1/17/04 The World’s Largest Refrigerator Factory

On October 21, 2003 Electrolux AB, the Stockholm, Sweden-based company stated it might close the 1.7 million square foot Greenville, Michigan refrigerator factory that employs 2,700 people and move production to Mexico. Electrolux stated the move would save the company $81 million per year. A task force of local, state, and federal officials was assembled to investigate ways to persuade Electrolux to remain in Greenville, a city of 8,000 residents about 30 miles northeast of Grand Rapids. The plant makes 1.6 million refrigerators per year, including the Frigidaire brand, Kenmore, White-Westinghouse, Gibson, and Kelvinator. It is by far the largest employer in Greenville. The task force produced a package that would save the company $80 million over the next 20 years. Yesterday Electrolux issued the following statement: “At this time, the current proposals from the union, the community, and the state fall substantially short of eliminating Electrolux’s $81 million annual cost disadvantage.” The company will build a new plant in Mexico at a cost of $150 million over the coming two years. The Greenville factory will continue to operate into 2005. Refrigerators have been made in Greenville since the late 19th century. At that time they were manufactured from wood and called ice boxes. Labor costs are the main reason for the move. Workers at Electrolux’s vacuum cleaner plant in Juarez, Mexico earn about one-tenth of what their Greenville counterparts make.

Yesterday the state of California Economic Development Department reported the state lost 8,400 jobs outside the farm sector in December. They stated that thousands of people left the labor force in December and were no longer counted as unemployed.

Cathy Rudolph, a Boeing spokeswoman, stated the Boeing Commercial Airplanes unit will continue issuing layoff notices each month through the end of the year. Yesterday the company issued 60-day layoff notices to 80 workers. Though the monthly totals have fluctuated, and have decreased lately, Boeing has given notices to some workers each month since the end of 2001. Including the military, space, and commercial airplane businesses, Boeing has cut about 42,000 positions since 9/11. They still employ 157,000 workers.

Paul Allen is the co-founder of Microsoft. In June 2000, at a cost of $240 million, he founded the 140,000 square foot Experience Music Project, a rock ‘n’ roll museum. Over the past two years 170 workers have been given pink slips. In an effort to control costs, this week another 129 employees lost their jobs, and that means 214 workers remain at this Seattle museum.

Yesterday, Federated Department Stores stated it plans to close five poorly performing stores in Alabama, Georgia, Ohio, and Pennsylvania that in total employ 369 people. Federated operates Macy’s, Bon Macy’s, and Bloomingdale’s.

There is good news to report- in China. Roche, the Basel, Switzerland-based pharmaceutical company, announced yesterday it will be the first global healthcare company to establish an R&D center in Zhangjiang Hi-Tech Park in Shanghai, China. Jonathan Knowles, President of Roche Group Research, stated “China is a country with extra resources and internationally trained biomedical scientists. The creation of our fifth research site in the Roche Pharmaceuticals Division represents a key strategic decision that will allow us to continue to enhance our capabilities in medicinal chemistry on a global level. Looking to the long term, our aim is for the group in Shanghai to discover and optimize new molecules, active ingredients of potential new drugs, which address important unmet medical needs and can be marketed worldwide, including China.” Dr. Franz Humer, Roche Chairman and CEO, remarked “over the next few years China will become an even more important market for Roche. Our financial and intellectual investment is an expression of Roche’s long-term commitment to China. The resulting knowledge transfer will support Shanghai in its efforts to become a leader in innovation.” The facility will be operational by the end of 2004. Roche has been active in China for 10 years, and they are one of the leading suppliers of prescription medicines in China. They employ about 1200 people in Hong Kong and Shanghai.

Since the start of the Iraq war in March 2003, a total of 502 U.S. soldiers have been killed.

Yesterday, the Commerce Department reported that there was a 1.2 percent increase in inventories on car dealers’ lots in December. This was the primary reason for the 0.3% rise in business inventories at U.S. manufacturers, retailers, and wholesalers. However, inventories at manufacturers declined 0.2% while sales were unchanged. The media would lead one to believe that the economy continues to roll along at a brisk pace. The facts indicate quite the opposite. With the absence of pricing power, a continued drop in the money supply, and on-going layoffs, the economy faces challenging times. Industrial production remains essentially stagnant, and capacity utilization continues to combat muted domestic demand. Poll after poll indicates rising confidence. That and a $1.25 will get you on the bus. For all of 2003, factory use fell to 74.9% from 75.6% in 2002, and represents the slowest operating rate since 1983, according to Fed data.

