Video of the Day:
Video of the Day:
First quarter corporate earnings statements were released throughout April. Here are the ones I caught as they were announced:
3M 1st-quarter profit slips 48%
Altria Group 1Q profit drops, but beats view
AMD posts deeper loss, shares fall
AmEx 1Q profit drops 63 percent
AT&T earnings fall
Boeing posts 50 pct decline in 1Q profit
CAT reports first loss since ’92, cuts forecast
Charles Schwab 1Q earnings fall 29 percent
Chevron 1Q profit falls 64 pct
Coca-Cola 1st-quarter profit falls
ConocoPhillips says profit down 80 percent
Delta posts $794 million 1Q loss
Dow Chemical 1Q profit drops 97 percent
DuPont 1Q profit falls, cuts outlook
EBay 1st-qtr profit, sales fall on weak economy
Exxon profit sinks on slumping oil demand
Gannett 1Q profit tumbles as ad declines deepen
GE Q1 earns fall 36 pct, hurt by finance
Kodak posts wider 1Q loss, suspends dividend
MasterCard 1Q profit falls 18 pct
Mattel posts wider loss in 1st quarter
Merck sees 57 percent drop in first-quarter profit
Morgan Stanley loses $578M in 1st quarter
New York Times posts quarterly loss
Nokia profit plunges 90 percent in Q1
Pfizer profit dips 2 percent, sales fall much more
Procter & Gamble profit falls as consumers cut back
Shell 1Q profit down 62 percent
Sony Ericsson posts loss, to cut 2,000 jobs
Southwest Airlines posts 1Q loss
Time-Warner post 1Q loss
Toshiba expects bigger loss, contract job cuts
UPS 1Q profit plunges more than 55 pct
US Bancorp’s 1Q profit falls, but beats estimates
Whirlpool 1Q profit drops on weakening demand
Yahoo Posts 78% Profit Drop, Cuts Jobs
Amazon 1Q profit, revenue jump on strong sales
Bank Of America Posts $4.2 Billion Profit
Citi Posts A Profit
Goldman $1.66B 1Q earns beat Wall Street estimates
Google Solid Q1
Humana 1Q profit more than doubles
Microsoft Earnings Weak, But No Disaster
Netflix post solid Q1 sales
Pre-Easter bounce helps lift Hershey 1Q profit
Verizon 1st-qtr profit, revenue beat expectations
Wells Fargo Announces Strong Earnings
Don’t get too excited about those bank profits, though. Bank earnings are actually very weak so far. It’s all just accounting magic, mostly due to the FASB suspension of the mark-to-market rule. Wells Fargo made billions on the mark-to-market change. Goldman’s big numbers are also mostly meaningless.
But don’t take it from me. Here’s former bank regulator and current University of Missouri – Kansas City economics professor William Black:
Since William Black talked about the stress tests in the above video, let’s start with that topic.
As posted previously, the stress tests are asinine for a number of reasons, not the least being that they are designed by the same geniuses who did not see the housing bubble burst coming. Meaningless as they are, however, they did generate a lot of news in April.
Early in the month we were told that all 19 of the nation’s largest banks passed the stress test. But we couldn’t be certain of that because the Fed ordered all the banks to keep silent about their results.
By the end of April there was a leak. The whisper was that Citi and Bank of America actually failed the stress test and both were being told to raise more capital.
But there’s nothing to worry about – if you’re a bankster, that is.
The Fed says the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.
After several delays, stress test results will be released Thursday, May 7.
Eight banks were added to the FDIC failed bank list in April, bringing the current total for this year to 29 and surpassing the total of 25 for all of 2008. Also in 2008, only 2 banks had failed by April. This means that bank failures are up more than 1000% this year.
With so many banks already seized by the FDIC this year, some are wondering, who’s going to bail out the FDIC?
Credit Card Crisis
It was only a matter of time before credit card defaults and other concerns bubbled up to the top of the news.
The Greatest Credit Card Debt Plunge Ever
Consumer credit plunged far faster than expected in February, with Americans taking on far less credit card debt. Credit card debt fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms ever (although the records only go back to 1968.) It’s the steepest percentage fall since 1978.
