bizzXceleration: Performance, Value and Profit

Below there was so much plain ol economics news we're going to break it up into domestic and interntional and even so we chunked it up after the break into basics, economy vs credit markets and business/consumer outlooks. We could probably list out the articles and discuss them but we've been doing that for a while and they're all entirely consistent with our prior postings and discussions. You'll get a bunch out of just reading the headlines and skimming the story excerpts. Dig into any that strike you as particularly interesting of course but there's a couple of things that really deserve some time. The first is Paul Kasriel's latest Econtrarian dissection of the outlook for consumer spending (It's So Over...). The second is the collection of CNBC vidclips with Mohamed el-Arrian in all of them and the last including Joseph Stiglitz. With these we add them to our list of the usual suspects we chant on the economic situation. el-Arrian's take and explanations are as straightforward, clear, deep and accurate as anything we've heard. All in a view minutes.

Just to review the bottomline is that the Fed has unclogged the pipes so we don't have a major financial collapse but we still have to de-leverage, re-price and so forth. That's going to take time and there's still a lot of uncertainties but it does mean that credit's likely to remain tight for quite a while. Meanwhile the "noraml" cyclic downturn can no proceed but with dropping real wages and dropping consumption we're likely to see steepening of the downturn in the next few months. And we repeat an earlier point - when the Chair uses the R-word everybody should listen and it turns out the reason for the sudden rapid cuts, from the meeting minutes, was/is that the Fed's worried about a deep recession. Well, duoh ! Imagine that.

If you believe what the numbers are beginning to tell us and folks like el-Arrian and Stiglitz are saying this is likely to be a much longer downturn (thru the end of '09) than is being anticpated. The goal is to keep it from being much deeper. On that note btw we've listed the address for the WSJ's charts and data from their latest forecast survey. You'll find the '09 outlook very surprising and NOT reported. Now just to close the loop - and this bears repeating and repeating - a mild recession is not priced into the market. After we've down is give it a trim. If things turn farther south as is increasingly likely, well...

So now we've linked yesterday's post, GE's news and this stuff and maybe snuck in a mild "I told ya so" in the bargain :).

Economic Outlook

Fed Officials Worried About Deep Recession Worries about a deep recession -- not a shallow one -- drove Federal Reserve policymakers to slash a key interest rate last month, meeting minutes show. Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some members fretted over the possibility of a "prolonged and severe" economic downturn. It was in that environment that they voted -- with two dissents -- to cut its most important interest rate by three-quarters of a percentage point to 2.25 percent. That action capped the most aggressive Fed intervention in a quarter-century. On the one hand, the Fed has been urgently moving to prevent the trio of economic woes -- housing, credit and financial-- from plunging the country into a deep recession. On the other hand, with soaring energy prices and high food costs, policymakers realize that they can't afford to let inflation get out of control, either. Even with the big interest rate reduction in March, most Fed members saw overall inflation moderating in coming quarters, the minutes said. However, inflation pressures had picked up even as economic growth had weakened, the minutes added, suggesting that uncertainty clouded the inflation outlook.

• Paulson: US Economy Has 'Turned Down Sharply'
• Trade Gap in U.S. Unexpectedly Widens, Led by Jump in Automobile Imports

• The long hangover America's economy is in recession. Don't expect a quick recovery

U.S. Economy to Stall as Consumer Spending Cools, Survey Shows Economic growth in the U.S. will come to a halt.  in the first six months of 2008 as consumer spending cools, a Bloomberg News survey showed. The world's largest economy will not expand at all from January through June, according to the median estimate of 62 economists surveyed from April 2 to April 8. A majority now projects the U.S. is, or will soon be, in a recession. Job losses, falling home values and credit restrictions are plaguing consumers already burdened by soaring food and gasoline bills. Federal Reserve Chairman Ben S. Bernanke, who conceded for the first time last week that the economic expansion may end, will cut interest rates again, the poll showed. The deepest reductions came in the outlook for the second quarter as economists slashed the growth estimate to zero from last month's projected 0.5 percent annual pace. Increases in fuel prices and the unexpected pickup in firings since the start of the year explain the downgrade.

