US sues to lower prices of e-book best-sellers

WASHINGTON (AP) — The government says avid best-seller readers who use electronic books have been getting ripped off. Tina Fey's "Bossy Pants," Tim Tebow's "Through My Eyes" and Keith Richards' "'Life" — maybe they should have cost less.

The Justice Department and 15 states sued Apple Inc. and majorbook publishers Wednesday, alleging a conspiracy that raised the price of electronic books. They said the scheme cost consumers more than $100 million in the past two years by adding $2 or $3, sometimes as much as $5, to the price of each e-book.

If there was price fixing, even the e-book version of the hot-selling Walter Isaacson biography of Steve Jobs, the late genius behindApple computers, may have cost too much.

Attorney General Eric Holder said executives at the highest levels of the companies conspired to eliminate competition among e-book sellers. Justice's antitrust chief, Sharis Pozen, said the executives were desperate to get Amazon.com — the marketer of Kindle e-book readers — to raise the $9.99 price point it had set for the most popular e-book titles, because that was substantially below their hardcover prices.

The federal government reached a settlement with three of the publishers, Hachette, HarperCollins and Simon & Shuster. But it will proceed with its lawsuit in federal court in New York City against Apple and Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.

Connecticut and Texas, two of the 15 states filing a separate lawsuit, reached agreements with Hachette and HarperCollins to provide $52 million in restitution to consumers, using a formula based on the number of states participating and the number of e-books sold in each state. Other states in the case may sign onto the agreement, and other companies might be persuaded to join.

Susan E. Kinsman of the Connecticut attorney general's office said it's too early to say how consumers can go about getting refunds. But there could be millions of people applying. A recent Pew Research Center survey found that 21 percent of adults said they had read an e-book in the last year.

Since Amazon introduced the Kindle in 2007, e-book sales have surged. They represented just 2 percent of all titles sold in the United States that year, but soared to 25 percent last year. In 2010, about 114 million e-books were sold at a total cost of $441.3 million.

Holder told a Justice Department news conference that "we believe that consumers paid millions of dollars more for some of the most popular titles" as a result of the alleged conspiracy. Pozen said the scheme added an average of $2 to $3 to the prices of individual e-books.

Connecticut Attorney General George Jepsen said the individual book markups went as high as $5 and the total cost to consumers was more than $100 million since April 2010, when the scheme allegedly took effect.

The government lawsuits did not disclose individual titles whose prices were allegedly jacked up. The Fey, Tebow, Richards and Isaacson books all came out in electronic versions from the named publishers after April 2010.

According to Pozen, Apple's Steve Jobs told publishers involved in the alleged conspiracy that "the customer pays a little more, but that's what you want anyway."

The lawsuit said the effort to get e-book prices increased by Amazon.com came as Apple was preparing to launch the iPad. The government said the conspirators agreed that instead of selling books to retailers and letting them decide what retail price to charge, the publishers would convert the retailers into "agents" who could sell their books but not alter the publisher-set retail price. The scheme called for Apple to be guaranteed a 30 percent commission on each e-book it sold, the lawsuit said.

"To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books," the lawsuit said.

The European Union conducted an investigation that paralleled the U.S. probe. The Union's Joaquín Almunia, vice president of the commission in charge of competition policy, said in Brussels that he welcomes the fact that the five companies are making proposals to reach an early resolution of the EU case. "We are currently engaged in fruitful discussions with them," said Almunia.

Hachette denied it was involved in any conspiracy to illegally fix the price of e-books and said it changed its pricing structure — the central government allegation — to facilitate entry by a new retail competitor, Apple.

"Two years ago, Amazon effectively had a monopoly on the sale of e-books and e-readers, and was selling products below cost in an effort to exclude competitors," said Hachette.

Amazon called the settlement "a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books."

After reading the federal complaint, the Consumer Federation of America called it "a 'slam-dunk' case of collusive, anti-competitive behavior."

At Apple, spokesman Tom Neumayr declined to comment on the lawsuit.

Macmillan CEO John Sargent said in a letter to authors, illustrators and agents that the company has not settled because it is "hard to settle a lawsuit when you know you have done no wrong."

Sargent said there were months of discussions with the Justice Department over a possible settlement, but the government's proposed terms "were too onerous" and "could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency (pricing) model."

