Archive for February, 2009

Factory decline eases, consumer spending drops (Reuters)

Monday, February 2nd, 2009 | Finance News

WASHINGTON (Reuters) –
U.S. factory activity contracted at a slower pace in January as credit markets improved, data showed on Monday, but the general picture remained one of an economy sliding deeper into recession.

While news that the Institute for Supply Management's index of national factory activity rose to 35.6 from a nearly three-decade low of 32.9 in December gave some faint hope for the embattled economy, other reports painted a bleak image.

The improvement in the ISM index was its first since June, but it stayed well below the break-even figure of 50, showing the sector continues to contract sharply.

"We're still in a hole that we have a good ways to dig out of and it doesn't look like we got started on that digging process in January," said David Resler, chief economist at Nomura Securities International in New York.

The weak data and uncertainty over the Obama administration's package of spending and tax-cut measures that could cost close to $900 billion weighed on the Dow Jones industrial average. It closed down 64.11 points at 7,936.75.

Government bond prices rallied, while the dollar stumbled against the yen. A separate survey also showed that the rapid decline in global manufacturing activity was less severe in January, but the sector as a whole remained mired in a deep downturn.

Analysts attributed the small recovery in U.S. manufacturing to a slight improvement in credit markets, following aggressive measures by the Federal Reserve, that included cutting its overnight lending rate to a range of zero to 0.25 percent, buying securities and making loans.

A reading on employment held at 29.9 in January, indicating job losses in the sector continued unabated, the report showed. But slightly encouraging was that a subindex measuring new orders rose to 33.2 in January from 23.1 in December.

The year-long recession, triggered by the collapse of the U.S. housing market, has been marked by soaring unemployment as companies respond to a slump in demand.

"The January (ISM) readings are still consistent with an economy in deep recession. This report is 'less bad' but clearly not 'good'," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.

"Unfortunately, none of the indicators we follow, credit markets included, have turned enough to suggest that an upturn is imminent. Instead, the best we can hope for at this point is for the pace of economic decline to slacken as 2009 unfolds."

According to a closely watched quarterly survey of lending conditions by the Fed, a majority of domestic and foreign banks tightened lending standards to businesses and households over the last three months.

Separate data from the Commerce Department showed consumer spending, which accounts for two-third of U.S. economy activity, was depressed in December. Households facing diminishing job security opted to build their savings.

Consumer spending fell by 1 percent in December, a sixth straight monthly decline, after dropping by 0.8 percent in November. With companies cutting down on hours and reducing payrolls, incomes fell by 0.2 percent after November's 0.4 percent decline.

On an inflation-adjusted basis, consumer spending fell 0.5 percent during the month.

CONFIDENCE SHATTERED

"With incomes falling ... and confidence shattered, we have to expect spending to keep falling for some months yet," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

For the whole of 2008, spending rose 3.6 percent, the smallest increase since 1961. Incomes increased 3.7 percent, the smallest advance since 2003.

The spending data was incorporated in a report on Friday that showed the economy shrank at its fastest pace in nearly 27 years in the fourth quarter. Many economists expect an even deeper contraction in the first three months of this year.

With the economy's collapse, inflation pressures have eased considerably. A price index tied to consumer spending rose just 0.6 percent on a year-over-year basis in December, down from 1.4 percent in the 12 months through November.

Excluding food and energy, the inflation rate slowed to 1.7 percent from 1.9 percent in November. Analysts said the trend, if sustained, could lead to deflation, a broad decline in prices that could further damage the economy.

So far, the core price index is in a range officials at the Fed would welcome, but the risk of a sharp slowing has caught their attention.

"You are seeing a rapid slowdown in the core (price index) which raises the possibility of prices falling below the Fed's comfort zone," said Pierre Ellis, senior global economist at Decision Economics in New York.

"It will not happen soon and it may be brief. But a sharp deceleration will make anybody nervous."

In a sign the recession was forcing households to change their behavior, the personal saving rate surged in December to 3.6 percent of disposable income, the highest since May, from 2.8 percent in November, the Commerce Department said.

In a separate report, it said spending on construction projects dropped 1.4 percent last month, the biggest decline since July. For 2008, construction spending plunged by a record 5.1 percent.

(Additional reporting by Corbett Daly in Washington, John Parry and Ellen Freilich in New York; Editing by Chizu Nomiyama)

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Macy’s cuts 7,000 jobs, slashes dividend (Reuters)

Monday, February 2nd, 2009 | Finance News

NEW YORK (Reuters) –
Macy's Inc said on Monday it would slash about 7,000 jobs and cut its quarterly dividend as it forecast earnings for fiscal 2009 that fell far below Wall Street expectations, sending its shares down 4 percent.

