(Reuters) – The number of Americans filing new claims for unemployment aid hit a five-year low last week and residential construction surged in December, the latest signs that the U.S. economic recovery remains on track.

The reports on Thursday showed the economy was weathering an uncertain fiscal environment surprisingly well. Still, growth in the fourth quarter was likely subdued with only a modest pick-up expected in the first three months of this year.

“While growth has been slow, the damage done from the uncertainty surrounding the fiscal cliff was not sufficient to topple the recovery,” said Millan Mulraine, a senior economist at TD Securities in New York.

The fiscal cliff refers to a wave of deep government spending cuts and tax increases, part of which was avoided after a last-minute agreement by U.S. lawmakers. A fight over raising the government’s borrowing limit looms.

Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said. It was the largest weekly drop since February 2010 and ended four straight weeks of increases.

While problems adjusting the data for seasonal fluctuations might have exaggerated the decline, economists said the report still suggested an improvement in sluggish labor market conditions and the economy as a whole.

“Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year,” said John Ryding, chief economist at RDQ Economics in New York.

A separate report from the Commerce Department showed housing starts jumped 12.1 percent last month to their highest level since June 2008. Permits for future home construction were also the highest in about 4-1/2 years.

Stocks on Wall Street ended higher on the fairly upbeat jobs and housing data, with the broad Standard & Poor’s 500 index hitting a five-year high. Commodity prices also firmed, but U.S. government bond prices slumped.

The dollar rallied to a 2-1/2-year high against the yen.

HOUSING GAINING TRACTION

Though warm weather likely helped, the data was confirmation of the improving housing market tone, and home building made gains across all four regions. Groundbreaking also increased for both single-family homes and multi-family units.

Builders started 780,000 houses in 2012. While still low by historical standards, it was the third straight year of gains in home construction. Housing is no longer a drag on the economy and residential construction is expected to have contributed to growth last year for the first time since 2005.

“The housing recovery has steam. Interest rates are rock-bottom low, inventories of new and existing homes are lean, and the economy is creating jobs,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.

Newport said they expected starts to rise to 970,000 this year. The reports came on the heels of data this week showing solid retail sales and manufacturing growth in December.

But weak exports, a slow pace of inventory accumulation and the reversal of a surge in defense spending probably slowed growth to below a 2 percent annual pace in the fourth quarter.

In a reminder that the outlook for the economy remained shaky, a third report showed factory activity in the U.S. mid-Atlantic region contracted this month as new orders tumbled.

The Philadelphia Federal Reserve Bank said its business activity index fell to -5.8 from 4.6 in December. A reading below zero indicates contraction in manufacturing in eastern Pennsylvania, southern New Jersey and Delaware.

“Manufacturing has slowed but it’s still growing. I’m not going to read too much into this until I see other regional surveys,” said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.

The claims data covered the survey week for the January data for the closely watched nonfarm payrolls report. The four-week moving average of new jobless claims, a better measure of labor market trends, fell 6,750 to 359,250, suggesting some improvement in labor market conditions.

Job growth has been gradual, with employers adding 155,000 new positions in December. The unemployment rate held steady at 7.8 percent last month. High jobless is likely to keep the Federal Reserve on an expansionary monetary policy path.

Atlanta Fed President Dennis Lockhart said on Thursday the Federal Reserve will very likely need to continue its large-scale asset purchases into the second half of this year.

(Additional reporting by Jason Lange in Washington and Richard Leong in New York, editing by Chizu Nomiyama)

Chemical producers abandoned the U.S. in droves. Cheap natural gas is luring them back.

• By Kevin Bullis on January 9, 2013

People predicting a manufacturing renaissance in the United States usually imagine whirring robots or advanced factories turning out wind turbines and solar panels. The real American edge might be in something entirely more mundane: cheap starting materials for plastic bottles and plastic bags.

The plummeting price of natural gas, which can be used to make a vast number of products, including tires, carpet, antifreeze, lubricants, cloth, and many types of plastic, is luring key industries to the United States. Just five years ago, natural gas prices were so high that some chemicals manufacturers were shutting down operations here. Now the ability to access natural gas trapped in shale rock formations, using technologies such as hydraulic fracturing and horizontal drilling, has led to a surge in natural gas supplies that have lowered American gas prices to a fraction of prices in other countries (see “King Natural Gas”).