"We also felt the settlement the DOJ wanted to impose would have a very negative and long-term impact on those who sell books for a living, from the largest chain stores to the smallest independents." he said.

Sargent denied he colluded with competitors to change Macmillan's pricing. "After days of thought and worry, I made the decision on January 22nd, 2010, a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now," he wrote.

"We have done nothing wrong," said Penguin Group's chairman and CEO, John Makinson. "The decisions that we took, many them of them costly and difficult, were taken by Penguin alone."

At the heart of the e-book pricing debate is the industry's ongoing concern about Amazon. Publishers see the "agency model" as their best, short-term hope against preventing the online retailer from dominating the e-book market and driving down the price of books to a level unsustainable for publishers and booksellers.

What the agency model achieved was to shift the power for setting retail prices on e-books from the retailer — in this case primarily Amazon — to the alleged conspirator publishers, who then exerted pressure on Amazon to comply with the higher prices. The alleged scheme applied to New York Times bestselling titles, all titles that have gone on sale in the current year and mass market paperback titles.

Amazon's $9.99 price for best-sellers was such a deep discount from list prices of $20 and more that it was widely believed Amazon was selling the e-books at a loss to attract more customers and force competitors to lower their prices. Amazon also has been demanding higher discounts from publishers and stopped offering e-books from the Independent Publishers Group, a Chicago-based distributor, after they couldn't agree to terms.

When Apple launched its tablet computer two years ago, publishers saw two ways to balance Amazon's power: Enough readers would prefer Apple's shiny tablet over the Kindle to cut into Amazon's sales, and the agency model would stabilize prices.

Apple's iBookstore has yet to become a major force, but publishers believe the new price model has reduced Amazon's market share from around 90 percent to around 60 percent, with Barnes & Noble's Nook in second at 25 percent. The iBookstore is believed to have 10 percent to 15 percent.

Macmillan's Sargent has been at the heart of the dispute. In early 2010, as publishers were trying to get Amazon to agree to Apple's pricing system, Amazon pulled all the listings for Macmillan books, including titles like Jonathan Franzen's "The Corrections" and Barbara Ehrenreich's "Nickle and Dimed." Sargent refused to back down and Amazon eventually gave in.

New e-books from Macmillan and the other publishers investigated by the Justice Department often are priced initially between $12.99 and $14.99, with Amazon making a point of noting that the price was set by the publisher. Ironically, publishers usually make less money off the agency model than the traditional one because they receive a smaller percentage of the proceeds.

Random House Inc. was the only "Big Six" publisher not to agree to the agency model in 2010 and was not part of the lawsuit. But it did agree to terms with Apple last year. Spokesman Stuart Applebaum said Random House would have no comment Wednesday.

According to federal court papers, the settlement agreement with three publishers said that for two years they will not restrict, limit or impede an e-book retailer's ability to set, alter or reduce the retail price of any electronic book. It said the retailers will be able to offer price discounts and other forms or promotions to encourage consumers to buy one or more electronic books.

The 15 states in the state complaint are Texas, Connecticut, Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Pennsylvania, South Dakota, Tennessee, Vermont and West Virginia. Puerto Rico also joined that lawsuit, which was filed in federal court in Austin, Texas.

Strong quake shakes Mexico, no major damage

MEXICO CITY (Reuters) - A strong earthquake hit western Mexicoon Wednesday, shaking buildings as far away as the capital and sending people rushing out of offices onto the streets, though there were no reports of major damage.

Mexico City Mayor Marcelo Ebrard said on his Twitter account there were no initial signs of serious damage and that key services in the capital, including its subway system and the international airport, were operating normally.

"There was a nasty crunching sound in my bathroom and everything moved," said Adela Arceo, who was looking after two young children in the central Roma neighborhood of Mexico City.

There were no initial reports of casualties.

The U.S. Geological Survey said the 6.5 magnitude quake struck in the western state of Michoacan at a depth of 12.4 miles. The epicenter was 238 miles west-southwest of Mexico City. The USGS earlier estimated the strength of the quake at 7.0 magnitude and said it was deeper.

