Tag Archives: ECONOMY

Debt ceiling concerns plummet Consumer confidence to lowest level since 2009

August 31, 2011

NEW YORK — Consumer confidence plunged nearly 15 points in August to its lowest level since 2009, The Conference Board reported Tuesday.

The research organization’s Consumer Confidence Index fell to 44.5 in August from 59.2 in July (1985=100). The Present Situation Index decreased to 33.3 from 35.7 while the Expectations Index plummeted to 51.9 from 74.9 in July.

“Consumer confidence deteriorated sharply in August as consumers grew significantly more pessimistic about the short-term outlook,” said Lynn Franco, director of The Conference Board Consumer Research Center. “The index is now at its lowest level in more than two years (April 2009, 40.8).

“A contributing factor may have been the debt ceiling discussions since the decline in confidence was well under way before the S&P downgrade (of the U.S. government’s credit rating). Consumers’ assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence,” she said.

The monthly index is based on a survey conducted for The Conference Board by The Nielsen Co. The cutoff date for the preliminary results was Aug. 18.

Consumers’ appraisal of present-day conditions weakened further in August, the survey indicated.

Consumers claiming business conditions are “bad” increased to 40.6% from 38.7%, while those claiming business conditions are “good” inched up to 13.7% from 13.5%. Consumers’ assessment of employment conditions was more pessimistic than last month. Those claiming jobs are “hard to get” increased to 49.1% from 44.8%, while those stating jobs are “plentiful” declined to 4.7% from 5.1%.

Consumers’ short-term outlook deteriorated sharply in August. Those expecting business conditions to improve over the next six months decreased to 11.8% from 17.9%, while those expecting business conditions to worsen surged to 24.6% from 16.1%.

Consumers were also more pessimistic about the outlook for the job market. Those anticipating more jobs in the months ahead decreased to 11.4% from 16.9%, while those expecting fewer jobs increased to 31.5% from 22.2%. The proportion of consumers anticipating an increase in their incomes declined to 14.3% from 15.9%.

Demand for autos and auto parts jumped 11.5 percent in July; Aircraft orders soared 43.4 percent

Companies ordered more autos, aircraft in July

 A surge in demand for autos and aircraft drove orders for long-lasting manufactured goods higher in July, easing fears that the economy might be on the verge of another recession.

The rebound in the auto industry helped offset a decline in orders for most other factory goods.

Stocks rose after the better-than-expected report showed the biggest increase in durable-goods orders since March, when the Japan earthquake disrupted supply chains and slowed auto production.

The Dow Jones industrial average jumped about 100 points after the report came out. Overall orders for durable goods rose 4 percent last month, the Commerce Department said Wednesday.

The report “reinforces other data that the economy wasn’t at serious risk of recession through July,” said David Resler, chief U.S. economist at Nomura Securities. Retail sales and industrial production also held up well last month, he said.

The data did offer a cautionary signal: a key category that tracks business investment plans fell 1.5 percent, the biggest drop in six months. That suggests businesses are pulling back on spending. Orders in all other major categories dropped, including computers, electronic goods, and machinery.

Resler and other economists also warned that the turmoil in the stock markets could cause businesses to pull back further this month.

“It remains to be seen whether firms cancelled or postponed planned orders,” Paul Dales, an economist at Capital Economics, said in note to clients.

A durable good is a product that is expected to last at least three years. Economists view the report cautiously because orders tend to fluctuate from month to month.

Excluding transportation goods, orders rose just 0.7 percent. It was the third straight gain in so-called core orders. Demand for primary metals surged 10.3 percent, the most since last November. Some of that increase was likely due to higher prices for metals such as copper.

Overall, orders rose to a seasonally adjusted $201.5 billion in July. That is 35 percent higher than the recession low hit in April 2009. But it is still 18 percent below the level in December 2007, when the recession began.

Demand for autos and auto parts jumped 11.5 percent, the most in eight years. Aircraft orders, a volatile category, soared 43.4 percent, after falling 24 percent in June.

Auto production is rebounding after a slowdown caused by the Japan earthquake. The Federal Reserve reported last week that factory output rose 0.6 percent in July, mostly because of an increase in auto production.

A big order by American Airlines helped boost the aircraft sector. American Airlines ordered 100 new Boeing 737 planes with fuel-efficient engines in July.

Manufacturing has been a key source of economic growth since the recession officially ended in June 2009. But it began to slump this spring, along with the broader economy.

Orders fell in April and June, partly because of supply disruptions stemming from the March 11 earthquake in Japan. And a spike in gas prices earlier this year cut into consumer spending, reducing demand for big-ticket items, such as computers, appliances and furniture.

Several recent reports suggest the sector could be slowing further. A survey by the Federal Reserve Bank of Philadelphia showed that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. A Richmond Fed survey released Tuesday and a New York Fed survey last week also pointed to slowdowns in those areas, although not as severe as the Philadelphia region.

