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Consumers Trade Down – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:05 +0000

Cash-strapped consumers are looking to get the most bang for their buck, forcing retailers to adapt to new spending habits, says Claire Gruppo, co-founder and managing director of investment bank and M&A firm Gruppo, Levey.”People aren’t comfortable paying for brands or an experience if they don’t feel it’s worth it,” Gruppo said, “and the trend we’re seeing across most brands is consumers seem to be trading down for ticket prices.” Americans have become more careful with their money, but the key to their behavior isn’t price, but value. For example, instead of buying a 20 t-shirt at Ann Taylor
, consumers will purchase it for 5 at Wal-Mart
or Kohl’s
. They’re still buying a t-shirt, but not at 20.The environment is very difficult. Instead of rising 0.7% as expected, on Thursday, the U.S. Commerce Department reported retail sales fell by 0.1% in July, and would have dropped by 0.6% if it were not the government’s “clash for clunker” program. Department store stales sunk 1.6%, while broader general merchandise stores, which includes mega-retailers like Target
, saw sales decrease 0.8%. The data reinforces the thesis held by many on Wall Street that business, rather than consumers, will lead the economic recovery.To navigate this trend, some retailers have become more careful in managing their inventory, by reducing product lines and offering fewer items within a line. The strategy is simple: offer the consumers what they’ll actually purchase. This way businesses are better able to streamline inventory and not tie upa lot of capital in items that aren’t going to move. The trick is to reduce inventories without shoppers thinking that they have fewer choices.”Good retailers are thinking not so much about discounting as much as adding items of lines of merchandise at different price points that they’re not going to have to sell at 50% off retail,” Gruppo said. “They’re starting different offerings at lower price points.”Gruppo highlighted Macy’s
recent performance as an example of this approach. “They beat expectations and raised their forecast for the year,” Gruppo said. “The brand has always been known for good value at department stores, and it’s the first piece of good news from something other than a big-box discounter.”
Gruppo expects retailers to operate in this fashion until consumer spending begins to turn around. “Until unemployment and lack of credit ease more than what we’ve seen this will be what the retail landscape will look like,” Gruppo said. The businesses that will have an edge through the end of the year will be the ones that offer lower prices but with strong value, Gruppo added.

Method Behind Adeccos Madness – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 13:46:25 +0000

Ever wonder just how badly the recession is affecting the employment market? A quick glance at Adecco’s second-quarter results says it all. Sales in France, Germany, Britain, the United States and Japan shrank at double-digit rates, while the company reported a loss of 208 million after writing down the value of intangible assets. Strange, then, that Adecco at the same time announced a 165 million bid for British recruitment company Spring Group, at a time when it expects business conditions to remain “demanding.”This isn’t the first time Switzerland’s Adecco
has tried to acquire a British staffing company since the start of the economic downturn. Last summer it voiced its interest in buying white-collar recruiter Michael Page International
, proposing a purchase price of 2 billion; Michael Page’s shareholders snubbed the offer and the courtship quickly ended after the collapse of Lehman Brothers in September. The affair seemed to reinforce Adecco’s yen for financial prudence.
Spring Group
is clearly not the size of Michael Page, but Adecco’s offer price of 62 pence per share, or around 100 million pounds in total, is still a sizeable 22% premium on Sprint’s closing price Monday of 51 pence . The difference is that Adecco is presenting the deal as a conservative way to cut costs and turn around its British operations, which were experiencing a slowdown even before recession hit, as opposed to a risky expansion.Shares of Spring Group jumped 20.1%, or 10.25 pence , to 61.25 pence , during midday trading in London. Adecco was down 4.2%, to 50.65 Swiss francs , in Zurich.Adecco said there would be “substantial synergies” from the deal, and also that it would bring in new management; acquiring Spring Group was simply an alternative to doing things organically. The chief executive of Spring Group, Peter Searle, is actually a former Adecco employee as well, so there won’t be a culture shock.”Adecco definitely needs a good management team in the U.K.,” said Michael Foeth, an analyst with Bank Vontobel, who said Spring Group’s focus on professional staffing could also bring in growth and profitability in the future. But he rated Adecco shares “hold,” and said that even though the company was operationally profitable he could not rule out the possibility of more goodwill impairments or more quarterly losses.
“We have not seen the bottom,” said Foeth. “In absolute numbers, [the recruitment market] is still declining.”