Emergency services in Michoacan and in the neighboring state of Guerrero, which has been hit by a series of recent quakes, reported no major problems on Wednesday.

"You could feel it, but there's no major damage. There are no reports, no emergency calls," saidAgustin Lule, a spokesman for fire services in Uruapan, a town in Michoacan near the epicenter of the quake.

Reuters reporters in coastal areas of Guerrero and neighboring Oaxaca state said there was no damage.

The Honolulu-based Pacific Tsunami Warning Center said it had not issued a tsunami warning, but staff oceanographer David Walsh noted the quake was close to water, big enough and potentially deep enough to cause one.

It was the third big earthquake to hit Mexico in less than a month. A 7.4 magnitude quake struck on March 20, damaging hundreds of buildings in the southwest. That was followed by dozens of aftershocks.

Earlier on Wednesday, an 8.7 magnitude earthquake struck off Indonesia, raising fears of a huge tsunami like the one that battered the Indian Ocean rim in 2004, but authorities said there were no reports suggesting a major threat.

(Additional reporting by Mica Rosenberg, Simon Gardner, Krista Hughes and Ana Isabel Martinez; writing by Dave Graham; editing by Kieran Murray and Mohammad Zargham)

'Battleship' leads attack of game-based movies

LOS ANGELES (AP) — "Battleship" steams into movie theatersoverseas this week, giving international audiences the first chance to decide whether a board game-based movie is sea-worthy.

The Hasbro Inc. search-and-destroy game was once a way for kids to while away summer afternoons. But as it debuts in Europe on Wednesday, "Battleship" the movie has become a potential franchise, sporting Michael Bay-inspired special effects, aliens invading Earth, a bikini-model actress, superstar Rihanna and, of course, lots of guns.

Whether the movie symbolizes Hollywood's lack of new ideas or its brilliance in adapting old ones,Comcast Corp.'s Universal Pictures is betting big that it's the latter. With a reported production budget of $200 million, observers say it will need to reap at least $500 million at box offices worldwide to pay off.

Hollywood's love of the sequel, the prequel, the reboot and the adapted novel all originate from the same premise: Moviegoers are more likely to buy a ticket if they are already familiar with the story.

But not since "Clue" bombed in 1985 has Tinseltown gambled on adapting a popular board game with no apparent storyline.

The idea of turning board games into movies has gained new traction in part because of the huge success of "Transformers," and to a lesser extent "G.I. Joe," which are both based on toys from toymaker Hasbro Inc. The three "Transformers" movies have grossed more than $2.6 billion worldwide, helping lift "Transformers" toys to become Hasbro's top-selling brand last year, exceeding 11 percent of its $4.3 billion in annual revenue.

For Hasbro, the movie is a way to get a globally marketed boost for its games business, which Sterne Agee analyst Margaret Whitfield called "stagnant" and lacking innovation. Turning that stagnation around is a goal of Brian Goldner, Hasbro's CEO since 2008. He told investors in February "we're going to reignite our games business."

If it succeeds, "Battleship" will be the advance guard of a whole fleet of planned adaptations of Hasbro games including "Ouija," also being developed by Universal for release in 2013, as well as "Risk" and "Candy Land," which are both in the works at Sony Corp. "Stretch Armstrong," a movie based on the glutinous-armed toy from Hasbro, is set for 2014 release by Relativity Media.

On paper, "Battleship" scores high on the checklist for blockbuster success: a hero in a life-or-death struggle against incomparable odds, a steamy love interest, a star-studded cast that includes Liam Neeson, and a whole lot of destruction and mayhem.

Marketing of the film borrows heavily on its successful predecessor, and trailers proclaim that the movie is "From Hasbro the company that brought you Transformers." Churning metal weaponry and explosions are unmistakably reminiscent of the special effects used in "Transformers," which was directed by Michael Bay.

"It reeks of 'Transformers,' which is all a good thing," says Gene Del Vecchio, an entertainment research consultant and author of "Creating Blockbusters: How to Generate and Market Hit Entertainment for TV, Movies, Video Games and Books."

The movie also has "built-in appeal" with parents who feel nostalgic about the game and want to pass it on to their children, he says.

