GE Capital is taking on the doubters. The finance arm of General Electric (GE, Fortune 500) on Tuesday addressed investors skeptical of its fit within the industrial conglomerate.
Chief among the messages: The business is adequately funded; it has enough capital to handle potential loan losses; and it is basically above average in what it does relative to big U.S. banks. But if that’s all true, why does GE Capital need the special treatment it is fighting for on Capitol Hill?
The Obama administration’s regulatory reform plans would ramp up the constraints on financial firms that are big enough to represent a systemic risk. But GE Capital is lobbying to exempt its $650 billion balance sheet from such a high level of oversight. But if it’s so good at what it does, it shouldn’t need that kind of help.
The full-court press the company is unleashing in Washington is also at odds with what GE Capital itself conveyed to shareholders. The first slide of its 63-page manifesto says its loan portfolios are "performing as expected or slightly better" and exhibiting loss rates "most below the Federal Reserve Base Case." It expects loan losses in 2010 to mirror those of the current year, and it doesn’t need more capital "even under adverse scenarios color business cards."
GE Capital rolled out the numbers to buttress its above-average banking prowess. The company said it has $25 billion of financial receivables to U.S. consumers, with reserves equal to 6.6% of these loans — above the 6.1% average held by the top three American banks. Similarly, it has reserves equal to 1.5% of the $93 billion of loans extended to U.S. businesses, higher than the 1.1% held by the big banks.
But here’s the problem. If GE Capital really is adequately capitalized to handle rising defaults, manages to get more than rivals from customers who can’t pay their bills, and has enough funding to weather ructions in the capital markets, it makes special treatment as a non-bank financial institution seem unnecessary.
The company also considers itself to be an "important source of liquidity to U.S. businesses and consumers." GE Capital’s balance sheet would make it the country’s fifth-largest bank. So GE Capital is right that it’s an important player in the financial system. And that’s how it should be regulated.
Matthew and Marnie Brannon, co-owners of Midwest Fiat in Columbus, Ohio, have run their vintage Italian car parts and service shop for five years. Late last year, they were offered the chance to buy a competitor and expand their business — but no bank would lend them the money to do it.
After a grueling six months of hacking through red tape and warding off scam lenders, the Brannons finally got their financing. Here’s how they did it.
December 2008: We had been interested in acquiring a Georgia-based Fiat parts company for months. Between Christmas and the New Year, the owners of that company offered us a purchase price on terms we liked. But the offer, they said, would expire in 90 days.
We got to work right away, running the numbers for their company and ours, locating a property in our area that would support a much larger company, and putting together a presentation for lenders. The binder we assembled was 300 pages, opening with our elevator pitch. We also included a PowerPoint presentation on our business, spreadsheets full of our company and personal financial data, and a detailed financial forecast. We knew we’d need to borrow about $110,000 to both make the purchase and operate the business for the first few months after the deal.
February 2009: Our first major mistake was assuming that the loan process would be as easy as getting a mortgage. We thought it would be quick, because we were so well-prepared.
We approached one bank at a time, waiting weeks in between each for an answer. Every time, the result was the same: A loan officer explaining that although our presentation was the best they’d seen, they weren’t willing to work with us.
March: The deadline was looming. After being rejected by three banks, we e-mailed the company in Georgia to explain that we were working very diligently to secure lending, in the hopes that they’d keep the offer on the table. Then we took a shotgun approach and sent the binder to two more banks at once. One rejected us, but the other took interest. We went in for a meeting and the loan officer said he could try to get us a Small Business Administration (SBA) loan.
At the very end of the month, CNNMoney.com interviewed us and ran a story describing our situation.
April: About 30 individuals contacted us following that story claiming to be able to help us. Some emailed, some called. But none were known, reputable lenders. For starters, they came from far and wide. Why would we want to work with someone from Nevada or L.A.? And also, their means of getting us money — from a reverse mortgage on our house to attaching liens to our merchant services — were too unconventional for our tastes.
As far as we could tell, they were all snake oil salesmen — with the exception of one guy from Columbus who facilitates loans and financing at much larger companies. He had connections at a bank that he thought would be interested in our business. He wanted to meet for lunch to discuss — no strings or personal involvement attached.
