Consumer Spending up 3.7%

Elena
28 Oct, 2005
New York City

The U.S. Commerce Department revealed that Gross Domestic Product for the third quarter grew at an annual rate of 3.8%, an acceleration from the 3.3% growth rate shown during the previous 3-month period, and above expectations of 3.6% increase. Personal consumption expenditures climbed by 3.7% in the third quarter, the government said, an acceleration from the 3.3% growth recorded in the previous period.

U.S. MARKET AVERAGES

Stocks were expected to open mixed on cautious outlook from Microsoft, but better-than-anticipated growth of Gross Domestic Product in the third quarter sent the averages higher. The Commerce Department said economic activity expanded 3.8% in the July-September quarter, beating economists'''''''' forecast for 3.6% and rising over the 3.3% increase in the second quarter. The upbeat news brought a great relief to the market, signaling that the economy was strong enough to withstand the destructive impact of hurricanes Katrina and Rita.

Energy stocks are showing strength with a 1.4% advance in the natural gas sector. Transportation stocks are also strong, helped by a 1.8% rally in the airline sector. Gaming and computer hardware stocks are notable movers to the upside. The HMO sector is showing strength, climbing by 1.4%. Retail stocks are another contributor to Wall Street''''''''''''''''s early strength.

The semiconductor sector is currently down 2.6%, with Maxim Integrated Products ((MXIM)) dropping about 12% on earnings related news. KLA-Tencor ((KLAC)) is also down sharply on earnings.

On the earnings front, Microsoft posted fiscal first-quarter earnings rise of 24% on strong demand, but lowered guidance. Baker Hughes Inc., oil services company, said third-quarter net profit rose 61% on price increases, productivity improvements, and a lower effective tax rate. Bristol-Myers Squibb, drug maker, reported Q3 27% net income increase, but adjusted earnings missed estimates. The company lowered its full-year outlook. Overseas, Deutsche Bank reported a 46% rise in net income during the third quarter on sales and tradingrevenue, as well as growing mutual fund sales in Germany.

MOVERS AND SHAKERS

Software giant Microsoft ((MSFT)) reported a 24% increase in first-quarter profit, although it issued lower estimates. The company announced that profit for the three months ended September 30 increased to $3.14 billion, up from $2.53 billion for the same period a year ago. This year''''s earnings include a charge of $361 million connected to the company’s legal settlement with RealNetworks Inc. ((RNWK)). Microsoft stock jumped 0.5%.

KLA-Tencor’s ((KLAC)) announced earnings and revenue outlooks that were lower than expectations. The company’s shares fell 5.4%.

ECONOMIC NEWS

Even with the impact of Hurricanes Katrina and Rita during the period, economic growth accelerated during the third quarter, according to government data released Friday.

The U.S. Commerce Department revealed that Gross Domestic Product, a broad measure of the economy, grew at an annual rate of 3.8% in the July-to-September quarter. This was an acceleration from the 3.3% growth rate shown during the previous 3-month period.

The government reported that a pick up in personal consumption expenditures and in federal government spending contributed to the acceleration of GDP growth, as did a smaller decrease in private inventory investment. These factors were partially offset by decelerations in exports, in residential fixed investment, and in state and local government spending.

Personal consumption expenditures climbed by 3.7% in the third quarter, the government said, an acceleration from the 3.3% growth recorded in the previous period. However, excluding the volatile food and energy sectors, personal consumption expenditures advanced by just 1.3%, a decline compared to the second quarter''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''s 1.7% growth rate.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed broadly down with the Nikkei falling 0.5% on disappointing industrial production report, showing 0.2% output increase .versus expectations of a 2% growth. The other regional markets finished the session with heavy losses. South Korea’s Kospi dropped 2.2%, Hong Kong’s Hang Seng declined 1.2%, and Australia’s All Ordinaries lost 1.1%.

European markets traded lower at mid-day, hurt by weak U.S. equity markets, decline in the automotive sector, and earnings report from Microsoft. Gains from Deutsche Bank, GlaxoSmithKline and Vodafone offset some of the losses. The German DAX 30 lost 0.1%, the French CAC 40 shed 0.3%, and London’s FTSE 100 was down 0.1%.

ENERGY, METALS, CURRENCIES

Crude oil prices steadied round $61 a barrel. Light sweet crude December contract rose 1 cent to $61.10 a barrel on the Nymex. Heating oil fell marginally to $1.8490 a gallon. Gasoline inched down to $1.5925. London Brent gained 6 cents to $59.20.

