Job cuts and credit worries show recession not over, recovery fitful

LONDON/TOKYO: Major companies have announced more job cuts and losses, adding weight to a downbeat report on US consumers and reminding investors the global economy isn’t in recovery yet.

Policymakers sought to keep the scale of the global downturn in perspective, saying it would take time to pull out of recession but there was evidence the worst case outcome had been avoided, thanks to official efforts to prop up economies.

In Tokyo, electronics-to-entertainment giant Sony Corp reported a second straight quarterly loss, projected another year of losses and said it would close eight factories worldwide.

In London, British telecoms carrier BT cut its dividend and announced 15,000 further job losses yesterday after a £1.58bil writedown tipped it into a quarterly loss and its pension costs almost doubled.

Elsewhere in Europe, Belgian banking and insurance group KBC reported more losses on credit writedowns and secured state guarantees to cover further potential hits, while Credit Agricole SA, France’s biggest retail bank, said its profits had been hit by losses at its international retail and investment bank arms.

Spain reported its worst economic contraction in half a century: official data showed gross domestic product shrank 1.8% quarter-on-quarter in the first quarter.

That reinforced expectations of a deepening recession in the wider euro-zone economy during the first quarter. An official estimate for the 16-nation bloc today is expected to show a 2% contraction.

Swiss central banker Thomas Jordan said the global economy was facing a deep recession followed by only a modest recovery due to the hangover from the credit crisis, although worse had been averted by drastic government and central bank actions.

“Although we are not on the verge of a new Great Depression, a severe recession and a following phase of relatively low economic growth is likely to be inevitable,” Jordan said in the text of a speech yesterday.

Wednesday’s news of a drop in US retail sales and a slump in euro-zone output triggered a sell-off in stocks that had rallied in the past two months on hopes the world’s worst recession in decades was drawing to an end.

The Sony news came after the Tokyo market closed 2.6% down brushing off signs that government and central bank officials are becoming more optimistic about the prospects of the world’s second-largest economy recovering from its worst recession since World War Two.

World stocks fell for a fourth straight day yesterday and oil prices also fell while government bonds rose as investors took a break from a risk buying frenzy.

“Yesterday’s retail sales were a blow to the green shoots theory because that theory had been predicated on the resilient US consumer,” said Lee Ferridge, vice-president and senior macro strategist at State Street. – Reuters

Meanwhile The AP says Economy's improvement is fitful, reports show

WASHINGTON: A bit of sour news Thursday - in the form of increased jobless claims and higher wholesale prices - suggested the U.S. economy is moving in fits and starts even as the recession eases.

Analysts said the pace of unemployment claims should ease after auto industry layoffs are completed.

Inflation, meanwhile, remains under control, and any threat of a dangerous bout of falling prices seems remote.

The number of new jobless claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week, the Labor Department said.

That exceeded analysts' expectations of 610,000.

Economists noted that initial claims remain below a peak reached in late March - a sign that the wave of mass layoffs announced earlier this year likely has crested.

"This is yet more evidence that we are now past the worst," Paul Dales, U.S. economist at Capital Economics, wrote in a research note.

Separately, the department said wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected.

The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products.

A 43.7 percent jump in egg prices helped drive food costs higher.

The increase, the largest on records dating to 1992, was partly a one-time blip, because Easter occurred in April, according to Labor Department economist Scott Sager.

The same dynamic drove pork prices up 2.5 percent.

The overall 1.5 percent increase in food costs also represents a leveling off after food prices fell in four of the previous five months, economists said.

Even with the larger-than-expected gain in the Producer Price Index, wholesale prices over the past year have dropped 3.7 percent.

That's the biggest 12-month decline since 1950.

Though falling prices can raise fears about "deflation," economists say efforts by the Federal Reserve to combat the recession should prevent falling prices.

Any prolonged deflation would drag down Americans' wages and further depress home and stock prices.

Falling prices remain a concern in other parts of the world, such as Japan, which suffered a destabilizing bout of deflation in the 1990s.

Price declines also have been registered in China and India.

Wall Street brushed off the reports and stocks rose modestly.

The Dow Jones industrial average added 46.43 points to 8,331.32, while broader indexes also rose.

Most of the increase in jobless claims was due to auto layoffs, a department analyst said. Economists estimate Chrysler LLC has laid off 27,000 workers in the wake of its April 30 bankruptcy filing.

Chrysler on Thursday told a bankruptcy court it plans to eliminate 789 of its dealers nationwide - or about 25 percent of them - as part of its restructuring process.

And General Motors Corp. has said it will temporarily shut 13 factories beginning later this month through July, potentially affecting 25,000 workers.

Elsewhere, Nike Inc. on Thursday said it will cut about 1,750 jobs worldwide, or about 5 percent of the shoe and apparel company's global work force.

Nike in February said it was realigning its business and would cut jobs as the global recession hurt consumer spending.

The company plans to complete the layoffs in the coming weeks.

Still, many economists expect the downward trend in jobless claims to resume once the effect of the auto industry's job cuts has passed.

In another sign of labor market weakness, the tally of people who are continuing to receive jobless benefits rose to 6.56 million from 6.36 million.

That was a record-high figure for the 15th straight week and was worse than analysts had expected.

It shows the unemployed are having difficulty finding new jobs.

Abiel Reinhart, an economist at JPMorgan Chase & Co., said the increase in jobless claims indicates that the unemployment rate, which reached 8.9 percent in April, will rise further.

Many economists expect it to reach 10 percent by year's end.

Economists are closely watching the health of the labor market. If layoffs continue at a rapid pace, consumers could cut back further on spending and prolong the recession.

"The recovery isn't going to happen without consumers," said Carl Riccadonna, an economist with Deutsche Bank.

On Wednesday, the Commerce Department said retail sales fell in April for the second straight month, dashing hopes that consumer spending was beginning to revive.

New applications for jobless benefits have declined since reaching 674,000 in late March, the highest level in the current recession.

But claims remain elevated. Weekly initial claims were just 375,000 a year ago.

The four-week average of claims, which smooths out volatility, rose to 630,500, after falling for four straight weeks.

Still, the average remains nearly 30,000 below its high in early April, suggesting to some economists that the downturn is bottoming or already has.

There have been other signs that the pace of job cuts, though still brutal, is moderating.

Employers eliminated 539,000 jobs in April, the fewest in six months and below the average of 700,000 in the first quarter of this year.

But a net total of more than 5.7 million jobs have been lost since the recession began in December 2007, and more layoffs have been announced recently.

Steel giant ArcelorMittal said Wednesday it will eliminate nearly 1,000 positions at an Indiana steel plant in July. And DuPont said last week it will cut 2,000 jobs.

The cuts indicate that the labor market is still far from healthy.

"Less bad is not necessarily good, and sometimes the gap ... is enormous," Ian Shepherdson, chief U.S. economist at consulting firm High Frequency Economics, said in a research note. - AP

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