U.S. retail sales dipped only slightly in February, a hint spending could be stabilizing, but a record high number of workers drawing state jobless benefits indicated pressure was still mounting on consumers.
Sales at U.S. retailers eased 0.1 percent after rising by a revised 1.8 percent in January, the Commerce Department said on Thursday.
Excluding motor vehicles and parts, sales increased 0.7 percent in February, compared to a 1.6 percent advance the previous month. Vehicle sales plunged 4.3 percent, after a surprise 3.1 percent rise the prior month.
U.S. stocks opened flat, while bond prices pared gains.
“There’s stability in these numbers, particularly when you strip out autos and gas. So clearly the consumer is not completely knocked out,” said Michael Woolfolk, senior currency strategist at the Bank of New York-Mellon in New York.
“The difficulty, though, is we still need jobs growth and credit markets to thaw out before we can have a normal recovery.”
Households, buffeted by rising unemployment and plummeting asset values, have become penny-pinchers and are shunning big-ticket items such as cars.
Consumer spending, which constitutes over two-thirds of U.S. economic activity, dropped at a 4.3 percent rate in the fourth quarter, the biggest fall since the second quarter of 1980. That contributed to the economy’s 6.2 percent annualized pace contraction in the October-December quarter.
With the economy continuing to bleed jobs, analysts reckon consumer spending will stay depressed in first quarter of this year. The unemployment rate rose to 8 quick payday loan.1 percent in February, its highest level in a quarter of a century.
Gasoline sales climbed 3.4 percent in February as prices rose — the biggest gain since November 2007 — after increasing by 2.8 percent in January. Sales of building materials dipped 0.2 percent in February after slipping 1.3 percent in the prior month.
Excluding both motor vehicle and gasoline sales, retail sales rose 0.5 percent in February after a 1.4 percent rise in January. On year, retail sales were down 8.6 percent overall, and 5.0 percent excluding motor vehicles.
Highlighting the continued distress in the labor market the number of people remaining on the benefits roll after drawing an initial week of aid rose by 193,000 to a record 5.317 million in the week ended February 28, the most recent week for which data is available, the Labor Department said.
At the same time, new applications for state unemployment insurance benefits increased to a seasonally adjusted 654,000 in the week ended March 7, from 645,000 the week before.
“It confirms the labor market is deteriorating further in March. Layoffs are stepping up further and we are seeing there is no corresponding pickup in new hiring. This is very bad momentum into this downturn,” said Pierre Ellis, a senior global economist at Decision Economics in New York.
In a separate report, the Commerce Department said business inventories fell 1.1 percent in January and sales dropped 1.0 percent.
Irish Prime Minister Brian Cowen said the economy may shrink as much as 6.5 percent this year, cutting a forecast issued less than two months ago.
“It was said in January it would be about 4 percent,” Cowen said in the parliament in Dublin today. The “indications are now it could well be 6 or 6.5 percent,” which would be more than twice as much as the 16-nation euro area.
The government will announce an emergency budget on April 7 to try to curb a swelling deficit as the economy slides deeper into a recession. Irish Central Bank Governor John Hurley said yesterday that the economy will probably shrink more than 6 percent this year and that the risks “remain to the downside instant payday loan.”
Cowen is seeking as much as 4.5 billion euros ($5.7 billion) in savings in the budget next month and he said today there would be “no easy options.”
As companies from builders to banks cut jobs, the prime minister has forecast that unemployment claims may soar almost 30 percent this year. Claims are already at a record high of 354,437, according to statistics office data.
The global financial crisis slashed the value of financial assets worldwide by $50 trillion last year, a study commissioned by the Asian Development Bank (ADB) said on Monday.
Financial asset losses in developing Asia, which suffered more than other emerging markets, totaled $9.6 trillion, or just over one year’s worth of developing Asia’s gross domestic product, the study said.
“The previous sense of strength and invulnerability is now gone,” said the ADB-sponsored study, noting that “there were concerns about the effect of a shallow recession in the United States, but the general perception was that Asia, the largest regional emerging market group, was doing well.”
“The loss of financial wealth is enormous,” said the study entitled, “Global Financial Turmoil and Emerging Market Economies: Major Contagion and a shocking loss of wealth.”
“As noted earlier, the loss of wealth at a world-wide level may amount to an astounding $50 trillion, or one year’s worth of GDP. Such losses will have an enormous impact on domestic expenditure.”
Haruhiko Kuroda, ADB president, said Asia was hit harder than other parts of the developing world because its markets have expanded more rapidly.
The ratio of financial assets to GDP rose to 370 percent of GDP in developing Asia in 2007 from 250 percent in 2003, the study said.
In comparison, Latin America’s ratio only rose by modest 30 percent with the result that estimated losses on financial assets were a much lower $2.1 trillion, or 57 percent of GDP.