That formula of appealing to parents with young kids has served Hollywood well, and this summer's line-up of popcorn fare includes everything from decades-old comic book superheroes "The Avengers," ''The Dark Knight Rises," and "The Amazing Spider-Man" to two dueling versions of Snow White.

Every year, about a dozen movies have toy-related tie-ins and this year is no different. Success really depends on word of mouth, not what got the first wave of filmgoers in the door.

While decrying Hollywood's lack of original ideas, UCLA screenwriting professor Richard Walter says the only chance for "Battleship" to succeed is if "they threw away everything but the title and made a good movie."

On the surface, little about "Battleship" the movie resembles the board game.

In the game, players call out letters and numbers that correspond to their opponents' grid, hoping to hit and sink a set of ships hidden there.

In the movie, alien ships burst out of their hiding place in the ocean and trap some battleships under a giant force field inside which the two sides must duke it out. The aliens appear to have weapons with distinctly peg-like shapes, along with some spinning metal balls of death known as "shredders," which were not part of the board game.

Hasbro has that little wrinkle covered.

The company is releasing a new version of the game using cards that enable the wielder to wipe out a whole row or column of their opponents' pieces, offering kids a way to relive the experience of the movie at home.

The mind-numbing array of toy-related movies might have some people groaning. That doesn't mean the trend will end any time soon.

"The parents can get fatigued, but children don't," says Jim Silver, editor in chief of toy-reviewing website TimetoPlayMag.com, who says parents usually succumb to their children's demands for movie-related toys.

"If you take three kids to the movies and they love it, and they want to have that play experience at home ... chances are parents are going to buy it. However, if they never see the movie, then that's a different story." Battleship debuts in the U.S. on May 18.

Facebook buying photo-share app Instagram for $1B

NEW YORK (AP) — Facebook is spending $1 billion to buy the photo-sharing company Instagram in the social network's largest acquisition ever.

On the surface, that's a huge sum for a tiny startup that has a handful of employees and no way to make money.

But the lack of a business model rarely dampens excitement about hot tech upshots these days. As Facebook has shown, itself without ads or revenue in its early days, money goes where the users are.

Instagram lets people share photos they snap with their mobile devices. The app has filters that can make photos look as if they've been taken in the 1970s or on Polaroid cameras. Its users take photos of everything from their breakfast egg sandwiches to sunsets to the smiling faces of their girlfriends.

In a little more than a year, Instagram attracted a loyal and loving user base of more than 30 million people. Apple picked it as the iPhone App of the Year in 2011.

Instagram's fans, brand recognition and its potential are difficult to put a price tag on. Yet Facebook has — and can afford it. The company is preparing for an initial public offering of stock that could value it at as much as $100 billion in a few weeks. What's $1 billion? A drop in the bucket, really.

"Facebook after this IPO is going to be in a position to be predatory. They can make sure no one steps in their way and buy anyone who gets in their way," said Wedbush analyst Michael Pachter, who follows social media.

Buying Instagram, he added, not only eliminates a rival but gives Facebook the technology "that is gaining crazy traction."

Facebook is paying cash and stock for San Francisco-based Instagram and hiring its dozen or so employees. The deal is expected to close by the end of June.

It's a windfall not just for Instagram's employees, but the venture capital firms backing the company. Last week, Sequoia Capital led an investment round that valued Instagram at $500 million, according to a person familiar with the matter. The person was not authorized to speak publicly and spoke on the condition of anonymity.

Going by the $1 billion price tag, Facebook is paying about $33 for each Instagram user. That's a fraction of the $118 that Facebook investors will be paying per Facebook user if the company gets its expected $100 billion valuation after going public. By that math, Pachter said, $1 billon "doesn't sound crazy."

Getting Instagram is a big win for Facebook as it works to harness people's growing obsession with their mobile devices and sharing every moment of their life. The company's own mobile application is not as easy to use as Instagram, and sharing photos can be downright clunky. Facebook's way, noted Pachter, has always been to buy technology if it's better than what it can build on its own.

Facebook, which is based in Menlo Park, Calif., said it plans to keep Instagram running independently. That's a departure from its tendency to buy small startups and integrate the technology — or shut them down altogether just so it can hire talented engineers and developers.

"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users," CEO Mark Zuckerberg wrote on his Facebook page Monday announcing the deal. "We don't plan on doing many more of these, if any at all."