It’s So Over for Household Spending Households have been running deficits – i.e., spending more than their after-tax income – since just before the peak in the NASDAQ stock price index. There are only two ways to spend more than you earn – borrow and/or sell assets. Households have been doing both to fund their recent deficits. These two deficit-funding sources will dry up in the coming years, which will force households to, at least, attempt to begin running surpluses again. Regardless of whether they are successful in their attempt to run surpluses, growth in household spending on goods, services and tangible assets, such as houses, is bound to slow significantly in the coming years.

Retailers Post Sluggish Sales in March The nation's retailers reported the weakest March sales in 13 years on Thursday as consumers -- fretting about mounting economic problems and enduring a frigid Easter -- limited their shopping to food and other essentials. With prices at the pump rising and worries about jobs increasing, shoppers bought basics at discounters and wholesale clubs and snubbed mall-based chains' clothing, jewelry and furniture. The earliest Easter in 95 years also hurt sales; shoppers weren't in the mood to buy spring clothing in cold weather. Wal-Mart Stores Inc. and Costco Wholesale Corp. were among the best performers. Wal-Mart raised its earnings outlook, noting that better inventory control helped to limit markdowns on merchandise. But March proved to be another weak month for many others, including J.C. Penney Co., Gap Inc., and Limited Brands Inc. All of them reported sharp drops in sales.

• Same Store Sales Boosted by Inflation, Retail Slumming, S&P500 Retail Sector vs Wal-Mart

Economy Has Further to Fall The weakening U.S. economy has further to fall, according to the majority of economists in the latest Wall Street Journal forecasting survey. Almost three quarters of the respondents said the economy hasn't yet hit bottom. Three interrelated issues are weighing on the economists' minds. When asked what the biggest downside risk to their forecast was, 35% chose further deterioration in the credit markets, while 25% said it was a sharp drop in consumer spending and 13% said continued housing weakness. Differing opinions on these issues played a big part in the assessment of whether the economy had hit bottom. Ian Shepherdson of High Frequency Economics agrees. "I expect soft consumption will keep growth way below trend right through next year and I would not be surprised by a soft 2010 either," he said. "You can't party for a decade, stop on Saturday and expect the hangover to be gone by Sunday lunchtime so you can go out and start all over again." One area supporting the point on consumption is the employment outlook. After three consecutive drops in nonfarm payrolls, the economists now expect the economy to shed 1,625 jobs a month, on average, over the next year. They expect the unemployment rate, now 5.1%, to rise to 5.6% by December. Meanwhile, just 21% of economists expect home prices to hit a bottom this year, while 67% see the bottom in 2009 and 12% say it won't be until 2010. Charts and Data: Jobs, housing, inflation, more

IMF: U.S. Will Fall Into Recession The U.S. economy will slip into a "mild recession" this year and could drag the global economy down with it, the International Monetary Fund predicted. In its latest World Economic Outlook, the IMF said Wednesday that it sees a 25% chance that world economic growth could fall below 3% this year and next -- "equivalent to a global recession." The fund cut the baseline forecast for global growth this year to 3.7% from its January estimate of 4.2%. The world economy is expected to expand 3.8% next year. In its semiannual report, the IMF said world growth is "losing speed in the face of a major financial crisis," calling the financial turmoil that was sparked in the U.S. subprime-mortgage market the largest shock since the Great Depression. The IMF cut its U.S. growth forecast by a percentage point from January to 0.5% this year, and sees it edging up to 0.6% next year. Emerging-market economies are expected to slow modestly, but the IMF sees upside potential to domestic demand. China's growth forecast was slashed 0.7 percentage point to 9.3% for 2008, with an expected rise to 9.5% next year. India is estimated to grow 7.9% this year, down from an earlier forecast of 8.4%, and to post 8% growth in 2009. The biggest risk to emerging markets is inflation, which has accelerated more than in advanced economies because of strong demand-and-supply constraints, especially in oil.

