| NFIB Small Business Trends for October Continue to Show No Recovery, Inflation Not a Threat; Fed Governor Hoenig Blasts Bernanke's QE Strategy Posted: 12 Oct 2010 06:27 PM PDT Every month I report on NFIB small business trends and every month it looks like a broken record. October is no different. Please consider NFIB Small Business Trends for October. OPTIMISM INDEX
The Index of Small Business Optimism gained 0.2 points in September, rising to 89.0. The increase is certainly not a significant move, but at least it did not fall. Still, the Index remains in recession territory. The downturn may be officially over, but small business owners have for the most part seen no evidence of it.
LABOR MARKETS
Eleven (11) percent (seasonally adjusted) reported unfilled job openings, unchanged from August and historically very weak. Over the next three months, eight percent plan to increase employment (unchanged), and 16 percent plan to reduce their workforce (up three points), yielding a seasonally adjusted net negative three percent of owners planning to create new jobs, down four points from August, The decline in hiring plans is an unexpected reversal in job creation prospects. Hiring plans continue to underperform the recoveries following previous recessions.
CAPITAL SPENDING
The environment for capital spending is not good. The frequency of reported capital outlays over the past six months rose one point to 45 percent of all firms, one point above the 35 year record low. Six percent characterized the current period as a good time to expand facilities, up two points, but historically low. A net negative three percent expect business conditions to improve over the next six months, a five point improvement from August, but still more owners expect the economy to weaken than strengthen.
INVENTORIES AND SALES
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost one point, falling to a net negative 17 percent. The reading is 17 points better than June 2009 (the recession bottom) but still indicative of very weak customer activity.
PROFITS AND WAGES
Reports of positive profit trends deteriorated three points in September, registering a net negative 33 percentage points, 29 points worse than the best expansion reading reached in 2005.
CREDIT MARKETS
Overall, 91 percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported credit needs not satisfied, and a record 53 percent said they did not want a loan. Only three percent reported financing as their #1 business problem. However, 30 percent of the owners reported weak sales as their top business problem. The historically high percent of owners who cite weak sales means that investments in new equipment or new workers are not likely to "pay back" and thus loans taken to finance the outlays can't be repaid.
Inflation Not A Threat
Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that way to a quarter of the owners reporting price declines for the goods and services they produce and sell, and apparently a majority at the Federal Reserve are now worried. New "inflation targets" are being floated out there, like two percent (characterized as price stability?). This will be the justification for more "quantitative easing". Buying more Treasury securities may push rates even lower, but to what end? The impact on home sales will surely be minimal. With mortgage rates at record low levels already, even lower rates are unlikely to invite new entrants to the market. Of course, there may be other "agendas" such as a weakening of the dollar and support for asset prices. This is very dangerous as hundreds of billions of dollars are being "allocated" based on false prices (interest rates). The charade can't be maintained forever and weakening the dollar only invites others to join the party. And lost in all of this focus on credit is the loss of hundreds of billions in interest rate income for savers. Certainly their spending has been curtailed as a result. Every dollar a borrower saves from some sort of refinance deal is a dollar of interest income lost to savers. Even lenders will lose income as loans with interval rate re-sets will be set based on historically very low Treasury rates (lowering net interest margins). No wonder confidence is low and uncertainty is high, it is hard to make sense of this. Inflation Not A ThreatI repeated the above headline in bold for the benefit of misguided inflationistas everywhere who confuse rising commodity prices with inflation when there is literally no passthrough to consumer prices. If that was not bad enough (and it is), the fact of the matter is inflation is not about prices at all but rather about the expansion of credit. Small businesses inn general do not want it or need credit to expand. Indeed, the very last thing on their minds is expansion. The first thing on their minds is lack of customers and inability to pass on costs. This folks is clearly deflation in action and it is what the Fed is fighting with a misguided Quantitative Easing strategy. Fighting deflation and winning the battle are two different things! Yet, it is amazing how many mistake Inflation Expectation Noise with actual inflation. Hoenig doubts effectiveness of additional Fed asset purchasesI am not the only one who thinks QE is a hopeless strategy. Please consider Hoenig Doubts Effectiveness of More Fed PurchasesThomas Hoenig, the Federal Reserve's longest-serving policy maker, cast doubt on the effectiveness of a possible new round of asset purchases to stimulate the economy, saying the costs are likely to outweigh the benefits.
Undertaking such a move without clear terms and goals "becomes an open-ended commitment that leads to maintaining the funds rate too low and the Federal Reserve's balance sheet too large," Hoenig, president of the Kansas City Fed, said in the text of a speech today in Denver. "The result is a further misallocation of resources, more imbalances, and more volatility."
