CHICAGO – Discount clothing chain Goody's Family Clothing will begin liquidating its stores on Friday as the retailer becomes one of the year's first victims of the worsening economy.

The move, which comes less than four months after the privately held retailer emerged from Chapter 11 bankruptcy protection, affects the Knoxville, Tenn.-based chain's 287 stores scattered throughout 20 Midwestern and Southern states, said Cathy Hershcopf, a partner at Cooley Godward Kronish LLP.

The firm is working with Goody's vendors and its parent, PGDYS Lending LLC.

It's uncertain what will happen to the company's 9,800 workers after the liquidation — being handled by a joint venture between Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC — is completed by the end of March. But without a last minute buyer or an investor to purchase high-performing stores, their job outlook is grim.

"I think every retailer experienced a great deal of pressure this holiday season because of the lack of consumer confidence," Hershcopf said. "But undercapitalized companies like Goody's experienced more pressure from their lenders and from their vendors."

Goody's filed for bankruptcy protection in June, saying at the time that the move would help it address "pressures from tightening credit markets, strain on merchandise flow and a sizable but isolated number of underperforming stores in the chain."

As part of its reorganization plan, the company closed and liquidated dozens of underperforming stores, shuttered a distribution center in Arkansas and a corporate office in New York. It also cut operating and corporate costs, ended its e-commerce business and an associated distribution center in Tennessee.

But that proved to be inadequate as shoppers tightened their belts amid the ongoing recession, causing a downright dismal holiday shopping period for retailers that usually bank on the Christmas spending to boost profits.

The 59-year-old retailer has now sought bankruptcy protection for a second time and executives with the company are speaking with competitors about whether they would like to purchase some of the chain's stores.

Goody's is owned by PGDYS Lending, which is managed by Prentice Capital Management.

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On the Net:

http://www.goodysonline.com

WASHINGTON (Reuters) – Politicians want American consumers to resume spending to pull the economy out of its tailspin, and the U.S. government is leading by example with a potential $1 trillion deficit in 2009 -- even before a massive stimulus plan.

The Congressional Budget Office is set to release its projections on Wednesday for the fiscal 2009 budget deficit and experts believe it will not just set a new record beyond the $455 billion set in 2008, but could hit $1 trillion as the economic recession saps federal revenues.

While that figure likely includes some of the impact of a $700 billion bailout package for the financial industry and U.S. automakers, it does not include any of economic stimulus measures Congress hopes to pass, which could cost another $775 billion over two years.

President-elect Barack Obama is contemplating large tax cuts to the tune of about $300 billion and potentially as much if not more in infrastructure projects and other spending to try to jolt the economy out of recession.

North Dakota Sen. Kent Conrad, chairman of the Senate Budget Committee, said that a $1 trillion deficit was not just a possibility for 2009, but that an average of $1 trillion could be added to the national debt annually over the next decade.

"We're on an unsustainable course," he said in an interview with Reuters, adding that he had not yet seen the CBO figures.

"It's obvious we have to have a recovery package," the North Dakota Democrat noted, but Congress must also address longer-term issues, such as the costs of the Medicare health care program and Social Security retirement system.

TOUGH CHOICES AHEAD

Obama said on Tuesday he expects to inherit a deficit approaching $1 trillion and his administration would have to make tough budget choices. But economists agree now is not the time for the country to tighten its belt.

"We don't want to lock ourselves into 30 years of budget deficits, but this crisis is so dangerous that it would be a mistake to adopt very, very conservative budget balancing policies in the middle of this," said Kenneth Rogoff, an economics professor at Harvard University.

Rogoff noted that the deficit would also swell from an expected steep dropoff in tax revenue and argued the U.S. economy could afford a large stimulus if necessary.

"No one quite knows how the stimulus is going to work and no one is even sure it will work," Rogoff said. "You certainly don't want to be tightening the budget into this recession if you don't have to."

Some Republicans and conservative Democrats have expressed concern that the stimulus package could bust the federal budget with new programs that will require funding for years to come.

"As the economy gets stronger, we're not going to need these programmatic initiatives," New Hampshire Sen. Judd Gregg, the ranking Republican on the Senate Budget Committee, said on CNBC.

To win over Republicans for the big stimulus package, the proposal Obama plans to offer Congress is expected to include tax breaks for individuals and businesses.

