The markets were never open today, but either way it's time to think about anything except the markets or the economy.
Fed Watch: 'Dollar Up' and 'Confidence Boom?'
2 hours ago
In the fall of 2007, before the economy began to falter, corporate-bond prices were signaling all was not well. The spread between corporate-bond yields and Treasury yields, which had begun to widen amid that summer's mortgage woes, showed little improvement even as the Dow Jones Industrial Average clocked record highs.
It wasn't the first time bonds had signaled something was awry. One of the head scratchers of early 2000 was why stocks were surging when high-yield bonds were wavering. In retrospect, the bonds had it right.
Bond investors are intensely focused on companies' ability to pay down debt. If they see signs business is slowing, they demand higher returns, and thus higher bond yields. Widening corporate-bond spreads can also reflect disruptions in the credit supply -- say, because banks are mired in bad mortgages -- that eventually sap the whole economy. Finally, widening spreads can induce companies to cut back on expansion plans, which also has economic consequences.
Bonds' forecasts haven't always seemed to come true. Many corporate-bond indexes showed spreads widening significantly during the 1998 Russian debt crisis, and yet the economy soldiered on.
Such false signals mightn't be because of corporate bonds themselves, however, but the way corporate-bond indexes are constructed. The bonds in them tend to have much shorter times before they will mature than the 10-year Treasurys that their yields are usually compared with -- which makes for a faulty comparison.
Still, I continue to think that improvement in business activity is not too far off. Interest rates are low and financial conditions are improving, albeit unevenly. Major fiscal policy stimulus is now under way and should add to aggregate demand in a timely way unless consumers and businesses turn exceedingly cautious. Moreover, adjustments which typically occur in a contraction ultimately help to lay the foundation for renewed growth. For example, as business continues to reduce output and employment, inventories shrink, and at some point aggregate supply falls below even the diminished level of demand, leading to increases in hours worked, net new hiring, and a general pickup in activity. There are, moreover, signs that consumer spending is in the process of stabilizing after its sharp fourth-quarter decline and that progress has been made in working off the inventory of unsold, unoccupied homes and condos.
Wary shoppers weren't in much of a buying mood in March, keeping a tight lid on spending and pushing sales at Wal-Mart and many retailers below views.
But reports from some chains painted a brighter picture for days ahead.
Sales at stores open at least a year fell 1.6% vs. a year ago, says Ken Perkins, president of Retail Metrics. Wall Street expected a 0.4% dip. A hefty 60% of retailers missed views.
Among the positive indicators, the government said exports rose in February for the first time in seven months. Initial claims for jobless benefits fell more in early April than any week since the start of the year.
Many U.S. retailers posted smaller-than-expected sales declines for March in a sign that shoppers may be regaining confidence to open their wallets after more than a year of recession.
Of the two dozen or so retailers that have reported March sales at stores open at least a year, more than half topped Wall Street estimates, and a handful even raised their quarterly earnings outlooks on Thursday.
"The numbers are still soft, but given the deluge of negative news we have seen in the retail space over the last several months, it's got to be somewhat encouraging," said Ken Perkins, president of Retail Metrics Inc. "It looks like there is a little bit of an uptick, some pent-up demand ... for some discretionary spending."
Yet Perkins cautioned against reading too much into the results. "It is difficult to foresee that really rallying and spiking in the near term," he said.
The International Council of Shopping Centers said it expected overall U.S. same-store sales to rise 1 percent to 2 percent in April and be flat to up 1 percent in May.
3M Co. said it will offer 3,600 employees early retirement.
3M spokeswoman Jacqueline Berry spoke today in a telephone interview.
The information reviewed at the March 17-18 meeting indicated that economic activity had fallen sharply in recent months. The contraction was reflected in widespread declines in payroll employment and industrial production. Consumer spending appeared to remain at a low level after changing little, on balance, in recent months. The housing market weakened further, and nonresidential construction fell. Business spending on equipment and software continued to fall across a broad range of categories. Despite the cutbacks in production, inventory overhangs appeared to worsen in a number of areas. Both headline and core consumer prices edged up in January and February.
Labor market conditions continued to deteriorate. Private payroll employment dropped considerably over the three months ending in February. Employment losses remained widespread across industries, with the notable exception of health care. Meanwhile, the average workweek of production and nonsupervisory workers on private payrolls continued to be low in February, and the number of aggregate hours worked for this group was markedly below the fourth-quarter average. The civilian unemployment rate climbed 1/2 percentage point in February, to 8.1 percent. The labor force participation rate declined in January and February, on balance, likely in response to weakened labor demand. The four-week moving average of initial claims for unemployment insurance continued to move up through early March, and the level of insured unemployed rose further.
