North American companies have announced plans to eliminate 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg. Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011. (…)
Among western European companies, there have been 47 job- cut announcements so far this year involving at least 1,000 workers, compared with 32 in the same period of 2011, according to the data compiled by Bloomberg. The peak month was July, with 39,800 firings. That brings the year-to-date total for the region’s companies to 165,700, up from 162,420 in the same period a year earlier, the data show.
(…) But an expiration of payroll tax cuts in early January and a spike in food prices could wipe 0.8 percentage points off U.S. economic growth next year, according to some economists.
Economists at JPMorgan say expiration in January of a temporary 2 percentage-point cut in the payroll tax would reduce household spending by $125 billion and lower gross domestic product by about 0.6 percentage point next year.
Another area of concern for consumers is food prices. Rises in the prices of corn and soybeans and other field crops as a result of drought this year in the U.S. Midwest are expected to feed through into food prices late this year and in early 2013.
“We are starting to see evidence of food prices moving up so that’s definitely going to be a drag on disposable incomes,” said Hoyt of Moody’s Analytics.
The U.S. Department of Agriculture sees food price increases of 3.5 percent to 4.0 percent next year, greater than this year.
Hoyt says that could cut 0.2 percentage point from economic growth over the winter, when food prices could peak.
Another big extra outlay will be in healthcare premiums, which on average are costing employees more than $2,200 in 2012, according to Aon Hewitt, a human resource consulting firm.
Average health care premiums are forecast to jump by 6.3 percent in 2013, according to Aon Hewitt
Over the last five years, employees’ share of healthcare costs will have increased more than 50 percent, it said.
(…) These companies and others, including software developer GalaxE.Solutions Inc., say some complex functions, such as human-resources and software development, are better to have closer to their own operations and to respond to customers. Indian outsourcing companies are finding it tougher to get visas for workers brought from India, and some U.S. businesses want to outsource — yet keep jobs in the country. State tax breaks also provide incentives to hire locally.
“It used to be just about getting the job done at the lowest cost,” said Madhusudan Menon, who heads Infosys’s Atlanta center and delivery of U.S. business-process outsourcing. “Now companies are saying some jobs are best done closer to where they are, not cheap as possible somewhere else. They’re rebalancing their onshore and offshore outsourcing.”
U.S. companies with more than $1 billion of revenue sent 1.1 million technology and back-office jobs offshore during the past decade, according to the Hackett Group , a Miami-based consulting company. While it forecasts a slowing outflow beginning in 2013, it calculates another 400,000 positions will be lost offshore through 2016.
A survey of 617 outsourcing industry executives by Boston- based HfS Research in July and August found the U.S. is seen as the most desirable region in the world to expand IT and business-services delivery centers in the next two years. India was second.
Gasoline for November delivery dropped 0.2 cent to settle at $2.603 a gallon on the New York Mercantile Exchange, a four- month low. This is the longest down streak since futures began trading in May 1986.
Demand for the motor fuel sank 2.7 percent to 8.49 million barrels a day, the lowest level since March 16, department data show. Over the past four weeks, consumption was down 1.8 percent from a year ago. (…)
The average nationwide price for regular gasoline at the pump declined 2.3 cents to $3.625 a gallon yesterday, AAA, the largest U.S. motoring organization, said today on its website. That’s the lowest level since Aug. 5. The pump price reached a 2012 high of $3.936 on April 4.
By election day, the national average will slide to about $3.40 to $3.50, Heathrow, Florida-based AAA said on Oct. 22.
Gas prices have thus dropped 7% from their mid-September peak and are set to decline another 4-5% during the next 2 weeks. Big relief just in time for Christmas!
MORE ON MARKIT’S FLASH PMIs
- China: hope?
Having suffered the largest decline for three-and-a-half years in September, manufacturers saw a marked easing in the rate of loss of export orders in October, reporting the smallest fall since May. However,
companies reported that the dispute between Japan and China continued to act as a drag on trade, while weak demand from North America and Europe also hit export sales.
Further encouraging news that production growth may improve in coming months was provided by an increase in the forward-looking orders-to-inventory ratio to a one-year high. The ratio rose due to the
easing in the rate of decline of orders while inventories of finished goods fell for the first time in six months, dropping at the fastest rate since September of last year. The drop in inventories was in part due to
warehouse stock being depleted by stronger than expected sales, as well as better stock control by producers.
Employment continued to fall, however, dropping at a similar rate to September, as firms sought to reduce costs. Furthermore, backlogs of work fell at the steepest rate since January 2009, suggesting further job losses could be seen in coming months unless inflows of new orders pick up to keep workers sufficiently occupied.
