Initial applications for jobless benefits climbed by 58,000 to 573,000 in the week ended Dec. 6, upwardly revised from 515,000 the previous week, the U.S. Labor Department reported yesterday (Thursday).  The figure was the highest since 1982, and far exceeded the median projection of 525,000 put forth by 39 economists surveyed by Bloomberg News.

The increase was due, in part, to a bounce from the week before, which was shorter because it included the Thanksgiving holiday. Government offices were open only four days that week.

Nevertheless, the four-week average, which smooths out fluctuations, stood at 540,500.  That’s the biggest number of jobless claims filed since December 1982, when the economy was also mired in a deep recession. By comparison, there were 337,000 initial claims last year.

Workers claiming continuing jobless benefits also blew through economists’ projections, jumping by 338,000 to 4.4 million, the Labor Department said. Economists had expected 4.1 million. Continuing claims lag initial claims by one week.

“Stepping back from the short-term noise … it is very clear that the underlying trend in claims is still rocketing, as companies throw in the towel and prepare for a long, deep recession,” Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note to clients, MSNBC News reported.

Jobless claims are considered by economists to be a snapshot of the health of the labor markets and broader economy.

The U.S. economy has shed 1.9 million jobs so far this year, with payrolls having now dropped for 11 straight months. U.S. companies slashed 533,000 jobs in November, and the unemployment rate grew to 6.7% , the highest since 1974, the government said last week.

“The labor market is facing its worst crisis since 1982, and it is certainly not over yet,” said Harm Banholtz, a U.S. economist at UniCredit Markets and Investment Banking in New York, told Bloomberg News. “One of the most important tasks of the newly elected government is, therefore, to help distressed homeowners and to stimulate the labor market.”

More companies added to the malaise  yesterday as additional layoffs were announced. New Britain, Conn.-based toolmaker Stanley Works (SWK) plans to lay off 2,000 workers and close three manufacturing plants.  Illinois-based foodmaker Sara Lee Corp. (SLE), said it had outsourced 700 jobs overseas, and Office Depot Inc. (ODP) is adding 2,200 cuts of its own over the next three months. The office-products firm is closing 112 stores – about 9% of those in the North American market – and six of its 33 distribution centers.

Looming over the jobless picture is the uncertainty surrounding the $14 billion automakers bailout bill, currently being mulled in the Senate.  But even with a bailout, one – or even all three – of America’s “Big Three” carmakers may fail.
If a bailout doesn’t materialize – or fails to have the desired impact – the results will be catastrophic, according to the Center for Automotive Research.  The Ann Arbor, Mich.- based nonprofit told The Associated Press that if Detroit’s Big Three stopped making cars today and returned to 50% production in 2010 and 2011, it would still wipe out nearly 2.5 million jobs next year.
Job losses of that magnitude would have a profoundly negative impact on the U.S. economy – with horrid ripple effects worldwide – because of the plunge in consumer confidence the resultant job losses and loss of confidence that would result. Fully 70% of all domestic economic activity is powered by consumer spending.  And with the cutbacks some doomsayers foresee, even exporters in developing markets as far away as China and India would feel the squeeze.

Here at home, the mere threat of job losses is being felt on Main Street. According to an Associated Press-GfK poll released Wednesday, 53% of shoppers say they expect to spend less on holiday gifts than they did last year, while 40% will spend the same.

In other words, more than 90% of American shoppers are resisting the urge to splurge and spend more this year than last on friends and family during the holiday period, a time retailers depend on for  as much as 40% of their revenue for the year. That spells big trouble for retailers nationwide, with the possible exception of Wal-Mart Stores Inc. (WMT) , and other large discounters.

Also buttressing the curtailed spending argument is a new poll that says just 20% of shoppers plan to use credit cards for holiday purchases.  That’s down a whopping 33% from 2004. And two-thirds of the consumer surveyed said they would pay off the full balance owed when the bills come due in January, the poll found.

Source: U.S. Companies “Throw in the Towel” – Pushing Jobless Claims to a 26-Year High

• China’s exports fell 2.2% and imports plummeted by 17.9% in November, pushing its trade surplus to a record $40.09 billion, Bloomberg reported. “The figures are horrifying,” Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai, said. “Plunging imports show that on top of faltering global demand, domestic demand is also shrinking as the economy cools.”

