Not Easily Classified

As told to AMY ZIPKIN at New York Times

I WAS at Virginia Tech and was thinking about being an engineer, but then I decided I didn't like engineering and switched to pre-med. I applied to the University of Michigan for sentimental reasons. I was born in Ann Arbor, still had a lot of relatives there, and the program had a good reputation. I was accepted.

I remember liking gross anatomy and embryology my first year, but in the second year pharmacology was like memorizing the white pages of the phone book.

About a year and a half into medical school I started having doubts. Medical school didn't seem particularly stimulating, but since my student loans, between undergraduate school and medical school, were between $50,000 and $100,000, it wasn't clear if I left medical school how I was going to pay that back.

I took a leave of absence and began auditing classes in the classics at the University of Michigan. I was leery of taking on additional loans. And when the deadline rolled around to return to medical school, I took another leave of absence and continued to audit classes. The medical school wouldn't allow a leave for a third year, so I left.

I worked in survey research at the university and often took at least one class for credit so I would have gym access and infirmary access and could live in student co-op housing. One winter I lived in an informal housing arrangement. We decided we would spend the winter with no heat. Winter starts in Ann Arbor in November and runs until April. At night the indoor temperatures would dip into the 30's. Daytime, the temperatures would climb to the 50's. We didn't use heating per se, but we did use electricity, using a stove and oven for cooking and turning on lights. I wore a hat and light gloves around the house. I made my own mittens out of old purses from a thrift store. I was also making my own bread and grinding my own soybeans to make tofu. I kept my costs low because I was paying off student loans.

I backed into computers as a way to make a living. Originally I was computer-phobic. By the early 90's I had worked my way up the computing chain from data entry to programming. I was working on a data archive called the Inter-University Consortium for Political and Social Research, which had 450 members. A colleague showed me the World Wide Web on an early Mosaic browser. It was a religious experience being shown the Web for the first time. I was so absorbed that I didn't get out of my chair from 5 p.m. to 8 a.m. the next day. I thought this was something special. Not only could I be a user of this but I could create it myself. Over the next year and a half I created a Web interface for the consortium's archives so researchers at member institutions could access the data themselves.

I was 33 and had never made more than $15,000 a year. That winter in Ann Arbor had been particularly bleak. There were eight days when the temperature never rose above zero. I sent out my résumé on the Internet, and all the responses I got were from Silicon Valley. Some were offering air fare. I had been to San Francisco once, when I was 15.

I took a job just north of San Jose and moved out there not knowing a soul. I had never owned a car. In Ann Arbor I took my bike everyplace. In California I took the bus, but there was very little provision for mass transit.

After two or three years I moved to San Francisco and still commuted two and a half hours each way. The train let me off 12 miles from the office, and then I'd take two buses. Finally, during the dot-com boom, I got a job in San Francisco. That company didn't have a very long life.

In late 1999, I posted my résumé on Craigslist.org. Craig Newmark, the founder, saw my résumé. He was looking for a programmer at the time. I took the job over a better-paying one, and became president and chief executive a year later. Craigslist was different in my eyes from other companies.

The Wisdom of Wall St.? Sometimes It's Wrong

By FLOYD NORRIS at New York Times

As 2006 begins, the great American housing boom is going to weaken, if not collapse. But that will not hurt the economy very much, and growth will continue at a good pace.

Or so goes the conventional wisdom.

Mortgage applications are down, and surely home sales will follow. Homes in many markets are far less affordable than they were a few years ago. There is a lively argument as to whether prices will fall sharply in some markets or simply level off for a few years, but another record year for the housing industry seems out of the question.

Sometimes, conventional wisdom proves correct, and a year from now that may be exactly what has occurred. But lately Wall Street's consensus forecast has seemed more likely to miss than to hit, a fact that investors may want to take into account before they sell their homes and await the bargains that will inevitably follow in the great housing bust.

A year ago, the one verity in market commentary was that the decline of the dollar was real and was going to continue. The United States was running a huge and unsustainable trade deficit, and the dollar's 2004 decline was likely to accelerate.