Capital One says their current credit card default rate is 8.4% and it is expected to “surge past 10%”.
It should be no surprise that millions of unemployed people are finding it difficult to make their credit card payments. That’s just common sense. And yet, Citibank said higher unemployment won’t lead to credit card losses.
What was the idea behind the TARP program again? To help banks get back to lending money? So much for that plan. The banks are now lending even less than when the TARP was first launched.
The entire TARP program is becoming very unpopular with the very banks it was supposedly designed to help. Some banks that took (or were forced to take) TARP funds want to pay it back in order to get out from under the government’s thumb. Although Treasury Secretary Geithner doesn’t want the banks to repay TARP, he may not have any legal means to refuse them.
You can’t blame the banks that are healthy enough on their own for wanting to be left alone. Citi has had to go to Treasury to ask permission to pay retention bonuses. The discussion is ongoing.
It’s all about control.
Treasury reported in April that it still has about $110 billion of the original $700 billion bailout fund. Expect that to be used up by the banks that need more capital based on their stress test results.
The long-awaited Geithner plan for dealing with legacy securities toxic assets is doing, well, nothing really. Potential investors have shied away, with good reasons. So the deadline for investment applications was extended and the requirements for applicants were loosened.
As of April 29, 2009, Treasury is proud to announce over 100 applications to participate have been received. Wow.
Say it ain’t so! Neil Barofsky, special inspector general for the TARP, has already launched twenty investigations into possible securities fraud, tax violations, insider trading and other crimes related to the bailout funds.
In the 250-page report Barofsky submitted to Congress he also expressed serious concerns about Treasury’s latest bailout propgram, the PPIP. As Reuter’s blogger Felix Salmon observed, “not only is Barofsky worried about PPIP participants gaming the system, he’s also worried that the whole thing could easily become a front for money launderers”.
Congress passed the $3.5 trillion budget proposed by President Obama, “a level of spending over 10% more than the final year of the Bush administration… [with] almost all of Obama’s wish lists intact.”
President Obama has also asked Congress for a supplemental spending package of $83.4 billion for the wars in Iraq and Afghanistan.
With the largest budget in history passed and two ongoing wars to fund, we learned that the federal budget deficit grew to a record $956.8 billion while federal tax receipts are off 28%.
The federal government ran out of cash on Sunday, April 26th, making this the earliest “debt day” ever. With no cash on hand and tax revenue shrinking at an alarming rate, federal borrowing quadrupled.
But the President wants you to know he’s serious about cutting the deficit and spending responsibly. That’s why he ordered his Cabinet to cut $100 million from their combined budgets in the next 90 days. Translated into numbers more like the ones you and I deal with on a daily basis, that’s like cutting “a latte or two out of your annual budget“.
As my dear granny would have said, “oh boy, could you spare it?”
The Congressional Budget Office raised its estimate of what the bailouts will cost taxpayers. As of April 4, the new estimate is $356 billion ($167 billion more than earlier estimates).
“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.” – Sen. Dick Durbin of Illinois
Retail and Commercial Real Estate
March retail sales overall fell 1.8 percent. Excluding Wal-Mart, sales fell 5 percent. And Wal-Mart itself saw less of an increase than expected at 1.4 percent in March.
The second largest US mall owner, General Growth, declared bankruptcy in April.
On a somwhat related note, office vacancies rose to 12.5 percent in Q1 – the highest they’ve been in three years.
US Auto Industry
Auto sales fell to near 30-year lows in April.
Chrysler made the President happy when it filed for Chapter 11 bankruptcy at the end of April. This means Chrysler will get another $8 billion of taxpayer money to help them “restructure”.
But not everyone is happy with the bankruptcy terms Chrysler proposed. A group of non-TARP senior hedge fund creditors are fighting to get their clients the settlement they are legally due in a bankruptcy situation. These creditors did not make the President happy.
GM will cut 1600 more jobs, force more than 1000 dealerships to close and shut down its plants for most of the summer in order to qualify for more government aid. And indeed, GM received another $2 billion from the Treasury to keep it going another month or so.
