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David Rosenberg on frugality, drive-ins and deflation

These are stories Report on Business is following Wednesday, July 11, 2012.

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Rosenberg on frugality
David Rosenberg takes a (sort of) fun look at frugality today, and what it might mean for the economy.

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As the chief economist at Gluskin Sheff + Associates puts it in a report, frugality "is the fashion."

First, he cites an article published this week by USA Today, which talks about the resurgence in the United States of drive-in movies. That, according to the newspaper, is because moviegoers can talk, use their cellphones and smoke, and need not worry about loud children.

For Mr. Rosenberg, it's also a way to tackle the family budget.

"Nifty way to save to save money and enjoy yourself with your family or partner," he said in a report. "Sharing popcorn with the A/C on. If this trend catches on, watch the birth rate start to soar again too - you see, good things can come out of this frugality theme."

Here's his point: "But it is deflationary, that is for sure."

He also cited yesterday's latest Johnson Redbook weekly retail sales index, which showed sales in the U.S. slipping 0.8 per cent last week from a week earlier. Of course, last week included the July 4 holiday, but a Redbook analyst noted that retailers are clearing out seasonal goods and that July is traditionally a period of discounting.

The other thing Mr. Rosenberg cited was a report in today's Wall Street Journal on how Neiman Marcus and Target are teaming up for the holiday season, offering designer clothes at lower prices.

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"For retailers, it is tough out there," he said. "But several merchants are responding to the new paradigm of enduring consumer frugality."

Companies hit
The troubles in Europe and slower growth in emerging markets are pinching companies around the world.

The second-quarter earnings season has only just begun, but, already, the impact is apparent, and likely to show up further as results roll out over the next few weeks, illustrating how Europe's debt crisis and the slowdowns in countries such as China are rippling across the globe.

"As company after company queues up to report earnings, it is becoming increasingly apparent that the euro zone crisis has taken a heavy toll of confidence," sales trader Ben Critchley of IG Index in London said today.

"Weaker forecasts from U.S. companies are a sign that the global economy is beginning to feel the pinch from the problems afflicting the euro. Companies across the board are expecting continued difficult times, as we continue to wait for a real solution to be crafted by euro zone politicians."

Michael Turner of Royal Bank of Canada's Australian branch also cited the poor sales and forecasts associated with weaker orders from Europe and China.

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Here's a sampling:

Cummins Inc. trimmed its full-year sales outlook yesterday. While it cited other issues as well, the big American engine manufacturer noted the emerging markets, previously the engine of global growth.

"We have seen demand in some markets weaken recently as growth in the global economy has slowed," said chief executive officer Tom Linebarger.

"Order trends in the U.S. for trucks and power generation equipment have softened and demand in Brazil, China and India is not improving as we had previously expected."

A day earlier, U.S. manufacturer Dover Corp. cut its full-year earnings projections, citing the "broadly weaker European economy" and other factors.

Also on Monday, Advanced Micro Devices, the major U.S. tech company, projected its second-quarter revenue will slip by 11 per cent on "softer-than-expected channel sales in China and Europe," along with a more cautious consumer.

And today, results from Burberry Group PLC fell shy of estimates, also adding to fears over how Europe's woes and the slowdown in emerging markets could be hitting the luxury sector.

Spain cuts deep
Spain today unveiled a new round of austerity measures aimed at cutting its deficit, including hiking its value-added tax to 21 per cent, slashing jobless benefits and killing the Christmas bonus for public sector workers.

Spain is deep in recession, with intolerable levels of unemployment, but Prime Minister Mariano Rajoy is desperate to deal with the country's debt troubles.

The austerity measures, though, worth €65-billion, only promise to hold back the already troubled economy and worsen the lives of his people.

"The announcement of comprehensive Spanish austerity measures by PM Rajoy will help improve confidence in [the euro], as policy makers and politicians are working in concert to both ease the burden of, and help remedy, existing imbalances in the euro area," said currency strategist Eric Theoret of Scotia Capital.

"However, yesterday Portugal announced that its planned spending cuts will have to be rescinded, as the reductions to civil servants' pensions and pay were deemed unconstitutional."

Trade deficit worsens
Canada's trade deficit widened in May to $793-million, from $623-million a month earlier, as exports flatlined while imports rose.

Notable in today's report from Statistics Canada is that energy exports slipped 4.3 per cent, on both volumes and weaker prices, while exports of machinery and equipment climbed 8.7 per cent.

Oil exports alone slipped 5.5 per cent, marking the fourth monthly decline in a row from a peak in January.

"With weaker energy prices weighing on the trade balance, today's report continues to highlight the risks to trade from weaker resource prices given the current slowing global economy," said Emanuella Enenajor and Andrew Grantham of CIBC World Markets.

JPMorgan to claw back
JPMorgan Chase & Co. is reportedly close to clawing back millions in stock from officials in the wake of the multibillion-trading loss.

Among those officials, according to The Wall Street Journal, is Ina Drew, who had been charge of the bank's chief investment office.

Also affected could be the trader at the center, who's known as the "London whale," and his immediate supervisors.

The report said JPMorgan could announce its plans Friday when it unveils quarterly results that will detail the hit from the trading losses that could run to more than $5-billion.

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