Personal Income and Spending Drop

Elena
30 Sep, 2005
New York City

A government report showed that consumer spending dropped a larger-than-expected 0.5% in August, the biggest fall since November 2001, vs. expectations of a 0.2% drop. According to the report of the University of Michigan the consumer spending index is down 76.9 from 89.1 in August. Crude-oil slipped 33 cents to $66.46 a barrel on the Nymex, gasoline was down 5 cents to $2.0893 a gallon. Gold sector gains on prices over $475 per ounce.

U.S. MARKET AVERAGES

U.S. stock markets opened in the negative territory after economic data release showed larger-than-expected decline in consumer spending in August of 0.5% vs. expectations of a more modest decrease by 0.2%. Another disappointing piece of economic data was the personal income index, which fell by 0.1%, in contrast with the anticipated increase of 0.3%. The results point to an inflation increase after Katrina and Rita hit the Gulf Coast, sending energy prices to record peaks. Another report, posted by the University of Michigan released the final reading of its September consumer sentiment index, with the measure coming in flat with its mid-month level of 76.9. Economists had expected the index, which is down from a final mark of 89.1 in August, to come back a bit from the preliminary September reading.

Financials are currently down 0.2%, pressured by a 0.4% decline in banks. The Utilities sector is among the morning gainers, up 3.5%.

Tobacco stocks are down early trading on a Supreme Court of Canada ruling that provinces can sue the industry. Shares of energy-related first are also ticking lower, though the losses are fairly small.

The biotech sector has climbed in the first half hour of trading, rising by about 1.2%.

MOVERS AND SHAKERS

Dow unit Boeing Co. ((BA)) added 1%, after the company's machinists union accepted a new three-year contract yesterday and ended a strike. The company renews its jetliner production after less than a month of pending. About 80% of members who voted approved the contract.

Another Dow unit Wal-Mart Stores ((WMT)) was down 0.4%. The retailer entered Japan in 2002 by investing in supermarket operator Seiyu Ltd. and expects to raise its interest in Japanese company in December from 42.4% to over 50% to turn it into a full subsidiary. To raise its interest, Wal-Mart will buy new ordinary and preferred Seiyu shares.

Deutsche Bank downgraded Kimberly-Clark Corp. ((KMB)) to hold from buy. The broker pointed as a reason that rearranging the health product company to drive asset rationalization and support higher R&D is the right way but the fast growing raw material costs, a still suffering business in Europe and the loss of synthetic fuel tax benefits are too exhausting to calm down until restructuring savings begin.

ECONOMIC NEWS

The Department of Commerce released its closely watched report on personal income and spending in the month of August. The report showed that personal income fell unexpectedly while personal spending fell more than economists had expected.

The report said that personal income fell by 0.1 percent in August after trending higher in recent months. The decrease came as a surprise to economists, who had expected personal income to increase by 0.3 percent, matching the increase seen in July.

The Commerce Dept. noted that the decrease in personal income was partly due to the effects of Hurricane Katrina. The decrease reflected $100 billion in uninsured losses of residential and business property that resulted from the storm.

The report also showed that personal spending fell by 0.5 percent in August after rising 1.2 percent in July and 1.0 percent in June. Economists had been expecting a more modest decline of about 0.2 percent.

The decrease in consumer spending would have been even more significant if not for the notable increase in gasoline prices that was seen during the month. Excluding inflation, consumer spending fell by 1.0 percent in August after rising 0.9 percent in July.

The Commerce Dept. said that consumer prices rose 0.5 percent in August while core prices, which exclude food and energy prices, rose 0.2 percent.

The report also showed that the notable decrease in spending contributed to some improvement in the personal savings rate, which rose to a negative 0.7 percent in August from a negative 1.1 percent in July. A negative reading still indicates that consumers are dipping into their savings.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mixed. The Nikkei topped a new four-year high of 13678.44 points on upbeat reports on domestic economy, but later retreated to 0.3% in the red, dragged down by Honda Motor, Toyota Motor, and Credit Saison. Across the region, South Korea’s Kospi lost 0.8%, despite positive government data, Australia’s All Ordinaries fell 0.5% on mining stocks. Stock markets in Hong Kong were closed.

European markets advanced at mid-day trading on the back of higher U.S. market close overnight, strong semiconductor sector and merger and acquisition talk. The German DAX 30 rose 0.5%, the French CAC 40 gained 0.5%, and London’s FTSE 100 added 0.2%. The euro was slightly up against the dollar, standing at $.1.2021.

ENERGY, METALS, CURRENCIES

Oil prices retreated to lower levels on news that oil facilities in the Gulf of Mexico have slightly recovered. Light sweet crude for November delivery lost 10 cents to $66.69 a barrel. Heating oil October contract fell 1.5 cents to $2.1090 a gallon. Gasoline dropped 6 cents to $2.1950 a gallon. London Brent traded 11 cents lower at $63.73.

Gold prices climbed in European trading. In London the precious metal traded at $473.40 per troy ounce, up from $461.55. In Hong Kong gold rose $3.50 to $473.75. Silver traded at $7.50, up from $7.48.

The U.S. dollar traded higher against most major currencies in European trading. The euro was quoted at $1.2023, down from $1.2044. The dollar changed hands at 113.24 yen, up from 112.86. The British pound was trading at $1.7607, down from $1.7636.

EARNINGS NEWS

Interpublic Group ((IPG)) posted first half loss of 33 cents per share, compared with a year-ago loss 44 cents per share. The company reported a full-year 2004 loss of $1.34 per share, up from a 2003 loss of $1.40 per share. First-half operating loss amounted to $39.6 million, compared with a loss of $100.8 million in the same time last year.

Escalon Medical Corp. ((ESMC)), maker of surgical pharmaceutical products, posted Q4 earnings of 32 cents a share, up from a year-earlier profit of 10 cents a share. The company’s shares were off 14.6% to $6.20 on Thursday. The latest results incorporate a gain of $3.4 million related to a stock sale, and costs related to litigation and a retirement benefit for an executive.

Lawson Software Inc. ((LWSN)) , business application software company, posted a Q1 net earnings of 4 cents a share, breakeven a share compared with the same time last year. Revenue advanced to $87.9 million from $82.7 million last year, beating analysts estimate of revenue of $85 million.

VeriSign Inc. ((VRSN)), provider of Internet services, reported Q3 revenue would amount to $410 million, less than its previous forecast of $435 million to $440 million. The company announced that earnings excluding certain items would be 27 cents matching its previous forecasts.

Micron Technology Inc. ((MU)), semiconductor products manufacturer, posted Q4 net earnings of 7 cents a share, down vs. 14 cents a share a year earlier despite revenue growth, beating analyst estimate of a loss of 8 cents a share.

Arrow International Inc. ((ARRO)), catheter maker, posted fiscal Q4 net earnings of 11 cents a share, down from 32 cents a share a year earlier, missing analysts’ forecasts of 30 cents a share . The 65% drop in earnings is due to its evaluation of internal controls over financial reporting, as required by the Sarbanes-Oxley Act. Revenue advanced to $114.3 million from $113 million in the year-ago period.

CORPORATE NEWS

Liberty Global announced it has agreed to buy Cablecom for $2.2 billion, a day after the Swiss company announced an initial public offering.