November 2nd, 2011 9:29 AM by Mel Samick
Retailers are eager to begin the holiday season, staging Christmas displays here and there, even though it is still October. The upcoming "Black Friday," which is the Friday after Thanksgiving that is believed to signal the strength of overall holiday shopping, will be a delight for shoppers. Target announced it will be opening its stores at midnight, just as Wal-Mart did last year, in addition to the super-centers already open 24-hours. Under the eyes of investors' many stores, such as Sears and K-Mart, Toys "R" Us, Gap and Banana Republic opened on Thanksgiving morning last year too, embarking on some extra beginning-of-the-season sales.
As a part of the pre-holiday rush, price wars erupted in the world of retail merchandising. Wal-Mart was reported to provide its customers gift cards if they find merchandise sold cheaper elsewhere. Staples and Bed Bath and Beyond are focused on fighting on-line competition and were said to be ready to match Amazon.com prices, as opposed to Sears that is going to beat prices of competitors by 10%, excluding on-line only retailers. With so much action and improved Consumer Confidence, exceeding expectations for October, strong Consumer Spending, even though it comes from personal savings, per the Personal Income and Outlays report, we are looking forward to a boost to the economy this Fall.
The early Christmas mood in stores might be blamed on the record snowfalls on the East Coast this past weekend; maybe the snowstorm was a product of a spell by the powerful "Wicked Witch of the East" (The Wonderful Wizard of Oz) or custom-ordered by the "Occupy Wall Street" protest opponents to help turn the financial center's occupants into merry holiday-themed snowmen on display.
Whirlpool announced it was slashing its' workforce by 5,000 jobs, about 10 percent of employees in North America, in a latest cost-cutting effort. As sales slowed down, it was reported that Whirlpool complained that some appliance manufacturing companies, LG and Samsung among them, supposedly started selling their products below fair value; the strategy called "dumping" violates international trade law. Samsung and LG, along with Sharp and Toshiba, fell under fire recently for just an opposite unfair pricing strategy -- "price fixing" on LCD monitors. The companies were sued for holding artificially high the prices of the LCD panels supplied to the U.S. over the last decade.
Caterpillar, the world's largest heavy machinery manufacturer, reported that they hired about 5,000 workers during the past quarter when their profit jumped 44%. Caterpillar is looking to post 2011 profits at a record high and expects a momentum spillover into the next year. Despite Caterpillar's triumph, the Durable Goods orders, a forward looking indicator of economic activities, came out low this past Wednesday; the decline in the aircraft industry is blamed for this effect.
The labor related moves of Caterpillar and Whirlpool are very illustrative of the job market condition. As some employers increase their labor force, others still let people go, holding misery in the job market constant. New unemployment claims this past week moved down slightly, but still stayed above 400,000, demonstrating no significant improvement. The Employment Costs Index rose only 0.3 percent in the third-quarter, the slowest pace in two years. This is yet another sign of the anemic job market that is contributing to keeping inflationary pressures down.
The Chicago Fed National Activity index, a weighted average of 85 economic indicators, rebounded to -0.22 in September, still less than forecasted. The GDP growth nevertheless was higher in the third-quarter, at a decent 2.5 percent. Investors are cautious in their conclusions, since sustainability of the growth rate remains unknown and the GDP number often gets revised some time after its initial release.
The housing market weakness continues. The MBA reported a decrease in mortgage applications this past week; both new home sales and pending home sales dropped, signaling no signs of improvement in the near future.
The Wall Street Journal article this past week began with citing a joke by Stephen Schwartzman, head of Blackstone Group L.P., an asset management giant. Mr. Schwartzman said that parents of Brian Moynihan, Bank of America CEO and Patrick Moynihan, a deacon and missionary running a boarding school on Haiti, must be proud that both their sons run under-funded non-profit organizations. The article then explains that present times are tough for the banks; going forward, banks are facing sluggish economic growth that undermines lending volumes, restructurings due to mandatory separation of the investment activities and the long-term impact of low-quality mortgage portfolios. At the same time, the perception of the banking industry as highly profitable for investors and low-cost for customers puts additional pressure on banks. The recent introduction of a debit card fee by Bank of America, amongst others, in an attempt to push up banks' fee income, led to such a negative clients response that Chase and Wells Fargo announced joining the camp of the institutions not charging debit card fees. The new European debt deal that was cheered by the markets this past week is actually bad news for the European banks. Fifty percent debt forgiveness on the sovereign bonds of Greece will put additional pressure on the banks to raise capital. After an extraordinary rally, markets seem to be into more of a profit taking mode so far this week.
Investors are looking forward to the week loaded with economic news. Chicago PMI was reported today; on Tuesday, Motor Vehicle Sales, ISM Manufacturing Index and Constructions will be released.; Wednesday begins with the ADP Employment report; an announcement of the 2-day FOMC meeting outcome is scheduled for 12:30 pm followed by the Fed Chairman, Ben Bernanke's, press conference at 2:15 pm; Thursday is a release day for Jobless Claims, Productivity and Costs, Factory Orders and ISM Non-Manufacturing Index; the Employment Situation report will conclude the busy week on Friday. After close of the market today, economists forecast increased probability of seeing witches and other unexpected non-economic factors above and beyond the business world. Stay tuned.
Information provided by NYCB Capital Markets