GDP and Home Builders Drive Averages Higher

123jump.com Staff
30 Nov, -0001
New York City

Latest read on 1Q GDP of 3.5% put buyers in charge and market disregards small rise in initial unemployment claims for the last week. Costco and Heinz meet the earnings expectations but Dollar General, Fred's fall on disappointing earnings. Toll Brothers earnings doubled from a year ago.

Latest read on GDP put buyers in charge of the market and market never looked back. Homebuilders, Internet, and energy sectors traded in the positive territory. Shares of Toll Brothers, Boeing, AIG jumped during the session better than 1%.

The latest read on GDP of 3.5% from Commerce Department helped to relieve concerns on economic slow down, however the report left several inflation related measures unchanged.

While calculating GDP Commerce Department makes several assumptions. In this read of GDP the department lowered its estimates for import rise from 14.7% to 9.1%. The department also said businesses expanded inventories by $68.4 billion, lower than the $80.2 billion accumulation first estimated but still above the fourth-quarter's $47.2 billion increase.

The major contributors to the increase in real GDP in the first quarter were personal consumption expenditures, private inventory investment, exports, residential fixed investment, and equipment and software. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the first quarter primarily reflected decelerations in equipment and software and in PCE that were partly offset by accelerations in exports, in private inventory investment, and in residential fixed investment and a deceleration in imports.

Final sales of computers contributed 0.56 percentage point to the first-quarter change in real GDP, the same contribution as to the fourth-quarter change. Motor vehicle output contributed 0.23 percentage point to the first-quarter change in real GDP after contributing 0.86 percentage point to the fourth- quarter change.


The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 2.9 percent in the first quarter, 0.1 percentage point less than the advance estimate; this index also increased 2.9 percent in the fourth quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 3.0 percent in the first quarter, compared with an increase of 2.0 percent in the fourth.

About 0.2 percentage point of the first-quarter increase in the index was accounted for by the pay raise for federal civilian and military personnel, which is treated as an increase in the price index of employee services purchased by the federal government.
Real personal consumption expenditures increased 3.6 percent in the first quarter, compared with an increase of 4.2 percent in the fourth. Real nonresidential fixed investment increased 3.5 percent, compared with an increase of 14.5 percent.

Nonresidential structures decreased 3.3 percent, in contrast to an increase of 2.1 percent. Equipment and software increased 5.6 percent, compared with an increase of 18.4 percent. Real residential fixed investment increased 8.8 percent, compared with an increase of 3.4 percent.

Real exports of goods and services increased 7.2 percent in the first quarter, compared with an increase of 3.2 percent in the fourth. Real imports of goods and services increased 9.1 percent, compared with an increase of 11.4 percent.

Real federal government consumption expenditures and gross investment increased 0.4 percent in the first quarter, compared with an increase of 1.2 percent in the fourth. National defense increased 0.3 percent, in contrast to a decrease of 0.6 percent.

Non-defense increased 0.7 percent, compared with an increase of 5.3 percent. Real state and local government consumption expenditures and gross investment decreased 0.5 percent, in contrast to an increase of 0.6 percent.

The real change in private inventories added 0.78 percentage point to the first-quarter change in real GDP, after adding 0.46 percentage point to the fourth-quarter change. Private businesses increased inventories $68.4 billion in the first quarter, following increases of $47.2 billion in the fourth quarter
and $34.5 billion in the third.

Real final sales of domestic product -- GDP less change in private inventories -- increased 2.7 percent in the first quarter, compared with an increase of 3.4 percent in the fourth.


Labor Department reported initial claims for the unemployment increased by 1,000. In the week ending May 21, the advance figure for seasonally adjusted initial claims was 323,000, an increase of 1,000 from the previous week's revised figure of 322,000. The 4-week moving average was 330,500, an increase of 500 from the previous week's revised average of 330,000.

The advance seasonally adjusted insured unemployment rate was 2.0 percent for the week ending May 14, unchanged from the prior week's unrevised rate of 2.0 percent.