The Iowa caucuses have led off the nation’s presidential primary season since the 1970s. Having listened to the concerns of Iowans, I am convinced the major issues are jobs and healthcare. There is, however, one seldom-mentioned fact. This state has a very large number of its citizens working two jobs in order to make ends meet. In other words, the quality of employment and the difficulty to find a job will be on center stage view on Monday night. Just about every day I have hammered home the unemployment problem and the underemployment dilemma facing a growing number of Americans. Each week I receive comments about my downbeat views on employment. Frankly, the complaints are ill founded, and if I should make anyone uncomfortable with my thoughts, please do not hold your breath for an apology. That is not a reflection of arrogance. Anyone reading my words over the years knows I admit my mistakes in a timely fashion, and I am dedicated to ensuring the same mistake is not made twice.

1/16/04 Wall Of Claims

I am not the one in the family with the artistic talent. I am unable to draw a picture of the wall of claims. As such, it will be necessary for me to describe it in words. The Labor Department depicts an unemployment condition that is improving on a national basis. The facts do not support that position. I will simply state some of the companies that have announced layoffs since the beginning of the New Year. This is a partial list: Boise Cascade, Monsanto, Great Atlantic & Pacific, IRS, WestPoint Stevens, Cargill, Tyson, Swift, Disney, SureBeam, Graphic Packaging, InterMet, SmurfitStone, KB Toys, Instinet, Piccadilly Cafeterias, Earthlink, Baltimore Sun, Elder-Beerman, Rayovac, Sun Microsystems, PhotoWorks, U.S. Airways, and MeadWestvaco. Outside the United States we can include Toshiba, Nokia, Cable & Wireless, Boots Group, and Seiyu. I thought we might take a trip to Georgia and see whether that state has had a different experience. The Georgia Department of Labor stated the number of workers filing a first-time unemployment benefit claim surged in December 2003. The department reported 59,206 laid-off workers filed for unemployment insurance benefits in December, an increase of 65% from November. Claims in Atlanta rose 46%. State Labor Commissioner Michael Thurmond stated “since the first of the year, such stalwart companies as Earthlink, WestPoint Stevens, Flint River Textiles, and Lord & Taylor have announced even more job cuts. These new losses not only affect workers whose jobs are being terminated, but make it even harder for Georgians who have been out of work for months to find employment.” When you read government statistics on unemployment, please remember the wall of claims. The government numbers are suspect.

Monique Simmons of Canton, Ohio: “I’ve been looking for a job for two years. It’s always, ‘we’ll get back to you.’ I just hear a lot of excuses.”

Gary Burtless, a labor economist at the Brookings Institution: “If you have investments already, and if you have a job already, the last 12 to 18 months have been very nice to you. The stock market has done well. You can refinance your mortgage. You can finance your new cars at very favorable rates, and prices haven’t been rising. But if you are looking for a new job or had the misfortune of losing a job, for those folks, life is much, much tougher. It’s just so damned hard to get employment.”

Lawrence Shade, the co-commanding officer of the Canton, Ohio Salvation Army: “Everybody’s closing down. Nobody thinks the Hoover plant’s going to be here in five years. Timken’s going down the drain. What’s going to replace a Republic Steel?”

Both the National Association of Manufacturers and the Manufacturers Alliance/MAPI are calling for government action to decrease the tax and regulatory burden on manufacturers. A study by the two groups estimated production costs were 22.4% higher in the United States than overseas because of high corporate taxes and soaring health care, legal, pension, and energy costs.

Lee Price, research director for the Economic Policy Institute: “When people are fired or there’s attrition in the labor force or workplace, employers are saying we’ve got to get the same work done with fewer people… it’s certainly not sustainable.”

Mart Jaffe, manager of InfoPLACE, a career counseling center at the Cuyahoga County Public Library branch in Maple Heights, Ohio: “You wouldn’t know that things are better based on the number of people who are either meeting with us or all the other job groups. It sort of cuts across class and experience and education. Assembly line workers and executives are both in the same boat.”

Legislators are currently on winter recess (like they are overworked!), but a hearing on the overtime rules is planned for Jan. 20. The National Association of Women, the AFL-CIO, the Economic Policy Institute, the International Confederation of Free Trade Unions, the Communications Workers of America, and Senator Tom Harkin of Iowa all oppose changes to the current overtime laws. Last year, both the Senate and the House passed an amendment that preserved overtime pay protection for most workers. The amendment, named after its sponsor, Tom Harkin, was later dropped from a spending bill under intense pressure from the White House. A study last year by the Economic Policy Institute found the new rules would remove overtime pay protection for about 8 million workers by reclassifying them as executives, professionals, and administrators. Workers earning more than $65,000 a year would also be exempt from overtime pay.