So what happened? China did grudgingly allow a small devaluation of the dollar against the Chinese currency, albeit one so small that it made no difference at all. But the dollar rallied against the other major currencies. It ended 2005 up 14 percent against the euro and up 15 percent against the Japanese yen.

A year earlier, at the end of 2003, market seers were united in expecting long-term interest rates to rise. The Federal Reserve was going to increase short-term rates, and virtually everyone was sure that long-term rates would follow. But they actually fell in 2004, and the yield of the longest-dated Treasury, which matures in 2028, fell again in 2005, although yields on the benchmark 10-year Treasury note rose 17 basis points, to 4.39 percent.

That rate was, however, lower than the two-year Treasury yield, which climbed 133 basis points, to 4.41 percent during the year. That yield-curve inversion, as bond jargon terms it, set off talk of a slower economy this year.

If the conventional wisdom this year is going to be as wrong as it was the last two years, there are at least two ways for it to be wrong. One would be for housing to continue at an extraordinarily strong pace. An accompanying chart shows sales of single-family homes, both new and previously occupied, for 12-month periods over the last 20 years. The totals can be a little misleading, because new home sales are usually reported when contracts are signed, while sales of existing homes are reported a month or two later, when the transaction closes.

But no sign of slowing is to be seen in those charts, and, as Robert J. Barbera, the chief economist of ITG Hoenig, notes, if the next move in long-term interest rates is down, sales could rise even more.

The stock market clearly was forecasting a decline in the housing market a few months ago. The Philadelphia Stock Exchange index of housing sector stocks reached a record high in late July and by late October had lost 21 percent of its value, leaving it down a little for the year. But it rallied 11 percent by the end of 2005, as profits continued to be strong.

Another way that the conventional wisdom could be wrong is that the impact of a declining housing market could be less benign than expected. Most economists say they think that the United States economy will grow around 3.3 percent this year, a little, but not much, slower than the 3.7 percent estimated for 2005. If the housing market were to decline, that could be reflected not only in lower construction spending but also in some retrenchment on the part of consumers who suddenly felt less well-off.

Another factor that could weigh on consumers, and on business investment, is oil prices. As it happens, the last four years have all ended with spot oil prices seeming high. What is different now are market expectations. At the end of 2002 and 2003, the expectation was that prices would come down quickly, as soon as the Iraq adventure was over. By the end of 2004, spot prices were significantly higher and the expected declines much smaller.

Now, the oil futures market sees no evidence of quick relief. The nearby oil futures contract, expiring in February, is at $61.04 per barrel. That is down from its peak of more than $70 reached in August, when Hurricane Katrina raised fears of oil shortages,. but it is well above what anyone expected a year ago. Moreover, the futures contract for the end of 2008, three years from now, sells for $61.99, a little higher than the current price.

That is persuading oil companies to step up spending on exploration and development, and there are limited signs that consumers now care more about fuel economy than they did in recent years. General Motors, which had the unfortunate distinction of being the worst-performing stock in the Dow Jones industrial average in 2005, losing 52 percent of its value, plans to promote fuel efficiency when it advertises its new sports utility vehicles.

Oil was the place to invest in 2005. Although the S.& P. 500 eked out an overall gain of only 3 percent, 8 of the 10 industry sectors were up, led by energy with a gain of 29.1 percent. The losing sectors were telecommunications, amid worries that competition with cable companies would leave little in the way of profits, and consumer discretionary, a sector that includes both auto companies and newspaper publishers. The latter suffered from worries that the Internet was eroding newspaper profitability at a faster pace than expected.

Later in the year, measured from when Hurricane Katrina hit, the place to be was not in oil stocks, which registered most of their gains before that, but in materials stocks, many of which hope to benefit from the rebuilding effort in the devastated areas. U.S. Steel rose 20 percent after Aug. 26, although it still ended the year 6 percent below its level a year earlier.