The benefits of further purchases "are likely to be smaller than the costs," he said to the National Association for Business Economics.
"These are difficult times, no doubt, and it is tempting to think that zero interest rates can spark a quick recovery," he said. "However, we should not ignore the possible unintended consequences of such actions."
In response to audience questions, Hoenig said that while the Fed is "scared to death" of the possibility of a persistent decline in prices, he senses "that we should not see deflation." Hoenig added that he is concerned "that we not be subject to the market's demands" when it comes to expectations for more quantitative easing, and the Fed must be "mindful" of the effect its actions are having on other countries. Praise for HoenigIf one mistakenly defines deflation as a decrease in prices, it is possible we do not see deflation. If one correctly defines deflation as falling credit, we are in it. Although it appears Hoenig does not properly understand inflation and deflation, he is light years ahead of Bernanke in comprehension as to what the risks are of Bernanke's misguided QE strategy is, not only on US savers, but on the effects our outrageous policies have on the rest of the world. Thoughts on Fighting the FedEconomist Tim Duy says "Bad things happen when you fight the Fed. You find yourself on the wrong side of a whole bunch of trades. In this case, I suspect it means that Bretton Woods 2 finally collapses in a disorderly mess. There may really be no other way for it to end, because its end yields clear winners and losers. And the losers, in this case largely emerging markets, [are] not prepared to accept their fate." I say it is beyond arrogant for the Fed to dictate its misguided policies on the rest of the world. After all, the Fed's policies under Greenspan and Bernanke fueled the biggest housing and credit bubbles the world has ever seen. Bernanke, failed to see the recession coming, failed to see the housing bubble, failed to see the unemployment rate rising above 8.5%, and just plain failed at damn near everything. We would not be in this big of a mess were it not for the Fed and its idiotic manipulation of interest rates, trying to meet some asinine (as well as physically impossible) dual mandate. For more discussion, please see Krugman and the Inevitable "I Told You So" - Tim Duy "Bad Things Happen When You Fight the Fed"; Final End of Bretton Woods 2?Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Stores Plan Increased Hiring While Offering Increasingly Large Discounts Posted: 12 Oct 2010 11:21 AM PDT Is increased retail hiring on the back of rising holiday expectations consistent with deep, deep, merchandise discounts? While pondering that question, note the expected seasonal hiring ramp at numerous stores including Best Buy, Macy's, Kohl's, Toys R Us, Pier 1, American Eagle Outfitters and Borders. Best Buy to hire 2,000 seasonal staff for holidaysThe Star reports Best Buy to hire 2,000 seasonal staff for holidaysElectronics retailer Best Buy says it will hire 2,000 seasonal workers across Canada for the hectic holiday shopping season.
Retailers have been increasing their staff numbers in recent weeks in preparation for the holidays, an encouraging sign that many expect brisk sales.
Earlier this month Toys R Us said it would double it workforce by hiring 45,000 seasonal employees in the United States. Stores say they'll hire more temporary holiday workersPlease consider Stores say they'll hire more temporary holiday workersThe holiday hiring picture looks a bit merrier this year.
Macy's, Kohl's, Toys R Us, Pier 1, American Eagle Outfitters and Borders -- all stores with existing or soon-to-open outlets in Reno-Sparks -- plan to hire more temporary holiday workers this year than last, emboldened by several months of sales gains and a slowly improving economy.
The jobs probably won't be enough to be a dent in the nation's nearly 10 percent unemployment rate, but for Americans desperate for some work, they're far more than an early Christmas present.
Kohl's, which opened a new store in Carson City in September, couldn't provide the exact number of holiday positions it plans to add in its Northern Nevada stores. The company announced that it will hire more than 40,000 associates this holiday season for its various operations -- an increase of more than 20 percent from last year.
"We consider ... specific (store hiring) numbers proprietary information," said Elizabeth Deluca, a Kohl's spokeswoman. "However, on average, Kohl's anticipates hiring an average of 35 associates per store for the holiday season."
Jobs nationwide
Retailers will add between 550,000 and 650,000 jobs this holiday season, according to an updated forecast from the national outsourcing firm Challenger, Gray and Christmas, said spokesman James Pedderson. That's significantly more than the 501,400 added last year. But it's still well below the 720,800 added in 2007, just before the recession began.
Toys R Us, for example is hiring 10,000 more seasonal workers than last year to staff 600 temporary stores it's opening for the holidays. Many of those stores are in shopping malls that were left without toy stores after KB Toys went out of business in 2008.
Others are making more modest adjustments. Macy's last week said it was increasing seasonal hiring slightly to about 65,000 because it expects better holiday revenue than last year, though it wouldn't specify how many more it was.
