Stingy Spending Sinks Economy

The engine of the U.S. economy—in other words, you—is in trouble. Consumer spending fell for the first time in 17 years, taking the GDP down with it by a rate of 0.3 percent. The New York Times calls the consumer pull-back—amounting to a 3.1 percent drop in personal-consumption expenditures—"a stark indication of widening national distress" that "presages more bad news in the months ahead." According to the Financial Times, it's tough to dispute evidence the U.S. is already in a recession. The "tightfisted turn," as the Washington Post calls it, is remarkable. "Through recession, countless natural disasters and a major terrorist attack, there has been one constant in the U.S. economy: American consumers have bought more stuff in any given quarter than they did in the previous one. Not anymore," the newspaper writes.

In another worrying sign, U.S. banks tapped the Federal Reserve for a record $112 billion in the past week, a sign the credit markets still haven't thawed out, CNN Money writes. AIG, too, collected still more from the Fed, getting access to an additional $21 billion in commercial paper, the NYT reports. Barclays, meanwhile, has gone the old-fashioned route to raising money. It secured $12 billion from Middle Eastern investors rather than tap government coffers, the WSJ reports.

Ordinarily such a wave of bad news would send the markets tumbling. Not so on Thursday. In a real head-scratcher, the Dow, S&P, and Nasdaq all climbed by more than 2 percent. The Wall Street Journal concludes market participants must have "already [been] taking for granted" that the U.S. economy is shrinking. As the NYT asks rhetorically, "why keep selling on old news?" And how are the markets faring this morning? Asian markets ended the day mixed with Japan's Nikkei dropping 5 percent despite an as-expected rate cut from the Bank of Japan, CNN Money reports. For the first time in seven years, the BoJ on Friday cut the benchmark rate by 0.2 percent; it now stands at 0.3 percent.

Some $40 billion in back pay and pensions is owed to the top brass of America's biggest financial firms, the WSJ reports in an investigative report this morning that illustrates the excesses of so-called "fat cat" pay. The sum is alarming, as some firms owe a disproportionate amount in compensation and deferred bonuses to their executives, a figure that exceeds what they owe in pension obligations to their entire staff, the WSJ concludes. "Some examples: $11.8 billion at Goldman Sachs Group Inc., $8.5 billion at  J.P. Mogan Chase & Co., and $10 billion to $12 billion at Morgan Stanley," the newspaper writes. More worrying for taxpayers: Many of these firms are in line for a taxpayer-funded handout from the Treasury. On the other end of the jobs market, Ford announced yesterday it would re-hire 1,000 workers for its F-150 pickup-truck plant in Dearborn, Mich., according to the WSJ. Prospects look downright grim for rivals GM and Chrysler. The proposed merger between the auto giants would result in half of Chrysler's plants closing, BusinessWeek writes.

Back to the compensation beat now: The Reserve Primary Fund, the money market fund that "broke the buck" last month just as the credit markets locked up, is finally paying back its clients after a six-week hibernation, the NYT reports. "The announced per-share payment—50 cents on the dollar—is more than some had expected, but well short of the dollar-per-share value that millions of money fund investors have long taken for granted," the newspaper writes.

Exxon Mobil reported quarterly earnings and, no surprise, it's making record profits—$14.8 billion in the third quarter, an increase of 58 percent from the same period in 2007 and on course to smash last year’s $40.6 billion record for the largest-ever annual profit at a public company. But as the Houston Chronicle warns, the "global economic downturn likely has put such milestones in the rearview mirror alongside the triple-digit oil prices that fueled them." As Business Week reports investors are worried and it's not just the credit crisis and looming recession that is giving them cause for concern. "The company produced just 3.6 million barrels of oil per day, an 8% drop from the same period last year. It's the lowest production since Exxon bought Mobil in 1999," writes BW. With conventional oil sources in decline, you'd think the super majors would be increasing exploration for other sources of revenue. Instead, companies like Royal Dutch Shell are curtailing investment in so-called unconventional oil—in this case Alberta's tar sands—"amid soaring costs and plunging oil prices," writes the London Times. That's good news for environmentalists who have long criticized tar-sand production but not so good for oil-company shareholders.

Don't bank on any Google-Yahoo alliance, says the WSJ. It reports that both companies are considering walking away from the deal to forge an advertising partnership rather than "make compromises to address the Justice Department's [regulatory] objections." Paid Content (via the Washington Post) speculates that the result of the presidential election may play a role seeing as an Obama administration might institute stricter antitrust rules. Away from speculation and back to economic reality for gaming giant Electronic Arts: It intends to lower its profit forecast, cut 6 percent of its work force, and move more jobs abroad in what the NYT calls a sure sign that "it is struggling to complete a financial turnaround."

In other news of layoffs, Conde Nast will cull 20 percent of staff at its high-profile monthly business property, Portfolio, writes the New York Observer, and institute a 5 percent budget cut across the entire company. As a further indication of the media-industry decline, Portfolio will reduce publication of its print magazine to 10 issues a year.