FedEx Says Economy Is Worsening, Cuts Outlook

Not a bad indicator. Might be we’re already starting to go over the fiscal cliff. Probably a lot of contracts delayed pending congressional approval. And the anticipation of higher taxes and lower demand doesn’t help either.

Fortunately for Obama, Romney’s moved the debate away from the economy.

Good news down here is our highly informal polling shows me at 50%+ in my Congressional race! Looking forward to straightening them all out in DC!
;)

FedEx Says Economy Is Worsening, Cuts Outlook

September 18 (Reuters) — FedEx lowered its fiscal 2013 profit target on Tuesday, saying earnings could slide as much as 6 percent for the year, as a weakening world economy prompts customers to shift toward lower-priced and slower shipping options.

The world’s second-largest package delivery company said it now expects profit for its fiscal year, which ends in May, to come to $6.20 to $6.60 per share, below its prior forecast of $6.90 to $7.40 a share.

Wall Street had expected a full-year profit of $7.03 per share.

FedEx’s shares fell 2 percent in premarket trading from Monday’s close on the New York Stock Exchange.

“Weak global economic conditions dampened revenue growth (and) drove a shift by our customers to our deferred services,” Chief Financial Officer Alan Graf said in a statement.

Shrinking Household Debt Is Good Sign for 2013 Economy

Not even a hint that the federal deficit added that much income and net financial assets/savings to the other sectors, to the penny:

Shrinking household debt is good sign for 2013 economy

By Tim Mullaney

September 1 (USA Today) — Consumers’ out-of-control debt loads helped spark the recession, but households are rapidly getting their balance sheets back into shape.

Overall consumer borrowing could return to its long-term norms by late next year — and that could help spark a late-2013 rebound in consumer spending, economists say.

Of course, it depends on consumers, who have been hurt by falling incomes and house prices, being willing to spend money once they’re in better fiscal shape.

The combination of falling debt loads, a rising housing market and improving job market could boost consumer spending growth to 3.5% by late next year — double what the economy saw in this year’s second quarter, said Moody’s Analytics economist Scott Hoyt.

Even more modest growth of about 2.7% could push job gains back to the 200,000-plus monthly pace seen early this year, said Richard Moody, chief economist at Regions Financial.

“Things will start to look better in 2013,” if Congress and the president resolve the so-called fiscal cliff without causing a recession, Moody said.

“The housing market is healing, and the drag from falling state and local government spending should be moderating.”

Consumers went into the recession carrying debt of nearly double the nation’s gross domestic product. That’s down to below 85% now, and on pace to approach 75% by late next year, Moody predicts.

Harvard economist Kenneth Rogoff said consumer debt is now headed in the right direction, but cautioned it might not translate quickly into more economic growth.

“The thing everybody grapples with is, ‘How much (debt) is normal?’ ” Rogoff said. “There will be a long memory of this crisis. It may be the biggest question mark in terms of trying to time this recovery.”

Revolving debt, mostly credit cards, has fallen 19% since 2007. Revolving balances dropped at a 6.8% seasonally adjusted annual pace in July, after falling 4.5% in June, the Fed said last week. Non-revolving debt has risen, mostly because of student loans.

If consumer spending doesn’t come back strongly, it might be because incomes are still well below where they were before the recession, and that households lost about $7 trillion of home equity as housing prices plummeted. That could make them keep the brakes on spending for a while longer, Hoyt said.

On the plus side, low interest rates have pushed the ratio of consumers’ monthly rent and debt payments to their income to the lowest level since 1984, American Bankers Association chief economist Jim Chessen said. That’s a function of slightly lower debt and much lower rates, he said.

“There’s a lot of pent-up demand,” Chessen said.

The Federal Reserve is still worried enough that it launched a third round of bond purchases last week, vowing to pump $40 billion a month into the economy until the 8.1% unemployment rate falls.

Fed Chairman Ben Bernanke said the move could encourage consumer spending, in part by bolstering housing values.

At the same time, members of the Fed’s interest rate-setting committee raised their economic forecasts for next year. Committee members think the economy will grow between 2.5% and 3% next year, up from earlier forecasts of 2.2% to 2.8%.

QE

QE in the US has again done what it’s always done- frighten investors and portfolio managers ‘out of the dollar’ and into the likes of gold and other commodities.

And because sufficient market participants believe it works to increase aggregate demand, it’s also boosted stocks and caused bonds to sell off, as markets discount a higher probability of higher growth, lower unemployment, and therefore fed rate hikes down the road.