• Global mining leading Rio Tinto PLC (ADR: RTP) announced it would slash 14,000 jobs (or 13% of its workforce), sell more assets and halve its capital spending. “Drastic times call for drastic measures… They’ve definitely gone into survival mode, which is appropriate given the market circumstances,” Tim Schroeders, portfolio manager at Pengana Capital in Melbourne, told Reuters.

• Despite ascending unemployment numbers, Wells Fargo & Co. (WFC) Chief Executive John Stumpf said Wednesday he is seeing signs of a bottom in the U.S. housing market. “My suspicion is there is some more to go. But we’re starting to see some early signs that maybe we’ve reached the bottom in housing or close to it,” Stumpf said at Goldman Sachs Group Inc.’s (GS) U.S. Financial Services Conference, Reuters said.

• Egypt’s Orascom Telecom Holding landed a contract to provide mobile phone services in North Korea, a company source told Bloomberg. The deal marks the first foreign telecommunications deal on the recluse Communist country’s turf.

• Office Depot Inc. (ODP) will close about 9% of its North American stores and cut 2,200 jobs over the next three months, The Associated Press reported yesterday (Wednesday). The plan to close 112 stores will reduce the chain’s base to 1,163. Office Depot will close 45 stores in the Central United States, 40 in the Northeast and Canada, 19 in the West and eight in the South.

• Solar cell maker JA Solar Holdings Co. (ADR: JASO) yesterday (Wednesday) cut its fourth-quarter revenue and production outlooks as a result of declining demand. The China-based company lowered its revenue forecast to $124 million, from an earlier estimate $191 million to $220 million. The company also cut its estimates for 2008 production output to between 250 and 260 megawatts from 310 megawatts.

Source: Global Investing Roundups Thursday, December 11th, 2008

Of course you could.

But if they led you blindfolded into another restaurant, could you tell immediately whether you were in a Bennigan’s, Ruby Tuesday (RT), Chili’s, Friday’s, Applebee’s… or some other? Before you read a menu or looked at the staff uniforms?

Probably not. Unless they led you into a restaurant in your own neighborhood that you visited often.

Bennigan’s is in bankruptcy, Friendly’s was a turnaround that got bought out, Steak ‘n Shake (SNS) is going down, Ruby Tuesday is cutting back.

And even as “sales” are rising for some restaurants, better double-check the numbers. According to industry watcher Technomic, the top 20 restaurant chains increased their locations by 45% in the past five years, while sales only rose 31%. So a good many of those improving sales numbers came from chains that expanded weaker and weaker businesses… right to the brink of failure.

As for the restaurants, what’s to choose? The menus and prices change periodically. And each has a different exact décor—but somehow they all look alike, smell alike and sound alike.

They are tired ideas. Each perfectly fits its stronghold—the suburban strip mall or parking lot facing a busy highway circa 1980. They are all the same as they were then. We needed a few of these chains. But there were too many. They wore this idea out. And now when people are cutting down on unnecessary spending, there is nothing festive, special or necessary about eating in these me-too restaurants. That—not just the economy—is what is dragging the casual dining group down and killing some of them.

This model so overwhelmed America 30 years ago that it is hard to imagine how one would decorate and set up a new restaurant chain that would be noticeably different and successful.

But someone will. Just as the 1950’s steak houses gave way to the 1980s casual American-Irish-comfort-everything concept, another model will come along.

Until then, I am watching stories like the bankruptcy of Bennigan’s and Steak and Ale (along with the turnaround for Talbot’s) and turnaround promises from others with great skepticism.

Forbes once listed the three traits for a good turnaround as a (1) sales jump, (2) cost-cutting, and (3) a new product.

Talbot’s (TLB) had a new product and it was a total mistake. Failing restaurants try changing menus and prices all the time without success. It has to be a new salable product. Something customers want to buy. And one that the business can sell at a profit in great numbers.

Cost cutting by itself is a losing plan. Companies do not get rich by selling off working assets. Period. They may even dilute their ability to carry on their business after stripping assets out. A good cost cutting plan has to pare off true fat and be carried out according to a strategy that leads somewhere. A case of this was when Office Depot (ODP) discovered it did not reap many extra sales on its excessive variety and limited some package sizes or colors while keeping the best selling version of items always in stock. It also closed stores that were within a prescribed distance of another office supply store. That is what a cost-cutting strategy should look like.

As for a sales jump? Well, by that time the turnaround has turned.

