Posted by Paul Vignaon April 13, 2011 Economy /
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First, dear readers, an apology. We’ve been pretty consumed with the live launch of the Markets Hub, and that combined with our regular job, the Market Talk service for the Newswires, plus features like The Upshot, has pretty much given us no time lately to write for this blog.
But, we do have a post today, or rather, a cross post, of something I wrote for the MarketBeat blog over at WSJ.com. And, look, if you’re a regular reader of this blog, and like the mix of opinion and analysis we’ve offered here, I’d recommend you start watching the Markets Hub, live daily at 10:30 a.m. on wsj.com.
How many more body blows can the global economy absorb? Three more? Two? One?
Japan’s economic recovery is “a thing of the past,” at least according to Japan’s Cabinet Office, which said so in its monthly report. It shouldn’t come as a surprise, given what the Japanese have endured over the past month, and officials are hopeful that the economy can regain its footing by the end of the year.
The combined earthquake/tsunami/nuclear crisis is more than most nations could handle, and we hope for nothing but the best for the Japanese people. But when the world’s third largest economy sees its economy stall, it should be a red flag for everybody.
There are other red flags, too. The U.S. economy limped into the end of the first quarter, as consumers contended with flat wages (should they be lucky enough to have wages at all) and rising prices.
Posted by Paul Vignaon February 25, 2011 Markets /
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The longer the Mideast revolts last, and the subsequent jump in crude prices, the more people are going to start drawing lines between gas prices, the consumer, the state of the state and federal government and the economy.
Don’t mean to bum you out, but the more of those lines that get connected, the worse the picture gets.
Granted, if you know me, you know I can tend to be a bit, ah, emotional. So, here’s a less caffeinated take on the state of the U.S. consumer from Bank of America/Merrill Lynch’s Ethan Harris, part of the bank’s research report today. The take-away is, yes, things have improved, but haven’t improved that much, and two major overhangs, housing and the crumbling fiscal picture at the state level, will continue to be a drag.
Good, but not that good
After dipping during the summer, US growth data have improved noticeably. The better data, combined with easy fiscal policy, have caused some fairly big GDP forecast revisions. We have added 0.6 pp to our 2011 forecast, and some competitors have been even more aggressive. Table 2 compares the December and January Blue Chip surveys.
Despite the revisions, we remain slightly below other major banks. In our view, while easy monetary and fiscal policy has provided plenty of caffeine to the economy, it still suffers from a severe hangover: Household and bank balance sheets are slowly recovering, but with bad loans well above historic averages and with the personal saving rate still low, a lot of work remains.
Both the housing market and state and local governments are still in the middle of their crises. We expect the housing market to languish until the foreclosure process begins to wind down. State and local governments will likely remain in recession for the next two years.
It's beautiful, and if I had some money I'd buy it.
It’s a story we’re written about before, and we’ll probably write about again: corporate profits look good, and the corporate sector seems to be back on its feet, but so far at least it’s not helping the average American, who remains mired under stagnant wages, a weak jobs market, massive debt and a grim assessment of his future.
Second-quarter earnings, up 21% from a year ago so far this season, are heading to a three-quarter string of spectacular gains. But double-digit increases from companies including AT&T Inc., Coca-Cola Co., and Lockheed Martin Corp., are in sharp contrast to consumer worries.
The profit recovery isn’t something that consumers, coping with stagnant wages, a weak jobs market and flat to declining housing values, feel. And it shows in their mood and in recent retail spending declines.
“Without consumers on board, the economic recovery is looking dangerously vulnerable,” Capital Economics’ Paul Dales wrote Tuesday, after the latest dour reading on consumer confidence. July confidence slipped to 50.4, below the 51.9 from July 2008, indicating consumers are as worried about the economy and its prospects as they were as the recession took root. One consequence: consumers are saving more again. Personal savings rate in May increased to 4%, its highest level since September.
We’ve said this before, and it’s starting to get noticed in other quarters as well: the money that the federal government threw at the economy provided a brief sugar high, but not a lasting spark, and now that it’s fading, nothing is coming on the scene to take its place.
The nation’s banks are certainly in a better place than they were a year ago. Varied and myriad government backstops have erased the threat of imminent collapse and given them breathing space to recapitalize themselves. There was even a nifty little stock-market rally to help things out. But one little nagging problem remains: the demand side of the supply-demand equation is still lacking.
Amid signs of increased second-quarter demand among companies including airlines, trucking and heavy machinery, there’s at least one place where demand is a no-show so far—banks.
The reasons are manifold. Some corporations remain reluctant to invest heavily in new business because they’re uncertain the spring uptick will continue. Others are sitting on a veritable mountain of money as profits have soared. Meanwhile, consumers remain fixated on paying down debt, rather than adding more.
