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Britain’s Recovery Picks Up

July 25, 2013 by Leave a Comment

LONDON — Britain’s economic recovery still has a pulse — if a weak one.

The country’s recovery gained momentum in the second quarter as all of its main industries reported faster growth, government statistics showed Thursday. But some economists warned that it was too early to say the country’s malaise was over.

Gross domestic product grew 0.6 percent in the three months that ended in June from the first three months of this year, when the economy grew 0.3 percent, the Office for National Statistics said Thursday. Growth spanned the service sector, which accounts for about three-quarters of Britain’s economy, as well as construction, agricultural and production, which includes manufacturing. It was the first time in three years that all those industries grew at the same time.

“Growth not only accelerated appreciably but is also becoming more broadly based,” said Howard Archer, an economist at IHS Global Insight. But he also said that “significant economic headwinds persist,” meaning that the economy “will likely remain prone to periodic losses of momentum.”

The report on Britain’s slight uptick came a day after data from the long-suffering euro zone showed some sign of improvement. A survey of purchasing managers by the research firm Markit indicated that manufacturers in Germany and France had begun increasing production as demand grew, and there was evidence that a credit squeeze for consumers was easing. But there too, the recovery was likely to continue to be fragile despite the positive reports, some economists said.

In Britain, the service sector grew 0.6 percent in the second quarter; the construction business grew 0.9 percent; and the agriculture sector increased 1.1 percent. Production, including manufacturing, grew 0.6 percent, the Office for National Statistics said.

“Firms are feeling upbeat and are capable of expanding,” said John Longworth, director general of the British Chambers of Commerce. “More and more are adopting a ‘have a go’ attitude when it comes to exporting, which is really encouraging as this will go a long way to driving growth further still.”

BT Group, the telecommunications company, on Thursday reported fiscal first-quarter earnings that beat some analysts’ forecasts and said the outlook for its business was improving slightly. EasyJet, the low-cost airline, said Wednesday that its sales rose in the second quarter as it added capacity in Europe.

The economic revival in Britain is also accompanied by a rise in the price of residential property, according to the mortgage provider Halifax, a unit of Lloyds Banking Group. The value of homes rose 0.6 percent in June to the highest level in almost three years, helped by government measures that assist potential home buyers with making down payments.

But some economists said Britain’s recovery could start to lose momentum again in the second half of this year. Banks remain reluctant to offer loans, especially to smaller and medium-size companies; real wages have barely moved; and inflation continues to be above the Bank of England’s 2 percent target. A recovery is also closely linked to the strength of the economies of continental Europe, Britain’s largest export market, and Asia.

Economists and investors are waiting to hear from Mark J. Carney, who took over as governor of the Bank of England at the beginning of this month, about how he aims to strengthen the economic recovery. Mr. Carney is expected to lay out the central bank’s new policy on giving more guidance on the future levels of interest rates in early August, when the latest inflation report will be released.

Article source: http://www.nytimes.com/2013/07/26/business/global/britains-recovery-picks-up.html?partner=rss&emc=rss

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Today’s Economist: The Current U.S. Economy: Text and Subtext

June 17, 2013 by Leave a Comment

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Today’s Economist

Perspectives from expert contributors.

The International Monetary Fund just published its most recent assessment of the United States economy.  Its summary, below, is clear and incisive.  Yet, there’s another layer to all of this so I’ve added annotations — the numbers in brackets — intended to peel back the economic onion a bit, as it were.

The United States recovery has remained tepid over the last year [1], but underlying fundamentals have been gradually improving [2]. The modest growth rate of 2.2 percent in 2012 [3] reflected legacy effects from the financial crisis, fiscal deficit reduction [4], a weak external environment [5], and temporary effects of extreme weather-related events. These headwinds notwithstanding, the nature of the recovery appears to be changing. In particular, house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong, especially for large firms [6]. With the sizable output gap and well-anchored inflation [7] expectations keeping inflation subdued, the Fed appropriately continued to add monetary policy accommodation over the past year by increasing its asset purchases and linking the path of short-term rates to quantitative measures of economic performance, thus helping to maintain long-term rates at exceptionally low levels [8]. Overall financial conditions have eased, as risk spreads narrowed, stock market valuations surpassed their pre-crisis peak [9], and bank credit conditions gradually eased.


