U.S. economy contracts in Q3 October 31, 2008
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The U.S. economy contracted in the third quarter, posting its biggest drop in seven years.
The U.S. Commerce Department said Thursday the economy shrank at an annualized rate of 0.3 per cent in the July-September period. It was the sharpest contraction for the U.S. economy since a 1.4 per cent annualized drop in the same quarter of 2001 during a recession.
The drop, however, was not quite as big as economists had been projecting; they had been looking for an annualized contraction of 0.5 per cent.
Anxiety over the state of the economy showed up in the report as consumer spending fell by its biggest amount in 28 years, tumbling at an annualized pace of 3.1 per cent. That was the worst reading on consumer spending since 1980, when the U.S. was in another recession.
U.S. consumer spending had not declined in the previous 17 years, economists at BMO Capital Markets said.
The negative economic figure could signal the onset of recession in the U.S. A recession is classically defined as two consecutive quarters of economic contraction.
Economists are looking for contractions in gross domestic product ? the broadest measure of economic activity ? for both the fourth quarter of this year and the first quarter of 2009.
“As the credit squeeze tightened its already firm grip on the U.S. economy after mid-September?s bankruptcy of Lehman Brothers, GDP growth appears to have taken another major step down,” said BMO Capital Markets economist Michael Gregory.
“Although we can quibble over when it officially started, the U.S. economy is in a deepening recession,” he said.
The third-quarter shrinkage was a sharp reversal from the second quarter, when the U.S. economy rose at a 2.8 per cent annualized rate.
Touched off by the subprime mortgage meltdown, the U.S. economy has been battered by a slumping housing sector and a credit crisis that has spread around the world.
On Wednesday, the U.S. central bank ? the Federal Reserve ? cut a key lending rate by one-half of a percentage point to one per cent, a four-year low, in a bid to spur the economy.
Millan Mulraine, economics strategist at TD Securities, said she expects the Federal Reserve to cut interest rates further with reductions of one-quarter of a percentage point at each of the next two scheduled meetings.
Canada’s GDP report for August is due to be release at 8:30 a.m. ET on Oct. 31.
Auctioneer Ritchie Bros. posts record 9-month profit October 31, 2008
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In a sign of tough economic times, industrial auction house Ritchie Brothers posted record earnings for the first nine months of the year, despite seeing its third-quarter profit stagnate.
The Richmond, B.C.-based auctioneer earned $74.3 million, or 70 cents a share, for the nine months ended Sept. 30, 2008. That represented a 14 per cent improvement compared with a profit of $67.0 million in the first three quarters of 2007.
For the most recent three months, Ritchie’s earnings dipped slightly to $11.9 million, or 11 cents a share, compared with $14.9 million for the same quarter one year earlier.
Ritchie benefited in recent quarters as more firms and individuals sell land and equipment either in distressed sales or just to pay the operating bills.
Three-month stock chart for Ritchie Brothers Auctioneers Inc.
“With so many companies facing liquidity challenges right now, our value proposition is more compelling than ever,” said Ritchie’s chief executive officer Peter Blake.
So far, this year, Ritchie has sold more than 27,000 consignments at 257 industrial and agricultural auctions. These events generated $2.7 billion in gross receipts, up 17 per cent compared with the same nine months last year.
In the July-to-September quarter, Ritchie also saw its gross auction proceeds jump 15 per cent.
Ritchie has sold everything from farm combines to hydraulic excavators to a nine-hole golf course near Boyle, Alta., in a bidding process either at physical events or over the internet.
Changes will increase choice for Canadian TV viewers: CRTC October 31, 2008
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Canada’s broadcast regulator unveiled a raft of small changes on Thursday rather than the major overhaul some had expected following the CRTC’s first significant review of TV distribution to Canadian viewers in nearly a decade.
Simplifying how TV channels are packaged and supporting local programming were among the top issues the Canadian Radio-television and Telecommunications Commission emphasized in its changes.
“We have streamlined a number of rules and eliminated those that were no longer necessary,” CRTC chair Konrad von Finckenstein said in a statement.
“These measures will contribute to a more dynamic broadcasting system, which will be in a better position to respond to the opportunities and challenges presented by new media. They will also make it easier for viewers to choose the programs they want.”
The CRTC will eliminate most of the rules governing how channels are packaged by broadcast distributors, cable and satellite companies like Rogers, Shaw and Bell ExpressVu.
Currently, companies offer a basic cable package and “bundles” of additional channels. The new rules pave the way for distributors to offer channels in an à la carte fashion (as long as the overall package has 51 per cent Canadian content).