July Job Cuts Expected To Wane – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 18:46:12 +0000

Wall Street may be encouraged by the waning level of job losses on Friday, but it will mean little to Americans stuck in unemployment lines and struggling to make ends meet.On Friday, the U.S. Labor Department is expected to announce that the national unemployment rate rose to 9.7% in July, as 300,000 Americans lost their jobs. Though large, the reading would be below June’s drop of 467,000. Dean Maki, chief U.S. economist at Barclays Capital, expects nonfarm payrolls to fall by 275,000 in July, which would mark the weakest contraction since August of 2008. Maki’s view is held by fellow economist Abiel Reinhart of JPMorgan Chase, who also expects payrolls to fall by 275,000.No matter what the figure ultimately is, it will be seen only as another jobless increase by the general public. Not only is unemployment at its highest level since the early 1980s, but also Americans have been out of work for the longest amount of time since 1948, when the government began keeping track. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed had been out of a job for 27 weeks or more. In a recent interview, Christian Weller, a senior fellow at the Center for American Progress and associate professor of public policy at the University of Massachusetts, Boston, argued that the current labor market is not comparable to that of the early 1980s because of the length of time it has taken to find a new jobs. Furthermore, the unemployment rate itself does not account for those working part-time jobs who would rather have full-time work.Prolonged unemployment has become a pressing problem for Americans, and policymakers, as an increasing number of individuals and families exhaust their jobless benefits, leaving them without the means to pay their mortgages, credit card bills, and food, not to mention the normal discretionary items that spur economic growth. Stagnated unemployment is also expected stymie the current recovery effort, as the U.S. economy loses the power of its vaunted consumer. Consumer weakness was exhibited in July weak retail sales. Forced to focus on the necessities, venders reported results slightly below expectations, pressuring shares of Wal-Mart Stores
, Costco Wholesale
, and Target
. The SPDR S&P Retail
exchange-traded fund on the other hand actually rose 0.8% in midday trading.
The only measure of solace Americans can take is that the intensity of payroll cuts have shown signs of waning. On Thursday the Labor Department reported individuals applying for jobless benefits for the first time fell to 550,000 for the week ending Aug. 1, down from an upwardly revised figure of 588,000 in the previous week. Furthermore, initial jobless claims declined an average of 57,000 from June to July, though partly owing to seasonal distortions. Friday’s employment report follows one delivered Wednesday by ADP Employer Services, which found the U.S. private sector terminated 371,000 positions in July. The finding was well below June’s revised 463,000 reading, but slightly ahead of the 345,000 fall analysts had expected. The data were developed with Macroeconomic Advisers.To be sure, problems remain. Global outplacement consultancy Challenger, Gray & Christmas, said planned layoffs at U.S. firms increased in July for the first time in six months to 97,373, and more than 30% from June when it had hit a 15-month low. Meanwhile, of people continuing to claim benefits rose last week by 69,000 to 6.3 million, after dropping for three straight weeks.

Pink Slips On The Wane – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 21:46:12 +0000