Pier 1, American Eagle and Borders also said they are slightly increasing their seasonal staff this year. Other big chains, including Wal-Mart Stores Inc. and Best Buy Co., expect hiring to be flat. Easy ComparisonsSome of these hiring numbers sound remarkably high on the surface, but compared to 2007, seasonal hiring will be down between 10% and 24%. I will hazard a guess we will see something towards the low end of expectations. When 50 Percent Off Just Won't DoInquiring minds just might be interested in what it takes to lure shoppers. The New York Times has the answer in When 50 Percent Off Just Won't DoCampaigns for stores, from giant chains to mom-and-pops, are promoting sales that are frequently expressed in percentages off from regular prices. Twenty or 25 percent off, once considered a hefty discount, is practically nothing nowadays, as most consumers must be enticed further to open their wallets or purses.
How willing shoppers are to shop is important as retailers approach the start of the crucial Christmas season. To prime the pump, ads are routinely proclaiming savings of 50, 60 and even 70 percent off. In some instances, the discounts are going as high as 85 percent.
Some retailers are subtracting atop subtraction by offering an "extra" percentage off merchandise, typically items that had been marked down earlier.
For instance, Bloomingdale's, part of Macy's Inc., promoted in newspaper ads on Sunday "an extra 30 percent-40 percent off" the reduced prices on clothing, handbags, accessories and jewelry for "a total savings of 40 percent-75 percent off original prices."
The Macy's division, not to be outdone, advertised in circulars a "fashion clearance" with "an extra 40 percent off already reduced prices for a total savings of 50 percent-80 percent off original prices." That was along with a clearance on home goods with an additional 30 percent off the previously cut prices "for a total savings of 40 percent-75 percent off original prices." Returning to the opening question it appears that the seasonal hiring increase is actually weak historically, and stores have to offer ever increasing bargains to lure customers. This should help put the much ballyhooed seasoning hiring ramp into better perspective. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| French Unions On Strike Against Pension Reform, Disrupt Rail, Air Traffic Posted: 12 Oct 2010 09:21 AM PDT The retirement age in France is 60. Given demographics and increasing longevity, this is not sustainable. None of that matters to people on the take. Moreover, and unlike Greece, polls shows most support the striking workers. Please consider French Workers Strike Against Sarkozy Pension PlanFrench workers are demonstrating today for the fourth time in five weeks in nationwide marches, disrupting rail and air traffic as labor unions threaten open- ended strikes to press President Nicolas Sarkozy to scrap his pension-system overhaul.
Railway and Paris subway workers and as well as teachers, air-traffic controllers and port and refinery employees walked out to protest plans to raise the retirement age to 62 from 60 and lift the age for a full pension to 67 from 65. Unions, which warn they may renew the strike every 24 hours unless the government backs down, said 244 marches will take place across France today in cities including Toulouse, Marseille and Nantes.
Three rallies since Sept. 7 that brought hundreds of thousands of protesters onto the streets failed to derail Sarkozy's retirement proposals. The government says the changes are needed to help France cope with an aging population and help balance the pension system's budget by 2018. Labor unions called for more demonstrations on Oct. 16.
"We need this reform to save our system," [said Luc Chatel, the government spokesman]
A survey in yesterday's Le Parisien newspaper showed 69 percent of the respondents support today's protest and 61 percent said they favor an open-ended strike. The Paris-based pollster CSA called 1,011 adults on Oct. 6-7 and gave no margin of error.
France's aviation authority advised carriers to cut half of their flights to and from Paris Orly airport and a third to and from Roissy Charles de Gaulle because of the air-traffic controllers' strike. The Lyon airport canceled 21 percent of its flights it said on its web site.
Air France-KLM Group said the protest won't affect its long-haul flights, while some European and domestic flights will be canceled or delayed. Ryanair Holdings Plc said it's canceling 250 French flights today.
The RER B commuter train, which connects Orly and Charles de Gaulle airports, will face the most disruption, with no trains running inside Paris, forcing travelers to take other transportation.
Workers at refineries and gas and electricity plants joined the strike. Employees at the oil terminal at the port of Marseille, who have been on strike for the past 15 days because of the government's plan to revamp the ports system, joined in. The correct government response to this mess is to do what Reagan did to the PATCO workers, fire all the public union employees on strike and terminate their benefits. Moreover, the French government should take this opportunity handed to them on a silver platter and go one step further to make a much needed change and dissolve all public unions. The same should happen in the US. This would end the nonsense quickly and effectively. As in the US, there would be lines miles long to take those jobs at much lower wage and benefit levels. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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