Spending Outpaces Income

Elena
01 Mar, 2006
New York City

Asian markets closed mixed. The Nikkei tumbled 1.5% hurt by auto and tech stocks, while Indian Stock Exchange index hit a fresh all-time high of 1.9% at 10,565.47. European averages recovered from recent losses on gains in Vivendi Universal and Xstrata. Pilgrim''s Pride said it was withdrawing its previously-issued outlook for Q2 and the full fiscal year. Personal income rose 0.7% in January, while personal spending grew by 0.9%.

U.S. MARKET AVERAGES

U.S. stock futures were sitting well above the flat line, predicting market recovery from the sharp losses in the previous session. Well-received corporate news from Europe and noteworthy economic news due out later in the day, set positive mood, helping stocks rebound from Tuesday’s sell off.

The January personal income and spending report as well as the inflation reading will be among the most important data. Data on U.S. manufacturing, oil inventories and February auto sales will also be in the spotlight.

In corporate news, Google Inc said it sees various opportunities for improvement on its money-making ad sales alongside its popular search results. Google shares were up 1.5 % before the opening bell, following a sharp decline Tuesday after CFO said the company's key revenue source would see slower growth.

In earnings news, design software maker Autodesk Inc. reported better-than-expected profit jump of 26% on sharp demand for its design products.
The company raised its outlook for 2007.

S&P 500 futures were up 2.6 points, above fair value. Dow Jones industrial average futures rose 28 points, and Nasdaq 100 futures were up 4 points.

ECONOMIC NEWS

Personal income and spending showed notable growth in the month of January, according to a report from the Department of Commerce. At the same time, the report also showed an acceleration in the pace of inflation.

The report said personal income rose 0.7 percent in January following an upwardly revised increase of 0.5 percent in December. Economists had expected income to increase by 0.6 percent compared to the 0.4 percent growth originally reported for December.

The Commerce Dept. noted that the increase in personal income reflected several special factors, including new Medicare prescription drug plan payments and cost-of-living adjustments to several federal transfer payment programs.

The report also showed that personal spending grew by 0.9 percent in January after a downwardly revised increase of 0.7 percent in December.

The growth in personal spending came in slightly below the expectations of economists, who had expected growth of 1.0 percent compared to the 0.9 percent growth originally reported for December.

With personal spending growth outpacing the increase in personal income, the personal savings rate came in at a negative 0.7 percent in January compared with a negative 0.4 percent savings rate in December.

As mentioned above, the report also showed that the price index for consumer spending rose 0.5 percent in January after coming in unchanged in December. Excluding food and energy prices, the index rose 0.2 percent following a 0.1 percent increase in the previous month.

Additionally, the price index showed an annual rate of growth of 3.1 percent in January compared to the 2.8 percent year-over-year growth seen in the two previous months. Core prices rose 1.8 percent year-over-year.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks finished mixed, reflecting positive fund flows and easing political tensions. The Nikkei slid 1.5% on disappointing U.S. economic data and a sharp drop of Google’s shares which hurt the auto and tech sectors. Across the region, Hong Kong’s Hang Seng fell 0.6% on profit taking, Australia’s All Ordinaries tumbled 1.3%, while India’s Stock Exchange Sensitive index surged 1.9% on gains in automobile shares.

European stocks recovered from recent losses to trade higher at mid-day. The German DAX 30 gained 0.5% lifted by deal talk involving BASF. The French CAC 40 rose 0.6% on strong earnings from media and telecommunications conglomerate Vivendi Universal. London’s FTSE 100 climbed 0.6% on miners, including Xstrata.

OIL, METALS, CURRENCIES

Crude oil prices neared $62 ahead of petroleum report, expected to show another rise in U.S. oil inventories. Light sweet crude April delivery gained 49 cents to $61.90 a barrel. London Brent for April delivery added 65 cents to $62.41 a barrel.

European gold prices continued to advance. In London gold traded at the fixed price of $562.60 bid per troy ounce, up from $559.30. In Zurich the precious metal traded at $562, up from $558.40. In Hong Kong gold rose $7.40 to $562.70. Silver opened at $9.73, down from $9.75.

The U.S. dollar gained vs. the yen, fell against the euro and pound. The euro traded at $1.1938, up from $1.1921. The dollar bought 116.13, up from 115.73. The British pound stood at $1.7557, up from $1.7536.

EARNINGS NEWS

Saks Inc, ((SKS)), retailer, reported a Q4 net loss of 2 cents a share, compared to net income of 71 cents a share in the year-earlier period. The company also okayed a special cash dividend of $4 a share, immediately following the expected closing on March 13 of the sale of its Northern Department Store Group. Q4 results incorporated net after-tax charges of $56.3 million, or 42 cents a share related to goodwill and other asset impairments. Revenue decline to $1.77 billion from $2.1 billion, reflecting the sale of the Proffitt's/McRae's business. The company missed analysts’ forecasts for earnings of 58 cents a share and revenue of $1.78 billion.

The Houston Exploration Co, ((THX)), oil and gas company, reported Q4 earnings of 68 cents a share, down from a profit of $1.21 a share a year-ago due to revenue decline. The company stated that declines in production more than offset improvements in average realized prices for the quarter. Production for Q4 dropped to 26.3 billion cubic feet of natural gas equivalent, or bcfe, from 30.3 bcfe in last year's period. The company missed analysts’ estimates by a penny.

William Lyon Homes, ((WLS)), single family home builder, reported that Q4 net income advanced to $10.11 a share, up from $8.58 a share last year. Net new home orders, a predictor of future activity, dropped 7% to 460 homes. The company announced that the softening of some of its markets it experienced in late 2005 is continuing into 2006 as orders are lower and cancellation rates are higher for the first eight weeks of 2006 relative to the year-ago period.

American Eagle Outfitters Inc, ((AEOS)), apparel company, reported Q4 income of 71 cents a share, up from 66 cents a share in the year-earlier period on 13.4% total sales and 7.8%. same-store sales growth. Operating income rose to $174.2 million from $171.7 million last year.

SciClone Pharmaceuticals, Inc, ((SCLN)), pharmaceutical company, reported a Q4 net loss of 4 cents a share, up from a loss of 5 cents a share in the year-ago period on revenue growth and a 22% jump in sales of Zadaxin, SciClone's lead product. The company predicted Zadaxin sales will advance to about $32 million in 2006, driven by continued growth in China.

Aristotle Corp, ((ARTL)), manufacturer of products for the education, medical and agricultural markets, reported that Q4 net earnings advanced 54.7% to 9 cents a share on 5.9% net sales growth. Aristotle, announced that reductions in administrative and selling costs had more than offset higher energy prices and sluggish spending in the education market.

Fargo Electronics, Inc, ((FRGO)), provider of sercure identity-card technologies, reported that Q4 net income increased 12% to 19 cents a share from the year-ago period on 7% sales growth. Gross profit margins advanced to 44% from 39%. The company predicted it will earn 13 cents to 15 cents a share in Q1, including one cent for the expensing of stock options.

Walter Industries Inc, ((WLT)), diversified infrastructure company, posted a Q4 net loss of $1.88 a share, three times more than earned in the same period a year ago. Total revenue at the company advanced to $801.2 million from $391 million a year ago. Walter Industries beat analysts’ forecasts of $1.44 a share.