But, of course, QE in fact does nothing for the economy apart from removing more interest income from the economy, particularly as the Fed adds relatively high yielding agency mortgages to its portfolio.

As ever, QE is a ‘crop failure’ for the dollar. It works to strengthen the dollar and weaken demand, reversing the initial knee jerk reactions described above.

But the QE myth runs deep, and in the past had taken a while for the initial responses to reverse, taking many months the first time, as fears ran as deep as headline news in China causing individuals to take action, and China itself reportedly letting its entire US T bill run off.

But with each successive QE initiative, the initial ‘sugar high’ is likely to wear off sooner. How soon this time, I can’t say.

Global austerity continues to restrict global aggregate demand, particularly in Europe where funding continues to be conditional on tight fiscal. Yes, their deficits are probably high enough for stability- if they’d leave them alone- but that’s about all.

And as the US continues towards the fiscal cliff the automatic spending cuts are already cutting corporate order books.

And oil prices are rising, and are now at the point cutting into aggregate demand in a meaningful way.

Yes, the US housing market is looking a tad better, and, if left alone, probably on a cyclical upturn. And modest top line growth, high unemployment keeping wages in check, and low discounts rates remains good for stocks, and bad for people working for a living.

Too many cross currents today for me to make any bets- maybe next week…

St. Louis Fed gets it?

Email from Scott Fullwiler:

Check this out . . .

“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.6 In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets”

Somehow they then go on to say that there can be crowding out if the US is not dependent on credit markets. Doh!

September FOMC Preview and fiscal cliff comments


Karim writes:
September FOMC Preview

Its hard to remember going into an FOMC meeting with as wide a range of outcomes and as wide an array of views on those outcomes from markets and economists.

In play:

  • Do nothing
  • Extend forward guidance (to what date?)
  • Cut IOER
  • Unsterilized asset purchases
    • Open-Ended, or defined amount and time period?
    • MBS and/or USTs?

My own, relatively low conviction, view is that they only extend forward guidance, to mid-2015, from the list above. I think there is a 40% probability they announce new LSAPs that would run concurrently with the end of Twist2. If they do additional LSAPs, I think there is a 40% they are open-ended in nature. If they do additional LSAPS (defined amount), I think it will be a 400bn program over 6mths made up of 75% MBS and 25% USTs. The odds of a cut in IOER would around 25% in my view.

Assuming extending forward guidance is a done deal, as hinted in the minutes, here are some of the pro’s and cons in terms of gauging the likelihood of additional asset purchases.

Pros

  • The term ‘monetary’ accommodation used in the last Minutes suggests more than just forward guidance is being considered: Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.
  • Bernanke used the term ‘grave concern’ at Jackson Hole to describe the state of the labor market and the last payroll report looked lousy.
  • He defended the use of QE at Jackson Hole, so if the outlook remains weak, why not do more?

Because he doesn’t want to pick a fight with China again, as per my May 2011 post.

Cons

  • The Fed states that policy works through financial channels and with most borrowing rates near record lows, and equity markets near 4yr highs, those channels are working well right now. Why mess with success?


Yes, he knows it’s about rates, not quantities, and that policy has caused the term structure of rates to be where it is. However, the channel that remains elusive is how low rates are transmitted to aggregate demand, claims of creating 3 million jobs not withstanding.

  • The outlook hasn’t changed much since June when they announced Twist2, so why act now?
  • Its 2mths before the election and the Fed is only a side campaign issue now. For an institution that craves it independence, why do anything that may risk that?

Open-ended purchases would likely be tied to the forecast (i.e., ‘the Fed will buy 150bn/mth of MBS and USTs until the Committee is able to forecast meeting its mandate within its forecast horizon’). The issue is the Fed doesn’t have a common forecast (it takes an average of 17 members to produce the SEP). That common forecast is a work in progress (a Committee headed by Yellen). So an open-ended program may take place, but probably not until next year.

Odds of an IOER cut are low just because Bernanke did not mention it at all at Jackson Hole.

About three months ago I suggested the fiscal cliff was too far away for markets to care.
But now it’s a lot closer, and close enough for those to be affected directly by govt spending cuts to be acting accordingly.

But that also means that at least some of that cliff is already being discounted which means:

It won’t be as bad as expected if it happens.
If it’s avoided there will be a boost to the economy not in current forecasts.

What Obama Has Wrought

Looks like potentially a good MMT proponent if anyone knows him?