Yesterday, the Pension Benefit Guaranty Corp., which protects the retirement plans of more than 44 million workers, stated its deficit hit a record $11.2 billion in 2003. Executive Director Steven Kandarian stated the deficit was more than triple the $3.6 billion in the previous year, and “puts at risk the agency’s ability to continue to protect pensions in the future.”

Yesterday, the Economic Union, joined by nine nations including Japan, China, Brazil, India, and South Korea, asked for the go ahead to slap trade sanctions on the United States. The proposed sanctions focus on the Byrd amendment, which is deemed illegal. The amendment was passed in 2000, and since then, U.S. ball bearing, steel, seafood, pasta, candle, and other firms have received in excess of $700 million from anti-dumping duties on “unfairly traded” imports. Bush is expected to recommend the elimination of this amendment next month.

During the first seven months of 2003, Federal agriculture officials did not test any commercial cattle for mad cow disease in Washington state. For the past two years no animals were tested at Vern’s Moses Lake Meats. For the past two years no mad cow tests were conducted at any of the six federally registered slaughterhouses in Washington state. The test records were obtained under the Freedom of Information Act. It should be noted the USDA delayed releasing the testing results for six months. Only about 1,500 animals combined were tested at the top 10 slaughterhouses, which slaughtered nearly 60 million of the 70 million animals killed in the last two years.

Rep. Bob Beauprez, a Republican from Colorado: “In America, when we bite into a burger, we have a high degree of confidence that it is safe.” Excel is one of the five largest slaughter companies in the United States. Only two cows were tested at Excel’s facilities in Colorado in 2002. Bob, maybe you should think twice before you bite into that burger.

1/15/04 Mission Impossible

The nonpartisan Legislative Analysts’s Office says Gov. Arnold’s proposed state budget “provides a solid starting point for budget deliberations” but leaves a $6 billion gap between taxes and spending in the 2005-2006 fiscal year. “Even with the serious spending reductions it proposes in 2004-2005, the plan does not fully address the state’s ongoing budget problem.” The report states spending cuts deep enough to be effective in solving the state’s budget problems “would have far-reaching consequences for the scope of state services in a variety of program areas.” The city of San Jose, the home of Silicon Valley, is facing its second straight record deficit of more than $85 million. Referring to one-time borrowing, property sales, and other methods the city used last year to balance its budget, Edward Stringham, professor of economics at San Jose State University, stated “the tricks are nearly used up. The government simply does not have the ability to keep jobs when the money isn’t there.” Economists observe the city council and mayor must decide between painful layoffs for police, fire, and other city employees or risk the city spiraling into long-term financial crisis. Mayor Ron Gonzales remarked “at the risk of angering one of my grammar school teachers, I’d say it’s worser. It’s worse than last year, and the prospects in Sacramento are depressing.” San Jose Budget Director Larry Lisenbee stated “we’re talking about closing police stations and fire stations, the grass not getting cut, and the libraries not staying open.” Sales tax and property tax revenue in San Jose have fallen to 1998 levels. According to the city’s estimates, without major changes, expenses will continue to outpace revenue in San Jose through 2009. Don Kassner, an adjunct professor of micro-economic at San Jose State, remarked “whatever the Dow is doing, we’re not seeing that locally yet. What the city spends this year must be justified, line by line.” According to a new survey of consumer sentiment conducted by San Jose State University, residents in the Bay Area are the most pessimistic in California about their financial and economic prospects. Over the past three years, the nine-county Bay Area has lost about 362,000 jobs, as of November 2003. That equates to 11% of the region’s work force losing jobs.

In 2002, Ford’s total U.S. health care costs were $2.8 billion, with $1.9 billion of that attributable to retirees. Health care adds about $700 to the cost of each Ford vehicle sold in the United States. Ford’s vice chairman, Allan Gilmour, stated “it has created a competitive gap that is driving investment decisions away from the U.S. If we cannot get our arms around this issue as a nation, our manufacturing base and many of our other businesses are in danger.” Gilmour stated Ford spends more on health care each year than it spends on steel. In a new survey conducted by the Kaiser Family Foundation and Hewitt Associates, with sustained cost increases, one in three of all surveyed employers have hit or will soon hit the cap on retiree health obligations. Drew Altman, president and CEO of the Kaiser Family Foundation, stated “based on current trends, we can expect that fewer retirees will have health coverage in the future and those who do will be paying more for their health care.” Among surveyed employers, the total cost for employers and retirees for health care benefits increased by an estimated 13.7% over the past year. Among surveyed firms, retiree health care costs represent more than a quarter of the total estimated cost of health coverage for active workers, retirees, and dependents.