[1] We are stuck in a sloggy, backward-leaning L-shaped recovery: The United States economy, with considerable prodding from fiscal, financial (the bailouts), and monetary help, exited a historically deep recession in the second half of 2009, but has been growing relatively slowly since then.  In other words, there was no “bounce-back,” no V-shaped pattern, where we fall hard but quickly make up our losses.  So, why did those policy interventions help break the recession but not move growth from an L to a V?  Because they ended too soon.

[2] Whose fundamentals you talkin’ about? At times like this, there’s a risk that the economy’s doing well, except for most of the people in it.  To understand how the recovery is playing out in different people’s lives, you’ve got to ask: just whose fundamentals are improving?

[3] Current growth rates are not fast enough to put much downward pressure on the unemployment rate. When the economy grows at around 2 percent, the unemployment rate tends to stay about where it is as that’s just fast enough growth to balance the flows of people coming into the job market and cycling out of unemployment into work.  But it’s not fast enough to really make a big dent in the stock of about 20 million who are un- and underemployed.  Moreover, the I.M.F. predicts slower growth (1.9 percent) this year.

[4] Wait a minute — they said things are improving … so why slower growth!? Because of too much “fiscal deficit reduction.” Our policy makers may not be the austerions that are whacking away at European economies right now, but we too have reduced government spending too quickly, far more so, as the Fed governor Janet Yellen points out, than in past recoveries.  Basically, the public sector handed the growth baton to the private sector before it was ready to run with it.

[5] The “weak external environment” refers to slower growth in some of our export markets, like Europe, which absorbs about 20 percent of our exports.  But the problem runs deeper: our persistent trade deficits have essentially exported demand and jobs for years, often to countries that manage their currencies to maintain a price advantage over us.  Policy makers who want to reverse that need to address this currency issue if we are to make serious progress on increasing net exports.

[6] All true, and all helpful developments, especially the housing part, but there’s a large imbalance between improving labor market conditions and corporate profitability.  When the lightly unionized American job market is too slack, as it’s been for years now, low- and middle-wage workers have too little bargaining power to claim much of the growth they’re helping to create.  It’s a very different story for large multinationals who can trot the globe seeking profits (and tax shelters).  In fact, the compensation share of national income is at a 48-year low, the profit share at an all-time high.

[7] “Well-anchored inflation?”  Inflation is running at around a measly 1 percent, in no small part because of the growth slog and absence of labor market pressures.  True [8], this should keep the Fed in the easing game for a while, and that in turn could perhaps calm excessively skittish equity markets (they’re worried the Fed will begin to “taper” its bond buying program).  But faster inflation right now is less a function of expectations and more of weak demand and stagnating wages.  A bit faster price growth would thus be a welcome sign.

[9] Stock market valuations way up. Though a rising stock market benefits some in the broad middle class, mostly through retirement and pension savings, the vast majority of its gains go to the wealthiest (80 percent of the value of the market is held by the richest 10 percent of households).  It’s actually very simple to describe what’s wrong here: since the recovery began, adjusted for inflation the Standard Poor’s 500-stock index is up 57 percent while median household income is down 5 percent.

The picture painted in broad strokes by the I.M.F. is correct and not at all without hope.  As they say, things are improving, albeit too slowly.  But in every case, we could be doing better were it not for policy mistakes, ones that are having profound and lasting impacts on the living standards of working families.  In this regard, it’s important to peel back the economic onion, even if it makes you tear up.

Article source: http://economix.blogs.nytimes.com/2013/06/17/the-current-u-s-economy-text-and-subtext/?partner=rss&emc=rss

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DealBook: Santander’s Chief Executive Resigns

April 29, 2013 by Leave a Comment

Banco Santander's chief, Alfredo Saenz, has helped transform the firm from a regional lender to an international giant.Juan Carlos Hidalgo/European Pressphoto AgencyAlfredo Sáenz helped transform Banco Santander from a regional lender to an international giant.

LONDON – Alfredo Sáenz, chief executive of Banco Santander, resigned on Monday, less than a week after the Spanish bank reported that first-quarter net profit fell 26 percent.

Mr. Sáenz, 70, joined Santander in 1994 after the bank acquired a local rival, Banesto, and will be succeeded by Javier Marín Romano, currently head of the firm’s insurance, asset management and private banking operations.