Despite the small gain for the S.& P. 500-stock index, gains were widespread. Of the 499 stocks in the S.& P. that were trading a year ago, 288 stocks showed gains for the year. It was the third consecutive year that more stocks rose than fell, and a sharp contrast to 1999, the last year of the bull market before it faltered, when the index gained 19.5 percent but only 241 stocks in the index were up.

The S.& P. 500, like most indexes, is calculated on a capitalization-weighted basis. That means that the four largest stocks - General Electric, Exxon Mobil, Citigroup and Microsoft - account for 10.7 percent of the index movement. Of the four, only Exxon Mobil, up 9.6 percent, had a good year. Citigroup finished up less than 1 percent, and the others had losses.

Of the stocks in the S.& P. 100, which are generally the largest in the 500, just 51 showed gains. And just 14 of the 30 Dow industrials showed gains.

Standard & Poor's also computes the S.& P. 500 index on an equal-weighted basis, in which each of the 500 stocks counts as much as every other. That presents a far different picture. While the capitalization-weighted S.& P. 500 ended 2005 down 18 percent from its 2000 peak, the equal-weighted index has been setting records with regularity, although it is down from the peak set on Dec. 14. Its 2005 close was 33 percent higher than the highest close in 2000.

Another example of conventional wisdom being wrong could be in the performance of Hewlett-Packard, whose 2002 merger with Compaq Computer was generally viewed as ill advised and led, in February 2005, to the ouster of Carleton S. Fiorina as the company's chief executive. The company ended the year up 37 percent, better than any other stock in the Dow 30.

Other companies whose chief executives left under pressure during the year did not fare as well. Morgan Stanley posted a 2 percent gain, but that was the worst showing in the brokerage industry. Fannie Mae, which not only ousted its top management but has so far been unable to produce audited financial statements, fell 31 percent. Another company that has been unable to calculate its finances since a boss was fired, Krispy Kreme Doughnuts, lost 54 percent of its value. And Walt Disney, where Michael D. Eisner left earlier than he had planned, dropped 14 percent.

Given the severance packages that are routinely given to former chief executives, none of them would have any trouble buying a new home. But a big issue in 2006 may be whether a lot of their less well-off fellow citizens discover that, for those who are treated less generously, homes are no longer affordable.

Fed Indicates It Will Soon Stop Raising Rates

By EDMUND L. ANDREWS at New York Times

WASHINGTON, Jan. 3 - The Federal Reserve set the stage today for ending its 18-month campaign of raising interest rates, closing out a major chapter in its monetary policy just a few weeks before Alan Greenspan retires as the Fed's chairman.

According to minutes released today from the Fed's policy meeting in December, officials agreed that they would have to push short-term rates only a little bit higher before stopping.

Policymakers agreed that monetary policy was no longer "accommodative," given that they had raised the benchmark federal funds rate on overnight bank loans to 4.25 percent today from 1 percent in June 2004.

And while officials were careful to say they were not quite finished, they explicitly indicated that they were close.

"Given the information now in hand, the number of additional firming steps required probably would not be large," the Fed's minutes said, ascribing that view to "most members" of the policy-setting Federal Open Market Committee.

The summary of last month's deliberations provides a wealth of new insights into the central bank's thinking as it prepares for its transition from Mr. Greenspan to Ben S. Bernanke, President Bush's nominee as the next Fed chairman.

The meeting minutes confirmed that Fed officials became slightly less worried about inflationary pressures, even though they expected high energy prices to push overall inflation somewhat higher for awhile.

"Participants indicated that their concerns about near-term inflation pressures had eased somewhat," the minutes said. Policymakers said prices were being held in check by competition from foreign producers.

They also noted that wages and other labor costs climbed only moderately, despite strong economic growth. And they drew comfort from the fact that last year's spike in oil prices had only a "muted" impact on overall consumer prices.

But Fed officials also hinted that they might be entering a new period of uncertainty and perhaps disagreement.

The uncertainties are both about the potential course of the economy as well as about the best way for the Fed to communicate its intentions now that interest rates are more in line with historical patterns.

