Thursday, March 25, 2004

2/26/04 Jobless Claims

As we know, a mass layoff is defined as 50 jobs lost from a single employer within 30 days. California reported the most initial claims for unemployment in February, with 29,895, followed by Ohio, Illinois, and Texas. These four states accounted for 50% of the nation’s initial claim for unemployment in February, according to the BLS. It is worthwhile noting that Ohio employers initiated 46 mass layoffs in February resulting in 4,142 initial claims. In the year earlier period, there were the same 46 mass layoffs with 4,097 lost jobs. Yesterday, we discussed that the employment picture in Illinois is stuck in neutral, and the same can be stated for Ohio.

It is also worth noting that the Conference Board’s Help-Wanted Index is also stuck in neutral. The Index registered 40 last month and in the year earlier period it was 41. As the Conference Board’s chief economist Ken Goldstein noted, “consumers have grown more concerned about why continued increases in industrial production and GDP have generated only meager job increases.

There needs to be an analysis focusing on the differentiation between job creation and the decline in jobless claims. As the Center on Budget and Policy Priorities observed, the decline in jobless claims is the result of unemployed workers exhausting their eligibility for benefits. This is a topic we have discussed since December 21. The Center’s report indicated that 1.1 million unemployed workers will have exhausted their benefits in the period from December 21 through the end of March. Therefore, they were dropped from the unemployment rolls. We know that 1.1 million jobs have not been created in this period. In sum, taking into account layoffs, mass layoffs, individuals losing their unemployment benefits, and discouraged workers leaving the labor force, there has been a net job loss at least since December 21. Whether the BLS states 1 employee, 100 employees, 1,000 employees, 100,000 employees, or even 1 million workers are added to the payrolls, the economy has still experienced rising unemployment. You can listen to the spins by members of the Administration, Congress, and the BLS. The numbers will not change with the bullshit. Isaac Shapiro of the Center on Budget and Policy Priorities stated “in no other comparable period on record have so many individuals exhausted their regular benefits and gone without additional aid.”

New York Federal Reserve President Timothy Geithner: “The current deterioration in the U.S. fiscal position and the acute decline in the net national savings rate represent risks to the financial system and the economy as a whole.”

For the fourth quarter, the personal consumption expenditure (PCE) price deflator was revised from 0.7% annual rate to 1%.

Forecasts for the gain in March payrolls range from a low of 100,000 to a high of 225,000. Of course, no one seems to be concerned by the hundreds of thousands dropping off the unemployment rolls in March due to the loss of benefits. This is worse than looking at the world through rose-colored glasses. It’s creating numbers that have no basis in fact. One could say they are on the order of the perceived threat from WMD that ceased to exist in the early 1990s. Jobs have been destroyed and eliminated and so were the WMD. Many will take issue with this analogy; however, those that do probably have a job and most likely don’t have a family member or a friend who’ve been killed in the war in Iraq.

Fed Governor Donald Kohn: “Slack in resource utilization will probably be eliminated only gradually, so competition for jobs and for market share should remain intense…I think policy action can await convincing evidence that labor market slack is on a declining trend and that inflation is no longer decreasing.”



3/25/04 Stuck In Neutral

Michigan’s 6.6% unemployment rate remained unchanged in February. In visiting with Bruce Weaver, acting director of the Michigan Department of Labor and Economic Growth’s Office of Labor Market Information, I quickly learned that Michigan’s labor market is stuck in neutral. Bruce stated “most of our indicators show the job market remains pretty flat and hasn’t shown any signs of accelerating. We haven’t had much change from this time a year ago. It’s clear that employers across most industries appear to still be remaining cautious about adding additional workers to their payrolls.” In the latest survey of companies, the number of payroll jobs in Michigan declined by 8,000 to about 4.37 million. Even when looking at the more optimistic household survey, the number of working people rose by just 1,000 in February. Peter Morici is a business professor at the University of Maryland and a former chief economist for the U.S. International Trade Commission. Morici observed “a lot of people are sitting at home. A lot of people have evaporated into the gray economy. We’ve had a decline in real wages last year. So I would say that the job market is kind of sick.”

According to the California State Employment Development Department, from January 2001 through January 2004, the Bay Area lost 391,000 jobs, nearly equal to the entire population of Oakland. That represents an 11% decline in the job totals for the nine-county region. By comparison, from January 1990 through January 1993, the Los Angeles area lost 408,000 jobs, a drop of 9.9% according to the EDD data. Dan Van Dyke, an economist with Berkeley-based Rosen Consulting Group, stated “the Bay Area is certainly having one of the worst regional declines anywhere in the United States since the end of World War II. It’s hard to really comprehend how severe the decline has been in the Bay Area.”

