Some Analysts Expect Milder U.S. Downturn

Unexpected glimmers of strength in the U.S. economy are causing some analysts and policymakers to conclude that the current downturn will be shorter and milder than previously feared.

A string of upbeat developments, from military advances in Afghanistan to rising confidence at home, are causing economy watchers and policymakers to recalibrate previous assumptions about the length and depth of the downturn.

“The numbers are looking much better. The economy is still contracting, but the rate of decline is moderating,” said Mark Zandi, chief economist at Economy.com, a West Chester, Pa.-based forecasting firm.

“It’s made everyone a little more comfortable that this will be a mild recession, and a short-lived one.”

However, no one is claiming the economy has turned the corner just yet.

Royal Caribbean to Combine With Princess

Amid a deep industry slump and an oversupply of ships, P&O; Princess Cruises and Royal Caribbean Cruises Ltd. have agreed to a $2.89-billion merger to become the world’s largest cruise line company.

The merger would produce a company with 41 ships, about 40,000 employees and more than $5 billion in annual revenue, making it larger than longtime market leader Carnival Corp. of Miami.

Officials of the companies said significant job cuts are not expected.

The combined company will take on a new name, tentatively RCP Cruises, and will be based in Miami, the current headquarters of Royal Caribbean. Shareholders of London-based P&O; Princess will own 50.7% of the new company, with Royal taking 49.3%.

Although the merger would create a cruise powerhouse with 75,000 berths, analysts said the combination wasn’t likely to bring any big changes for travelers or the industry, which has been roiled by the events of Sept. 11.

Occupancy on many ships fell roughly 50% in the immediate aftermath of the attacks, largely because cruise travel often requires air travel.

Retailers Pull Out All Stops to Lure Shoppers

Retailers nationally and locally used a flurry of discount coupons and early-bird specials to lure recession-wary consumers into stores for the traditional start of the holiday shopping season.

Some malls added valet parking attendants to grease the skids. Others offered aroma therapy booths to reinvigorate tired shoppers. Kmart Corp. greeted shoppers early on Thanksgiving Day and plans to keep its stores open around the clock until this evening.

With a weakening economy and the terrorist attacks still fresh in their minds, many Americans said they are trying to keep their holiday focus more on family than on presents, leading economists to predict retail spending will be flat or even decline.

This year, U.S. households are expected to spend an average of $462 on holiday gifts, down from last year’s average expenditure of $490, according to a survey conducted by the Conference Board, a private research firm.

Drop in Oil Prices Gives Wall Street a Boost

Falling oil prices helped the stock market notch its third consecutive winning week and pushed the Dow industrials back into bull market territory--at least for now.

Crude oil prices, which have fallen as producers grapple with a glut of oil on world markets, boosted energy-intensive stocks such as airlines. Also, lower gasoline prices put money in the pockets of American consumers just as the all-important Christmas shopping season got underway, raising hopes for retail stocks.

For the week, the Dow Jones industrial average gained 0.9%, closing Friday with a gain of 20.9% from its three-year low of Sept. 21. A bull market is typically defined as a gain of 20% from a low point.

The broader Standard & Poor’s 500 index rose 1.0% and is up 19.1% since Sept. 21, while the Nasdaq composite index gained 0.2% and is up 33.7% from Sept. 21.

The week’s gains came on very light volume. The market was closed Thursday for Thanksgiving and closed early Friday.

Norway, Mexico, Russia May Trim Oil Output

Three major oil-producing nations that are not members of OPEC--Russia, Mexico and Norway--seemed to agree that they would reduce output amid a global demand slowdown.

But leaders of the Organization of the Petroleum Exporting Countries stopped short of saying that the pledges made so far were enough to trigger production cuts by the 11-member cartel.

Crude oil neared $19 a barrel by week’s end after Norway said it would cut as much as 200,000 barrels a day if rivals joined in.

Russia said it would cut daily output by 50,000 barrels, a quarter of what rivals said was needed to help OPEC prop up prices as the economy and energy demand weakens.

OPEC ministers have sought 300,000 barrels a day in Russian reductions.

Mexico, one of the top five suppliers of oil to the U.S., also conditioned its promised reduction of 100,000 barrels a day on similar steps from competitors.

Russia kept the door open to deeper cuts before Dec. 10 as the government and oil companies set that deadline for deciding on 2002 production.

Phillips Petroleum, Conoco Agree to Merger

In the latest move toward consolidation in the global energy business, Phillips Petroleum Co. and Conoco Inc. agreed to an all-stock merger that would create the nation’s third-largest U.S-based oil and gas company.

By combining, the companies would be better able to compete with much bigger rivals, have the breadth and depth to finance new projects, operate more efficiently and withstand oil market fluctuations, the companies said.

ConocoPhillips, as it would be known if approved by shareholders and regulators, also would be among the biggest gas-station operators in the U.S.

The new company would have 58,000 employees, $53 billion in annual sales and $3 billion in annual profit, and it would generate nearly $8 billion in cash each year. Together, the companies have oil and gas reserves valued at $8.7 billion and a debt of $18.6 billion. As of Friday, the deal was valued at about $17 billion.

Right Start to Acquire Toy Seller FAO Schwarz

Calabasas-based Right Start Inc. said it will buy famed toy seller FAO Schwarz, solidifying its position as the biggest retailer of educational and pricier toys.

Right Start, which last summer acquired the 187-store Zany Brainy chain, will pay FAO parent Royal Vendex $54.25 million for rights to the 140-year-old chain’s name, its storied New York flagship store on 5th Avenue and 22 FAO stores.

Right Start will shutter 18 FAO Schwarz stores, but said it has not yet decided which ones. For Right Start, founded in 1985 as a catalog seller of high-end infant and toddler developmental toys, the FAO addition adds a marquee name and a way to sell popular TV-promoted brands, such as Barbie dolls and action figures, that don’t fit under its educational-toy mantle, industry analysts said.

WellPoint Health Agrees to Purchase CareFirst

WellPoint Health Networks Inc., the parent of Blue Cross of California, agreed to acquire CareFirst BlueCross BlueShield for $1.3 billion in cash and stock to add customers in the eastern U.S.

This is the second large acquisition Thousand Oaks-based WellPoint has announced in as many months. Last month it agreed to purchase RightChoice Managed Care Inc. for $1.3 billion to gain 2.8 million customers in Missouri.

WellPoint will pay $450 million in cash and $850 million in stock for the insurance company. CareFirst, a nonprofit company, needs to receive approval from regulators to convert to a for-profit company before the purchase can be completed.

The purchase of CareFirst will expand WellPoint’s business by adding 3.1 million customers in Maryland, Delaware, Washington and Northern Virginia.

CareFirst had revenue of $3.1 billion in the nine months ended Sept. 30.

Gore to Join L.A.-Based Metropolitan West

Senator, vice president, journalist. Now Al Gore can add investment salesman to his resume.

Metropolitan West Financial Inc., a Los Angeles-based private investment firm with more than $50 billion under management, said the former vice president will become its vice chairman.

MetWest said Gore will help it develop its international business in Asia and Europe. Additionally, he will help the company evaluate developing private investment funds in biotechnology and information technology. And he will join the company’s executive leadership team.

Analysts said, however, that Gore’s greatest value will be his name and his contacts.

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For a preview of this week’s business and economic events, see Monday’s C2.