Based on the study, the estimates measure the losses in equity and bond markets, including those based on mortgages and other assets, and the depreciations of currencies against the U same day payday loans.S. dollar.
The estimates did not include financial derivatives such as credit default swaps that further multiplied the size of the financial markets.
The data provides clear proof of the close connections between the markets and economies around the world, leaving few, if any, countries immune to financial or economic fallouts elsewhere, the study said.
“This is by far the most serious crisis to hit the world economy since the Great Depression,” Kuroda said at the opening of the two-day forum on the impact of global economic and financial crisis at the ADB headquarters in Manila.
Another ADB-commissioned study said South Asian countries could weather the financial crisis by taking both short- and long-term measures to stimulate their economies.
The subregion has been hit by capital outflows and weaker commodity prices, and faces a sharp slowdown in exports and remittances as global troubles worsen.
The ADB study suggested a number f measures to cushion the impact of the crisis, including rate reductions in India and Sri Lanka.
It also urged India and other countries in the subregion to consider incentives to encourage overseas workers to remit money home, such as special savings instruments and possible currency swap arrangements to keep financial systems stable.
(Reporting by Manny Mogato; Editing by Jan Dahinten)
Federal Finance Minister Jim Flaherty expects poor economic numbers in this quarter and beyond as the recession deepens, and is stressing the importance of rolling out the government’s stimulus package as soon as possible.
"This is not business as usual," he said yesterday during a lunchtime speech to the Toronto Board of Trade and the Canadian Italian Business and Professional Association. "We need to get this stimulus into the economy."
Flaherty dismissed suggestions he might have to tweak the budget due to the recent spate of gloomy economic news in Canada, including dismal unemployment and growth numbers. Later, he told reporters the government had anticipated "substantial deterioration," and noted its forecasts in the Jan. 27 budget were more conservative than those of many economists.
This week, Statistics Canada reported that the country’s economy shrank at a 3.4 per cent annualized rate in the fourth quarter of 2008. That came on top of the most recent unemployment report, which showed the economy shed 129,000 jobs in January, pushing the jobless rate to 7.2 per cent.
Adding to the despair, the U.S. government said yesterday that country’s unemployment rate surged in February to 8.1 per cent, a 25-year-plus high, as 651,000 jobs evaporated.
Emphasizing that "we know that we will come out of this," Flaherty told the audience that the key for the government is to make sure the stimulus hits the economy quickly to cushion the impact of the recession on Canadians. Speed is also crucial to avoid the inflationary effects that could result if the money floods the economy after it starts to recover, he added.
He said Ottawa will enforce a "use-it-or-lose-it principle" when it comes to stimulus money, and is prepared to claw back money that isn’t used in a timely way.
Flaherty also highlighted the importance of avoiding the creation of "a long-term, permanent deficit," and said Canada has more room to manoeuvre than many industrialized countries because it entered the recession in "relatively good shape good credit score."
Flaherty said Canada’s debt-to-GDP ratio, which now stands at about 29 per cent, is poised to rise to about 32 per cent over the next three years as the government amasses deficits to pay for its stimulus package, before falling again. By contrast, he said, the U.S. debt-to-GDP ratio could hit the high 40 per cent range, or even top 50 per cent, as the American government tries to revive its sagging economy.
The Canadian government’s budget implementation bill passed third reading this week in the House of Commons, and is now before the Senate.
Flaherty said that if public money is going to be used to prop up North American automakers they will have to present "a long-term, sustainable plan for survival." Chrysler and General Motors are already operating on government loans in the U.S., and are seeking billions more to stay afloat.
He suggested variables that would have to be addressed in such a plan include "reasonable assumptions" about future vehicle sales, legacy costs such as pension obligations, and "concessions, if any, with respect to wage packages, benefits and so on."
"It’s going to take some progress on the part of the auto companies for this to be successful," he said.
In pushing the stimulus out the door, Flaherty admitted "there will be some mistakes made." But he argued it is worth the risk.
"The much greater risk is that we don’t act in time, and that we see tens of thousands of Canadians suffer more than they need to, more than they have to … because we failed to act as a Parliament in time," he said. "We’re in better shape than the rest of the G7, we’re in better shape than most other countries in the world. That’s the good news for Canada. But we do have to take these measures…"
Brown Shoe Co., the owner of Famous Footwear and Naturalizer stores, said Wednesday that the combination of asset writedowns, restructuring charges and a decline in sales led to a $153 million loss in the fourth quarter ended Jan. 31.
The company, based in Clayton, said the loss equaled $3.68 a share, compared with a profit of $14 million, or 33 cents, in the same quarter last year. Sales were $521 million versus $571 million a year ago.