Over the last 18 months, low U.S. gas prices have prompted plans for the construction of new chemical plants for the production of ethylene, ammonia for fertilizer, and diesel fuels. Dow Chemical, for example, plans to spend $4 billion to expand its U.S. chemicals production, including a new plant, due to open in 2017, in Freeport, Texas. The plant will make ethylene from the ethane found in many sources of natural gas. (The last such plant to be built in the U.S. was completed in 2001).

The impact of the resurgence is being felt most strongly in the $148 billion market for ethylene, the world’s most high-volume chemical, and the foundation for many other industries. It’s used to make bottles, toys, clothes, windows, pipes, carpet, tires, and many other products. Since ethylene is expensive to transport over long distances, a new ethylene plant is typically integrated with a facility to convert it into polyethylene for plastic bags or ethylene glycol for antifreeze.

In the U.S., it currently costs $300 to make a ton of ethylene, down steeply from $1,000 a few years ago. According to an analysis by PricewaterhouseCoopers, it currently costs $1,717 to make it in Asia, where plants depend on high-priced oil instead of natural gas, and $455 per ton to make ethylene in Saudi Arabia, using a combination of ethane and butane. (Ethylene plants are also being built in Qatar, which, like the U.S., has very cheap natural gas.)

Over the last two years, manufacturers have announced plans to add 10 million metric tons of ethylene capacity in the United States by 2019. Those plans represent a 10 percent increase in global ethylene production and also account for close to half the industry’s planned expansions in all countries.

The impact of cheap natural gas on manufacturing could extend beyond the production of various chemicals. Using natural gas as an energy source, rather than a chemical feedstock, could significantly lower costs for manufacturers who use a lot of energy, such as steel makers. (The steel industry is booming already for another natural gas-related reason—it’s supplying gas producers with pipes.) What’s more, cheap natural gas is prompting a shift away from petroleum based-fuels for trucking. Some companies are switching to trucks that burn natural gas directly. Eventually, even diesel trucks could be using fuel made from natural gas. The South African company Sasol plans to build a huge $14 billion plant in Louisiana partly to convert natural gas to diesel, potentially lowering fuel costs for conventional vehicles as well.

Overall, cheaper chemicals, cheaper steel, and cheaper transportation could make the U.S. a far more attractive place for a wide range of industries.

Michael Levi, a senior fellow at the Council on Foreign Relations, says energy doesn’t exceed 5 percent of costs in most industries—not enough to make gas prices decisive for most companies choosing where to build manufacturing plants. Where cheap energy could matter most, he says, is giving existing U.S. factories a new reason not to close or move offshore. “Cheap natural gas might do more to keep existing manufacturing plants open than it will to get people to build new ones,” says Levi.

Just how long U.S. natural gas will stay relatively cheap is not clear. For capital investments to pay off, say analysts, oil prices need to stay high, and gas prices low, for years to come. That means chemical makers could still shift their plans. For instance, Sasol will reassess the economics of its planned plant for converting natural gas into diesel in 2014 before it breaks ground.

The materials could make batteries that store more than twice as much energy as lithium-ion ones.

U.S. Census figures don’t lie: About 59 percent of retail businesses started by 2005 were gone by 2010. And in the eyewear business, the odds are especially difficult as one major company, Luxottica, dominates the manufacturing and distribution market. (The Italian company owns Oakley, Ray-Ban and Persol, along with Sears Optical and Lenscrafters.)

Profiled in October on “60 Minutes,” the company founded by Leonardo Del Vecchio is now the world’s largest eyewear company, worth an estimated $8.5 billion. Luxottica designs and retails more than 80 percent of the world’s major eyewear brands.

Yet two small New York City eyewear companies-one old, one new-have embraced their own individual principles to turn profit in an incredibly competitive market space. The upstart on the block, Warby Parker, opened in 2010. But it has already grown more than 500 percent after hitting its first year’s sales target for $95 eyewear in three weeks.

Then there’s Moscot, a family-run company now in its fourth generation. It has literally grown from Hyman Moscot’s single pushcart in 1899 to a worldwide symbol of Big Apple sophistication. Yet it’s done so without swank ad agencies or a big-name fashion photographer. (Co-president Wendy Simmons handles Moscot fashion shoots.)

Reuters spoke with executives at Warby Parker and Moscot to learn about practices and principles that led them to innovate and thrive while competing against such big company. Their perspectives shed light on how to win in a cramped retail sector.

