Consumer Spending Supports GDP Growth

Arthi Gupta, Mayank Mehta and Sanjay Barot
30 Apr, 2010
New York City

Higher consumer spending lifted preliminary estimate of the first quarter GDP growth to 3.2%. However housing investments declined 10.9% in the quarter. Contribution from the inventory rebuilding declined sharply in the quarter.

[R]9:30 AM New York – Higher consumer spending lifted preliminary estimate of the first quarter GDP growth to 3.2%. However housing investments declined 10.9% in the quarter. Contribution from the inventory rebuilding declined sharply in the quarter. Greece may struggle to implement tougher wage and pension conditions attached with the bailout.[/R]

Global markets trade higher on positive earnings, recovering sentiment in Europe and rising consumer spending in the U.S. The preliminary estimate of the first quarter U.S. GDP showed an increase driven by a rise in consumer spending.

U.S. economy in the first quarter increased at 3.2%. The economic expansion in the fourth quarter of 2009 was 5.6%. The U.S. economy expanded in the first quarter capping the biggest six-month gain since 2003, as consumers spending recovers and exports and inventory building helps the economic expansion.

Real person consumption expenditure increased 3.6% in the quarter compared to 1.6% in the fourth. The quarterly consumer spending was the fastest since the first quarter in 2007.

Residential fixed investment or the home construction declined at 10.9% in the quarter compared to 3.8% in the previous quarter.

Greece and the EU-IMF negotiations may end as early as today with the release of emergency aid as early as next week. European Union politicians and regulators are worried of a wider contagion that has already affected bond prices of Spain, Portugal and Ireland.

Greek government is in the final stage of negotiations with EU and the IMF has agreed to freeze wages for three years and eliminate two of the fourteen annual salary payment and in all cut 24 billion euros or $32 billion in spending. Service workers union ADEDY is resisting cuts and asking its members to protest tomorrow instead of celebrating Labor Day.

The euro traded higher 0.55% to $1.331 on the optimism that Greece will receive the financial assistance as early as next week and Greek bonds yields declined to 9.07% from record 11.41% two days ago.

Dolby Laboratories and Expedia posted better-than-expected earnings.

Commodities, Currencies and Yields

Dollar edged lower against euro to $1.3320 and increased against the Japanese yen to 94.49.

Crude oil increased $0.38 to $85.55 a barrel for a front month contract, natural gas edged higher $0.04 cent to $4.02 per mBtu and gasoline increased 2.610 cents to 238.17 cents.

Gold increased $8.70 in New York trading to close at $1,177.50 per ounce, silver closed higher $0.101 to $18.68 per ounce and copper for the front month delivery increased 1.100 cents to $3.36 per pound.

Yields on 10-year U.S. bonds increased to 3.73% and on 30-year U.S. bonds traded at 4.59%.

Stock Movers

Acme Packet, Inc. surged 19.1% after the maker of telecom equipment said it expects 2010 earnings between 65 cents and 70 cents per share.

MEMC Electronic Materials, Inc. dropped 6.7% after the maker of silicon wafers for solar modules and semiconductors reported first quarter net loss of $15.3 million.

Monster Worldwide, Inc., the online-recruiting company plunged 10.7%.

Vistaprint N.V., the online provider of printing services fell 8.5%.

Wynn Resorts, Limited gained 4.9% after the casino company reported net revenues for the first quarter of 2010 were $908.9 million compared to $740.0 million a year ago.

Earnings Review

Dolby Laboratories, Inc. ((DLB)), an audio technology licensor said second quarter sales rose 19.3% to $243.4 million from $204.1 million a year ago. Net income in the quarter rose 23.6% to $85.9 million or 74 cents per diluted share compared to net income of $69.5 million or 60 cents per share a year ago.

Expedia, Inc. ((EXPE)), an online travel company said first quarter sales rose 13% to $717.9 million from $635.7 million a year ago. Net income in the quarter rose 51% to $59.4 million or 20 cents per diluted share compared to net income of $39.4 million or 14 cents per share a year ago.

McAfee, Inc. ((MFE)), the computer-security software maker said first quarter sales rose 12% to $502.7 million from $447.7 million a year ago. Net income in the quarter fell 30% to $37.6 million or 23 cents per diluted share compared to net income of $53.5 million or 34 cents per share a year ago.

MetLife, Inc. ((MET)), the insurer said first quarter sales rose 17% to $13.07 billion from $11.14 billion a year ago. Net income in the quarter was $805 million or 97 cents per diluted share compared to net loss of $574 million or 71 cents per share a year ago.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 132.61 or 1.21% to 11,057.40, Hang Seng index in Hong Kong increased 329.67 or 1.59% to 21,108.59 and CSI 300 index in China higher 7.30 or 0.24% to 3,067.36. ASX 200 index in Australia increased 21.80 or 0.46% to 4,807.40. The FTSE Bursa KL Composite index in Malaysia closed higher 10.52 or 0.79% to 1,346.38.

The Kospi Index in South Korea increased 13.14 or 0.76% to close at 1,741.56. SET index in Thailand closed higher 10.31 or 1.37% to 763.51 and JSE Index in Indonesia increased 44.39 or 1.52% to 2,971.25. The Sensex index in India increased 55.24 or 0.32% to 17,558.71.

Europe Markets Review

In London FTSE 100 Index traded lower 37.32 or 0.66% to 5,580.52, in Paris CAC 40 Index decreased 22.14 or 0.58% to 3,818.48 and in Frankfurt DAX index traded lower 8.28 or 0.13% to 6,136.63. In Zurich trading SMI decreased 30.48 or 0.46% to 6,635.36.