Governments can lay off too

Often layoffs tend to be confined in private or pseudo-private enterprises. However, when these folks are revoked their employment and paychecks they are no longer contributors to government as assets, but switch to become liabilities as they move into depending on state programs like unemployment, possible food stamps, and potentially other government programs. When these people move from paying into the system to being a drain on the system the budget really comes under duress.

Massachusetts seems to have recognised this effect and moved to lay off 1,000 jobs and slash their budget. I would have to say this is a good recognition and effort, since they were just pitching around the idea to spread their needs onto the taxpayers of other states by asking the Federal Reserve (backstopped by the Treasure [you&me]) for a dole out. Massachusetts may be as close as they come to Socialism, so that beggar they neighboring states attitude fits their policy. So, for them to cut their budget with hat in hand came as a bit of a surprise to me due to the ironic responsibility they are showing that doesn't fit their character.

Let's hope another state in the begging position comes to their senses and learns from the Massachusetts example sooner rather than later. Arnold, I am talking to you.

Your (Last) Check's in the Mail

As skeptical and thorough I tend to think things through, I have to come clean and admit this one surprised me a bit. In fact, I can say I totally did not expect, anticipate, or even allow this one to enter my line of thought about areas where layoffs would occur.

In a surprising, to me, move the Postal Service is laying off 40,000 workers. This is pretty major, since it will likely move across the entire country rather than be contained to a corporate headquarters and a few branch offices. Some 40k overpaid folks will feel the pain on this one and with that skill set it is virtually assured most of the employees affected will not find comparable pay whenever the economy perks up and begins creation of jobs as opposed to the complete and total carnage and destruction of jobs that this year has wrought.

Finance sector layoffs? Predictable as the sun rise.

Fidelity is in the process of an approximate 10% reduction with the goal of feeding 4,000 less mouths. USA, UK, Europe, Asia, employees all can begin worrying whether they'll be able to have a Christmas 2008 similar to the 2007 Christmas in the malls. First priority will be to cutting out frivolous expenses like maid service since they will have more time on their hands to man a vacuum. Additional areas for ease of cut are the expensive restaurant meals, the new lease or new auto every year or two, and finally recurring monthly expenses like cable also have a decent shot at being squeezed out.

Not to say these are the wisest people as a group, but individually they probably are aware that the finance sector will not roar back into the same lofty heights with fake products that have no constructive value in our global economy
any time while their heart still beats. Job replacement at comparable pay in same or different field will be difficult.

Pink slip, Number of Copies [3,000]

Amidst weakened expectations for economic recovery, Xerox is laying off 3,000 employees. These cuts are certainly paired with hiring freezes and attrition based reductions. The cut is the first part of the impact, but the reduction in wages is larger than the 3k people who are in the wrong place at the wrong time. As noted before, this has a large impact on consumerism in more ways than the laid off folks. Their coworkers are likely to shy away from demanding higher wages, some may cut back spending fearing that this is the start of more layoffs, and as others read about it they turn towards thinking about their own employer and scale back.

The spendy days of the decade are not to be coming back in the short term. Hopefully USA begins a process of stepping up to the looking glass and seeing what a horror show it has become.

Intro to new blogger: Jekyll Island

Jekyll Island has joined this blog to contribute additional content revolving around the weakening consumer economy. You'll be able to refer to a couple posts he has already made to see his grand entrance. Please welcome Jekyll Island!

Holes in the Vice Index = Strife?

In a surprising move, the Pechanga Casino is laying off a considerable chunk of employees. 400 of their 4700 staff are to be cut. This is located in the Inland Empire where we've already seen massive housing revaluation towards sanity. Sanity is still not quite there yet, but progressing until these types of stories break.

Miles away from high paying jobs to support a high grade debt on an upcoming option ARM interest only reset will not be an easy sell for a real estate professional. With 400 cut and only restaurants and retail to work at, or a home improvement store, there is likely to be more devaluations to come. With these plugged into that vicious cycle the retail and consumer will suffer.

Pechanga is located in Temecula CA.

American Express Workforce Decimated - Literally

American Express announced that it would be downsizing its workforce by 10%, or 7,000 jobs. This purportedly is in an effort to "cut costs" by $1.8b next year.

Jobs given the axe are mostly management positions, but span the breadth and width of the company.

Q3 2008 marks the 4th straight quarter that American Express has posted a loss. Profits down 24% this quarter.

They also announced a tentative plan to freeze raises for management-level employees and to implement a hiring freeze. In addition, they plan to take a $240-$290m "restructuring charge" in Q4 2008.