Warby Parker: Lost glasses lead to a found vision

While backpacking in Thailand, future Warby Parker co-founder Dave Gilboa lost his glasses. Returning to the United States for a semester at the University of Pennsylvania’s Wharton School, he wasn’t sure how much it would cost to replace them. That’s when sticker shock hit: $700 for a new pair.

“I had just bought an iPhone 3G for $200,” Gilboa recalls. “It didn’t make any sense that a magical phone that did things nobody could’ve imagined cost $200, and these glasses that used the same basic technology for 800 years cost $700.”

Instead of swallowing his eyewear ire, Gilboa pondered like any good business student: Why did prescription glasses cost so much? That’s when he learned about Luxottica’s iron grip on the market. And with three Wharton classmates, he co-founded Warby Parker, bootstrapped out of a Penn campus apartment on a simple premise: What if you could do a nimble end-around past Luxottica and sell prescription eyewear online for $95 a pair?

Here’s what they discovered: Less than 1 percent of eyeglasses were being sold online. And here’s how they leaped into the breach: They developed a “virtual try-on” system that can take your photo though your computer, and let you model a frame, in as fast as a minute.

“We were excited by the idea of disrupting an industry that had been overcharging consumers for decades,” Gilboa says. “When we talk to other folks interested in entrepreneurship, we ask them to think about the frustrating parts of their own lives, identify those parts, and see if there’s a better way to do things. The best businesses solve problems, and we want to be active problem solvers.”

Moscot: A family frame of reference

Co-president Harvey Moscot grew up behind the counter of the family’s Orchard Street store in New York, alongside his uncles, grandfather and father. As early as age 8, he fitted screws into eyeglass frames.

“When we interact with customers, we try to make them feel like family,” says Moscot, an optometrist who officially joined the business in 1986. “That’s the only frame of reference that I’m comfortable with.”

The twin themes of family and generations permeate every aspect of Moscot’s identity. Go to their website, and you’ll see a “Celebrating Living/History” gallery. It features Moscot wearers who run family businesses spanning four or more generations.

“Family is part of our DNA,” says Simmons. “Some employees have been here for 40 years, and if you question people across the board, they’ll tell you it percolates through the entire organization. It really changes everything we do. The brand is the people.”

The Warby Parker playbook: four friends, collaboration and a gutsy PR gamble

Many business experts will tell you it’s dumb to go into business with friends. Gilboa certainly heard his share of that at Wharton. “But we decided to ignore all of that,” he says, laughing. “And I definitely encourage people to do it. When you start a business, realize that you’ll spend 24 hours a day with these people, and it might be bizarre to make that commitment to someone who doesn’t know you well.”

Gilboa and his co-founders, Neil Blumenthal, Jeffrey Raider and Andrew Hunt, grew to value collaboration. Now ensconced in a Soho office, Warby Parker has no physical walls between departments. “We knocked them down,” Gilboa says. “We encourage people to collaborate, to be part of an open environment.”

That kind of team play led the foursome to invest part of their combined life savings on a big gamble early on. They contracted a top fashion PR firm, Bradbury Lewis, to help them get press. Soon they landed in GQ and Vogue, taking Warby Parker from unknown to renowned at warp speed.

Warby Parker doesn’t release official sales figures, but it gives away one pair of glasses for everyone it sells-and to date, it’s given away more than 300,000 pair.

Through all the founders’ success, “our friendship was the most important thing,” Gilboa says. And we’re all still great friends.”

The Moscot playbook: Hands on, hearts and guts, humor

Moscot expects to sell approximately 50,000 pairs of glasses in 2012 in 41 countries. So as a doctor and successful executive, Harvey Moscot is well past the point of waiting on customers.

Yet every Saturday, you’ll find him on the floor of Moscot’s retail shops, doing exactly that.

Moscot says it’s how he stays in touch with what consumers like and how they want to be treated. As he puts it, “You’ve got to have boots on the ground.”

That approach translates to how Moscot handles everything from fashion photo shoots tomarketing campaigns. It’s all done in house, with input from everyone in the company.

“Harvey and I run the business on our hearts and our guts,” Simmons says. “So many business owners get wrapped up in what books or consultants tell them they should do. You either look at what everyone else is doing, or you put your head down, put out a great product, provide great customer service and move forward.”