"Views differed on how much further tightening would be required," according to the minutes. "Members thought the policy outlook was becoming considerably less certain and that policy decisions going forward would depend to an increased extent on the implications of incoming economic data."

Mr. Greenspan, who is set to retire on Jan. 31 after 18 years as chairman of the Federal Reserve, has long warned that the Fed would not always tip its hand on future policy as it has in the past two years.

But Mr. Bernanke, a former Fed governor who is expected to win easy approval in the Senate as the next Fed chairman, has argued for years that the central bank needs to be more open and "transparent" in communicating policy to the public.

Both Mr. Bernanke and Mr. Greenspan have been careful to couch any advance guidance from the Fed with the caution that policy decisions would always depend on patterns of new economic data.

But most analysts agree that the last two years have been unusually predictable. One major reason was that inflation has remained low, allowing the Fed to adjust policy gradually.

The other reason was that the Fed slashed interest rates to historic lows from 2001 through 2004 in order to support a stalling economy, and virtually all policymakers agreed that they had to push rates back up to more normal levels in order to prevent a new outbreak of inflation.

But with the federal funds rate now up to 4.25 percent, four times its level of just 18 months ago, the distinction between an "easy" and "tight" monetary policy is no longer clear.

Warning: Beware of Warnings About Real Estate

By VIVIAN MARINO at New York Times

FUND investors who amassed colossal gains in real estate over the previous few years were warned not to expect a repeat in 2005. The long-running rally could lose steam, some analysts predicted, which meant that it was time to consider selling.

But those naysayers turned out to be wrong. Many investors who stayed the course and ignored the warnings about real estate bubbles continued to profit: the sector ended yet another year among the top fund categories.

Real estate funds returned an average of 11.9 percent, according to Morningstar, after climbing 32 percent in 2004 and 37 percent in 2003. For the five years through December, the annualized gain was 18.56 percent. By contrast, including dividends, the Standard & Poor's 500-stock index returned 4.9 percent last year and 2.7 percent, annualized, over the five-year stretch.

So now the question re-emerges: Can this highflying sector continue its ascent?

"We've been surprised that real estate has stayed as strong as it has at this point," said Daniel McNeela, a senior analyst at Morningstar, who, like others, is cautious again. "The underlying fundamentals hadn't improved nearly as rapidly as the stock prices have risen."

There are some compelling reasons to sell right now. For one thing, holders who have long invested in real estate may want to cash out, at least to keep their portfolios' asset allocations in balance. And analysts continue to worry about where the economy and interest rates are headed and how those factors might affect real estate investment trusts - the bulk of most of these funds' holdings.

Many funds, including the top performers last year, owe their success to the durability of these REIT's, companies with portfolios of commercial property that pay out most of their profits as dividends. Some analysts say that REIT's themselves are becoming overvalued, along with the properties they buy and hold, and that returns this year will be less spectacular than in previous years. REIT's returned 8.3 percent, on average, in 2005, and 18.9 percent, annualized, over the last five years, as measured by the National Association of Real Estate Investment Trusts composite index.

Still, the overall case for real estate remains strong. As the economy continues to grow and to generate jobs, demand for properties like apartment buildings, retail stores and office space will only rise, said Martin Cohen, co-chairman and co-chief executive of Cohen & Steers, whose Cohen & Steers Realty Shares fund was near the top of last year's performance list, returning 14.9 percent.

The fund's main holdings include blue-chip REIT's like Boston Properties and Vornado Realty Trust, which own office buildings in strong markets like the Northeast; the Simon Property Group, which has premium shopping malls like the Mall of America near Minneapolis; and AvalonBay Communities, which builds rental apartments in pricey housing markets in California and the Northeast.

Mr. Cohen, for one, dismisses the skeptics. "I have been hearing this negative talk for the last five years," and each time there has been a decline, real estate quickly rebounded, he said.

