Thread: US CEOs Take Darker View of Economy, See More Jobs Cuts

US CEOs Take Darker View of Economy, See More Jobs Cuts

Thursday, 29 Sep 2011 11:30 AM

Spooked by the United States' recent budget standoff in Washington and the European debt crisis, U.S. chief executives' view of the economy deteriorated sharply in the third quarter, a survey released on Thursday found.

Corporate chieftains told the Business Roundtable that they had become more likely to cut jobs over the next six months, and fewer expected to boost their companies' sales and capital spending over that time.

The group's CEO Economic Outlook index dropped for a second consecutive quarter to 77.6, its lowest reading since the fourth quarter of 2009. It remained above 50 — which separates forecasts of growth from decline — and a bit below the index's average of 79.2 over its near-decade history.

"This past quarter was a challenging one for our economy," said Boeing Co. CEO Jim McNerney, who chairs the Roundtable. "It brought high oil prices, continuing European sovereign debt crisis, our own debt-ceiling debate and the S&P downgrade in the U.S., which in sum added to an already uncertain economic and business environment."

A quarterly survey by the Business Roundtable found that 24 percent of CEOs expected to cut jobs in the U.S. over the next six months, more than double the 11 percent who had forecast that in the second quarter. Thirty-six percent expected to add jobs, down from 51 percent in the second quarter.

Persistently high U.S. unemployment, which hovers around 9 percent, is blamed for the nation's prolonged economic sluggishness and is shaping up as a key issue in next year's presidential election.

The number of CEOs who expected their companies' sales to rise over the next six months fell to 65 percent from 87 percent and the number who expect to boost capital spending fell to 32 percent from 61 percent.

Overall, CEOs look for real U.S. gross domestic product to rise 1.8 percent this year, sharply lower than the 2.8 percent growth forecast in March.

Their worry stood in contrast to a report from the Commerce Department that found U.S. GDP rose 1.3 percent in the second quarter, up from a previously reported 1 percent.

WORRIED "CHEERLEADERS"

The darkening collective view from the 140 CEOs surveyed from August 29 through September 16 is at odds with the rosier picture that individual executives present to investors and the media.

Even as investor worries have sent the broad Standard & Poor's 500 index, down 14 percent since mid-July, some CEOs have insisted publicly that they are not worried that the nation's economy is at risk of slipping back into a downturn.

"In the U.S., we're still seeing economic expansion," Ford Motor Co. CEO Alan Mulally told a small group of reporters in Bangkok on Thursday. "We're very encouraged by the recovery even though it is slower than in the past."

Likewise, the chief financial officer of Nationwide Mutual Insurance Co., one of the country's largest home and auto insurers, said: "Any kind of continued economic slowdown will put pressure on the business, but for us we've seen some pretty positive trends in the third quarter."

Other CEOs have urged people to tune out the recession worries that have contributed to market volatility.

"My advice to you is that your life would be better if you didn't watch TV or read the paper," General Electric Co. CEO Jeff Immelt told students at Dartmouth College in August. The line has become a regular feature of his public comments since the largest U.S. conglomerate sold a majority stake in its NBC Universal media business.

The mismatch is to be expected from a group whose jobs include trying to drive up their companies' stock prices, said one investor.

"They have to be cheerleaders, that's part of their jobs. And it's part of our jobs to be professional skeptics," said Peter Klein, a senior portfolio manager at Fifth Third Asset Management in Cleveland.

"There's a lot of denial that goes on until there's no more denial ... As an investor you have to really discount a lot of that stuff as you hear it."

Boeing's McNerney said the contrast reflects executives' view that the economy is not as weak as investors believe.

"When we're interviewed a lot of times, because the employment situation is so difficult and because the political environment is so difficult, a lot of the questions come from a very negative place," he told reporters. "So we end up sounding a little positive because our companies are in fact expanding."

PULLBACK FROM RECORD HIGH

For most of the past two-and-a-half years, the CEO Outlook index had been recovering from the record low of negative 5 hit in the first quarter of 2009, in the immediate aftermath of the financial crisis that brought down Bear Stearns and Lehman Brothers. Early this year, it reached 113, its highest since the group started taking the survey in December 2002.

