UPS downgrade

Putting paid to the notion that profit outlooks outside of financials, retailers and homebuilders and just fine and dandy was this downgrade out of UPS yesterday:

UPS Lowers 1Q 2008 Guidance

Deteriorating U.S. Economic Conditions Restrain Domestic Volume

ATLANTA--(BUSINESS WIRE)--UPS (NYSE: UPS) today announced it had lowered its first quarter earnings expectations to $0.86 or $0.87 per diluted share from a previously anticipated range of $0.94-to-0.98.

At UPS’s investor conference on March 12, Chief Financial Officer Kurt Kuehn stated that UPS’s earnings guidance for the quarter would be difficult to achieve if lower volume trends experienced in February continued through March. The U.S. economy has continued to weaken, causing a reduction in domestic package volume and a shift away from premium products. Significantly increased fuel costs in the quarter also contributed to the lower-than-expected results.

On April 23, the company will discuss first quarter results and its outlook for the year.

Expect more of this and expect the behind the curve analysts to continue lowering forecasts for companies across a wide range of sectors.

NBER Chief says US in Recession

Martin Feldstein is chief at the NBER - the organization that will ultimately decide if the US has entered a recession. A couple of months ago Feldstein wrote a piece in the WSJ warning that Fed rate cuts wouldn't work in trying to prevent a recession, something I've expressed here numerous times. Now Feldstein believes the US economy is already in a recession.

NBER's Feldstein says U.S. sliding into recession

Martin Feldstein, who leads the group that is considered the arbiter of U.S. recessions, said on Monday that he personally believes the economy has been sliding into a recession since December or January.
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"I think that December/January was the peak and that we have been sliding into recession ever since then," Feldstein, the president of the National Bureau of Economic Research, said on CNBC television.

Feldstein said he believes that the recession will linger. "I think it could go on longer" than the "last two recessions (which) lasted eight months peak to trough," he said, adding the current recession could last about twice as long.

He also said the first quarter U.S. gross domestic product number will be a "misleading" number in that it may not reflect the economy was in a recession in the first three months of the year.

The NBER, a non-profit research organization, typically declares start and end dates for U.S. recessions. The group has not officially declared the U.S. is in a recession.

Permabulls In A State Of Desperation

I was thinking of calling the title of this post "Brian Wesbury is a Complete and Utter Moron" but a) that wouldn't fit in the title bar and b) if you've been watching CNN over the last 6 months you already knew that.



Remember Wesbury has been consistently saying that the US economy is not in recession and wouldn't even come close. He is still of that view after Friday's jobs report. However, what is different now is that Wesbury doesn't have any real data to support his claims.

For example, he can't turn to low jobless claims as he did just a couple of months ago and he's gone past the point of the lies and exaggeration exhibited by Don Luskin to outright delusional fantasizing. Let's take a look at few of Wesbury's latest gems that he produced on a couple of CNBC segments on Friday:

"...we're in a period of time where the baby boomers are retiring. Bob Reich knows this, as the secretary of labor I'm sure he's studied this is that, baby boomers are beginning to retire, what used to be a strong job number lets say up 200 thousand now is really up 100 thousand so really when you talk about it, when it 80 thousand decline, it's really like a flat job market because we're seeing so many people retire."

So let's get this straight, the US economy is not shedding jobs, it is just the effect of baby boomers retiring that is distorting the numbers. OK Brian, so how do you explain the next mystifying comment in a later segment that same day?

"I think these interest rate cuts and the fear that the Fed has helped spread, have actually caused part of the quarter million job losses we've had in the first quarter. That's the point."

Fuck me, does this guy not have any shame? I can't believe he actually said that on live TV. The Fed has helped contribute to the job losses, but wait a minute there aren't really any job losses, it's just baby boomers retiring isn't it? I'm confused.

You can see where he's headed with this. Wesbury not that stupid that he can't see the writing on the wall. He's looking for someone or something to blame in place of his own incompetence. It's all the Feds fault because they scared businesses out of hiring by cutting interest rates.

Brian Wesbury you are an utter joke, your credibility is shot and you should be sacked from whatever position you pretend to occupy.

US NFP's Fall For Second Straight Month

Last month I said that the February NFP report confirmed a recession. The March report lends more credence to that conclusion. US non-farm payrolls declined -80k in March. In addition, January's decline was revised down to -76 from -22 previously whilst February was revised to -63k from -76k. From the Department of Labour:

THE EMPLOYMENT SITUATION: MARCH 2008

The unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarmpayroll employment continued to trend down (-80,000), the Bureau of LaborStatistics of the U.S. Department of Labor reported today. Over the past3 months, payroll employment has declined by 232,000. In March, employmentcontinued to fall in construction, manufacturing, and employment services,while health care, food services, and mining added jobs. Average hourlyearnings rose by 5 cents, or 0.3 percent, over the month.

Unemployment (Household Survey Data)

The number of unemployed persons increased by 434,000 to 7.8 million inMarch, and the unemployment rate rose by 0.3 percentage point to 5.1 per-cent. Since March 2007, the number of unemployed persons has increased by1.1 million, and the unemployment rate has risen by 0.7 percentage point.

Highlights from the March report:

51,000 construction jobs were lost
48,000 manufacturing jobs were lost
12,000 retail trade jobs were lost
35,000 professional services jobs were lost

18,000 government jobs were added

The employment rate reversed sharply to 5.1% after dipping to 4.8% in February. That was widely anticipated as more workers returned to the workforce after 374k dropped out the previous month.


The debate has shifted from, if there will be a recession to how deep and protracted it will be. Mainstream economists seem convinced that it will be short and shallow and I have to admit that the economic data whilst negative is at this stage commensurate with the mainstream view.