This gives viewers more direct choice in their subscriptions, the commission said.
Local voices
The reduction of local programming in recent years was a key theme during hearings the CRTC held in April. In response, the regulator has introduced a new fund to support the creation of local content.
Broadcast distributors currently provide five per cent of their revenues to fund the production of Canadian programming. On Thursday, the CRTC increased the amount to six per cent, with the new allocation to benefit its new Local Programming Improvement Fund.
“The desire for better local programming in Canada’s smaller markets was clearly made evident during this proceeding,” von Finckenstein said.
Ian Morrison, spokesman for Friends of Canadian Broadcasting, said the decision is good for Canadian viewers.
He said the federal regulator had rejected most of the cable industry’s demands for greater powers to decide what’s on TV.
“The CRTC has listened to advice that the cable monopolies and satellite companies are too powerful to be allowed even more discretion to control what’s on TV,” Morrison said in a statement.
Morrison also welcomed the creation of the local programming fund, which will help support production of news and other local content in markets with fewer than one million people.
The CRTC said the additional cost of the fund ? to total $60 million ? should not be passed to subscribers.
Increased competition for sports, news
Thursday’s decision also lifted the current limit on mainstream national news and sports channels, thus allowing the launch of new entries to join the likes of CBC Newsworld and CTV Newsnet, or TSN and Sportsnet.
Among the demands rejected was the cable firm’s call to eliminate all genre protection for specialty channels and to allow U.S. genre channels such as ESPN and HBO to compete with Canadian ones.
The commission decided not to open up other genres to competition yet, but the option remains on the table for future review.
Specialty channels will have more flexibility in the types of programming they are allowed ? up to 10 per cent of their shows can be of a different genre. Thus a sports network would be able to show, for example, up to 10 per cent movies.
No to carriage fees
Among other major decisions, the CRTC turned down the controversial fee-for-carriage proposal, in which conventional broadcasters called for broadcast distributors to pay them for carrying their over-the-air signals.
Distributors already pay subscriber fees to specialty and pay channels for the right to carry their signals. Traditional over-the-air broadcasters like CTV, Global and CBC had argued that they too should be paid for their content.
However, the distributors argued that these additional fees would be passed on to the consumers, who would likely be further turned off of the struggling TV industry.
Ken Engelhart, senior vice-president of regulatory affairs at cable company Rogers Communications, said it was a relief to see the idea of fee-for-carriage had been rejected.
He said the CRTC is moving in the right direction on deregulation but had not moved as far down that road as Rogers might have liked.
“We’ve got a little more flexibility on access and a little more flexibility on what we offer to customers,” he said. “Instead of a lot of different rules, they’ve just said the majority of channels must be Canadian, full stop.”
He warned Canadians cannot expect a-la-carte service on analogue channels, but there would be more choice when digital is fully rolled out in 2011.
Rogers also welcomed the prospect of new rules related to advertising in foreign programming on specialty channels and pay-TV. Another hearing will be held before those rules are spelled out.
Broadcasters may be happy to hear that the CRTC will now permit them to negotiate payment when distributors carry their signals to other regions ? a popular TV feature known as time-shifting, which allows viewers to watch programming originally destined for other provinces.
The CRTC gave the industry a comfortable span of time in which to adopt the new changes: Aug. 31, 2011, to coincide with the Canadian TV industry’s switch from analog, over-the-air broadcasting to digital.
ACTRA, the union representing Canadian actors, said it was relieved the CRTC did not give way to cable firms’ demands for more deregulation.
“We’ve seen what happened when broadcasting regulations were relaxed,” ACTRA national executive director Steve Waddell said.
“Canadian drama all but disappeared from conventional channels when expenditure and programming requirements were dropped in 1999. We’re relieved that the CRTC is not making the same mistake in cable and specialty.”
Waddell also welcomed the increase in the fund to create Canadian programming, and said he hoped to see higher expenditure requirements for over-the-air broadcasters after hearings this spring.
U.S. Fed cuts rates half a percentage point to boost economy October 30, 2008
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The U.S. Federal Reserve sliced its key interest rate by half a percentage point to one per cent ? the lowest rate in four years ? on Wednesday in yet another bid to loosen global credit markets and kick-start an increasingly moribund economy.
The Open Market Committee, the group within the U.S. central bank that decides on the direction of interest rates, dropped the fed funds rate by fifty basis points, the second such cut in October.
The one per cent Fed funds rate is the lowest level for borrowing costs since June 2004, when the central bank had rates at that same level.