Regardless of the mismatch, investors will get a more detailed view of corporate America's health in the next few weeks when a wave of big public companies begin reporting third-quarter results.

http://www.moneynews.com/Headline/USCEO ... /id/412703

Stagnant US Jobs Market Bodes Ill for World Economy

Thursday, 29 Sep 2011 12:44 PM

Record-high long-term unemployment is testing politicians and central bankers to the utmost as the impact of a shortfall in demand is amplified by an ageing population, a mismatch of skills and inadequate efforts to get people back to work.

That's a summary not of Europe, typically associated with rigid hiring and firing laws and excessive non-wage costs, but of the United States, long renowned for a labor market as dynamic as its entrepreneurs.

America's jobs machine is now spluttering badly, an ominous development for businesses worldwide hoping for a revival in the world's largest economy to relieve the gloom cast by the euro zone debt crisis.

Figures due on Oct. 7 are likely to show the unemployment rate stuck at 9.1 percent in October despite near-zero interest rates. Alarmingly, an unprecedented 30 percent of the jobless have been out of work for a year — a stagnant pool of workers whose job prospects can only decline as their skills rust.

"There is clearly a risk for the United States of repeating the experience in European countries of cyclical unemployment turning into structural unemployment," said Mark Keese, head of the employment analysis division at the Organization for Economic Cooperation and Development in Paris.

In a welcome piece of good news, figures on Thursday showed U.S. jobless claims fell by almost 40,000 last week — more steeply than expected.

SOMETHING'S UP

Disentangling the cyclical and structural reasons for the jump in long-term unemployment is difficult, especially because rapid technological change and globalization are muddying the jobs picture.

Those who see the deterioration as mainly due to the scars left by the deepest recession in 80 years say it is natural that employers will be reluctant to hire until they have more confidence that demand is strengthening.

Chris Probyn, chief economist at State Street Global Advisors, said the relationship between job vacancies and unemployed workers showed scant evidence of structural change in the labor market.

"Most all of the unemployment in the United States at the moment appears to be cyclical — a lack of demand," he said.

The OECD, a group of 34 industrial democracies, is less sure. Its researchers tentatively identify powerful forces at play.

"My deep view is that something has changed, and structural unemployment is higher than it used to be," said Romain Duval, head of the OECD's structural surveillance division.

That 'something' has set alarm bells ringing in Washington. President Barack Obama, facing re-election in just over a year, has proposed a $447 billion jobs package, while some Federal Reserve policymakers are exploring linking the central bank's monetary policy stance to hitting a specific jobless rate.

Chicago Fed President Charles Evans suggested on Sept. 7 promising to keep interest rates very low until unemployment falls to 7.5 percent or even lower, as long as inflation stays below 3 percent.

Getting unemployment down to pre-crisis levels was always going to be a long haul after a recession that cost one in six American workers their jobs. What makes the task even more daunting is evidence that the labor market might simply not be functioning as smoothly as it used to.

The median spell of unemployment reached 35 weeks during the 2007-2009 recession, up from about 10 weeks in previous downturns, according to Henry Farber, a Princeton University economics professor.

"It is clear that the dynamics of unemployment in the Great Recession are fundamentally different from unemployment dynamics in earlier recessions," he wrote in a working paper.

THE CANADIAN CONUNDRUM

One sign of the shifting sands is the time it takes someone who is laid off to find a new job or leave the work force.

This "outflow rate" has been on a clear downward trend in the past three decades in the United States, whereas it has been more or less constant for 40 years in neighboring Canada, according to the OECD.

"Why don't we see the same thing in Canada as in the U.S.?" a puzzled Duval asked rhetorically. "This raises questions to which we have no immediate answers."

An out-of-work American now has about a 15 percent probability of leaving unemployment within a month - well below levels observed in previous major recessions. In Canada, the chances of getting a job in that time have averaged about 33 percent since 2008.

In Germany, too, economists say success in getting the long-term unemployed back to work is one reason for the remarkable resilience of the country's labor market. The unemployment rate in September fell to 6.9 percent, the lowest since reunification twenty years ago, the government said on Thursday.

