Scott Davis, UPS, and the Economy

May 21 2011 Scott Davis, the chief executive of United Parcel Service, tells the FT’s Gillian Tett that US growth numbers are disappointing. Mr Davis points to exports as a bright spot but says that there needs to be more forward movement on bilateral free trade agreements.

Click through this link to see the UPS Chief talk to the Financial Times it takes 8m 36sec:

http://video.ft.com/v/952418309001/UPS-s-Scott-Davis-full-interview

The Recovery: Write Less Off, Mail More Offers

Good News For Banks; Good News For the Postal Service

Credit card losses are down for major issuers. This bodes well for postal volumes and, as a lagging indicator, it is further confirmation that the economic recovery is well under way.  The U.S. Postal Service could use some good news with postal volumes and revenues falling at terrifying rates.

December Was Six Months Past the Bottom

My estimate is that the business cycle trough was last June.

Credit card solicitations have been a significant use of the mail over the years.  Losses reduce the ability and willingness of credit card issuers to solicit the more profitable lower credit customers , although it increases their need for higher quality customers: a plus for First-Class mail and thus USPS itself.  Higher losses mean greater capital is needed: a scarce and expensive requirement for the nations' banks. While they can borrow at virtually no cost, equity capital costs are punitive.  Think of Citi's recent dilutive offering.

Aparajita Saha-Bubna (with a little help from Joe Bel Bruno and Tess Stynes),  reported in Saturday's Wall Street Journal that delinquency rates fell off "for most credit-card issuers in December, but losses stemming from souring credit-card loans remain elevated."

Capital One:  delinquencies  5.78% down from 5.87% in November

                      write-offs       10.1% up from 9.6% in November

Discover:      delinquencies  5.49% down from 5.65% in November

                      write-offs        8.68% down from 8.98% in November (securitized assets)

American Express:  delinquencies  3.7% down from 4.1% in November

                                write-offs         7.1% down from 7.6% in November

For the quarter:       delinquencies  3.7% down from 3.9% in the third quarter

                                write-offs        7.5% down from 8.9% in the third quarter

Bank of America:  charge-offs       13.5% up from 13% in November

Chase:                write-offs  7.1% down from 8.8% in November

For the quarter:  write-offs  9.3% down from10.3% in the third quarter

Chase is a unit of J.P. Morgan Chase Co

According to the same article, JPMorgan's "Chief Financial Officer Mike Cavanagh said the recent improvement in credit-card losses mightn't continue as the U.S. economy continues to claw its way out of the financial crisis.

"Mr. Cavanagh, speaking to the media after the bank reported fourth-quarter earnings, expects a $1 billion loss for credit cards in the first and second quarters."

If You Want To See How Congress Will Manage GM, Look at the Job It is Doing with the Postal Service

In today's Wall Street Journal, Kathy Chen reports, "Post Office Looks to Scale Back." Faced with a shocking fall in mail volumes (according to Ms Chen it is down 32 billion pieces in two years), the Postal Service finds one congressional road block after another in the way of reducing costs or increasing revenues.

He who calls the tune (Congress) does not pay the piper. The Service runs on its own revenues as a business, but Congress still restricts what they can do even though it does not pay for the Postal Service.

Arguably the Postal Service is a natural monopoly in a declining cost industry. Milton Friedman used to argue there are three solutions to the problem of monopoly: government ownership, regulation, or doing nothing. He always favored the last. The Postal Service has the worst of both worlds: it is both government owned and regulated. They are regulated even though it is not a private company.

Congress made matters worse when it changed the Postal Service's controlling legislation. It restricted its entering new businesses, restricted its price increases to inflation or less, and required it to prepay its retiree health benefits without tying the payments to changing actuarial costs. If Ford lays off workers, it reduces its future retiree health benefits. If the Postal Service cuts its workforce, Congress does not reflect the cuts in its annual bill.

Free the Postal Service up so it can compete. UPS's virtual monopoly in ground parcels (particularly BTB) and its price discrimination are not healthy for the U.S. economy. The customers of UPS and FedEx would benefit from more competition.

Congress's micromanaging of the Postal Service foreshadows what is in store for bailed out firms. Citi, GM and Chrysler will find government control and Congressional tinkering far more onerous than governmental ownership itself. As a shareholder in Ford and JPMorgan, I am happy to see both free of the TARP ball and chain.

The April Employment Report

It is the first Friday and whether or not you do the First Friday devotions, the Bureau of Labor Statistics issued its employment report for April.

The employment report came out better than Wall Street anticipated, but it was still pretty awful. The establishment survey still showed a huge 539,000 job loss. Employment in the household survey was up. Perhaps not statistically significant, perhaps just noise, but I'll take it.

In the establishment data, services took the same hit as goods production (down 269,000 jobs vs 270,000). Private jobs in services fell even more dramatically (down 341,000) with the difference coming from the growth in government jobs.

The aircraft industry looks to have lost 4,700 jobs in April.

In terms of the Postal Service, printing etc. was down almost eight thousand, paper down three and a half thousand, and finance was down twenty five thousand.

Kearney Calls Volume Decline the "Greatest Since the Depression"

NPR's Tamara Keith looked at the Recession's impact in her broadcast, "Postal Service Sees Less Mail In Slumping Economy." She quotes Stephen Kearney, Senior Vice President of Customer Relations for the Postal Service, as saying "[the drop in mail volume] accelerated throughout the year. ... Our mail volume had its greatest decline since the Great Depression."

Newspaper Circulation Is Down 3.6%.

The newspapers' decline goes on. Overall circulation is down 3.6%. While a competing medium's decline may be welcome news to the Postal Service, it is not a sanguine sign of health in the ad market.

