Q1 GDP GROWTH OF 0.6%

According to GDP data released Wednesday, the economy grew at 0.6% in the first quarter of 2008.

From TheStreet.com:

The government reported Wednesday that the U.S. economy grew at a rate of 0.6% in the first quarter of 2008, which was basically in line with expectations on Wall Street.

While GDP growth of 0.6% reflects sluggish activity in the U.S. economy as it muddles through a slowdown in the national housing market and a credit crunch on Wall Street, it also suggests that the nation did avoid recession in the first three months of the year, when many investors were predicting that a recession was underway.

FEDERAL RESERVE CUTS FEDERAL FUNDS RATE

As many expected, the Federal Reserve cuts the Federal Funds rate, the rate at which banks can borrow from the Fed on an overnight basis, by one-quarter point on Wednesday. This may be the last rate cut for some time as concerns over inflation may cause the Federal Reserve to hold rates or even raise them going forward.

From The New York Times:

The Federal Reserve, mixing concern about the feeble economy with worries about rising inflation, reduced short-term interest rates Wednesday for the seventh time since September, while signaling a pause in any additional rate cuts for now.

The Fed’s action brought the federal funds rate — the rate it charges banks for overnight loans — to 2 percent, from 2.25 percent, the lowest level since November 2004. It defended that step as necessary to counter the ailing housing sector and the “considerable stress” shadowing financial markets.

The move followed new indications that the economy remained fragile at best. The Commerce Department reported early Wednesday that the economy expanded only 0.6 percent on an annualized basis in the first three months of 2008, short of an overall downturn but still far from healthy.

OIL PRICE DROPS $3; GERMANS PAYING $8.00 PER GALLON FOR GAS

Crude oil prices dropped about $3.00 per barrel yesterday as the U.S. dollar strengthened a bit and traders waited to see what the Federal Reserve will do with interest rates at their meeting later today. Most analysts believe that a quarter-point rate cut is already factored into the oil price and that if the Federal Reserve makes no cut, oil could decline further as the U.S. dollar strengthens.

Think $3.79 per gallon for gasoline is high? Germans are paying the equivalent of roughly $8.60 per gallon for gas now.

From MSNBC:

It is an everyday lottery when it comes to fuel prices at German gas stations. Prices for regular unleaded and diesel gas bounces up and down, often changing twice on the same day. And drivers in this car-loving nation are unhappily dealing with increasing prices at the pump.

Record prices on the international oil markets have driven gas prices across Europe sky high, with a gallon of unleaded gas costing about $8.60 per gallon in Germany. (In Germany, gas is sold by the liter with one liter of unleaded fuel selling for an average of $2.29)

The high prices hit people where it counts – in the wallet.

IS THE UNITED STATES IN A RECESSION? IF SO, HOW SEVERE WILL IT BE?

Two-thirds of economists surveyed by USA Today believe the U.S. is in a recession currently and 79% believe the U.S. will enter a recessionary period at some point in 2008. Most of these economists predict a short, shallow recession. On the other hand, Warren Buffett is on record as saying the U.S. is already in a recession and yesterday stated that "the recession will be longer and deeper than most people think."

USA Today - ECONOMISTS SAY U.S. IS IN A RECESSION
USA Today - BUFFETT: ECONOMY IN A RECESSION, WILL BE WORSE THAN FEARED

CONTINENTAL DECLINES UNITED MERGER OVERTURES

Continental Airlines has declined an option to merge with United.

From USA Today:

Continental Airlines' directors on Sunday opted to stick with a go-it-alone strategy at least for now, rejecting merger overtures from United Airlines to create an even larger carrier than the one that would result from the pending merger of Delta and Northwest.

Continental CEO Larry Kellner, in a message to employees late Sunday afternoon, said the airline's board followed management's recommendation in rejecting a merger path.

Talk of consolidation has swept across the U.S. airline industry since Delta and Northwest went public with their merger talks in January. That pair announced a merger agreement on April 14.

Kellner made it clear in his comments that Continental's management believes that it is stronger as an independent company than it would be if it merged.

WRIGLEY SOLD TO MARS FOR $23 BILLION

Mars is acquiring Wrigley for approximately $23 billion. The deal is being financed in part by Warren Buffett.

From The New York Times:

Mars, the makers of M&M’s, announced a deal Monday morning to acquire the Wm. Wrigley Jr. Company, the chewing gum concern, for about $23 billion. The transaction would create a confectionery behemoth and could pressure rivals into a cascade of other mergers.

The Mars-Wm. Wrigley Jr. deal has an unusually famous financier: Warren E. Buffett. Mr. Buffett’s Berkshire Hathaway is helping finance the transaction, Mars said Monday in a statement. Mr. Buffett has a history with iconic food and beverage businesses. He was an early investor in Coca-Cola and is already a candy owner in Sees Candies.

Under the agreement, Wrigley will become a separate, stand-alone subsidiary of Mars. With $5.4 billion in sales, Wrigley is a world leader in gum and confections.

Shareholders of Wrigley will receive $80 in cash for each share of stock, a premium of 28.1 percent premium over Friday’s closing price of $62.45. The deal has been approved by the boards of both companies.

Berkshire Hathaway will also make a minority investment in the Wrigley subsidiary when the deal closes, Mars said in announcing the deal.

