Thursday, October 30, 2008

Economy shrinks in 3Q, signaling recession

AP WASHINGTON: The economy jolted into reverse during the third quarter as consumers cut back on their spending by the biggest amount in 28 years, the strongest signal yet the country has hurtled into recession. The broadest barometer of the nation's economic health, gross domestic product, shrank at a 0.3 percent annual rate in the July-September quarter, the Commerce Department reported Thursday. It marked the worst showing since the economy contracted at a 1.4 percent pace in the third quarter of 2001, when the nation was suffering through its last recession. The latest GDP reading marked a rapid loss of traction for the economy, which logged growth of 2.8 percent in the second quarter, and is sure to buttress the belief of many economists that the nation is in the throes of a painful downturn.

"No question. We're definitely in a recession. That is just a reality," said Brian Bethune, economist at IHS Global Insight. The White House tried to downplay the significance of the numbers, saying they were not unexpected and caused partly by special circumstances such as hurricanes and a Boeing Co. strike.

"While we continue to face serious challenges, the United States remains the best place to do business, and we're positioned to bounce back," White House press secretary Dana Perino said. The deterioration reflected a sharp retrenchment by consumers, whose spending accounts for the largest chunk of national economic activity. Consumers ratcheted back their spending at a 3.1 percent pace in the third quarter, the most since the second quarter of 1980, when the country was in the grip of recession. GDP measures the value of all goods and services produced within the United States and is the broadest barometer of the country's economic health. While the third-quarter's contraction wasn't as deep as the 0.5 percent annualized decline analysts expected, the poor showing underscored the terrible toll of the housing, credit and financial crises. J. Steven Landefeld, director of the Commerce Department's Bureau of Economic Analysis, which puts together the GDP report, didn't use the word "recession" to describe economic conditions but said: "Certainly we are seeing a period of dramatic slowdown."

On Wall Street, however, the smaller-than-expected decline gave some comfort to investors. The Dow Jones industrials were up about 80 points in midday trading. Meanwhile, the Labor Department said Thursday that new claims for jobless benefits for the week ending Oct. 25 stood at a seasonally adjusted 479,000, the same as the previous week and above analysts' estimates of 475,000. Jobless claims above 400,000 are considered a sign of a struggling economy. The grim reports come just days before the nation picks the next president on Nov. 4. Whether Democrat Barack Obama or Republican John McCain wins the White House, the incoming president will inherit a deeply troubled economy and a record-high budget deficit that could cramp his domestic agenda. Many economists believe the economy will continue to contract into next year, which would more than meet a classic definition of recession two straight quarters of shrinking GDP. The National Bureau of Economic Research, the panel of experts that determines when U.S. recessions begin and end, uses a broader definition to determine recessions than two quarters of contracting GDP. That didn't happen in the last recession, in 2001. The NBER takes into account income, employment and other barometers. The finding is usually made well after the fact.

A collapse of the housing market and locked up lending have produced the worst financial crisis to hit the country in more than 70 years. To cushion the fallout, the Fed slashed interest rates on Wednesday by half a percentage point to 1 percent, a level seen only once before in the last half century.Fed Chairman Ben Bernanke has warned that the country's economic weakness could last for some time even if the government's unprecedented $700 billion financial bailout package and other steps do succeed in getting financial and credit markets to operate more normally. Unemployment now at 6.1 percent could hit 8 percent or higher next year. Disappearing jobs, battered nest eggs and retirement accounts, and falling home prices are likely to make consumers retrench even more. Underscoring the strain faced by consumers, the report showed that Americans' disposable income fell at an annual rate of 8.7 percent in the third quarter, the largest quarterly drop on records dating back to 1947.

In the third quarter, consumers cut back on purchases of cars, furniture, household appliances, clothes and other things.They pulled back after the bracing impact of the government's tax rebates disappeared. In addition to consumers, businesses cut back sharply in the third quarter. They cut spending on equipment and software at a 5.5 percent pace, the most since the first quarter of 2002, when the economy was struggling to recover from the 2001 recession. Home builders slashed spending at a 19.1 percent pace, marking the 11th straight quarterly cut back, and fresh evidence of the depth of the housing slump. Slower growth for U.S. exports reflecting less demand from overseas buyers who are coping with their own economic problems also factored into the weak GDP report. Exports grew at a 5.9 percent pace in the third quarter, a sharp deceleration from the second quarter's 12.3 percent growth rate. The U.S. economic downturn in the third quarter was accompanied by higher inflation. An inflation gauge tied to the GDP report showed prices excluding food and energy rose at a 2.9 percent pace, up considerably from the 2.2 percent growth rate in the second quarter. Although the new reading is outside the Fed's comfort zone, Fed officials predict the economy's slowdown will damp inflation pressures in the months ahead. The Fed has made clear that its primary mission at the moment is reviving the economy.

Monday, October 27, 2008

Newspapers see sharp circulation drop of 4.6 pct

(AP) — The nation's daily newspapers, already finding advertising revenue fell sharply because of the weak economy, saw circulation decline more steeply than anticipated in the latest reporting period, an auditing agency said Monday. Average weekday circulation was 38,165,848 in the six-months ending in September, a 4.6 percent decline from 40,022,356 a year earlier at the 507 papers that reported circulation totals in both periods. The drop was only 2.6 percent in the September 2007 period, compared with September 2006. In the six-month period that ended in March 2008, the decline was 3.6 percent over a year earlier, according to circulation figures that newspapers submitted to the Audit Bureau of Circulations. Sunday circulation fell even more, 4.8 percent, to 43,631,646 in the latest period at the 571 papers with comparable totals. The drop was 3.5 percent a year ago and 4.6 percent in the period ending in March. Circulation and advertising have been dropping at newspapers as readers continue to migrate to the Internet. Ad revenue began to decline more steeply this summer as the weak economy prompted advertisers to pull back on spending. The sharper circulation declines appear to be a response to that, said Rick Edmonds, media analyst at the journalism think tank Poynter Institute.