GM’s CFO announced that the company will not be making its June 1st debt payment of $1 billion. Instead, they will have “an open debt-for-equity exchange offer for bondholders on June 1”.
Bankruptcy is still a possibility for GM. Preparations are being made for this contingency, with a taxpayer cost $70 billion.
Yet another possibility for GM is a proprosal it made to Treasury that would give the UAW 39% of the company, the federal government 51% and bondholders 10%. Treasury is still mulling the idea over but my bet is that this is how it will go down. A deal that gives the government and a major labor union ownership of the company will be much to enticing for Geithner and Obama to pass up.
Meanwhile, Ford is quietly making due without government money, capturing 16 percent of a severly limited car market in March, thanks primarily to its hybrid vehicle, Fusion.
So while Ford is still losing money as most automakers are in this economy, Ford’s stock shares were up in April.
I’m keeping my fingers crossed for Ford. If they can survive this crisis without taking any taxpayer money they will be heroes in my book.
Housing and Personal Finance
Housing prices continue to decline according to the Case Shiller Home Price Release for March 2009. Take a look at Mish’s excellent analysis here.
Consumer Prices Suffer First Annual Decline Since 1955, yet consumer spending still fell for the first time in three months, down 0.2%. Americans are re-learning thrift, it seems.
Bankruptcies are still rising, both business and individual. 130, 831 bankruptcy cases were filed in March 2009 – an increase of 46% over March 2008 and an 81% increase over March 2007.
And somehow, in spite of all the bad news surrounding them, consumer confidence rose in April to its highest level since last November. Huh?? My guess is that the average consumer has been watching the Dow and taking it as an indication of the economy’s general health. That and Bernanke’s “green shoots” along with Barack Obama’s “glimmers of hope”.
Having watched the stock market and other economic news much more closely over the past six months than ever before in my life, I can tell you that gauging the nation’s economic health by the stock market is stupid. Wall Street is completely disconnected from reality.
Unemployment figures combined with housing reports points to an extended period of recession still ahead of us.
Trying to figure out what’s happening in the economy and what is ahead is a difficult proposition, perhaps even impossible. A New York Times reporter went to a number of conferences and talks and wrote about the conflicting information he heard – all based on the same data.
Nobel prize winning economist Joseph Stiglitz has blunt criticism of the Obama administration’s economic programs so far. Read the eye-opening Bloomberg interview here.
And finally, just to keep things real, have a look at “The Top 10 Signs You are Living in a Banana Republic“.
Let’s start with the good (?) news.
The stock market rallied at the end of March. The Dow had its worst January ever and worst February since the Depression, then, in March, turned in its best month in six years.
On March 23, 2009, Joe Weisenthal at Clusterstock wrote:
On the day when Geithner first announced the non-details of his bank plan, the stock market began a hard tumble.
Today, as the government confirms that taxpayer money will be used to replenish bank coffers and help hedge funds make huge profits, stocks are soaring.
Judging by dshort.com‘s “Four Bad Bears” chart, it looks like the bottom callers are being a bit hasty. They just may end up on a modern version of the “1927 – 1933 Chart of Pompous Prognosticators“, especially considering that Nouriel Roubini is still predicting an L-shaped recovery.
The Office of the Comptroller of the Currency reported in March that banks lost $9.2 billion in derivatives trading losses in the 4th quarter.
Citigroup saw its shares drop below $1.00 and hover there for much of March.
Five banks were added to the FDIC ‘s failed bank list.
But good news (for banksters anyway) came from the Financial Accounting Standards Board when it relaxed the “mark to market” rule for bank assets on April 2. With banks no longer required to value assets based on reality, April at least will probably be a good month for banks.
Retailers reported continued sales declines in February, though not quite as steep as those seen in January.
Call me a doom-and-gloomer, but I suspect most sales increases seen in February and perhaps March (we should see those numbers soon) are due primarily to people getting – and spending – tax refunds. Let’s wait and see what the reports look like later this spring before we get too optimistic.
