Archive for January, 2009

Consumer mood at record lows, house prices sag (Reuters)

Tuesday, January 27th, 2009 | Finance News

WASHINGTON (Reuters) –
Consumer confidence plumbed historic lows in January and home prices fell at a record pace in November, data showed on Tuesday, highlighting a rapidly deteriorating economy.

Mounting job losses as the year-long recession deepens are piling misery on consumers already grappling with sharp declines in their wealth following the collapse of the U.S. housing and stock market.

Economists say the recession is on track to be the longest, if not the deepest, since the Great Depression.

The Conference Board, an industry group, said its sentiment index fell to 37.7 this month from an upwardly revised 38.6 in December. Wall Street analysts had forecast the index climbing to 39 from a previously reported reading of 38.

"Consumers remain quite pessimistic about the state of the economy," said Lynn Franco, director of The Conference Board Research Center. "Until we begin to see considerable improvements in the expectations index, we can't say the worst of times are behind us."

Stocks brushed aside the grim economic data as some companies reported earnings above market expectations. The Dow Jones industrial average was up about 60 points in early afternoon trade.

Treasury debt prices, which tend to benefit from news of worsening economic conditions, attracted a safe-haven bid from the data.

MORE PAIN AHEAD

Suggesting the economic rout was far from over, the Conference Board's expectations index dropped to 43.0 in January from 44.2 the previous month.

"The adverse feedback loop from extremely tight credit conditions to reduced asset prices and ... reductions in demand for labor services continued to spin at an alarming velocity in January," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.

"The continued ferocity of this negative feedback process highlights the policy challenge that lies ahead."

President Barack Obama, pushing for a $825 billion stimulus package for the distressed economy, on Tuesday expressed confidence the plan would get bipartisan support.

A surge in unemployment and an accompanying rise in job insecurity has led many consumers to defer decisions to buy homes, while costing others theirs. This has resulted in a huge inventory of homes for sale, further depressing prices.

Data from an S&P/Case-Shiller report on Tuesday showed U.S. home prices plunged a record 18.2 percent in November from a year earlier.

Prices in 20 metropolitan areas tracked by the Home Price Index fell 2.2 percent from October. Prices in 11 metro areas fell at record rates from a year earlier, while the drop in 14 cities was more than 10 percent below the year-earlier level.

Analysts said that while the report illustrated continued distress in the housing sector, it did not capture measures taken late last year to lower mortgage rates.

"We're still looking at fourth-quarter numbers when the credit crisis was in full swing and before the Federal Reserve took steps to push mortgage rates down," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri. "We'll have to watch very closely during the next few months to see if we get a recovery in housing started."

Analysts say restoring stability to the housing market stability is crucial for the economy's recovery.

The fall in house prices has crimped consumer spending, which accounts for about two thirds of U.S. economic activity.

But housing's downward spiral shows little sign of reaching a bottom soon, with inventories remaining elevated.

The National Association of Realtors said on Monday sales of existing homes rose in December, driven mainly by distressed sales, which saw prices pricing on an annual basis by the biggest margin in over 40 years.

"I wouldn't take a lot of comfort in the existing home sales number yesterday because a lot of them were short sales and foreclosed homes," said Keith Hembre, chief economist at FAF Advisors in Minneapolis. "Housing will shave close to three-quarters of a percentage point in fourth-quarter GDP."

The housing meltdown meant retailers continued to suffer sharp falls in sales last week. The International Council of Shopping Centers said sales fell 2.4 percent on a year-over-year basis, the seventh straight weekly decline.

The Federal Reserve, which started its two-day meeting on Tuesday, is expected to hold its target range for the key overnight federal funds rate steady at zero to 0.25 percent.

Markets, however, will watch out for further announcements on purchases of mortgage securities or even longer-dated U.S. Treasuries.

(Additional reporting by Alister Bull in Washington, Pedro Nicolaci da Costa and Julie Haviv in New York,writing by Lucia Mutikani; Editing by Chizu Nomiyama)

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Obama seeks Republican support for stimulus plans (Reuters)

Tuesday, January 27th, 2009 | Finance News

WASHINGTON (Reuters) –
Democratic President Barack Obama tried on Tuesday to placate Republicans in Congress who insist his $825 billion plan for reviving the U.S. economy should include bigger tax cuts.

"The key right now is to make sure that we keep politics to a minimum," said the president, who met Republicans in both houses of Congress a week after taking office on a promise to seek consensus and end partisan gridlock.

Republicans complain Obama's plan would finance Democratic pet projects -- such as $16 billion in grants for college students -- rather than create jobs or get people spending again.

"I think the president is sincere," said House of Representatives Republican Leader John Boehner. "We look forward to continue to work with him to improve this package."

Republicans agree the stumbling economy needs a rescue package. They complain the Democratic $550 billion spending proposal is excessive while a proposal to cut taxes by about $275 billion does not go far enough.

The Democratic-led House and Senate are expected to approve a package by the middle of February, regardless of how many Republicans embrace it.

Obama, who succeeded Republican President George W. Bush, needs the political cover that having some support from the opposition party would bring for an unproven plan that will hugely increase America's budget deficit and may or may not stop a downward economic slide.

REPUBLICANS COMPLAIN

Some Republicans said their complaints were more with Democrats in Congress than with Obama.

An aide said the House Republicans' message to Obama was: "We need your help to intervene with House Democrats and make changes to eliminate wasteful spending and increase tax relief and incorporate some of our ideas."

