A recession for Christmas.

A recession for Christmas.

A recession for Christmas.

A summary of what's in the major publications.
Aug. 29 2008 6:43 AM

A Recession for Christmas

When is news of unexpected economic growth greeted with groans? When that report accompanies a prediction that the future looks grim. As the New York Times reports Friday, yes, the U.S. economy grew by a surprisingly strong 3.3 percent in the second quarter, soundly beating previous estimates of 1.9 percent growth. But as Reuters bluntly points out, the economy is probably heading for a recession by year-end as the housing crisis worsens. "I see possibly a recession by the end of the year, but it will be a relatively short recession and a relatively mild recession," Martin Regalia, vice president for economic policy at the U.S. Chamber of Commerce, tells Reuters.

The NYT seconds this assessment. "Don't lull yourself into complacency looking in the rear view mirror," Joshua Shapiro, chief U.S. economist at the research firm MFR, tells the NYT. "The view out of the windshield is a lot scarier." The boost to second-quarter GDP came from tax rebate checks and a surge of foreigners buying America's dollar-depressed products, the Houston Chronicle reports.

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Wall Street cheered the Commerce Department report, sending all major indices higher with the Dow Jones Industrial Average scoring its best day in three weeks. Still, few economists saw reason to rejoice. "Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time," Nigel Gault, chief domestic economist at Global Insight, was quoted in the NYT as saying.

Evidently, rebate checks were not being used to buy new Dell computers last quarter. The computer maker reported on Thursday a 17 percent drop in net profits, triggering a 10 percent sell-off in after-hours trading, the Wall Street Journal reports. The dismal quarter raises "questions about the company's 18-month turnaround effort," the paper says.

Aggravating the blow, Dell's rival, Hewlett-Packard Co., last week reported an impressive 14 percent jump in quarterly net profit. The mixed signals suggest the Dell woes have more to do with a poorly executed turnaround than any clear indication businesses are spending less on technology. Sure enough, Michael Dell said the poor results were "self-inflicted," Business Week reports, as the publication wonders: "Has Dell's Comeback Hit a Roadblock?" What has sunk the computer maker is fierce price competition; Dell's sales were up 11 percent and demand for consumer machines rose higher still to 53 percent, and still margins were down, the WSJ notes. Fortune sums up the quarter more poetically: "Dell bleeds from its own price cuts," the headline blares.

The NYT scooped the field on Thursday with the news that embattled investment bank Lehman Brothers Holdings is set to slash up to 1,500 more jobs, "its fourth round of cutbacks this year." The layoffs would amount to 6 percent of the workforce and could come as soon as mid-September, the NYT reports. As the WSJ notes, job cuts on Wall Street are hardly remarkable these days, but for Lehman, every revelation of bad news holds "a bit more weight." Some on Wall Street are already referring to Lehman in the past tense. Roger Lister, the chief credit officer at credit-rating agency DBRS Inc. gave this chilling assessment to the WSJ: "The downturn is longer than expected. This is an assessment of the extent to which you need these people. Certain businesses may never come back."

Just how bad has 2008 been to Wall Street? Citing Bloomberg statistics, the NYT says Wall Street banks have already cut an astounding 101,000 jobs this year. The toll is probably not goin to end there. "We're not done seeing headcount reductions on Wall Street in this cycle," Jeff Harte, a securities industry analyst at Sandler O'Neill, told the newspaper. Breakingviews adds a further bleak perspective. The banking sector, it says, may be facing "the direst financial mess in three decades," when "about 17 percent of securities-industry workers lost their jobs," and "in New York City, nearly one in four did".

The banking beat is producing all kinds of landmark statistics. The Financial Times reports today the losses Merrill Lynch has racked up in the past 18 months have succeeded in wiping away one-quarter of the profits amassed by the bank over the past 36 years. What is the damage in actual terms? "Merrill has suffered after-tax losses of more than $14 billion as its balance sheet has been savaged by almost $52 billion in writedowns and credit-related losses," the FT begins. And now for the kicker: Between 1971 and 2006, Merrill had accumulated a healthy inflation-adjusted profit of $56 billion, the FT calculates after compiling data from Thomson Reuters.

From New Zealand to New York, tech journalists are gleefully reporting that, no, Steve Jobs is not dead. It started as a classic only-at-a-newswire goof, with Bloomberg for a brief moment on Wednesday publishing a 17-page obituary of the Apple CEO. (It's since been pulled, and Bloomberg has retracted the story, but Gawker mischievously reposts it in all its glory, replete with editorial notes of who to call from Steve Wozniak to Bill Gates to Al Gore.) But by Friday morning the story lives on as the tech press once again revisits the biggest cloud of uncertainty hanging over Apple. As the Seattle Post Intelligencer remarks: "How is Jobs doing after his bout with pancreatic cancer?" With the Bloomberg gaffe as a potential news peg, news rooms are debating: Is it time to call Apple's PR team for an update on Jobs' health? It may seem unseemly to ask, the San Francisco Chronicle ventures, but the tech community wants to know.

Bernhard Warner is deputy New York bureau chief at the Industry Standard.