Nice guys, they still just approved me for a card!

Consumer Spending Drops Most In 28 Years

In the 3rd quarter of 2008, consumer spending fell the most it has fallen since 1980. Notably, this was the first cutback in spending in 17 years according to AP. Spending fell by a huge amount: 3.1%.

Compounding the problem, and showing another symptom of a bleak outlook for retail and consumer-based industries, disposable income for American families fell 8.7% this quarter -- the largest drop since 1947.

Drugs and Layoffs

Merck has decided to cut 12% of its large employee base to take out 7,200 heads. This is the second round of cuts recently per this article. This will linger on for a while and not directly affect this holdiay shopping season. However, how could you be an employee there and think about taking on more debt or being a loose spender with the employment electric char being in plain view for 3 more years?

Some of the hardest hit areas are the places they have put on a closure list to occur before 2009. These include a couple foreign spots and one local in Seattle. There's a city that won't be too spendy this and next year. Also, as alluded to before, how many of the 57k employees will be upgrading their home, buying latest in HiFi, or blowing through an expensive evening on the town if they are fearing the loss of income stream?

Merck is headquartered in Whitehouse Station, New Jersey.

Home Prices: Stability Wanted!

The idiot maestro has said the economy can't recover until house prices stabilize. Well that didn't hapen yet. We just clocked in a 17% drop from year-on-year for August. Gee, they told me houses don't act like stocks and everyone wanted a house and with mega-immigration that the prices will only go up. In a deflating bubble, house prices will not go up. Additional downward pressures on house pricing are that it is now more difficult than renting to purchase a house via expectation of a downpayment and rightful tighter credit conditions. Previously, with zero down and 110% financing it actually cost less to buy a house that is unaffordable to you than the pay first month's rent and security deposit. Massive layoffs also create a difficult prospect for those affected and their coworkers to justify bringing in new mortgage, tax, and home owner association obligations to their monthly budget. Back to the tracking. With the prices down like this, it makes idiots who like to pay for cars and vacations over 30 years less able to take out a home equity line of credit as they turn from having equity to being underwater. For the fortunate souls who do have equity, it is also a reducing effect when the price of the house drops so much. Less clownsuming going on due to the almighty American HELOCopter.

Crisis of Consumer Confidence

Consumer confidence has plunged and who can blame it? The reading of the index is an all time low at 38, falling far short of the expectation of 52. To give an inkling of where we were recently it was 61 in September and 95 a year ago.

Can this be the bottom?

I doubt it. The confidence of we the clownsumers of America in buying stuff we don't need with more debt that is not available to us in the wake of massive layoffs will have a dampening effect on this number for some time. I guess a misguided policy of borrowing from our great grandchildren in the form of stimulus checks for the poor might be able to alter the course, so I leave it open to events like that. Otherwise, it will continue to circle the bowl counter clockwise until the great flushing.

One last note, they mentioned that consuming powers 70% of our economic activity here. That's just ridiculous on the face of it.

Speaking of Shipping

We just witnessed a remote factory in turmoil, but after production the next logical step is to ship the virtually useless good across the pacific to the claws of the rabid US clownsumer in heat.

Even in the face of lower fossil fuels pricing, that ain't working out too well for folks. Here is the Baltic Dry Index. This tracks commodities shipments and has absolutely caved in like the product from an amateur hour in the soufflé baking class.

USA clownsumers not buying mass produced junk from overseas has put a damper on the shippers. If you're inclined, take a look at some stock charts of the sector and individual shippers and prepare to weep. Just ensure you don't blame it on peak oil or oil bubbles, since the oil price per barrel is quite favorable compared to three months ago...

Word Wide Wave of Repercussions

So, sub-prime is contained? So American mindless head cut-off chicken shopping daze is coming to and end and it will only affect the local retailers? Bzzzt think again. Where is our stuff actually produced and shipped from? Think green? Bzzzzzzt 0 for 2, transpacific shipping. Good enough hint for you? The goods are made in China and the demand for goods has fallen off a cliff as we expected here. See the fallout from that. This factory will close on weak demand from usa clowsumers and the usa facade of a production and branding company cancelling orders int he Southern China factory zone...

Not much work can replace this since the Chinese wisely take a skeptical view of economic health and government capabilities and save like mad. For every 5% of their savings we in USA are about negative one. They save about 30%, we about -5%. Great job idiots!

