Saturday, August 07, 2004

8/7/04 Connecting The Dots

On Thursday, the Deloitte Research Leading Index of Consumer Spending was released. The Index fell in May and June, the first consecutive two-month decline in the index since early 2003. Prominently mentioned was the finding that real wages sharply declined as gasoline prices take a toll on consumer purchasing power.

On Friday, the BLS reported that average hourly earnings in July rose by 5 cents, and over the past year, average hourly earnings grew by 1.9%. When you drive into the gas station to filler up, that 5 cents is devoured pretty darn quickly.

The Strategic Petroleum Reserve currently holds 665 million barrels of crude at 4 sites in Texas and Louisiana. The Bush Administration announced it was adding more oil to the Reserve, and over a six-month period beginning Oct. 1, the 700-million barrel capacity will be filled by mid-2005.

the BLS: "The confidence interval for the monthly change in total employment from the household survey is in the order of plus or minus 350,000...BLS analyses are generally conducted at the 90% level of confidence...at an unemployment rate of 5.5%, the 90% confidence interval for the monthly change in unemployment is +/- 320,000."

the BLS: With respect to the establishment survey, "estimates for the most recent two months are based on substantially incomplete returns; for this reason, these estimates are labeled preliminary in the tables. It is only after two successive revisions to a monthly estimate, when nearly all sample reports have been received, that the estimate is considered final."

U.S. stock indexes closed yesterday at 2004 lows. The Nasdaq closed at its lowest point since last Aug. 26; the Dow closed at its lowest level since Nov. 28; and the S&P 500 closed at its lowest point since Dec. 10. Many economists believe that a good's price reduction will generate greater demand. Unfortunately, for many, economic theory does not always produce pleasing results with equities when they are falling in price. Such declines can lead to margin calls and to increased selling.

Some believe that business closings can be seasonal in nature. That is not the case with plant closings. They continue in all months. Sheridan Books of Spotsylvania County, Pa will close their manufacturing facility in late September. About 145 employees will lose their jobs.

U.S. consumer credit rose by $6.6 billion in June, a 3.9% annual rate. May increased by $8 billion.

The July S&P Hedge Fund Index fell 0.54%.

In June and July, many economists expounded on the "soft patch" theory. The stock and bond markets are telling us a very different story. When was the last time an economist risked his or her own capital based on his or her own economic predictions?

Friday, August 06, 2004

8/6/04 The Two Surveys

This week has been a new experience for me. Mike and I have been the closest of friends for 35 years. He called me early Monday morning and asked if I would ghost write his daily blog. Being a publisher, this was a new role. I also knew the blog is important to Mike, and the serious family illness was all he could handle. All he said was "don't read the newspapers or magazines or listen to the radio or watch TV for the info. Just present the facts. Stay the course. The facts are quite clear. The keys are temp help and services."

Everyone could see that crude was making new highs and that consumer spending was being impacted. Not everyone paid attention to the large percentage drop in those hiring in the ISM report--from 27 to 18%. That should have been a good starting point for the July non-farm payroll number. It was not surprising to see the usual suspects do well in July- employment in healthcare and social assistance increased 20,000 and employment in professional and financial services rose by 42,000 in July; however, employment in temporary help was little changed in the month of July and services only added 14,000 jobs, helping to explain why non-farm payrolls only rose by 32,000. It should be noted that May and June's numbers were revised lower by a cumulative 61,000.

Bush supporters will point to the household survey's gain in employment of 434,000. The BLS has studied the differences in both surveys and they are summarized at http://www.bls.gov/cps/ces_cps_trends.pdf.
The Fed prefers to rely on the non-farm payroll survey with a base of information quite different from the household survey. Speaking of the Fed, they have a dilemma. Do they swallow their pride and stand pat on interest rates next week? With 10 year treasuries yielding 4.19%, it would appear that the Fed is being largely ignored. The Fed might remember Kodak. They recently announced closing 9 processing labs in 7 states. About 1,000 jobs will be lost- most by the end of August. Next month's non-farm payroll number may look worse than July's.

Please excuse me rushing off. I need to return to my day job.