It’s beyond us why he took the time to introduce himself, but we were thrilled that he did. After a lunch meeting, where we of course presented our trusty binder, he pulled out his phone. It took only one phone call for us to get our foot in the door at a commercial financing institution in Columbus. It was a small lender that had been around for five years or so, but we hadn’t heard of it before direct payday loan lenders.
They were much more responsive to us, and moved faster, than any other potential lender that we’d talked with. The rest of the month was full of meetings. We filled out paperwork and answered detailed questions from the lender. The loan officer even came by our shop to survey how we operate. We always made sure that when there was a request for a document, we got it to him immediately.
May: We got written and verbal approval for the loan on May 5. The company we wanted to buy was still game to move forward with the sale, but because it had been so long since the original offer, we had to go back and renegotiate for the inventory — they’d kept selling while we were hunting for the financing, so what remained for us to buy had changed.
The owners pushed back and were reluctant to update their profit and loss statements. That delayed the process. Plus, a number of new searches had to be done to ensure our potential acquisition didn’t have any outstanding debts.
The following six weeks was the most gut-wrenching period for us. All the pieces hung in a delicate balance.
The bank kept asking us when we were ready to close. The other bank, the one that was working on an SBA-based solution, contacted us mid-May to announce approval as well, and also began asking when we were ready to sign. We had to finalize the sales contract by gently marshalling all of the stakeholders — the sellers, counsel on both sides, accountants, and so on — some of whom seemed to have little sense of urgency. Because of the delays, we had to continue paying non-refundable deposits on the property for the new warehouse, while persuading the landlord that we were close to sealing the deal. We also needed to line up new insurance policies and perform lien searches to satisfy the lenders.
We worried that if any of the main components — the sales contract, the loan, or the property — fell through, all our work would have been for naught.
Finally, the sale was completed.
June: As we prepared the loan documents, the bank’s lending officers were wringing their hands over the collateralization. In the end, everything but our wedding rings was on the line, from our properties to our life insurance. Our friends thought we were crazy, but we decided to take the leap.
On June 22, we signed on the dotted line and got a loan that would both cover the purchase and carry us through our nascent months.
Oh, and that day we were finally able to withdraw our application from the bank that had expressed an interest in giving us an SBA loan in March. We had kept it open as a backup option in case our current deal went kablooey.
July: Our epic journey hasn’t ended — it has just begun.
As tired as we are, we’re running on adrenaline to get the shop up on its feet. We just finished transferring inventory from Georgia to Ohio. In a few days, we’ll be hiring two new employees, and we plan to add another three by the end of the year. We also plan on making our Web site more professional to reflect our new company.
Our friends who doubted us now rethink our decisions when they see the sheer amount of stuff we have and the new, amazing space. They finally see the vision that we had all along.
Amazon.com Inc posted a quarterly net profit Thursday that fell by 10% as foreign currency fluctuations and a legal settlement hit earnings at the world’s largest online retailer, sending shares down more than 5% in after-hours trading.
Amazon (AMZN, Fortune 500), fresh from announcing Wednesday it would acquire online shoe store Zappos.com for some $928 million, said net profit in the second quarter fell 10% to $142 million, or 32 cents per share, from $158 million, or 37 cents per share, a year earlier.
Operating profit was $159 million, a 27% drop, caused by changes in foreign exchange rates and a settlement with Toysrus.com.
Revenue rose 14% to $4.65 billion — shy of the $4 same day payday loans.69 billion analyst estimate. Excluding currency fluctuations, revenue rose 20%.
Amazon had forecast second-quarter revenue of $4.3 billion to $4.75 billion and an operating profit of $110 million to $190 million.
Looking ahead, Amazon forecast third-quarter revenue of $4.75 billion to $5.25 billion — compared with the $4.92 billion expected by analysts — with operating profit between $120 million and $210 million.
Shares fell 5.6% to $88.62 after closing on the Nasdaq at $93.87, up 5.7%.
Sportscar maker Porsche conceded a months-long power struggle to mass-market rival Volkswagen by axing its chief executive and saying it would raise at least €5 billion in equity as the two prepared for a merger.
