TOP STORIES--JAN. 27-FEB. 1

Optimism Growing About Economy

The U.S. economy offered tantalizing new hints that it may be recovering faster than expected as the January unemployment rate slipped to 5.6% and employers shed jobs at the slowest pace in five months.

Separately, an industry report shows the nation’s battered manufacturing sector expanding production and collecting new orders for a second straight month, breaking almost a year-and-a-half-long string of setbacks.

Meanwhile, a surge in auto sales and a sharp increase in government spending helped the U.S. economy grow in the final three months of last year at a 0.2% annual rate.

But no one, including notoriously optimistic investors, is popping the champagne yet.

That’s because the decline in the jobless rate is accompanied by an inexplicably large plunge in the size of America’s labor force and by figures showing that a record number of jobless workers have exhausted their unemployment compensation benefits.

The stock market certainly didn’t do much trumpeting.

Worried that accounting scandals like that at Enron Corp. may lurk in the wings, investors treated the new employment report as if it showed the recovery will be slower, not faster, in coming and pushed stock prices down.

For the week, the Dow Jones industrial average added 0.7%, the Nasdaq lost 1.4%, and the S&P; 500 eased 1%. Year to date, the Dow is off 1.1%, the Nasdaq dropped 2% and the S&P; 500 fell 2.3%.

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GAO to Sue White House Over Energy Records

Setting up a high-stakes legal battle between two branches of the government, the investigative arm of Congress announced plans to sue the White House for records of Vice President Dick Cheney’s meetings with Enron Corp. and other industry interests that sought to influence the administration’s energy policy.

The General Accounting Office said it would file suit in federal court in the next two or three weeks in an effort to obtain records of the task force that developed the industry-friendly energy policy President Bush announced May 17.

The filing would mark the first time in the GAO’s 80-year history that it has sued a federal entity.

The White House has refused to turn over the records on grounds that doing so would infringe the president’s ability to gather opinions from Americans without fear their comments will be made public.

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Fallout Continues From Enron Collapse

The week brought more developments surrounding the collapse of Enron Corp.

The earliest warning sign yet about Enron’s outside investment partnerships may have come from the company’s in-house legal counsel.

In April, Enron legal Vice President Jordan Mintz independently asked a prominent New York law firm to review the partnerships and provide legal advice. The resulting opinion, issued six weeks later by law firm Fried, Frank, Harris, Shriver & Jacobson, advised Enron to “halt this practice,” according to congressional investigators.

Meanwhile, the fallout continued, as Enron’s auditor, Andersen, said it is losing business, but the company’s chief executive sought to dispel speculation that the firm would be sold or shut down.

Chief Executive Joseph F. Berardino said Andersen’s destruction of Enron-related papers and alleged accounting lapses are marring the company’s credibility and scaring off potential clients.

But he declined to identify specific accounts it has lost.

The debate about the potential conflict of interest among major accounting firms that also sell consulting services to their clients led four of the Big 5 accounting firms to say they would be willing to give up at least some of the lucrative consulting work in an effort to restore confidence in the industry.

That announcement came as Walt Disney Co. became the first major U.S. corporation to say it no longer would use its outside accounting firm for new consulting projects and would review those underway.

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Global Crossing Sinks in a Sea of Debt

In the second major bankruptcy filing in two weeks, Global Crossing Ltd., which built the world’s largest communications network under the ocean, filed for Chapter 11 bankruptcy protection.

The filing, which listed more than $12 billion in debt, followed that of Kmart Corp. a week earlier.

Global Crossing’s filing was a huge setback for founder Gary Winnick, a feisty former bond trader who was crowned the richest man in Los Angeles in 1999 when his stake in the company grew to be worth $6 billion.

The bankruptcy filing included a plan by an investment group led by Hong Kong billionaire Li Ka-shing to pump $750 million into the company to keep it afloat.

But that was little consolation for the company’s creditors and shareholders, who stand to recover little, if any, of their investments.

Meanwhile, a former Global Crossing finance executive said he warned the firm’s top attorney in August that the company’s financial condition was being enhanced with misleading accounting techniques.

He said he repeatedly raised concerns about the company’s accounting on specific deals starting in June. But the company denied Roy Olofson’s accusations.

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Big Blue’s CEO to Step Down

The chief executive who transformed once-battered IBM Corp. into a steadily profitable technology behemoth is stepping down.

Louis V. Gerstner Jr. said he would turn the reins over to Chief Operating Officer and 29-year IBM veteran Sam Palmisano on March 1, Gerstner’s 60th birthday.

Gerstner, the first outsider to lead IBM in eight decades, joined Big Blue in 1993, when it was mired in a bloated bureaucracy that spoke its own language.

Obsessed with selling big computers, the company was losing billions and facing investor demands that it split into pieces.

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Jenny Craig Gains Investment Group

Diet center operator Jenny Craig Inc. agreed to sell itself to private investment group ACI Capital Co. for $115 million, or $5.30 a share.

Sid and Jenny Craig, the husband-and-wife team who founded the company and control 67% of its shares, will receive $73 million as a result of the transaction.

The Craigs will continue to hold a $4-million stake in the La Jolla-based company but will not be involved in its management; Sid Craig will remain on the company’s board.

Named to succeed Sid Craig as chairman and chief executive was Kent Kreh, a former chief executive of Weight Watchers International Inc.

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Toys R Us to Close Stores, Cut Jobs

Toys R Us Inc. said it is cutting 1,900 jobs and closing 64 domestic stores in a move to speed modernization of its aging stores and recoup customers lost to smaller rivals and giant merchants such as Wal-Mart Stores Inc.

The move is part of a broader effort by the nation’s second-largest toy seller to reverse a market-share decline by making its stores more compelling and its merchandise mix unique.

Investors reacted positively to the plan, driving the stock up 4% for the week.

But analysts say that more needs to be done and that the slow pace of change has resulted in further customer defections.

The company, based in Paramus, N.J., said it plans to shutter 27 of its older-style Toys R Us stores and 37 of its troubled Kids R Us stores.

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Gullible Investors Scammed Straight

The Securities and Exchange Commission is using bogus investment Web sites in an effort to slap a little sense into the terminally gullible.

The commission created www.mcwhortle.com, a Web address for bogus company McWhortle Enterprises Inc., which supposedly makes battery-powered biohazard detection devices.

The site, replete with faux testimonials and audio feeds, promises that investments in McWhortle will be worth 400 times the initial offering price within three months.

But when investors hit the button to buy, up pops a page proclaiming: “If you responded to an investment idea like this, you could get scammed!”

The site received more than 150,000 hits last month after a news release seemingly issued by McWhortle Enterprises was distributed to hundreds of Web sites.

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From Times Staff

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