Mr. Sáenz has helped Santander’s chairman, Emilio Botín, 78, transform the firm from a regional lender to an international giant with operations from the United States to Poland.

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Yet Mr. Sáenz has also faced a series of legal problems, including his conviction in 2009 for making false accusations in the early 1990s in a case involving Banesto. He was later pardoned by Spain’s departing Socialist government in 2011, though the country’s supreme court partly overturned that decision this year.

Santander has also been hurt by persistent problems in Europe, as well as by increasing headwinds in emerging markets like Brazil. Last year, Santander set aside provisions totaling $25 billion to cover a rise in delinquent mortgages in Spain’s struggling economy and an increase in other troubled loans across its businesses.

In Latin America, where Santander earns more than half of its net income, a slowdown in economic growth and an increase in troubled loans is starting to cause problems.

First-quarter earnings for the region, for example, fell 18 percent, to 988 million euros ($1.3 billion), despite an increase in local lending and customer deposits. The firm’s profit from Continental Europe in that period plunged 27 percent, to 307 million euros.

The decision by Mr. Sáenz to step down comes after several months of uncertainty. Spain’s supreme court ruled in February that the country’s previous government had gone too far in its pardon of Mr. Sáenz, which had raised concerns over his tenure.

As part of its decision, the court reinstated Mr. Sáenz’s criminal record, casting doubt over whether he could continue as a senior executive at Santander.

The current Spanish government passed a law this month that allows bankers with criminal convictions to continue working in the country’s financial industry. Analysts said the decision for Mr. Sáenz to step down was an attempt to ease the uncertainty surrounding the leadership of Santander, the country’s largest bank.

Shares in Santander rose 1.9 percent in morning trading in Madrid on Monday.

A spokesman for Santander declined to comment, while a representative for Mr. Sáenz was not immediately available to comment.

Article source: http://dealbook.nytimes.com/2013/04/29/santanders-chief-executive-resigns/?partner=rss&emc=rss

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Spending Cuts Weigh on Manufacturing

April 1, 2013 by Leave a Comment

Data so far had shown little sign that higher taxes and the $85 billion in across-the-board government spending cuts that took effect March 1, known as the sequester, had weighed on economic activity.

“It suggests the economy was probably starting to slow at the end of the quarter, possibly reflecting the impact of the fiscal headwinds coming from sequestration and higher taxes,” said Millan Mulraine, a senior economist at TD Securities.

The Institute for Supply Management said on Monday that its index of national factory activity fell to 51.3 last month from 54.2 in February. A reading above 50 indicates expansion in the manufacturing sector. New orders, an indicator of future growth, accounted for much of the drop in the index.

The I.S.M. report was at odds with a separate report showing that factories gained steam in March on strong order growth, closing out the best quarter for the sector in two years.

The financial data firm Markit said its manufacturing purchasing managers index rose to 54.6 last month from 54.3 in February. A reading above 50 indicates expansion.

“We are beginning to see where the government spending cuts will reduce demand,” said Joel L. Naroff, chief economist at Naroff Economic Advisors. “In those sectors and parts of the country that will feel the wrath of sequestration, adjustments are being made.”

Separately, the Commerce Department reported on Monday that construction spending advanced 1.2 percent in February. Spending declined 2.1 percent in January.

The construction report added to a series of other data that has suggested economic growth accelerated in the first quarter from the fourth quarter’s anemic 0.4 percent annual pace.

Data on employment, consumer spending, industrial production and housing have been relatively strong.

Some economists raised their growth estimates for the January-March period as a result of the construction report.

Macroeconomic Advisers lifted its forecast by one-tenth of a point to 3.6 percent. JPMorgan Chase raised its estimate from 2.7 percent to 3.8 percent. Part of the increase reflected strong consumer spending.

Construction spending in February was bolstered by a 1.3 percent rise in private construction projects. Spending on private residential projects increased 2.2 percent to the highest level since November 2008.

“Housing is catching fire,” said Ryan Sweet, a senior economist at Moody’s Analytics. “All the conditions are in place for further improvement with housing, even with lingering risks. Housing will keep the economy going forward even with the fiscal constraints.”