And if you can laugh, and make customers laugh, so much the better. One Moscot brainstorming session for a metal frame line caused Simmons to blurt out the phrase “heavy metal.” That led to a photo shoot at a Brooklyn heavy metal bar, Duff’s, with artists such as Alex Skolnick (Testament), Chris Adler (Lamb of God) and Jesse Leach (Killswitch), all recruited via Facebook.

“It was a bad joke that became a good idea,” Simmons says. “Humor, fashion and history are part of everything we do.”

Postscript: Giving back as a major mission

Companies large and small love to put on dog-and-pony shows about giving and community involvement. Yet for Warby Parker and Moscot, charitable work defines them almost as much as their eyewear.

Warby Parker’s Blumenthal was a former director of VisionSpring, which gave glasses to people living on less than $4 a day. He was a driving force behind the company’s policy, from the outset, to give away one pair of glasses through VisionSpring for each one sold.

And if you can’t find Harvey Moscot at a retail store or in his office, chances are he’s giving eye exams to underprivileged kids through the Boys’ Club of New York, or tending to the Moscot Mobileyes Foundation, which seeks to eliminate financial and logistical barriers to quality medical eye care.

While Warby Parker wants to make money, “We also want to be an inspiration to other small businesses,” Gilboa says.

And as for Harvey Moscot, the foundation work is how he thanks the city that put his company on the map: “As a New York company, we’re really indebted to New York.”

(The author is a Reuters contributor)

(Editing by John Peabody, Ryan McCarthy and Brian Tracey)

Economist Ricardo Hausmann says the U.S. has a chance to invent the manufacturing technology of tomorrow.

• By Antonio Regalado on January 4, 2013

The production tax credit doesn’t promote radical innovation, but maybe that’s okay.

The country’s domestic market will also see continued growth, fueled by a boom in mobile and cloud computing.

By Phil Muncaster on January 7, 2013

According to the 12-year cycle of the Chinese zodiac, those born in the year of the Dragon are blessed with power and good fortune. 2012 was certainly an auspicious year for the country’s technology industry, as China’s rise to become the planet’s preëminent technology producer and consumer continued apace.

The past 12 months saw China reach and surpass milestones across the technology firmament. For example, by most reckonings, it has already overtaken the United States as the world’s biggest smartphone market. Chinaalso passed the magic figure of one billion mobile subscribers early in the year. The country now has over 500 million  Internet users, according to the government-affiliated China Internet Network Information Center.

So what can we expect from China and its growing rank of world-class technology companies in 2013, as it enters the year of the Snake?

Needless to say, the Chinese government is keen to keep pushing growth forward, and it has a plan to increase the country’s online population to 800 million by 2015, and to expand Web sales to reach to 18 trillion yuan ($2.9 trillion) by 2015—taking the top spot in global e-commerce.

Gartner is predicting enterprise IT spending alone in China will grow from $117.8 billion in 2013 to $172.4 billion by 2016, representing a compound annual growth rate of 8 percent, compared to a global growth rate of just 3 percent over the same period. As elsewhere in the world, cloud, mobile, and hardware and software virtualization will be the main spurs to growth.

When it comes to cloud computing, China will continue to benefit from huge regional government investments and the fact that most organizations are unencumbered by legacy IT systems, enabling them to leap straight to cutting-edge deployments. Although only 10 percent of conventional systems in the country are currently virtualized, this will jump to 70 percent by 2016, according to Gartner.

IDC meanwhile forecasts that despite suffering a four-point dip in annual growth in 2013 to 10 percent, due to falling demand from Europe and elsewhere, China will lead the charge to account for over a quarter of spending from emerging markets, including Latin America and Eastern Europe.

In its new 2013 predictions report, IDC writes: “As an example of this impact, we are predicting that China’s ZTE will leap from fourth to third position in smartphone shipments—riding an astounding 80 percent plus growth rate and driven in large part by its emerging market roots and focus on low-cost smartphones.”

Chinese firms are likely to have the biggest impact in the mobile and PC spaces globally in 2013. Gartner predicts that both ZTE and its Shenzhen neighbor Huawei will continue their rise up the mobile handset rankings, and will be joined in the top five by Lenovo, which this year surpassed HP for the first time to become the world’s number one PC vendor.