What Obama Has Wrought

By Glen Ford

September 5 (BAR) — The meticulously scripted spectacles of the two corporate party conventions are very poor backdrops for clear thinking – but luckily, the ordeals are almost over. What remains after the tents are folded, are the crimes of this administration and its predecessor: both horrifically evil in their own ways. History will mark Obama as the more effective evil, mainly because of the lack of opposition.

Most people don’t want to be a perceived as party-poopers – which is why the principled folks that have protested the evil antics of the corporate, imperial parties, in Tampa and Charlotte, are so much to be admired. Frankly, who wants to be the one to point out, in the middle of the festivities, that Michelle Obama was just a Chicago Daley machine hack lawyer who was rewarded with a quarter million dollar a year job of neutralizing community complaints against the omnivorous University of Chicago Hospitals? She resigned from her $50,000 seat on the board of directors of Tree-House Foods, a major Wal-Mart supplier, early in her husband’s presidential campaign. But, once in the White House, the First Lady quickly returned to flaking for Wal-Mart, praising the anti-union “death star” behemoth’s inner city groceries offensive as part of her White House healthy foods booster duties.

She also serves on the board of the Chicago Council on Global Affairs, the corporate foreign policy outfit to which her husband dutifully reported, each year, in his pucker-up to the presidency. The Obamas are a global capital-loving couple, two cynical lawyers on hire to the wealthiest and the ghastliest. They are no nicer or nastier than the Romneys and the Ryans, although the man of the house bombs babies and keeps a kill list. Yet, former “green jobs” czar Van Jones, a convention night chatterer on CNN who was fired by Obama for no good reason, chokes up when he speaks of the Black family that fronts for America – a huge act of national camouflage.

It is as useless to anchor a serious political discussion to this year’s Democratic and Republican convention speeches, as to plan the liberation of humanity during Mardi Gras. Truth is no more welcome at the former than sobriety is at the latter. So, forget the conventions and their multi-layered lies. Here are a few highlights of what Barack Obama has inflicted on the nation and the world:

Preventive Detention

George Bush could not have pulled off such an evisceration of the Bill of Rights, if only because the Democrats and an aroused street would not have allowed it. Bush knew better than to mount a full-court legislative assault on habeas corpus, and instead simply asserted that preventive detention is inherent in the powers of the presidency during times of war. It was left to Obama to pass actual legislation nullifying domestic rule of law – with no serious Democratic opposition.

Redefining War

Obama “led from behind” a 7-month Euro-American air and proxy ground war against the sovereign nation of Libya, culminating in the murder, after many attempts, of the nation’s leader. The president informed Congress that the military operation was not subject to the War Powers Act, because it had not been a “war” at all, since no Americans were known to have been killed. The doctrine was thus established – again, with little Democratic opposition – that wars are defined by the extent of U.S. casualties, no matter how many thousands of foreigners are slaughtered.

War Without Borders

Obama’s drone war policies, greatly expanded from that inherited from Bush, have vastly undermined accepted standards of international law. This president reserves the right to strike against non-state targets anywhere in the world, with whatever technical means at his disposal, without regard to the imminence of threat to the United States. The doctrine constitutes an ongoing war against peace – the highest of all crimes, now an everyday practice of the U.S.

The Merger of Banks and State

The Obama administration, with the Federal Reserve functioning as a component of the executive branch, has funneled at least $16 trillion to domestic and international banking institutions, much of it through a virtually “free money” policy that could well become permanent. This ongoing “rescue” of finance capital is unprecedented in sheer scope and in the blurring of lines between Wall Street and the State. The routine transfer of multi-billions in securities and debts and assets of all kinds between the U.S. Treasury, the Federal Reserve and corporate accounts, has created de facto structures of governance that may be described as institutional forms of fascism.

These are world-shaking works of Obama-ism. Even Obama’s “lesser” crimes are astounding: his early calls for austerity and entitlement-axing (two weeks before his inauguration) and determined pursuit of a Grand Accommodation with the GOP (a $4 trillion deal that the Republicans rejected, in the summer of 2011) reveal a politician intent on ushering in a smoother, more rational corporate hegemony over a thoroughly pacified civil society. Part and parcel of that pacification is the de-professionalization of teaching – an ambition far beyond de-unionization.

Of course, Obama begins with the delegitimization of Black struggle, as in his 2004 Democratic Convention speech (”…there is no Black America…only the United States of America.”) To the extent that the nation’s most progressive, anti-war constituency can be neutralized, all of Obama’s corporate and military goals become more doable. The key to understanding America has always been race. With Obama, the corporate rulers have found the key that fits their needs at a time of (terminal) crisis. He is the more effective evil.