"I think everybody there felt good ... that I was willing to explain how we put the package together, how we were thinking about it, and that we continue it welcome some good ideas," Obama said.

Obama added: "The main message I have is that the statistics everyday underscore the urgency of the economic situation. The American people expect action."

The new president faces an economic crisis that seems to worsen by the day. U.S. consumer confidence slipped to a record low and major U.S. companies are cutting tens of thousands of jobs as financial industry troubles mount.

Obama faces jitters from some fellow Democrats as well.

With the House set to vote on its version of the plan on Wednesday, a co-chair of the coalition of fiscally conservative Democrats said his 50-member group had concerns.

TAX CUT CONCERNS

Democratic Representative Charlie Melancon of Louisiana said his colleagues want Obama to promise that the record federal deficit is not further bloated by tax cuts.

They also want major reforms in mandatory government spending programs, like the Social Security retirement program and Medicare health care program for the elderly.

"The majority of us want to support the president and do a stimulus package," Melancon told Reuters. "But we also have come to the realization that every day that we don't get a commitment to reel in this spending that we've been doing without paying for it is a day ... that the problem gets worse."

Obama's aides have said three-quarters of the proposed new spending, on health care, education and building new roads and bridges, would work its way into the economy within 18 months.

A report by the nonpartisan Congressional Budget Office said it would take a bit longer. CBO estimated about 64 percent of the stimulus package would reach the economy within 19 months.

The Democratic tax cut plan would direct benefits more toward lower-income workers, even those who do not pay income taxes, while the House Republicans are pushing an alternative that they say would help all taxpayers.

Another issue expected to come up was the shaky condition of the U.S. financial system. Obama's aides are looking at ways to help struggling homeowners and stem banking turmoil.

White House aides have not ruled out Obama seeking additional funds to help the financial sector beyond the $700 billion approved by Congress last October.

But the bailout program is unpopular with both parties so any request for more money could be a tough sell.

(Additional reporting by Caren Bohan, Patrick Rucker, Donna Smith, Richard Cowan, Steve Holland, Susan Cornwell and Jeremy Pelofsky; Editing by David Wiessler)

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Corning slashes up to 4,900 jobs to cut costs (Reuters)

Tuesday, January 27th, 2009 | Finance News

NEW YORK (Reuters) –
Corning Inc posted weaker-than-expected quarterly results and gave a weak forecast due to a significant decline in sales of glass for televisions and computer monitors, and said it would eliminate 4,900 jobs to cut costs.

The results proved that Corning, like many other large manufacturers, is struggling to find balance and plan for the future in a decaying economic environment where both consumers and corporations are curtailing spending.

"The economic conditions are making it difficult for us and many other companies to forecast with any degree of certainty," Chief Financial Officer Jim Flaws said on a conference call. "While the markets take time to recover, we will make ourselves leaner and more cost-effective while investing to expand our technology leadership."

Corning, whose glass is used for flat-panel displays and fiber-optic cables, said fourth-quarter net income fell to $249 million, or 16 cents a share, from $768 million, or 49 cents a share, a year earlier.

Excluding special items, profit was 13 cents a share, down 70 percent from a year ago. Analysts were looking for profit of 19 cents per share, according to Reuters Estimates. One-time items included restructuring charges and a gain from an asbestos settlement.

As the economy has declined, demand from manufacturers for liquid crystal displays in flat-panel televisions and computers has decreased. The slowdown has been particularly harsh among companies that assemble TVs and among Corning's customers in Taiwan.

As a result, revenue for Corning, named for Corning, New York, where the company began as a glass maker more than 150 years ago, fell 30 percent to $1.1 billion in the fourth quarter.

"We experienced a significant momentum shift in many of our core businesses in the fourth quarter as the recession took hold," Wendell Weeks, chairman and chief executive officer, said in a statement "As a result, we are adjusting our operations to reflect anticipated lower sales in 2009."

SLOWER START IN 2009

The specialty glass maker said it anticipates "a slow start to 2009," with first-quarter volume of display glass down 20 percent to 25 percent.

"Supply chain adjustments compounded by retail sales uncertainty may mean it will take several quarters for Corning's financial model to reach steady state," RBC Capital markets analyst Mark Sue wrote in a note to clients.

He added, however, that shrinking inventories at panel makers and solid consumer demand for TVs may spur a rebound in the second half of 2009.

Corning reiterated that it expects sales, gross margin and net income to be lower in the first quarter compared with the fourth quarter, with first-quarter earnings per share at about break-even, excluding one-time items.

Analysts were looking for first-quarter earnings of 16 cents per share, according to Reuters Estimates.

Corning said it would cut 3,500 jobs, or about 13 percent of its workforce, by the end of the year, and left the door open for more reductions if necessary. It said it is also cutting more than 1,400 temporary workers.

Chief Financial Officer Jim Flaws told Reuters the job cuts would be in North America, Latin America and "heavily in Asia."

The restructuring moves will result in first-quarter charges of $115 million to $165 million. The company hopes to save $150 million to $200 million as a result of the steps.

Corning shares fell early but then recovered and were little changed at around $10 in afternoon trade on the New York Stock exchange. At that level, the shares have fallen 6.5 percent over the past three months, compared with a drop of 10 percent for Corning's top rival, Japan's Asahi Glass Co Ltd.

(Editing by Maureen Bavdek and John Wallace)

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