"The fourth quarter marked one of the most challenging quarters in our 130-year history," Ron Fromm, Brown Shoe’s chief executive, said in a statement.
Famous Footwear recorded a $11.9 million operating loss as it boosted advertising spending to maintain market share and manage inventory my credit score. The company’s specialty business, including Naturalizer and online retailer shoes.com, saw its loss widen to $19.7 million from $1.2 million.
Brown Shoe estimated 2009 sales of $2.2 billion to $2.3 billion versus last year’s $2.3 billion. The company didn’t provide an earnings forecast because of the "uncertain economic environment and lack of sufficient visibility." Shares of Brown Shoe closed Wednesday at $3.25 per share, up 8 cents, or 2.5 percent.
—JEFFREY TOMICH
The government launched a much-awaited program Tuesday to spur lending for autos, education, credit cards and other consumer loans by providing up to $200 billion in financing to investors to buy up the debt.
If the program succeeds, it should help bust through the credit clogs in place since last year and make it easier for Americans to finance large and small purchases at lower rates, Federal Reserve Chairman Ben Bernanke told Congress. That, in turn, would help revive the economy, he said.
Created by the Fed and the Treasury Department, the program has the potential to generate up to $1 trillion of lending for businesses and households, the government said. It will be expanded to include commercial real estate, though that won’t be part of the initial rollout.
The program will start off by providing $200 billion in loans to investors with the goal of jump-starting lending to consumers and small businesses.
The program, dubbed the Term Asset-Backed Securities Loan Facility, was first announced late last year and originally was scheduled to start in February.
Participants — companies and investors that pledge eligible collateral to back the loan — must request the new government loans by March 17 car loan interest rates. The Fed will provide the three-year loans on March 25.
"We should see immediate benefits to students, to credit cards, to small businesses, to consumer loans," Bernanke said.
Under the program, the Fed will buy securities backed by different types of debt, including credit card, auto, student and small-business loans. The credit crunch has made it much harder for people to obtain such financing, and those who do can be socked with high rates.
Before the financial crisis, banks relied on packaging such loans into securities and selling them to pay for additional lending. That process had financed about 25 percent of consumer loans in recent years until the credit markets ground to a halt in October.
The Fed plans to keep the program running through December but said it could be extended.
The worldwide PC industry will experience its sharpest shipment decline in history this year as the global economy continues to deteriorate, said technology research group Gartner Inc. on Monday.
PC shipments are expected to decline 11.9 percent to 257 million units in 2009. Until now, the worst decline in PC shipments was in 2001, the height of the tech-bust-fueled recession. That year, unit shipments contracted 3.2 percent, according to Gartner.
The forecast Monday was largely expected, as technology heavyweights like Dell Inc., Hewlett-Packard Co. and Microsoft Corp. had issued lackluster earnings and forecasts.
H-P, the world’s biggest PC maker, cut its 2009 profit outlook last month. It also reported a 13 percent drop in its fiscal first-quarter profit as even its lucrative printer ink business felt the recession’s squeeze.
Dell, the No. 2 PC maker, posted a 48 percent decline in its fourth-quarter earnings and also cut its 2009 guidance — though it was still in line with Wall Street’s expectations.
Gartner expects both emerging and mature markets to suffer "unprecedented" slowdowns auto loan. Slower gross domestic product growth will weaken demand and lengthen PC lifetimes as people and businesses wait longer to replace their computers.
"The impact of reduced replacements will be especially acute in mature markets, where replacements are estimated to account for around 80 percent of shipments," said George Shiffler, research director at Gartner, in a statement.
At the same time, mobile PC shipments are expected to grow, boosted by growing demand for mini-notebooks — low-cost, low-power computers.
These computers "cushion the overall PC market slowdown, but they remain too few to prevent the market’s steep decline," Gartner said. Mini-notebooks are forecast to represent just 8 percent of PC shipments in 2009.
The Treasury and Federal Reserve said on Monday that ailing insurer American International Group will get up to $30 billion more from U.S. taxpayers as part of a new government rescue bid.
AIG posed a “systemic risk” that meant government action was necessary to buttress the insurer and ward off the possibility troubles at the insurer could damage the entire financial system, the Treasury and Fed said.
The joint announcement came just minutes before AIG reported that it had lost $61.7 billion, or $22.95 per diluted share, in the fourth quarter.
The revamped rescue bid market the third time since last fall that the government had stepped in to help AIG, once the biggest insurer by market value.
As part of the latest bailout effort, the Fed will reduce a $60 billion credit facility in exchange for taking a preferred interest in AIG subsidiaries American Life Insurance Company and American International Assurance Company Ltd. The credit line will not fall below $25 billion.
