Upbeat Signs Revive Consumers’ Mood for Spending

By STEPHANIE ROSENBLOOM NEW YORK TIMES

http://www.nytimes.com/2010/04/07/business/07shop.html?hp

Published: April 6, 2010

Richard Perry/The New York Times

A Saks Fifth Avenue shopper on Tuesday. Luxury goods were a strong performer last month, with sales rising 22.7 percent.

After months of penny-pinching amid the recession, new figures — showing an improving job market, rising factory output and increased retail sales — suggest that consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again.

The mood has gone from panicked to cautious, and now, as Mark Zandi, chief economist forMoody’s Economy.com put it, some consumers are “almost a bit giddy.”

After the financial crisis hit in late 2008, consumers retrenched heavily. And in the months that followed, there were fears that newly frugal Americans would increase their savings so much there was no hope that consumer spending could be a factor in a recovery.

That was a troubling prospect because consumers have been the drivers of economic growth after past recessions. After all, their spending accounts for more than two-thirds of all economic activity in the United States.

But just a year later, consumers have eased off a bit on their savings, which frees up cash for them to spend. And in part because of the high rate of mortgage defaults, the overall consumer debt burden has been dropping. Those trends suggest to some economists that consumers may now be in a position to help drive the recovery.

The improved outlook has been showing up at store cash registers for several months, and the trend seems to be accelerating. Major retailing chains posted better-than-expected earnings in their most recent reporting periods and are likely to deliver more good news on Thursday, when they report their March sales results.

Total industry sales are predicted to increase up to 10 percent compared with the period a year ago, which would make March the seventh month of growth in a row, according to the International Council of Shopping Centers, an industry group. (A significant part of that increase is because of a calendar shift involving Easter.)

SpendingPulse, an information service of MasterCard Advisors, is scheduled to release figures on Wednesday showing that closely watched retailing categories — furniture and home furnishings, clothing, electronics and luxury goods — had healthy year-over-year sales growth last month.

And after months of cutting inventory to bring it in line with weakened demand, the nation’s retailers are ordering more merchandise. The cargo volume at major ports that handle retail imports is expected to increase 8 percent in April compared with the period a year ago, according to the National Retail Federation and the consulting firm Hackett Associates.

“What I’m hearing across a wide swath of retail is that sales are simply much stronger than companies had expected,” said Robert Barbera, the chief economist of ITG, an investment advisory firm.

The improvement extends even to some of the most costly household items. Last week, almost every automaker, including Ford, Toyota and General Motors, reported robust sales increases in March. Spring incentives like no-interest loans helped lure consumers into showrooms.

The Commerce Department said its broadest measure of retail sales, a figure known as personal consumption expenditures, increased 0.3 percent in February compared with January, or $34.7 billion, the fifth monthly gain in a row. And the personal savings rate — which jumped above 5 percent during the recession — has returned to its historical level of about 3 percent.

Lauren Keshet, the owner of Paws and Claws, a pet care company in Hoboken, said her business suffered when the economy nose-dived and consumers snapped their wallets shut. “My business went to half” of what she had been selling, Ms. Keshet said. But today, “my business is booming again,” she said. “It’s really come back.”

So has her spending, and that of other shoppers she has seen lately at the Westfield Garden State Plaza mall in Paramus, N.J. “Right now I’m renovating my house,” she said. “I’m buying furniture.”

Indeed, sales of furniture and furnishings combined increased 13.8 percent year-over-year in March, according to SpendingPulse.

Perhaps the most meaningful sign of recovery is that employers added 162,000 jobs last month. With unemployment hovering at 9.7 percent, the job market is still weak by historical standards, but the rate is no longer rising.

John D. Morris, a retailing analyst with BMO Capital Markets, said that at the nation’s malls, strong fashion trends like jeggings (jeans so tight they resemble leggings) are helping drive sales. He expects the new iPad from Apple will do the same.

“There’s a true desire to buy that I haven’t seen in two or three years,” Mr. Morris said. “The consumer’s gotten a little bit braver.”