The U.S. economy is doling out fewer and fewer pink slips, as the labor market appears to be on the path of stabilization. Even so, Wall Street and Main Street are still worried that the jobless rate will stagnate and handcuff the recovery.The ADP Employer Services report found the U.S. private sector slashed 371,000 positions in July, well below a revised total of 463,000 in June, but still ahead of the 345,000 drop Wall Street had expected. The data were developed with Macroeconomic Advisers.Wednesday’s reading comes ahead of the “official” report released by the Labor Department on Friday. Wall Street expects job cuts to have reached 300,000 in July, pushing the unemployment rate to 9.7%. Abiel Reinhart, an economist at JPMorgan Chase said he continues to expect a 275,000 drop, even though the ADP reading is significantly greater. Meanwhile, global outplacement consultancy Challenger, Gray & Christmas, said planned layoffs at U.S. firms increased in July for the first time in six months to 97,373, and more than 30% from June when it had hit a 15-month low. The market wasn’t happy with the news. Adding to its problems were consumer stocks, which were hurt after Procter & Gamble
announced its quarterly earnings dropped by nearly a fifth. By midday trading its shares fell 2.8%, while the Consumer Staples Select Sector SPDR
exchange-traded fund slipped 0.7%. Demand for U.S. Treasuries also fell, as the iShares Barclays 10-20 Year Treasury Bond
ETF, which follows long-dated bonds, deccreased 1.1%.Reinhart found that since December, the average miss between first prints from the ADP report, and the unemployment report from the Department of Labor has been 105,000. The ADP’s lack of credibility could be derived, at least in part, from its sample base. “The ADP numbers come primarily from the companies ADP does payroll for, so it’s sort of a self-selecting group,” said David Wyss, chief economist at Standard and Poor’s. “That may be part of the problem, or may just be random noise.” Wyss also noted that the ADP is based on a smaller sample, but it has argued that they’re more balanced because the survey includes more mid-sized companies than the Labor Department.In any case, Wednesday’s release indicates that payroll losses are moderating, as each month has come with fewer and fewer pink slips. “In the last few months most of the moderation in the ADP numbers have come from the goods-producing sectors,” Reinhart noted. Jared Franz, an economist at T. Rowe Price, said the data corroborates the indications from Monday’s ISM manufacturing labor market assessment, as well as Wednesday’s Challenger, Gray & Christmas tally of layoff announcements in manufacturing industries. He expects the Labor Department to report a drop of 300,000 on Friday.
Though the payroll cuts may be waning, both Wall Street and Main Street are worried about the jobless rate will remain high after it stabilizes. Chronic high unemployment will hinder the broader recovery, as individuals and families struggle with jobs, wages, and bills.Separately on Wednesday, the ISM non-manufacturing index slipped to 46.4 in July, from 47.0 in June. Both of these indices are seen as predictors of GDP, and highlight manufacturing will probably be the main cause of an increase in the GDP rises this quarter, Reinhart argued. “In contrast, the non-manufacturing sector still looks more like it will achieve stability,” Reinhart said. Factory orders rose 0.4% in June. The increase was entirely accounted for by higher shipments from petroleum refiners, where price increases lifted the dollar value of shipments, said Mike Feroli, a senior economist at JPMorgan.

Savings And Income Decline – US-FOREX.US

Forex-Publisher — Tue, 04 Aug 2009 21:46:11 +0000

Americans are strapped for cash, as personal income flattened in June while gas prices rose, further tightening the grip many individuals and families feel from mortgage payments, credit card bills and a weak labor market.The lift in May income from the one-time Social Security stimulus payments has long past and personal income fell to 1.3% in June. Income growth was also stymied by labor compensation, which itself fell 0.3%. Personal income dropped 1.8% accounting for inflation and taxes. An increasing amount of Americans have been running out of options, as jobless benefits become exhausted. Much of the personal income data were already included in Friday’s second-quarter gross domestic product report, but Tuesday’s release sheds more light on the monthly pattern of spending and income. Consumer spending, when excluding the affects of inflation, fell 0.1% in June. Nominal consumer spending though rose 0.4%, a little stronger than expectations, yet much of the bump was due to higher gas prices.Weak spending has touched every aspect of the U.S. economy, and will continue to do so as it slowly recovers, and major firms from Walt Disney
to Alcoa
to American Express
have all had to contend with weak demand.Personal savings also dropped to 4.6% in June, from 6.2% in May, due to the combination of weaker income, as well as higher nominal spending. Most analysts have forecast a long-term rise in personal savings in the U.S. as well as depressed consumption and slower growth because of it. But the June drop suggests that absent government stimulus money, the American consumer really can’t save much more and that the rise in savings rates might be less a sign of a new thriftiness than it is a short-term tendency to hoard anything extra that comes in.”The monthly up-and-down pattern in the saving rate over the course of the second quarter reflects nothing more than consumer smoothing through transitory income fluctuations-in this case, due to the one-time stimulus payments,” said Mike Feroli, senior economist at JPMorgan Chase.
The Personal Consumption Expenditure price index rose 0.5% in June, again due to higher gas prices. Excluding food and energy, the index increased 0.2%, and only 1.5% on a year-to-year basis.

