Economic Roundup (Week of 11-10-08 to 11-14-08): Corporate Earnings Sour; More Job Losses; Treasury Adjusts Goal of TARP; Interest Rates on Bank Deposits Rise

It’s time for another roundup of distressing economic data.  I have upped the usual three categories to four this week if only so that I could report some positive news among the gloom.

Let’s get the ugliness out of the way first.  By now, my readers know that the economy is tumbling into a deep recession.  So it should come as no surprise that corporate earnings are shrinking (Wal-Mart excepted for the moment), unemployment is rising and the Treasury is still trying to figure out how best to spend the money the Congress gave it.  What is alarming, once again, is the speed at which corporations are feeling the effects of sharply reduced consumer and business spending.  In its dismal earnings report, Best Buy noted a “seismic shift in consumer behavior.”  What Best Buy and other retailers are experiencing is a consumer spending freeze that can be directly attributed to the credit market freeze.  If consumers cannot borrow money or must to borrow at higher interests and are concerned about their job security and housing situation because their employers are losing money and cannot borrow money or must borrow at higher interest rates and the values of their homes (if they have not been foreclosed upon) are declining seemingly without end, then practically all economic activity ceases.

Corporate Earnings Headlines

Here is the summary of the overall earnings data:

As of Friday, November 14th:

463 companies in the S&P 500 have reported earnings for third-quarter 2008, 59% of the companies have beaten expectations, 10% were in-line, and 32% missed.
The blended earnings growth rate for the S&P 500 for Q3 2008, combining actual numbers for companies that have reported, and estimates for companies yet to report, fell to -18.4% from -13.9% can be attributed in part to lower than expected earnings from AIG and GM.
On April 1st, the estimated growth rate for Q3 was 17.3%, and by July 1st, the estimated growth rate had fallen to 12.6%. (Data provided by Thomson Reuters)

And now the headlines:

• Kohl’s, Nordstrom Cut Year Views as Holidays Loom 13 Nov 2008

Kohl’s and Nordstrom, two large U.S. retailers, reported sharply lower quarterly profits Thursday and warned of worse-than-expected results for the rest of the year, just weeks before the critical holiday shopping season gets under way.

• Wal-Mart Profit Tops Views, but Forecast Trimmed

Wal-Mart Stores reported a slightly better-than-expected 10 rise in quarterly profit Thursday as shoppers seeking relie…

• Applied Materials Beats Forecasts, Will Cut Jobs

Applied Materials, the No. 1 chip equipment maker, warned that profit in the current quarter would fall far short of Wa…

• NetApp Profit Falls but Beats Expectations

Data storage maker NetApp reported quarterly results ahead of Wall Street expectations, although most of its customers …

• Computer Sciences Earnings Rise on Tax Gain

A hefty tax gain boosted Computer Sciences’ second-quarter net income and the U.S. technology services provider said it…

• Macy’s Posts Smaller-than-Expected Loss

Department store operator Macy’s posted a smaller-than-expected loss on Wednesday, and reiterated its forecast for the …

• Best Buy Cuts Guidance as Consumer Spending Falls

Best Buy slashed its fiscal 2009 profit forecast on Wednesday driven by weak consumer spending trends heading into the …

• Tyco International Warns on 2009; Shares Slide

Tyco International warned that fiscal-year profit would be well below Wall Street forecasts because of the economic dow…

• Petrobras Posts Record $10.9 Billion Profit

Brazilian state oil company Petrobras posted a record third-quarter net profit that was nearly double that of a year ea…

• P&G Raises Earnings Outlook after Folgers Sale

Procter & Gamble raised its second-quarter and full-year profit forecasts on Monday as it estimated higher-than-expecte…

• Toll Brothers Says Cancellations Rose Sharply

Toll Brothers said Tuesday cancellations rose and traffic fell to record lows as the financial crisis worsened in the l…

• TJX Profit  Falls 5%, Cuts 2009 Forecast

TJX, which operates the T.J. Maxx and Marshalls stores, says third-quarter profit slipped 5 percent as unfavorable exch…

• Starbucks Profit Falls, Misses Expectations

Fewer U.S. customers and venti-sized costs for closing poorly performing stores led to lower sales and profit in the fo…

• Troubled Insurer AIG Posts $24 Billion Loss

Troubled insurer American International Group posted its largest-ever quarterly loss on Monday, hurt once more by write…

• McDonald’s Sees 8.2% Sales Growth in October

McDonald’s on Monday said global sales at its fast-food restaurants open at least 13 months rose 8.2 percent in October

• HSBC Profit Up on Year Despite $4.9 Billion US Hit

Europe’s biggest bank HSBC Holdings said its profit in the third quarter was ahead of a year earlier as growth in Asia …

• Fannie Mae Posts Record $29 Billion Quarterly Loss

Fannie Mae, the largest provider of funding for U.S. residential mortgages, on Monday said it lost a record $29 billion…