STARBUCKS SLASHES PROFIT OUTLOOK

Starbucks shares fell 12% yesterday when it was announced that the company cut its quarterly and 2008 profit outlook.

From USA Today:

Schultz said in a statement that "the current economic environment is the weakest in our company's history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers."

Fewer customers at U.S. stores triggered a mid-single-digit decline in sales at established stores, called comparable store sales. California and Florida markets, which account for about one-third of its U.S. retail revenue, have been hard hit by the downturn in the U.S. housing market, it added.

As a result, Starbucks reported preliminary second-quarter earnings of 15 cents per share, behind Wall Street analysts' average target of 21 cents per share, according to Reuters Estimates.

Starbucks estimated that costs associated with turnaround efforts and store closures lowered earnings by 3 cents per share in the second quarter, which ended March 30.

Given the continued weakness in the U.S. economy, Starbucks warned that fiscal 2008 earnings per share would be "somewhat lower" than the 87 cents it reported in fiscal 2007, while analysts were looking for a profit of 97 cents per share for the current fiscal year.

"At this time, the company is not providing a more precise expectation due to lack of visibility into near-term economic conditions," Starbucks said in a statement.

ARBY'S TO BUY WENDY'S

Wendy's has been exploring sales options for quite some time and has accepted a bid from Triarc, the parent of Arby's.

From The New York Times:

The owner of Arby’s, the Triarc Companies, said Thursday that it was buying the hamburger chain, Wendy’s International, in an all-stock deal worth $2.34 billion that comes after the burger chain’s board rejected at least two earlier offers by the company.

Triarc, which is owned by the billionaire investor Nelson Peltz, will pay about $26.78 a share for the company, which has about 87 million shares outstanding. The price is a premium of 6 percent over Wednesday’s closing price of $25.32.

UAL POSTS HUGE Q1 LOSS

The parent company of United Airlines posted a loss of $537 million for the first quarter citing a 51% increase in fuel costs as a major reason for the loss.

From The New York Times:

United, based in Chicago, plans to reduce employment by 1,100 by the end of the year, as airlines begin a new round of layoffs. United increased the number of planes it plans to shed to 30, from an earlier estimate of 15 to 20, in hopes of constraining capacity and driving fares up further.

At United, first-quarter fares rose more than 11 percent over the year-ago period, as the carrier reduced domestic capacity by about 6 percent. That sent revenue up 7.7 percent to $4.71 billion for the quarter.

But a $534 million increase in fuel costs, to $1.58 billion for the quarter, led to a loss. The company has $2.9 billion of unrestricted cash and short-term investments, a slimmer cushion than the $3.6 billion it held Dec. 31, 2007.

Of the planned employee cuts, 500 would be managers and 600 union-represented workers, Glenn Tilton, United’s chief executive, said in a recorded message to his workers. “In this extraordinary environment, we recognize the pace of change needs to accelerate,” he said.

United hopes to merge with another airline — Continental Airlines and US Airways are leading candidates — in order to compete against the proposed combination of Delta Air Lines and Northwest Airlines. Tuesday, in his message to workers, Mr. Tilton called industry consolidation “one of the changes required to address the gap between where we stand today and profitability and sustainability.”

RUPERT MURDOCH TO BUY NEWSDAY?

According to The New York Times, Rupert Murdoch's News Corporation has bid $580 million to buy a third New York-based newspaper, Newsday. News Corporation already owns The Wall Street Journal and The New York Post. The deal would violate current FCC regulations and would require a waiver to be granted.

From The New York Times:

As he nears completion of a deal to acquire Newsday from the Tribune Company, Rupert Murdoch appears likely to pose the first significant challenge to the media ownership rule that the Federal Communications Commission recently adopted.

Even without Newsday, Mr. Murdoch was in the process of seeking waivers to continue to control two newspapers (The Wall Street Journal and The New York Post) and two television stations (WNYW and WWOR) in the New York area.

With those waiver requests pending at the F.C.C., the Newsday deal means that Mr. Murdoch must now apply for a waiver to own the two television stations and three newspapers in the same market.

The new rule, approved by a deeply divided commission in December, permits a company to own just one paper and one television station in the same city in the top 20 markets so long as there are at least eight other independent sources of news and the station is not in the top four. (The stations controlled by News Corporation are the fourth- and sixth-largest in the New York market.)

The architect of the rule, Kevin J. Martin, the chairman of the commission, has made clear that there is a strong presumption against granting waivers.

The Newsday deal also becomes public as Congress takes up a measure that would restore the old ownership rule, which generally restricted a company from owning both a newspaper and a television station in the same city, unless the F.C.C. granted a waiver.

GAS PRICES AT INFLATION-ADJUSTED HIGH

The price for a gallon of gasoline averaged $3.508, surpassing the inflation-adjusted high of $3.413 of 1981.

From USA Today:

The average price for regular gasoline across the USA was a record $3.508 a gallon Monday, eclipsing the inflation-adjusted peak of $3.413 set in March 1981, when the average was $1.417, according to the U.S. Energy Information Administration.

Separately, AAA and the Oil Price Information Service reported a U.S. average of $3.503 Monday, up 1.2 cents overnight and first time above $3.50.

The two surveys emphasize what Americans already know: However it's measured, gasoline is more expensive than it's ever been. That hurts.