Economists predict further weakness, even as temporary factors fade. Falling stock prices and fear of another recession may persuade consumers and businesses to hold back on big purchases. That could slow orders for industrial machinery, electronic goods and appliances.

Analysts have been scaling back their forecasts for economic growth for this year and next.

Michael Feroli, an economist at JPMorgan Chase, projects the economy will expand at only a 1 percent annual rate in the second half of the year. That’s not much better than the 0.8 percent growth that the government reported for the first half of the year.

The Federal Reserve this month said that it expects weak growth for the next two years. As a result, it said that it plans to keep its short-term interest rate near zero until at least mid-2013.

The Fed has limited options for stimulating growth. And a renewed focus on deficit reduction in Washington, which could result in steep spending cuts or tax increases, could weaken the economy further.

Investors hope that Federal Reserve Chairman Ben Bernanke announces another round of bond purchases on Friday in a highly anticipated speech in Jackson Hole, Wyo. The bond purchases, known as quantitative easing, are designed to keep interest rates low and boost stock prices. But economists don’t expect Bernanke to launch any major efforts.

Winning in the New ‘Marketing Democracy’

Imagine for a moment that you moved to a new home located right next door to a train station. It’s noisy at first. But after a while, you get used to the noise and barely notice it. That notion captures “exactly how consumers feel about marketing and advertising — as if it’s not even there,” said Tim Suther, chief marketing officer of Acxiom, the world’s largest processor of consumer data, at a recent Wharton Marketing Conference. Such consumer numbness has profound consequences — $112 billion in major brand advertising is wasted every year, while eight out of 10 online ads fail to reach their desired audience. “A truly awful, awful performance,” noted Suther.

With the right strategies, however, Suther said companies can successfully navigate this tumultuous world to reach their target customers. He cited a few of the most well-known strategies. For one, they should personalize their marketing to consumers instead of blasting them with broadly targeted ads. They should also identify those customers who spend the most money on their products and services, and invest more in marketing directly to them. Companies should craft a multidimensional profile of their customers, Suther advised, looking not only at what they are buying, but also what they are thinking and how they are behaving online. Moreover, companies should better coordinate their different sales channels to deliver a seamless experience for the customer wherever he or she chooses to shop.

“Einstein famously said that insanity is doing the same thing over and over while expecting a different result,” Suther said. Likewise, companies need to begin thinking differently about how they do marketing, especially in an increasingly connected world. With the expansion of sales and media channels, consumers can shop online using their computers or phones or make traditional bricks-and-mortar store purchases. This increased number of options presents marketers with tremendous opportunities to understand and reach the right audience — if they are savvy enough to do it correctly. “Those [consumers] who engage in multiple forms of media or channels are four to five times more valuable” than those who only participate in one, Suther noted — yet two-thirds of senior executives do not have insight into their consumers across all of these channels. For instance, while people spend 42% of their media consumption time online, advertisers shell out only 11% to 12% of their total advertising budgets on the web.

For marketers, the stakes have never been higher, especially in a world where, via the Internet, consumers can instantly judge a company and convey their opinions to fellow shoppers. This “consumer-to-consumer” trend is a “powerful force affecting the business of advertising and marketing,” and has created what Suther refers to as a “marketing democracy.” “Elections, if you will, are being held every day. Consumers are voting … and they are determining winners and losers. You’ve got to pay attention to this, because they will vote you out of office.”

Suther, who joined Acxiom in 2005 and became an officer in 2007, is responsible for the company’s product marketing, communications, sales support, strategy and business development efforts. Previously, he served as a senior vice president at Metavante, a banking and technology solutions firm, and as president of Protagona Worldwide, a marketing software company. He has a degree in finance and marketing from Loras College in Iowa.

So how can a company fine tune its marketing? The first step, according to Suther, is reaching and engaging the firm’s target customers. The company needs to know who its customers are and what their needs are. “Life is like a box of chocolates. You never know what you’re going to get,” he said, quoting from the movie Forrest Gump. “A lot of marketing and advertising is like that. If you don’t know who is on the other end of the equation, you’re going to have a very nasty problem.” Marketing efforts may be over-invested in relationships of low value and underinvested in those with high value. About 20% of a company’s customers bring the greatest portion of profits, Suther noted, while about half are only marginally profitable. Dividing customers into these groups and marketing appropriately to them makes a material difference in performance. “The future of marketing and advertising will be about reaching just those customers who are likely to drive the maximum value to your organization.”

Second, companies need multidimensional insight into their market. While some firms rely mostly on past purchases or online behavior in determining buying patterns, Suther said there are pitfalls in relying on only one facet of a customer. “If you’re relying just on a single dimension [of a consumer], you’ll get it wrong. You need to have a multidimensional view.” That means taking into account consumer action in different sales channels, behavioral changes over different life stages and other external information. It is a complex process with “no silver bullets.”

