Does Anyone Still Believe There Is No Recession?

 |  Includes: AAPL, AXP, CAT, COST, JPM, TM, UPS
by: Barry Ritholtz

The anticipated bear market bounce in Financials has led to the usual fools' chorus that the worst is behind us, the economy is on the mend, and a recession is avoided. If their song sounds familiar, it is because you heard the same tune with the homebuilders, and the same melody with the monoduoline insurers.

For those with their heads in the sand, here is a broad and varied look at where the economy is contracting. Note that this isn't a cherrypicked list of negatives -- it is the crème de la crème of corporate America, ranging from consumer to finance to industrial to transports, and includes such stellar names as Apple (NASDAQ:AAPL), Toyota (NYSE:TM), American Express (NYSE:AXP), UPS (NYSE:UPS), Caterpillar (NYSE:CAT), Costco (NASDAQ:COST) and JPMorgan (NYSE:JPM). (There's not a slouch in the bunch!)

How's the economy doing? You tell me:

• Not just GM (NYSE:GM) and Ford (NYSE:F), but mighty Toyota (TM) warns of lower 2008 vehicle sales (MarketWatch)

Toyota lowered its forecast sales for the year due to an unexpectedly (?) steep decline in demand for new vehicles in the U.S. market. Toyota reported a drop in U.S. sales of 21.4% in June (Passenger cars -9.4%, trucks -38.8%).  Shares of Toyota are down 25% over the past 12 months.

Slowing auto sales were blamed on the big 3's heavy lineup of SUVs and trucks. Now that the world's best automaker has declared a slowdown in the US, the cheerleaders are running out of excuses.

JPMorgan CEO Jamie Dimon: (JPM) “Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress…We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer.” [Bloomberg]

• What about Apple (AAPL) -- they continue to do well? They have been -- but even the iPod/iPhone maker is expecting a consumer slowdown: Thinner profit margins, more discounting, diminished profitability through the rest of 2008 and into the following year. [BusinessWeek]

American Express (AXP): The credit card company said that even its most creditworthy, long-standing customers felt the effects of the economic slowdown that's currently sweeping the U.S. "With bad debt occurring even in the superprime card segment, AmEx's earnings clearly show that the credit crisis is going upscale, which does not bode well for the U.S. economy."

American Express is known for catering to wealthier customers, so some investors expected the company to withstand the economic slowdown relatively well. Amex noted that its richer clients were often given cards with bigger credit lines. Now that some of these customers are missing payments, the losses are bigger. [MarketWatch]

State Budgets are under pressure, as deficits increase, and tax revenues falter. The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year.  [WSJ]

• We have Oil Prices falling -- the knee jerk response was optimism -- but that misses the big picture. Its not difficult to explain, it's merely cooling global demand courtesy of a US-induced global slowdown.

UPS:  Earnings fell 18.3% per share -- and that was after UPS issued a profit warning (June 23) -- its second in two quarters. The company reduced its full-year outlook, and Chief Financial Officer Kurt Kuehn:  "Slow U.S. economic activity and fuel-price increases hit us and our customers during the quarter" [Reuters]   (How anyone possibly thought this was a good report is simply beyond me).

Costco Warns on Profit As Inflation Clouds Outlook: COST was supposed to be one of the firms that was going to thrive on a recession. It warned that its fiscal Q4 and full year profits will be well below analysts' estimates. They blamed inflation, particularly energy costs. "Factors negatively affecting our fourth quarter earnings outlook arise largely from inflation, particularly as to energy costs," Costco Chief Financial Officer Richard Galanti said in a statement.  [WSJ]

Caterpillar:  Despite good overseas earnings, Caterpillar (CAT) CEO Jim Owens cited "softening'' in Japan and Western Europe. The U.S. may find it hard "to avoid a recession." CAT sees further employment declines, no sign of housing recovery, and expects non-residential building to soften further. North America will be its weakest region. [Bloomberg]

Beige Book: Describes the economy as having 'slowed.' In all districts, consumer spending was sluggish or is slowing. Manufacturing declines were seen in many districts. Residential real estate declined or were still weak. Due to economic weakness, bank loan growth was 'restrained.' [Federal Reserve]

Mortgage Applications Reflect Housing Trouble: No surprise here - Mortgage apps dropped 6.2% with similar declines in both the refinancing and purchase activity components. The depressed state of the housing market, very tight credit conditions in the mortgage market, mortgage rates rising an average of 35 bps all weighed. The one bright spot: Refi activity since August of 2007 has been occurring among subprime borrowers (in conjunction with the FHA to restructure loans). [AP]

Pawn shops are booming: It doesn't get much better than this for pawnshop operators, who are thriving in this environment. Tight credit and record food and gas prices have made it tough for a lot of consumers to make ends meet. Cash-strapped consumers with no access to credit are exchanging personal possessions as collateral for loans. Business is booming.  [IBD]

Unemployment has finally bypassed the "magic" 400k number (not there's anything special about that line). At 406k, it matches a three-year high, suggesting that we are nowhere near any sort of stabilization for labor markets [Marketwatch]