Wal-Mart, on the other hand, showed February growth of approximately 5% (about twice what was expected). Wal-Mart is doing so well, that on March 19, it announced $2 billion in bonuses to be given to hourly employees:
Wal-Mart Stores Inc is awarding approximately $2 billion to its U.S. hourly employees through financial incentives, including handing out $933.6 million in bonuses on Thursday, after the world’s largest retailer gained market share amid a recession.
In a memo distributed to Wal-Mart employees and obtained by Reuters, Wal-Mart CEO Mike Duke said the retailer is awarding roughly $2 billion to U.S. hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan.
And now the not so good news.
Broader measures showed the February unemployment rate at 14.8%, or 1 out of 7 Americans unemployed. This figure includes the “discouraged” job seekers and those working part-time jobs who want full-time work.
I keep hearing that unemployment is a “lagging indicator” of the overall economy. Maybe I didn’t get enough government sponsored education, but it seems to me that a real recovery can’t happen until people are working again, earning money they can then spend. When the unemployment rate starts dropping instead of increasing by such huge amounts every month, that is when I’ll start to believe the recovery has begun.
Housing and Personal Finance
With so many unemployed, you know there is nothing good happening in housing and personal finance.
Home prices are still falling. “The national peak-to-trough decline is now 27%, and it will likely exceed 40% before we hit bottom. If there’s any good news here, it’s that the rate of decline appears to be stabilizing.”
While this is certainly bad news for individual homeowners, it’s actually good news for the economy in general. It is evidence that in spite of all the doomed efforts being made by the government and the Fed to reinflate the bubble, the market is doing its job and the necessary correction is proceeding quite well.
The January drop in home prices is record setting, however, and it does contribute to severe financial problems for individuals. A study released early in March showed one in five US mortgages to be underwater.
Another report said 12% of all mortgages (one in nine) are now delinquent or in some stage of foreclosure. In fact, the rate of foreclosures in February rose 30% over the previous year.
On March 31, an FHA spokesman said FHA loans were “seriously delinquent” at the end of February.
Not surprisingly, foreclosures are especially rising in California.
The February new home sales report showed a 4.7% increase, leading many to believe the bottom was in for housing. Not likely, though, since even with the increase the numbers are the lowest sales for February since the Census Bureau started tracking sales in 1963.
Existing home sales also increased slightly in February, though nearly half of those sales were buyers taking advantage of extreme savings on forclosed properties. Many of these buyers, apparently, are foreign investors.
According to a Labor Department report, consumer prices rose 0.4% in February.
The Administrative Office of the US Courts reported bankruptcy filing were up 31% in 2008.
Early in March it was reported that food stamp enrollment had climbed to a record 31.8 million people.
US Auto Industry
But the biggest headlines appeared when the Obama administration, operating in a weird double standard, forced GM CEO Rick Wagoner to step down – a move that sent GM stocks freefalling to a 74-year low.
The Obama administration now plans to take a key role in “reshaping” GM’s board of directors, though Obama also said he has “no intention” of running GM. Good thing, too, since the administration’s “plan” for the auto industry is pretty lightweight.
A great many comments posted to online articles about the big news at GM boiled down to “if they’re taking government money, the government can do whatever it wants”. Right or wrong, such thinking only highlights the moral hazard of government bailouts of private industry in the first place.
Shortly after the government’s de facto takeover of GM, Ford announced that it would cover car payments for buyers who lose their jobs. GM quickly followed with a similar program.
The Obama administration also announced that the government will guarantee all GM car warrantees (but remember, they’re not running the company). Auto shops run by the DMV maybe? Sounds great!
One last related bit of auto news caught my attention in March. It seems that an increasing number of desperate people, unable to continue making their auto loan payments, are instead setting their vehicles on fire to collect the insurance money.
Federal Government Spending
Early in March, President Obama signed the pork-laden $410 billion government spending bill.
Also early in March, the national debt hit a record $11 trillion, or about $36,000 for every man, woman and child in America. In the fastest increase of debt in American history, in Barack Obama’s first 50 days as president the Congress voted to spend $1.2 trillion, or “$1 billion an hour”, according to Senator Mitch McConnell.