The third facet of smart marketing is best shown by what Suther considers “the greatest marketing movie of all time,” Groundhog Day. In the movie, Bill Murray plays a character who relives the same day endlessly and learns as much as he can about the people around him so that he can anticipate their needs the next time he sees them; his tireless work gets him the girl of his dreams.

“Remember me [i.e., the customer] and treat me like a friend. Wherever you see me, anticipate my needs and what I don’t need,” Suther said. “The notion of remembering every interaction and learning [from it] is an important part of being a marketer.” Once a company collects all the insights it has gathered about a particular customer, and implements a marketing plan, the firm then arrives at what Suther referred to as “the moment of truth: Getting [the plan] right can drive a five- to 10-fold return on investment.”

According to Suther, companies should deploy a strategy that encompasses all facets of smart marketing. By doing so, a firm will be able to reallocate 15% to 30% of its marketing budget into higher-performing options; such changes lead to real profits, he said. For example, a major global technology company looked at the pattern of calls coming into its call centers. Many of the calls were questions that the company’s online FAQ section could answer, or orders too small for sales representatives. The company ended up sending out a personalized newsletter to fill information gaps, and it enabled electronic handling of the small orders, saving money and boosting profits.

The economic benefits of smart marketing are real, but there are real-life roadblocks, Suther warned. Changes aren’t easy to implement when employees are used to the status quo. “Your [ad] agency of record will be all over the persona of your customers, while those in digital will be exclusively focused on digital. If you rely on just one of those dimensions, you will get it wrong.” He advised firms to find a way to help both sides collaborate more closely. In addition, senior management often can be impatient about the payoff of such changes and put pressure on the person who recommended the new policies. “It’s really important to show results along the way. [We advise doing] that every three months or so to remind those who you have convinced about your noble ambitions that you are making progress against that investment.”

In the end, the hard work of navigating the new world of advertising will be worth the trouble, according to Suther. Paraphrasing a famous quotation from the 1949 film The Third Man, Suther noted that, although Italy suffered constant warfare and bloodshed for 30 years under the Borgias, that era also gave birth to Michelangelo, Leonardo da Vinci and the Renaissance. “The point of all the tumult that exists in the marketing and advertising world is that goodness will come out,” Suther said. “We will have our Renaissance.”

Article courtesy of: The Knowledge Behind The News

Double-dip Recession?

The economy seems especially fragile these days, as if the United States is teetering on the edge of recession. That’s the way it is when GDP is gaining at a rate of 2% or less, as it has been for some months: There are stronger areas — Texas, North Dakota, Milwaukee, Washington, D.C., and San Jose, Calif., for example. And some weaker areas, including much of California as well as Nevada, Phoenix, Atlanta and Tampa, Fla.

With industries, the same spotty pattern prevails. Orders roll in for makers of medical devices, earth-moving equipment and a variety of exports. But housing and real estate are still in deep distress. Similarly, job seekers face a mixed picture: More than enough jobs for petroleum engineers, accountants and medical technicians. But teachers and other public sector employees are being laid off. And for the 7 million workers who lost their jobs during the downturn and still aren’t able to find work, the recession hasn’t ended. They continue to suffer.

But the odds of actually returning to recession — at least six months of declining national production — are still relatively low. Many of the economic hits this spring were one-time events and aren’t likely to be reprised — or at least they aren’t likely to pile one on top of another again. The combination of tornadoes ripping through broad swaths of the country, widespread Mideast turmoil sending gasoline prices near $4 a gallon, and the one-two punch of disasters in Japan was extraordinary.

The next few weeks will provide key signals about what’s ahead — indications of whether growth is in real danger of reversing course or will just continue weakly. The July 8 employment report for June, for example, needs to show much more vigor. Sustained economic growth requires net job gains of about 150,000 a month. So far this year, the average is just 72,000; for May, it was only 54,000. Also critical: no further slowing of manufacturing. (A July 1 purchasing managers survey will tell the story.) And an upward tick in June auto sales indicating that Japan’s economy and supply lines are coming back.

The best to expect is probably continued wobbly, weak GDP gains, with three or four more years to go before the economy begins to feel a great deal better. It’ll take that long for employment to again reach the prerecession high-water mark of 138 million and for unemployment to fall below 6% or so.

The fact is, this last recession was different from most. It was born in a housing bubble and sparked by financial crisis. It typically takes longer to recover from downturns arising from financial crises. And housing is usually one of the chief engines of growth following recessions; the Federal Reserve lowers interest rates, encouraging demand for mortgages and housing and spurring growth. That can’t happen this time.

Recovery will be slower, as the economy shifts to rely less on consumer spending and more on exports and business investment. It’s a worthy destination, but the trip won’t be a pleasant or smooth one.

FROM: http://www.kiplinger.com/columns/dekaser-practical-economics/archives/it-just-feels-like-a-double-dip-recession.html#ixzz1QNnITcm9