All the common stock of the two AIG units will be held in a so-called special purpose vehicles that will allow AIG to keep control of them but give the Fed rights to protects its ownership interest direct payday loans.
The Fed will also ease the interest rate it charges AIG for tapping the credit line.
AIG agreed to issue on March 4 shares of convertible preferred stock equaling a 77.9 percent interest in return for the new government money. The shares will be held in an independent trust for the benefit of the U.S. Treasury.
The Treasury and the Fed said that AIG, which has counterparites around the globe, was so important to the U.S. economy and financial system that it had to be helped, and they held out the possibility more aid might be needed.
“This will take time and possibly further government support if markets do not stabilize and improve,” they said.
(Reporting by Glenn Somerville)
Billionaire Warren Buffett said the economy will be “in shambles” this year, and perhaps longer, before recovering from the reckless lending that caused the worst “freefall” he ever saw in the financial system.
Stocks and the economy will rebound, and the best days for the U.S. are ahead, said Buffett, chairman of Berkshire Hathaway Inc., in his annual letter to shareholders yesterday. Buffett said he’ll spend the recession shopping for new investments for Omaha, Nebraska-based Berkshire.
“The economy will be in shambles throughout 2009 — and, for that matter, probably well beyond,” said Buffett. “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so.”
Buffett, an informal adviser to President Barack Obama, said the consequences of the U.S. housing bubble are now “reverberating through every corner of our economy.” Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said Feb. 27.
Late last year, “the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country,” said Buffett, 78. “Fear led to business contraction, and that in turn led to even greater fear.”
Berkshire’s fourth-quarter net income fell 96 percent to $117 million, the firm said yesterday. Book value per share, a measure of assets minus liabilities, slipped 9.6 percent for all of 2008, the worst performance under Buffett’s watch, on the declining value of derivatives and the stock portfolio. Berkshire shares have plunged 44 percent in the past 12 months.
‘Quality Merchandise’
The Standard & Poor’s 500 Index will probably gain in three-fourths of the next 44 years, just as it did in the period since Buffett took over Berkshire in 1965, he wrote. The benchmark dropped 38 percent last year, the most since 1937.
“We enjoy such price declines if we have funds available to increase our positions,” Buffett wrote. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Berkshire’s cash hoard was about $25.5 billion at yearend, down from $33.4 billion on Sept. 30.
Buffett disclosed increased holdings of Posco, Asia’s third-largest steelmaker, and Sanofi-Aventis SA, France’s biggest drugmaker. Berkshire sold $4.77 billion of equities in the fourth quarter to help fund private deals for preferred shares in Goldman Sachs Group Inc. and General Electric Co. The sales included shares of Johnson & Johnson, Procter & Gamble Co. and ConocoPhillips, holdings that, Buffett wrote, “I would have preferred to keep.”
‘Major Mistake’
Buffett said he made a “major mistake” in buying shares of oil producer ConocoPhillips when oil and gas prices were near their peak. Berkshire paid $7.01 billion for its remaining stake, which was valued at $4 high risk personal loans.4 billion as of Dec. 31.
Among his other errors for the year, Buffett listed the purchase of shares in two Irish banks that he didn’t name for $244 million. Berkshire wrote down the stake by 89 percent.
Buffett’s analysis and wit earn attention from professional money-managers and individual investors because of his success as a stockpicker and businessman. Named the richest American by Forbes magazine in October, he transformed Berkshire from a failing textile maker into a $120 billion company with businesses ranging from ice cream to power plants.
Berkshire’s profit was hurt by writedowns on derivative bets tied to four of the world’s stock markets, while the insurance and utilities businesses fared well because their prospects aren’t correlated with the economy, Buffett said. Liabilities on the derivatives widened 49 percent to $10 billion in the fourth quarter, though the contracts don’t require Berkshire to pay out until at least 2019, if at all.
‘Venereal Disease’
Buffett decried the way other companies allowed their derivatives to make them too dependent on each other, and said Berkshire’s contracts are different — in part, because his firm usually isn’t required to post collateral when assets drop.
For others, “a frightening web of mutual dependence develops among huge financial institutions,” he wrote. “Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal diseases: It’s not just whom you sleep with, but also whom they are sleeping with.”
Firms with enough derivatives can “infect the entire neighborhood,” he said, and require government help to avoid a wider collapse.
Buffett endorsed efforts by the U.S. to prevent the failure of financial firms including Bear Stearns Cos., which was sold to JPMorgan Chase & Co. The U.S. is being called to commit more capital to ailing financial companies after the $250 billion in aid it originally allocated last year failed to staunch losses on soured loans at regional lenders and the biggest banks.
Avoiding Cataclysm
“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”
Buffett predicted bailouts will cause “unwelcome aftereffects” including inflation.
“Major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests,” he said. “Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”
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