Article source: http://www.nytimes.com/2013/04/02/business/economy/us-manufacturing-slows.html?partner=rss&emc=rss

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Retail Sales Slow in February as Payroll Tax Crimps Spending

March 7, 2013 by Leave a Comment

Americans cut back on spending in February as cold weather and economic strain chilled their appetite for spring merchandise, retailers reported on Thursday.

The nation’s retailers said sales slowed in February, when most stores get rid of winter merchandise and bring in swimsuits, ankle-length pants and other spring fashions. Americans are dealing with a payroll-tax increase of two percentage points, income tax refunds that came later than usual and high gas prices. Widespread winter storms may also have made spring merchandise less appealing to them.

“February was a difficult month,” said Ken Perkins, president of Retail Metrics, a research firm. “Retailers faced significant headwinds.”

The numbers reflect a drop in sales growth from January. Over all, 14 retailers reported that revenue at stores open at least a year — an indicator of retail health — rose an average of 4.1 percent, according to the International Council of Shopping Centers, an industry trade group. That compares with increases of 5.1 percent in January and 6.7 percent last February.

But the latest results were affected by a drop in the number of stores reporting monthly sales, including the loss of big names like Target and Macy’s.

With the shrinking list, Costco, which posted a 6 percent gain in February, now accounts for about two-thirds of the tally. The retailers that report monthly data represent only about 6 percent of the $2.4 trillion in annual United States retail industry sales.

Among the companies that reported monthly results, the ones that cater to poor and middle-class shoppers said that Americans were still grappling with economic challenges. Many retailers resorted to steep discounts to attract shoppers.

“February sales reflect the continuing difficult economic environment,” said John Cato, chief executive of Cato, a women’s clothing chain. “We did see some beneficial impact from the delay in tax refunds from January.”

Limited Brands Inc., which operates Victoria’s Secret and has been on a winning streak, said that it had to discount more heavily than usual to bring in shoppers in February. Still, it reported a 3 percent increase in revenue, above the 2.6 percent rise analysts had expected.

Gap Inc., which started to gain momentum early last year, had a mixed performance. The retailer, which operates Gap, Old Navy and Banana Republic stores, posted a 3 percent increase, higher than the 2 percent gain analysts had projected. Revenue rose 2 percent at Gap and 6 percent at Old Navy, but sales at Banana Republic stores open at least a year fell 5 percent.

Article source: http://www.nytimes.com/2013/03/08/business/economy/retailers-report-sales-gains.html?partner=rss&emc=rss

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DealBook: Pearson to Take 5 Percent Stake in Nook Unit

December 29, 2012 by Leave a Comment

A Nook tabletShannon Stapleton/ReutersA Nook tablet.
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8:35 p.m. | Updated

Barnes Noble moved to shore up its struggling Nook Media division Friday, agreeing to sell a 5 percent stake to Pearson, a British publishing and education company, for $89.5 million.

In a sign of the headwinds the bookseller is facing, the company said in a regulatory filing that holiday sales were weaker than expected and that its Nook unit would fall short of projections for 2013.

The forecast underscores the difficulties Barnes Noble is having as it tries to build out its digital business and compete in a crowded market with giant companies like Amazon, Apple and Google. Sales for the first generation of e-readers have been dropping rapidly as consumers shift to tablets that can offer other forms of media like music, games and video. Just this week, Amazon was trumpeting banner sales of its Kindle Fire tablet over the holidays.

By contrast, worldwide shipments of e-readers fell by 36 percent in 2012, according to a report released this month by IHS iSuppli, a market research firm.

“The market’s growth is slowing down,” said James L. McQuivey, a media analyst with Forrester Research, referring to e-readers. “The easy customers have been snatched up. And the first customers are the best customers, who buy the most books. In the case of Amazon, you can compensate by selling merchandise to later adopters. Barnes Noble doesn’t have that luxury.”

Still, investors seemed to be cheered by the infusion of cash and the tie-in with Pearson’s large education and textbook business. That market has trailed trade books in switching to a digital format, and Barnes Noble could benefit as education books catch up. It could also try to make the Nook tablet a preferred device for educational content.

Shares in the company were up 4.3 percent, closing at $14.97.