After an all-night meeting of its board of directors, Porsche said Wendelin Wiedeking, Germany’s best-paid executive and its CEO for the past 16 years, along with finance chief Holger Haerter, would quit the group immediately.
Their hasty exit will be sweetened by payoffs of €50 million and €12.5 million, respectively.
Wiedeking, who had opposed selling Porsche to Volkswagen, which would have helped the company reduce the debt he had run up in a botched attempt to take over VW, will be succeeded by Porsche’s production head Michael Macht, the board said in a statement early on Thursday.
The meeting of the non-executive directors, which include the Piech and Porsche families that between them control Porsche, approved Wiedeking’s proposal to raise fresh equity — either in cash or through a contribution in kind — and endorsed talks to sell a stake to the Gulf state of Qatar.
"This should lay the foundations for the creation of an integrated automobile group consisting of Porsche SE and Volkswagen," Porsche said.
It was unclear from Porsche’s statement who would contribute to the capital increase and whether it would be taken up by Qatar. A Porsche spokesman declined to comment further.
The board’s unanimous approval signals that the powerful Porsche and Piech clans may be open to surrendering some of their influence at the maker of the 911 sports coupe.
Between them they control 100% of Porsche’s voting shares and have resisted selling a stake to an outsider.
At 0820 GMT, Porsche shares were up 1%, while Volkswagen’s were down around 3%, compared with a 0 life insurance quote.8% fall in the DJ Stoxx auto index and a flat German market.
Joining forces
A source at Volkswagen, speaking on condition of anonymity, told Reuters it was still open whether oil-rich Qatar would take a stake in the Porsche SE holding company or directly in Volkswagen, or in both groups.
The issue was due to be discussed by Volkswagen’s own board of directors, which gathers for an extraordinary session on Thursday in Stuttgart, where Porsche’s Zuffenhausen headquarters are based, rather than its own headquarters in Wolfsburg.
Volkswagen, Europe’s biggest carmaker, declined to comment.
The moves came as Porsche enters the final stretch of negotiations with Volkswagen to create what both sides have called an "integrated" auto group, in which Porsche would essentially become the 10th brand in Volkswagen’s sweeping automotive empire.
Porsche SE, the holding company that controls sportscar maker Porsche AG, needs to bolster its finances after accumulating more than €10 billion in debt through its botched attempt to seize control of VW.
Porsche was forced to abandon attempts to win control over 75% of VW, leaving it with a stake of nearly 51%. The failed takeover attempt opened the door to Ferdinand Piech, VW’s powerful chairman and himself a part-owner of Porsche, to turn the tables on Porsche.
The Porsche and Piech families had been at loggerheads for months over how to resolve the company’s debt woes and the role VW would play. Piech has pushed for VW to take over Porsche, on condition that Porsche fixes its finances first.
Federal Reserve Chairman Ben Bernanke said the huge amounts of money the U.S. central bank has pumped into the economy will not undercut its ability to push borrowing costs higher when the time is ripe.
Stressing that the weak U.S. economy will likely warrant exceptionally easy policies for a long time to come, Bernanke outlined in a newspaper opinion piece how the Fed could raise interest rates even with cash flooding the financial system.
"Accommodative policies will likely be warranted for an extended period," Bernanke wrote in the article published on the Wall Street Journal’s Web site. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."
The outline of the Fed’s "exit strategy" from the extraordinary monetary policy easing it has undertaken offers a preview of testimony Bernanke will deliver to Congress on Tuesday as he presents the Fed’s twice-a-year economic report.
Investors showed little reaction to the article.
"It doesn’t look like he’s sounding too anxious or urgent about removing excess stimulus from the system," said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.
The Fed has lowered benchmark overnight rates to near zero and pumped more than $1 trillion into financial markets to counter the worst banking crisis since the Great Depression and one of the most severe recessions in decades.
Some economists have expressed alarm that the U.S. central bank’s aggressive policies may have sown the seeds for an outburst of inflation when economic activity picks up.
Bernanke acknowledged the massive accumulation of bank reserves at the Fed could fuel unwanted price pressures when banks find more opportunities to lend money.
