NBR Transcripts- December 1, 2008
Monday, December 01, 2008It's Official... We're In A Recession
SUSIE GHARIB: It's official: the U.S. economy is in recession. That news hammered stocks here on Wall Street today. The Dow plummeted almost 680 points. The NASDAQ plunged 137 or 9 percent and the S&P 500 also fell by 9 percent. Investors dumped stocks after the National Bureau of Economic Research announced today the economy slid into recession in December of 2007. The NBER, the official organization that identifies business cycles, said the economic expansion that began in November of 2001 lasted 73 months and ended late last year. The group based its decision primarily on gross domestic product, which turned negative in the third quarter of this year and employment data, which continues to be grim. The recession announcement came as Federal Reserve Chairman Ben Bernanke said more interest rate cuts are possible, but admitted they would have limited economic benefit. The Fed holds a two-day policy meeting on rates beginning December 15. Joining us now to talk more about the outlook for the economy, Bruce Kasman, chief economist at JPMorgan. Hi, Bruce.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: Hi, Susie.
GHARIB: So Bruce, are we closer to the end or the beginning of this recession?
KASMAN: Well, I think we're in the middle of it. And unfortunately this middle phase is looking quite a bit more intense than where we were at the start, at the beginning of the year. We are now not only seeing consumers retrench, but businesses are pulling back quite aggressively and it has turned into a very significant global event as just about the whole world has now joined us in an economic downturn. This is pretty significant in the degree to which we are now going down as we turn to the end of 2008.
GHARIB: Given that it is a global recession, what does that mean for the U.S. economy and its ultimate recovery?
KASMAN: Well, I think it's going to be very hard to pull out of this any time soon. I think we have got the combination of financial markets tightening, our demand going down and now our trading partners demand also getting hit quite hard. I think for the goods producing industries in the U.S. this is about as bad as we have seen at any time in the last four or five decades. And we're seeing businesses now shed jobs at a more aggressive and somewhat alarming pace. So the next few months here look pretty bad. And we are definitely going to need the Fed and other policy stimulus to help get us out of this.
GHARIB: Well, you said in the report today that you expect the Fed to lower interest rates to 0 percent by January. Now is that going to help the economy to get out of this difficult stage? Is it going to help the economy grow?
KASMAN: Well, the Fed is moving on two fronts right now. It is lowering policy rates and we think they will use the entire range to zero and they are also doing an awful lot to try to help the functioning of the markets by providing liquidity, helping to buy up assets. Right now I think the most important thing is the job they are doing in helping the functioning of markets. By lowering rates to zero, I think they are signaling their intent. And hopefully as financial markets show some improvement, the movement down we are seeing in the risk-free rates, the Fed funds rate and Treasury yields will start to move out and help corporate borrowing rates, household mortgage rates and the like.
GHARIB: Now as you know, there is considerable talk of a very large stimulus, fiscal stimulus package. Will that help the economy and to what extent might it help the economy?
KASMAN: Well, we still don't know the details. But certainly the kinds of numbers that are being thrown around a $500 to $700 billion package is quite large. However, I don't think we should expect to see much of that come in the next three, four months. So I think in terms of the degree to which we are moving down right now, fiscal policy is probably not going to be much of a help. Hopefully as we move out to the middle and later part of 2008 and '09, we will start to see some substantial benefits, help us generate a recovery. But it's not going to help us in what will be certainly a winter of discontent here.
GHARIB: All right, on Friday we get the latest employment report and all the forecasts are not very good about the numbers that we are going to be seeing. How long do you see job losses continuing?
KASMAN: We would say we're in the middle of this event. And we probably should expect to see job losses continue at least until late spring, early summer of 2009. So there is a long haul ahead. We're looking for job cuts on average to be in the range of 250 to 300,000 per month and we're looking for the unemployment rate to move up to something close to 8 percent at the time that we reach the peak.
GHARIB: All right so we have a ways to go. Bruce, thank you so much for coming on the program. We really appreciate it.
KASMAN: Thank you.
GHARIB: My guest tonight, Bruce Kasman, chief economist at JPMorgan.
Cyber-Monday Is Expected To Be Sluggish
SUSIE GHARIB: Today, the first Monday after Thanksgiving, has come to be known as cyber Monday, when many consumers shop online after hitting traditional stores over the weekend. In recent holiday seasons, online sales grew at a double digit pace. But as Suzanne Pratt reports, that probably won't be the case this year.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a long holiday weekend, many workers are busy back at their office computers. Busy? Yes. Busy working? Not necessarily. It is after all cyber Monday and the temptation of those deals in your inbox may be hard to resist. I haven't cleaned out my personal email since last Wednesday. And the hundreds of offers from stores that I sometimes frequent is pretty scary. That desperation is not surprising, given that it's been well documented that this holiday season is likely to be the worst for retailers in decades. Internet analyst Jim Friedland says while the online segment may be more resilient, it's not immune to economic trends.