The biggest structural headwind facing the United States is demographic.

About half of the increase in average duration of unemployment between the mid-1980s and mid-2000s can be explained by the graying of the work force — youths tend to have shorter spells out of work — and by more women joining the labor force, according to Daniel Aaronson and fellow researchers at the Chicago Fed.

In a paper published last year, Aaronson reckoned another 10 percent to 25 percent was due to extensions in jobless insurance benefits, which can act as a disincentive to find work, and the rest to weak demand for labor.

LESSONS TO BE LEARNED

Precisely because the reasons are unclear, the OECD says the case for learning from best practice is compelling for the ten or so of its member states, including the United States, that have recorded a significant rise in long-term joblessness.

• Budgets permitting, governments can do more to help the unemployed back to work. The United States spends only 0.16 percent of GDP on active labor market policies, such as training programs and job search assistance, compared with an OECD average of 0.62 percent.

• Several countries have managed to cushion the impact of the crisis on jobs through government-subsidized short-time working. Firms were able to retain skilled workers who could then immediately meet the subsequent upturn in demand. Such schemes saved 234,000 jobs in Germany and 416,000 in Japan, researchers estimate.

• The recession also makes a compelling case for investing more in education and lifelong learning as globalization and technological change hollow out jobs calling for mid-range skills: the job loss rate for U.S. workers with 12 years of education was 19.4 percent in 2007-2009; for those with at least 16 years of education, it was 11.0 percent, according to Princeton's Farber.

Yet whereas more and more women in the West are completing college, the rate of increase among males is anemic — a chilling prospect in Washington and other capitals facing a shortage of skilled industrial workers as baby-boomers retire.

"This exacerbates rising wage inequality and retards the growth of advanced economies, which depend on their best-educated workers to develop and commercialize the innovative ideas that drive economic growth," wrote David Autor, an economics professor at the Massachusetts Institute of Technology.

http://www.moneynews.com/Economy/Stagna ... /id/412718

Fed Chief: Congress Must Fight ‘National Crisis’ of Unemployment

Thursday, 29 Sep 2011 06:56 AM

Federal Reserve Chairman Ben Bernanke said that long-term unemployment is a "national crisis" and suggested that Congress should take further action to combat it.

He also said lawmakers should provide more help to the battered housing industry.

Bernanke noted that about 45 percent of the unemployed have been out of work for at least six months.

"This is unheard of," he said in a question-and-answer session after a speech in Cleveland. "This has never happened in the post-war period in the United States. They are losing the skills they had, they are losing their connections, their attachment to the labor force."

He added: "The unemployment situation we have, the job situation, is really a national crisis."

Bernanke said the government needs to provide support to help the long-term unemployed retrain for jobs and find work. And he suggested that Congress should take more responsibility.

Responding to a question, Bernanke said long-term unemployment, budgetary discipline and housing policy were the three most important areas where Congress could contribute to an economic recovery.

"There are certainly some areas where other policymakers could contribute," he said.

Bernanke's comments were his latest in a public effort to get Congress to act further to rejuvenate the economy. He suggested that the Fed can achieve only so much through policies that seek to lower long-term interest rates.

"The Federal Reserve has made enormous efforts to try to help this economy recover and stabilize" though its control of interest rates, or monetary policy, he said. Those policies have driven rates to record lows.

"Monetary policy can do a lot, but monetary policy is not a panacea," Bernanke said.

On the housing crisis, Bernanke said strong government programs to help the industry recover would aid the Fed's own efforts to boost housing by driving mortgage rates to their lowest levels in decades.

In his speech, Bernanke said the United States and other rich nations could re-learn a few lessons from fast-growing developing nations.

He said the successful emerging economies such as China had adopted disciplined budget policies, embraced freed trade, made public investments and supported education.

"Advanced economies like the United States would do well to re-learn some of the lessons from the experiences of the emerging market economies, such as the importance of disciplined fiscal policies," Bernanke said.

But in the question-and-answer period, Bernanke cautioned U.S. lawmakers against cutting deficits too quickly to reduce budget deficits. He has said that could put the fragile economy at risk.