Gold futures further advanced in European trading on weaker dollar. In London gold traded at the recommended price of $473.65 per troy ounce, up from $472.80. In Zurich it traded at $473.35, up from $473.15. In Hong Kong the precious metal rose 40 cents to close at $474.05. Silver opened at $7.81, up from $7.80.

In European trading the U.S. dollar traded mixed against its major counterparts. The euro was quoted at $1.2147, up from $1.2143. The dollar changed hands at 115.24 yen, down from 115.31. The British pound was trading at $1.7807, down from $1.7843.

EARNINGS NEWS

Chevron Corp ((CVX)), integrated petroleum and chemical operations and coal mining company, posted Q3 earnings of $1.64 a share, up from of $1.51 a share in the year-ago period on revenue and sales growth, missing the analyst expectations of $1.91 a share. Q3 results included two months of operations from the former Unocal operations, while last year''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''s period included a gain of $500 million, or 23 cents a share, related to asset sales. Sales and other operating revenue reached $53.38 billion in the latest three months, up from $39.61 billion in the same period a year earlier. The company stated the adverse impact of Hurricanes Katrina and Rita more than offset the positive earnings contributions of the former Unocal operations. Chevron estimates are that the storms cut its crude oil and natural gas production by about 90,000 barrels of oil-equivalent per day in the quarter. This translated to an earnings reduction of roughly $600 million for the quarter, the company stated.

Anadarko Petroleum Corp ((APS)), oil and gas company, posted Q3 earnings of $2.51 a share, up from $1.58 a share in the year-ago period on revenue growth, missing analyst estimate for earnings of $2.89 a share. The latest results incorporate $90 million in unrealized loss on derivatives, a $19 million gain from the company''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''s firm transportation keep-whole agreement, and a charge of $13 million related to restructuring.

Microsoft Corp. ((MSFT)), software maker, reported quarterly net income of 29 cents per share, up vs. 23 cents per share in the year-ago period. The latest quarter results included a charge of 2 cents per share to account for a legal settlement with RealNetworks Inc. The results for the year-ago period included a one-time charge of 3 cents per share, to account for a legal settlement with Novell Inc. Excluding the one-time charge, the company would have gained 31 cents per share, topping on that basis analyst projections by a penny.

Bristol-Myers Squibb ((BMY)), drug maker, posted Q3 earnings from continuing operations of 49 cents a share, up from an equivalent profit of 38 cents a share in the prior year period, beating analyst estimate of 33 cents a share. If not for items, the company earned 31 cents a share in Q3, down from 44 cents a share in the year-ago time. Sales from continuing operations amounted to $4.77 billion, down slightly from $4.78 billion in the same period a year ago.

Archer Daniels Midland ((ADM)), agricultural commodities and products provider, posted Q1 net income of 29 cents a share, down from 41 cents a share in the year-ago period on revenue decrease. If not for a charge related to an accounting change, the company would have earned 32 cents a share, missing analyst estimate by a penny.

Gene Logic ((GLGC)), biotech company, announced that its Q3 net loss widened $1.24 a share, from 46 cents a share in the same time last year despite slight revenue growth.

Peoples Energy Corp. ((PGL)), oil and gas company, posted a Q4 loss of 6 cents a share, up from 27 cents a share in the year-ago period on almost 16% revenue growth. Peoples Energy recorded a mark-to-market accounting loss of $7.7 million during Q4, larger than anticipated.

R&B Inc. ((RBIN)), supplier of automotive replacement parts, announced that Q3 net income increased 4.8% to 25 cents a share, up from 24 cents in the prior year period on 15% higher sales. If not for the June acquisition of Automotive Edge/Hermoff, sales rose 13%. Gross-profit margin narrowed to 34.9% to 37.3%. Selling, general and administrative expense dropped to 24% of sales from 25.4%.

Baker Hughes Inc. ((BHI)), oil services company, announced Q3 net profit advanced 61% to 65 cents a share on price increases, productivity improvements, and a lower effective tax rate. Revenue rose 17%. The company missed the analyst estimate for Q3 of 67 cents.

CBOT Holdings ((BOT)), holding company, announced that Q3 net income advanced 63% to 40 cents a share on revenue growth, related to contributions from increased trading volume and a higher average rate per contract. Q3 trading volume advanced 9% while average daily volume also advanced 9%.

Radware Ltd. ((RDWR)), Internet software provider, posted Q3 net income of 8 cents a share, down vs. 19 cents a share in the same period a year ago despite 8% revenue growth, topping analysts’ forecasts of 5 cents a share.