Industrial production fell in January and February, with cutbacks again widespread, and capacity utilization in manufacturing declined to a very low level. Although production of light motor vehicles turned up in February, it remained well below the pace of the fourth quarter as manufacturers responded to the significant deterioration in demand over the past few months. The output of high-tech products declined as production of computers and semiconductors extended the sharp declines that began in the fourth quarter of 2008. The production of other consumer durables and business equipment weakened further, and broad indicators of near-term manufacturing activity suggested that factory output would continue to contract over the next few months.
The available data suggested that real consumer spending held steady, on balance, in the first two months of this year after having fallen sharply over the second half of last year. Real spending on goods excluding motor vehicles was estimated to have edged up, on balance, in January and February. In contrast, real outlays on motor vehicles contracted further in February after a decline in January. The financial strain on households intensified over the previous several months; by the end of the fourth quarter, household net worth for the first time since 1995 had fallen to less than five times disposable income, and substantial declines in equity and house prices continued early this year. Consumer sentiment declined further in February as households voiced greater concerns about income and job prospects. The Reuters/University of Michigan index in early March stood only slightly above its 29-year low reached in November, and the Conference Board index, which includes questions about employment conditions, fell in February to a new low.
Housing activity continued to be subdued. Single-family starts ticked up in February, and adjusted permit issuance in this sector moved up to a level slightly above starts. Multifamily starts jumped in February from the very low level in January, and the level of multifamily starts was close to where it had been at the end of the third quarter of 2008. Housing demand remained very weak, however. Although the stock of unsold new single-family homes fell in January to its lowest level since 2003, inventories continued to move up relative to the slow pace of sales. Sales of existing single-family homes fell in January, reversing the uptick seen in December. Over the previous 12 months, the pace of existing home sales declined much less than that of new home sales, reflecting in part increases in foreclosure-related and other distressed sales. The weakness in home sales persisted despite historically low mortgage rates for borrowers eligible for conforming loans. After having fallen significantly late last year, rates for conforming 30-year fixed-rate mortgages fluctuated in a relatively narrow range during the intermeeting period. In contrast, the market for nonconforming loans remained severely impaired. House prices continued to decline.Housing is still a wreck. Here is the same chart from Martin Capital Advisers I used above. This time pay attention to the bottom panel:
Two-thirds of U.S. chief executives plan additional layoffs and expect sales to decline in the next six months as their confidence in the economy continues to fall, according to a survey released on Tuesday.
The Business Roundtable's quarterly CEO Economic Outlook Index fell to negative 5 -- the first negative reading in the survey's six-year history -- and down from a fourth-quarter reading of 16.5. A reading below 50 means CEOs expect economic contraction rather than growth.
The poll of 100 U.S. CEOs found they now expect real U.S. gross domestic product to decline 1.9 percent this year. That is below their December forecast, which anticipated flat GDP.
According to the survey, 71 percent of the CEOs expect to cut their U.S. work forces over the next six months, and 66 percent expect to reduce capital spending. Lower sales are expected by 67 percent.
Consumer credit decreased at an annual rate of 3-1/2 percent in February 2009. Revolving credit decreased at an annual rate of 9-3/4 percent, and nonrevolving credit increased at an annual rate of 1/4 percent.
Credit in January grew $8.1 billion, revised way up from a previously estimated $1.8 billion rise. And borrowing in December dropped $5.6 billion instead of $7.5 billion.
The February credit drop of $7.5 billion was bigger than what Wall Street expected, which was a $1 billion decline. It was the fourth decline in six months.
The Wall Street crisis and recession have made it harder for consumers, and businesses, to borrow money. The Fed last month rolled out details of a Term Asset-Backed Securities Loan Facility to loosen credit and relieve the economy.
Consumer confidence has begun to rebound as recent stock market gains and better-than-expected economic data fuel hopes that the 17-month recession might be coming to an end.
The IBD/TIPP economic optimism index rose to 49.1 from 45.3 in March, its highest level since November, when Barack Obama's election victory sparked a brief spike. That's still below the 50 mark that indicates optimism, but it's 5.3 points above the 12-month average and only 2.2 points below the long-run average of 51.3.
Stronger-than-expected durable goods orders and home sales have helped drive a monthlong stock market rally, giving consumers and investors a long-awaited sense of hope. Changes to accounting rules aimed at stemming losses at big banks also helped.
More U.S. consumers are falling behind on their mortgages, an indication that the housing market has yet to hit bottom, a top credit bureau executive told Reuters.
Dann Adams, president of U.S. Information Systems for Equifax, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier.
He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year.