Lowered Seasonal Hiring Demand from a Big Box

Best Buy will hire 25-30% less seasonal workers than it had in the past, when American clownsumers were in heat and out in full force. The good news on this one is that many of the displaced workers in the sector may be able to find employment. The bad news is that the 16-20k seasonal jobs are just for the holiday shopping season and will retract come January before or after the inventory exercise has completed. These seasonal hirings may be like a person blowing against the CAT-5 hurricane winds of the rest of the layoffs occurring in the country. Surely these seasonal jobs will not carry the salary or perks of some of the tech sector jobs being destroyed.

An exercise, if 1,500 employees making 80,000$ are laid off you will have destruction of personal earnings and government rake of about 120,000,000$. If 20,000 jobs are created by best buy at 8-10$/hr for 40 hours over 10 weeks, you can only recover 80,000,000$. It looks pretty decent, but this is one example of non-offsetting companies and skewed conservatively in favor of the positive impact of the seasonal retail jobs. Reality would differ. Also, the next season's job impact is unpredictable, but a safe prediction is that the clownsumers won't be putting on their squeeky nose and face-paint in a manic race to have stuff they don't need.

Thriftyness in High End

While the rich will always be able to spend as they do, even in down markets and difficult economies, the faux rich or Mr. Pretender will not be able to access the HELOC (home equity line of credit) for trying to maintain an MTV lifestyle.

The Wall St. rich are now under intense scrutiny of their bonus compensation on the heels of the public's money being used for bailouts. How will this affect the high ticket and luxury items going forward is anyone's guess, but I think some struggling retail outfits that cater to the rich and have a cross sell down to the aspirationally credit maxed rich will be impacted.

More Silly Valley heartbreak

Ebay, where people send the stuff they just bought to be bought by more frugal folks, has anounced layoffs. I guess this is another example of a common trend to hear these days. Ebay will lay off 1,600 workers to reduce expenditures in this uncertain economy. As said before, this is a terrible season for the individuals to be laid of for their own personal reasons. It is also a terrible season for them to be laid off and their fearful former coworkers to hunker down cut back on spending. With the UCSA (United Consumer States of America) economy so heavily dependent on commissions from buying and selling imported stuff to each other, this puts a damper on the 'buy-stuff!' economic recovery efforts.

Ebay's headquarters are in Silicon Valley in the city of San Jose, CA.

Trouble in the crest of the dotcomania wave

Yahoo, who should actually be a part of Microsoft and isn't due to some really terrible executive decisions recently, reported that they will be bringing down the hammer on some unfortunate souls. The number is said to be 1,5000 employees to be cut. In a buyout with Microsoft it would be likely that the heads would have rolled in the wake of the transaction anyway.

Yahoo is a global company, but you can be sure they would have a large concentration of layoffs at their headquarters. With a difficult job hunting environment and layoffs all around this sector, it would be safe to say a sizeable amount of consumers will be maxed out on their spending ability and wreak havoc on the retail sector this Christmas shopping season. Additionally, with cuts like these in the Silicon Valley tech area, you can expect the fortress of 'invincible bay area residential real estate' to show wear. This relates to consumerism in the closing of home equity lines of credits which were a significant helping hand to this debtor nation of America.

Yahoo is headquartered in Silicon Valley in the city of Sunnyvale, CA.

Change of tune: iBright-Spot

With the Apple earnings report, we came to know the iPhone has now jumped up to about 39% of Apple's quarter actual revenue (they account for it over time under GAAP). They sold 6.9 million of them, contrary to what Jessica would have you believe of more than one per human on the planet.

This means Apple is able to push through 550-600$ devices into a weak retail environment. Although, the cost is mostly hidden from the simple-thinking hoarding masses of consumers since the actual cost is baked into the monthly service plan and subsidized by AT&T down to the 200$ price point to obtain one in-hand. What this tells me is that people will still be consumers, but will go for the in-reach item to get their shiny new toy. This probably takes sales from other higher ticket items like the flat screen TV and such. That's purely speculation and will remain to be seen if proven right.

Not all was rosy, they guided a wide range with the lower range being dismal. This is giving indications of being uncomfortable with projecting confidence in today's chaos.

Big ticket items taking big hit

Toyota reported a decline in sales for the first time in seven years with car demand in the USA doing a one-up on that figure by having its own worst in seventeen years. It'd be an interesting exercise to take a look at the trade-down effect as wel. Revenue per sale would be an interesting number to know. At any rate, this tells me people have pulled back from big ticket items like new cars and instead paid a visit to the repair shop for once in the past seven years which should be decent for the owners and employees of said shops.

Eyeing the US Dollar and the Japanese Yen over the credit bubble implosion and carry trade reversal, it seems with this trend intact, they will not enjoy a strengthening of earnings into the next quarter.