KB Toys accounts for 4 to 5 percent of the U.S. toy business. They operate 1300 stores. Yesterday they filed for bankruptcy protection and announced it will close up to 500 stores and cut its work force.

It may come as a surprise to learn that, since mad cow disease was first diagnosed in Britain in 1986, there have been more than 180,000 reported cases in cattle. This is not a seldom-discovered disease. Australia remains the world’s largest beef exporter.

Paul McCulley, managing director of PIMCO, stated “ you have cutthroat competition globally and here in the United States, and there’s no ability for producers to pass along increases in commodity prices.” This helps to explain why the core-rate of U.S. producer prices in December fell 0.1%, and for all of 2003 it rose only 1%.

Dr. William Winkenwerder, assistant secretary of defense for health affairs, stated about 2,500 soldiers who have returned from the war in Iraq are having to wait for medical care at bases in the United States. He observed the problem of troops on “medical extension” is likely to get worse as the Pentagon rotates hundreds of thousands of troops into and out of Iraq. Winkenwerder stated the military has documented 21 suicides during 2003 among troops involved in the Iraq war. Eighteen were Army soldiers. That’s a suicide rate for soldiers in Iraq of about 13.5 per 100,000. In 2002, the Army reported an overall suicide rate of 10.9 per 100,000. According to the CDC, the overall rate nationwide during 2001 was 10.7 per 100,000. During the 1991 Persian Gulf War that lasted one month, two U.S. military personnel killed themselves.

Secretary of State Colin Powell stated, on January 5, 2003, that “Iraq continues to conceal quantities, vast quantities of highly lethal material and weapons to deliver it.” On February 5, 2003, Powell stated “there can be no doubt that Saddam Hussein has biological weapons and the capability to rapidly produce more, many more… this is evidence, not conjecture. This is true. This is all well-documented.”

Kenneth Pollack was a National Security Council member during the Clinton years. He wrote a book entitled “The Threatening Storm: The Case for Invading Iraq.” Recently, he wrote another book entitled “Spies, Lies, and Weapons: What Went Wrong.” It is unusual for someone, in a book, to admit their incorrect assessments about such an important matter. Pollack stated that Bush’s “justifications and explanations for war were at best faulty, at worst deliberately misleading,” and that the Administration consistently engaged in “creative omission” in which the imminent Iraqi threat was overstated even though there was evidence to the contrary. Pollack observed “only the Administration has access to all the information available to various agencies of the U.S. government, and withholding or downplaying some of that information for its own purposes is a betrayal of that responsibility. I think the Administration was only telling part of the truth to the American people because it was trying to justify a war in 2003. The intelligence estimates just didn’t really support that imminence.” According to a recent paper by the Strategic Studies Institute of the U.S. Army War College, “the global war on terrorism as presently defined and conducted is strategically unfocused, promises much more than it can deliver, and threatens to dissipate U.S. military and other resources in an endless and hopeless search for absolute security.” The institute’s director, retired army colonel Douglas Lovelace, stated “this piece of work, like many others, certainly should be considered in the debate being taken place on national security policy.”

1/14/03 Don’t Be Fooled

Former Treasury Secretary Robert Rubin: “The scale of the nation’s projected budgetary imbalances is now so large that the risk of adverse consequences must be taken very seriously, although it is impossible to predict when such consequences may occur… the adverse consequences of sustained large budget deficits may well be far larger and occur more suddenly than traditional analysis suggests, however. Substantial deficits projected far into the future can cause a fundamental shift in market expectations and a related loss of confidence both at home and abroad… substantial ongoing deficits may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, the financial markets, and the real economy.”

Each day I read forecasts for future job growth in the United States. The main reason is economic progress that is anticipated to continue throughout 2004. Unfortunately, most of the people making these projections have never run a business. Why hire more people when the current workforce is comprised of employees who work less hours per week than they did one year ago? Why hire a new employee and have the cost of training when it is not necessary? In fact, in total private industry the hours worked per week have declined from 34.1 in December 2002 to 33.7 in December 2003. If business were so robust, productivity notwithstanding, the hours per week worked would have increased. The fact is business within the United States is not robust. On the other hand, due to the weak dollar, overseas business is robust. Of course, I often hear from analysts who tell me I really have a closed view of the world, and that the United States workforce is truly comprised of service industry jobs and not manufacturing jobs. They make me smile. Were they to do their own work they would know that the weekly hours for private service jobs have declined from 32.8 in December 2002 to 32.2 in December 2003. They would reply that I cherry pick. I don’t care which category they choose. They all show less weekly hours worked over the past year, wholesale and retail trade, transportation, utilities, information, financial, professional and business services, education, health services, leisure and hospitality, etc. Do you get the picture? Don’t let others bullshit you. Keep your eyes focused on the facts and not what others want you to believe.