Barnes Noble has tried to keep up with larger competitors by producing its own critically praised tablet and has claimed about 25 percent of the e-book market. But maintaining technological parity is expensive for a company that does not sell a broad range of similar merchandise. The chain has struggled under the burden of investing heavily in the Nook business over the last two years.

As a result, the company has sought partners for its Nook business for financial support. Last spring, Barnes Noble spun off the Nook division as a separate company and sold a 16.8 percent stake to Microsoft for $300 million. In theory, Microsoft will help promote the Nook through its Windows software, although a significant push has not yet emerged.

Peter Wahlstrom, a senior analyst with Morningstar Equity Research, called the move “a net positive” for Barnes Noble.

“Digital textbooks are a small, new niche market and a partner like Pearson can only help accelerate that market and that is important, but it is incremental,” Mr. Wahlstrom said.

Pearson’s investment in Nook is the latest in a series of recent steps the company has taken to focus on digital expansion and distribution of its education content and services. Higher education in the United States is already Pearson’s largest single business and in October it acquired EmbanetCompass, a provider of online learning services to North American colleges and universities, for $650 million.

That same month, Pearson agreed to merge its Penguin book publishing business — which does popular as opposed to educational books — with Bertelsmann’s Random House division, which further narrowed Pearson’s focus on educational books.

In a written statement, Will Ethridge, chief executive of Pearson North America, emphasized the advantages of the investment for the learning community. The deal, he said, “will allow our two companies to work closely together in order to create a more seamless and effective experience for students.” He added, “It is another example of our strategy of making our content and services broadly available to students and faculty through a wide range of distribution partners.”

Some analysts questioned whether Pearson was getting its money’s worth. In addition to its initial 5 percent stake in the Nook business, it has an option to buy another 5 percent. Pearson’s investment values the Nook business at $1.8 billion, more than double Barnes Noble’s market value on Friday of $883 million.

Mr. McQuivey acknowledged the potential of the education market but said it had too many variables to be seen as a reliable source of revenue.

“In the long run, if you can make the educational market explode and you get schools to give to tens of millions of children Nooks and put Pearson education content into the Nook, then it would be a long-range strategy for customers,” he said.

Instead, he said that the investment might be an effort by Pearson to help Barnes Noble stay in competition with Amazon.

Ken Doctor, a media analyst with Outsell, a research and consulting firm in Northern California, agreed that propping up a competitor to Amazon might be a motive, but he added that Pearson, with an investment of close to $90 million, was probably looking for more.

“That is why I think it is about preference and maybe really taking the Nook into an education leadership position,” he said.

Among the things Pearson might get for its investment, Mr. Doctor said, was preferential placement of its products on Nook home pages or even a say in how the device evolves over the next few years.

Article source: http://dealbook.nytimes.com/2012/12/28/pearson-to-take-stake-in-nook-unit/?partner=rss&emc=rss

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Signs Point to Economy’s Rise, but Experts See a False Dawn

December 22, 2011 by Leave a Comment

In recent weeks, a broad range of data — like reports on new residential construction and small business confidence — have beaten analysts’ expectations. Initial claims for jobless benefits, often an early indicator of where the labor market is headed, have dropped to their lowest level since May 2008. And prominent economics groups say the economy is growing three to four times as quickly as it was early in the year, at an annual pace of about 3.7 percent.

But the good news also comes with a significant caveat. Many forecasters say the recent uptick probably does not represent the long-awaited start to a strong, sustainable recovery. Much of the current strength is caused by temporary factors. And economists expect growth to slow in the first half of 2012 to an annual pace of about 1.5 to 2 percent.

Even that estimate could be optimistic if Washington lawmakers fail to extend aid for the long-term unemployed and a payroll tax cut for the United States’ 160 million wage earners.

At stake is about $150 billion, the bulk of which would go to middle-class families and the unemployed. If Congress does not pass the measures, economists say, it would significantly weaken growth from already-damped levels anticipated early in the new year.

“Unfortunately, I think we’re going to see a slowdown over the course of next year,” Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch, told reporters last week. “Not only do we have the European crisis spilling over and hurting U.S. trade and confidence,” he said, but the United States economy also faces “homegrown shocks.”

