U.S. Postal Service lost $707 mln in 2nd quarter

By Ayesha Rascoe

WASHINGTON, May 7 (Reuters) - The U.S. Postal Service lost $707 million in its fiscal second quarter because of a slowing U.S. economy and a decline in mail volume, it said on Wednesday.

Mail volume fell to 51.3 billion pieces for the quarter ended March 31, a 3.3 percent drop from a year earlier, the Postal Service said.

"Weakness in the housing and credit markets, both of which are heavy users of mail, are leading the declines in mail volume," Postmaster General John Potter said in a statement.

If the trend continues, 2008 will be the seventh year that total U.S. mail volume has declined in the last 50 years, and could be largest decline since 2002.

Although volume may rebound with the economy, Potter said the Postal Service must hasten structural and procedural changes it is making to remain economically viable.

Despite the drop in mail volume, revenue rose 3.2 percent to $18.9 billion in second quarter, reflecting last year's price adjustments. Higher fuel costs, however, pushed expenses in the second quarter up 0.3 percent to $19.6 billion.

Overall during the first half of its fiscal year, the service said it generated $39.3 billion in revenue, while reporting a net loss of $35 million. The service reported a fiscal first-quarter profit of $672 million.

The Postal Service has cut costs and increased efficiency, reducing its work hours by more than 18 million during first two quarters of 2008 compared with same period in 2007.