Indeed, last year started precariously. The funds lost 6.4 percent, on average, in the first quarter amid profit-taking by institutional investors. They recovered in the second quarter, with a robust average gain of 13.2 percent, though the third-quarter return was much smaller, at 3.2 percent. The funds were up 2.6 percent, on average, in the last three months.

REAL estate funds have been resilient partly because there has not been a major spike in long-term interest rates, which can prompt a sell-off in real estate investments, Mr. McNeela said.

The funds have also benefited from the limited supply of commercial buildings being developed.

"On average, the replacement costs continue to go up," said Theodore R. Bigman, who manages Morgan Stanley real estate funds, referring to the rising cost of essentials like building materials and land. That may also help to explain the higher-than-usual number of takeovers of REIT's last year - eight completed, six pending - from companies looking for an efficient way to expand their real estate portfolios without having to build, he added.

"We feel very glad about the limited amount of cranes in the sky producing buildings in the United States," Mr. Bigman said.

One area that has had little activity is hotels. "After 9/11, the hotel industry had been in a virtual depression - new construction virtually disappeared," said G. Kenneth Heebner, manager of CGM Realty, the No. 1-performing real estate fund last year, with a 27 percent return. And the large number of hotel properties being converted into residential condominiums is shrinking the supply of hotel rooms, he said.

CGM Realty has 71 percent of its assets in REIT's. Among its top 25 holdings are several hotel REIT's, including LaSalle Hotel Properties, Sunstone Hotel Investors, Innkeepers USA Trust and Host Marriott.

Mr. Bigman, meanwhile, began loading up on hotel shares in early 2002, when many investors were dumping them after the terror attacks. His Morgan Stanley Institutional U.S. Real Estate A, No. 3 on the performance list with a return of 17.7 percent, is also invested in Host Marriott, along with Starwood Hotels and Resorts Worldwide and Hilton Hotels. (Morgan Stanley Real Estate A, for smaller investors, was up 16.76 percent and also has those holdings.) Mr. Bigman says he still likes hotel stocks because demand for hotel rooms has grown faster than supply.

The biggest holdings in Morgan Stanley Real Estate are Simon Property, AvalonBay and Boston Properties. Simon "represents a great way to get exposure to Class A regional malls," Mr. Bigman said, adding that he thinks the company is "undervalued versus both private real estate and its peers." AvalonBay, like other apartment REIT's, stands to benefit from the run-up in housing prices, as homeownership becomes less affordable, he said, and it has already profited by selling rentals to developers for condo conversions.

Mr. Bigman likes sticking with companies that he thinks are poised for growth, and he bases his investment decisions on the quality of their underlying properties rather than on financial metrics like low price-to-earnings ratios.

"Returns are directly tied to continued improvement to real estate property," he said. "Every time we buy a stock we view it as buying into a portfolio of real estate."

Mr. Heebner, on the other hand, is quicker to change sector preferences. His decision over the summer to unload shares of home builders and to acquire coal stocks, which now make up around 18 percent of CGM Realty's assets, has paid off handsomely. Console Energy and Arch Coal are among the fund's largest coal holdings, and each had a stellar performance last year. An additional 7 percent of the fund is in the brokerage firm C. B. Richard Ellis.

"We're bullish on energy prices," he said. And housing? "I believe mortgage financing has become too liberal, which has lead to rising speculations," he said. "People are buying more home than they can finance."

In other words: he thinks that there is a housing bubble.

Other fund managers would agree that some markets - particularly parts of Florida, California and Nevada, for example - have become overheated and overbuilt, but they caution investors not to confuse them with the commercial market.

"They are looking at the bubble in residential real estate, in single-family homes and condos, and translating that to a bubble in other parts of real estate," Mr. Cohen said. "They are unrelated."

Mr. Bigman concurred: "Is there a bubble in commercial real estate? We would argue that there isn't."

But he had this to say to those investors who might have been left behind in the real estate fund rally: "We're sorry you missed the best run-up that we had in years, and we strongly discourage you from expecting comparable returns. However, having a meaningful allocation still makes sense."

