consumers didn't flinch," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, N.C. "My general sense is that the economy is finding its footing."

On Tuesday, Standard & Poor's reported that its home prices index fell for a fifth consecutive month in May, marking the gauge's steepest drop in about 16 years.

Last week, the Commerce Department said that sales of single-family homes fell 6.6 percent in June, the fifth decline in the last six months and the largest drop since January. The National Association of Realtors reported last week that sales of existing homes fell by 3.8 percent in June to the slowest level in nearly five years.

Concern about the housing market and jitters about the lending environment led to a stock market tumble late last week, though the market clawed back some territory this week as investors focused on the good news such as strong earnings reports. The Standard & Poor's 500 index gained 2.63, or 0.18 percent, at 1,476.54 in trading Tuesday.

The Commerce Department allayed some inflation fears Tuesday when it reported that year-over-year core personal consumption expenditures increased 1.9 percent. That rate is within the Federal Reserve's comfort zone.

Investors seemed to ignore Tuesday's report from the Commerce Department that personal spending rose 0.1 percent, its slowest pace in nine months.

A healthy outlook for jobs has been helping consumers. The Labor Department is expected to show an increase in 135,000 jobs in July when it reports monthly figures on Friday. The unemployment rate is projected to be steady at 4.5 percent.

In the Conference Board report, consumers were more upbeat about the job market than the prior month. Those saying that jobs are "hard to get" declined to 18.4 percent from 20.5 percent. Those claiming jobs are "plentiful" improved to 30.5 percent from 27.6 percent in June.

The six-month outlook for the labor market continued to be mixed. Consumers expecting more jobs in the months ahead was unchanged at 14.1 percent, while those anticipating fewer jobs decreased to 15.1 percent from 17.0 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined to 18.8 percent from 19.4 percent in June.

Treasurys Gain on Inflation Data

By LESLIE WINES

Treasury prices came off earlier lows Tuesday, keeping yields in a tight range, after the Commerce Department reported benign increases in core consumer inflation and employment costs in June.

The 10-year note was off 2/32, or 63 cents per $1,000 invested, at 97-18/32, while its yield stood at 4.816%. The 30-year long bond was 1/32 lower at 96-26/32 with a yield of 4.957%. The two-year note fell 3/32 at 99-31/32 with a yield of 4.642%. Prices and yields move in opposite directions.

Although the day's economic reports were supportive of Treasurys, a rebound in the stock market put the government-bond market under mild pressure.

Treasury prices opened lower, but losses lightened after the Commerce Department said core consumer inflation increased 0.1% for the fourth consecutive month in June, pushing the yearly gain in core inflation down to the lowest level in three years. Overall inflation also increased 0.1% in June.

Separately, the Labor Department said U.S. employment costs increased 0.9% in the second quarter, in line with expectations.

Both numbers suggest inflation pressures are moderating, a positive development for inflation-sensitive fixed-income assets. In addition, soft inflation trends might eventually help open the door for the Federal Reserve to cut interest rates.

"As recently as February, [core consumer inflation] was up 2.5% year over year, so the speed of the decline has been impressive," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Still, the Fed is yet to be convinced it is sustainable."

"With productivity growth slowing -- though not collapsing -- the unit labor cost picture is not quite so good, but there is nothing here to suggest inflationary pressure is building," Mr. Shepherdson said.

In addition, the Chicago purchasing managers reported that business activity in the Chicago region worsened in July. Signs of economic weakness support the fixed-income market.

The group's index dropped to 53.4% in July from 60.2% in June. The number was below economists' expectations. Readings of more than 50% indicate that more companies were expanding than contracting.

In another report pointing to possible economic softness, the Commerce Department said spending on U.S. construction projects fell 0.3% in June to an annual rate of $1.18 trillion, the Commerce Department said Tuesday. The result marked the first drop in construction outlays since January. Separately, the Conference Board reported that consumer confidence reached its most boisterous level since Sept. 11, 2001.