In an exclusive interview with the NY Times, Mr. Obama floated the idea of another $750 billion to be given to banks, even though the amount already spent on “financial rescue” is nearly equal to GDP – in other words, the same amount as the value of everything the US produced last year.
All of this was enough to make China worry that the US might not be able to repay its debts. Of course, our dear leader reassured the Chinese that we’re still good for it (even if it means we have to inflate our currency to the moon and back).
Signing a retroactive tax would have been a political disaster for the Obama administration, plagued with questions of the “who knew what and when did they know it” variety. Luckily for Obama, New York Attorney General Andrew Cuomo managed to get the AIG executives to return the money before the 90% tax bill landed on his desk. Instead, the administration will look to limit pay at all businesses receiving government money.
If government is going to dictate employee pay, they need to start with Fannie Mae and Freddie Mac. Freddie asked for another $30.8 billion after losing over $50 billion in 2008. Freddie’s $24 billion Q4 loss breaks down to $3000 per second lost yet Fannie and Freddie plan to pay more than $210 million in employee retention bonuses over the coming year.
And we want to retain these employees, why?
The “Newspaper Revitalization Act” was introduced in the Senate during the last week of March. The mainstream media bailout would rewrite tax law to allow newspapers to operate as tax-exempt nonprofit organizations, just as long as they don’t make official endorsements of political candidates. Critics say such a bailout would lead to government control of the news.
That would be different, how?
Also, the US Postal Service is going broke (again).
Senator Judd Gregg, who turned down the nomination for Commerce Secretary, said “we’ll go bankrupt under Obama’s budget“. Sounds about right.
The Federal Reserve
The Financial Times Alphaville blog posted some early reactions including one from Yves Smith of Naked Capitalism calling the Fed’s move “shock and awe” and comparing it to when that phrase was used at the start of the Iraq war.
Following the Fed’s “shock and awe” announcement, Treasurys continued to decline and the dollar fell dramatically against other currencies. It seems that more than a few analysts are certain the Fed’s plan has killed the dollar.
China and Russia are also skeptical, it seems. They are calling ever more loudly for a new reserve currency.
For a very limited amount of risk, private investors will “partner” with taxpayers to pay over-market-value for banks’ toxic assets, thus re-creating solvency for the banks. If it later turns out the assets really weren’t worth much, the private investors loses only their small (7%) investment in the deal. The taxpayers will be left holding the bag for the rest.
Even if the private investors make money on any of the deals, the taxpayers are still likely to get fleeced.
Here’s a more detailed explanation: Message from Cumberland Advisors.
And isn’t this plan really just a slightly modified version of the original Paulson-Bernanke plan from September – the one Paulson ended up scrapping, saying it couldn’t possibly work? Yes, actually, that’s just what it is.
Oh, by the way, the NewSpeak term for toxic assets is now “legacy assets“. After all, the only reason nobody wants these things is because we keep calling them “toxic”, right? It has nothing to do with the fact that they are piles of paper representing nearly worthless, defaulted loans. Right?
The Quiet Coup by Simon Johnson in The Atlantic Magazine is highly recommended. Synopsis:
“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”
And finally, if you have not yet seen Daniel Hannan’s heroic March 26, 2009 speech in the EU in which he calls British PM Gordon Brown (to his face) “the devalued Prime Minister of a devalued government”, click below and enjoy.
Mr. Hannan’s words could should be repeated to the governments and central bankers of every nation.
Lots of economic news in February 2009, so let’s look at it in several categories.
News about federal government spending came at a head-spinning pace in February, with enough twists and turns to satisfy the most intense rollercoaster fans.
Feb 25: House OKs $410B spending
There are problems with Obama’s budget – for one, it depends on revenue by 2012 from carbon emission trading, a program that does not yet exist.
It also expects 3.2% growth in GDP next year, an enormous increase given the most recent figures of a 6.2 percent decline in the last quarter of 2008.