Analysts want you to believe that business confidence has significance. The Conference Board stated that business confidence declined in the fourth quarter from 67 to 66 but “CEOs remain optimistic about the first half of 2004, and that optimism should translate into a pick-up in business activity.” The fact is that business confidence in the fourth quarter of 2003 was exactly the same 66 as the first quarter of 2002. In addition, the expectations for the economy six months ahead was 66 in the fourth quarter of 2003 but it was 72 in the first quarter of 2002. I don’t remember the economy being so terrific in 2002. These confidence numbers require a bit of analysis. Taken alone, you just might be fooled. We wouldn’t want you to fall prey to the confidence game.

Alan Greenspan: “There is no simple measure by which to judge the sustainability of either a string of current account deficits or their consequence, a significant buildup of external claims that need to be serviced.”

Would it surprise you to learn that the Labor Department and the Commerce Department do not have data to evaluate the impact of outsourcing on the domestic job market? Karen Kosanovich, an economist for the Bureau of Labor Statistics, stated “we don’t have anything in place that would attempt to measure this. She remarked for even the roughest-job-loss estimates, “you’d have to make very assumptions” that could not be supported with data.

According to a recent Wall Street Journal Online/Harris Interactive Health-Care Poll, one in every five American adults state that fear of mad cow disease will change their eating habits. Most (78%) of these people replied that they would eat less beef while 16% of them indicated that they will stop eating beef altogether.

In a survey conducted by Indemerc Harris Interactive on January 8 and 9, 2004, adults in Greater Mexico City were asked “Do you approve or disapprove of the way the President of the United States of America, George Bush, governs?” Eighty-two percent disapproved. In addition, eighty-three percent responded that the United States, rather than Mexico or Canada, benefited the most from NAFTA.

Manoj Jain, CEO of Pipal Research: “The global demand for outsourced IT services continues to grow as profit challenged corporations continue to aggressively cut costs. We believe they will continue to find the IT solutions they are looking for in lower cost base countries including India, Ireland, and China.”

According to the Pew Hispanic Center and the Multilateral Investment Fund of the Inter-American Development Bank, about 42% of the approximately 6 million immigrants- legal and illegal- from Latin America and the Caribbean, dispatch remittances home on a regular basis, and these funds added up to about $30 billion in 2002. According to the January 19 issue of Newsweek International, “some 1.3 million immigrants settle in the United States annually, an estimated one third of them illegally… last year total remittances reached an estimated $100 billion, a jump of about 15% over 2002.”Examples provided are $15 billion sent back to India and about the same amount remitted to Mexico.

1/13/04 Trends In Retail

According to a recent survey by CareerBuilder.com, on average close to 20% of retail employees work for 10 or more companies throughout their careers. As such, it should not come as a surprise that 28% of those polled are dissatisfied with their current positions. The most common complaint involves compensation with 50% of retail workers stating they are unhappy with their pay considering the effort put forth in their jobs. They feel they have taken on additional responsibilities and stress as businesses reduced staffs to combat a tough economy. Forty-two percent of retail workers report their workloads are too heavy and fifty-one percent state they feel stressed on the job. Nearly fifty percent will be on the hunt for better job opportunities in 2004.

Deloitte’s new Post-Holiday survey found that 59% of all consumers received a gift card or certificate this holiday season, and that by January 5, 2004, 50% of gift card recipients had already redeemed some or all of their cards. According to the survey, on average, consumers received 2.5 gift cards that had a combined value of $106. The average value of the redeemed card was $47.50, and the average that was spent in the store on that day was $47.20. About 21% of consumers spent more than the face value of the gift card, and if they spend more, they’re likely to spend nearly twice as much as the face value of the card. The survey found that those most likely to spend more are consumers between the ages of 35 and 64. Consumers stated they expect to use nearly all of their gift cards by the end of January, or approximately 2.4 cards. Fifty-five percent of those polled stated they will buy gift cards for others during the remainder of 2004, and on average will spend $151 for gift cards during the year. Surprisingly, 12% replied that they had bought a prepaid gift card for their own use in 2003. In addition, just over 10% of those surveyed stated they had already started their 2004 holiday shopping. On average, the survey found that consumers spent 19% of their total holiday budget online. Twenty-five percent of respondents stated they have already returned, or plan to return, a holiday gift, and of those, 28% stated they would have preferred a gift card. In my view, gift cards will become a growing part of the holiday shopping budget along with online purchases.