Trouble in the dot com mania redux

Zillow, the online Real Estate automated inaccurate price guesstimation and prior history sales data tool with the slick mapping user-interface, to become more thrifty. This will be achieved at the expense of one fourth of its workforce.

While they have significant cash reserves they are not in a position to be wastey as they are not running a profitable operation and surely the business model subsidized by ads to debt-ridden consumers from debt riden over-leveraged retailers will soften (google recent earnings aside).

The bright spot is that the quantity of people affected is rather low at 40. Hopefully they can all find jobs and not further pressure the real estate and retail sectors.

The company is based in Seattle, WA.

Layoffs in Texas-land

As part of a sale of their wireless baseband chip division Texas Instruments looks to cut costs to show a better book to potential buyers. They are due to disperse 650 employees to achieve this objective, with about 300 to have a layoff (sourced figures). A terrible job market awaits those affected by this trauma at the most unfortunate time of year.

When laid off into a horrible job market many of them will be looking to cut expenses and further pressure the retail sector. Additionally, many of their coworkers who now will worry about uncertainty will likely reign in their spending.

Retail Closure and Unemployment

Mervyns, a clothing retailer servicing mainly California, has begun the trek of liquidation. This will probably have a relatively minor impact to their competitors from the liquidation mark-downs since their size is not national and there's many left standing in this field. They had 176 stores remaining after beginning the trimming process recently.

A difficult time for their employees for sure. They will lose their jobs into a weak retail environment that has other layoffs and seasonal hiring curbs. Based on this article when they closed 26 stores they had 3,000 laid off workers. While this isn't an exact science we will have to use an estimate since a fairly quick search failed to determine current headcount. Extrapolated up, that makes roughly 20,000 plus HQ. Recent layoffs at the HQ from 1,000 of 250 estimated leaves 750 HQ employees. Around 21,000 will be unemployed (slightly over the high range of the estimate noted here) and many will have difficult replacing their job and income in this environment. That will be a handicap on their ability to service existing debt, take on new debt, or spend freely as if there was disposable income.

This will leave several big box footprints bare on the commercial real estate market. With many prior closures and an abundance of seasonal halloween stores already occupying and Christmas to come. The owner of these strip malls and malls will have a hard time collecting monthly lease cashflow from these.

Mervyns headquarters was in Hayward, CA.

Retail consolidation and more consumers in trouble

Linens N' Things is due to close all remaining stores and liquidate under Chapter 11 bankruptcy. Seemingly this will strengthen others servicing the same consumers in the mid to long term due to less competition. In the short term the liquidation process of discounting comparable merchandise should divert some business from their healthy brethren.

Another side effect of this is that they employ many people (15,000 employees according to this article). With other business on restricted temporary holiday staffing, they may not be able to collect much more than an unemployment check. This will not allow them to service debt in the worst case, add on debt in most cases, nor practice discretionary spending. This will impact unemployment and lower consumer spending.

Their headquarters was in New Jersey and they seemed to provide a decent counter-balance to Bed, Bath, and Beyond. Since retail is due to hurt in the foreseeable future, I wouldn't personally expect BB&B to discontinue their coupon promotional activities. Don't use my word on this since I did not contact BB&B to ask this question.

Welcome to consumer track

Welcome to this blog. This aims to provide a realtime modern anthropology of events impacting USA consumer society. The credit bubble will be the main theme that cuts across all posts. We will examine the fallout of the credit bubble unwind or the successful re-inflation. Inflation would be an obvious result of the latter while deflation would be the result of an unwind.

Anything related to consumer behavior will be discussed such as: store closings, layoffs, government stats, interest rates, bank lending, federal debt, government bailouts, corporate earnings and filings, commercial real estate, and anything else relevant.

My bias will definitely show through in the forthcoming posts, so I will use this as a chance to give background to it. The current USA economy should hardly be called that. When consumer spending of borrowed dollars on mostly imported goods is the driver of your economy you are headed for doom. If scalp commissions from buying and selling there imported goods or housing is the only value-add we are capable of then the future looks bleak. When advertising goes into a bubble to convince people that they should buy and what it should be then you don't have a solid foundation. With the federal debt going ever higher and our ability to service it ever lower imagine a situation when our creditors decide they have better things to do with their money or the government defaults. In those cases our imports would virtually shut off and we'd be required to do some production to meet our needs. One bright data point is that we are able to feed our populace and have excess, which would be tradable for oil, so we would not end up in hopeless chaos.