These three in particular will benefit from success in their domestic market in the low to mid-end, where most growth will come as China’s huge pool of feature phone users gradually transition to the smartphone age. It’s an area where Lenovo in particular has flourished. Gartner expects the company to reach the top spot in China, at least in terms of unit sales, by next year.

Canalys analyst Nicole Peng believes that many Chinese smartphone vendors—“large and more resourceful ones and small or even non-brands”—will push for overseas growth in 2013.

“Vendors such as Gionee and K-Touch have already been using their existing feature phone channels for smart phones and Yulong has managed to reach the carrier channel in the U.S. with their low-cost LTE device shipping with MetroPCS,” she says. “Chipset vendors like Qualcomm and [Taiwan-based] MediaTek are providing technical, market, and business support to more Chinese vendors, allowing them to expand internationally, particularly into emerging markets.”

Despite success in the handset space, ZTE and Huawei will likely continue to struggle in the international telecom equipment market due to national security concerns. The U.S. and Australia have blocked the firms from competing in their domestic markets, while Canada, India, and even the U.K. are investigating the firms’ links to the Chinese government.

Experts also argue that the unique, highly regulated and semi-closed nature of the Chinese Internet makes it difficult for new local Web firms to survive and thrive to the point where they can make the jump into overseas expansion. To an extent that’s going to remain true in 2013, but some of China’s biggest and more innovative Web platform providers are likely to begin dipping their toes in international waters.

However, Google rival Baidu, whose Q3 net income surged 60 percent compared to the same period in 2011, recently added Sydney, Australia, to its international offices (along with Hong Kong, Taiwan, London, and San Francisco). The past year has seen it introduce localized services in Vietnam, Thailand, and Egypt with mixed results, although it has already announced a Singapore-based research lab on natural language processing for Thai and Vietnamese and is currently building a new international headquarters in Shenzhen.

Alibaba’s e-commerce platform, Taobao, often dubbed the eBay of China, was recently taken off the U.S. government’s Notorious Markets blacklist of sites which play host to pirated content, which will help its expansion efforts. The firm has hinted that its recent move into Hong Kong and Taiwan could be followed by modest growth elsewhere.

Web giant Tencent is also likely to increase its international user numbers for the Whatsapp-like WeChat (Weixin) service. Most of its 200 million users—more than double its numbers of users from six months ago—are still China-based, but the firm has said this is rapidly changing, and it has just released a BlackBerry app which will appeal to users in overseas markets like Indonesia.

Frost & Sullivan analyst Peng Zhai believes that China’s Web giants will struggle to succeed in mature overseas markets. “Baidu is the number one Chinese Internet company in size and revenue. It has the technology and a mature business model and maybe it can enter other countries successfully, but in the U.S. and Europe, it will be difficult with Google already there,” he says. “Taobao could be successful, but credibility is important, and it isn’t well known outside of China. Plus in the U.S. and Europe, you have eBay and Amazon, which makes it tough to compete.”

However, the Chinese tech market is still one of the fastest-growing IT markets in the world, according to Forrester. It accounts for $105 billion of annual technology spending, which places it third after the U.S. and Japan, but per-capita IT spending in China is only 4 percent of Japan’s and 3 percent of that in the U.S., pointing to huge long-term potential. So while commentators often focus on the potentially disruptive impact of Chinese tech vendors overseas, as the country’s IT appetite grows, the opportunities for foreign firms to sell their goods and services into the People’s Republic could become even more compelling.

For American cleantech companies, there’s just one country that matters most: China. After years of massive growth that took a heavy toll on the environment and natural resources, China now has an ambitious plan to tackle its energy needs by developing clean energy alternatives. Still, for so-called “cleantech” companies, accessing the market and setting up shop there is no easy task.

That’s where Fred Chang comes in. A senior China advisor to Cleantech Group, a San Francisco-based consulting group, as well as a long-time investor in Asia’s cleantech industry, Chang compares himself to the Sherpa, a Tibetan tribe that helps foreign mountaineers conquer Everest. With the right partners, Chang said, the rewards for foreign cleantech companies in China are big.

According to a report by Bloomberg New Energy Finance, new clean energy investment in China has surged in the second and third quarter this year, surpassing the U.S. by $7.9 and $7.5 billion respectively.