Source: Speaking of Turnarounds – Why I Don’t Like Restaurant Stories Now

• Siemens AG (ADR: SI) announced yesterday (Tuesday) that it would eliminate almost 17,000 positions to prepare for a global economic downturn. The Germany-based industrial giant hopes to achieve $1.9 billion (1.2 billion euros) in cost savings by 2010. Chief Executive Peter Loescher said Siemens needed to be faster, more efficient and have a leaner administration if it hoped to compete, Reuters reported.

• Southwest Airlines Co. (LUV) and Canada-based WestJet Airlines Ltd. yesterday (Tuesday) announced a marketing alliance that is planned to go into effect in 2009. “This gives WestJet exactly what they need in terms of growing their trans-border flights,” Chris Murray, an analyst at CIBC World Markets Inc. in Toronto, told Bloomberg News. “The deal would make sense for Southwest to build its service into Canada, too.”

• Shares of VMWare Inc. (VMW) plummeted yesterday (Tuesday) after the software maker announced it would not meet 2008 expectations, and as a result, replace Chief Executive Officer Diane Greene, an original company co-founder, Reuters reported. VMWare stock dropped $13.00 to close at $40.19.

• Office Depot Inc. (ODP) stock took a hit yesterday (Tuesday) when the office supply retail firm announced North American sales dropped 10% in the second quarter, causing earnings before taxes and interest to be 200 basis points lower than expected. Full earnings for the period will be released July 30. Shares declined $3.29 to close at $7.12.

• U.S. light crude fell more than $6 to as low as $135.14 a barrel yesterday (Tuesday), its lowest level since June 26. Crude oil has now fallen about $10 a barrel since hitting a record high of $145.85 hit last week.

• The U.S. Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, The Associated Press reported yesterday (Tuesday). The rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower’s income.

• Anheuser-Busch Cos. Inc. (BUD) is suing InBev NV after calling the Belgian brewer’s takeover attempt an “illegal plan and scheme” to acquire Anheuser “at a bargain price,” Reuters reported. The suit seeks an injunction to stop InBev from furthering its consent solicitation to replace Anheuser’s board until certain alleged false and misleading statements are fixed.

• ConocoPhillips (COP) has signed an interim agreement with Abu Dhabi National Oil Co. to develop the Shah Gas Field in Abu Dhabi, Thomson Financial reported. Under the terms of the agreement, the companies will share the cost of engineering and design and project mobilization for the field’s development. Abu Dhabi National Oil will have a 60% interest and ConocoPhillips will have a 40% interest in the project.

Source: Global Investing Roundups Wednesday, July 9th, 2008

But if the central bank does pare short-term interest rates, it’s likely to be the last such move in awhile; the Fed will take a break and give its rate cuts a chance to work their way through the U.S. economic system.

Despite an active-economic-calendar schedule this week – which includes a report on first-quarter gross-domestic product, and several other statistics that could confirm that the U.S. economy is entrenched in a recession – the Fed’s machinations should dominate this week’s headlines, given that the central bank’s interest-rate-setting arm is set to meet Tuesday and Wednesday.

Any announcements about interest rates will be made at 2:15 p.m. Wednesday. Experts also say that whatever the Fed says about its expectations will be just as important as what it actually does to the benchmark Federal Funds rate.

“I don’t think there’s any question that they’ll cut [a quarter-percentage point] off the rate,” David Rosenberg, chief economist for Merrill Lynch & Co. Inc. (MER), told The International Herald Tribune. “The real question is what they say about the future. It won’t be an ‘all clear’ signal. But they’ll find a way to tell the markets that they’ve done enough for now, simply put.”
Not everyone agrees.

“There is no reason why the Fed should be cutting rates right now,” Richard Yamarone, director of economic research at Argus Research Corp., told MarketWatch.com.

Yamarone may be thinking back to some of the public comments certain of the central bankers themselves have been making.

Back on April 18, Fed officials hinted that they would be reluctant to cut the benchmark Federal Funds rate yet again, given that the slumping U.S. economy also faced a major inflationary threat. Indeed, Philadelphia Fed President Charles Plosser warned against believing that interest-rate cuts were “the solution to most, if not all, economic ills.”

Plosser is one of the Fed’s major anti-inflation hawks At the time, Plosser was merely the latest in a string of policy-makers to warn about the rising risks of inflation, essentially suggesting that another rate cut would probably be a very tough sell.

In a speech at Drexel University’s LeBow College of Business in Philadelphia, Plosser said real interest rates were now at “an accommodative level, meaning borrowing costs were low enough to start boosting the U.S. economy’s growth rate back toward its normal historical norm, Reuters reported.