Bernankes Image Tour – US-FOREX.US

Forex-Publisher — Mon, 27 Jul 2009 19:49:38 +0000

Federal Reserve chairman Ben Bernanke has hit the road, taping a “town-hall-style” special on public television that will air over three days this week. Discussing the economic recovery and defending the central bank’s actions before a general audience accomplishes a number of things. Aside from raising public awareness, reaching out to citizens also boosts the profile and credibility of the central bank and its chairman as Congress seeks to revamp the nation’s regulatory structure, and Bernanke readies for reappointment in January when his term expires.On his trip to the so-called American heartland, Bernanke talked about the economy, explained the central bank’s actions, as well as attempted to demystify the institution, before a more than 100 citizens from Kansas City area. “I think he clearly wants to get more public support for the Fed,” said Mike Feroli, senior economist at JPMorgan Chase. “Whether that’s for his own purposes to be renominated or for the purposes of the Fed as an institution is more open to question.”The meeting, which will be aired on The News Hour and moderated by its anchor Jim Lehrer, comes at a time when the government is revamping its regulatory structure, leading the heads of government agencies to jockey for greater influence and responsibility. In particular, regulatory proposals have surfaced that would expand the powers of the central bank. The chairman has given numerous nationally televised speeches at conferences and lunches, followed by a question and answer session from the audience. Only now instead of bankers and economists, Bernanke will be speaking before average citizens. And unlike members of Wall Street, the Fed actions such as bank bailouts are much less popular with the general public. Unlike Wall Street, the general public traditionally hasn’t been interested in the central bank’s view on interest rates, but these aren’t typical times. Aside from public frustration with the Fed’s actions, Americans are also worried about the economy, as the unemployment rate increases, credit remains tight, and personal wealth continues to evaporate. The meeting is also consistent with Bernanke’s advocacy of greater openness and transparency, distinguishing himself from his predecessor Alan Greenspan. Unlike Greenspan, whose public statements were notorious for being deliberately opaque and convoluted, Bernanke’s speeches have been marked by their clarity. Bernanke’s leadership style is also fundamentally different from Greenspan’s. Whereas Greenspan placed himself first, and was interested in officials to follow, Bernanke has sought a more collective approach to monetary policy.
In excerpts already released on PBS’ Web site, Bernanke exhibited a defiant tone to the central bank’s actions. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression,” Bernanke said. This attitude was exhibited last month during a congressional hearing during which the chairman defended his actions regarding Bank of America’s acquisition of Merrill Lynch. It wasn’t always like this. In the early parts of the financial crisis, Bernanke was inundated with criticism from all directions, and lack of confidence from Wall Street. As the dust has settled though, his actions, at least on a whole, appear to have been vindicated.

The View From Main Street – US-FOREX.US

Forex-Publisher — Thu, 09 Jul 2009 22:46:21 +0000

After reaching the edge of the abyss six months ago, Wall Street has been slowly recovering, thanks in large part to massive help from the federal government. But Main Street continues to face serious challenges, says the Center for American Progress. That bodes badly for the consumers who will ultimately drive corporate earnings.Family wealth in the United States dropped by 16 billion by the end of March of 2009, from its peak in June 2007, marking the fastest rate of decline in any 21-month period since the Federal Reserve began tracking that data in 1952. All the while the housing market still hasn’t managed to recover, mortgage troubles increase, and Americans are finding it more difficult to pay their loans. A major driver behind the heightened credit problems among Americans is the troubled labor market, and the recession has been even more difficult for minorities. Though the unemployment rate nationally reached 9.5% in June, the jobless rate among Caucasian-Americans was only 8.7%, though it rose to 14.7% among African-Americans, and 12.2% among Hispanics.Education levels also accounted for a significant discrepancy, as the unemployment rate of those with a college degree was only 4.7%, while it was more than double that for those with a high school degree, and remained at a high of 15.5% for those who haven’t finished high school.Meanwhile, Americans have been stuck on the unemployment rolls for the most amount of time since the government began tracking this data in 1948. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed were out of a job for 27 weeks or more.Meredith Whitney of the Meredith Whitney Advisory Group has been warning that, “Consumers continue to face challenges in the form of reduced liquidity, higher unemployment and lower home prices as shown in June data.”
Whitney warned that reduced credit lines, which have been depleting at an accelerating pace, make it increasingly difficult for Americans to get back on track. The pernicious unemployment described by CAP and the likelihood of a jobless recovery has businesses reap the rewards of increased productivity from the workers still on their payrolls will only make things worse over the next year or two.With the consumer sidelined, says CAP, the government will have to cocnentrate on longer term investment strategies designed to create new industries.Public investments in “energy independence”, which presumably refers to greater use of alternative and renewable sources, has been a factor in investment decision-making for some time, though to mixed results. Investors have seen huge swings in solar firms like First Solar
and SunPower
, as well as wind energy shops like Siemens
. Mixed signals from Washington have kept the much of the renewable industry overseas, where countries such as Spain, Italy and Germany provide a more stable business environment for renewables. The push for public health care has also given Wall Street a fright, keeping investors up at night sweating over how to navigate President Obama’s health care policy. Since the beginning of the year, Humana
has dropped 16.3%, while UnitedHealth Group
has slid 6.2%, meanwhile the S&P 500 index has fallen 2.3%.