"Times are tough, and they are looking at everything that's in their expense base," he said. "Building new subscribers is an expensive proposition." Some newspapers have purposely let some sales slide to focus on those readers who are coveted by advertisers and exclude those in outlying areas that are more expensive to reach. Circulation could drop even faster as regular readers, in a tight economy, decide they no longer need their printed newspapers, Edmonds warned. Many papers have offset circulation declines with price increases, though papers risk losing readers if they raise prices too much. In a sign of hope, the Newspaper Association of America said last week that usage of newspaper Web sites grew nearly 16 percent in the third quarter, compared with last year, to an average of more than 68 million monthly unique visitors. But online ad sales haven't increased fast enough to offset the declines in print, which still makes up the bulk of a paper's revenue. USA Today remains the nation's top-selling newspaper, with average daily circulation of 2,293,310, just 173 more than last year. The No. 2 daily, The Wall Street Journal, also reported flat circulation — up just 117 copies to 2,011,999.

The New York Times saw circulation decline 3.6 percent to 1,000,665, while the Los Angeles Times had a 5.2 percent drop to 739,147. The other papers in the top 25 also saw circulation drops of from 1.9 percent at The Washington Post to 13.6 percent at The Atlanta Journal-Constitution. The New York Times remains the top paper on Sundays, when USA Today and the Journal do not publish, with a circulation of 1,438,585, down 4.1 percent. The Los Angeles Times follows at 1,055,076, down 5.1 percent, and the Post at 866,057, a decrease of 3.2 percent. Among the top 25, only the St. Louis Post-Dispatch and the St. Petersburg (Fla.) Times reported Sunday gains, of 0.8 percent and 0.1 percent, respectively. Despite the industrywide decline in circulation, five papers outside the top 25 reported gains of at least 5 percent, led by the Wisconsin State Journal of Madison, where circulation rose 10.6 percent to 97,012. The other gainers are The Macomb Daily of Mount Clemens, Mich., The Daily Sun of The Villages, Fla., The Times of Trenton, N.J., and the Citizen Tribune of Morristown, Tenn.

Wednesday, October 22, 2008

Wells Fargo Chairman Prefers U.S. Plan to Buy Stakes

(Bloomberg) -- Wells Fargo & Co. Chairman Richard Kovacevich said the U.S. Treasury's intention to buy stock in banks provides a better stimulus to escape the financial crisis than an earlier plan to purchase soured mortgage-related assets.

``Direct capital injections versus buying loans is a far more preferable way'' to help companies already facing credit losses, Kovacevich, 64, said yesterday at an event hosted by San Francisco's Commonwealth Club. ``It's an important tool to get the financial system back into the money business again.'' Wells Fargo, which agreed to buy Wachovia Corp. for about $14 billion this month, is one of nine large lenders slated to receive cash infusions as part of the government's plan to spend $700 billion unfreezing credit markets. Wells Fargo, based in San Francisco, will get $25 billion. JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. are among the others that will receive the cash.

U.S. Treasury Secretary Henry Paulson last week urged banks to ``deploy'' the money in loans. He was forced to change his strategy after the initial plan to buy distressed assets caused banks to hoard cash and failed to halt a slide in the stock market. Kovacevich declined to say if he initially opposed Paulson's plan as the New York Times reported. Wells Fargo dropped 99 cents, or 3 percent, to $31.65 at 10:04 a.m. in New York Stock Exchange composite trading. The shares gained 8.1 percent this year through yesterday, the biggest advance in the 24-comopany KBW Bank Index. Wachovia fell 17 cents to $5.92, adding to its 84 percent decline this year.

He's Seen Worse

Kovacevich said the current economic crisis isn't the worst he's seen, and the U.S. government's may help end the credit freeze ``reasonably soon.''

``Our customers, except those in residential home lending or autos, are doing quite well,'' he said. ``By far, the worst economic crisis of my career was in the 1980s.'' The Wachovia deal, orchestrated by Kovacevich, marks an eastward expansion and strategic shift for Wells Fargo, which maintained a profit during the financial crisis by avoiding riskier loans. Wachovia's mortgage portfolio includes an estimated $74 billion in future losses. The Wells Fargo-Wachovia deal will create the biggest U.S. bank network, with 6,675 branches. The Federal Reserve said yesterday that Wells Fargo agreed to reduce its deposit base to comply with U.S. bank-merger law should the combined company control more than 10 percent of deposits nationwide.

Wachovia reported its third straight quarterly loss today, hurt by crumbling mortgage markets and writedowns on securities backed by real estate. The loss for the three months ended Sept. 30 was $23.9 billion, or $11.18 a share, compared with net income of $1.6 billion, or 85 cents, in the same period a year earlier, the Charlotte, North Carolina-based company said in a statement. The Wachovia deal would be Wells Fargo's biggest acquisition since Norwest Corp. purchased the old Wells Fargo 10 years ago and adopted the name. Kovacevich was chief operating officer at Minneapolis-based Norwest in the 1980s when current Wells Fargo Chief Executive Officer John Stumpf, 55, was running the auto-dealer business and working on commercial loans. Kovacevich was promoted to CEO of Norwest in 1993 and stepped down in June 2007 to make way for the promotion of Stumpf, who has been with the company for 26 years.

Let 'Em Ride

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