The futures market is projecting a Fed Funds rate of 1.75% by the end of this year. Here’s a look at the futures market’s month-by-month expectations for short-term borrowing costs for the remainder of 2008:

• April: 2.17%.
• May: 1.89%.
• June: 1.85%
• July 1.79%.
• August 2008: 1.76%.
• September 2008: 1.76%.
• October 2008: 1.77%.
• December 2008: 1.73%.

The worries about inflation that Plosser and other inflation hawks have are very real. And those concerns don’t exist solely on our side of the Atlantic. The low U.S. rates are contributing to a weakness in the greenback that’s sent the American currency to record lows against most other key world currencies. That’s fueling a massive run-up in the cost of energy and food-related imports – and that’s inflationary for U.S. buyers.

But it’s made U.S. exports very competitive abroad, acting almost as a big discount for foreign buyers of such wares as Boeing Co. (BA) jetliners. In fact, just last week Boeing surprised Wall Street with record earnings and announced a record order backlog. And pan-European arch-rival Airbus SAS., was forced to announce a price increase on several  of its commercial airliners – because of rising steel prices and because of the falling dollar.

French Economy Minister Christine Lagarde yesterday (Sunday) that the gap between the U.S. and Eurozone interest rates was way too large, and called for a change in rate policies on one side of the Atlantic, or the other.

“We are in a delicate situation where we have, on the one hand, an American Federal (Reserve) which has a policy of very low rates and a European Central Bank which has maintained high interest rates,” Lagarde told LCI Television and RTL Radio, the global wire service Reuters reported. “The differential in interest between the two, it seems to me, is a little too big at the moment.”

Paris has long been a vocal critic of what French President Nicolas Sarkozy has termed the ECB’s overly narrow focus on fighting inflation – and has previously been criticized by Germany for meddling in the business of the “independent” central bank.

With Eurozone inflation running at about 3.6% – its highest rate since the measure for that portion of the European market began in 1997, the European Central Bank (ECB) has left its key refinancing interest rate unchanged at 4.0%, despite some very definite signs that Eurozone growth is slowing.

By comparison, the key U.S. interest rate is at 2.25%, though it may be heading lower this week, and inflation is “officially” said to be at right about 4% – though such experts as Money Morning Contributing Editor Martin Hutchinson believe the actual U.S. inflation rate is actually much higher.

Although the FOMC meeting is likely to top the economic the economic news of the week this week, the GDP report will come in a fairly close second and will be nearly as closely watched by some experts. The reason: Many eternal pessimists are expecting the report to show negative growth during that three-month period.

Why is that important? Simple: According to the National Bureau of Economic Research (NBER), two consecutive quarters of negative growth constitutes a recession.

Most folks “feel” like the U.S. economy is already in a recession. An official designation by the NBER – which usually comes well after the fact – would simply make it official.

In the meantime, some of these other reports this week could help serve as an interim and unofficial “confirmation” of that dour diagnosis of the U.S. economy:

• The health of the manufacturing sector will get a solid assessment via Thursday’s release of the much-watched ISM survey and Friday’s report on factory orders.
• The all-important U.S. labor markets will get significant scrutiny via Thursday’s report on initial jobless claims and Friday’s reports on the U.S. unemployment rate and on non-farm payroll data.
• We’ll get a bit more insight into the psyche of the American consumer with Tuesday’s report on consumer confidence for the month of April and Thursday’s report on personal income and spending for the month of March.
• And we’ll get an overview of Corporate America’s health, as U.S. energy giants Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) reveal how their profit reports have been boosted by record energy prices [likely also prompting new calls for Congressional investigations into allegations of price gouging].  Starbucks Corp. (SBUX) will follow up recent warning with an actual announcement, while Office Depot Inc. (ODP) and Radio Shack Corp. (RSH) will give investors a look inside the world of retail.

Market Matters

Two weeks ago, investors disregarded any semblance of bad news (and lately, there has been plenty) and instead took the stock indices to their highest levels in months. Last week, investors allowed the earnings releases to guide their trading activities while awaiting the Fed’s interest-rate decision and commentary.

So just what did the recent earnings reports say about the current state of Corporate America?