“The Chinese public is not criticizing the government for supporting cleantech companies; they’re encouraging it to do more,” Chang said. The Obama administration has been under fire for some high profile failures of federally supported cleantech ventures, such as solar company Solyndra and car battery maker A123.

In its recent five-year plan, China aims to cut its carbon dioxide emission per unit of GDP by 17% by 2015. The plan also has a focus on the development of what some observers call the “new magic seven,” namely seven “emerging strategic industries”, including biotechnology, high-end manufacturing and new energy, which are deemed to be the driver of China’s future growth.

“The government knows it’s (environmental) problems, and the policies are clear and consistent,” Chang said. “It won’t be like in the U.S, where the Congress has to renew some programs every few years.”

For the last two years, Chang’s firm has helped American cleantech companies come to China by providing week-long tours aimed to help entrepreneurs build contacts, learn about the business landscape and find investments.

“China is a market where there’s a desire to move fast,” because of its urgent sustainability issues, said Richard Youngman, Europe and Asia managing director of Cleantech Group. “But there’s a tech gap between what’s available locally and what they want to achieve.” And that’s the gap the Cleantech Group hopes to bridge.

“It’s the most efficient business trip I’ve been on,” said Frank Magnotti, one of the eight CEOs (three of whom are from Europe, five are from the U.S.) that took the tour last month. His New Jersey-based company, Fluitec, develops technology to monitor and control the quality of lubricants in rotating machinery, which are widely used in power plants, wind mills and steel refineries. Fluitec already has an office in China, but its main customers are foreign enterprises operating there. “As an entry point, it’s easier, but you can’t just rely on foreign companies,” Magnotti said, adding that during the trip, the group met with lawyers and accountants, who helped him understand more about doing business in China. He also met with potential customers and interested investors.

Atmosphere Recovery is another company that looks to grow their existing operation in China. The Minnesota-based venture builds gas analyzer systems to help industrial companies become more energy efficient.

Ronald Rich, president of Atmosphere Recovery, said that the biggest challenge the company faces is that the demand for their products has outpaced their production capacity. “We don’t actively market anymore,” Rich said. “Sinopec (China’s largest oil company) said they would buy 75 a year, we make 5 a month.”

Rich said he didn’t expect the market to be so big when he first entered China in 2006; but last year, the company sold nearly half of its equipment there. Now he hopes to quadruple the company’s production capacity, as he begins to tap into the Chinese oil and gas industry, which apparently is more willing to try new technologies than its American counterpart. “U.S. companies just don’t take risk like that,” Rich said, as they’re enjoying historic prosperity and thus have no incentives to invest in technology upgrades.

Another challenge for Atmosphere Recovery is the lack of good financing options in the U.S., said Rich. “Most of the cleantech investment in mid 2000s didn’t pay out the way the venture capitalists hoped they would,” he said, explaining why he finds investing deals today less attractive. While still preferring an American investor, Rich said he’d be happy to team up with a Chinese one if the offer suits.

According to a report by Ernst and Young, public cleantech companies around the world have witnessed a 41 percent drop in market capitalization and a 229% decline in net income this year. In a Deloitte survey of 440 venture capitalists globally, those from the U.S. had shown the least confidence in cleantech investment.

“There’s a cooling down of private and public capital in the U.S. (that’s available to the industry),” Youngman of Cleantech Group said. “There’re more and more western cleantech companies who are finding life quite hard.”

“Whenever there’s a chain break between capital and technology innovation on the market, the government has to be the first angel,” said Wan Gang, secretary of China’s Ministry of Science and Technology in a speech in 2010, affirming the government’s support for those industries.

“It’s not just some political movement; it makes economic sense for corporations too, because they have to compete on tech solutions to make money,” said Chang. “All those things are the opposite of what’s going on elsewhere in the world that makes it welcoming for foreign companies to come to China.”

(The author is a Reuters contributor)

(Editing by John Peabody, Ryan McCarthy and Brian Tracey)

(Reuters) – Few things encapsulate Portugal better than its bakeries, where people from all walks of life mingle over coffee and cake. So when a whole new chain emerges in the depths of an economic crisis, it sends a glimmer of hope.

“It’s almost like a hideout from the crisis. I was really happy to learn that they are opening more stores, it dispels the gloom a bit,” said Ana Justina, a freelance designer and a regular at two of the 12 cosy outlets of A Padaria Portuguesa (The Portuguese Bakery) in Lisbon.