He said Facebook plans to keep allowing people to post from Instagram to other social networks. Users will also be able to keep their Instagrams off of Facebook if they want to.

"We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience," Zuckerberg said.

Tech bloggers and analysts immediately began wondering whether Facebook's commitment will be eternal.

"There's a long history of companies acquiring other companies and saying that they are going to continue to support the service — and then not," said Debra Aho Williamson, an analyst with research firm eMarketer.

One relatively recent example is Cisco Systems Inc., which killed off the much-loved Flip video camera less than two years after buying the company behind it.

There were some mutterings online about users leaving Instagram now that Facebook has bought it, though in reality Facebook will probably make it more popular.

There's a good reason for Facebook to keep Instagram going as a separate product, even if Facebook integrates some of its technology into its own service so that mobile photo sharing becomes easier. Google, for example, has kept YouTube separate even as it integrated some of its features into other products.

"Look at who Facebook is competing with — the Googles, Apples, Microsofts of the world. They have to build a strong brand and strong consumer platform," Gartner analyst Brian Blau said. "Having a separate social network ... is something they needed to do a long time ago."

Looking on the bright side of inflation

WASHINGTON (Reuters) - Sometimes a little bit of inflation is not such a bad thing. In the United States, prices starting to creep upward shows the deep wounds from the credit crisis are slowly healing and the U.S. economy is well on the road to recovery.

The evidence is scattered but it also shows up in some national reports. Consumer inflation, after stripping out volatile food andenergy prices, has edged upward over the past year and now is running just above the Federal Reserve's 2 percent target.

Workers' pay is nudging higher as the labor market gradually improves. Hourly earnings have grown at an average annual rate of 2 percent since last May and posted a 2.1 percent gain last month, up from a 1.8 percent pace a year earlier.

Home prices in a few cities, including Miami and Phoenix, have started to climb, the latest Case-Shiller index showed, even as the overall index fell. In the Washington area, some realtors say competition has heated up, bringing multiple bids and quick sales.

Businesses in New York and small firms are reporting shortages of skilled labor, especially for technical positions. The New York ISM found in March that 20 percent of purchasing managers were having problems hiring. The National Federal of Independent Businesses said almost one third of its firms surveyed in February had few if any qualified applicants to fill vacancies. This could push up wages in these sectors.

The amount of slack in the economy also appears to be lessening, the Federal Reserve staff said in minutes last week from the March central bank meeting. When there is lots of unused capacity in the economy, price slashing is common. If demand holds up, the narrowing of the output gap could give companies some extra pricing power.

Even the most cautious Federal Reserve policymakers are taking note. "Relative to a few months ago, I think the downside risks to the U.S. economy have lessened," John Williams, San Francisco Fed Bank President, said last week. He was in the Fed camp casting the most doubt on whether the U.S. recovery had legs.

These scattered signs of pricing gains are far from enough to ring inflationary bells, and it is way too soon to say they would prompt the Fed to alter its pledge to hold interest rates exceptionally low until 2014. Indeed Deutsche Bank expects the upward tilt in consumer prices is over.

"Underlying sectors that have been driving these movements are showing signs of leveling off or reversing as we look ahead," it said in a research note, citing slower gains in rental prices and a drop in car prices.

OIL

The United States gets a fresh read on inflation this week when the Labor Department releases the producer price index on Thursday and the consumer price index on Friday. Both measures are seen rising by 0.3 percent in March, after 0.4 percent gains the prior month. Excluding food and energy, core CPI is forecast to rise 0.3 percent from a 0.2 percent gain in February.

One reason for a higher core CPI is that the surge in energy prices over the past year is starting to get embedded in underlying prices. Chris Varvares, senior managing director of Macroeconomic Advisers, calculates that a $10 increase in the price of a barrel of oil pushes up the personal consumption expenditures price index, an alternate inflation measure closely watched by the Fed, by 0.1 percentage point after one year.

The International Monetary Fund similar estimates that a 10 percent increase in oil prices pushes up inflation by 0.5 percentage point after one year, and five years later, it still accounts for a 0.1 percentage point of the price increase - a lasting impact.