Economists and analysts said much of the uptick in spending was being propelled by wealthier consumers. With year-end bonuses in their pockets and healthier stock portfolios, they have slowed their savings. That has contributed to robust sales at upscale chains that were hit hard by the recession, like Nordstrom, Tiffany, Saks and Neiman Marcus. SpendingPulse said sales of luxury goods climbed 22.7 percent in March compared with a year ago, making the category one of the best performers last month.

In February, the pricey teenage clothing retailer Abercrombie & Fitch — which had been reporting the worst monthly sales of any major national chain — posted a 5 percent year-over-year same-store sales increase. And it is expected to post another strong figure on Thursday.

Michael McNamara, vice president for research and analysis for SpendingPulse, pointed out that the results from chain stores sound robust largely because this year’s sales were being compared with the depths of the recession. So the big gains really represent a return to normal patterns.

“It’s more about how little people were buying a year ago than how much people are buying today,” he said.

Indeed, retail sales are still below the highs they hit in 2006 and 2007.

A lingering fear is that the sales gains could turn out to be temporary. Mr. Zandi of Moody’s said that once wealthier consumers satisfied their pent-up demand, they might become cautious again. And other economists fear that the strengthening retail figures are not necessarily a good sign.

“The more money the consumer spends, the worse shape our economy is going to be in,” said Peter D. Schiff, president of Euro Pacific Capital, “because we are spending borrowed money.”

Paul Laudicina, chairman of A. T. Kearney, the management consulting company, said that while some people were feeling confident enough to spend, he predicted a continuing degree of caution among consumers.

“We shouldn’t free the balloons,” he said, “because this is going to continue to be a slow, long, steady climb.

More CEOs see job increases than losses

More CEOs see job increases than losses

By TALI ARBEL, AP Business Writer Tali Arbel, Ap Business Writer – 1 hr 15 mins ago

NEW YORK – For the first time in two years, more CEOs expect to be adding jobs than cutting jobs.

A survey by Business Roundtable, an association of CEOs of big U.S. companies, says 29 percent of chief executives expect to increase corporate payrolls over the next six months, while 21 percent predict that their work forces will shrink. Half see no change in jobs.

That's the first time since the first quarter of 2008 that more CEOs have expected to increase jobs rather than shrink them. In the fourth quarter of 2009, only 19 percent expected their payrolls would grow.

Company leaders are also optimistic about business prospects ahead of the reporting season for second-quarter earnings. About 73 percent say they expect sales to grow over the next half year, 23 percent forecast no change, and only 5 percent predict shrinking sales.

That's up from the 68 percent in the fourth quarter who had expected sales to grow; 17 percent had expected declining sales then, and 15 percent forecast no change.

"As the economy recovers and demand returns, we are seeing across-the-board increases in sales, resulting in increased capital expenditures, less job reduction and some employment stabilization," said Ivan G. Seidenberg, chairman of the group and CEO of Verizon Communications Inc.

Nearly half — 47 percent — of the CEOs surveyed said they will increase capital spending in the next six months, up from 40 percent in the fourth quarter.

The CEOs predict the economy will grow 2.3 percent for 2010 after shrinking 2.4 percent in 2009. In the fourth quarter of last year, the economy grew at a 5.6 percent annual pace.

The survey, taken from March 15-30, surveyed 105 CEOs.

CRE Firms Operations in Post-Recessionary Environment

CRE Firms Lay Out Modes for Operating in a Post-Recessionary Environment

Investments Expected To Focus on Distressed Opportunities While Firms Shore Up Debt, Liquidity Positions

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By Mark Heschmeyer

March 31, 2010

It's the annual report season for the majority of public companies and those from REITs and real estate operating companies not only lay bare the damage from the economic declines of the last year, but also the strategies they intend to adopt this year in the post-recessionary environment, and their outlooks for when market conditions will improve.

As one might expect, these reports tend to be very specific in detailing what has happened in the past, but become less so in projecting when conditions will improve. In an analysis of reports filed thus far, CoStar Group has identified at least a dozen strategies that companies reported that they have adopted or will adopt for the period in between.

In several cases, companies reported that the steep recession had wide-ranging but subtle consequences that went beyond the most obvious effects of rising vacancies, lower rental rates and negative absorption.