There are two reasons for the renewed pessimism. First, economists say that temporary trends increased growth in the fourth quarter and may not continue into next year. Second, the economy faces significant headwinds in 2012: some from Europe’s long-lingering sovereign debt crisis, and some from domestic cutbacks beyond the control of President Obama, whose campaign would like to point to a brightening economic picture, not a darkening one. Even the Federal Reserve is predicting that the unemployment rate will remain around 8.6 percent by the time voters go to the polls in November.

The fourth quarter benefited, for instance, from wholesalers restocking inventories of goods like petroleum, paper and cars, giving a jolt to growth.

“We had lean inventories, so those required additional production to satisfy demand,” said Gregory Daco of IHS Global Insight. “But once inventories are restocked, there is no need to restock them anymore. That means there’s going to be less production,” he said.

Consumers also pulled back on their savings, helping to finance a recent spurt in spending. a trend that forecasters doubt will continue. Other short-lived factors include falling gasoline and commodity prices, and an increase in orders from Japanese companies returning to business after the devastating spring tsunami.

But next year, Washington is increasing some taxes and reducing spending as temporary measures enacted during the worst of the recession expire. That will damp growth by a percentage point or more next year, forecasters say. Provisions like a tax write-off to help businesses pay for equipment are winding down or ending.

Most worrying is the prospect that Congress will drop aid for the long-term jobless and allow payroll taxes to rise to 6.2 percent from the current level of 4.2 percent, amounting to a $1,000 tax increase on the average wage earner. Macroeconomic Advisers, a prominent forecaster, estimates that the expiration of the two provisions could cost the economy 400,000 jobs and cut growth by half a percentage point next year.

How and when Congress acts will also have an important, if impossible to quantify, impact on consumer and business confidence, economists say. Households and companies uncertain about their income, unclear about their tax rates and lacking confidence in their government might hold off on major financial purchases and tighten their purse strings.

Then there is Europe.

“If there is some Lehman-type event in the first half of the year, it will have a big impact,” said Joel Prakken, chairman of Macroeconomic Advisers. The collapse of Lehman Brothers, a New York investment bank, in late 2008 helped set off the financial crisis.

Even without such a major event, forecasters say problems on the Continent will weigh on American growth next year. Investor flight from assets denominated in the shaky euro have made the dollar stronger and American exports less competitive abroad. The euro zone’s woes have also made a global slowdown more likely, which could mean a reduction in American exports to emerging-market countries as well.

For now, Democrats and Republicans remain at loggerheads, blaming each another for the uncertainty around the payroll tax rates and aid for the unemployed.

“A two-month extension creates uncertainty and will cause problems for people who are trying to create jobs,” John Boehner, Republican of Ohio and speaker of the House, said on Monday.

“The clock is ticking. Time is running out,” President Obama said at a White House news briefing on Tuesday. “One of the House Republicans referred to what they’re doing as ‘high-stakes poker.’ He’s right about the stakes, but this is not poker. This is not a game.”

Article source: http://feeds.nytimes.com/click.phdo?i=622cd048bc3300e935f46e2bab84b819

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Japan October Exports Disappoint as Yen, Global Slowdown

November 21, 2011 by Leave a Comment

Although Japan’s economy expanded 1.5 percent in the previous quarter, rebounding from recession triggered by March earthquake and subsequent nuclear crisis, it is expected to slow sharply in October-December. Severe floods in Thailand, a major manufacturing base for many Japanese exporters, are expected to add to global headwinds faced by the world’s third-biggest economy.

Exports fell 3.7 percent last month from a year earlier, far more than a 0.3 percent dip forecast by economists and the data follows the central bank’s warning that government debt woes in Europe were already hurting Japan and emerging economies.

The October fall follows a 2.3 percent rise in September and was the biggest drop since a 10.3 percent fall in May, with shipments of semiconductors and other electronic goods falling due to strength in the yen.

“The global slowdown stemming from Europe’s debt crisis, sluggish IT-related demand and the yen’s rise which is driving production abroad were among the factors behind the decline,” a finance ministry official said.

He added that the impact of Thai flooding may further hurt Japan’s exports in the coming months.

Thai-bound exports fell 5.1 percent, the first annual decline in three months.

The Bank of Japan held fire last week after easing policy by boosting its asset buying scheme in October, but economists say signs of more weakness may put it under pressure to loosen monetary reins further.