House Democratic leaders are pushing rules that would embrace the concept of tighter budget controls, but conservative Democrats want a commitment that new spending and tax cuts would be paid for elsewhere in the budget.

TREASURY TIPPING POINT

To finance the deficit, the government will need to issue an unprecedented amount of debt -- up to $2 trillion for fiscal 2009.

If investor appetite does not keep up with the flood of supply, yields on U.S. Treasury securities would rise, pushing up interest rates for a broad range of borrowers and blunting the benefits any stimulus plan would provide to the economy.

These concerns are already creeping into the market, with benchmark yields rising off record lows as the Treasury auctions a whopping $166 billion in securities this week.

But analysts say these worries may abate, particularly if the economy weakens further, driving more money into safe-haven Treasuries.

"There is plenty of demand for a borrowing program as large as contemplated by the (stimulus) proposals that are floating out there," said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey.

"That doesn't mean you can be complacent and just borrow indefinitely. If you were truly irresponsible on the fiscal front, it could be possible to overwhelm the demand and even before the recovery phase you could have a nasty interest rate response," he said.

(Editing by Gary Crosse)

NEW YORK (Reuters) – Alcoa Inc said on Tuesday it would slash more than 15,000 jobs, halve capital spending and sell four businesses as it reduces aluminum production in the face of the global economic downturn.

The largest U.S. aluminum producer said it imposed a global salary and hiring freeze as it seeks to cope with what Chief Executive Officer Klaus Kleinfeld called "extraordinary times."

The cuts, the third in as many months, come less than a week before Alcoa is scheduled to report its fourth-quarter results. Alcoa said it would take almost $1 billion in charges in the quarter. Analysts expect the company to post a 1-cent per-share loss, according to Reuters Estimates,.

In after-hours trading following the news, Alcoa's shares were down nearly 4 percent at $11.64.

"Alcoa is going to get hit by some really big metal price declines and the only way to fix it is to reduce output," said analyst Charles Bradford, of Bradford Research/Soleil. "I think they need to do more. That's the only thing you can do to get the price going."

Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland, said the cuts could help Alcoa in the long run.

"As demand dropped off in the fourth quarter of 2008, steel companies were quick to cut production. I think the market will reward them for taking this capacity off line and cutting staff. It's smart in this environment."

Alcoa said targeted reductions, curtailments and plant closures and consolidations, mostly in the United States and Europe, including Russia, would reduce its headcount by more than 13,500 employees or 13 percent of the worldwide workforce by the end of 2009. An additional 1,700 contractor positions also will be eliminated.

Also, smelting reductions of more than 135,000 tonnes per year will be implemented, resulting in reduction of total primary aluminum output by more than 750,000 tonnes, or 18 percent of annualized output. In November, Alcoa said it would cut 350,000 tonnes of production and in October it curtailed output at its 265,000-tonne smelter in Rockdale, Texas.

Production of alumina, which is refined from bauxite and smelted into aluminum, also will be reduced accordingly to a total of 1.5 million tonnes in response to market conditions, Alcoa said. Curtailments will be fully implemented by the end of the first quarter 2009.

Alcoa said total charges for the fourth quarter due to restructuring, impairment and other special charges are expected to be between $900 million and $950 million after tax, or $1.13 to $1.19 per share, of which about 80 percent is non-cash.

The restructuring and divestiture program is expected to save about $450 million before taxes on an annualized basis, it said. Capital expenditures in 2009 are projected to be down to $1.8 billion, a 50-percent decrease from 2008.

Alcoa said it also intends to divest four non-core downstream businesses: Electrical and Electronic Systems; Global Foil; Cast Auto Wheels; and Transportation Products Europe. The businesses had 2008 combined revenues of $1.8 billion and an estimated after-tax operating loss of about $105 million. Expected net proceeds for the divestitures are estimated to be approximately $100 million.

The price of aluminum has slumped some 50 percent since peaking at $3,380 per tonne last July as the global economic downturn has hit demand for the metal which is used for aircraft and auto bodies and products such as kitchen foil and beverage cans. On Tuesday, aluminum was selling for around $1,600 per tonne.

Alcoa's shares hit a 52-week high on the New York Stock Exchange of $44.76 in May 2008 and a 52-week low of $6.82 in November. It was the second-weakest performer in the Dow Jones Industrial Average during 2008.

(Reporting by Steve James with additional reporting by Nichola Groom; editing by Carol Bishopric)