Americans' Savings Rate at Lowest Level Since 1933

By THE ASSOCIATED PRESS

Filed at 1:13 p.m. ET

WASHINGTON (AP) -- Americans' personal savings rate dipped into negative territory in 2005, something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

The savings rate has been negative for an entire year only twice before -- in 1932 and 1933 -- two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

With employment growth strong now, analysts said that different factors are at play. Americans feel they can spend more, given that the value of their homes, the biggest asset for most families, has been rising sharply in recent years.

But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement.

''Americans seem to have the feeling that it is wimpish to save,'' said David Wyss, chief economist at Standard & Poor's in New York. ''The idea is to put away money for old age and we are just not doing that.''

The Commerce report said that consumer spending for December rose by 0.9 percent, more than double the 0.4 percent increase in incomes last month.

A price gauge that excludes food and energy rose by a tiny 0.1 percent in December, down from a 0.2 percent rise in November. This inflation index linked to consumer spending is closely watched by officials at the Federal Reserve.

The central bank meets on Tuesday, when it is expected it will boost interest rates for a 14th time. However, many economists believe those rate hikes are drawing to a close with perhaps another quarter-point hike at the March 28 meeting as the central bank is starting to see the impact of the previous rate hikes in a slowing economy.

The government reported on Friday that overall economic growth slowed to a 1.1 percent rate in the final three months of the year, the most sluggish pace in three years.

That slowdown was heavily influenced by a big drop for the quarter in spending on new cars, which had surged in the summer as automakers offered attractive sales incentives.

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month decline since a 3.4 percent drop in August.

The 0.5 percent negative savings rate for 2005 followed a 1.8 percent rate of savings in 2004. The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.

One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a ''wealth effect'' that supported greater spending.

The concern, however, is that the housing boom of the past five years is beginning to quiet down with the rise in mortgage rates. Analysts are closing watching to see whether consumer spending, which accounts for two-thirds of total economic activity, falters in 2006 as Americans, already carrying heavy debt loads, don't feel as wealthy as the price appreciation of their homes would seem to indicate.

For December, the 0.4 percent rise in incomes was in line with Wall Street expectations. It followed a similar 0.4 percent increase in November, with both months lower than the 0.6 percent rise in October.

The 0.9 percent rise in spending with slightly above the expectation for a 0.8 percent increase and was almost double the 0.5 percent increase in November.

Exxon Mobil Posts Largest Annual Profit for U.S. Company

By SIMON ROMERO and JOHN HOLUSHA

at New York Times

HOUSTON, Jan. 30 — Exxon Mobil, the nation's largest energy company, today reported a 27 percent surge in profits for the fourth quarter as elevated fuel prices gave rise to the most lucrative year ever for an American company, with profits in 2005 reaching $36.13 billion and revenue $371 billion.

Exxon's profits are expected to generate new scrutiny of the company's operations in Washington, where legislators have recently expressed concern over Big Oil's good fortune as soaring oil and natural gas prices pressure consumers. Exxon said its profits climbed more than 40 percent last year, while its tax bill rose only 14 percent.

"This might be the best macroeconomic environment ever for oil," said Dave Pursell, a partner at Pickering Energy Partners, Houston-based research firm. "More than any of its peers, Exxon knocked the cover off the ball with its long, disciplined view of global projects."

Exxon's revenue last year allowed it to surpass Wal-Mart as the largest company in the United States, and by some measures Exxon became richer than some of world's largest oil-producing nations. For instance, its revenue of $371 billion surpassed the gross domestic product of $245 billion for Indonesia, an OPEC member and the world's fourth most populous country with 242 million people.

Shares in Exxon closed at $63.37, adding $2.08 or 3.4 percent in New York after the announcement. However, even as investors applauded Exxon's new chief executive, Rex W. Tillerson, who replaced Lee Raymond at the start of this year, its results masked potentially weaker profits if oil and gas prices begin to decline.