In other words, last year's oil price shock now is getting built into underlying prices in the United States. Crude oil costs jumped 35 percent in early 2011 on political upheaval in North Africa and the Middle East. They then retreated but began rising again in October by a similar amount on political tensions over Iran's nuclear program.

Usually price increases are temporary, causing a one-off hit to the economy. Fed policymakers have said they view these oil-driven gains as passing. But a recent IMF study found the Great Recession may have changed the dynamic.

"Oil price fluctuations appear to have contributed to higher inflation uncertainly since the crisis. In months of large oil price fluctuations, consumers longer term inflation expectations are spread out more widely," the IMF said in a March study.

They looked at the premium paid for Treasury inflation-protected securities over Treasury notes to get a reading of inflation expectations and found that investors demanded higher returns after the crisis.

"It thus appears more likely that on average markets associated oil price increases with a stronger U.S. economic recovery in the aftermath of the Great Recession, thereby raising their expectations of inflation and policy interest rates simultaneously," IMF researchers said.

(Reporting By Stella Dawson; Editing by Neil Stempleman)

Jobs recovery suffers setback in March

WASHINGTON (Reuters) - Employers hired far fewer workers in March than in previous months, keeping the door open for the Federal Reserve to provide more monetary support for a still sluggish economy.

The report was seized upon by Republicans hoping to make the weak economy the centerpiece of their campaign for November's presidential and congressional elections.

Even as the unemployment rate fell to a three-year low of 8.2 percent, job growth slowed to 120,000 last month, the Labor Department said on Friday, the smallest increase since October.

That was less than half the average monthly increase in the prior three months and way below the lowest estimate in a Reuters survey. Economists had expected an increase of 203,000 and the jobless rate to hold at 8.3 percent.

The numbers likely reflected the fading boost from unseasonably warm winter weather and brought the job market, which had been showing surprising strength since December, more in line with signs of a broader slowdown in the overall economy.

It also backed the caution expressed by Fed Chairman Ben Bernanke last week about whether the labor market could sustain gains above the 200,000 mark when economic growth is tracking a sub-par rate.

The data raises the chances of the central bank launching a third bond buying program or quantitative easing.

"The economy may not be growing as strongly as the data around the turn of the year, benefiting from favorable weather, suggested," said Michelle Girard, senior economist at RBS in Stamford, Connecticut. "While QE3 may not be seen as the odds-on bet, nothing can be ruled out."

Retail employment surprisingly fell for the second straight month, resulting in the vast private services sector adding jobs at the slowest pace in seven months.

Economists were puzzled by the drop given that retailers such as Macy's and Target reported brisk business in March.

Manufacturing jobs picked up, even though the workweek fell slightly. Factory jobs have increased by 120,000 so far this year, helped by carmakers trying to meet pent-up demand for motor vehicles.

The gains in manufacturing contributed to lifting hourly earnings by five cents last month, which should help to support spending.

Prices for Treasury debt rallied on the report, pushing yields to more than three-week lows, as investors anticipated further bond purchases by the Fed. The dollar fell against a basket of currencies.

Stock futures fell more than 1 percent, suggesting that shares could fall on Monday when the New York Stock Exchange reopens after being closed for the Good Friday holiday.

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US non-farm payrolls graphic: http://link.reuters.com/wej57s

Graphic on US unemployment: http://link.reuters.com/zej57s

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GIVE UP THE SEARCH FOR WORK

The cooling in hiring last month, if sustained, could hurt President Barack Obama's chances of re-election in November.

White House economic adviser Gene Sperling said the data showed the economy is making progress, but still has a long way to go.

"The economy's on a much much better trajectory than it was when the president came to office and we just have to keep at the policies and keep doing the things that are helping the economy recover," Sperling told Reuters TV.

Mitt Romney, his likely Republican opponent, called the report "very troubling".

"It is increasingly clear the Obama economy is not working and that after three years in office the President's excuses have run out," he said.

While the unemployment rate fell to its lowest level since January 2009, that was mainly because some people gave up the search for work. The household survey - from which the jobless rate is derived and is separate to the measure of new jobs - showed a drop in employment for the first time since June.

The unemployment rate has fallen from 9.1 percent in August.

In one of only a few bright parts of the report, a broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, fell to a three-year low of 14.5 percent from 14.9 percent.