And Obama’s plan to raisetaxes on the wealthiest 2% of taxpayers to pay for his expensive domestic agenda is more wishful thinking. According to this Wall Street Journal editorial, he could take everything they earn, and it still won’t be enough.
Obama’s budget: huge ambitions, huge obstacles.
Federal Reserve Chairman Ben Bernanke testified before the Senate Committee on Banking, Housing and Urban Affairs on February 24, 2009.
He was asked by Senator Evan Bayh what he thought about the anger brewing among people who feel the federal government’s “housing rescue plan” is unfair.
Bernanke responded with the “your neighbor’s house is burning but it’s his fault” analogy. “You could punish him by refusing to send the fire dept and then he would learn his lesson, but unfortunately in the process you’d have the entire neighborhood burning down,” said Bernanke.
There is a big flaw in Helicopter Ben’s analogy. We, the neighbors of this careless person who started a fire, have already paid our taxes to have a fire department. Calling 911 to have the fire put out should not entail any additional expense. In the meantime, my neighbors and I could be hosing down our own houses to prevent them catching fire.
What Mr. Bernanke and the federal government are proposing is that we buy a whole fleet of new fire engines, build a couple of new fire stations, then hire and train new firefighters while our neighborhood goes up in flames.
But Helicopter Ben has no problem bailing out bad borrowers. The moral hazard does not matter, in his opinion.
He’s also confident he can prevent runaway inflation even though the Fed has dramatically increased the money supply in response to this crisis correction. Why do I not feel even the tiniest bit reassured?
Lots of talk in February about nationalization of banks, particularly Citigroup. Even though Senate Majority Leader Harry Reid insists “It’s not nationalization” , Treasury Secretary Tim Geitner gave Citi another $25 Billion of taxpayer money in exchange for “preferred stock”. Timmy paid Citi $3.25 a share for these stocks – the same stocks that are selling on Wall Street for $1.50 a share (Dow closing Feb. 27, 2009). Nice terms if you can get ’em.
But that’s not likely to be the end of it. Citi still faces enormous new losses and investors are not reassured by this latest infusion from the TARP. Citigroup may become the next AIG (watch for AIG to come begging again in the first days of March).
Mike Shedlock (aka “Mish”) has a good analysis of the Government – Citigroup dealings here.
Bank of America’s balance sheet doesn’t look good – loans are valued at $44.6 billion less than what its balance sheet says, according to the bank’s annual report released Feb 27 and the losses BofA incurred with their purchase of Merrill Lynch are worse than they thought – about $500 million worse.
Fannie Mae reported a sixth straight quarter of losses – $25.2 billion in Q4 2008.
Fannie Mae (FNM, Fortune 500) had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac (FRE, Fortune 500), which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth.
On the last FDIC Friday in February, regulators closed two more banks, bringing the total of failed banks for 2009 to 16.
CNNMoney reported that bank failures may cost the FDIC $80 billion. That’s a predicted $65 billion in bank failures between 2009 and 2013 added to the $18 billion cost of 2008 failures.
February was another losing month for Wall Street. Stocks ended the month at 12-year lows and if you look at the percentages, the decline in stocks has already hit Great Depression levels – a 50+ percent decline from the beginning of the crash.
Also worth noting that it isn’t just the financial stocks that are losing ground anymore. The downward trend is spreading to manufacturers and makers of basic consumer goods.
Finally, to be filed under “a picture is worth a thousand words”, the latest update to the “Four Bad Bears” graph (the grey line is the Great Depression, the blue line is the current recession:
Read the details and view the larger version of the graph here.
Expect more store closings and layoffs. Reports that came out in February from major retailers show huge 4th quarter losses:
Home Depot reports 4th-quarter loss of $54M
Lowe’s 4Q profit falls 60 percent
J.C. Penney reports 51 percent slide in 4Q profit
Sears 4Q profit falls 55 percent on charges
Macy’s reports 59 percent drop in 4Q profit
Saks Fifth Avenue – $98.75 million 4Q Loss
Gap: Sales & Earnings Down, Stores to Close
Office Depot posts $1.54 billion loss for 4Q
Department stores are unlikely to recover this year. Their primary goal is more likely to be avoiding bankruptcy and having to go out of business completely. On a personal note, I sure hope J.C. Penney survives – it’s one of my favorite stores for affordable, quality merchandise.