According to the latest UCLA Anderson Forecast, California’s payroll growth within the next two or three months should run around 100,000 to 200,000 new jobs a month. That would be welcome news. There has been a net outflow of people moving from California to other states. The weak job market has been the main reason for the exodus. I believe the California economy has begun to level out, and is now in the neutral zone. That improvement does not equate to a sharp upturn in employment. Bruce Weaver could probably tell UCLA economists a thing or two.

Fiesta Food is closing 4 Wisconsin grocery stores and laying off 194 people on April 1. Arista Records is being folded into RCA Records. About 110 staffers were let go yesterday. Manulife Financial’s acquisition of John Hancock Financial will close this Spring. After the merger, there will be about 2,000 job losses worldwide, and a great portion of Hancock’s flagship tower in Boston’s Copley Square will be leased. Boston attorney Jason Adkins stated “it’s going to mean a lot of professional jobs will be lost, and a primary financial institution will be lost. That hub of activity is gone.” Human Genome Sciences plans to lay off 200 workers, or 20% of its workforce.

Working America has 125,000 members. It is a recently formed advocacy group for non-union workers, and it is one of 64 affiliates with the AFL-CIO. They are co-sponsoring with the AFL-CIO a bus tour throughout the U.S. to highlight the plight of workers who have been passed over by the economic recovery. Karen Nussbaum, director of Working America, stated “life is getting harder for most working people and that part of the story just was not getting told.”

April 1 is traditionally April Fool’s Day. This April 1 will have another side to it. The organization called Democracy Means You announced that more than 100,000 Americans are projected to participate in the National “I’m Embarrassed By My President” Day on April 1. They will be wearing brown ribbons, arm bands , or clothing to protest the spin, lies, manipulations, misrepresentations, and mismanagement of the Bush administration, stated the founder of Democracy Means You.

According to a recent poll by the Cherenson Group, 85% of Americans are more concerned with trust and honesty than with political viewpoint when considering for whom to vote. In addition, they view trust as more important than price and quality when deciding with whom to do business or invest.

The ECB will consider an interest rate cut at their April 1 meeting.

The Bundesbank president stated the German economic recovery this year is “somewhat weaker” than expected.

The State Street Investor Confidence Index dropped 1.7 points to 92.2 in March. The high point was 109 in December. The Index has fallen for three consecutive months.

According to Consolidated Credit Counseling Services, household debt grew 10.4% in 2003, the biggest increase since 1987. Net savings in the economy fell 38%. According to this organization’s latest survey, 63% of the 5,000 respondents stated debts are making their home lives unhappy and 43% have a debt to income ratio of 50% or more. In addition, 58% state their credit cards are at or near their maximum credit limit, 62% do not have a savings account, 37% took cash advances from one card to make payments on another card, and 59% only pay the minimum amount due on credit cards each month.

In February, demand for military aircraft surged 61% and for civilian aircraft about 34% and for autos 5%. Excluding the transportation sector, durable goods orders declined 0.3% in February, the first decline in three months. Mat Johnson, chief economist at Quantit Economic Group, stated “business investment spending will be moderate this quarter.”

Residential construction accounts for 5% of domestic GDP. Purchases of new homes have exceeded an annual rate of 1 million for 18 of the past 19 months.

Wednesday, March 24, 2004

3/24/04 Walking The Plank

Yesterday, the ABA announced that credit card delinquencies jumped to 4.43% in the fourth quarter of 2003, up from 4.09% in the third quarter. According to Federal Reserve data, consumers have built up about $745 billion in credit debt. A survey by Consumer Action indicated that time penalty fees are rising while minimum payment requirements are falling. In addition, the survey showed that consumers who only make the minimum payment end up paying more interest. About one month ago, Greenspan provided reassuring rhetoric to Americans about their increasing debt load. Unfortunately, those words reflected a lack of reality. One cannot focus on the decline in consumer lending delinquencies while ignoring the rise in credit card delinquencies. In addition, nearly one-third of households saw the debt ratio for renters rise to 29% of their fourth-quarter income in 2003 from 22% a year earlier. According to cardweb.com, average U.S. credit card debt is $9,205 and 42% of Americans are making minimum or no payments on their credit-card balances. Too many Americans are walking the plank. Fortunately, you won’t have to listen to Greenspan’s advice much longer. Last year about 9 million people sought help with debt. That number grows yearly.

