by Calculated Risk on 1/07/2009 06:03:00 PM

From the Guardian: M&S chief pleads for government help after sales slump

Marks & Spencer chief Sir Stuart Rose today called on the government to do all it could to restore consumer confidence as the high street giant unveiled dire Christmas trading, the closure of 27 stores and confirmed more than 1,200 staff were to be axed in a bid to cut costs.
...
The 125-year-old retailer, which has 600 outlets, said like-for-like sales were down 7.1% in the 13 weeks to 27 December, despite holding two one-day pre-Christmas sales, when 20% was slashed off the price of all goods. Like-for-like sales of general merchandise – clothing and homewares – were down nearly 9% and food sales declined 5.2% from 2007 levels.
...
Rose said the looming recession was "the sharpest downturn in the shortest time" he had witnessed in 38 years in the retail business, and the outlook remained challenging.

I suspect December retail sales will be very ugly (worse than October and November).

by Calculated Risk on 1/07/2009 02:17:00 PM

From the National Restaurant Association (NRA): Restaurant Performance Index Fell to a Record Low in November as Economy Continued to Worsen

The outlook for the restaurant industry worsened in November, as the National Restaurant Association’s comprehensive index of restaurant activity fell to a record-low level. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 96.7 in November, down 0.4 percent from October and its 13th consecutive month below 100.

“The November decline in the Restaurant Performance Index was the result of broad-based declines across the index components, with the Current Situation index falling to a new record low,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “A solid majority of restaurant operators reported negative same-store sales and traffic levels in November, while nearly one-half expect their sales in six months to be lower than the same period in the previous year.”

“The continued deterioration in economic conditions is reflected in operator sentiment, with a record 47 percent of restaurant operators saying the economy is currently the number-one challenge facing their business,” Riehle added. “Looking forward, restaurant operators aren’t particularly optimistic about an improvement either, with 49 percent expecting economic conditions to worsen in six months.”

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

The index values above 100 indicate a period of expansion; index values below 100 indicate a period of contraction.

Based on this indicator, the restaurant industry has been contracting since November 2007.

by Calculated Risk on 1/07/2009 09:49:00 AM

Intel provides another example of the rapidly deteriorating business environment.

On Oct 14th, Intel projected revenue for Q4 2008:

Revenue: Between $10.1 billion and $10.9 billion.

Then Intel warned on November 12th and lowered their revenue projection to $8.7 billion to $9.3 billion:

Intel Corporation today announced that fourth-quarter business will be below the company's previous outlook. The company now expects fourth-quarter revenue to be $9 billion, plus or minus $300 million, lower than the previous expectation of between $10.1 billion and $10.9 billion. Revenue is being affected by significantly weaker than expected demand in all geographies and market segments. In addition, the PC supply chain is aggressively reducing component inventories.

And now today Intel reported a significant miss: Intel Announces Preliminary Fourth-Quarter Financial Information

Intel Corporation today announced preliminary fourth-quarter financial information with revenue of approximately $8.2 billion, down 20 percent sequentially and down 23 percent year over year. Revenue will be lower than the company's previous expectation, provided on Nov. 12, 2008, as a result of further weakness in end demand and inventory reductions by its customers in the global PC supply chain.

This is a pretty significant decline in revenues and suggests much lower business investment in equipment and software in Q4 2008.

by Calculated Risk on 1/07/2009 09:16:00 AM

From Bloomberg: U.S. Shopping Mall Vacancies Reach 10-Year High as Stores Fail

Vacancies at U.S. malls and shopping centers approached 10-year highs in the fourth quarter, and are set to rise further as declining retail sales put more stores out of business, research firm Reis Inc. said.

Regional mall vacancies rose to 7.1 percent last quarter from 6.6 percent in the third quarter. It was the highest vacancy rate since Reis began tracking regional malls in 2000, as well as the largest quarter-to-quarter jump in vacancies, according to New York-based Reis.

Click on image for larger graph in new window.

This graph shows the strip mall vacancy rate since Q2 2007. Note that the graph doesn't start at zero to better show the change.

At neighborhood and community shopping centers, the vacancy rate rose to 8.9 percent from 8.4 percent in the third quarter, the highest since Reis began publishing quarterly data in 1999.

Strip mall vacancy rates are headed for double digits next this year.

by Calculated Risk on 1/07/2009 01:01:00 AM

Dr. Hamilton points out that the sales decline in recent months was very different from earlier in 2008:

Overall, in the fall of 2008 we saw a big decline in all categories-- cars and SUVs, imports and domestics. That is very different from the problems last spring and summer, when SUVs were clobbered, but domestic cars were not hit too badly and sales of imported cars were actually up slightly.

... In early 2008, the primary problem for U.S. auto manufacturers was the sharp hike in gasoline prices, which explains the collapse of sales of SUVs at the same time that imports of smaller cars were on the way up.

... By contrast, the current problems for the auto sector resulted from the broad collapse in overall consumer spending.

Here is the graph for auto sales - see Professor Hamilton's post to compare autos and light trucks (including SUVs):

Source: Econbrowser / Wardsauto.com

by Calculated Risk on 1/06/2009 05:51:00 PM

From the WSJ: Alcoa to Eliminate 15,000 Positions

Acknowledging that earlier cost-cutting moves are insufficient due to the sustained economic downturn, aluminum maker Alcoa Inc. announced deeper work-force cuts, more plant closures and a 50% reduction in capital expenditures.

