Friday, January 28, 2011

The Fed in La-La Land, Again


Where to begin?

The Federal Open Market Committee’s latest word on the economy was released this week, and to read it you would have no idea we are in the middle of the strongest earnings season since the pre-crisis 2006-2007 boom.

Indeed, the FOMC text is so full of last-year’s-news and rear-view-mirror incantations it would appear that the Fed members who voted to approve it were too busy reading Paul Krugman/Nuriel Roubini end-of-the-world-as-we-know-it wailings to go out and visit some companies and hear what is, in reality, very good news on the hiring front, and some very worrisome news on the inflation front.

So, as a public service, we here at NotMakingThisUp decided to append to the Fed’s painfully misguided missive some actual comments from actual real companies—companies that, to paraphrase Jimmy Stewart’s George Bailey, do most of the hiring and firing and spending and growing in this economy of ours.


FOMC: Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.

ADP (Payroll processing): "I'm a member of the Business Roundtable in Washington, they put out a quarterly survey. And between the third-quarter and the fourth-quarter survey, which came out in December, the number of multinational companies expected to increase employment rose significantly to like 65%-70% from like 50% or whatever the number was in the third quarter.

"So clearly the trends for the larger companies, which have been the ones that have been in the bunker the most during this period of time, is clearly coming back the other way. Unemployment is down almost a point, every prognostication I read from the Economist is projecting another point improvement in the calendar year ahead. We're still seeing great activity in our screening and selection services, it's still up strong double digits over the same period last year. "

FOMC: Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Pier One Imports (Discretionary chotchkies): "Traffic is up, conversion is up, average unit retail is up, average ticket is up. We continue to enjoy success in all major merchandise categories and all regions of the country…

"I can tell you today that the sales momentum that we have experienced throughout this fiscal year has continued into December. Traffic, conversion and average ticket are all up over December last year on a month-to-date basis. Sales of our holiday merchandise are excellent with good sell-through rates to date."

FOMC: Business spending on equipment and software is rising, while investment in nonresidential structures is still weak.

SL Green (Manhattan office buildings): "Tenants known or rumored to be looking at space 200,000 square feet and above, include such firms as Nomura, UBS, Bank of America, Morgan Stanley, Hovis Advertising, J Crew, Credit Agricole, Oppenheimer and Company, Coach, Wells Fargo, WilmerHale, Morrison Foerster, in addition to many, many others. Anecdotally, I would say this activity is at the highest level I've seen in the market in any January, a traditionally slow month, exceeding anything I've seen and recall since 2006.

"The market momentum, generally, I would characterize as one of declining vacancy, obviously declining sublet availabilities, tenants with real requirements for big blocks, as I mentioned earlier, little to no new inventory being added, and very low interest rate environment and private sector and office-using job growth. That's a great confluence of factors…"

FOMC: Employers remain reluctant to add to payrolls.

Zoll Medical: "Hiring is on track with just over 110 reps…"
OPNET: "We plan on hiring additional quota carrying reps…"

Franklin Resources: "I would expect hiring to pick up."
AT&T: "We are starting to see some hiring."
Canadian Pacific: "[We are] hiring and training a significant number of new running trades employees…"
Norfolk Southern: "We’re continuing our targeted hiring and bringing on new locomotives in anticipation of future growth."
Quest Diagnostics: "We have filled a number of key sales positions…"
CSX: "During 2011 we plan to hire and train nearly 2,900 new union employees to offset attrition…"
Google: "We will invest in hiring even more product managers and engineers."
Union Pacific: "Hiring and training costs were higher as new employees were brought on to prepare for expected 2011 attrition and volume growth."


FOMC: The housing sector continues to be depressed.

[Editor’s Note: this is the one pure unvarnished truth in the statement, but not likely to remain so for very long. As Mario Gabelli succintly told Barron's recently, "Housing is going to recover because we produced roughly 500,000 homes last year, and demand is about 1,200,000."]


FOMC: Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Columbia Sportswear: "From petroleum affecting a lot of our yarns, our nylon, et cetera, and then of course, cotton…"
Energen: "Yeah cost has certainly gone up in the Permian Basin as demand for services on all levels has gone up."
Caterpillar: "So, yeah, commodity prices there are driving upward pressure…"
Newell Rubbermaid: "While we will look first to productivity to offset inflation, we plan to take targeted pricings as necessary to protect our margins, and, in fact, we have announced selective cost-driven pricing actions in all three operating segments…"
Danaher: "Just in the last 90 days, steel and related products up double-digit, some copper related products are up 20%."
Starbucks: "Increased coffee costs and transition costs…are pressuring margins in this segment."
Cooper: "Price/material inflation and several one-time unusual items impacted our fourth quarter gross margins, obviously."
Albermarle: "Full-year 2010 saw $78 million in raw material cost inflation. Roughly half of that was in metals and rare earths…"
Ethan Allen: "Raw material cost inflation is likely to remain a challenge…"
3M: "Raw material inflation was approximately 3% year-on-year…and we fully expect to offset raw material costs in 2011 with selling prices of our own."
P&G: "Higher year-on-year commodity costs reduced gross margin by 160 basis points. For perspective, on a weighted average basis, spot prices for our key materials and energy inputs are up more than 20% versus last year’s levels."

The Fed in La-La Land? It wouldn’t be the first time.

And, apparently, it won’t be the last.


Jeff Matthews
I Am Not Making This Up

© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

5 comments:

fivetonsflax said...

Dear Mr. Matthews,
You've been telling us the good news about economic recovery for how long now? And I'm sure things really do look good on your Bloomberg terminal.

But where are the jobs?

People will believe the economy is recovering when they see a sustained, significant increase in hiring, and not before.

BR said...

whistling past the graveyard ???

Anonymous said...

Fivetonsflax: unemployment numbers only come out after the data is collected. What Jeff is showing is what is happening at the moment which will eventually be shown by the data.

Anonymous said...

ADP says multinationals are the businesses who have been in the bunker. He may want to check the survey from the National Association of Independant Businesses. It shows they have been in the bunker for the longest time for a long while. Slow sales and slow hiring are some of the highlights.

Comments from the other sources do indicate much better conditions. Although cost pressure do seem to be overweighted towards the raw material category. Wages growth seem contained... So far.

Edgecliff said...

the operant word seems to be attrition. All those slacker boomers (myself being a prime example) are going to be dropping out of the work force or the job seeking numbers for retirement as fast as they can. These seem to be the numbers that Krugman et al are ignoring since they are conjectured values for now albeit not for long.