With unemployment at record highs, empty stores and “for rent” signs on cafes are far more common than prospering new businesses after a 40 percent jump in insolvencies this year.

Still, the bakery chain is just one example of how a bold business concept can defy the worst economic slump since the 1970s, a smothering tax burden imposed under an international bailout, record-low business morale and a lack of bank loans.

Although not numerous, other startups in areas from farming to computer technologies and biomedicine, including in the all-important export sector, are jumping into action.

“There’s an urge to change and do business better,” said Daniela Couto, co-founder of Cell2B biomedical startup that raised about 1 million euros earlier this year, mostly from private investors in Portugal, Spain and the United States.

Cell2B is preparing for clinical trials of promising cell therapies aimed at eliminating transplant rejection in humans, after which the founders do not rule out a share offering.

Nuno Carvalho, 34-year-old CEO of The Portuguese Bakery, says a crisis is little hindrance to a growth-oriented concept.

“We are proof that by being lean and mean and responsibly managing your resources one can have a healthy business and expand, even under these circumstances,” he said.

“And the crisis presents its opportunities, like much cheaper leases and available skilled labor,” he said.

The stores with tiled floors are modern and clean yet distinctively Portuguese, while smiling staff are worlds away from the sour-faced vendors at many typical bakeries.

Set up with just one store in late 2010 by five members of the same family, it plans to invest 2 million euros ($2.6 million) from its cash flow next year into seven new outlets in greater Lisbon.

Carvalho says it is the first chain of street cafe-bakeries in Portugal and envisages expanding at home and possibly abroad. He says he has turned down franchise requests from as far as Australia in favor of maintaining control of the brand.

CHALLENGING OLD WAYS

The debt crisis has hammered the economy, depriving it of easy bank loans and state funding, but it is also helping to drive change, forcing entrepreneurs to come up with clever, detailed business plans to be noticed by precious few investors, who typically pick just 1-5 deals from 100 proposals.

These ideas are slowly beginning to challenge the traditional way of doing business in Portugal that is often criticized as too near-sighted and lacking ambition.

“Too many companies that are being set up still think small and are not sustainable enough,” said Paulo Andrez, president of the European Trade Association of Business Angels and Seed Funds which invest in promising startups.

Local angels’ groups and venture capital investors say they have a total of 350 million euros to invest in startups.

“It’s better to create fewer but more sustainable firms that think big in terms of growth. In northern Europe the proximity of countries like Belgium, the Netherlands and France makes most entrepreneurs think global from day one,” Andrez said.

He cites a Portuguese case to show how it should be done; United Resins opened a factory in 2010 backed by angel investors to make resin derivatives used in printing inks and exported all of its output worth 25 million euros last year.

As tax hikes and spending cuts under the bailout austerity program depress domestic demand, the country is betting on exports to ride out the crisis and return to growth in 2014. Exports have grown, but still remain below the EU average.

Small and medium-sized businesses account for almost three-quarters of jobs and 55 percent of company revenues, but their overall quality, and lifespan, leaves a lot to be desired.

The latest Eurostat data show Portugal had the third highest “birth rate” of company startups in Western Europe after France and Holland in 2009, before the sovereign debt crisis, more than a third higher than neighboring Spain or Ireland. But the survival rate, at about half, was the lowest.

The 2011 Global Entrepreneurship Monitor showed entrepreneurial intentions still exceed those of most EU states, double the levels seen in fellow bailout receiver Ireland that boasts low company taxes. Perceived opportunities lag behind Ireland’s but exceed those in Greece and Spain.

Cell2B’s Couto says defter, young entrepreneurs are emerging. “When I returned in 2011 after a two-year stint in the United States, there were many more companies being set up, more bright business plans vying for financing at incubators.”

NOT A TECH HUB, BUT INVESTORS KEEP COMING

Startup incubators, often sponsored by municipalities and mainly aimed at tech companies needing little initial investment and promising good returns, have mushroomed in the capital and university centers across Portugal. They offer startups cheap office space and free tax and legal consultancy.

“We are not a startup hub like London and Berlin. But when investors visit from abroad, they always pick one to invest in. They are amazed by the technical quality, the programmers and engineers,” said Joao Vasconcelos, head of the Startup Lisboa incubator that homes 40 startups, resembling a busy beehive.