However the mainstream, as usual, has completely missed this turning point in the economic cycle. Lets look at how badly the mainstream has been at predicting the course of events over the past 9 -12 months.

First we were told, the housing downturn and credit crunch was contained and would not spill over to the broader economy and there would be no slowdown in economic growth let alone recession. Then of course it did spill over to the broader economy, corporate earnings turned negative and growth slowed.

Then they conceeded that there would be a slowdown but a recession would be avoided. Now some (amazingly many Wall Street lemmings believe there is still no recession) are conceeding recession but that it will be short and shallow.

Is it time to believe them? Sooner or later they will be right about something of course but I suspect it will be a while yet. The Fed and the US government seem ready to throw everything but the kitchen sink at the economy to prop it up. The non-stimulus package is expected to give a kicker to growth in the second half of 2008.

However I'm not buying it, at least not yet, a one-off stimulus package is not a long term solution to a consumer buffeted by higher food and energy costs, with their housing ATM having been removed from their front lawn, credit harder to access, mortgage rates resetting higher and more people losing their jobs.

Initial Jobless Claims Breach 400k in Latest Week

Ex Cyclone Katrina Initial Jobless Claims rose to their highest level since September 2003 punching through the 400k mark. The 4 week moving average shot up to 374,500. From the Department of Commerce:

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT
SEASONALLY ADJUSTED DATA

In the week ending March 29, the advance figure for seasonally adjusted initial claims was 407,000, an increase of 38,000 from the previous week's revised figure of 369,000. The 4-week moving average was 374,500, an increase of 15,750 from the previous week's revised average of 358,750.

The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending March 22, an increase of 0.1 percentage point from the prior week's unrevised rate of 2.1 percent.

The advance number for seasonally adjusted insured unemployment during the week ending March 22 was 2,937,000, an increase of 97,000 from the preceding week's revised level of 2,840,000. The 4-week moving average was 2,859,000, an increase of 32,250 from the preceding week's revised average of 2,826,750.

Lets have a flashback for a moment to a quote from Brian Wesbury that I noted back at the end of January this year.

Brian Westbury on CNBC on, 1/22/2008, “There is really no evidence that the economy has turned over”

“Initial unemployment claims were at 301 thousand in the latest reporting week. This is so far from a recessionary level I’m like, I’m shaking my head at anybody who thinks we’re in a recession.”

How are those unemployment claims looking now Brian? Are you still shaking your head?

ADP Report Suggests Small Growth In March NFP's

As mentioned previously, the ADP employment report has been mixed at best when it comes to predicting growth in non-farm payrolls. from adpemploymentreport.com:

Nonfarm private employment increased 8,000 from February to March 2008 on a seasonally adjusted basis, according to the ADP National Employment Report™. The estimated change in employment from January to February was revised up 5,000 to negative 18,000. Though positive, the slight increase of 8,000 in March signals a continuing sharp deceleration of employment growth from previous levels.

Unlike the weakness of employment reported in February, which was widespread across businesses of all sizes and apparent in all major sectors of the economy, the weakness of employment in March was concentrated among larger businesses in the goods-producing sector.

Employment in the service-providing sector of the economy grew 85,000, while employment in the goods-producing sector declined 77,000, the sixteenth consecutive monthly decline. Manufacturing employment fell 58,000 in March and marked the nineteenth consecutive monthly decline.

Large businesses, defined as those with 500 or more workers, saw employment decline 52,000. Conversely, employment among small-size businesses, defined as those with fewer than 50 workers, advanced 55,000 during the month, up from a revised 16,000 in
February. Employment increased just 5,000 among medium-size businesses with between 50 and 499 workers.

The positive here is that small businesses, at least according to this report, are still hiring. Adding in the job growth from the government sector, today's ADP employment report points to a rise in non-farm payrolls of about 30k in March.

The table above compares the BLS NFP numbers with the ADP report for the previous 3 months. As you can see they are all over the place. So get your dartboards out on Friday for the BLS non-farm payroll report and as always watch the revisions to prior months.

UBS Writedowns Total 1/3 of Equity

In a timely reminder that the credit crisis is nowhere over, UBS managed the biggest single writedown of any financial institution writing off $19 billion or the equivalent of 1/3 of their equity. From marketwatch.com:

UBS plans $19 bln write-down, capital injection
Chairman Ospel to resign; first-quarter loss seen around $12 billion

Swiss banking giant UBS on Tuesday revealed a further $19 billion hit from the credit crisis, doubling its write-downs so far, and said it will have to issue around 15 billion Swiss francs ($15.1 billion) in new shares to shore up its capital base.

The latest hit means UBS (UBS) will report a net loss of around 12 billion francs for the first quarter and marks the end of the road for beleaguered Chairman Marcel Ospel, who will step down later in April.

Click on the link for the full story. And just so UBS doesn't feel lonely Deutsche bank chimed in with some losses of their own. Also from marketwatch.com:

Deutsche Bank sees $3.9 billion mark-downs in Q1

Deutsche Bank (DE) said Tuesday that conditions have become significantly more challenging during the last few weeks and it expects first quarter mark-downs of around 2.5 billion euros ($3.9 billion). The mark downs are related to leveraged loans and loan commitments, commercial real estate, and residential mortgage-backed securities (principally Alt-A). Deutsche Bank said that it expects a BIS Tier 1 capital ratio at the end of the first quarter of between 8 and 9%, consistent with the bank's published targets.

Here we go again, it's writedown season. Buckle up for some more fun in April as US financials re-visit the confessional.