Economy vs Credit Contraction

Growth in Consumer Borrowing Slows Consumers, battered by a credit crunch and prolonged housing slump, significantly slowed their pace of borrowing in February. The Federal Reserve reported Monday that consumer borrowing rose at an annual rate of 2.4 percent in February, just half of the 4.9 percent increase in January. The slowdown reflected much weaker demand for auto loans and other type of non-revolving credit, which rose at a rate of 0.4 percent in February, much lower than the 3.6 percent growth rate in January. Credit card debt rose at a 5.9 percent rate.

Borrowers Keep Piling On Debt While tighter lending standards have cut off all but the most credit-worthy borrowers from auto loans and home loans, many people are turning to credit cards and tapping more of their home-equity lines of credit to dig themselves in deeper. And lenders, once eager to lend to those with even spotty credit records, are trying to rein in borrowing by cutting consumers' available credit lines. Average balances on credit cards and home-equity lines of credit are growing rapidly, rising 9.5% and 8.1%, respectively, in the first quarter from a year earlier, according to new data from Equifax Inc. and Moody's Economy.com. Borrowing is climbing quickest in the regions where house prices plunged most sharply, making it tougher for people to extract money in cash-out refinancings. (In a cash-out refinancing, a homeowner pays off a mortgage by taking out a loan that is larger than the original mortgage and then pocketing the difference.) Credit-card balances rose nearly 15% during the first quarter from a year earlier in California and Florida and more than 20% in Nevada -- all states caught up in the housing bust, according to Equifax and Economy.com. The rise in borrowing shows just how addicted the U.S. consumer has become to credit.

Citi, Wells Fargo May Fuel Recession by Slowing Lending After Downgrades Bank holding companies including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. have the thinnest safety cushion against losses in seven years. The margin may erode further in coming weeks. Credit ratings on $704 billion of bonds have been cut this year following the collapse of the U.S. housing market. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that the downgrades may compromise bank capital ratios enough that some of the largest institutions will no longer be considered well capitalized. Falling below a regulatory benchmark that is intended to maintain a minimum level of capital to protect depositors against losses would subject banks to more scrutiny from regulators than they have ever experienced. The biggest danger to the economy is that to preserve their ratios, banks will cut off the flow of credit, causing a decline in loans to companies and consumers. Banks have already raised $136 billion in capital, based on data compiled by Bloomberg, and cut dividends. More stock sales and payout reductions are likely to follow, says analyst Meredith Whitney at Oppenheimer & Co. The banks need to shore up the ratio of the value of their common stock, preferred shares, retained earnings and loss reserves to the total of risk-adjusted assets, which are affected by credit ratings. To be considered a ``well capitalized bank'' by U.S. regulators, an institution can't have more than 10 times its capital in risk-weighted assets. More than 99 percent of American banks qualify as well capitalized. The holding companies for Citigroup, Bank of America and Wells Fargo have the lowest ratios in at least the five years that the Federal Reserve has been tracking the data.

Confidence ???

Stimulus plan skeptics Sentiment about the stimulus plan's influence varied by region and industry. Business owners in the Midwest were the most skeptical - only 8% of them expect to see any benefits, according to the survey. Industrywide, wholesale and retail business owners were more optimistic about the plan than those in the manufacturing and service industries. On the upside, 66% of business owners surveyed said they had no plans to change their employment levels over the next six months. However, a full 10% of respondents expect to cut jobs. That's the highest percentage since the survey began five years ago. A majority of business owners also expect to see higher prices from suppliers, and 43% those surveyed said they're prepared to pass those extra costs on to customers by raising prices. Furthermore, an increasing number of business owners are worried about the availability of credit, with nearly one out of five saying it is more difficult to get credit now, compared with just three months ago. Only one in seven said it was easier to get credit. Nearly half of those surveyed said they foresee housing prices to fall over the next six to 12 months, which could have a negative impact on business.