Fed’s tool box
But to soothe those worries, he described in detail the tools the Fed has at its disposal to raise borrowing costs and withdraw that money from circulation.
Fed officials have devoted extensive energy to thinking about their strategy for exiting from one of the most aggressive central bank responses to a financial crisis in U.S. history, he said.
"We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner," he said quick cash loans.
Chief among these is the Fed’s ability to pay interest on the reserves that banks hold at the Fed, Bernanke said. The interest rate the Fed pays on those reserves sets a floor under short-term rates.
If the Fed raises that rate, it can discourage banks from lending because banks will not want to lend money at rates lower than they can earn from the Fed, he explained.
Bernanke said the U.S. central bank also has other ways to raise short-term interest rates and limit the broad growth of money in the financial system.
For instance, it can arrange so-called reverse repurchase agreements with financial firms. The Fed would sell securities from its portfolio, taking cash out of the system, with an agreement to buy them back at a higher price at a later date.
The Fed could also offer "term deposits" similar to certificates of deposit to banks. Bank funds held at the Fed in such instruments would not be available for lending.
He also said the Treasury could issue securities and leave the funds on deposit with the Fed. Alternatively, he said the Fed could sell some of the securities it has accumulated.
While policy-makers have more fully turned their attention to how they might withdraw support for the economy, as opposed to how they might increase it, Bernanke made clear the central bank did not believe the economy was healthy enough for officials to remove easy money policies any time soon.
"As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period," Bernanke said.
While interest rate futures markets have toyed with the notion the U.S. central bank could begin to push interest rates up by the end of the year, most economists think a rate hike is further off.
In a research note, economists at Goldman Sachs said they did not see anything in Bernanke’s remarks that was at odds with their forecast that the Fed would hold rates near zero at least through the end of next year.
from an NHL hockey team to Obama’s suit maker — that are hitting the skids.
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NEW YORK (Reuters) — CIT Group Inc. is in talks with JPMorgan Chase & Co. and Goldman Sachs Group Inc. about short-term financing as it looks for ways to avoid bankruptcy, a source close to the company said on Friday, sending the lender’s shares and bonds up.
CIT (CIT, Fortune 500) — a 101-year-old lender that services nearly one million small and mid-sized businesses — is in search of $2 billion to $3 billion of financing, according to the source, who declined to be identified because the talks were private.
The company is also in talks with bondholders about a debt for equity swap, the source said. However, another source familiar with the negotiations who also declined to be identified told Reuters that many bondholders were pursuing a "debt for new debt" exchange, and that a debt for equity exchange was not a real consideration.
The first source added one potential scenario is also a sale of some assets to raise capital.
Bankruptcy, however, is still possible over the next few days, and CIT is maintaining an ongoing dialogue with regulators about the situation, the first source said. The lender had wanted regulators’ permission to transfer assets to its bank unit, but that did not happen, the source said low rate car insurance.
"They haven’t thrown the towel, and they still are trying to work very hard to get some sort of funding, but at the end of the day I still think that there is a very high risk of a bankruptcy event," said Sameer Gokhale, an analyst at KBW.
Shares were up 48 cents, or 117%, to 89 cents, after losing 75% of their market value on Thursday as government talks for financing collapsed and investors feared the company would have to file for bankruptcy.
The price of CIT’s floating-rate notes due in August rose to 66.5 cents on the dollar in busy trading, from about 61 cents late on Thursday, according to MarketAxess.
Asset sales?
The New York Post reported Friday that JPMorgan Chase & Co. (JPM, Fortune 500) could acquire CIT’s factoring unit, which finances more than $50 billion of wholesale inventory, at a time of the year when the collapse of the lender could disrupt retailers holidays plans.
CIT declined to comment and JPMorgan was not available for comment.
But Gokhale cooled expectations of an asset sale.
"It has some valuable franchises, but if they sell the assets in a distressed situation, they don’t even get the par value for the assets. They will have to take losses and those losses will further weaken the balance sheet, so that doesn’t seem to be a viable strategy," he said.
