Tuesday, 15 April 2008

US retail sales rise even as pessimism increases

The US economy may be falling into recession but US retail sales on the whole did not fall in March, at least in nominal terms. Bloomberg reports:

Retail sales rose 0.2 percent, the Commerce Department said today in Washington. Economists surveyed by Bloomberg News had forecast no change. The figures also showed purchases excluding gas were unchanged. Companies' stocks of unsold goods rose 0.6 percent in February as sales dropped, a separate report showed.

Nevertheless, some retailers are pessimistic.

Some retailers aren't counting on a quick end to the U.S. economic slump.

"I don't think we're very optimistic about it ending anytime soon," J.C. Penney Co. Chief Executive Officer Myron Ullman said last week at the World Retail Congress in Barcelona. He reiterated that J.C. Penney plans to open 36 stores this year, down from an original plan of 50.

Economists and CEOs are pessimistic too.

The odds the economy will be in a recession in the next 12 months jumped to 70 percent in April from 50 percent in March, according to a monthly survey of economists by Bloomberg...

Chief executive officers last quarter grew more pessimistic about the economy, according to a report today from the New York- based Conference Board. The private research group's CEO index fell to 38, the lowest level in seven years, compared with 39 the previous three months. Readings less than 50 indicate more pessimistic than optimistic responses.

The good news for the US economy is that firms are relatively cash-rich. Bloomberg reports:

The U.S. economy has what Alan Greenspan calls one "major advantage" as it falls into a recession: Businesses are in far better financial shape than they were entering the past two contractions.

Corporations outside of financial services -- from Cisco Systems Inc. to Coca-Cola Co. -- have collectively socked away more than half a trillion dollars in cash. They have also reduced short-term debt and cut inventories to near record-low levels in relation to sales, leaving them better prepared than in the past to weather a contraction.

"We still have what, at the moment at least, appears to be a reasonably good real economy, as distinct from finance," the former Federal Reserve chairman said at an April 8 conference sponsored by Deutsche Bank AG and co-hosted by Bloomberg.

The current Fed chief, Ben S. Bernanke, sees it much the same. On April 2, he told lawmakers that aside from the banking and securities industries, corporate balance sheets are sound -- a "positive" for the economy...

The cash hoards mean companies aren't so dependent on battered banks for money to finance their operations. Debt as a percentage of net worth for non-financial companies outside of farming was 61.3 in the fourth quarter of last year, compared with 68 at the start of the 2001 recession and 93.6 in the 1990- 91 contraction, Fed figures show.

However, there is a dark side to firms' growing cash pile. Firms have more cash largely because they took it from households, their end customers. If their end customers are forced to reduce spending as a result, then, as JC Penny shows, firms could cut back too.

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