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Friday, March 07, 2003

The Storm Clouds Look a Little Bit Darker Today

Despite the fact that Krugman is undoubtedly right in criticising the Bush apologists for imagining that if you repeat something often enough it becomes true, it does seem that the oft repeated mantra of beware the oil shock is taking its inevitable toll. Of course, at times its often difficult to disentangle cause from effect, in this case to say whether the economy is weakening because consumers are getting jittery, or whether the consumers are getting jittery because the economy is weakening. And in either case, whether this is happening because people are being told early and often enough that oil shocks provoke recessions. We also need to include a caveat emptor here about anyone making any call at all with all this 'geopolitical' uncertainty: I can, after all imagine a couple of simple scenarios which could change today's depression into tomorrows elation on the political front (the capture of Bin Laden, unseating Saddam without a war........). But my gut feeling is still that any economic elation would still be short lived, two of the world's premier economies would still either be in, or flirting with, deflation mode. In the US the output gap would still continue to be a problem, and the third world ex China and India would still be struggling to define a role for itself. But let's leave tomorrow's problems for tomorrow, there'll be time enough for the.

Today what we face is an oil shock, and the longer this situation continues, the worse it looks:

Fear of an impending U.S. war with Iraq and little profit improvement in the hard-hit manufacturing sector are likely to suppress hiring for a good part of this year, economists say. Friday's closely watched employment report is expected to show that wary businesses indeed held off on hiring, and many economists believe the data to show businesses actually cut back on their payrolls. "The best we can hope for is that the rate of the losses will slow," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. Economists in a Reuters poll forecast, on average, that the Labor Department report, due out Friday at 8:30 a.m., will show that businesses added a meager 8,000 jobs in February after a surprising 143,000 new jobs in January. The unemployment rate is expected to ratchet back up, hitting 5.9 percent after a brief fall to 5.7 percent in January.

However, a poor jobs outlook in the manufacturing sector signaled in the Institute for Supply Management's latest survey of purchasing managers has many economists now expecting no new hires any time soon in this beaten-down sector. Alarming for an already grim jobs outlook, the ISM's employment index slumped to its lowest reading in a year, serving as a grim omen for the February payrolls report. In the Reuters poll, economists forecast that average hourly earnings rose by 0.3 percent in February after being unchanged a month earlier, while the average work week inched down to 34.1 hours from 34.2.

Amid growing war jitters, corporations have steadily been increasing the number of planned job layoffs, according to the latest study by Challenger Gray and Christmas, the Chicago-based outplacement tracking firm. According to the firm's latest survey, planned job cut announcements last month rose 5 percent to 138,177 from January's 132,222. February's layoff announcements were up 8 percent from a year ago. "It now appears that economic uncertainties and war talk have put the brakes on business spending plans and companies are once again in a serious cost-cutting mode," said John Challenger, chief executive of the firm. He noted that job cut announcements rose 151 percent last October, about the time that the war signals from Washington began in earnest. "It is doubtful that a turnaround in hiring can be expected before fall, if then," Challenger said. Going forward, hiring is not going to show much improvement, according to Milwaukee-based Manpower Inc.'s latest survey, which found that U.S. businesses in the second quarter will be hiring at a moderately slower pace. "The survey results are clearly showing a dominating sense of uncertainty, as hiring intentions have dipped for the first time in over a year," said Jeffrey Joerres, chairman and chief executive of Manpower. Of nearly 16,000 employers polled, 63 percent plan to maintain their current staff levels, that survey found. But in some sectors, including durable goods manufacturing, many expect to reduce hiring activity.
Source: Yahoo News

The US retail sales figures don't look too smart, either:

Winter storms dealt a major blow to February sales at the nation's retailers, where business has already suffered amid the weak economy and worries about a possible war with Iraq. As merchants reported their February results Thursday, Wal-Mart Stores Inc. announced sales at the low end of its expectations, and apparel retailers and department stores were again the hardest hit. Consumers had no incentive to buy spring fashions like micro-miniskirts in the frigid cold, analysts said.

Such an overall weak economic environment is stalling sales even at discount chains, like Wal-Mart, which reported a modest 2.6 percent increase in same-store sales, in line with the consensus from Thomson First Call. But that was at the low end of the company's goal of a 2 percent to 4 percent rise. Target Corp. said same-store sales were down 1.4 percent, weaker than the 1.0 percent decrease analysts expected. Kohl's Corp. announced disappointing results, turning in a 4.6 percent decrease in same-store sales. Meanwhile, many department stores and apparel stores reported deeper same-store sales declines. But Gap, in the midst of a turnaround, reported an 8 percent increase, better than the 6.9 percent gain that analysts estimated. And Pacific Sunwear, which released sales figures on Monday, said same-store sales were up 14.8 percent, well exceeding Wall Street's projection of a 6.5 percent increase. While some retail executives held out hope for a brighter spring, analysts remain cautious. To be sure, February is the second least important month of the year behind January on a retailer's sales calendar, and represents 25 percent of first quarter sales. But Niemira and other analysts believes the sluggish trend will continue through at least March, putting more pressure on retailers to make up for lost sales by discounting aggressively.
Source: Yahoo News

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