- Europe: despair!
The flash German PMI numbers for manufacturing and services both came in below expectations, suggesting the country is sinking into a mild downturn again. The downbeat message from the PMI was corroborated by the near-simultaneous publication of the IFO survey, for which the Business Climate Index also disappointed relative to expectations, dropping from 101.4 in September to 100.0. its lowest for two-and-a-half years.
While Germany’s downturn still looks mild, French business surveys are pointing to a steep contraction of the economy. The INSEE survey’s business climate index, which fell on Tuesday to its weakest since September 2009, was followed on Wednesday by the flash PMI, which rose only slightly from September’s three-and-a-half year low. The two surveys send a consistent message that the French economy contracted at a worrying pace in the third quarter and that the severe downturn persisted at the start of the fourth quarter. (chart below from Reuters)
That said, the Goldman Sachs Global Leading Indicator has turned up lately, mainly because of better than expected September data, many of which seem to be weaker in October.
“There is no improvement in demand this October,” SMM’s Zhang said in a phone interview on Oct. 23 in Shanghai. “As new capacities continue to be installed in the west, we expect inventories to climb further.”
China accounted for 42 percent of global aluminum demand last year, according to Bloomberg Industries research.
The U.K. emerged from its longest double-dip recession since World War II, data showed, but one-off factors such as the London Olympics may mask deep-rooted problems and economists expect growth to be weak for some time to come.
Bank deposits rise in Spain and Greece Flow of cash into banks ends months of decline
Private sector deposits at Spanish banks rose to €1.505tn at end-September from €1.492tn a month earlier, reversing the August fall.
Greek bank deposits rose to €160.1bn from €158.7bn. They have been relatively stable since June elections eased fears the country might drop out of the currency bloc, but are still about a third below their December 2009 peak.
Quarterly results are compiled by many organizations. Their findings do not always match perfectly. S&P is the “official” source and, as of last Friday, based on 115 reports, they were estimating that Q3 earnings would decline 1.7% YoY.
- Thomson Reuters’ calculations on 186 reports are pointing to a more difficult season: U.S. Earnings Fall Victim to Europe’s Woes Europe’s economic woes are washing over U.S. multinational companies, contributing to a season of weak corporate earnings.
(…) Third-quarter earnings have fallen 3.9% at the 186 members of the Standard & Poor’s 500-stock index that have reported results, according to Thomson Reuters. An unusually high share of companies—62%—have reported lower revenue than predicted by analysts.
Greg Harrison, a Thomson Reuters analyst, says firms have offset sluggish sales by cutting costs, keeping average profit margins steady around 9% to 10%.
“We are seeing companies talk about weakness in Europe and finally slower growth in emerging markets and China,” said John Butters, an analyst at FactSet.
On average, Europe accounts for about 20% to 25% of sales for big U.S. companies.
U.S. firms face another hurdle: the dollar has gained 7.4% in value against the euro in the past three months. That makes American goods more expensive and reduces the dollar value of European sales. (…)
“Europe’s still sliding,” Mark Rohr, chief executive of Celanese Corp., a Dallas chemical maker. (…)
Bloomberg adds a few more companies
So far, out of 204 S&P 500 companies that have released third-quarter earnings, 120 (59%) have reported sales that trailed analysts’ estimates, according to data compiled by Bloomberg.
WPP, the world’s largest advertising company, cut its full-year outlook for a second time in three months, warning of further slowdown in ad markets in the final quarter, in particular in the U.S., Europe and Latin America.
Like-for-like sales rose 1.9% at WPP in the third quarter, slowing from the 3.6% growth posted in the first half and missing market expectations for a 3.5% rise. Revenue in North America fell 0.4% in the quarter on a like-for-like basis. Continental Europe dropped 2.1%.
September was a particularly poor month, WPP said. “Clients seem to be increasingly cautious and this has impacted most geographies and functions,” it noted.
The maker of Mercedes-Benz autos said a weakening economy would reduce its full-year earnings before interest and taxes to about €8 billion ($10.37 billion), down from last year’s and its prior 2012 forecast of about €9 billion. It also said it assumes 2013 financial targets “will not be met.” (…)
But amid a “significant worsening of the market environment in major markets in recent months,” it was forced to lower its forecast for the entire group, it said. (…)
Ford said the deteriorating outlook for the European car industry, with new vehicle sales at a near 20-year low and unlikely to recover next year, explained its decision to close the factory in Genk, Belgium. (…)
Ford said it would shift production of the next generation of its autos built in Belgium to an existing Ford factory in Valencia, Spain, where production costs are lower.