I believe that the economy is definitely cooling. Wal-Mart's (WMT) customers are experiencing difficulties, 3M (MMM) announced weakness in the LCD market, and the jobs report was less than robust.
Jonathan Birchall an article Rising petrol costs take toll on Wal-Mart sales for the Financial Times (subscription required).
Wal-Mart, the largest US retailer, said yesterday that its customers were increasingly feeling the pressure of higher fuel prices, as it reported that comparable sales at its discount stores increased by just 1.1 per cent during June.
Tom Schoewe, chief financial officer, said research among Wal-Mart's predominantly lower income shoppers showed increasing concern about the rise in petrol prices over the past year.
Wal-Mart's customers, he said, were consolidating shopping trips to cut down on driving, and reducing non-essential purchases. "The priority in spending by our customers is on food and consumables," he said.
The Wall Street Journal online has an article 3M Warns of Earnings Shortfall (subscription required) that highlight 3M's problems.
Sales of films that coat the screens of flat-panel televisions and computer monitors have been a key profit driver for 3M. On Friday, it said those sales have been hurt by increasing inventories of those films, especially for desktop computer monitors.
"As other companies in the LCD industry have recently noted, the industry has experienced an increase in inventory levels over the last few months, particularly in desktop monitors, which has significantly impacted sales of 3M optical films," said Chairman, President and Chief Executive George Buckley, in a statement.
The industry also overestimated demand for LCD televisions ahead of this summer's World Cup in Germany, he added. But the company expects LCD demand to increase in the third and fourth quarters in anticipation of the holiday season.
As an additional note, Advanced Micro Devices Inc. (AMD) warned of a decline in second quarter revenue. Don Clark wrote AMD Cautions Of Revenue Drop As Intel Cuts Prices (subscription required) for the Wall Street Journal.
Advanced Micro Devices Inc. warned of a decline in second-quarter revenue from the first period, a sign that sharp price cuts by rival Intel Corp. are beginning to do some damage.
AMD estimated that it will report revenue for the quarter of $1.22 billion. That is 52% higher than the year-earlier quarter, excluding revenue from a memory-chip business that was spun off, but 9% lower than the first quarter. The company had said it expected sales to be "flat to slightly down" from the first period.
The Sunnyvale, Calif., semiconductor maker has been taking sales lately from Intel, which has historically accounted for about 80% of unit sales and 90% of revenue in the market for chips that serve as the calculating engines for computers. Partly as a result, Intel is expected to report one of its worst quarterly results in years for the period ended June 30.
Problems with flat screen televisions, computer monitors, and chips certainly do not bode well for consumer electronics, especially when many consumers are allocating more of their wallet toward energy and, I suspect, mortgage payments.
Brian Blackstone wrote June Payrolls Grew by 121,000 In Sign of Cooling Economy (subscription required) for the Wall Street Journal online.
WASHINGTON -- U.S. employment growth came in below expectations last month, providing further evidence the economy is slowing and giving the Federal Reserve some flexibility to pause its two-year tightening campaign as early as next month.
Nonfarm payrolls grew 121,000 last month after climbing 92,000 in May and 112,000 in April, the Labor Department said Friday. Previous estimates showed a 75,000-job increase in May and a 126,000 gain in April.
The unemployment rate was unchanged last month at 4.6%, which is the lowest level since 2001.
Despite the moderation in job growth, there were some signs of inflationary pressure. Average hourly earnings rose $0.08, or 0.5%, to $16.70. Compared with a year earlier, June hourly earnings were up 3.9%, the fastest annual growth pace since June 2001.
The Fed is in a difficult position. Energy prices, lack of continued tax stimuli, lack of increasing housing prices have all started contribute to a cooling economy. Yet, commodities in general are still doing well. Trade and current account deficits are definite negatives. And the dollar appears to be under more pressure. Although some pundits have begun to wonder openly if the Fed might go higher than most expect, I think with the cooling economy we are very near or at the end of the rate increases. And I would not be surprised if Bernanke actually lowers rates later this year.
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