CSO Insights recently completed its annual study of sales organizations worldwide. The 2004 Sales Effectiveness Report found that over 50% of sales reps are not meeting sales quota, and this represents the poorest performance level in the ten years this annual study has been conducted. Thirty-three percent of sales executives feel that administrative burden on sales reps is increasing, and 30% feel that assessing business information is getting more difficult. Ninety percent of sales do not close as forecast. Although expectations of revenue growth have been tempered for the past few years, companies are still finding the reduced expectations difficult to fulfill.

Prior to the mad cow disease in the state of Washington, the U.S. was exporting about 2.6 billion pounds of beef a year. On Monday, the USDA in its monthly agricultural supply/demand report put 2004 beef exports at 220 million pounds. They also cut their estimate for 2004 cattle prices to a range of $72 to $78 per 100 pounds from the previous estimate of $84 to $91. Hopefully, the price declines will not exceed this estimate.

Hewlett-Packard has been doing business in Singapore for 34 years. They employ 6,000 people in Singapore. The company announced they will shift part of the production of its high-end Superdome servers out of the United States to Singapore and invest $1 billion over the next five years in Singapore. The purpose of this production shift is to save costs and speed delivery times for its Asia Pacific customers. Paul Chan, managing director for HP Asia Pacific, stated the move will result in “sizeable cost savings for HP.” In sum, a plant will be built overseas, capital expenditures will be made overseas, markets will be expanded outside the U.S., employees will be hired outside the U.S., and hopefully the profit margins and net profits will increase for HP. This pretty well tells the story for much of industry in 2004.

Over the past two weeks I have received many emails with information supporting the view that my take on unemployment is too pessimistic and not realistic. I welcome everyone’s input. The other opinions surround the support for the household survey of employment. It differs significantly from the payroll survey utilized by the Labor Department. To reiterate, I do my own research. I speak with individual states and collect data, such as, the example provided the other day with the state of Pennsylvania. In addition, I maintain records of corporate layoffs and receive daily reports on activity from local business journals across the United States. The household survey is too small. It is based on 60,000 households around the country. I consider that an insufficient sample. Proponents claim it is more accurate because it includes the farm sector (an ever-decreasing number), the self-employed, and unpaid family workers. That argument is offset by the fact that the household survey assumes it can accurately estimate the number of illegal immigrants entering the country and the amount of off-the-books or under-the-table money changing hands. The mafia couldn’t even give you accurate figures. Rather than waste time on guesses that cannot be substantiated, I go with the numbers that can be supported by facts. Fed Governor Ben Bernanke stated in a Nov. 6 speech that “somewhat greater reliance should probably be placed on the payroll survey.”

An American soldier became the 100th fatality in the U.S. military’s two-year Afghan campaign. Our toll in Iraq presently numbers 495.

I do not want to forget to congratulate the Bush/Cheney team on their extraordinary fund-raising accomplishments. By year-end they had raised $130 million towards their goal of $200 million. Cheney is on a four-day fund-raising swing through Denver, Seattle, Portland, Los Angeles, Las Vegas, and Phoenix. His primary message to audiences is fighting terror rather than reducing unemployment, raising wages, reducing government spending and waste, and cutting the huge budget and trade deficits.

Japan’s current account surplus has declined to about $12 billion in November. The main reason for this decline has been the reduction in Japan’s exports due to the strength in the yen versus the dollar. On Saturday, the Yomiuri newspaper reported that Japan’s Ministry of Finance recently sold 5 trillion yen in U.S. Treasuries to the Bank of Japan to boost its currency sales. Some currency traders estimate that the Bank of Japan spent $40 billion selling the yen last week while attempting to bolster the dollar. With decreasing monthly account surpluses, the Bank of Japan will not have the cash flow to maintain, at the current level, its efforts to keep the yen from rising further in value versus the dollar.

Yesterday the price of oil reached $35 per barrel. In the last 10 days the price of gas at the pump has increased about 9 cents per gallon. Inventories are at multi-year lows. At the same time, U.S. treasury prices rallied and yields fell to new three-month lows. The main reason for this rally was Friday’s weak employment report. The core consumer price index for December will soon be released, and this should indicate an annual rate close to 1%, the lowest level in 41 years and one that closely approximates the fed funds rate.

