Stocks: New month, more fears

[Loki]

http://money.cnn.com/2009/01/31/markets/sunday_weekahead/index.htm

Stocks: New month, more fears

Wall Street just shut the door on the worst January ever and February is not looking much better.

By Alexandra Twin, CNNMoney.com senior writer

January 31, 2009: 3:33 PM ET

NEW YORK (CNNMoney.com) -- After closing out the Dow industrials and S&P 500's worst January ever, investors might be hoping for a little breathing room before the next wave of negative reports hit. No such luck.

The week ahead brings reports on all areas of the economy, including consumer spending, retail sales, manufacturing and housing. The biggest focus will be the government's January employment report, due Friday, with companies expected to have cut at least half a million jobs during the month.

The private sector employment report from payroll processor ADP on Wednesday and the weekly jobless claims number Thursday will also be of interest in the lead-up to Friday's report.

Companies have been shedding jobs left and right this year in anticipation of a deeper recession than was previously expected. Last week alone saw companies from Starbucks (SBUX, Fortune 500) to Caterpillar (CAT, Fortune 500) announce more than 100,000 layoffs.

"We're having a secular contraction in consumption as we restructure the economy, and it's a painful process," said Ben Halliburton, chief investment officer at Tradition Capitol Management. "It's been painful for a year and it's going to take at least another year."

Quarterly profits are on track to decline for a sixth consecutive quarter, according to earnings tracker Thomson Reuters. As of last week, 193 of the S&P 500 have reported quarterly earnings, and results are currently on track to have fallen 35.2% from a year ago.

"It's shaping up to be the worst quarter for earnings since we began tracking the results in 1998," said John Butters, senior research analyst at Thomson Reuters.

In addition, around 34% of corporations are missing analysts' estimates, a rate that Butters said is higher than the historic average, which is in the 24% to 31% range.

Next week brings earnings from 102 companies, including Merck, Cisco Systems, Walt Disney and Motorola. (For details, click here)

Last week closed out the worst January on record for the S&P 500 and Dow industrials, yet another negative sign for Wall Street in 2009. According to the old adage, "As goes January, so goes the year."

According to Standard & Poor's, since 1945, when the market gained in January, it gained in the remaining 11 months of the year around 85% of the time. But when it declined in January, it declined in the remain 11 months about half of the time. (For details, see chart).

Economy

Monday: Personal income likely fell 0.4% in December, after falling 0.2% in November, according to a consensus of economists surveyed by Briefing.com. With income down, spending is also expected to decline, with analysts forecasting a drop of 0.9% following a drop of 0.6% in the previous month.

Construction spending is expected to have fallen 0.9% in December after falling 0.6% in the previous month. The report is due shortly after the start of trading.

The Institute for Supply Management (ISM)'s manufacturing index is expected to decline to 32.0 in January from 32.4 in December, mirroring the declines in the recent regional manufacturing reports.

Tuesday: The December Pending home sales index is due Tuesday morning. It's expected to show no change after sliding 4% in the previous month.

January auto sales reports are due throughout the day.

Also Tuesday, the Senate Banking Committee holds a hearing on modernizing the U.S. financial regulatory system. In the afternoon, the House Financial Services Committee will hold a hearing on lending and the housing market.

Wednesday: Payroll processing firm ADP releases its monthly private sector employment report before the start of trading. Economists forecast that 515,000 jobs were lost in January, after 693,000 jobs were lost in December. The report is seen as a harbinger to the bigger Labor Department report due Friday.

Also Wednesday, the ISM reading on the services sector of the economy is due. The index likely shrank to 39.0 in January from 40.1 in December.

Thursday: The number of Americans filing new weekly claims for unemployment is expected to rise to 592,000 from 588,000 in the previous week.

The first reading on fourth-quarter non-farm productivity is expected to have fallen to 1% from 1.3% in the third quarter.

Another government report is expected to show that December factory orders fell 3% after falling 4.6% in November.

The nation's chain stores will be reporting January year-over-year retail sales throughout the day. Sales are expected to continue the recent trend of declines as the recession cuts into consumer spending.

The European Central Bank will meet to discuss interest rates. Last week, the Federal Reserve opted to keep a key short-term interest rate at an historic low and said in its statement that economic conditions have worsened.

Friday: Employers are expected to have cut 500,000 jobs from their payrolls, according to a Labor Dept. report due early Friday. The unemployment rate, generated by a separate survey, is expected to have risen to 7.5% from 7.2% in the previous month.

Earnings to watch

Tuesday: Dow component Merck (MRK, Fortune 500) reports quarterly results before the start of trading. The drugmaker is expected to have earned 74 cents per share versus 80 cents a year ago, according to a consensus of analysts surveyed by Thomson Reuters.

Motorola (MOT, Fortune 500) is also expected to report earnings in the morning. The telecom giant is expected to post results of nil per share after earnings of 14 cents per share a year ago.

Package delivery firm UPS (UPS, Fortune 500) is expected to report earnings of 86 cents after the market close, versus $1.13 a year ago.