The company sought new help even after gaining the status of bank holding company in December so it could draw $2.33 billion of taxpayer money from the Treasury’s Troubled Asset Relief Program.
But the Obama administration declined help, saying it had set high standards for granting aid to companies and leaving private investors as the one alternative to avoid collapse.
The impact of CIT’s demise would likely pale by comparison with the collapse of investment bank Lehman Brothers Inc. last September, analysts said.
Still, the ripples of a collapse could be widespread and worsen the effects of the economic downturn for some firms.
CIT has about $40 billion of long-term debt, according to independent research firm CreditSights. About $1.1 billion of debt will come due in August, followed by about $2.5 billion by year end.
Google said Thursday it was seeing signs of stabilization in what has been a very rough advertising environment.
Consumers are still spending less than they were before the recession, but at least they are clicking around and searching for deals, according to Eric Schmidt, the Internet search giant’s chief executive. Compared to the same quarter last year, Google reported an increase in the number of clicks, but the cost per click was down.
Schmidt was speaking to analysts on the company’s conference call following second-quarter results that beat Wall Street’s forecasts.
Net income for the three months ended June 30 rose 19% to $1.48 billion, or $4.66 per share, compared with $1.25 billion, or $3.92 per share, for the same period a year ago.
Without one-time charges, Google (GOOG, Fortune 500) reported earnings of $5.36 per share. Analysts polled by Thomson Reuters, who typically strip out special items from their forecasts, were looking for $5.09 per share.
One analyst said that Google was able to manage such profits due to a lower-than-expected tax rate. Trip Chowdhry, the managing director of Global Equities Research, said in a research note that most analysts were making their estimate based on a 25% tax rate, but Google said its effective tax rate was 20% for the quarter.
Sales rose 3% to $5.52 billion from $5.37 billion for the year ago period. Excluding commissions paid to advertising partners, sales totaled $4.07 billion, which beat analysts estimates of $4.06 billion.
"Google had a very good quarter, especially given the continued macro-economic downturn," Schmidt said in a written statement. "These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs."
Analysts were more conservative about the modest uptick in sales that Google posted. Even as the sales edged up in the quarter, Chowdhry said that for the last seven quarters, "growth rates of Google have continue to decline."
Google’s head count dipped modestly in the quarter. The company had 19,786 full-time employees around the globe as of June 30, which was 378 employees less than it had at the end of the first quarter. Executives said on the conference call that this decrease was primarily due to previously announced reductions and that Google was currently hiring.
Ad sales account for almost all of Google’s revenue. In the fourth quarter of 2008, the company posted its first-ever quarterly profit drop, as it was hard hit by a pullback in advertising dollars during the recession.
Shares closed up $4.43 to $442.60 in regular session trade, but in after-hours trade, they fell 3%.
There were signs that the Google’s primary source of revenue was slowing. The number of paid clicks, which include clicks on ads served on Google sites and its partners, increased approximately 15% over the second quarter of 2008 but fell 2% over the first quarter no fax payday loan. And the cost-per-click was down 13% from the same time a year ago, but rose 5% from the first quarter of 2009.
Even if consumers are spending less, the fact that they are clicking is a sign of stabilization, according to Schmidt. "A quarter ago, we had no idea where the bottom was," he said. "Starting roughly Christmas, it became clear that people were spending more time searching and when they did purchase things, they were spending less."
"We are not at the moment, looking at that downward spiral that we thought we were 6 months ago," Schmidt said.
Nikesh Arora, Google’s President of Global Sales Operations and Business Development, said that there have been signs of improvement in the advertising sector, too.
"The small advertisers have stayed fairly consistent," Arora said on the conference call. "Large advertisers have wanted to watch and wait for a while and are now coming back to the table," which given Google’s current dependence on its advertising revenue stream is a positive.
The company remains the dominant Internet search leader, with 65% of market share in June, according to a report released Wednesday by online data tracker comScore. Yahoo (YHOO, Fortune 500) is holding steady in second place, with 19.6%, of the market, and Microsoft’s (MSFT, Fortune 500) new search engine, Bing, scooped up 8.4%.
As Microsoft steps into Google’s domain, Google is also venturing into what has traditionally been Microsoft’s dominant domain: operating systems.