The economy is believed to have slowed in the first quarter to around a 2 percent annual growth rate from the 3 percent rate in the October-December period.

Despite the slowdown in job growth last month, several economists said it was not the start of a new trend and were hopeful the labor market would not see a repeat of the spring of 2010 and 2011 when job creation faltered.

"This is not the new run rate for payrolls, but it will feed fears that will work to the advantage of the Fed because it will keep rates lower," said Eric Green, chief economist at TD Securities in New York.

"This will fade because we have had this adjustment for the seasonal effects. What we do from here is we move back to 200,000 (jobs) in coming months."

Last month, the services sector added only 90,000, a sharp step back from February's 204,000 gain in payrolls. That was in stark contrast with a survey on the services sector, showing a relatively strong increase in employment.

Retail employment fell dropped 33,800 after falling 28,600 the prior month.

"It's puzzling, I don't think it will continue because the reports from retailers have generally been upbeat. I struggle to understand why these numbers would be so negative," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Construction hiring fell 7,000, the second straight monthly decline. Temporary help, a harbinger of future hiring, dropped 7,500. That was first decline since June and followed a 54,900 rise in February.

Government employment edged down 1,000 after rising 7,000 in February.

(Additional reporting by Laura MacInnis, Editing by Neil Stempleman)

Drilling fees pay for new national forest lands

Offshore drilling fees are financing the purchase of $41.6 million worth of new national forest lands in 15 states.

Agriculture Secretary Tom Vilsack said Thursday the 28 different purchases from North Carolina to Oregon will protect clean water and fish and wildlife habitat, absorb private inholdings within wilderness areas, and support outdoor recreation spending that contributes $14.5 billion annually to the economy.

The purchases from willing sellers represent about 20,000 acres, which were chosen from 68 applications.

The money comes from the Land and Water Conservation Fund, created in 1964. Congress taps mitigation fees paid by companies drilling for offshore oil and gas to finance the fund year to year. The fund is capped at $900 million a year. Other federal agencies also use it.

Projects are typically proposed by local organizations and evaluated by the U.S. Forest Service. Purchases often are arranged with help from organizations like the Trust for Public Lands and Nature conservancy.

In California, Trust for Public Lands arranged the purchase of the Fleming Ranch for $1.5 million to add to the San Bernardino National Forest.

The 1,288 acres has been used as a retreat by the Fleming family since the early 1900s, and is surrounded by the national forest, said Brent Handley, who oversees acquisitions for the trust. The property abuts the Pacific Crest Trail and the San Jacinto Wilderness, and is covered with oak, pine and Douglas fir. The Forest Service said it planned to do thinning projects to reduce fire danger and promote carbon sequestration in the trees.

The fund is paying $1.4 million to complete the purchase of 1,481 acres previously marketed for vacation home sites along the Imnaha River in northeastern Oregon and add them to the Hells Canyon National Recreation Area on the Wallowa-Whitman National Forest.

The transaction completes the sale to the Forest Service of 6,695 acres the Nature Conservancy bought in 2008 from the Gazelle Land and Timber Co., said conservancy spokesman Stephen Anderson. Since 2008, the land has been open to the public for fishing along the Imnaha River, and they accounted for 35 percent of the spring chinook caught in the river in 2009.

Nokia town faces dim future as jobs shift to Asia

SALO, Finland (AP) — Tomi Marjuaho repaired mobile phones for 10 years in the town of Salo in southern Finland, where Nokia, the world's top cell phone-maker, set up its wireless operations in the 1980s.

He took a severance package in 2010, as Nokia started hitting hard times, and has not found work since.

"I was the breadwinner in the family, and now it's difficult making ends meet," the 39-year-old said, at the local metal workers union club which is used by the town's unemployed as a meeting place. "It's the same story for so many people I know from Nokia days."

Salo — along with other Finnish towns inextricably linked to Nokia — is facing an uncertain future as Finland's most famous corporation shifts its mobile phone assembly to Asia.

Squeezed by fierce competition from Apple Inc.'s iPhone, Samsung Electronics and cheaper brands running Google Inc.'s popular Android software, Nokia has been forced to slash costs, primarily affecting its operations in Europe.