1/12/04 Being There

Let’s look around. Do you see new plants being built? I know it’s winter, but there is plenty of construction activity. I see plants closing. I see very few being constructed. If we were to visit China, India, and other parts of the world, there would be the on-going noise of new plant construction and/or new buildings for office workers. Since the United States has lost several million jobs over the past three years, we can see many vacant office buildings. The vast proportion of growth of American companies is taking place outside the United States, and plants are being constructed outside the United States. The 500 S&P companies now derive at least 30% of their revenues from outside the United States, and this percentage is growing yearly. However, by far the greatest percentage of those companies’ assets are located in the United States, and with them, their employees. As plants are closed, employees lose their jobs. The depreciating dollar may assist the growth of those overseas sales, but the detriment to our shores continues to escalate. The earning season is upon us. When analyzing the reports, please note the breakdown of sales and income from here and abroad. Please remember that the worth of the assets in the United States is depreciating daily with the decline in the value of our dollar. Companies have a growing amount of assets to write down. They may be book entries, and companies may call them non-recurring, but they are a part of the operations that did generate positive results in prior years. Discarded assets reflect the decaying ability to compete in today’s global economy. Do not be fooled. Exporting our dollars leaves us crippled with a debt-laden balance sheet. If we do not have the confidence to hire more people and expand in the United States, then one should place a lower value on the assets remaining in our country. Rather than looking at the replacement value of assets, we might consider the other side of the equation and that is the cost to displace assets.

Not only do we have a lack of hiring, we have labor conflicts on the rise. The 70,000 workers at the grocery stores in Southern California are beginning their fourth month on strike. In Jefferson, Wisconsin 470 union workers have been on strike against Tyson Foods’ plant since February 28, 2003, almost 11 months. The main sticking points are health and pension issues. Tyson is proposing a four-year wage freeze, creation of a lower-level wage scale for new workers, the elimination of the profit-sharing plan, cuts in vacation, sick leave and pension benefits, and a bigger bill for less comprehensive health care coverage. Tyson is the world’s largest supplier of beef, chicken, and pork. It would appear that the company has other problems in addition to mad cow disease.

In the first half of 2003, the government reported that the nation’s savings rate dropped to 2% of after-tax income. One explanation could be that consumers spend about 20% of their after-tax income to cover debts, including mortgages.

As mad cow disease comes under greater scrutiny, more questions are raised and more questions go unanswered. In addition, the plot thickens, and that spells a widening scope of troubles. We need to go back to the beginning. There are two human versions of CJD or Creutzfeldt-Jakob. There’s the plain CJD and the “new variant” CJD. It has been thought only one version could be linked to eating meat contaminated with mad cow disease. New studies indicate that both versions may result from eating contaminated meat. In November 2002 scientists in Great Britain stated “this finding has important potential implications as it raises the possibility that some humans infected with mad cow disease may develop a clinical disease indistinguishable from classical CJD.” “There are almost 300 cases of CJD expected each year,” stated Patrick Bosque, a neurologist at Denver Health and an expert in TSE. Some scientists believe the number of CJD cases is under-reported in the United States, and several studies have indicated that anywhere from 1 to 12% of Alzheimer’s cases are actually CJD. Alzheimer’s kills 50,000 Americans each year. Dr. Michael Greger observed that “given the new research showing that infected beef may be responsible for some classical CJD, thousands of Americans may already be dying because of mad cow disease every year.” One of the biggest problems is that the United States has no formal monitoring system in place to track CJD cases and autopsy the victims. Therefore, since Alzheimer’s patients are not normally autopsied, one cannot absolutely confirm or deny they may have died from CJD. The National Prion Disease Pathology Surveillance Center at Case Western Reserve University in Ohio estimates their doctors analyze tissues from less than half of the known CJD victims in the U.S. annually. In my view, it will become necessary for the beef industry to test each and every animal for mad cow. Patrick Bosque stated “that screening for just obviously sick animals may not be sufficient.”

Since the start of the Iraq war, a total of 494 U.S. soldiers have died.

Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. In New York: “Job growth is the essential ingredient to a self-sustaining recovery. Without employment and income growth, spending could fall back pretty quickly.”

Japan confirmed an outbreak of highly contagious bird flu that killed 6,000 chickens. It is the first case of such flu since the 1920s. Supposedly, only in rare cases is it deadly to humans.

Obesity is a growing problem in children. The Los Angeles Unified School District will ban soda sales this month. New York eliminated candy and soda from school vending machines in September. It’s a good thing for Coke shareholders that the majority of the company’s sales are outside the United States.