Production on an oil-equivalent basis at Exxon's oilfields around the world declined 1 percent in 2005, excluding stoppages at platforms in the Gulf of Mexico from last year's hurricanes, illustrating an industrywide dilemma: an inability to tap into the world's richest oil exploration areas in the Middle East and Venezuela because of political instability.

However, political instability also worked in Exxon's favor in the most recent quarter as concern over Iran's nuclear ambitions and tension in Nigeria and Venezuela kept oil prices high. Crude oil prices have doubled in the last two years, driven by strong demand in rising economies in Asia and in the United States. Oil for March delivery fell slightly by 38 cents to $67.38 a barrel in New York trading.High gasoline and heating fuel prices have prompted some political leaders to call for a windfall profits tax on oil companies. But the company said today that it was reinvesting in exploration and refining capacity to meet the world's need for energy.

"Our strong financial results will continue to allow us to make significant, long-term investments required to do our part in meeting the world's energy needs," Mr. Tillerson, said in a statement accompanying the earnings report.

Gas production declined in the fourth quarter to 9.822 billion cubic feet per day from 10.43 billion in the comparable period last year. New gas supplies, the company said, were more than offset by declines in output from older fields, lower demand in Europe and the lingering effects of hurricanes on operations on the Gulf Coast.

Earnings from the sales of chemical products were down $413 million to $835 million, the company said, due mostly to the higher cost of raw materials and hurricane damage.

For the year, the company said, its exploration and capital expenses were $177 billion, an increase of $2.8 billion over the 2004 total. Earnings excluding special, one-time events totaled $33.86 billion, an increase of 31 percent, with all segments of the business contributing to the performance, the company said.

On Greenspan's Last Day, Fed Raises Rates Again

By EDMUND L. ANDREWS at New York Times

WASHINGTON, Jan. 31 — Alan Greenspan, who steered the nation's economy from the stock crash in 1987 to the still-unfinished war in Iraq, stepped down today as chairman of the Federal Reserve.

With almost choreographed precision, Mr. Greenspan presided over his last policy meeting at the Fed shortly before the Senate voted this afternoon to confirm Ben S. Bernanke as his successor.

As expected, the Fed increased short-term interest rates today, with the benchmark federal funds rate on overnight bank loans rising another quarter point today, to 4.5 percent. This is its 14th straight increase since June 2004.

But the Fed, in a statement, effectively gave Mr. Bernanke a wide berth to chart his own policy by making clear that it is no longer seeking a "measured" pace of rate increases.

That means that Mr. Bernanke can start on Wednesday with his own agenda, but it also means that the uncertainties and risks of making mistakes are greater than in recent years.

Mr. Bernanke, a highly respected economist but almost unknown outside the circle of monetary economics, will be taking over the most powerful economic job in the world at a moment of both great strength and great uncertainty for the Fed.

Unemployment, at 5 percent, is back down to levels that most economists once considered "full employment." Inflation, despite high energy prices, is remarkably tame. Productivity is still climbing rapidly.

But Mr. Bernanke will also be inheriting big challenges, including a possible hangover from Mr. Greenspan's policy of flooding the economy with cheap money after 2001.

The United States' current account deficit, the gap between what it spends and what it produces, soared well past $700 billion in 2005 and requires about $2 billion a day in fresh foreign financing.

Energy prices, which declined during most of Mr. Greenspan's 18-year tenure, have climbed back to new records even as the United States' dependence on foreign oil has increased.

Wages of low-income and middle-income workers are barely keeping pace with inflation. Wage inequality appears to be widening between the top and bottom ranks of the work force, partly because of a relentless contraction in blue-collar factory jobs.

Both Mr. Greenspan and Mr. Bernanke appear to have been well-aware of the potential potholes that lie ahead.

In his last act as Fed chairman today, Mr. Greenspan came close to wrapping up his last major policy challenge before retiring: a nearly two-year effort to gradually reverse the cheap-money policies that he used to prop up the economy after 2001.

Mr. Bernanke will arrive at the Fed on Wednesday morning with considerable freedom to chart his own course.

For the first time in nearly three years, the Fed is no longer providing investors with an implicit promise about its coming decisions about interest rates in the months ahead.