The department store operator said it took the steps to counter what it expects will be a very tough retail market this year, and that it would plan conservatively despite efforts by the U.S. government to build an economic stimulus package.

Macy's expects these initiatives, which also include integrating its divisions into one unit, to reduce its previously planned expenses by about $400 million per year starting in 2010, and $250 million in part of 2009.

"We just believe that this is a time when nothing should be considered a sacred cow," Chief Executive Terry Lundgren said in a conference call following the announcement.

On a pretax basis, Macy's expects costs of about $400 million in cash, mostly in fiscal 2009, tied to the steps.

Its Bloomingdale's stores will not be affected by these initiatives, Macy's said.

In 2008, retailers saw their worst holiday sales in almost four decades as recession-hit shoppers clamped down on spending or hunted for deep discounts.

For Macy's to win consumers over in the recession, it would have to be more promotional, said Patricia Edwards, a retail analyst with Storehouse Partners.

"The retail environment has changed so much. They have not been competing on a value proposition and this is a value market," she said.

OUTLOOK DISAPPOINTS

The job cuts announced on Monday are about 4 percent of the company's workforce and should mostly be completed by May 1, Lundgren said. Macy's also cut its quarterly dividend to 5 cents a share from 13.25 cents.

The company said it expected to earn 40 cents to 55 cents a share, excluding restructuring costs, for fiscal 2009, below the average analyst view of 79 cents per share, according to Reuters Estimates. Same-store sales are expected to decline between 6 percent and 8 percent, Macy's said.

The outlook assumes a steeper decline in the spring than in the fall of the year, CFO Karen Hoguet said during the call.

Its 2009 outlook looked "appropriately conservative," analyst Liz Dunn of Thomas Weisel Partners wrote, adding the cost savings could add another 15 cents per share to Macy's 2010 results.

Macy's also cut its 2009 capital expenditure budget to $450 million from a prior view of $550 million to $600 million.

The company said it would build on its store localization initiative, originally announced nearly a year ago to boost sales and cut costs, to focus on each local market's sales and customer needs.

According to that plan, it will group its stores into 69 geographic areas with an average of 10 to 12 stores in each district.

Macy's will integrate all its functions into a single unit, with its central buying, merchandise planning and senior store management and marketing units to be located primarily in New York. Its corporate affairs office will remain in Cincinnati.

The company said it would not raise salaries for executives in spring 2009 and will also cut the amount of matching 401(k) contributions in the year. It will recommend to the board to reduce other benefits for executives including company cars, life insurance and merchandise discounts.

Macy's shares closed down 36 cents to $8.59, above its previous low of $7.50. Shares also slipped for some of its major vendors, like Liz Claiborne, down 7.7 percent and Jones Apparel, which slid 3.5 percent.

(Additional reporting by Nicole Maestri; Editing by Lisa Von Ahn, Gunna Dickson and Bernard Orr)

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Morgan Stanley plans up to 4 percent in job cuts (Reuters)

Monday, February 2nd, 2009 | Finance News

NEW YORK (Reuters) –
Morgan Stanley (MS.N) plans to cut about 3 percent to 4 percent of its work force, or up to 1,880 people, as it battles with spiraling costs and slowing business, according to a person familiar with the matter.

The cuts will mostly be in back-office jobs, which entail processing trades, since it trimmed front-office traders and bankers last year, the source said, adding that none of the cuts will come from the bank's network of financial advisers.

Morgan Stanley declined comment.

It had a total of 46,964 employees at the end of November, according to a filing with the U.S. Securities and Exchange Commission.

The bank slashed nonbroker jobs in several rounds last year as Chief Executive John Mack tried to better equip Morgan Stanley for a period of lower revenue.

Broker jobs have been saved because the wealth management business has been a bright spot for the company.

Earlier this month, Citigroup Inc (C.N) agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth business.

The deepening global recession has triggered more losses for Morgan Stanley's investment bank, and in December the company reported a wider-than-expected quarterly loss of $2.2 billion.

Shares in Morgan Stanley rose 1.2 percent at $20.48 in afternoon trading. The company's shares have climbed more than 25 percent since the start of the year.

(Reporting by Elinor Comlay; editing by Jeffrey Benkoe)

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