Beige Book Paints Negative Picture for 2009
The U.S. economy continued to weaken into 2009, the Federal Reserve's Beige Book report on Wednesday showed. Consumers appeared unswayed by deep holiday discounts, as reports of holiday retail sales were generally negative, though the Boston and New York districts noted sales picked up after the holidays.

Retail sales last month were down a record 9.8 percent compared with December 2007, Commerce Department data showed on Wednesday. Sales excluding automobiles and parts fell a record 6.7 percent in the past year.

The employment market also softened, with some regional Fed banks reporting pay freezes or even cuts in their districts, especially among financial institutions where year-end bonuses are likely to be down at least 20 percent to 30 percent. "Most districts noted reduced or low activity across a wide range of industries," according to the Fed's Beige Book. "Overall economic activity continued to weaken" across almost all regions, the report said.

"The Beige Book underscores the picture of a downturn that both private forecasters and Fed officials predict will be the longest since the 1930s," according to Bloomberg News. "Fed Chairman Ben S. Bernanke and his colleagues are forecast to keep the main interest rate close to zero and explore taking on more assets to unfreeze credit when they meet Jan. 27-28."

Economists surveyed by Bloomberg News added that they expect the economy will shrink 1.5 percent this year, which will discourage the raising of rates. The contraction is a half percentage point more than projected last month.

In another sign of the depth of the global economic slowdown, U.S. consumer prices increased just 0.1 percent in 2008, the smallest increase in 54 years, the Labor Department reported Friday. The consumer price index fell 0.7 percent in December, the third decline in a row, led by an 8.3 percent drop in energy prices and a 0.1 percent drop in food prices.

Industrial Output Plunges
The output of the nation's factories, mines and utilities plunged 2.0 percent in December, the Federal Reserve said Friday. Output in November was also much weaker than previously thought. Output fell 1.3 percent in November, more than double the 0.6 percent drop initially estimated. Output has fallen in four of the last five months.

Capacity utilization — a gauge of inflationary pressures — fell to 73.6 percent from 75.2 percent. This is the lowest level since December 2001. Industrial output fell at an 11.5 percent rate in the fourth quarter. Output was down 1.8 percent in 2008.

According to the Manufacturers Alliance/MAPI's Survey on the Business Outlook - December 2008, "Industrial activity is declining at an accelerating rate and is experiencing a more severe recession than the general economy. In the final three months of the year, for example, manufacturing production declined at a horrific 16 percent at annual rate."

The quarterly MAPI report predicts a continued struggle through at least mid-year.

China Cuts Taxes and Prices to Counteract Economic Slowdown
In a move to help struggling companies and motorists out of a deepening economic slump, China cut fuel prices for the second time in a month on Wednesday, the Associated Press reports. Gasoline prices will fall by 2 percent and diesel by 3.2 percent.

The National Development and Reform Commission's announcement "gave no details of how the cuts would translate into prices per gallon (liter) for different grades of fuel or in different parts of the country," the AP says. The latest "fuel price cuts come on top of 18 percent and 13.8 reductions for diesel and gasoline, respectively, on Dec. 19."

China's State Council also laid out a new plan to boost its steel and automotive industries, including about $1.5 billion to develop alternative-fuel vehicles. "China said it is halving the sales-tax rate on smaller cars and cutting retail prices for gasoline and diesel, moves that could help rev up demand for cars after several months of weakening sales," the Wall Street Journal reports (subscription required). To accompany the tax cut, the government said "it will offer five billion yuan ($732 million) in subsidies from March to encourage rural residents to replace old vehicles. It also said the government will improve financing for consumer purchases of vehicles."

The changes "add to a string of recent stimulus measures. Beijing also has announced interest-rate cuts and massive new spending plans to counteract an economic slowdown." China saw a sharp decline in exports in November and December as other major economies struggled, CNN notes. The World Bank estimates China's economic growth is about 7.5 percent, adding that rates below 6 percent could worsen the rest of the world's slump.

Prior to the current worldwide recession, China had experienced rapid growth and has taken over as the world's third largest economy. "The Chinese government revised its growth figures for 2007 from 11.9 percent to 13 percent [last week], bringing its estimated gross domestic product to $3.4 trillion," the World Bank estimates.

Beijing is expected to release its 2008 GDP figures this week.