But Mr. Bernanke's freedom to imprint his own ideas on policy also comes at a moment of precarious uncertainty. For the past three years, Mr. Greenspan and other Fed policymakers had unusual clarity about the priorities: first to shore up the economy with low interest rates after 2001 and then to re-establish a more normal or "neutral" policy once the economic recovery appeared to be self-sustaining.

The priorities now are more cloudy. Interest rates are back in line with historical norms, but the economy could be on the verge of a slowdown because of high energy prices and a weak housing market.

"The challenge is in making day-to-day policy at a time when mistakes are most likely to be made," said Laurence Meyer, a former Fed governor and now a top forecaster at Macroeconomic Advisors Inc.

"We are close in many ways to a soft landing," Mr. Meyer continued. "But that's really a razor's edge."

Housing Starts in January Hit 33-Year High

By VIKAS BAJAJ at New York Times

Home construction jumped 14.5 percent to a 33-year high last month, the Commerce Department reported yesterday, a sign that builders may have taken advantage of unseasonably warm weather in January.

The report surprised many analysts because home sales have slowed and the number of unsold homes has risen in many markets around the country in the last several months. Many home builders have also been saying that they are offering bigger incentives to lure buyers.

In January, builders began constructing homes – known as housing starts – at an annual pace of 2.28 million, the fastest level since 1973, after a drop of 6.9 percent in December. Permits for new construction increased 6.8 percent, to 2.22 million, after falling 4.1 percent in December. Compared with January 2005, housing starts were up 4 percent, the government reported.

Warmer wather tends to spur construction activity, and the average temperature in the United States in January, at 39 degrees, was the highest ever recorded by the government, an increase of 8.5 degrees over the historical average for the month. The unusual weather has also been cited for stronger retail sales and weaker industrial production, the latter because utilites produced less electricity. “It is a time-tested pattern,” said David F. Seiders, chief economist for the National Association of Home Builders, noting that builders may have started work on homes that they sold ahead of construction at the end of last year. “February has essentially returned to normal conditions, suggesting to me that we will see a substantial decline in housing starts.”

The effect of the weather could further be magnified because most economic data, including housing starts, is adjusted to account for seasonal weather and other patterns. Because January is usually one of the coldest months of the year, those adjustments would have bolstered the data that the Commerce Department reports for the month even if construction were flat. Before adjusting for seasonal factors, housing starts were up 11.3 percent from December.

“Builders were able to build and so they were out there doing it, and the seasonal adjustment process pumped it up,” said Joshua Shapiro, chief economist at MFR, a research firm in New York.

Housing start dat is also subject to a significant margin of error, plus or minus 9.9 precentage points in January, because it is based on a relatively small smapling of data.

Just last week, two large home builders warned about slowing sales: Toll Brothers, the nation’s largest luxury home builder, said orders fell21 percent in the three months ended Jan. 31 compared with the same period a year ago, and KB Home said more buyers were canceling orders and fewer were signing contracts in the first two months of the years compared with 2005.

But even as they acknowledge the slowdown, many housing industry officials are generally optimistic about the year to come, given that mortgage interest rates remain low and that the economy has been adding jobs at a stronger clip in recent months. The average interest rate on a 30-year fixed rate mortgage was 6.15 percent in January, up from 5.71 percent a year earlier, according to Freddie Mac, but that is still low by historical standards.

“Everybody would agree that 2006 won’t be 2005,” said William Emerson, chief executive of Quicken Loans, a mortgage lender based in Livonia, Mich. “But it will be strong.”

Home building activity was strongest in the Northeast, where starts jumped 29.2 percent; followed by the Midwest, up 23.7 percent; the West, 16.9 percent; and the South, 8.7 percent.

Separately, the Labor Department reported that initial claims for unemployment insurance climbed by 19,000 last week, to 297,000 for the week ending Feb. 11. At 2.5 million, the total number of jobless claims at the end of Feb. 4 was down 7 percent from a year earlier.