… More Bad News for Automakers, U.S. and Eurozone Manufacturing Update, Higher Job Losses Coincide with Higher Productivity and MORE.
Follow-up: Fannie and Freddie Get Government Boost
As expected, President Bush last week signed a housing bill “intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so,” according to the Associated Press. The legislation, regarded as the most significant housing bill in decades, is aimed at “providing an emergency safety net for mortgage giants Fannie Mae and Freddie Mac and helping several hundred thousand families avoid foreclosure,” MarketWatch reports.
Among the major components of the new law:
- Allowing homeowners who cannot afford their monthly payments to refinance into government-backed loans through the Federal Housing Administration (FHA);
- Extending a line of credit to the government-sponsored mortgage-finance titans Fannie Mae and Freddie Mac; and
- Modernizing the FHA, increasing the loan limit for FHA loans and increasing conforming-loan limits for Fannie and Freddie.
The Congressional Budget Office estimates that 400,000 families could be helped by the FHA refinancing program, though some observers worry that the housing package is too little too late.
Unemployment Rate Rises in July
The unemployment rate climbed to 5.7 percent in July, a four-year high, the United States Department of Labor announced on Friday. Jobs dropped by another 51,000 in manufacturing, construction, retail and temporary employment. Since December, 463,000 jobs have been lost, the strongest signal yet that the economy is in a recession.
Though the economy has now shed non-farm jobs for seven straight months, the decline in July was less severe than economists had expected. The only areas where jobs continued to see healthy job growth were health care, mining, education and government.
Underemployment, a more comprehensive measure of the extent of labor market weakness, rose to 10.3 percent, its highest level since 2003 and 1.7 points above its July 2007 level.
Job Losses Coincide with Productivity Uptick
The New York Times has pointed out that the “weak economy coincides with a sharp increase in labor productivity in the second quarter, which helps explain why employers have been shedding jobs.” Workers “are increasingly producing more in a day’s work than their employers can sell. That is partly because their employers prod them to do so, or introduce labor-saving devices.”
The Wall Street Journal (subscription required) likewise is led to the same conclusion, reporting, “Recessions don’t usually look like this, at least when it comes to productivity.” The Journal continues, “Some economists say the current healthy growth in productivity reflects a shift in the economy from less productive domestic sectors like home building and into exporting industries, which tend to be highly efficient.”
U.S. Manufacturing Unchanged In July
“In this month’s report, manufacturers indicate no change in overall business activity when comparing July to June,” Institute for Supply Management (ISM) Chair Norbert J Ore said upon the release of the latest Manufacturing ISM Report on Business.
The PMI registered 50 percent, 0.2 percentage point lower than the 50.2 percent reported in June. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A reading of 50 percent indicates no change from the previous month.
New orders fell to 45 from 49.6, the lowest level since October 2001. The Production Index increased to 52.9 percent in July, an increase of 1.4 percentage points from the 51.5 percent reported in June. Manufacturers’ inventories decreased in July as the Inventories Index registered 6.2 percentage points lower than in the month prior, thus reversing the one-month occurrence of inventory growth reported in June. The New Export Orders Index in July decreased 4.5 percentage points from June’s index. Imports of materials by manufacturers contracted during July, coming in 0.5 percentage point higher than the 46 percent reported in June.
Meanwhile, “the index of prices manufacturers pay for raw materials grew, but at a slower rate than June, when it hit its highest level since 1979,” the Associated Press reports. “About 88.5 percent of manufacturers said prices in July were higher than June. No commodities prices fell.”
Eurozone Manufacturing Index Revised Down
The Eurozone Purchasing Managers’ Index for July slid to 47.4 points in July, from 49.2 in June, down slightly from an initial estimate of 47.5, according to the seasonally adjusted RBS/Markit Eurozone Manufacturing Purchasing Managers’ Index on Friday (via Finfacts Ireland).
The drop, the steepest monthly fall since June 2003, and marked the second month running below the key 50-point threshold that indicates that activity is in contraction.
Among the member economies, faster declines were observed in France, Italy and Spain accompanied by near-stagnation in Germany.
U.S. New Light-Vehicle Sales to Drop
J.D. Power and Associates late last month forecasted new light-vehicle sales will drop to 14.2 million units in 2008, marking a 12 percent decrease from 16.1 million units in 2007.
J.D. Power reports:
The forecast revision — which represents a reduction of 750,000 units from 14.95 million projected earlier this year — is prompted by a deteriorating economic environment, prolonged effects wrought by the credit crisis, elevated gas prices and a reduction in the daily rental fleet market. Specifically, fleet sales are projected to drop to 2.6 million units — a 21 percent decrease from 2007. Retail sales, which are reflective of actual consumer behavior in the new-vehicle marketplace, are expected to decline by 10 percent to 11.6 million units.
“While the sluggish economy is the primary driver of the reduction in retail sales, fleet sales are expected to experience an even steeper decrease from 2007,” said Jeff Schuster, executive director of automotive forecasting for the market research firm.
More Bad News for GM
General Motors reported a second-quarter loss of $15.471 billion on Friday, citing hefty restructuring charges, a steep decline in U.S. sales and charges for job cuts, plant closings and the falling value of trucks and sport utility vehicles (SUVs).
International Herald Tribune reports: “GM, the largest American automaker, said it lost $6.3 billion on operations in the quarter that ended June 30, and its worldwide revenue fell 18 percent.”
Even more, GM’s North American quarterly revenue totaled $19.8 billion, down nearly $10 billion compared with the same period a year earlier.
Also on Friday, Chrysler LLC posted “the biggest loss of any automaker in July sales,” Automotive News reports. The company reported a 29 percent drop in July U.S. sales to 98,109 vehicles from 137,728 in July 2007. Car sales dropped approximately 25 percent while truck sales slid nearly 30 percent, according to AFP. “The automaker noted that total July sales reflect a continued contraction of the market of pickup trucks and sport utility vehicle sales and reductions in fleet sales,” MarketWatch reports.
The automaker’s overall 28.8 percent plunge slightly exceeded GM’s 26.1 percent decline.
U.S. Automotive Bringing Dragging Down Nissan with It
“Even though Nissan’s July sales were better than those of any other major automaker in the U.S., this country’s turbulent automotive market is dragging down Nissan Motor Co. earnings,” reports the Detroit Free Press. The automaker now finds itself having to cut production and reduce total employment.
Last week, Nissan offered to buy out about 1,200 hourly and salaried employees at its Tennessee factories, pointing to slow sales of full-sized pickups and SUVs as the culprit.
On Friday, Nissan announced its Q2 net income dropped 42.8 percent but its July vehicle sales increased 8.5 percent during a month when even Toyota reported an 11 percent sales decline.