Other Economic News
U.S. GDP fell off a cliff in Q4 2008.
The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday — the largest revision since the government started keeping records in 1976.
The decline of 6.2 percent is the worst decline since the depths of the 1982 recession.
Consumer confidence fell to a new low in February.
The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected.
The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4.
Even Warren Buffett says the economy will be ‘in shambles’ for 2009.
It’s not just that Americans are losing confidence in the economy, they’re scared about where the nation is headed.
Seventy-three percent of those questioned in a CNN/Opinion Research Corporation survey released Monday say they’re very or somewhat scared about the way things are going in the United States. That’s six points higher than in an October poll.
February Charts from Calculated Risk
Here are a few that stood out for me. See the full report and all the charts at the Calculated Risk blog.
January Employment Report
This graph shows the unemployment rate and the year over year change in employment vs. recessions.
Nonfarm payrolls decreased by 598,00 in January, and the annual revision reduced employment by another 311,000 in 2008. The economy has lost almost 2.5 million jobs over the last 5 months!
The unemployment rate rose to 7.6 percent; the highest level since June 1992.
Year over year employment is now strongly negative (there were 3.5 million fewer Americans employed in Jan 2008 than in Jan 2007).
January Retail Sales
This graph shows the year-over-year change in nominal and real retail sales since 1993.
Although the Census Bureau reported that nominal retail sales decreased 10.6% year-over-year (retail and food services decreased 9.7%), real retail sales declined by 10.9% (on a YoY basis). The YoY change decreased slightly from last month.
January Capacity Utilization
The Federal Reserve reported that industrial production fell 1.8 percent in January, and output in January was 10.0% below January 2008. The capacity utilization rate for total industry fell to 72.0%, the lowest level since 1983.
The significant decline in capacity utilization suggests less investment in non-residential structures for some time.
Vehicle Miles driven in December
This graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.
By this measure, vehicle miles driven are off 3.6% Year-over-year (YoY); the decline in miles driven is worse than during the early ’70s and 1979-1980 oil crisis. As the DOT noted, miles driven in December 2008 were 1.6% less than December 2007, so the YoY change in the rolling average may start to increase.
Case Shiller House Prices for December
This graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).
The Composite 10 index is off 28.3% from the peak.
The Composite 20 index is off 27.0% from the peak.
This graph shows weekly claims and continued claims since 1971.
The four week moving average is at 639,000 the highest since 1982.
Continued claims are now at 5.11 million – another new record (not adjusted for population) – above the previous all time peak of 4.71 million in 1982.
That’s a lot to absorb for one short month so I’ll close with this a little music.
First, the classic “Sixteen Tons” performed by Tennessee Ernie Ford.
And finally, Jimmy Buffett performing his new song “A Lot To Drink About”
One in 10 Americans were participating in the food stamp program as of September, said Dottie Rosenbaum, analyst with Center on Budget and Policy Priorities, a think tank.
That’s approaching the all-time high of 10.5 percent of the population that used the program in 1994, and is similar to levels seen in the early 1980s, she said.
We can expect to see that percentage rise as bad economic news continues pouring in…
More Americans are collecting jobless benefits than at any time in the last 26 years as companies rush to cut costs in a sinking economy.
The number of people on unemployment benefit rolls rose to 4.09 million in the week ended Nov. 22, the most since December 1982, the Labor Department said today in Washington. A separate report showed orders at U.S. factories tumbled in October by the most in eight years as demand collapsed at home and abroad.
Sales at U.S. retailers tumbled in November, the worst monthly decline in almost four decades, after the Wall Street meltdown caused consumers to postpone shopping until the holiday-sales kickoff on Black Friday.
J.C. Penney Co., Nordstrom Inc. and Gap Inc. all reported sales drops of 10 percent or more at stores open at least a year.