In a February public opinion poll conducted by Harris Interactive and the Reputation Institute, 74% of those surveyed described the image of big companies as “not good” or “terrible.” Joy Marie Sever, senior vice president at Harris Interactive, stated “collectively and individually, corporate reputations are declining—a decline that stems from a lack of trust.” A growing number on Main Street see this as a very big problem.

According to the AFL-CIO, Colorado has lost 36,600 manufacturing jobs during the past three years. Steve Adams, president of the AFL-CIO in Colorado, stated “people are getting laid off and they can’t find work, and I think that’s a travesty.”

Washington, D.C.-based American Electronics Association represents 3,000 companies with 1.8 million workers. Their recent report concludes that companies are forced to outsource because of increased global competition. It stated “unfortunately, some workers will be hurt as they lose their jobs in the short run; however, offshore outsourcing is in the long-term competitive interest of the United States, increasing productivity, profits, and GDP.” On the other hand, state Sen. Terry Phillips of Colorado remarked “it’s easy to say it’s a short-term problem. But tell that to the worker who lost his job. Is it a short-term problem for someone who can’t make rent or pay the mortgage?”

Today, PriceWaterhouseCoopers will release its survey of 120 large investors. It will indicate that these investors have a raised concern about potential price drops for commercial buildings, in particular, office properties.

Lewis Platt, former HP CEO: “Formally successful companies did not make gigantic mistakes… the only real mistake they made was to keep doing whatever it was that made them successful for a little to long.”

Houston-based Reliant Resources has eliminated 277 jobs so far this year. In a letter sent this week to the Texas Workforce Commission, the company stated it planned to shut down its operations at a complex where various services are provided to power plants. Reliant expects 194 employees could expect to lose their jobs in late May.

Tuesday, March 23, 2004

3/23/04 Maintaining Balance

All investing eyes will be focused on this morning?s higher opening for equity prices. It is not for me to suggest what is important to each individual. At the same time, it might be appropriate to turn our attention to yesterday?s speech given by Michael Moskow, president to the Federal Reserve Bank of Chicago, to risk managers in the Windy City. He remarked that, while the dollar?s decline and increase in raw material costs may cause prices to rise, these forces would be offset by an ?elevated? unemployment level and spare capacity at factories. He stated ?we believe the effect of slack resources remains predominant at this time, and we expect inflation to remain low this year?inflation rates are unlikely to increase significantly.? He is not worried about higher fuel costs hurting companies or consumers because ?energy is a smaller and smaller percentage of our GDP each year.? In the past 7 weeks oil prices have increased 15%. That?s nothing to be ignored.

If flat-rolled and other types of steel have more than doubled in price in the past year, who is to pay for these increases? Delphi Corp., the world?s largest auto parts manufacturer, won a TRO this month against a major supplier from passing along increased steel costs. Not every company has this clout. Up to this point, manufacturers have absorbed most of the increased prices. This cannot continue forever. Richard Yamarone, director of economic research at Argus Rresearch, stated ultimately, cutting jobs and increasing productivity is the only way many companies can survive in the effort to offset rising costs.

In a recent report, Cutting Edge Information reported that more than 90% of U.S. companies outsource at least one activity, turning to trusted suppliers to reduce overhead and exposure-shifting spending from riskier internal divisions and capital budgets to external contracts.

Because of declining production rates in the 747 and 767 lines in Everett, Washington, Boeing sent out more than 300 layoff notices on Friday. The company had a workforce of 80,000 in Washington in 2001. That number is now just above the 53,000 level. Boeing is in for more labor trouble. By a 3 to 1 margin, the technical and professional workers at Boeing?s Wichita plant voted yesterday to turn down the company?s latest contract offer. About 3,450 union workers at the Wichita facility have been working under an extension since a 3-year contract expired Feb. 19.

Microsoft faces a $613 million fine from the EU plus additional remedies requiring the company to share more information, including intellectual property, and to curb anti-competitive practices in violation of EU law. This is not a black and white situation. There will be give and take and everyone will get their pound of flesh. Right now it?s fuel for the media. Microsoft stockholders have seen the value of their shares dip to new yearly lows. For long term holders, this is but one more buying opportunity. The company will be around long after the EU is emasculated.