After the close, Dow component Walt Disney (DIS, Fortune 500) is expected to report earnings of 52 cents per share versus 63 cents a year ago.

Wednesday: Kraft Foods (KFT, Fortune 500) reports earnings in the morning. The Dow component is expected to have earned 44 cents per share after earning 44 cents per share a year ago.

CNNMoney.com parent Time Warner (TWX, Fortune 500) is expected to have earned 27 cents per share when it reports earnings Wednesday morning. Time Warner earned 29 cents per share a year ago.

Cisco Systems (CSCO, Fortune 500) is due to report results after the close. The tech leader is expected to have earned 30 cents per share versus 38 cents a year ago.

[SwordoftheVistula]

Yeah, it's not looking too good. A lot of these companies have either been relying on borrowed money, or on customers who use borrowed money such as credit cards, car loans, and taking money out of their house with a home equity loan. We're going to have to go through some leans times and put off some consumption, but the government keeps trying to push the same policies that got us into this mess.

[Æmeric]

For as long has I can remember the gripe was Americans weren't saving enough.



WASHINGTON – Americans are hunkering down and saving more. For a recession-battered economy, it couldn't be happening at a worse time.

Economists call it the "paradox of thrift." What's good for individuals — spending less, saving more — is bad for the economy when everyone does it.

On Friday, the government reported Americans' savings rate, as a percentage of after-tax incomes, rose to 2.9 percent in the last three months of 2008. That's up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.

Like a teeter-totter, when the savings rate rises, spending falls. The latter accounts for about 70 percent of economic activity. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.

The downward spiral has hammered the retail and manufacturing industries. For years, stores enjoyed boom times as shoppers splurged on TVs, fancy kitchen decor and clothes. Suddenly, frugality is in style.

Grace Case, 38, of Syracuse, N.Y., is a self-described recovering creditaholic. For 13 years, she charged it all — cars, clothes, repairs, vacations. She'd make only the minimum card payments to sustain her buying spree for her and her family, which includes her husband and two children.

But after being laid off 2 1/2 years ago from her job as an accountant, she landed another accounting job that cut her salary from $60,000 to $40,000. It was impossible to meet minimum payments on her card balances.

Now, the Cases are on a strict budget. They take "staycations," grow their own vegetables, buy only used cars and pre-pay cell phones. Case hasn't used a credit card in two years. And she's saving more.

"It's really a liberating feeling," she said. "If you want something, you have to have the money for it."

Many economists think the savings rate will keep rising, perhaps as high as 6 percent or more.

So where's the money going? To savings accounts? To debt reduction?

No one knows for sure. But Robert Frank, Cornell University economist, says it doesn't much matter.

"For economic purposes, paying off debt and saving are the same," he said. "Incurring debt is negative savings; paying down debt is savings."

He sees a long-term behavioral shift. He calls the spending of the past decade or more unsustainable.

"The only way people were able to (spend heavily) was by harvesting cash out of their home equity, which was just an illusion," Frank said.

The ripple effect has been brutal. The economy shrank at a 3.8 percent annual rate in the final three months of 2008, the worst showing in 26 years. The biggest reason was that consumer spending fell for a second straight quarter, something that hasn't happened since the 1990-91 recession.

Analysts believe the hard times will persist in 2009 as consumers, squeezed by layoffs and tighter credit, delay purchases of cars and other big-ticket items.

Some experts say consumers have been so shaken by how fast their wealth has shrunk, so burned by credit card debt, that they might not resume their robust spending for years, if ever.

"People are not saving; they are building financial bomb shelters," said Mark Stevens, who runs a management consulting firm, MSCO, in Rye Brook, N.Y.

Matthew Conrad, a financial manager at Complete Wealth Management in Orange County, Calif., says he knows of people who drive a BMW or Mercedes and eat macaroni and cheese for dinner several nights a week. That suggests some are making an awkward shift from free-spending habits and are reluctant to give them up.

Today's consumers might even start to rival their penny-pinching, Depression-era grandparents.

"The generation that lived through the Great Depression was very conservative in their spending and aggressive in savings," said Scott Hoyt, senior director of consumer economics at Moody's Economy.com. "I think we're going to have a set of consumers who are moving in that direction because they don't have that much faith in their assets."
Source (http://news.yahoo.com/s/ap/20090201/ap_on_bi_ge/savings_frugal_society)



Now that we are doing it, it is a bad thing.:rolleyes2:

[Treffie]

For as long has I can remember the gripe was Americans weren't saving enough.

Now that we are doing it, it is a bad thing.:rolleyes2:

In a way yes, in a perfect economic world, there needs to be a balance of spend v's save. Now though, people have become so jittery about losing their jobs etc that any excess disposable income they may have they'd prefer to keep for themselves for a rainy day.

[SwordoftheVistula]

people have become so jittery about losing their jobs etc that any excess disposable income they may have they'd prefer to keep for themselves for a rainy day.

That's what needs to happen. We've been consuming more than we produce for years (negative savings rate), so we need for people to cut back on consumption and save/invest money to repair our capital situation. Egging people on to consume, consume, consume doesn't work if production doesn't keep pace.