Initial Claims Worse Than You Think – US-FOREX.US

Forex-Publisher — Thu, 09 Jul 2009 16:47:43 +0000

Initial jobless claims in the United States fell to their lowest level since January, but don’t get excited. Seasonal distortions related to the auto industry skewed the reading, making things look better than they actually are.On Thursday the Labor Department reported first-time claims for unemployment benefits last week fell by 52,000 to 565,000, well below the 605,000 figure Wall Street had expected. The problem is seasonal factors had anticipated a big jump in claims due to the annual downtime at auto factories. “Because many of these autoworkers have already been filing for unemployment benefits over the prior several weeks, the seasonal factors were looking for a big jump in new filings that mostly didn’t materialize,” Michael Feroli, a senior economist at JPMorgan Chase. In early May, Chrysler declared bankruptcy, leading it to suspend operations at all its plants, while General Motors
had already shut-down 13 plans in late June. Chrysler was quickly purchased by Italian automaker Fiat
, while Ford Motor
managed to avoid bankruptcy. The problems experienced with the automakers have extended to auto parts suppliers. Lear
and Visteon
have both filed for bankruptcy protection, while others, like American Axle & Manufacturing Holdings
, have struggled to survive.Understanding seasonal factors helps explain why the non-seasonally adjusted figure increased by about 17,000 to 577,506 initial claims, and why continuing jobless claims unexpectedly jumped to a record high. The Labor Department noted the distortion, but with the data in hand it’s impossible to measure exactly how much of the drop is due to the auto industry, Feroli said.Last month the government reported the unemployment rate rose to 9.5%, while Joe LaVorgna, chief U.S. economist at Deutsche Bank, expects the jobless-roll to reach 10.0% by the end of the year, and eventually rise to 10.5% in 2010.

Economy Grows Recession Remains – US-FOREX.US

Forex-Publisher — Wed, 08 Jul 2009 21:46:22 +0000

The U.S. economy may experience some positive quarters this year, but, contrary to popular belief, that doesn’t mean the recession is about to end. Though some define a recession as two consecutive quarters of negative GDP growth, a quarter or even two of positive growth isn’t enough for economists to declare that one is over.”The end of a recession is not just an academic exercise, because much historical analysis of financial market performance is based off of the timing of recessions and expansions,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank
. “We continue to believe that recent optimism regarding a near term end to the recession is premature.”LaVorgna recently lifted his growth forecast for the second half of 2009 to 0.5%, from negative 1.0%. He made his revision because he believes that government and central bank initiatives, including quantitative easing and the release of the financial rescue plan, among other things, have taken some catastrophic risks out of the system.The current recession officially began in December of 2007, when the National Bureau of Economic Research cited deterioration in the private job market as evidence of its onset. The NBER call came despite the economy growing 0.8% in the first quarter of 2008, and 2.8% in the second. It’s a popular misconception that GDP growth defines “recession”. Instead, the NBER looks at other pieces of data, primarily payrolls, personal income excluding government-related funds, industrial production and business sales. “Consequently, flat real GDP growth next quarter followed by a small 1%-and likely government spending led-increase in the fourth quarter should not be the sole basis of declaring the end to the recession,” LaVorgna said.LaVorgna doesn’t believe the recession will officially end until payrolls bottom out, and he expects the unemployment rate to reach 10% by the end of the year, and eventually rise to 10.5%. The ugly labor market has enveloped the economy, undercutting business demand and adding further pressure for consumers struggling to pay their loans.
Higher credit losses themselves hurt lenders like JPMorgan Chase
, Bank of America
and Citigroup
, while weak demand has forced consumer discretionary businesses like Walt Disney
and Urban Outfitters
to play defense.LaVorgna’s commentary comes as the International Monetary Fund said the global economy is starting to work out of recession, though it expects the recovery will be slow. In its report, the IMF said it expects the global economy to contract 1.4% in 2009, while grow 2.5% in 2010.