Orders placed with U.S. factories in October fell by the most in 8 years, signaling a decline in manufacturing will contribute to deepening the recession.
According to this MSNBC report, layaway is making a comeback. KMart was the only major retailer that never stopped offering layaway but now several other retailers are joining (or re-joining) KMart in offering customers a layaway program. Stores like TJ Maxx Corp., Goody’s Family Clothing Inc., Marshalls Inc. and Burlington Coat Factory Direct Corp are advertising layaway for holiday shopping.
I grew up in typical 1970’s middle class family – four kids, mom stayed home, dad worked a blue collar job with decent pay and benefits. My mom and my aunts often used layaway programs, especially just before Christmas. I remember standing with my mom in long lines for the layaway desk to make the weekly payment – but never the last payment, the one when you get to take the stuff home. Layaway was also a great way to hide Christmas gifts from the kids in a place they couldn’t possibly “accidentally” find them.
As a young adult working my first full-time job, I used layaway several times to get good deals on higher ticket items I couldn’t otherwise afford. I was sad to see so many stores stop their layaway programs in recent years. And even though I haven’t used layaway in a long time, it always made me happy in a nostalgic sort of way to see that KMart kept their program going.
Layaway was (and is) a great way to get the items you want when they are on sale even if you don’t have all the money to buy them on the day of the sale – without paying high credit card interest rates. It’s also a good option for anyone who has difficulty saving money until they have enough to buy a particular item. Once you’ve started making layaway payments you’re much more likely to keep making those payments to the end because if you stop you not only lose the things you put on layaway, you also forfeit most (if not all) of the money you paid to that point.
So hooray for layaway! I hope this is a growing trend and we start to see more and more stores with layaway programs again. As a nation we need to re-learn fiscal responsibility. Layaway is one small step in that direction.
From an email I received this week…
Here is some information regarding retailers and future store closings. This coming holiday season please check with the retailers before you purchase your holiday gift cards, you need to be sure the cards will be
Stores that are planning to close after Christmas are still selling the cards through the holidays even though the cards will may be worthless in January. There is no law preventing them from doing this. This is referred to as ‘Bankruptcy Planning’. Below is a partial list of stores that you need to be cautious about.
Circuit City (filed Chapter 11)
Ann Taylor– 117 stores nationwide closing
Lane Bryant, Fashion Bug ,and Catherine’s to close 150 stores nationwide
Eddie Bauer to close stores 27 stores and more after January Cache will close all stores
Talbots closing down specialty stores
J. Jill closing all stores (owned by Talbots)
Pacific Sunwear (also owned by Talbots)
GAP closing 85 stores Footlocker closing 140 stores more to close after January
Wickes Furniture closing down
Levitz closing down remaining stores
Bombay closing remaining stores
Zales closing down 82 stores and 105 after January
Whitehall closing all stores
Piercing Pagoda closing all stores
Disney closing 98 stores and will close more after January.
Home Depot closing 15 stores 1 in NJ ( New Brunswick )
Macys to close 9 stores after January
Linens and Things closing all stores
Movie Galley Closing all stores
Pep Boys Closing 33 stores
Sprint/Nextel closing 133 stores
JC Penney closing a number of stores after January
Ethan Allen closing down 12 stores.
Wilson Leather closing down all stores
Sharper Image closing down all stores
K B Toys closing 356 stores
Lowes to close down some stores
Dillard’s to close some stores
UPDATE: According to KSL.Com, the E-mail warning of gift card problems may not be very accurate. I think it is more accurate than not, as I’ve read news articles over the past several weeks that confirm many of the closings described in the email. Even if this list isn’t 100% accurate, the fact remains that there will be many store closings after this holiday shopping season. It would be wise to take that fact into account if you’re considering buying gift cards this year.
UPDATE 2: According to snopes.com, this email contains a mixture of accurate, inaccurate and outdated information. The U.S. economy is currently in unstable, uncharted waters. I would still definitely recommend doing a bit of research on any retailer before purchasing gift cards from that retailer. Better safe than sorry, as the saying goes.