Nokia has already closed plants in Germany, Hungary and Romania; and now it's the turn of the Finnish assembly plant. Some 1,000 of the 3,500 jobs in Salo — which until recently was Nokia's flagship assembly hub — are being cut this year. The once-thriving technological center has already become a town of dusty, empty storefronts.

"The latest layoffs will hit us hard," said Salo's mayor, Antti Rantakokko.

He has a shiny office in a glass-plate and metal building that opened four months ago, partly paid for by Nokia's local taxes, which accounted for 95 percent of the town's corporate tax income that peaked at €60 million ($78.85 million) in 2010.

"Nokia has been a status symbol for us, but more than that it has been a major source of income," Rantakokko said.

The company began as a paper-maker in the 1890s, and later made rubber products, cables and televisions before it came to Salo — a center for Finland's electronics industry since the 1920s — in 1983.

Nokia formed an alliance with a local radio and TV manufacturer, which led to the formation of Nokia Mobile Phones in 1989. Two years later, the company produced its first cell phone.

Steered by chief executive Jorma Ollila, Nokia became the world's top cell phone maker in 1998 when it overtook Motorola Inc. in terms of sales — a major source of pride for a country that had struggled to rebuild itself after fending off Soviet invasion during two wars against Stalin's Red Army.

Nokia became Finland's largest firm, overtaking the paper and wood industry as an export earner and provided work for thousands. In 2007, it paid out a record €1.2 billion ($1.57 billion) in corporate taxes to the government.

Nokia reached 40 percent global market share in 2008. However, sales quickly started to lag as the company suffered under the onslaught of inventive mobile technologies from the U.S., the world's biggest wireless market.

Profits swung to losses and the struggling company's tax payment dipped to some €2 million last year.

"There's no denying it has been a great shock to the government, but there's not much they can do," said Jyrki Ali-Yrkko, from the Research Institute of the Finnish Economy.

Nokia's importance to the vulnerable, export-dependent economy was illustrated by the flood of aid the government swiftly earmarked to regions hit by the company's cutbacks.

Finnish President Sauli Niinisto, who hails from Salo, visited Nokia's plant here on March 20 in a display of support for the laid-off workers.

"We won't abandon our friends and we won't give up," Niinisto told reporters.

To the dismay of many Finns, Nokia has gradually loosened its ties to its home nation.

It remains headquartered in Espoo, outside Helsinki, but in 2010, it appointed a non-Finn to head the company for the first time when it named Canadian Stephen Elop as chief executive. That led to a major strategy shift last year as it joined up with Microsoft Corp., Elop's former employer, to replace Nokia's platforms with Windows software in its cell phones.

Nokia still employs 12,000 people in Finland, one-fifth of its global work force, and the company will maintain research and development, production planning and smartphone customization for corporate clients in Salo and two other plants in Finland, Nokia spokesman James Etheridge said.

"Finland has been and will continue to be critical to our success. The majority of the Windows Phone engineering and development team is in Finland," Etheridge said.

Nonetheless, Nokia has stuck to its decision to move all assembly jobs to its factories in Asia, where it has two plants in China, and one each in South Korea and India.

Neil Mawston, from Strategy Analytics in London, said Nokia was one of the last big cell phone makers to shift assembly to Asia from Europe, following in the footsteps of Samsung, Motorola, and Sony Ericsson.

"It's the way things are heading right now, doing production in developing markets where there is the biggest pool of users on the planet, and R&D in developed markets," Mawston said Thursday. "Nokia has a good history of designing mobile phones in Finland for the past 30 years, so to continue to do that makes sense."

In 2008 Nokia employed 5,000 people in Salo — nearly 10 percent of the population — and provided work for 2,000 others among those in the IT industry who supplied it with components.

Mayor Rantakokko expects this year's corporate taxes to drop to €14 million, mostly because of Nokia's decline.

Still, he is hopeful. The government has provided the municipality with an extra €5 million over two years to deal with the impact of Nokia's downsizing.

"The layoffs are a bitter blow but we can't let it get us down," Rantakokko said. "Nokia will still have 2,500 workers here and will remain important to us."

"There is a technical pool out there, soon out of work, and the challenge will be to find a use for it," Rantakokko said.