What’s worse: the state of the US banking industry, car industry or jobs market?
At the moment you’d have to say the US financial sector, especially the banks, are doing badly, with an outlook for more bad debts, write-downs and no sign of a pick up in business from any sector for the next year.
The US car industry is looking sick and its outlook is now becoming as clouded as that for the banks as the two sectors business activities mesh: possibly the only bright spot is the continuing fall in US petrol prices to below $US3.90 a US gallon.
But that’s a thin benefit and could quite easily reverse if the current tension with Iran intensifies this week. (The car industry is looked at in detail below.)
And the US jobs market: Well America must create 115,000 jobs a month merely to keep pace with population growth. So far this year it’s fallen short every month, and even though the July loss of 51,000 jobs was said to be ‘better’. Better than what?
Than the forecast loss of 70,000 jobs for the month. But was it? Well, 76,000 jobs were lost in the private sector and 25,000 created in various levels of government. That’s hardly encouraging
And there was further restatement of May and June job losses, so 26,000 fewer jobs were lost in those months, but that was thin pickings for the optimists.
That’s because, as US analysts point out, the US workforce has grown by 1.4 million people in the past year, but employment has dropped by more than 200,0000.
The ranks of part time people have grown as companies have cut hours and working weeks.
Some economists say there are an extra 1.4 million people doing part time in the US now than there were a year ago. Cuts in the number of hours worked are estimated to be equal to around 300,000 jobs.
The average working week last month fell from 33.7 hours in June to 33.6 hours.
Average hourly earnings rose at annual rate of 3.4%, failing to reverse the gradual decline since last summer and still less than the inflation rate of 5% at the moment. (Don’t worry about core measures; they don’t fully reflect the impact of oil and petrol price movements in some US measures, or the cost of what’s happening in financial markets.)
That working week of an average 33 hours and 36 minutes per week, was six minutes less than in June and matched the shortest workweek since the US Labor Department started collecting these records 44 years ago in 1964
Economists say that when combined with the net loss of 51,000 jobs, the total number of hours worked in July fell 0.4% and indicated the economy is turning lower again as it started the third quarter.
Some economists now say the US economy will grow at less than 1% this quarter.
On that basis the outlook for the US jobs market is gloomy, and that makes for an even gloomier outlook for the embattled US car industry which is starting to resemble the US banking and finance sector as high oil and petrol prices and plunging sales wreak havoc on General Motors, BMW, Nissan and Toyota’s sales, earnings and financial strength.
Sales in July fell more sharply than expected, and car leasing losses are ballooning as a result and hurting the finances of all companies, with BMW especially hurt, along with Ford, GM, Mercedes, Nissan, Toyota and Chrysler.
Overall, US car sales dropped 13% in July from the same month of 2007: they also fell 4% from the already depressed June. According to industry figures, that made July the worst month for the industry in 16 years.(see below)
The problems from the broader economic slowdown and credit crunch are spreading to Europe, with car sales off nearly 8% last month, and off more in the UK.
It was the ninth consecutive month of declining sales in the US market – the first time that has happened since the last recession seven years ago — and the worst monthly performance since April 1992.
GM posted a $US15.5 billion second half loss to go with a multi-billion first half loss; Nissan blamed a 42% plunge in quarterly earnings on a fall in the value of leased vehicles in the US and unfavourable exchange rates. Nissan is trying to cut 12000 workers from its US car making plants to lower costs.
But the big surprise was BMW’s second bout of bad news from the US with it being forced to put away hundreds of millions of dollars more in provisions for losses on car leases and the drop in the second-hand car market.
It has now been forced to provide over $US1 billion in the first six months of the year. It saw earnings drop 58% before interest and tax. So bad was the result that BMW has abandoned its 2008 profit forecast.
It now expects little improvement next year with the company’s CEO, Norbert Reithofer, saying: “We assume that 2009 will be another difficult year full of challenges".
“Business conditions for the automobile industry deteriorated sharply again in the second quarter due to further ongoing steep rises in oil and raw material prices, the weakness of the US dollar, the impact of the international financial crisis and a weaker US economy,” Mr Reithofer said in a statement.
To try and correct the problem, BMW says it is going to cut production and raise prices, which won’t be wise at a time when buyers in its major markets in Europe and North America are facing slowing economies, rising petrol costs and the possibility of more job losses.
BMW actually had a small rise in US sales in July, as did Mercedes which last week warned of an 11%, 700 million euro drop in gross earnings this financial year (but those sales would have been loss-makers given the weakness of the US dollar and the