• Nortel to Layoff 1,300 People, Posts Big Loss

Nortel Networks reported a large quarterly loss and announced a round of sweeping cost-cutting Monday, from laying off …

Job Losses

The following is from a Bureau of Labor Statistics report on third-quarter 2008 on mass layoffs (keep in mind that the credit market freeze occurred during the third-quarter, so this report reflects only the beginning of what is to come based on how the economy had been deteriorating prior to the total freezing of the credit markets):

In the third quarter of 2008, employers initiated 1,330 mass layoff
events that resulted in the separation of 218,158 workers from their
jobs for at least 31 days, according to preliminary figures released
by the U.S. Department of Labor’s Bureau of Labor Statistics. Layoff
events reached their highest level for the third quarter since 2001,
while separations reached their highest level since 2003. The total
number of layoff events was 312 higher in the third quarter 2008 than
the same period a year earlier, and the number of associated
separations increased by 58,134. (See table A.) Third quarter 2008
layoff data are preliminary and are subject to revision. (See the
Technical Note.)

Both events and separations in the construction industry reached
third quarter program highs in 2008. The number of separations in
manufacturing rose sharply (+32,175) over the year, largely due to
increased layoff activity in the transportation equipment sector
(+12,930).

Among the seven categories of economic reasons for layoff, business
demand accounted for the highest share of events (43 percent) and
number of separations (76,979) in July-September 2008. (See table B.)
The largest over-the-year increases in the number of separations
occurred in layoffs attributed to business demand factors (+27,711)
and organizational changes (+10,533). Within business demand, the
number of separations due to slack work nearly doubled to 41,116,
while in organizational changes, layoffs attributed to business-
ownership changes more than doubled to 11,692. Within financial
issues, the number of workers terminated because of bankruptcies
nearly doubled over the year to 12,156.

Permanent closure of worksites occurred in 15 percent of all
extended mass layoff events and affected 50,025 workers during the
third quarter of 2008. Thirty-one percent of employers reporting a
layoff indicated they anticipate some type of recall, down from 38
percent a year earlier and the lowest third quarter proportion since
2002. Excluding seasonal events, employers anticipated recalling
workers in 20 percent of the layoffs, matching third quarter 2002 as
the lowest proportion for any quarter since data collection began in
1995.

The national unemployment rate averaged 6.0 percent, not seasonally
adjusted, in the third quarter of 2008, up from 4.7 percent a year
earlier. Private nonfarm payroll employment, not seasonally adjusted,
decreased by 0.6 percent (-672,000) over the year.

Here are the reasons given for the layoffs:

Among the seven categories of economic reasons for extended mass
layoffs, events related to business demand factors (contract cancel-
lation, contract completion, domestic competition, excess inventory,
import competition, and slack work) accounted for 43 percent of the
extended layoffs and 35 percent of separations during the third quar-
ter of 2008. (See table 2.) Separations in this category registered
the largest over-the-year increase (+27,711), with those related to
slack work/insufficient demand/nonseasonal business slowdown nearly
doubling. The numbers of workers terminated because of business de-
mand reasons were highest in temporary help services, light truck and
utility vehicle manufacturing, and professional employer organizations.

Seasonal factors (seasonal and vacation period) made up 15 percent
of the extended layoff events and resulted in 38,742 separations, pri-
marily in school and employee bus transportation and in food service
contracting.

Job losses related to financial issues (bankruptcy, cost control,
and financial difficulty) accounted for 13 percent of events and
resulted in 32,812 separations during the third quarter of 2008,
compared with 28,461 separations a year earlier. This increase was
largely due to bankruptcies in full service restaurants.

Treasury Switches Purpose of TARP

This week Treasury Secretary Henry M. Paulson, Jr., announced that the Troubled Asset Relief Program (TARP) would not be used to purchase “toxic” mortgage-backed securities from banks, but rather would now be used to continue to recapitalize banks by buying preferred shares of stock, and thus, taking an ownership position in the banks.  If you are interested in more on this topic, click here for an article at The Wall Street Journal.

Rates on Bank Deposits Rising

Facing increasing competition for deposits, banks are increasing rates on certificates of deposits and other savings accounts to make themselves more attractive.  This is good news, and a pleasant side effect of the credit crisis, for savvy investors looking to escape the volatility of the stock market for awhile, without having to simply stuff their retirement funds under a mattress.  Usually, when the Federal Reserve lowers its overnight lending rates in order to spur economic growth, banks pass on the lower rates to borrowers and simultaneously penalize depositors by lowering rates on the interest-bearing accounts.  However, as The Wall Street Journal reports, banks are in competition with one another to increase their deposit bases in order to shore up their balance sheets.  So, even though we are in a low-interest rate environment, banks are boosting the rates they offer on certain savings accounts.  Anyone who is interested in reading the whole article may link to it here.  Also, be sure to click over to Bankrate.com (under the Blogroll) to check out the latest rates on interest-bearing accounts in your area.