The U.S. Federal Reserve said the economic picture is darkening, with further financial deterioration a distinct possibility.
“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports.
“Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit,” the central bank said in a press statement.
Since the global financial crisis began in earnest in September, governments from Japan to Iceland and everywhere in between have been forced to take over banks, shovel extra liquidity into the monetary marketplace and cut interest rates. They are trying to prevent a financial crisis from becoming a major industrialized recession.
The Federal Reserve has been cutting its interest rates aggressively in a bid to get borrowers borrowing and lenders lending once again.
Lower interest rates often lead to more economic activity in various sectors.
Wednesday’s cut announcement did not outweigh continued economic concerns and could not keep the influential Dow Jones Industrial Index out of negative territory.
The Dow slipped 74 points to end the trading session at about 8,991.
Many analysts had forecast Wednesday’s 50-basis-point rate cut. Still, there was a one-in-four chance that Ben Bernanke’s Federal Reserve would knock rates down by 75 basis points, driving borrowing costs below one per cent for the first time in American history.
The U.S. economy is already on track to shrink by 1.1 per cent in the third quarter of this year and by a further two per cent in the final three months of 2008, according to BMO Capital Markets.
Worse still, the American economy, which actually will grow by 1.3 per cent over the entire 2008, will contract in 2009, by 0.2 per cent.
PepsiCo snacks on Spitz seeds October 30, 2008
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Food and beverage giant PepsiCo has acquired Spitz International Inc., an Alberta company two Dutch immigrants cultivated into Canada’s leading brand of sunflower and pumpkin seeds.
The details of the deal were not released Wednesday, but PepsiCo said Spitz will fall under its Frito-Lay North America division.
‘We’ll certainly be part of a larger organization, but that gives us the resources to do some bigger things.’?Myles Hamilton, Spitz vice-president
The Canadian company will continue to operate out of its production centre and head office in Bow Island, about 350 kilometres southeast of Calgary, and keep its distribution centre in Medicine Hat.
The acquisition will expand Frito-Lay’s “growing portfolio of healthier snack options,” said a PepsiCo news release. Frito-Lay’s snack food business rakes in $11 billion US a year.
Tom and Emmy Droog founded Spitz International in 1982, when they began growing sunflowers in Bow Island and marketing the seeds as bird feed. They soon realized there was a market for flavoured sunflower seeds packaged in resealable bags.
Spitz sunflower seeds are available in six flavours including chili lime and spicy, while there are three varieties of pumpkin seeds in salted, seasoned and dill pickle.
“After nearly 30 years of hard work, we’re excited to see our company and brand grow and expand across North America,” said Tom Droog in a news release.
Spitz’s staff of 70 were told about the deal on Tuesday, said Spitz vice-president and general manager Myles Hamilton.
“I think there’s some excitement about the potential that’s created here,” he told CBC News.
“We believe that Frito-Lay will take the Spitz brand not just further across North America but it has the potential to go into other countries as well.”
Hamilton said he expects business to double, and that Spitz will need to increase its current 4,000 hectares of sunflowers in Alberta and Manitoba to meet the anticipated demand.
“We’ll certainly be part of a larger organization, but that gives us the resources to do some bigger things,” he said.
With files from Meegan Read (more…)
BCE profit drops on Bell charges October 30, 2008
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BCE three-month TSX chart.
Restructuring charges at Bell Canada pulled down the bottom line at parent company BCE Inc. in the third quarter, the companies said Wednesday.
Montreal-based BCE reported a profit of 31 cents a share for the quarter, down from 50 cents a share a year earlier. BCE said its earnings for this quarter included restructuring and other charges of 27 cents a share,or $320 million in total, and net losses on investments of two cents per share.
The restructuring charges stem from Bell Canada’s move as part of a 100-day plan launched on July 11 to cut its executive ranks by 30 per cent and its overall management staff by 15 per cent, or 2,500 positions. Bell Canada said cuts are expected to help it save about $300 million per year.
Bell said its operating revenues rose by 1.8 per cent year over year to $3.76 billion, as growth in wireless, video and data revenue topped declines in local access, long distance and equipment revenues.
The company’s operating income $451 million, or 34 per cent lower than last year, due to restructuring and other charges of $320 million this quarter.
During the third quarter, Bell Wireless added 113,000 postpaid net customers, or 49 per cent more than last year.
Bell said its residential local line losses were 72,000 this quarter, an improvement from 104,000 in the same quarter last year.