KBS Real Estate Investment Trust II reported that the commercial real estate industry has been experiencing more difficulty in collecting rents, more tenant defaults and more tenant demands for rent adjustments. "This has created a highly competitive leasing environment which impacts our investments in real estate properties as well as the collateral securing a majority of our real estate-related investments."

Kimco Realty Corp. reported that it, "has noticed a trend that the approval process from mortgage lenders has slowed, while pricing and loan-to-value ratios remain dependent on specific deal terms, in general, spreads are higher and loan-to-values are lower."

The most common other effects reported were that declining asset values had resulted in sharply lower loan originations, reduced access to capital, and increased cost of financing. At the same time, uncertainty has impaired both the ability to buy and sell properties and that has kept many firms on the sidelines waiting for clearer signals from the marketplace.

Strategies outlined to deal with current conditions were also wide-ranging. None of the strategies were universally embraced across all companies, but there were common threads among a number of them. We've broken down the strategies into four categories: acquisitions, dispositions, financing and retention of capital.

On the investment front, a number of companies reported that they expect to see sharply decreased investment activity. While not the preferred strategy, the expectation was that this is the reality of the situation resulting from lack of access to capital or to the increased cost of capital. Where many were willing to buck that trend was in their efforts to capitalize on current distressed market conditions.

For example, Starwood Property Trust reported that: "We believe that there will be a significant supply of distressed investment opportunities from sellers and equity sponsors of real estate, including national and regional banks, investment banks, insurance companies, finance companies, fund managers, other institutions and individuals. The specific investment opportunities within this real estate investing environment may change over time and therefore, our investment strategy may also adapt to take advantage of the changing opportunities."

Other firms also reported that would consider diversifying their portfolios in terms of property type, locations, sizes and markets as a way of spreading out their risks from a high concentration in one of those categories.

On the disposition side, companies reported that would also pursue selective sale of properties. For the most part, these would be done as a way of paying down debt or building liquidity.

For example, Pennsylvania Real Estate Investment Trust reported that were considering steps that might involve "joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors, private equity investors or other REITs, through sales of properties with values in excess of their mortgage loans or allocable debt and application of the excess proceeds to debt reduction."

Paying down short-term debt as a way of improving their balance sheets was also a key element in companies financing strategies this year. Besides selective property sales, the companies also said they would consider pursuing new public debt and equity offerings for as long as those markets are favorable to public companies.

Many public REITs and real estate operating companies also said they would seek alternative sources of financings. For example, Kite Realty Group Trust reported that: "We are conducting negotiations with our existing and potential replacement lenders to refinance or obtain extensions on our term loan and unsecured revolving credit facility. We believe we have good relationships with a number of banks and other financial institutions that will allow us to continue our strategy of refinancing our borrowings with the existing lenders or replacement lenders. However, in this current challenging environment, it is imperative that we identify alternative sources of financing and other capital in the event we are not able to refinance these loans on satisfactory terms."

In most of the cases, the public companies reported that their negotiations with lenders focused primarily on extending or refinancing maturing mortgage loans. And if there were a consensus on anything involving strategies, almost all of the companies said they expected some difficulties in these negotiations but expected to be successful but at less favorable terms than they what they enjoyed in the past.

In addition to finding new sources of capital, almost all of the firms reported that would also be taking efforts to maintain or build on their liquidity. For example, many reported that they would curtail substantive development activity on existing and/or new projects, in part also because of the sheer difficulty in obtaining funding for their development commitments.

In addition, many companies reported that would continue to restrict or consider restricting dividend payments and would continue to reduce expenses at both the corporate and property levels.

While many of these firms identified these strategies as their means for dealing in the current unfavorable markets, very few, if any, would give any indication of how long they would be in place. For the most part, though, most firms said that a recovery was not in the foreseeable future. Although, the time frames outlined did range from later this year to "beyond the foreseeable future."

The closest the firms came to a consensus was that any improvement would take place at different points during the cycle for different property types and for different markets. In addition, many said a recovery would take longer to occur as long as the current conservative lending standards continue.

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