After nearly a quarter-century, Coca-Cola Co. is dropping the word "Classic" from the name of its signature cola, parting with one of the most lasting consequences of its failed experiment with New Coke.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 3.8 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent.
Almost all the overshoot in GDP relative to consensus was in the inventory component; final sales fell at a 5.1% rate, with consumption down 3.5% and [business spending] on equipment and software down a massive 27.8% (biggest drop in 50 years) both worse than we expected. Net trade was much better than we expected, adding a hard-to-fathom 0.1% to growth; the BEA must have assumed much better December numbers than us. The big mystery, though, is the $6.2B rise in inventories, which bears no resemblance the monthly numbers. It makes us more bearish for the first quarter because this rise has to reverse in some size. In short, we are not comforted. -Ian Shepherdson, High Frequency Economics
The inventory miss reflected a huge swing in the inventory valuation adjustment (or IVA). The fourth quarter IVA was +$211 billion vs -$97 billion in the third quarter -- a jump of more than $300 billion (or +11 percentage points of GDP at an annual rate). In the past 10 yrs, the next largest one-quarter swing in the IVA was $38 billion. The IVA is an adjustment used to translate the reported book value changes in business inventories to an economic value. We had expected to see a sizeable jump in IVA given the big drop in energy prices, but the actual outcome turned out to be several multiples of our model-based estimate, which relies on the historical relationship between the IVA, energy prices and other factors. -David Greenlaw, Morgan Stanley
The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.
In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve's balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.
I find it interesting that one member, Mr. Lacker, preferred purchasing U.S. Treasury securities. Recall that at the last meeting, it was reported in the press release that the Fed would be evaluating the benefits of such an action.
Western's Macomb campus had been selected as one of some 60 sites across the nation to host a "Neighborhood Ball," which will be webcast live on YouTube (youtube.com/inauguration), Flickr (flickr.com/photos/inauguration) and Twitter (http://twitter.com/obamainaugural) and taped as a possible feed on ABC network's inaugural coverage beginning at 7 p.m. (CST), according to Matt Bierman, director of residential life.
"We are among just a few universities, along with the University of Florida and Kansas State, to serve as site for a Neighborhood Ball. The majority of sites are restaurants, community centers and major public gathering places," Bierman said.
I watched the press conference with the John Thain and Kenneth Lewis (CEOs of Merrill Lynch and Bank of America, respectively) as well as the CNBC interview with Lewis. Mr. Lewis looked like the cat that ate the canary. He certainly gives the impression that this is the deal of a lifetime. Who knows? He may be right.
Mr. Lewis told analysts that he was surprised to learn in December, three months after the bank snapped up Merrill Lynch in a shotgun deal, that the magnitude of losses at the brokerage was far greater than expected. He said he had considered walking away from the deal at that point, but was persuaded not to, partly by regulators who feared that a failure to seal the deal could set off a new round of panic in the markets.
The decision to stick with Merrill despite its problems, he said, was patriotic. "I do think we were doing the right thing for the country," Mr. Lewis said.
Mr. Lewis said he had considered trying to renegotiate the price once he learned the extent of Merrill's losses. But he feared that the length of time required for a new shareholder vote would put Merrill and the markets at risk. More important, he said, the government did not want to risk new turbulence in financial markets if the deal were to be delayed.
"In recognition of the position that Bank of America was in, both the Treasury and the Federal Reserve gave us assurance that we should close the deal and that we would receive protection," Mr. Lewis said.