1/11/04 The Truth Has Legs

In yesterday’s radio address to the nation, Bush stated “over the past five months, more than a quarter-million Americans started work at new jobs.” Errors of omission are WMD. He failed to mention those that left the labor force because they couldn’t find a job after searching for close to two years, or those that couldn’t find a full-time job, or that most of the new jobs created are temporary jobs. He failed to mention the plants closing around the United States. It’s early Sunday morning. We still have some time to visit Georgia, Alabama, and Louisiana. WestPoint Stevens is a 200-year-old company. They are operating under bankruptcy court protection. The company employs 14,000 people. The Labor Department announced on Friday that U.S. businesses added 1,000 new employees in December. Those job gains will be eliminated. WestPoint Stevens will close two plants in LaGrange, Georgia, one in Valley, Alabama, and another in Coushatta, Louisiana. About seven per cent of their workforce will be cut, or at least 975 jobs. These plants make towels and bedding. Over the past three years, other textile companies, Pillowtex, CMI Industies, and Galey & Lord, have sought bankruptcy protection. Competing in a global economy is not a picnic for many companies.

In his radio address Bush mentioned “stock market wealth has increased by more than $3 trillion over the past year.” He failed to mention the billions lost in the first two years of his presidency. Bush can point to newly revised government figures showing that American businesses earned a record $1.1 trillion in the third quarter, up 25% from the same quarter a year earlier. After-tax profits as a share of GDP were 9%, the highest percentage in 55 years. The fourth quarter will be good, but not as good. Cost-cutting , record worker productivity, and the weak dollar spurring exports are the main reasons provided for these improved results. I am very much in favor of corporations increasing their earnings. I have had thousands of people working with me over the years. I continue to believe that a business owner must balance the responsibility of ownership with the well-being of associates, customers, and the communities served by the business. When businesses increase their profits by 25% and operating margins expand, and yet employees do not share with improved wages and benefits, then something is very wrong. It is one thing to become more efficient, and therefore, more competitive in a global economy. If you don’t want to add workers, that is understandable. On the other hand, it is not okay to cut the weekly work hours and expect individuals to produce 5 to 9% more with no increase in pay and no added benefits. The standard of living in our country is decreasing and the quality of life is on a downward slope. According to the latest Newsweek poll, forty eight percent of voters want to see Bush re-elected and forty six percent do not. Voters might ask themselves whether their share of the pie has increased or decreased during this Bush term in office.

The oldest baby boomer will turn 58 this year, and the youngest will be 40. Thornton Parker, author of What if Boomers Can’t Retire, stated “many are waking up to the fact that their savings aren’t going to provide for them in the future.” Economists once predicted the typical worker would accrue $350,000 by retirement if one saved 6% of one’s yearly salary in a 401K and received an employer match of 3%, stated Alicia Munnell, director of the Center for Retirement Research at Boston University. She stated, in actuality, people aged 55 to 64 in 2001 had an average of $55,000 in 401Ks and IRAs combined. Munnell and other experts in this field recommend the following: to think smaller; keeping future medical costs down by living a healthier lifestyle now; trimming expenses; boosting savings; and reducing debt. Lifestyles in the United States are about to take a drastic change. Thinking smaller will, in my view, become the daily battle cry.

Wild Oats is based in Boulder, Colorado and they are the number two natural foods grocer in the U.S. Part of their mission is to promote a positive impact on the environment. Their customer base is environmentally conscious. They initiated a program in Colorado and Oregon to provide biodegradable food containers in their deli counter. Wild Oats estimates that 60% of their customers return the containers, made from corn resin which require 20% to 50% less petroleum and generates up to 60% less greenhouse gas. The containers cost a few cents more, but Wild Oats stated they would not pass that cost on to customers. Interestingly, deli sales in Oregon jumped about 4% in the first three months after the containers were introduced. The corn resin containers will be available in 77 stores nationwide by March 1.

I have received many requests to summarize the status of the mad cow disease situation. Of the 81 cows that supposedly came from Canada with the positive cow: One is the positive cow. Two are under a hold order at a premises in Mattawa. The USDA believes 7 may have gone to another dairy and is working to determine if those animals are still there. Nine are in the index herd. Potentially, some of the remaining cows that came in that shipment are on the index premises, but at this time, the identity of these animals has not been confirmed.
In the index herd, by process of elimination, 258 cattle could have been part of this shipment of 81 animals. The USDA inventory of this producer’s cattle located 129 of these cattle of interest-they remain on the farm and these are the ones to be depopulated. Computer records of 110 of these cattle demonstrated that they have been culled from the herd. The remaining 19 did not have records indicating culling and were not found on the USDA inventory. The USDA is looking through the herd for the identity of these 19.

China has discovered its third SARS case.

Charter One Financial of Cleveland announced it sold over 600,000 Mastercard Gift Cards from November through December 2003. This total number surpassed a previously expected volume of roughly 200,000 cards. This was the first bank-issued, stored-value gift card that carries no card fee or shipping and handling charges. The bank plans to continue promoting their gift cards actively in 2004.