Thursday, August 05, 2004

8/5/04 Hiring Trends Continued

The services sector accounts for almost 80% of our economy. Yesterday, the ISM Services Survey on employment dropped to 50 from 57.4. This was the sharpest one-month decline in the history of the survey. To pooh pooh such a decline would indeed be foolhardy.

The Monster Employment Index collects data from over 1,500 web sites. Its July index declined from 136 to 134, still a strong number when compared with the start of 2004.

In the week ended July 31, U.S. jobless claims fell by 11,000 to 336,000; however, the 4-week moving average rose by 6,750 to 343,500.

In sum, the latest hiring trends for the manufacturing and services sectors were weak in July. Balancing that, in part, was the feeling expressed by many in employer-owned businesses that hiring has continued during this period. This mixed picture will create a non-farm payroll figure that could disappoint many.

Once again, Wal-Mart had its pulse on the paycheck-to-paycheck crowd. July same-store sales for the Wal-Mart stores division rose by 2.4% vs the 4.5% gain in the year earlier period; however, its Sam’s Club same-store sales rose 7.7% this July vs 5.1% last year. Overall company results improved by 3.2% in the U.S. and management forecasts a 2 to 4% gain for August. Meanwhile, Target’s July same-store sales increased by 3.8% and Nordstrom’s by 6.1%. On the other hand, results were disappointing for Sears, Kohl’s, Gap, May’s, T J Maxx, Foot Locker, Dollar Tree, Limited, Pier I, Ross, and others.

Wal-Mart is experimenting at five locations with having their pharmacy operating on a 24-hour basis, just like Walgreen’s.

The Bank of England raised its lending rate by a quarter point to 4.25%

Bankrate.com stated that the average 30-year fixed rate mortgage of 6.02% is the lowest since April 14.

Nanosys withdrew its IPO.

Chrysler recalled more than 830,00 minivans.

Wednesday, August 04, 2004

8/4/04 Recent Hiring Trends

In the July Hudson Employment Index, the percentage of workers reporting hiring at their companies fell one point from June to33%, the same percentage reached in March. The percentage of managers who say their companies are hiring fell two points to 34% from last month’s reading, and was one point below the March and April reading. Private-sector employees report that 39% of their companies are hiring, and that level ahs remained unchanged for the past four months.

Challenger, Gray, & Christmas stated employers announced 69,572 job cuts in July, up 8% from June but down 18% from July 2003. Hiring announcements also declined to 26,880, a 30% drop from June’s level, which was down 31% from May.

The other day we learned that there was a decline in the latest ISM Mfg Employment Index. Many might wonder how that could be with factory orders remaining at a robust level. One might consider that, stripping out transportation, June factory orders advanced only 0.1%. In the transportation sector, Boeing has only delivered four more planes than the year earlier period, and GM and Ford are building vehicles at a 17 million annual rate. You might think their business is vibrant. In fact, GM July sales were down 3.4% and Ford’s declined 3.7%. In an effort to reduce near-record inventories, GM raised incentives on some cars and trucks to $6,000. As of yesterday, GM is offering a $2,500 rebate on many 2005 models! It should be remembered that auto sales represent about 20% of total retail sales. The auto business is beginning to hurt in China too. Overcapacity, falling prices, and a tightening of credit availability are taking its toll on Chinese automakers, and that includes GM.

We are approaching Friday, and the release of July’s non-farm payrolls. The most recent Bloomberg poll of economists has been reduced from last week’s forecast from a gain of 250,000 jobs to 228,000. There is little question that, as crude prices rose to $40 a barrel and higher, consumer spending dropped, and with it, business activity and the pace of permanent hiring. We know that there has been a recent uptick in plant closings, such as this month’s call center in North Dakota, which resulted in about 260 layoffs. Hiring announcements have slowed. It will be difficult to generate the anticipated payroll gain of 228,000 non-farm jobs. In fact, one might expect a downward revision in the disappointing June number. Importantly, gains in wages and benefits will, once again, not keep pace with inflation. The bond market is poised for a disappointing July number. Will the stock market adjust to reduced payroll numbers without producing a slew of mutual fund redemptions? Rather than just focusing on July’s numbers, a better view might take in the August picture. With crude at $44 per barrel, consumer spending will be constrained and business activity will slow materially. Hiring will be impacted. It would not be surprising to see little or no job gains in August. Preparing for this strong possibility might help to preserve your investment capital.