By the end of this year, there will be 15,000 fewer positions at the company, or roughly 14.5% of its current employees and contractors, Alcoa said Tuesday.

Also Bloomberg is reporting: IBM May Cut Thousands of Jobs, Employee Group Says

International Business Machines Corp., the biggest technology employer, may cut thousands of jobs this month amid the global economic slowdown, according to the employee group Alliance for IBM.
...
A post on the Alliance’s Web site said the company may cut 16,000 jobs ...

Obviously earlier cost cutting efforts were insufficient. And the beat goes on ...

by Calculated Risk on 1/06/2009 02:17:00 PM

The Fed projects GDP to decline in 2009 "as a whole", and unemployment to "rise significantly into 2010". The Fed also expects disinflationary pressures to continue into 2010.

From the FOMC Minutes:

In the forecast prepared for the meeting, the staff revised down sharply its outlook for economic activity in 2009 but continued to project a moderate recovery in 2010. Real GDP appeared likely to decline substantially in the fourth quarter of 2008 as conditions in the labor market deteriorated more steeply than previously anticipated; the decline in industrial production intensified; consumer and business spending appeared to weaken; and financial conditions, on balance, continued to tighten. Rising unemployment, the declines in stock market wealth, low levels of consumer sentiment, weakened household balance sheets, and restrictive credit conditions were likely to continue to hinder household spending over the near term. Homebuilding was expected
to contract further. Business expenditures were also likely to be held back by a weaker sales outlook and tighter credit conditions. Oil prices, which dropped significantly during the intermeeting period, were assumed to rise over the next two years in line with the path indicated by futures market prices, but to remain below the levels of October 2008. All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated, before slowly recovering over the remainder of the year as the stimulus from monetary and assumed fiscal policy actions gained traction and the turmoil in the financial system began to recede. Real GDP was projected to decline for 2009 as a whole and to rise at a pace slightly above the rate of potential growth in 2010. Amid the weaker outlook for economic activity over the next year, the unemployment rate was likely to rise significantly into 2010, to a level higher than projected at the time of the October 28-29 FOMC meeting. The disinflationary effects of increased slack in resource utilization, diminished pressures from energy and materials prices, declines in import prices, and further moderate reductions in inflation expectations caused the staff to reduce its forecast for both core and overall PCE inflation. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010.
emphasis added

by Calculated Risk on 1/06/2009 01:56:00 PM

United Community Banks, Inc. warned today:

The estimate for the fourth quarter loan loss provision is $85 million, with an expected $74 million in charge-offs ...

In Q3, the loan loss provision was $76 million with $56 million in net charge-offs. So Q4 was worse.

But this is funny (hat tip Brian): Back on their Oct 23rd conference call, UCBI told investors:

Charge-offs will continue to be elevated as we work through our problem credit, but we certainly don't see a recurrence of the third quarter charge-off level in the immediate future.
emphasis added

Oops. I guess the next quarter was not the "immediate future".

by Calculated Risk on 1/06/2009 12:37:00 PM

From the Boston Globe: Jumbo mortgage loan rates put damper on refinancing (hat tip Soylent Green Is People). The article notes the difference between conforming loans (below $417K), "conforming jumbo loans" (by MSA), and jumbo loans:

Last year, Congress raised jumbo limits when it allowed Fannie Mae and Freddie Mac to buy or guarantee higher-balance loans. In Massachusetts, the limit increased to $523,750, from $417,000, with jumbo loans being above the higher amount, and conforming jumbos between the two figures.

The Federal Housing Finance Agency recently recalculated the loan limits for 2009, as required by law, based on recent home sales.

That resulted in the jumbo limit for the Boston area being lowered to $465,750, meaning some borrowers who would have qualified for lower rates in December are now back in the jumbo category.
...
On Friday ... one lender was offering a 5.25 interest rate for conventional loans, 5.75 percent for conforming jumbos, and 8 percent for jumbos.

Apparently Barney Frank wants to increase the conforming jumbo limit:

US Representative Barney Frank, Democrat of Massachusetts, said Friday that he wants jumbo limits to be raised again - to the previous level, if not higher.

Frank, chairman of the House Committee on Financial Services, pledged to include a provision for this in the economic stimulus bill Congress is expected to take up with President-elect Barack Obama. He also wants to change the way the loan limits are calculated to reflect real market conditions.

"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
emphasis added

by Calculated Risk on 1/06/2009 10:01:00 AM

From the NAR: Economic Slump Weakens Pending Home Sales

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 4.0 percent to 82.3 from a downwardly revised reading of 85.7 in October, and is 5.3 percent below November 2007 when it was 86.9. The current index is the lowest since the series began in 2001.

I'll just repeat my comment from last month:

Existing home sales have been boosted by all the distress sales in low priced areas. Over time, as foreclosure activity shifts to middle and upper income areas, existing home sales will probably decline (the opposite of the NAR view - what a surprise!)

Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so this suggests existing home sales will decline from December 2008 to January 2009.

For some graphs comparing existing home sales to pending home sales, see: Do Existing Home Sales track Pending Home Sales? The answer is yes - they do track pretty well.