Thursday, February 26, 2009

Companies are slashing jobs and orders at a faster pace in the U.S.

TO BE NOTED: From Bloomberg:

"U.S. Economy: Companies Cut Jobs, Durable Orders (Update2)

By Bob Willis and Sho Chandra

Feb. 26 (Bloomberg) -- Companies are slashing jobs and orders at a faster pace in the U.S., reports today showed, signaling the economy will contract more sharply this quarter than analysts anticipated.

Orders for durable goods fell 5.2 percent in January, more than twice as much as forecast, Commerce Department figures showed in Washington. The Labor Department said 667,000 Americans filed initial applications for jobless benefits last week. Sales of new homes reached a record low in January.

“What we’re looking at in this recession overall might be the biggest slowdown in economic growth in the postwar era,” said Tim Quinlan, an economist at Wachovia Corp. in Charlotte, North Carolina.

The economy’s deterioration reflects a tightening credit crunch that the Obama administration aims to counter with as much as $750 billion in new aid to the financial industry. The U.S. is caught in a “vicious cycle” where economic and financial weaknesses are feeding on each other, White House National Economic Council Director Lawrence Summers said today.

“Our economic problems” will “not be solved in a week or month or a year,” Summers said at a conference in Arlington, Virginia. The White House today unveiled a budget outline that includes a $1.75 trillion deficit for the current financial year as officials implement the fiscal stimulus and financial-bailout programs.

Treasury Yields

Treasuries fell as investors anticipated greater issuance of government debt. Yields on benchmark 10-year notes rose to 2.99 percent at 4:08 p.m. in New York, from 2.93 percent late yesterday. The Standard & Poor’s 500 Stock Index reversed early gains to close at 752.83, down 1.6 percent.

Morgan Stanley analysts today cut their estimate for gross domestic product in the first quarter to a 6 percent decline from 5 percent previously. Deutsche Bank Securities economist Joseph LaVorgna said the slide in January to March may be closer to 10 percent, the worst since 1958.

The Commerce Department may tomorrow revise its estimate of fourth-quarter GDP to a 5.4 percent drop at an annual pace, from the 3.8 percent decline previously reported, according to the median forecast in a Bloomberg News survey.

Economists projected a 2.5 percent drop in goods orders, according to the median of 71 estimates in a Bloomberg News survey. The fall extended the string of decreases to six months, the longest stretch since records began in 1992.

Growth Impact

Demand for non-defense capital goods excluding aircraft, a proxy for future business investment, plunged 5.4 percent after falling 5.8 percent the prior month. Shipments of those items, used in calculating GDP, dropped 6.6 percent.

The auto industry has led the recession in manufacturing. General Motors Corp., which is seeking $16.6 billion in new federal loans, today reported a $30.9 billion annual loss, the second-biggest in its 100-year history. The automaker this month said it is cutting another 47,000 jobs globally this year, closing an additional five U.S. plants by 2012 and selling or shuttering its Saab, Hummer and Saturn brands as part of a restructuring campaign.

“We expect these challenging conditions will continue through 2009,” GM Chief Executive Officer Rick Wagoner said in a statement today. GM has already received $13.4 billion in federal loans since December to stay in business.

The Labor Department’s claims report showed the number of people staying on benefit rolls rose by 114,000 to a record 5.112 million in the week ended Feb. 14.

No Bottom

“The labor market weakness has not found a bottom,” said Rudy Narvas, a senior economist at 4Cast Inc. in New York. “The payrolls report for February could be really bad.”

Those figures, due from Labor next week, may show job cuts exceeded half a million for a fourth consecutive month, according to a Bloomberg survey. The unemployment rate probably climbed to 7.9 percent, the highest level since 1984.

Already, the 3.6 million jobs lost since the U.S. recession began in December 2007 mark the biggest employment slump of any economic contraction in the postwar period.

JPMorgan Chase & Co. said today it will eliminate 2,800 jobs at Washington Mutual through attrition, bringing to 12,000 the total number of positions lost since the bank purchased the failed thrift in September.

Soaring unemployment and mounting foreclosures are driving away prospective home buyers. Sales of new houses dropped 10 percent in January to an annual pace of 309,000, the lowest level since data began in 1963, Commerce also reported today. The median price decreased 13.5 percent, the most in almost four decades.

Housing Slump

Sales are falling even faster than builders can trim inventory. The number of new homes for sale at the end of the month fell 3.1 percent to 342,000. Still, at the current sales pace, it would take a record 13.3 months to eliminate supply.

“The market is still very much out of equilibrium and in fact things are getting worse,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said in an interview with Bloomberg Television. “We’re going to see further construction cuts and further declines in home prices. We haven’t seen the peak in foreclosures, which means that prices have further to fall.”

Housing and Urban Development Secretary Shaun Donovan said today 6 million families in the U.S. may face foreclosure if policy makers don’t act faster to stem the housing decline."

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