It is yet to create a breakthrough computer-based service like Sweden-founded Skype or a viral game like Finland’s Angry Birds, but Portugal is no stranger to world-class technological innovation.

The world’s first prepaid mobile phones were launched here, as were single, country-wide electronic motorway tolls.

“Portugal is a demanding, sophisticated market, an early adopter. So if we test a product here and it sells, it has a high probability of success globally,” said Francisco Banha, head of the FNABA national business angels federation.

Britain’s Seedcamp startup accelerator fund has invested in four tech companies under Vasconcelos’ tutelage – from golf performance analytics to simple online tax refund claims, naming them among “70 of Europe’s most promising startups”.

Some foreigners prefer to do it themselves.

Nick Coutts is co-founder of the Fitness Hut gym chain whose modest fees have lured thousands of clients. It is betting on a low-cost model, saving on frills like saunas, pools and reception staff, who are replaced with keypad entry.

“I think it’s a very easy story to sell – a low-cost gym is going to work in a recessive economy. There are people with money still prepared to back startups if they have the right concept that fits into what’s going on,” the Briton said.

The company opened the first gym in Lisbon in October 2011, and now has four working clubs with 15,000 clients, including in Porto, with 2012 revenues at 3.2 million euros. It plans to reach 20 gyms in Portugal and expand to Brazil.

Is doing business in Portugal very painful? Not really.

“Bureaucracy here is challenging, especially in terms of licensing needed to get things moving at a reasonable speed, but when you get some momentum, it’s like most countries,” he said.

Portugal has simplified the process of setting up companies in recent years, but a lot more red tape is left. The government is aware it needs to cut it to return the country to growth.

“To cross this valley of death we need a great number of firms, especially innovative and export-oriented. The government is doing its best to put an end to bureaucracy, simplify the licensing to make Portugal a startup-friendly nation,” State Secretary for Entrepreneurship Carlos Oliveira told Reuters.

Whether this will be done remains to be seen, but Oliveira’s credentials in the startup world are solid – he was behind the mobile tech company Mobicomp set up in 2000 with a capital of 5,000 euros that later went international and was sold to Microsoft in 2008, reportedly for millions.

At the peak of the austerity drive he arranged social security breaks for firms hiring jobless university graduates, tax discounts for 2013 angel investment and set up a venture capital vehicle to invest 20 million euros a year in startups.

Another key area where Oliveira wants to promote change is higher education, with a greater focus on entrepreneurship studies and implementing business ideas.

“I graduated in management knowing how IBM and Kodak worked, but not how to set up and run a small business in Portugal, which is where most end up working,” said Filipe Botto, CEO and co-founder of another company coached by Startup Lisboa. The incubator already runs workshops for university students.

“We’d have been better off studying that, to have tools to overcome this crisis, to create our own jobs,” said Botto – an investment banker on an entrepreneurial sabbatical to launch his Yonest company. He plans to produce “honest” natural handmade Greek yogurt to occupy an unfilled market niche in Portugal.

“Some think Greece and Portugal in one sentence spell too much crisis,” he laughs. “To me it’s an anti-crisis recipe.” ($1 = 0.7628 euros)

(Editing by Philippa Fletcher)

(Reuters) – U.S. small business employment rebounded in December from a storm-related slump, the latest suggestion that job growth probably picked up last month.

The National Federation of Independent Business said on Thursday the net change in employment per firm edged up to 0.03 after slipping to minus 0.04 in November.

It comes on the heels of the ADP National Employment Report which showed the private sector added 215,000 jobs in December after a gain of 148,000 in November. While the ADP report tends to exaggerate employment in December, it has raised the risk of a better nonfarm payrolls number.

The government is expected to report on Friday that employers added 150,000 jobs in December, according to a Reuters survey of economists, up slightly from 146,000 in November.

The NFIB said there were job gains in manufacturing, transportation, professional services, finance, insurance and real estate sectors. There were large declines in construction.

The NFIB survey found that 11 percent of small business owners throughout the country added an average of 2.9 workers per firm over the past few months – up a point from the prior month.

The share of business owners reducing employment edged up a percentage point to 13 percent.

The share of business owners reporting hard-to-fill job openings fell to 16 percent from 17 percent. That suggests little change in the unemployment rate in December after it fell 0.2 percentage point to 7.7 percent in November.

(Reporting By Lucia Mutikani; Editing by Nick Zieminski)