I’m a sap for the holidays.
Most of us are.
It’d be nice if we could just forget about the numbers and instead focus on good cheer. But on the tail end of the worst economic downturn in a generation, it’s tough to suspend the harsh realities in favor of white Christmas.
Sorry, Bing.
Today, old St. Nick is delivering a bag full of numbers to Wall Street and beyond.
Perhaps the most significant is the re-calibration of the third-quarter GDP (Gross National Product) computation. Dead reckoning had posted the growth rate in the world’s largest economy at 2.8 percent for the period from July through September. This followed a contraction of .7 percent for the prior quarter.
The Commerce Dept. has now adjusted its growth estimates downward to only 2.2 percent.
It is the second time in as many months that the government has revised its third quarter GDP calculations. Last month, the department corrected its third-quarter GDP growth estimate to 2.8 percent from an originally reported 3.5 percent.
Being Negatively Innovative?
This slower than anticipated pace confirmed that companies continued to curb spending and cut inventories during the third quarter. While this may set the stage for accelerated expansion during this final quarter of the year and ones that follow, it’s an indication that the investment climate still remains tepid at best.
Today’s numbers seemed to bear out that the economy grew as the government's stimulus boosted consumer spending. The growth figures also substantiated the notion that growth was more attributable to price increases in energy and basic staples rather than an overall volume in purchases.
Despite the downward adjustment, this morning’s report verified that corporate profits after taxes, without inventory valuation and capital consumption adjustments, rose 13.8 percent in the third quarter. Profits with inventory valuation and capital consumption adjustments rose by 10.8 percent in the July-to-September period, the biggest increase since the first quarter of 2004.
The Commerce Dept. report, however, corroborates that companies have been cutting costs and posting higher profits by slashing jobs, leading to a spike in unemployment.
Although the unemployment rate last month fell to 10 percent, from a 26-year high of 10.2 percent in October, most forecasters believe the jobless rate will remain above 10 percent through the first half of next year. This is one reason Federal Reserve policymakers said last week they would keep their benchmark interest rate low for an “extended period.”
Retailers such as Best Buy are using deep discounts to boost holiday sales and blow out inventory. With the unexpected winter storms that have ripped through the East Coast this week, retailers are extending their hours in the hope that they regain the momentum lost to the inclement weather.
The blizzard conditions snarled roads, cut off power and kept people huddled at home across a dozen states. The worst-hit areas typically accounting for about 25 percent of most national retail chain sales. With consumers already shortening the reins on their holiday shopping, retailers can ill afford another hit.
Weather Thou Goest
“Super Saturday” sales typically account for about $15 billion, making it one of the top few shopping days of the year. Approximately one-third of “Super Saturday” sales are attributed to the Eastern Seaboard, particularly the Northeast. While retail traffic was trending up over last year, the storms have thrown a wrench into already shaky sales numbers.
On the flip side of the equation, the harsh weather conditions may prove a boon for online retailers and shippers. With the deadline for inexpensive shipping now gone, last minute shoppers will have little choice but to pay a premium if they want their holiday gifts to make it under the tree on time.
This is great news for FedEx, but may be a mixed blessing for the retailers. Shipping costs cut into size and volume of consumer purchases.
It looks as if Santa is still going to be busy. But his sack will likely be a little lighter.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