“Exports will likely continue to fall for the next few months,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“There is a chance that the BOJ will adopt further easing steps within this fiscal year. It is not yet a real crisis situation but the impact from Europe’s debt woes is gradually affecting other economic regions.”

One of the triggers of the October 27 monetary easing was the yen’s rally to record highs against the dollar driven by investors shifting funds away from Europe and other riskier markets into highly liquid and relatively stable Japanese debt.

Some BOJ board members have argued that purchases of government bonds with short maturities worked to stabilize the foreign exchange market, BOJ minutes showed on Monday.

Just days after the central bank move, the finance ministry ordered its biggest ever single-day intervention, selling an estimated 7.7 trillion yen on October 31.

IMPORTS SURGE

Exports to China, Japan’s largest trading partner, slumped an annual 7.7 percent, posting their biggest decline since May.

Shipments to the United States fell 2.3 percent, while those to European Union dropped 2.9 percent, down for the first time in five months and bringing Japan’s trade surplus with the region to its smallest since 1979 for the month of October.

Imports were up 17.9 percent in October from a year earlier, against an expected 15.2 percent gain, bringing the trade balance to a deficit of 273.8 billion yen ($3.6 billion). That marked the first deficit in two months and compared with a median forecast of a 39.9 billion yen surplus.

Japan’s trade balance has swung to a deficit a few times since the March disaster as exports slumped due to damaged supply chains while imports continued to increase on rising demand for crude oil and natural gas to make up for a loss of nuclear energy as well as higher oil prices.

(Additional reporting by Rie Ishiguro; Editing by Joseph Radford and Tomasz Janowski)

Article source: http://www.nytimes.com/reuters/2011/11/20/business/business-us-japan-economy.html?partner=rss&emc=rss

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In Rare Move, Olympus Fires Its Chief

October 14, 2011 by Leave a Comment

Shares in the company, which is based in Tokyo, lost nearly a fifth of their value after Olympus said its board had voted to strip Michael Woodford, 51, of his position as president and chief executive.

The Olympus chairman and former chief executive, Tsuyoshi Kikukawa, suggested that a culture clash between Mr. Woodford and the company’s largely Japanese top management had become too disruptive.

But the dismissal also came as Mr. Woodford, a 30-year Olympus veteran who turned around the company’s European operations through aggressive cost cuts, geared up to do the same across the Japanese company.

At a news conference Friday, Mr. Kikukawa implied that Mr. Woodford had gone too far.

“We hoped that he could do things that would be difficult for a Japanese executive to do,” Mr. Kikukawa said. “But he was unable to understand that we need to reflect a management style we have built up in our 92 years as a company, as well as Japanese culture,” he said.

It has been a swift reversal of fortune for Mr. Woodford, who leapfrogged scores of more likely candidates to clinch the top job in February, making him one of a handful of foreigners to run a large Japanese corporation.

The swift dismissal is also rare at Japanese companies, which often retain top executives even when the company is losing money.

At the time of his appointment, Mr. Kikukawa gave him a glowing review, describing the Briton’s loyalty to Olympus as “above the rest.”

Mr. Woodford was also praised as the new global face of a company, like many others in Japan, that had looked overseas to make up for a shrinking market at home.

But in a sign of the headwinds he may have faced at Olympus, Mr. Woodford had described, in an interview with the magazine of the British Chamber of Commerce in Japan, the difficulties of navigating Japan’s closed corporate culture.

“I understand why Japan gets tagged with the ‘unique’ label; it’s one of the most impenetrable cultures for outsiders,” he said in a cover story in the magazine’s October issue.

“Status quo is still very powerful in Japan,” he said. “When you change something, you close something or withdraw from something, you will get resistance based on my predecessor’s decisions, especially when something is seen as sacrosanct or a holy cow.”

Mr. Woodford had taken the helm at Olympus at a tough time. In the year through March, net profit at Olympus fell 85 percent from the previous year to ¥7.4 billion, or $96 million, as losses at its camera division weighed on the company’s profitable medical equipment business. In that year alone, the cameral division lost ¥15 billion, a performance Mr. Woodford had called “unacceptable.”

Those assurances may not have been enough to quell growing unease among his Japanese colleagues, however. Among the differences cited by Olympus were disagreements between top management and Mr. Woodford over restructuring the company’s research and development division.