BCE said earlier this week that it remains confident its $52-billion takeover by a group led by the Ontario Teachers Pension Plan remains on track to be completed in December. Turmoil in global financial markets has sparked speculation the deal could be in jeopardy.
Exports to remain flat until 2010: EDC October 29, 2008
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Canadian exports are expected to stagnate through 2009 and not recover before the middle of 2010, Export Development Canada said Tuesday.
In a semi-annual forecast, EDC ? Canada’s export credit agency ? said no growth in exports is expected next year.
“A quick rebound to the global slowdown is clearly not on,” said Peter Hall, EDC’s chief economist. “The considerable excesses of the boom years, including lending, housing and commodities, will take considerable time to work off.”
EDC expects the Canadian dollar ? which was trading Tuesday around 77.5 cents US ? to stabilize in the mid-80 cent range through 2009. The lower dollar, which is down from peak last year of $1.10 US, will be of some benefit to Canada’s exports.
The world economy is seen growing by a “near-recessionary” 3.3 per cent in 2009, EDC forecast.
“The global financial story that is dominating headlines everywhere began with the U.S. housing market, which will remain underwater given the millions of excess units on the market. When that inventory is worked through, a recovery may have the chance to develop, but we don’t expect that to happen until 2010, at the earliest,” Hall said in a commentary.
Hall added that shipments of Canadian energy products, fertilizer and agricultural products will actually help keep exports next year close to 2008 levels.
Charities across Canada squeezed as donations dry up October 29, 2008
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Officials with Canadian charities say the wobbly economy is squeezing the number of donations and endowments they typically receive as need continues to rise across the country.
The Vancouver Foundation, which gives out endowments to charities, expects to give 25 per cent less to charities, according to spokeswoman Catherine Clement.
“We know given the market conditions and trying to be reasonably cautious that we’re probably looking at a $10- to $15-million decline in the amount of money that we put back out in the community,” she said.
‘The thing that people don’t seem to realize is but for a paycheck, they could be the next person on our list that needs help.’?Barb Warren, Salvation Army
Meanwhile at the grassroots level, charities including the Salvation Army say donations are slow in coming.
Barb Warren, a Dartmouth-based manager with the Salvation Army, said she’s urging people to continue giving.
“The thing that people don’t seem to realize is but for a paycheck, they could be the next person on our list that needs help,” she said.
Similarly, Mike MacDonald of the Upper Room Food Bank in Charlottetown says more people are having a hard time making ends meet.
“We have seen an increase of over six per cent in just over the last number of weeks,” he said.
But Michael McKnight, a spokesman for the United Way, said despite the economic turmoil, Canadians will find a way to help each other.
“Our history shows and research shows that when times are tough, donors tend to dig a little deeper into their pockets recognizing there are people around them who need some additional support,” he said.
GM, Chrysler want $10 billion US bailout to help them merge: report October 29, 2008
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General Motors three-month chart
General Motors and Cerberus Capital Management, which owns Chrysler, have asked the U.S. government for around $10 billion US in an unprecedented rescue package to support a merger between the two car companies, two sources with direct knowledge of the talks have told Reuters.
Separately, Canadian auto parts makers have asked the federal and Ontario governments for “immediate, short-term, low-interest loans” to survive the credit crunch.
“Assistance is required immediately if our country has any hope of salvaging a once vibrant and prosperous industry,” Gerry Fedchun, president of the Automotive Parts Manufacturers Association Canada, said in a letter to Finance Minister Jim Flaherty and his Ontario counterpart, Dwight Duncan.
Fedchun’s office would not confirm reports that the industry seeks as much as $1 billion Cdn from the two governments.
“The answer is we simply don’t know how much will be needed,” his executive assistant, Janet Soutar, told CBC News.
In Washington, the White House reiterated Tuesday that U.S. automakers may be eligible for the Treasury’s $700 billion US financial rescue package and that they have been in contact with the Treasury, Energy and Commerce departments.
Heavy lobbying in Washington
Separately, the Associated Press reported that the $700 billion US financial bailout has become the biggest lobbying target in the U.S. capital.
Automakers, insurers, securities dealers and American subsidiaries of foreign banks all want the Treasury to cut them a piece of the largest government rescue in U.S. history, and the betting is that many will be successful amid faltering financial markets and predictions that the economy is heading into a deep recession, AP said.
In the auto industry, the Treasury is considering a request for direct aid to facilitate a GM-Chrysler merger and a decision could come this week, sources familiar with the still-developing government response told Reuters on Monday.