Consumer Cutbacks and Layoffs Stuck in Downward Cycle
"The number of newly laid off workers seeking unemployment benefits rose more than expected last week, the latest sign the economy is shrinking and unlikely to rebound anytime soon," the Associated Press notes.

First-time applications for state unemployment benefits rose 54,000 to a seasonally adjusted 524,000 in the week ending Jan. 10, the Labor Department said Thursday. The four-week moving average of new claims fell 8,000 from the previous week's average of 526,500 to 518,500. Despite the drop, that total is 55 percent higher than the average during the same period in last year, MarketWatch reports. The four-week average of continuing claims rose 27,500 to 4.5 million — the highest level since.

One economist was quoted by the AP as having said that claims could reach 750,000 later this year and suggesting that claims are nowhere near their peak.

The jump in new unemployment claims come on the heels of the Fed's announcement that retail sales dropped sharply in December. "Economists said the reports illustrate that the economy remains stuck in a downward cycle: Consumers initially cut back spending in response to the housing and credit crises, slowing the economy and leading companies to lay off workers, which spurs even more caution among consumers," the AP says.

British Bank Bailout Expands, Manufacturing Output Shrinks
In addition to last week's rate cut (4th item), the British government expanded its bank bailout plan to allow the Bank of England to purchase a range of high-quality private-sector assets that could clear the way for the central bank to undertake "quantitative easing" in coming months, MarketWatch reports.

The U.K. government also announced Wednesday that it will guarantee up to £20 billion (US$29 billion) in loans to help all businesses survive the credit crunch. "U.K. companies are the lifeblood of the economy and it is crucial that government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side," Business Secretary Peter Mandelson said.

U.K. businesses are struggling right now, and the latest data from the Office for National Statistics (ONS) show British manufacturing output sank by the fastest pace in 27 years in November. The ONS said that a wider measure of industrial production, which includes mining, quarrying and energy, plunged 2.3 percent in November from October and was down 6.9 percent year-on-year.

CBP Releases Final Interim Ruling on 10+2 Initiative
On November 25, U.S. Customs and Border Protection (CBP) released its final interim ruling pertaining to the controversial 10+2 Importer Security Filing initiative intended to mitigate the risk of terrorism occurring on U.S. soil, J.P. Morgan reports.

Effective Jan. 26, 2009, all U.S. importers are expected to electronically file 10 data elements from the importer and two data elements from the carrier (hence "10+2") at least 24 hours prior to loading cargo onto a shipping vessel ultimately bound for the United States. For more on this, see: The 411 on 10+2 in 2009.

Peanut Butter Crackers May Contain Salmonella
U.S. health authorities told consumers over the weekend to avoid eating products that contain peanut butter until they can determine the scope of an outbreak of salmonella food poisoning that may have contributed to six deaths.

Peanut butter produced by Peanut Corporation of America, one of several peanut butter suppliers to the company, has been linked to an outbreak of salmonella poisoning that has affected at least 434 people in 43 states, federal health officials said Wednesday.

"The official toll from the outbreak across 43 states and Canada now stands at 470 people sickened, with six deaths that have been linked," reports U.S. News & World Report, which lists the latest recalls as of this morning.

Asian Automakers Reevaluate U.S. Supply Chain
"Asian automakers say they are reevaluating their U.S. supply chains out of concern for possible disruption through bankruptcies in the wake of a sharp drop in auto sales and the financial problems at General Motors and Chrysler," according to Agence France-Presse (via IndustryWeek).

Toyota Motor Corp., for example, is trying to identify suppliers that will potentially be impacted by a failure at one of the Detroit Three. The company has developed scenarios where it could keep U.S. production going, including finding alternative suppliers or financially assisting suppliers to help them avoid from closing shop.

At the same time, while the car manufacturers are trying to keep suppliers in business, a group of 2,200 Toyota managers has decided to buy the company's cars in an effort to help the company withstand the global economic crisis, a company spokesman said Jan. 14. The middle-level managers decided at a meeting last month to buy the new vehicles in their personal capacities by the end of March, a Toyota spokesman said.

The spokesman called it a voluntary effort, saying the company had played no role and would not force the managers to follow through on the plan. "It does not mean everyone in the group, which is essentially a fellowship association, would have to buy new cars," the company spokesman said.

For more on management and organizational leadership, check out tomorrow's IMT issue on Leading Through the Downturn.