Financialscontinue to stoke the negativity (no surprise there) with Bank of America Corp. (BAC), investment banker Credit Suisse Group (CS), and bond insurer Ambac Financial Group Inc. (ABK) reporting more disappointing results.  Drugmakers, on the other hand, enjoyed a nice quarter with Merck & Co. Inc. (MRK) and Novartis AG (NVS) beating expectations.  While a sluggish economy can’t keep folks out of McDonald’s Corp. (MCD) (as least in its international markets), it does seem to be impacting coffee intake as Starbucks warned that this week’s results (and those for all of 2008) will miss earlier projections.  Of course, dire times lead to more nervous smoking (and higher cigarette sales) as happy Philip Morris International Inc. (PM) shareholders found out this quarter.  While cost-conscious folks stayed home and watched more DVDs, Netflix Inc. (NFLX) warned that future subscriber growth may be limited.

Both Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA) posted sizable losses on skyrocketing fuel costs, leading some analysts to question the wisdom behind the proposed merger. While the world’s largest shipper, United Parcel Service Inc. (UPS), experienced a jump in profits, management expressed concern about the quarters to follow, since consumers just don’t seem quite as interested in finding out “what Brown can do for you.”  Even techs, which previously had been a savings grace for the market, turned pessimistic this week.  Apple Inc. (AAPL) and Texas Instruments Inc. (TXN) reported decent earnings, but warned about their respective outlooks.

Likewise, high-tech bellwether Microsoft Corp. (MSFT) disappointed with its profit numbers, while investors wait with trepidation to see what becomes of Microsoft’s bid for Yahoo! Inc., (YHOO). Meanwhile, Yahoo beat “The Street’s” expectations. However, the three-week deadline that Microsoft gave Yahoo to come to an agreement on its unsolicited bid passed Saturday without any announcement from either side, leading to the possibility that the battle for Yahoo is about to turn hostile, MarketWatch.com reported.

ConocoPhillips (COP) showed that record energy prices are not hurting everyone, as the No. 3 U.S. oil company reported a 17% increase in profits.

Transactions typically imply growing confidence in corporate boardrooms as management finds the value in certain acquisition targets.  Last week, News Corp. (NWS.A) moved closer to buying Newsday and giving Rupert Murdock greater control over the New York press.

Insurance giant Liberty Mutual Holding Co. Inc. agreed to buy SAFECO Corp. (SAF) in a $6.2 billion deal that will create the 5th-largest property and casualty firm.  Triarc Cos. Inc. (TRY) soon may be adding those terrific “hot-and-juicy” square burgers and addictive Frosty drinks to its Arby’s roast-beef-sandwich menus as it looks to acquire Wendy’s International (WEN) in a deal valued at $2.34 billion. And, of course, there’s still the Microsoft-Yahoo proposal.

With a mixed week on the earnings front, stocks traded relatively flat as investors took some profits from last week’s newfound bullish sentiment, while still searching for a bargain or two.

Economically Speaking

For many Fed-watchers, the prospect for another rate cut has been a foregone conclusion.  After all, central bank Chairman Ben S. Bernanke and clan have let their creative juices flow [not to be confused with the creative juices of those Wendy’s hamburgers] over the past few months; the Fed has tried everything from the aggressive rate-cutting campaign to liquidity injections to arranging the buyout of The Bear Stearns Cos. Inc. (BSC) by JPMorgan Chase & Co. Inc. (JPM).

Suddenly, some great prognosticators believe the Fed may be “seven and done” as they drop the Federal Funds rate again (by a minimal quarter of a percentage point this time around) – before going on a “summer hiatus” to give their earlier work the time to take effect.

With oil prices hovering around the (once unheard of) $120/barrel level, some policymakers are sure to claim that inflation should be considered as critical a concern as the sluggish housing market to the U.S. economy’s health. Indeed, comments such as those of Philly Fed President Plosser make it clear that inflation is already becoming an increasingly important consideration.

Additionally, the European Central Bank seems content to keep its lending rate at 4%, so further Fed actions will continue to have devastating impact on the value of the dollar.

The economic calendar was relatively light last week as analysts rested up for this week’s vast array of important data. After a surprising climb (better known now as an aberration) in February, existing home sales plunged again in March, while new homes sales fell to their lowest level in more than 16 years.

Furthermore, the median price of a new home dropped by more than 13% last month, the largest such decline in almost four decades.

Durable goods orders fell in March, as well, although once the volatile transportation sector was removed from the equation, the results did not look half bad.

We hope that investors and analysts got plenty of rest over the weekend to get ready for the bustle of economic reports due throughout this week. Talk of recession should resume with the release of the first-quarter GDP, which many eternal pessimists believe will show negative growth during that three-month stretch.

Weekly Economic Calendar