GM has been in talks with Cerberus about buying Chrysler since last month but the discussions have been snagged by difficulty in securing investment or financing for a deal at a time when credit is tight and global auto sales are in rapid retreat, others close to the talks have said.
A decision by the Bush administration to provide the government’s first funding for the auto sector since the $1.5 billion US bailout of Chrysler in 1980 has been widely seen as the merger’s best chance for success.
“The automakers are facing a maelstrom and that’s why I think an unprecedented government infusion could happen,” said Efraim Levy, an automotive equity analyst with S&P.
An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top U.S. automaker.
It would also give U.S. taxpayers a large stake in the turnaround of a struggling industry that employs over 350,000 Americans and is credited with supporting employment for another 4.5 million in related fields.
Analysts see GM, Chrysler and rival Ford Motor as having been driven to the brink of failure by a combination of management missteps, slowing global growth and problems in credit markets.
Now, in addition to taking a stake in what would be the world’s largest automaker by volume, the U.S. government is also being asked to provide support by taking over some $3 billion in pension obligations, the first source said.
The final component of the proposed support would be a credit line that could include U.S. government purchases of commercial paper to relieve short-term pressure on liquidity, the person said.
GM could not be immediately reached for comment. Cerberus and Chrysler had no comment.
Too big to fail?
A combined GM-Chrysler would control roughly a third of the U.S. auto market by sales and would face immediate pressure to cut costs stemming from excess capacity in almost all facets of its business. Those would include a stable of 11 brands, some 10,000 dealers and 97,000 union-represented factory workers.
But one of the conditions of a merger would be that GM-Chrysler would spare as many jobs as possible to win broad political support for the government funding, people familiar with the merger discussions said.
Many analysts are skeptical that balance can be struck. “I still think they need to make deep cuts to survive,” said IHS Global Insight analyst Aaron Bragman.
The roughly $10 billion in government funds to support a merger would be in addition to whatever funds would be allocated under an already approved $25 billion program to provide loans to help the industry retool to make more fuel-efficient cars.
A government rescue package would come at a time when investors and creditors are increasingly concerned about the ability of U.S. automakers to survive a punishing downturn in sales now expected to continue into 2010.
Moody’s Investors Service on Monday cut its rating on GM deeper into junk territory on the view that GM’s liquidity would continue to erode into 2009. The ratings agency also cut Chrysler for similar reasons and said it might cut Ford.
GM has a market capitalization of just over $3 billion based on Monday’s close and roughly $10 billion of outstanding debt. Chrysler’s privately held auto operations were valued at zero last week by Daimler AG, which holds the 19.9 percent of the struggling automaker not owned by Cerberus.
Chrysler’s U.S. sales have tumbled 25 per cent this year, almost twice the rate of decline for the overall market. GM’s sales had dropped almost 18 per cent through September.
GM’s shares have slumped nearly 80 per cent this year and its market value has dropped below what it was in 1929.
With files from Reuters and the Associated Press (more…)
Strong yen a concern: G7 October 28, 2008
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Traders on the Tokyo Foreign Exchange watch the new yen rate against U.S. dollars in Tokyo on Monday.(Koji Sasahara/Associated Press)
A strengthening yen is a significant threat to the Japanese economy, the G7 said late Sunday, after foreign traders sent that currency to a 13-year high in the previous week.
The Group of Seven major industrialized economies said Japan’s soaring currency makes the country’s exports more expensive, hurting overseas sales.
“We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability,” G7 finance officials said in a release after emergency meetings on the global economy over the weekend.
GDP growth (%) Q4 ‘08 Q1 ‘09 Japan 2.4 3.2 United States -0.2 0.9 Canada 0.8-0.8 G7 total 0.6 1.8Source: OECD
The Japanese currency was trading at 91.93 yen to the U.S. dollar Monday. That was after hitting the highest level since 1995 Friday as the yen rose to 90.90 compared to the U.S. dollar.
While Japan has been hit by the global financial crisis, foreign exchange traders are buying the currency as protection against a dropping U.S. dollar.
In recent weeks, the American dollar has gained value against most other currencies, including the Canadian loonie. But analysts are concerned that the slowing U.S. economy might eventually infect the national currency, driving the worth of the dollar down.
The yen has become a “safe place to harbour capital,” said one foreign exchange newsletter.
In September, the Organization of Economic Development and Co-operation said Japan would outgrow the American economy substantially for the next two quarters and would post better GDP growth than the rest of the G7 countries.
Japan, however, has relied heavily upon export industries, especially automobiles, for its GDP growth. A higher yen threatens this growth pillar, analysts said.