Wells Fargo & Co.’s total consumer loans were down about 2.6%, or almost $12 billion from the year-ago quarter. Commercial loans were down 14%, or $48 billion. Finance chief Howard Atkins said the bank “began to see signs” of increased loan demand in the second quarter from businesses and “to a lesser extent” consumers. Chief Executive John Stumpf said business clients’ use of credit lines was “relatively unchanged” from the first quarter and still at “historic lows.”
Other large banks are seeing the same. “As we look on the loan demand side, it continues to remain weak as the consumers continue to delever,” Bank of America Corp. Chief Executive Brian Moynihan said on a conference call last week. “There’s no loan demand, because there’s no demand for the [client's] products,” Mr. Moynihan said, referring to a dearth of commercial lending.
Today on the Markets Hub, we’re discussing those 200-day moving averages for the DJIA and S&P 500, and the bulls’ renewed attempts to cross them, and the spike in coffee prices on the commodities markets and what it might mean for your local roaster.
- “Betting against the American consumer is one of the biggest mistakes Wall Street bears have made this year,” Tom Petruno says.
- No one wants to back down in this Apple/Adobe tiff. Adobe CTO Kevin Lynch offers his two cents in a blog post. And Adobe CEO Shantanu Narayen sits down with WSJ’s Alan Murray and fires back at Apple. Here’s Jobs’ lengthy missive posted yesterday on Apple’s website.
- Yahoo (YHOO) CEO Carol Bartz tries to downplay the recent exodus of executive talent. But BoomTown blogger Kara Swisher begs to differ. “The continuous brain drain is perhaps the company’s most profound dysfunction.”
- Economy has been expanding for three consecutive quarters, but the overall picture remains mixed, The Economist’s Free Exchange blog says. “Growth is clearly better than no growth. But there are real concerns with the composition of output.”
- GDP growth at 3.2% should confirm the recession’s over. But delving deeper into the details shows the report’s not quite so rose. “But I suppose an optimist could see in all this the potential for much better numbers to come once the recovery gets on track,” James Hamilton writes.
- The new GM’s back and its poised for success. At least that’s the message Vice Chairman Bob Lutz relays on GM’s FastLane Blog today, which marks his last day at GM. “I only have about 47 years of experience on which to base this opinion, but I believe GM is poised to win.”
- “Was Goldman a badder bank than other banks? No. Did other firms put their own free-wheeling interests before those of their clients? Yes. Is Goldman now a victim of its own, home-grown, blinding arrogance? Absolutely,” FT’s Alphaville says.
- “Google is going to have a problem because Google is only known for search,” Yahoo CEO Carol Bartz tells BBC. “They’ve got to find other things to do. Google has to grow a company the size of Yahoo every year to be interesting.”
- In the wake of Microsoft (MSFT) shelving plans for its two-screen, tablet-style device, is Hewlett-Packard (HPQ) also stopping the development of its tablet computer? That’s what Michael Arrington alleges at TechCrunch, citing a source who has been briefed on the matter.
- The Kentucky Derby looks even more wide open than ever this year.
The jobs market still stinks, consumers aren’t spending money, and until that situation changes, the economy is going to drag along. And if you want to argue that government efforts to alleviate the situation are counter-productive, well, there’s a case for that, too.
That’s more or less the takeaway from this morning’s data points, the reports on retail sales and jobless claims. Retails sales fell a disappointing 0.3%. Now, they were actually up 5.4% from last December, but remember that last December was the worst December in about 40 years. There was nowhere to go but up.
What’s really telling is that retail sales for the entire year, 2009, were down 6.2% from 2008 — and 2008 wasn’t some kind of banner year.
Add to that this morning’s jobless claims data, which while it showed only a slight rise, to 444,000, stayed at a level that basically presages more job losses. From what I’ve read, that number needs to be closer to 400,000, or even below it, to translate into steady job gains. And don’t forget the number of people collecting extended, and extended extended, benefits remains at distressingly high levels.
And, consider that consumer credit keeps falling, and consider that even people who have jobs aren’t seeing their wages rise enough to keep up with even the limpid inflation currently in the marketplace, and add in that foreclosures hit a record last year, and the whole thing just draws a picture of a consumer stuck somewhere between hard-pressed and buried under.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
David Oreck, founder of a well-known maker of vacuums and air purifiers, says he’s upset his namesake company is in bankruptcy. He says Nashville, Tenn.-based Oreck Corp. was a perfectly profitable company when he sold his stake in it to a private equity firm in 2004. He blames the firm, New York-based American Securities Capital […]