Google unveiled its Internet-based Chrome OS last week, but some analysts think that it could be a while longer before computer users are ready to make the switch en masse. Chrome won’t be ready to launch until the fall of 2010, and its first target is netbooks.
Some analysts question how Google plans to make money back from all of the money it is spending to research and develop this new technology.
Schmidt said that as long as the new technology drives people to the Internet, it doesn’t have to necessarily pay for itself. There are numerous products that Google has offered without charging. "We do not require each project to be profitable," he said, but if the product is "making the Web a better place," then ultimately, he said, that is good for Google.
Analysts doubted Google’s approach. "New innovation from Google is exciting, but without a business model next to it, it is pretty much a non-event," said Chowdhry. "Its innovation in vacuum."
Extended unemployment benefits may be available for Americans who exhaust their standard jobless insurance — but the programs, as well as who’s included in government data, can be confusing.
Because programs and eligibility standards change frequently, the best thing to do is contact your state’s labor division. But here are answers to some common questions.
1. Who is included in the unemployment rate?
Only people who have actively looked for work in the past four weeks are included — regardless of whether they file for unemployment benefits. The Labor Department conducts a monthly population survey, asking simply if you’ve sought work in the past four weeks.
2. What is the difference between initial and continuing claims?
The government’s initial claims number identifies those people filing for their first week of unemployment benefits. Continuing claims reflect those people filing each week after their initial claim, up to their 26th week. After that, they are no longer counted in that total.
3. How many weeks of unemployment do I get?
A maximum of 26 weeks to start. (Well, except in Montana, which offers up to 28 weeks, and Massachusetts, which has a max of 30 weeks) 100% approval payday loans.
Eligibility depends on how long you worked and how much you made prior to becoming unemployed. Not every filer receives the maximum number of weeks available.
4. What if I run out?
You can get at least another 20 weeks in most instances.
In June 2008, Congress passed the Emergency Unemployment Compensation program, which extended the number of weeks available in those states that opted to be a part of the program. All did.
On top of that, those states with an insured unemployment of 4% or higher, or a total unemployment rate higher than 6% can offer another 13 weeks for a total of 33 weeks under EUC.
5. Is there anything after that?
Possibly another 20 weeks.
For those states whose insured unemployment is at 5% or higher, or total unemployment rate is above 6.5%, the federal government will pay for another 13 weeks of benefits. When the total unemployment tops 8%, states may enact a voluntary program to receive federal money for another 7 weeks of benefits.
Retail sales rose for the second straight month in June, the government reported Tuesday, but the gains came mostly from auto purchases, higher gas prices and a modest pick up in electronics sales.
The Commerce Department said total retail sales rose 0.6% last month, compared with May’s gain of 0.5%.
Economists surveyed by Briefing.com had been expecting June sales to increase 0.4%.
Sales excluding autos and auto parts also rose 0.3%, softer than expected, compared to a 0.5% increase in the measure in May.
Economists had forecast a gain of 0.5% in June sales, excluding auto purchases.
The report showed auto sales rose 2.3% in June while gasoline station sales jumped 5% in the month. Electronics sales rose 0.9%, while sales at sporting and music stores also increased 0.9%.
But June was a disappointment in most other retail categories. Sales at clothing sellers were flat in June versus the prior month, department store sales slumped 1.3% and sales at general merchandise stores slipped 0.4%.
Back-to-school jitters: The sales declines in these core retail sectors will likely heighten concerns about the upcoming back-to-school shopping season, which is the second most-important sales event of the year for merchants after the year-end holiday shopping period affordable health insurance.
In that regard, the National Retail Federation (NRF) on Tuesday forecast more dour news for the industry. The trade expects expects back-to-school spending to drop 7.7% this year as more households cut back on purchases amid pay cuts and continuing job losses.
"I would expect back-to-school sales to be soft this year because there’s just not a lot of support for consumers," said Adam York, economist with Wells Fargo Securities.
The biggest insecurities consumers are facing right now are weakness in the job market and weak or even declining income growth, York said.
Still, York is feeling somewhat more optimistic about the year-end holiday shopping period. That two-month period of November and December can account for 50% or more of merchants’ sales and profits for the full year.