Still, the plan had given Olympus enough cause to raise its earnings forecast for the year through March 2012 to ¥18 billion, a 140 percent increase from the previous year.

Some analysts swiftly cut their ratings on Olympus following Mr. Woodward’s dismissal. The Japanese investment bank, Nomura, said it no longer expected bold cost cuts or an improvement in earnings in the next fiscal year.

Mr. Woodford’s plight highlights the sway that outgoing executives continue to hold at Japanese companies, often serving as powerful chairman — a practice that makes it difficult for new management to bring about big changes.

That was laid bare at the conference on Friday. Mr. Kikukawa, the chairman, complained that Mr. Woodford would often bypass the heads of company divisions to give orders directly to the rank and file.

Mr. Woodford “ignored our organizational structure and made decisions entirely on his own judgment,” Mr. Kikukawa said. “I told him repeatedly he couldn’t do that, but he didn’t listen.”

Olympus said Mr. Kikukawa would take back his title as president and chief executive. Mr. Woodford will remain a director without representative rights until the next annual shareholders’ meeting, normally held in June, the company said. Mr. Woodford could not immediately be reached for comment.

Mr. Woodford had been part of a small club of non-Japanese at the helm of companies here, including Howard Stringer, the Welsh-born American chief executive of Sony; Carlos Ghosn, the Lebanese-Brazilian president of Nissan Motor; and Craig Naylor, who heads Nippon Sheet Glass.

Article source: http://www.nytimes.com/2011/10/15/business/global/in-rare-move-olympus-fires-its-chief.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Airline Trade Group Sees Bigger Profits This Year

September 20, 2011 by Leave a Comment

PARIS — Worldwide demand for air travel remains well above average, despite clear signs of a broad economic slowdown, an industry group said Tuesday as it substantially raised its profit forecast for the year.

But the deepening debt crisis in Europe and stagnant jobs growth in North America are likely to put the squeeze on both business and leisure travel by the year-end holiday season, the International Air Transport Association said. It said demand was likely to remain weak well into the first half of next year.

The association, which represents most of the world’s airlines, raised its forecast for combined 2011 profit to $6.9 billion, a big improvement from the $4 billion predicted in June. But collective profits in 2012 are likely to drop to $4.9 billion, the trade body said.

“Airlines are going to make a little more money in 2011 than we thought. That is good news,” said Tony Tyler, who took over as the association’s director general in July. “Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement.”

The revised profit forecast for this year is still well below the $8.6 billion the association forecast March 2 — just days before the earthquake, tsunami and nuclear accident in Japan, which has sharply curtailed air travel to Japan, one of the world’s largest economies. That disaster coincided with a series of popular uprisings in North Africa and the Middle East, which led to a surge in oil prices to more than $100 a barrel.

“Even with the extra shocks this year, people are still flying,” Mr. Tyler said.

The new outlooks are a sharp drop from the nearly $16 billion that carriers earned in 2010. Mr. Tyler said that the coming months would be challenging for an industry that has historically delivered profit margins in the low single digits.

“It looks like we are headed for another year in the doldrums,” he said. “Business confidence is declining. It is difficult to see any potential for significant profitable growth.”

Asian airlines are once again expected to deliver the bulk of global profits this year, to the tune of $2.5 billion — although that is a fraction of the $8 billion earned in the region in 2010. The decline was largely the result of a sharp drop in air cargo traffic after the disasters in Japan; the association said it expected a strong rebound later this year and continuing into 2012.

Meanwhile, European carriers have benefited from an increase in inbound tourist traffic, fueled by a relatively weaker euro. But while the region’s airlines are likely to make a profit of about $1.4 billion in 2011, down from $1.9 billion in 2010, that is expected to plummet to just $300 million next year as the effects of government austerity and declining economic growth takes hold.

“A long slow struggle lies ahead,” Mr. Tyler said.

In North America, the association predicted airlines would achieve a collective net profit of $1.5 billion this year, down from $4.1 billion in 2010.

The association, which revises its financial forecast quarterly, represents 230 airlines that account for 93 percent of international air traffic.

Article source: http://feeds.nytimes.com/click.phdo?i=2e83395d0de1912d17ab4810d991148b

Filed Under: Business News Tagged With: , ,
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