Advertising has become more cyclical with each passing decade. With the economy in recession since last summer and a large mess to clean up after the financial excesses of the financial excesses of the last decade, do not expect a quick rebound.

The Subprime Mortgage Credit Crisis & the Bursting of the Housing Bubble Drops Mortgage Mail Solicitations By 62%

Mintel Comperemedia research tracks direct mail sent to households. Their data show mortgage solicitations in the mail fell 62 percent in the third quarter from the same period last year. Not surprisingly, ARMs (adjustable-rate mortgages) no longer predominate. The proportion of offers for for adjustable-rate mortgages fell from 56 percent to 22 percent.

Prominent mortgage brokers and mortgage banks have gone bust while major players have with drawn from the market.


DM News reports that the Treasury facilitated plan to selectively freeze the rates on some ARMs is causing direct marketing pros to adjust their offers.

Electronic Payments Now Outnumber Checks by 2-1!

The Fed has done yet another study of how payments are made in the United States. The study, which did not include payments by cash, showed American households and businesses made twice as many payments electronically than they made by check.

Check usage by 6.4 percent a year from 2003 (the last year studied) to 2007.

The Decline in Newspaper Ad Revenue is Accelerating.

The Wall Street Journal reports today that "The downturn in the newspaper industry is getting worse.

"Last fall, newspaper executives and analysts were caught by surprise by the severity of a slump that took hold last summer. Since the beginning of this year, the rate of decline in advertising revenue has accelerated. Total print and online ad revenue was down 4.8% to $10.6 billion in the first quarter from a year earlier, according to the Newspaper Association of America, compared with its full-year decline in 2006 of 0.3%." You can see the acceleration in the chart from the Journal on the right.

Newspapers continue to increase their internet revenues: their 2006 online ad revenue was up 31.5 per cent. However, at only 5 percent of the total, the internet revenues are no where ner enough to offset the losses.

Direct mail spending continue to grow, but faces a strategic problem. While newspapers are rich in content, they are increasingly poor in ad revenues. Direct mail revenues grow, but the medium is increasingly poor in content.

NLRB Levels Unfair Labor Practice Complaints Against FedEx Home Delivery

FedEx has always tried to avoid unions. Management, from Fred Smith on down, sees unions as a barrier to the flexibility and entrepreneurial drive that it views as essential to FedEx's culture and profitability. Doubtlessly, there is a sprinkle of ideology as well.

Not surprisingly, the Teamsters see things differently. If you click on the title link for this posting, you will find their press release proclaiming a victory of sorts in their skirmishing with FedEx.

A key element in FedEx's business model for their package delivery operation and in particular for FedEx Home Delivery is its use of nonunion contractors.

This might develop into an interesting story to follow.

Readers' Digest Association Goes Private

The Readers' Digest Goes Private

March 2nd, 2007, Readers' Digest Association went private. Ripplwood Holdings, LLC led a group of private equity investors who acquied the Association.



Mary Berner takes over as CEO. She has a big job ahead of her. Since the Cold War ended, the flagship magazine, an American cultural icon, drifted away from its original editorial embodiment of solid American values in a desperate search for new demographics. Circulation fell. The magazine, which was the vine that gave substance to the direct marketing branches, withered.

Mary Berner is highly qualified for the job. She left Conte Nash in January, 2006. Apparently she lost out in the bureaucratic politics, and did not want to play second fiddle. She brought an appealing management style to Fairfax publications and achieved great success.




Stockholders, who had gotten little to cheer (see the stock price chart courtesey of Stocktrak.com) about during the long years of public ownership, gladly voted for the acquisition offer in February.

Is the News That the Employment Report Was Weak or that BLS Found another Million Jobs?

BLS's January Employment Report

The Labor Department's January employment report came out today. Economists' reactions were all over the map. And well they should be.

When the Bureau of Labor (BLS) asked firms how many people were on their payrolls, the results indicated that jobs grew by a fairly modest 111,000 in January. When its surveyors phoned households, they found that 4.6 percent of the workforce said they were unemployed, up from December's 4.5 percent.

Conclusion: based on those bare facts, the economy is growing but somewhat weakly. Hence the Wall Street Journal's headline: "Heading for a Soft Landing."


But you need to read the fine print to get the real shock! The statisticians on Massachusetts Avenue rebenchmarked their samples to an actual count of firms who are registered with the state employment offices.

Guess what?

There were 981,000 more jobs in December than BLS had estimated in its previous report. The monthly data were revised back almost two years. (The revision is "only" 933,000 on a seasonally adjusted basis.)

This means that the year over year employment growth in December was 1.66 percent. A month ago, we thought employment had grown only 1.37 percent. Apparently the economy was stronger than the 2006 data initially led us to believe. On Wednesday we got a surprise. The Commerce Department reported the Gross Domestic Product grew a strong 3.5 percent at a seasonally adjusted annual rate in the last quarter. In light of these revisions, it should not have been such a surprise.

Fed watchers should note that the economists who work for Dr. Bernake also read footnotes!

What is a Forecaster to Do?

This episode gives you a little insight into the real difficulties of business forecasting.

Consider the Postal Service which not only has one of the most sophisticated business forecasting systems in the world, but also shares it with the public through its rate filings. When you read the testimony of Thomas E. Thress one of the Postal Service's experts with RCF Consulting, you will find that a similar measure of employment in the forecasting equation for First-Class single piece mail. One of the attractions of this variable in forecasting and econometric work is its robustness against revision and statistical reporting quirks by the reporting agency (BLS.)

Unfortunately, the gnomes in the bowels of BLS are not cooperating.