Dour Fed Chatter – US-FOREX.US

Forex-Publisher — Thu, 02 Jul 2009 18:46:02 +0000

Recent talk from Federal Reserve officials goes to show that you really get to know a person once they leave the office.Over the past week a handful of speeches have, in many ways, offered more insight into the thinking of the central bank than last week’s statement following Federal Open Market Committee’s meeting. Earlier this week, San Francisco Fed President Janet Yellen said there is no real threat of an inflation surge, and is instead expecting inflation to fall to about 1% in the next year. Not only that, she believes the greater risk is inflation remaining too low, rather than too high over the next several years, implying a sluggish economy far into the future. Her commentary flies in the face of numerous Wall Street analysts, who have argued that the government’s massive liquidity injections will result in heightened prices as soon as economic activity picks up.Yellen appears to believe the economy is too weak for that to happen. For example, she said several years are needed before the return to full employment levels, adding that she’d be happy to see the jobless rate fall to 6% in the next few years, according to TradeTheNews.com. Yellen noted that the new “natural rate” of unemployment is between 5% and 5.5%, and that the high jobless rate means the Fed must use “every bullet” in its arsenal.Yellen’s dour labor expectations affect the entire economy, particularly the consumer discretionary sector, which include apparel retailers like Urban Outfitters
and luxury goods companies like Tiffany
, as well as tourism operations like Host Hotels & Resorts
Walt Disney
, and Time Warner Cable
.
Yellen said it’s conceivable that rates could remain near zero for several years. Harkening back to the central bank’s poor timing in 1936, she’s more concerned policymakers will prematurely tighten rates and undercut the recovery. Low short-term rates will also make life rough for investors. In a near 0% interest environment, investors will need to take more risk to garner higher returns, or they’ll have to temper expectations. It’s unlikely that the stock market can keep up a 9%-a-year average return in a low-rate environment.”The general thrust of Yellen’s remarks was not unusual, given that she is one of the committee’s more dovish members,” said Michael Feroli, a senior economist at JPMorgan Chase. “Though, to be sure, even by her standards some of the remarks were very dovish.”Yellen has found unexpected company in the more hawkish St. Louis Fed President James Bullard, though. In his speech, Bullard said that the FOMC’s comments on rates is dependent on both inflation and economic developments, but with a twist.”Should economic performance improve and inflation begin to rise, the promise is to maintain zero rates longer than might be expected by simple rules of thumb,” Bullard said. “This is important for markets to understand.” Those “rules of thumb” are presumably Taylor-like rules, which Feroli had observed do not call for higher rates for several quarters. Bullard aside, discussing pressuring rates longer than expected is atypical for someone in his position. “While this idea is not uncommon in academic discussions, this is the first time it has been mentioned by a Fed policymaker in this episode,” Feroli said.Responding to concerns about the Fed’s balance sheet, Bullard said the central bank’s exit strategy is “unclear”. He views the sale of assets as an appropriate tool to manage the balance sheet. For now though, he said the Fed will focus on the purchases of assets, adding that he expects some liquidity programs to remain in place until next year.”The main takeaway is that relative to other Fed speakers, he placed much more emphasis on asset sales as central to the exit strategy,” Feroli said.