Bernanke noted in his speech that emerging markets such as China account for a large and growing share of the global economy, so they need to act accordingly.

"With increasing size and influence comes greater responsibility," Bernanke said.

Emerging nations will be challenged in the future by their reliance on exports to drive growth, he said..

The Obama administration has been pushing the Group of 20 major economies, which includes traditional powers such as the United States and emerging economies such as China, Brazil and India, to boost domestic demand rather than relying so heavily on exports to rich nations.

http://www.moneynews.com/StreetTalk/Ber ... /id/412659

High Unemployment Thrives Amid Sluggish Economy

Thursday, 29 Sep 2011 01:25 PM

The economy is showing signs of modest improvement — not enough to reduce high unemployment but enough to ease fears that another recession might be near.

Fewer people applied for unemployment benefits last week, though some of that was due to technical factors. And the economy grew slightly more in the April-June quarter than previously estimated. Growth is also expected to tick up in coming months.

Investors drew some hope from the latest data, as well as from news that Germany's government approved a plan to bolster Europe's response to its debt crisis. The Dow Jones industrial average surged 163 points in mid-day trading.

Other news Thursday was less encouraging. Chief executives of the nation's largest companies are more pessimistic than they were just three months ago, according to a survey by a trade group, the Business Roundtable.

Only about one-third of the CEOs said they plan to hire or boost spending in the next six months. That's down from about half who said so in June.

And fewer Americans signed contracts to buy homes in August, the second straight month of declines. The National Association of Realtors said its index of sales agreements fell 1.2 percent to 88.6. A reading of 100 is considered healthy.

The economy expanded at an annual rate of 1.3 percent in the April-June quarter, up from an estimate of 1 percent made a month ago, the Commerce Department said. The improvement reflected modestly higher consumer spending and a bigger boost from trade.

Even so, the economy grew at an annual rate of just 0.9 percent in the first six months of the year. That's the weakest six-month performance since the recession ended more than two years ago.

Most economists don't expect another recession, but they also don't see growth accelerating much. Many predict a rebound to between 2 percent and 2.5 percent growth in the current quarter.

"Growth remains sluggish and insufficient to reduce the unemployment rate," Ryan Sweet, an economist at Moody's Analytics, said in a note to clients.

The unemployment rate was stuck at 9.1 percent in August for the second straight month. Employers didn't add any jobs in August — the weakest showing in nearly a year.

Even though growth has probably strengthened a bit in the July-September quarter, the economy suffered shocks that will restrain growth in the final quarter of this year, economists say.

In August, consumer confidence plunged after lawmakers battled over raising the government's borrowing limit and Standard & Poor's cut its rating on long-term U.S. debt. That sent the stock market sharply lower, which hurts consumers' ability to spend.

Retail sales were flat in August, a sign the turmoil caused consumers to pull back.

Businesses and investors are also worried that Europe won't be able to prevent Greece from defaulting and worsening the region's debt crisis. Those fears sent the U.S. stock market down 6.4 percent last week, its biggest weekly loss since October 2008, in the midst of the financial crisis.

If Greece defaults, that could destabilize other indebted countries, such as Portugal, Ireland and Italy. It could also harm many of Europe's banks, which own Greek debt.

And if European banks hoard cash to make up for their losses and stop lending to their U.S. counterparts, that could restrict credit in the United States and slow the economy. And a financial crisis in Europe would reduce U.S. companies' exports and sales to the region.

The slow growth and turmoil have raised fears that the U.S. economy could enter another recession. Some economists put the odds as high as 40 percent.

Weekly applications dropped 37,000 to a seasonally adjusted 391,000, the Labor Department said Thursday. That's the lowest level since April 2 and the first time applications have fallen below 400,000 since Aug. 6.

Some of the improvement was due to technical factors related to the seasonal adjustment of the data, a Labor Department spokesman said. The spokesman also said some states reported higher applications in previous weeks due to Hurricane Irene.

As a result, the drop in applications for unemployment benefits "may not be as encouraging as it looks," said Paul Dales, an economist at Capital Economics. "Further falls will be needed before we can conclude a downward trend is under way."

http://www.moneynews.com/Economy/Econom ... /id/412727