Economic Signs Turn From Grim To Worse
Friday, January 30, 2009
On the eve of what is expected to be the clearest evidence yet of the nation's deepening recession, bad news rolled in from across the economy and the world.
Sales of new homes in December plummeted, corporations announced plans to cut 13,000 more U.S. jobs, unemployment claims jumped, and a troubled icon of U.S. manufacturing, Ford Motor, yesterday announced a massive loss.
Early this morning, the Japanese government announced that factory output had fallen 9.6 percent and that joblessness in the world's second-largest economy jumped to 4.4 percent, in the largest increase in 41 years.
The accelerating pattern of grim indicators has led up to a report scheduled for release this morning on U.S. economic performance in the final three months of last year. Many economists think the economy shrank by as much as a 6 percent annual rate -- that would be the worst quarter for the economy since 1982 -- and they see little potential for growth until later this year.
Capturing the sentiment of a nation caught in an economic tailspin, President Obama said yesterday that it was "shameful" that Wall Street firms doled out nearly $20 billion in executive bonuses even as the government was spending billions of dollars to rescue financial firms.
Stocks stumbled yesterday on the dire economic data, with the Dow Jones industrial average dropping 2.7 percent, or 226.44 points, to close at 8149.01.
The slowdown has had a major impact on home sales. Sales of new homes in December plunged 14 percent from the month before and nearly 45 percent from December 2007, according to government data released yesterday. It was the worst month on record dating to the early 1960s.
Recent data have been even gloomier than many analysts' estimates. Home sales, for instance, were expected to fall to an annual pace of 397,000; instead it dropped to 331,000. Layoffs, too, have piled up faster than expected, worsening the outlook for an economic recovery.
Contributing to yesterday's job cuts was Eastman Kodak, the photography company based in Rochester, N.Y., which said it plans to cut up to 4,500 jobs, a fifth of its workforce. Kansas airplane company Cessna said it would let go of 4,000 workers, while Oshkosh, a Wisconsin maker of fire engines and dump trucks, said it would lay off about 1,000. British drugmaker AstraZeneca announced it would eliminate 6,000 jobs, including an undisclosed number in the United States, bringing its planned layoffs over the next five years to 15,000.
"Everybody, established corporations are pulling in the horns and trying to weather the storm," said John Ryding, chief economist for RDQ Economics, a research firm in New York.
Job cuts have swelled the ranks of those receiving unemployment benefits. Yesterday, the Labor Department announced that the number of people continuing to claim unemployment insurance had jumped more than expected, reaching 4.8 million for the week ending Jan. 17, the highest level since record-keeping began in 1967. As a percentage of the labor force, jobless claims fall short of the peak reached in the recession of the early 1980s.
Corporate layoffs are mounting as businesses scale back production in response to a drop in consumer spending. Orders for durable goods, big-ticket items such as washing machines and autos, decreased 2.6 percent in December, the fifth consecutive monthly decline, according to data released yesterday. Excluding defense purchases, the decline was 4.9 percent.
Businesses have little reason to resume their previous pace of production and won't for some time to come, Wachovia economist Tim Quinlan said. With fewer orders coming in, business inventories have grown 17 of the past 18 months. Goods are piling up at every step of the distribution chain, from manufacturing plants to retail stores. Quinlan said he doesn't expect business spending to rebound until the second half of 2010.
Ford reported a $14.6 billion loss in 2008, the automaker's worst annual performance in its history. Manufacturing conglomerate 3M is preparing for the worst. Yesterday, after reporting a 37 percent drop in fourth-quarter profit, the Maplewood, Minn., company said it would cut capital spending by 30 percent and conserve cash. The announcement came just weeks after the firm, which makes Scotch tape and Post-It Notes, said it would lay off 1,800 worldwide, put off merit pay raises and alter its vacation policies -- all moves that 3M estimates will save it more than $400 million over the next several years.
"The fourth quarter . . . was different from any pattern we've ever seen before, the synchronization of the world's economy in simultaneous contraction," chief executive George Buckley told analysts yesterday on a conference call. "Weak business conditions for consumer confidence and psychological fear factor made it worse."
The job cuts at Cessna are in addition to 2,200 announced earlier by Textron, its parent company. Textron said yesterday it plans to reduce capital spending by 42 percent and close its commercial finance business to help improve its cash position.
AstraZeneca spokesman Raymond Parisi said the additional job cuts announced yesterday are part of a restructuring effort that began in 2007. More than half of the 15,000 planned job cuts have already occurred. The money the company will save as a result of the layoffs will enable it to invest in other areas, Parisi said.
"The growth rate is not as high as its been," he said. "Basically, we're making sure we're fit for what we need to do to deliver on our commitments."
When released today, the Commerce Department's initial estimate of fourth-quarter GDP is expected to cap off the latest barrage of bad economic news.
As recently as November, some experts were predicting the economy would contract by 2.5 percent on an annualized basis in the fourth quarter, after falling by 0.5 percent in the third quarter.
But that was before the global slowdown diminished demand for U.S. exports, hundreds of thousands more workers lost their jobs and penny-pinching consumers ruined Christmas for retailers. Economic conditions deteriorated in all 50 states in December, according to a report released yesterday by the Federal Reserve Bank of Philadelphia.
Many analysts now think the economy will not improve until later this year, provided a government stimulus plan kicks in. The best many are hoping for is that things don't get much worse.
"In September and October, the pace of downward adjustment intensified through the end of the year. We're going through the most intense phase," said Alan Levenson, economist for T. Rowe Price in Baltimore. "The rate of change is about as negative as it is going to get."