"Maybe closer to Christmas, consumers will be in better shape and they are feeling more secure about their incomes and jobs," York said. "Hopefully, we’ll also see some growth in the economy or at least the end of declines by then."
After several months of growing optimism about the state of the economy, suddenly there’s a lot of concern that a recovery has come off the tracks.
A June employment report included an unexpected jump in job losses. That was followed by last week’s report of a nearly 5% decline in June year-over-year sales at major retailers other than discounter Wal-Mart Stores (WMT, Fortune 500), which no longer releases monthly results.
The gloomier economic outlook has hurt stocks, and prompted talk among some economists and policymakers about whether a new round of economic stimulus is needed to get the economy growing sooner.
But there are still many economists who believe the early signs of a turnaround in the economy are there — and growing.
They’re not saying the recession that started 19 months ago is already over. But many believe the economy will reach bottom and finally start to improve as soon as late summer. Some even believe employers could again start adding jobs before the end of this year.
"It would have certainly been better if the jobs report had continued to show improvement," said Lakshman Achuthan, managing director of Economic Cycle Research Institute, which specializes in calling when the economy will turn from recession to recovery and back again. "The fact that after a few steps forward we had a step back doesn’t negate the indicators pointing to a recovery this summer."
Reasons for encouragement: There are several factors accounting for these economists’ optimism.
They say that business inventories have been cut so deep that production will need to start to resume simply to keep minimal supply of product on shelves.
In the auto industry, for example, General Motors is restarting six of its assembly lines Monday after what was typically a two-week summer shutdown was extended to up to three months this year.
Chrysler Group also had its own extended shutdown as it went through the bankruptcy process. Ford Motor (F, Fortune 500), after cutting production plans repeatedly, recently announced it was increasing third-quarter production by 25,000 to deal with low inventories of some of its more popular vehicles.
The same kind of inventory bounce back is likely to be seen in many other industries, according to the economists who see a recovery sooner rather than later. They say much of the drop in gross domestic product, the broad measure of the nation’s economic activity, at the end of 2008 and the first three months of 2009 came from businesses slamming the brakes on production due to excess inventories.
"If you just stop cutting inventory, you add $80 to $90 billion to GDP. That’s pretty impressive," said Robert Brusca of FAO Economics us fast cash.
The severe job cutting done by businesses over the past year is another reason some economists are expecting a bounceback sooner rather than later. They say the low employment levels should help corporate income rebound relatively quickly once demand starts to build again.
Thomson Reuters is forecasting two more quarters of double-digit percentage earnings declines in the second and third quarter, but a 187% jump in income among S&P 500 companies in the fourth quarter as they move to put the year-earlier losses behind them. That could be a key to employers hiring again, according to some economists.
"You have a super-lean corporate sector that should be able to generate earnings fairly quickly," said Joseph Carson, chief economist at AllianceBernstein. "You usually need the health of the corporate sector to flow to the labor markets, and I think that’s the way this is playing out."
Jump in confidence: The Conference Board’s CEO Confidence Index released last week showed a huge jump, with nearly 55% of business leaders expecting economic conditions to improve in the next six months, up from only about 17% in the previous reading three months ago.
Lynn Franco, director of the business research group’s consumer research center, said that kind of jump in CEO confidence is a good predictor that spending on capital spending is about to increase, even if management will be more cautious about hiring again.
But businesses might not be the only ones poised to start spending again. Many economists believe there is pent-up demand among consumers that will cause a rebound in spending, once confidence in the labor market stabilizes.
"Even people with jobs have been pulling back on spending, concerned they’re going to be next," said Brusca. "I think the people with jobs will spend a little more freely when they’re less concerned about the economy."
Achuthan said two factors giving him hope are that the financial stimulus bill passed earlier this year has yet to have much effect on spending and jobs, and that credit markets are still constrained by troubled assets due to the problems in the housing market and foreclosures. He said it’s possible both those things could change quickly before the end of the year.
"If the stimulus dollars start to hit, and the financial system starts to behave more normally, there is a wall of money that will begin to flow through the economy," he said.
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