JIM FRIEDLAND, INTERNET ANALYST, COWEN AND CO.: Everything in online retail looks bad as well. Relative to traditional retail, it looks great. But, we're still expecting a very, very poor season.
PRATT: The Internet tracking firm comScore predicts online spending for the November-December holiday period will be flat. That would be a big disappointment given last year's 19 percent jump in sales. But Forrester Research is far more upbeat. It's looking for a 12 percent increase in online sales this year, although that is its weakest holiday sales forecast to date. Forrester's Patti Freeman Evans says online shoppers are different.
PATTI FREEMAN EVANS, VP, RESEARCH DIRECTOR, FORRESTER RESEARCH: Online is a little bit insulated from the overall economic impact because people are more affluent. They believe that they actually can get a better deal and because there's still some new growth happening there.
PRATT: With online shopping accounting for only about 5 percent of the retail pie, it's true there's plenty of room for growth. But, it also means many would-be customers are still buying stuff the old fashioned way. As for the deals consumers have come to expect, it turns out they're less likely to show up online.
FRIEDLAND: One of the great things about the online retail model is that it's very much real time and many of the online sellers don't actually hold a lot of inventory, so the possibility for that is much smaller.
PRATT: Cyber Monday is not typically the busiest shopping day for online retailers. December 15 usually holds that honor. Sales on that day generally get a boost from the end of free shipping promotions and other last minute offers. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
President-Elect Barack Obama's Plans for Defense
PAUL KANGAS: President-Elect Barack Obama announced his national security team today. He tapped former rival Senator Hillary Clinton for secretary of State and General James Jones to be national security adviser. Obama also wants current Defense Secretary Robert Gates to stay on with the new administration. As Stephanie Dhue reports, the announcements send a clear message about Obama's defense spending priorities.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President-Elect Barack Obama sent a message of continuity by keeping Defense Secretary Robert Gates on his national security team. But he also sent a message that the game plan will be changing.
PRESIDENT-ELECT BARACK OBAMA: To succeed, we must pursue a new strategy that skillfully uses, balances and integrates all elements of American power: our military and diplomacy.
DHUE: Analysts say a shift toward diplomacy foreshadows a shift in spending priorities. Defense analyst Brett Lambert says that won't happen right away.
BRETT LAMBERT, MANAGING DIRECTOR, CIVITAS GROUP: I think over the next 12 months, you'll see defense spending approached with a scalpel. He'll be very careful in the first 12 months not to upset the apple cart and not to have the moniker being weak on defense.
DHUE: Still, analysts expect significant cuts to come in the 2010 budget. With wars in Iraq and Afghanistan, the U.S. is spending about $700 billion on defense annually. Lambert expects $200 billion in cuts, about half from a troop drawdown in Iraq. The rest would come from cuts in weapons systems programs, most of which are over budget and behind schedule.
LAMBERT: This industry has grown fat and happy, quite frankly, over the last eight years of a very permissive environment and contractor-driven procurements, so it is going to be a battle, can the Pentagon take back the procurement of major programs or are they going to continue to allow the contractors to run them?
DHUE: Lockheed Martin's F-22 fighter jet, Northrop Grumman's next generation destroyer, and Boeing and SAIC's future combat system for the army are some of the programs at risk. That has the defense industry gearing up for a budget battle. The Aerospace Industry Association is launching a $1.5 million advertising campaign emphasizing the two million manufacturing jobs and $97 billion in exports the industry provides. The trade group's Marion Blakey says the ad is aimed at policy makers.
MARION BLAKEY, PRES. & CEO, AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA: We simply want to be clear that aerospace and defense can't be a bill payer, that we in fact are providing the engine behind our economy in a huge way, in exports and our ability to have jobs all over the country that are really vital to this economy and that needs to be a message that's heard loud and clear.
DHUE: Obama seems to have heard that message. Today he promised to continue to make the investments necessary to strengthen the military and increase our ground troops. But analysts say he can do that and still cut defense spending. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Commentary"-What's Ahead For President-Elect Obama's Economics Team
SUSIE GHARIB: Tonight's commentator says President-Elect Obama's new economic team is going to be busy. She's Alice Rivlin, senior fellow at Brookings and former vice chair of the Federal Reserve.
