The week ahead: Ed’s Daily Notes for December 2nd   2 comments

As usual, this first week of the month will provide a lot of views into the U.S. economy. Here is the schedule:

WEDNESDAY: ADP Employment Report, Gallup U.S. Job Creation Index, New Home Sales, and the Fed’s Beige Book
THURSDAY: 2nd Estimate of 3rd Quarter U.S. GDP, Challenger Job Cut Report, Gallup U.S. Payroll to Population
FRIDAY: U.S. Jobs Report

Bloomberg: Black Friday Weekend Spending Drop Pressures U.S. Stores

The first spending decline on a Black Friday weekend since 2009 reinforced projections for a lackluster holiday, increasing chances retailers will extend the deep discounts already hurting their profit margins.

Purchases at stores and websites fell 2.9 percent to $57.4 billion during the four days beginning with the Nov. 28 Thanksgiving holiday, according to a survey commissioned by the National Retail Federation. While 141 million people shopped, about 2 million more than last year, the average consumer’s spending dropped 3.9 percent to $407.02, the survey showed.

The survey results, if borne out at cash registers in American malls and on website checkout screens, herald retailers’ likely return to Black Friday-type discounts this week and suggest added stress for several chains. Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) already cut profit forecasts after tepid sales gains in back-to-school shopping.

“Retailers didn’t get what they wanted from Black Friday and they will need to make it up in the next three weeks,” Poonam Goyal, an analyst for Bloomberg Industries, said in an interview. “There will be some panic sales.”

Target fell 0.6 percent to the equivalent of $63.56 in German trading today. Best-Buy Co. (BBY) slipped 0.6 percent to the equivalent of $40.39, while Wal-Mart was unchanged at $81.01.

Stores have started holiday promotions earlier since the last recession ended in mid-2009 — even pushing into October — to try to capture consumers’ first purchases and encourage them to part with more dollars beyond the day’s big deal. Sales in November and December account for 20 percent to 40 percent of U.S. retailers’ annual revenue and 20 percent of profit, according to the Washington-based NRF.

Do I even need to say, “avoid retail”?

Fox News: Amazon testing deliveries by drone

Online retailer Amazon announced Sunday that it is planning a new delivery service in which products would be delivered with the use of unmanned drones.

Amazon CEO Jeff Bezos unveiled the so-called “Octocopters” in an interview that aired Sunday on CBS “60 Minutes,” and claimed that the drones would not be ready to take flight for another four or five years. However, after the interview aired, Amazon released a statement promising that “Prime Air vehicles will be as normal as seeing mail trucks on the road today.”

“I know this looks like science fiction. It’s not,” Bezos said in the CBS interview with Charlie Rose. “It drops the package. You come and get your package and we can do half-hour deliveries.”

Just one problem:

Federal Aviation Administration regulations currently prohibit the kind of flights Bezos proposes that Prime Air octocopters undertake. However, rule changes could come as early as 2015.

Amazon is still testing these drones, but if they can get the FAA rules changed, and the drones can work, Amazon could become bigger than it already is.

In addition to the impact on Amazon, think about the impact on FedEx and UPS. This won’t put them out of business, but their overnight deliveries could be severely crimped.

New York Times: Wage Strikes Planned at Fast-Food Outlets

Seeking to increase pressure on McDonald’s, Wendy’s and other fast-food restaurants, organizers of a movement demanding a $15-an-hour wage for fast-food workers say they will sponsor one-day strikes in 100 cities on Thursday and protest activities in 100 additional cities.

The other side:

Officials with the National Restaurant Association have said the one-day strikes are publicity stunts. They warn that increasing pay to $15 an hour when the federal minimum wage is $7.25 would cause restaurants to rely more on automation and hire fewer workers.

My view: If the workers get their way, expect the cost of fast food to go up, in addition to more automation replacing workers wherever possible. From an investment perspective, fast food companies will be a bad investment in the next few years, until automation replaces the workers. Keep in mind that fast food employment is built around a process that requires workers to be expendable. Changing that will be an expensive endeavor for fast food companies.

Mind you, I am not saying fast food workers should or shouldn’t be paid more. Truth be told, I suspect we are heading to a raise in the minimum wage, and $15/hour seems to be the magic number. Doubling the minimum wage could be a disaster for an already weak economy.

New York Post: Yellen’s classmate ‘shocked’ at her spectacular rise

An interesting view of new Federal Reserve Chairman Janet Yellen:

She’s about to become one of the most influential financial leaders in the world, but a classmate who sat in front of Janet Yellen at Brooklyn’s Ft. Hamilton HS says he was “shocked” at her career path.

“I didn’t think she had a passion for economics,” recalled Ron Vincent, a former Wall Street guy who took the same economics class as the incoming Federal Reserve Bank chair and who now heads Hi Investors Capital.

“I was shocked. She was in the psychology club.”

…Vincent recalled her as inquisitive and brainy.

“Even when she walked the halls she was deep in thought. You knew she would be successful,” he said.

She graduated in 1963 as class valedictorian.

Yellen’s yearbook entry shows she was editor of the school paper, The Pilot, as well as a member of the Arista honor society, the Boosters basketball program, the Minutemen history club and that psychology club that still sticks in Vincent’s mind.

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Posted December 2, 2013 by edmcgon in Economy, Federal Reserve, News, Stocks, Technology

2 responses to “The week ahead: Ed’s Daily Notes for December 2nd

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  1. From januari till novembre already more bankrupties in Belgium then in the whole 2012. Yep, Europe is fixed …

    • plas,
      We’re all in the same boat, and it is sinking. Unfortunately, we have Keynesian idiots running the show, who insist on adding more water to the boat…

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