Siemens reported yesterday that they are planning on shifting more than 10,000 jobs in Germany to lower-cost countries in Asia and Eastern Europe.
3/23/04 Maintaining Balance

All investing eyes will be focused on this morning’s higher opening for equity prices. It is not for me to suggest what is important to each individual. At the same time, it might be appropriate to turn our attention to yesterday’s speech given by Michael Moskow, president to the Federal Reserve Bank of Chicago, to risk managers in the Windy City. He remarked that, while the dollar’s decline and increase in raw material costs may cause prices to rise, these forces would be offset by an “elevated” unemployment level and spare capacity at factories. He stated “we believe the effect of slack resources remains predominant at this time, and we expect inflation to remain low this year…inflation rates are unlikely to increase significantly.” He is not worried about higher fuel costs hurting companies or consumers because “energy is a smaller and smaller percentage of our GDP each year.” In the past 7 weeks oil prices have increased 15%. That’s nothing to be ignored.

If flat-rolled and other types of steel have more than doubled in price in the past year, who is to pay for these increases? Delphi Corp., the world’s largest auto parts manufacturer, won a TRO this month against a major supplier from passing along increased steel costs. Not every company has this clout. Up to this point, manufacturers have absorbed most of the increased prices. This cannot continue forever. Richard Yamarone, director of economic research at Argus Rresearch, stated ultimately, cutting jobs and increasing productivity is the only way many companies can survive in the effort to offset rising costs.

In a recent report, Cutting Edge Information reported that more than 90% of U.S. companies outsource at least one activity, turning to trusted suppliers to reduce overhead and exposure-shifting spending from riskier internal divisions and capital budgets to external contracts.

Because of declining production rates in the 747 and 767 lines in Everett, Washington, Boeing sent out more than 300 layoff notices on Friday. The company had a workforce of 80,000 in Washington in 2001. That number is now just above the 53,000 level. Boeing is in for more labor trouble. By a 3 to 1 margin, the technical and professional workers at Boeing’s Wichita plant voted yesterday to turn down the company’s latest contract offer. About 3,450 union workers at the Wichita facility have been working under an extension since a 3-year contract expired Feb. 19.

Microsoft faces a $613 million fine from the EU plus additional remedies requiring the company to share more information, including intellectual property, and to curb anti-competitive practices in violation of EU law. This is not a black and white situation. There will be give and take and everyone will get their pound of flesh. Right now it’s fuel for the media. Microsoft stockholders have seen the value of their shares dip to new yearly lows. For long term holders, this is but one more buying opportunity. The company will be around long after the EU is emasculated.

Siemens reported yesterday that they are planning on shifting more than 10,000 jobs in Germany to lower-cost countries in Asia and Eastern Europe.

Monday, March 22, 2004

3/22/04 Houston, We Have A Problem

The world is consuming 80 million barrels of oil a day. The average monthly price of crude oil, now $38+ per barrel, is the highest since oil futures started trading 21 years ago. You would think that people in Texas would be as happy as a wallowing pig without a care in the world. A recent Texas poll found 65% in the state had a gloomy outlook. The Houston economy is highly dependent on the energy industry; however, energy companies are reluctant to expand exploration and production because many worry the high prices may not be sustainable. Hence, John Markson, managing director of Towers Perrin, a Houston HR consulting firm, stated “there’s still a lot of uncertainty in the air- like the war in Iraq.” A 52-year-old Houston industrial engineer, who has been unemployed for 16 months, remarked “the jobs have just disappeared. They’ve just dried up.” Only 35% of those polled reported that they’re better off today than a year ago. I wonder if the man who lives on a ranch in Crawford, Texas is aware of that.

Today, Michigan Governor Jennifer Granholm will sign a pair of executive directives to prohibit the state from contracting with businesses that would do the work in foreign countries. In addition, companies now doing business with the state would be required to say who is doing the contracted work and where it is being done. Since 2000, 300,000 jobs have been lost in Michigan, with 170,000 of them manufacturing positions.

Matters are coming to a dicey head in Maryland. The state’s House Speaker Michael Busch will ask Democrats to endorse an increase in the state sales tax from 5 to 6% and the creation of a higher tax bracket for those earning more than $200,000 yearly. Gov. Ehrlich has already proposed and/or enacted $700 million in new taxes and fees since taking office, including the $187 million property tax increase, a $150 million vehicle registration fee increase, and a $60 million increase in corporate filing fees. In my view, Maryland lump crabmeat is not enough of an attraction to live in this state.

The CBOE volatility index is called the VIX, a math formula based on put and call option prices for the S&P 500 Index. Starting Friday, the CBOE will begin dealing in futures contracts on the VIX. In a couple of months, there will be futures tied to variance readings the S&P registers over one-and three-month intervals. Both are tools that should appeal to serious investors.