ALICE RIVLIN, SENIOR FELLOW, BROOKINGS: President-Elect Obama must have been marvelously persuasive to have recruited the outstanding economic team announced last week. Here's your first assignment, he must have said: get credit flowing to worthy borrowers, downsize the financial services industry to sustainable size, guarantee responsible financial behavior in the future without stifling innovation, get those dubious assets off balance sheets and then extricate the government from the banking and finance business lest someone think we are socialists. Do this without much cost to taxpayers, because they shouldn't have to pay for the sins of fat cats who made more in a day than they make in a year. Your second assignment is even more urgent: slow the free fall of the economy, get cash to people most hurt by rising unemployment, keep the states afloat and then create a few million jobs building things we really need. No bridges to nowhere, please. After that, take on the hard stuff. Shift the American economy from over consumption and excessive borrowing to solid saving and smart investing and convince our foreign creditors that we have become competent fiscal managers with a serious plan to control our exploding deficits and debt before they drown us. And, oh, yes, do it in a collegial bipartisan manner. OK, team-get started. I'm Alice Rivlin.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened sharply lower on reports of steep manufacturing slowdowns in Europe and China. In a steady slide, last week's solid gains quickly slipped away with the Dow plummeting 455 points by 1:00 p.m. when the NASDAQ was off 95 points. The sell-off worsened on reports of weak U.S. manufacturing and construction spending. Less than optimistic speeches from Fed chief Bernanke and Treasury Secretary Paulson put stocks into a late freefall. The Dow Jones Industrial Average plunged 679.95 points, ending at 8149.09. The NASDAQ tumbled 137 1/2 points to 1398.07, while the Standard & Poor's 500 Index fell 80.03 points to 816.21. In the bond market, the 10-year note soared 1 22/32 to 108 25/32, putting the yield at 2.73 percent.
Big board volume leader as it so often is, Citigroup (C) today on 44.3 million shares, down $1.84 in a hard-hit banking group.
And then came Ford Motor Co (F) with a loss of $0.14 after trading as low as $2.02. You heard the news.
More weak banks, Bank of America (BAC) for example down $3.40.
And then General Electric (GE) fell $1.67. Merrill Lynch cut GE's earnings forecast because of the global business slowdown.
JPMorgan Chase (JPM) losing $5.54. The company is planning on cutting 9200 jobs at its Washington Mutual unit which it just recently acquired.
Wells Fargo (WFC) down $5.48.
ExxonMobil (XOM) on that over $5 drop in oil prices in New York, off $5.84.
Pfizer (PFE) fell $1.15.
AT&T (T) losing $1.60.
And then General Motors (GM) down $0.65. The company's trying frantically to come up with a feasible survival plan.
Hewlett-Packard (HPQ) down $1.84 even though the company said it can save possibly up to $1 billion annually by cutting back on its information technology staff.
The other 29 stocks in the Dow were all down and these are some of the worst losers. American Express (AXP), Caterpillar (CAT), Chevron (CVX), IBM (IBM) and 3M Co (MMM) all hard hit in this sell off.
Morgan Stanley (MS) fell $3.40. Credit Suisse cut fourth quarter estimates to a loss of $0.35 a share.
And then Goldman Sachs (GS) tumbling $13.23. Credit Suisse projects a fourth quarter loss for Goldman of $4 a share and both Morgan Stanley and Goldman are cutting back on their Dubai-based work forces, think (ph) they're hitting over there too.
Dow Chemical Co (DOW) down $0.62. Standard & Poor's downgraded it from "buy" to a "sell."
Freeport-McMoran C&G (FCX), February gold in New York tumbled $42.20 an ounce and on top of that, China's economic slowdown is causing a slump in copper demand, so a one-two punch for Freeport.
A gainer and a big one, Mentor (MNT), the implant company, up $14.43. Johnson & Johnson will acquire it for $31 a share in cash. J&J stock fell $3.25 to $55.33.
And what's this, another gainer, Premiere Global Services (PGI). The company's in the business, support services area and Oppenheimer upgraded it from "perform" to "out perform."
Then we see the fertilizer company Mosaic (MOS) tumbling $4.95 in regular trading and it fell to as low as $23 after the close when the company warned its fertilizer sales will drop for the next two quarters.
NASDAQ's most active, Apple (AAPL) down $3.74.
Google (GOOG) got hit for almost a $27 loss.
Microsoft (MSFT) off $1.61. Incidentally, a Microsoft executive says reports that his firm is in talks to acquire Yahoo!'s search business, those reports, total fiction.
Research in Motion (RIMM) down $2.67.
Then came Cisco Systems (CSCO) with a loss of $1.58.
We continue this blizzard of minus signs with Oracle (ORCL) down $0.62.
Intel (INTC) off $1.24. October semiconductor sales globally fell 2.4 percent, according to the industry association.
Amgen (AMGN) down $0.77.
Qualcomm (QCOM) fell $3.61.
Baidu.com (BIDU) off a little over $19.57.
Finally, parent of United Airlines UAL Corp (UAUA) tumbling $2.31. The company plans a $200 million offering of common stock.
And those are the stocks in the news tonight.