Tuesday, August 03, 2004

8/3/04 A Day For Puking

This blog is late being posted. I have been too busy puking. Yesterday, the Snowman asked Congress to raise the debt limit from its current level of $7.38 trillion. He stated this debt limit would be reached somewhere in late September or early October. It's the third time the debt ceiling would be increased during Bush's four years in office. This is unprecedented, irresponsible, and dangerous to the economic well being of our country. The debt ceiling should not be raised. Spending must be cut. Bush has not vetoed one spending bill. He would not know what the word "conservative" means. Rallying the NRA and churchgoers does not make you a conservative. It means you pack a weapon to church. If left in office for another term, this Administration will grease the rails towards our country's insolvency.

Construction spending fell 0.3% in June. Spending on housing dropped for the first time in 16 months. Residential construction fell 0.6% in June. The ISM Employment Index dropped to 57.3 from the prior month's 59.7. Consumer spending dropped 0.7% in June, the biggest decline since September 2001. Wages were unchanged in June. The Core Personal Consumption Expenditure Price Index rose only 0.1% in June. This is the index the Fed watches so closely. The personal savings rate rose to 2%. I have been predicting for some time that the savings rate would rise and consumer spending would slow dramatically.

Crude has risen above $44 per barrel.

As we know, this Administration did "misspeak" about the WMD. On Sunday, Homeland Security issued a terror alert for NYC, NJ, and DC. We now know it was based on pre-9/11 information and not recent information. How many times does the American public want to put up with this "missspeaking" and well-timed terror card? By the close of yesterday's trading, the stock market had seen through this mockery. Unfortunately, many innocent people had been agitated in the process. It's enough to make any American puke.

Monday, August 02, 2004

8/2/04 Paycheck To Paycheck

WalMart refers to their customers as living paycheck to paycheck. Putting that into perspective, Joe Gillen, Pinnacle Financial Strategies CEO, stated "some 70% of our working population lives paycheck to paycheck. They pay the minimum on their credit cards, if they have them. And if they miss a week of work, all their payments get behind." This is the main economic theme on Main Street.

Ten year Treasury bonds yield 4.43%, only modestly higher than the recent low yield of 4.36%. Whether it's a terror alert or an alert from slowing economic conditions, the recent trend in U.S. gov't bonds is down.

Speaking of terror alert, our intelligence gathering has been able to ferret out from a Pakistani al-Qaeda prisoner that the NYSE, World Bank, IMF, Prudential, and Citigroup may be bombing targets. Fortunately, Bush will be revamping our intelligence gathering. I wonder if that includes increasing our knowledge of speaking and understanding Pakastani citizens.

This week there are contrasting economic forecasts. Economists predict 250,000 new non-farm payroll jobs in July with rising hourly earnings but earnings that still trail the inflation rate. Construction spending is anticipated to drop from the prior month as are prices for manufactured goods; however, supposedly orders for the month will be on the upswing. What does this all mean? I'm not an economist and didn't make the forecasts. Thanks God. I am certain of one fact. Temporary job creation does not lead to sustainable economic growth.

Sunday, August 01, 2004

8/1/04 Present Dangers

Bush speaking yesterday in Canton, Ohio: "We'll help American families keep something they never have enough of, and that is time, time to be with your kids, time to go to Little League games or Girl Scout meetings." He certainly has provided more time, and it's not flex-time. It's a shorter work week, it's more temporary work, its less people working, and its less factories operating. If you want another four more years of more time, then vote for this man.

Bush continues speaking in Canton, Ohio: "After four more years, there will be better paying jobs in America. There will be more jobs in America." The facts speak in quite a different direction. After almost four years, wages and benefits, after adjusting for inflation, have declined each year since Bush took office. The BLS and the IRS confirm this statement. There have been less jobs in America, and that too is confirmed by the BLS. Americans cannot afford another four more of the Bush years. He has earned the right to be sent down to the Bush League.

According to a study of annual reports by RateFinancials Inc, among 120 of the major companies in the S&P 500 Index, long-term debt rose by a median of 30% when operating leases and other financial arrangements were added to the balance sheet. An example would be FedEx which has legally binding off-balance sheet debt that, in present value, may be more than double the amount of debt appearing on the balance sheet.