The advance number for seasonally adjusted insured unemployment during the week ending May 14 was 2,574,000, a decrease of 22,000 from the preceding week's revised level of 2,596,000. The 4-week moving average was 2,587,250, an increase of 5,750 from the preceding week's revised average of 2,581,500.

Toll Brothers report on earnings charged home builders stocks. In the early morning stocks of Toll Brothers are up $5.92, Ryland up $3.31, Beazer Homes up $2.68, Hovnaian up $3.03 and Lennar up $2.10.

Hormel Foods, meat and food products maker, reported 2Q profit of 40 cents vs.38 cents a year ago on sales rise of 15% to $1.31 billion. The company forecasted annual profit of $1.70 to $1.80.

Heinz, ketchup and condiment maker, reported 4Q profit of 58 cents vs. 55 cents a year ago on sales growth of 5% to $2.45 billion and volume growth of 1.5% and weak dollar currency translation contributed 3% rise to sales.

Costco, wholesale warehouse club operator, reported 3Q profit of 43 cents vs. 42 cents a year ago on 10% rise in sales and 7% rise in sales for the same-store for the quarter. The gasoline sales at Costco are under scrutiny by investors as Costco replaces its inventory on daily basis which hurts company’s sales in rising price environment.

Fred’s, discount merchandiser, reported 1Q profit of 17 cents vs. 18 cents a year ago on 13% rise in revenue. Same-store sales increased 3% from 2.7% from a year ago. Operating income as a percentage of sales declined to 2.7% from 3.2%.

Dollar General reported 1Q 4% profit decrease on higher expenses & lower gross margin. Net income fell to $ 64.9 million or 20 cents from $67.million, or 20 cents last year and missed the estimates of 22 cents. The retailer purchased $1.2 million shares in the quarter. Same-store sales for the current quarter rose by 4.9%.

Toll Brothers, luxury home builder, reported 2Q earnings of $2.01 vs. 89 cents a year ago on 52% revenue jump to $1.25 billion. The company raised fiscal 2005 income guidance growth from 60% to 70% from a year ago. The company ended the quarter with the highest backlog of orders for 8,561 worth $5.87 billion.

At mid-day trading markets in Brazil, Argentina and Chile are trading lower while in Mexico traded higher by 1%.

Euro and British pound traded lower against the U.S. dollar ahead of France vote on European constitution. The closely watched French vote seems to be teetering towards ‘No’ vote.

Recently listed UK Company Virgin Mobile shares jumped 5% after forecasting ‘mid teen’ sales growth for the year.

Markets across Europe are trading higher with Norway and Germany leading. Total, BP, Stat Oil, and Shell traded higher by 1% on oil price jump. Bank shares in Germany traded higher merger rumors but U.K. bank shares traded lower after Barclays said that bad debt provisions in the credit card division will be higher than previous estimates.

April trade surplus in Japan fell by 10.4% to $9 billion from a year ago. The rising crude prices and surging laptop imports from China compensated for the moderated price hikes in Steel product exports. Exports for April rose 7.8% and April import rose 12.7%. Japan’s deficit with China jumped to $3 billion in April.

The Indian government cabinet approved sale of 10% in BHEL, India’s public sector power plant company and reduced its stake to 58%.

United Microelectronics, most traded stock in Taiwan for third session in a row traded up 0.5%. LCD panel makers such as AU Optronics, Chunghwa Picture Tubes and Chi Mei Optoelectronic climbed more than 1%.

Several China based companies are expected to be listed in HK and Shanghai in the coming weeks. Coal mines, consumer products, and construction companies are expected to be priced worth at least $7 billion.

In overnight trading major Asian markets closed higher. Shares in Mumbai were up 1.1%, Tokyo index was up 0.12%, Seoul, Bangkok and Sydney indexes were up a fraction. Hong Kong shares came under pressure as investors were worried that large number of IPOs next two weeks may dry market liquidity.