Last month, UC Berkeley economist Cynthia Kroll observed that 15.7% of the Silicon Valley employees were in vulnerable lines of work. It should be noted that Silicon Valley has already lost 18% of its jobs. This is not business as usual. The unemployed know this. The voters know this. The question you have to ask yourself as an investor is can you handle the truth? Telling me what it’s been like in the 20th century misses the mark. That and a buck and a quarter will get you on the bus—to palookaville.


Sunday, March 21, 2004

3/21/04 Michael Buble And The Real Deal

Michael’s last name is pronounced Bub-Lee. He is a crooner who comes from Vancouver, British Columbia. With only one album, Michael is not well known. On the other hand, he has been nominated for two Juno awards, for album of the year and new artist of the year. The Juno is Canada’s answer to the Grammy. He is the real deal and soon will be music to the ears of millions in the United States.

The real deal in the upcoming election is not about terror. It’s about loss of jobs. All the money spent on ads will not produce one job. In the 2000 election, Bush won Ohio and its 21 electoral votes by a margin of 165,000 votes. Since taking office, the BLS figures show Ohio has lost 265,000 votes. Bush won Missouri’s 11 electoral votes by 79,000 votes, roughly the same number of jobs lost during his presidency. Since Jan. 2001, New York has lost 286,000 jobs, Illinois has lost 165,000 jobs, California has lost 225,000 jobs, Michigan lost over 82,000 jobs just in the past year, and then there’s Pennsylvania etc. All the money spent on polling will not add one job. Kerry will win the electoral college vote. The popular vote is merely a distraction.

Wells Fargo is the nation’s largest agricultural lender. Michael Swanson is the bank’s chief economist responsible for analysis and forecasting on crops and livestock. He stated “I think we are in a good spot for row crops this year and next year in terms of prices being offered relative to costs. I’m bullish on supply structure, but I’m not bullish about prices moving higher.”

Richard Clarke was an advisor to four presidents during his 30 years in government service. Until February 2003, he was Bush’s top official on counter-terrorism and headed a cybersecurity board. Clarke told CBS that “I find it outrageous that the president is running for re-election on the grounds that he’s done such great things about terrorism. He ignored it. He ignored terrorism for months, when maybe we could have done something to stop 9/11.” Clarke maintains that, Bush’s decision to invade Iraq, strengthened terror groups.

Lao-tzu: “When the armies are mobilized and issues are joined, the man who is sorry over the fact will win.”

According to the BLS, the nation’s labor force grew at an average annual rate of 1.6% between 1950 and 2000 but is projected to grow at just 0.6% per year over the next 50 years. The annual labor growth rate will plummet to about 0.2% from 2015 to 2025 as the boomers begin to retire. According to the GAO, between 2008 and 2030, roughly 76 million baby boomers will leave the workforce but only 48 million workers in Generation X will available to replace them. Some economists opine that, other things being equal, lower growth in labor supply means less economic growth and lower standards of living. Some labor market analysts believe that, as the older age groups increase in size, and when people reach the age of 55, the rate at which they participate in the labor force begins to decline. Balancing that believe is the economic insecurity experienced by many seniors. Those on fixed income have been penalized by the record low interest rates, and this has contributed recently to more seniors in the labor force. To create a more advantageous structure, employers are finding that a smaller workforce requires less capital, even after accounting for increased investment in machinery. The net effect is to increase productivity by improving work processes so employers need fewer people to do the same amount of work. One worker nearing retirement age is Alan Greenspan. He remarked that “economists understand very little about how technological progress occurs, and research about the effects of aging populations on technological innovation has been sparse."

An economic recession is technically defined as two consecutive quarterly declines in the GDP. We had a third quarter GDP that was off the charts, and the fourth quarter results were very strong but they declined almost 50% from the prior period. If the first quarter GDP were less than 4.1%, then this would qualify as a recession. Naturally, this would be ridiculous. Therefore, statistics by themselves can be misleading. On the other hand, we need to more closely examine the job losses; the true unemployment rate; the hours worked in each week; the wage picture after the taxes paid at all levels of government; overproduction; loss of pricing power; deflationary pressures from outside the U.S. in both services provided and goods delivered; the impact from the twin tower deficits and the fallout on the dollar; tariffs; environmental standards; inflationary healthcare costs and their impact on Medicare, Medicaid, and hiring; the Social Security time bomb; and the increasing number of Americans without health insurance. As our examination continues, we might conclude that it is increasingly difficult to avoid a serious economic dislocation in the United States. That could be the real deal.