NEW$ TO U(SE)

42 percent of U.S. consumers expected to spend less this holiday season

With the nation seemingly emerging from recession, American consumers remain skittish about spending their money during this upcoming holiday season according to new research from The Nielsen Company.  Households continue to focus on “essential gift giving” such as staple consumables, candy, beverage/alcohol and entertaining at home, and 86 percent said that they expect to spend the same or less this year than last — with a 7 percent increase in those indicating they would spend less.  Overall, Nielsen is projecting that holiday sales will rise 0.03 percent this year, accounting for $90 billion in dollar sales.

(…) “Americans have undergone a fundamental change in how they spend their money, and the days of stretching finances to make purchases not deemed as necessary are over, at least for the time being.  That said, our research has shown that consumers are looking forward to loosening their purse strings a bit, but only once they feel more confident about the state of the economy and their personal financial situation.”

Other key findings from the research include:

• Traditional items such as apparel, toys and technology will be most popular categories, albeit at restrained levels and primarily sold in “value” channels.
• Products aligned with at-home entertainment such as cookware, kitchen items, bed and bath accessories and alcoholic beverages will do well.
• Gift cards are one category where consumers plan to spend more this holiday season, followed by toys and apparel.
• Value retailers such as dollar stores, online, discounters and club stores will attract the lion’s share of holiday spending as consumers minimize trips and search for the best values, while office supply, pet stores, home improvement and drug retailers are likely to feel the brunt of the economic slowdown.
• Some 20 percent of households said that they had no plans whatsoever to entertain at home or away from home during the holidays.
• Spending cut-backs are being driven by all income groups.

Two reports today on the US Midwest manufacturing sector, both negative after being positive:

1. The Chicago Fed Midwest Manufacturing Index (CFMMI) decreased 0.3% in August, to a seasonally adjusted level of 80.1 (2002 = 100). Revised data show the index rose 3.1% in July, to 80.4. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) was up 0.6% in August. Regional output in August declined 20.8% from a year earlier—lower than the 12.0% decrease in national output.

2. The Institute for Supply Management-Chicago business barometer fell to 46.1 in September from 50.0 in August. Economists had forecast the index at 52.0. A reading above 50 indicates expansion in the regional economy.

The employment component of the index inched up to 38.8 in September from 38.7 in August. Prices paid rose to 51.3 from 50.0 and new orders dropped to 46.3 from 52.5. Production dropped to 47.2 from 52.9.

Courtesy of Association of American Railroads

(…)Our daily tracking of analyst revisions for stocks in the S&P; 1500 shows that over the last four weeks, 578 companies in the S&P; 1500 have seen their earnings estimates increase, while 389 have seen their numbers cut.  This works out to a net of 189, or 12.6% of the index.  As shown in the chart below, this is the highest level since at least the start of 2008 (red line), and is a major improvement off of where we were six months ago, when the net earnings revision ratio was closer to "-50%".  While analysts are typically thought of as being behind the curve, so far this year they have done a good job of leading the market.  When equities bottomed in March (blue line), analyst revisions were already well off their lows of the year.

Bespoke Investment

The confidence of US finance chiefs in their companies’ near-term fortunes surged this past quarter, even as many of them predict that a full-scale economic recovery may not begin until 2010, a survey has shown.

US companies were expected to show an 11 per cent increase in net earnings in the next 12 months, according to a poll of 262 chief financial officers conducted by Financial Executives International, a corporate finance lobby group, and Baruch College.

Those surveyed also predicted that revenue would increase 5.8 per cent in the next year. For the first time in more than a year, CFOs predicted capital budgets would rise in the next 12 months, as would hiring.(…)

Overall capital spending is expected to rise by 1.1 per cent. Healthcare costs are forecast to climb by 8.2 per cent, while technology spending may pick up by 7.2 per cent.

The finance chiefs also predicted a 1.7 per cent increase in recruitment.

When asked to rate their optimism for the US economy between zero and 100, the CFOs responded with an average score of 54.2.(…)

Full FT article

(…) Even after seasonal adjustments, the number of jobless fell by 12,000, resulting in an unemployment rate of 8.2%. Economists polled earlier by Dow Jones Newswires had predicted a rise of 25,000 in seasonally adjusted unemployed and a jobless rate of 8.3%.

The Federal Labor Office also revised down the drop in seasonally adjusted unemployed in August to 6,000 from an initial estimate of only 1,000.(…)

Full WSJ article

The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell slightly to 55.0 in September from 55.1 in August, HSBC said Wednesday.

August was the sixth consecutive month this PMI has been above 50, after hovering below the key level for eight months.(…)

The PMI’s employment component rose to 53 in September from 51.8 in August, hitting the highest level in 25 months.

Full WSJ article

Additional $1.5 Trillion in Write-Downs Forecast by End of 2010 Despite Rising Securities Prices

(…) Overall, the IMF calculates that the global financial crisis will produce $3.4 trillion in losses for financial institutions, between 2007 and 2010, a chunk of which already has been recognized. That estimate is $600 billion less than the IMF forecast in April, largely reflecting an increase in the prices of securities held by financial institutions since then.

The IMF projected total losses in the banking sector specifically will reach $2.8 trillion. That is the same as in April, but the figures aren’t directly comparable because the IMF reworked its methodology, in part to track potential losses in European banks. Of that amount, the IMF said, banks globally have written down $1.3 trillion and have additional potential losses of $1.5 trillion facing them.

As in past estimates, the IMF said that banks in the U.S. are further ahead in dealing with potential losses than those in Europe. Banks in the U.S. have recognized about 60% of anticipated write-downs, the IMF calculated. Banks in the Britain and continental Europe have recognized only about 40% of their potential losses.

The IMF said that U.S. banks’ portfolios rely more on securities, and thus have benefited from the recent gains in stock markets. Banks in Europe, however, are more dependent on loans to Eastern Europe and other beleaguered markets, whose economies remain vulnerable. (…)

Full WSJ article

Three weeks away from about everything economic and financial. Here is a recap of the very important stuff that happened:

• The S&P; 500 Index rose 3.7% since Sept 9, 6.9% since Sept 2!
• President Obama, CEO of Obama Motors Co.,  sided with the United Steelworkers union and imposed tariffs on Chinese tires for the next 3 years, severely restricting competition in the US. China has reacted by restricting US imports of chicken and auto products.
• August US retail sales rose 2.7% MoM. Cars were up 10.6% (cash-for-clunkers program) but ex-cars were up 0.7% and ex-gasoline sales were up 0.6%. Pretty good.
• US industrial production rose 0.8% in August and July was revised UP from 0.5% to 1.0%.
• US core CPI came in at 0.1% for August and is up only 1.4% YoY.
• According to Edmunds.com, US motor vehicle sales are running at an 8.8M annual rate after 3 weeks in September, down from the incentive-impacted level of 14.1M in August.
• The US LEI rose 0.6% MoM in August, the 5th increase in a row. July was revised up.

So, apart from rising trade protectionism, the news on the economic front has been quite positive.

The problem is that US retail sales seem to have collapsed in September as per the ICSC weekly Chain Store Sales, down 0.7% over the last 4 weeks, and car sales mentioned above.

Consumer spending remains very volatile, threatening the recovery as we move into the all important last stretch of the year. Rail freight traffic, also pretty volatile, seems to be stalling in September after picking up nicely since mid-July.

The above chart only covers 2009, lacking in perspective. The chart below shows that we remain significantly below previous years activity.

I am travelling on vacations so posting will be limited until my return near the end of September.