Stocks Get a Lift From Spending Report
3/30/2007
NEW YORK_Stocks advanced Friday, the last trading day of a turbulent first quarter, as investors were encouraged by a rise in consumer spending and incomes and growth in Chicago-area manufacturing.

NEW YORK_Stocks advanced Friday, the last trading day of a turbulent first quarter, as investors were encouraged by a rise in consumer spending and incomes and growth in Chicago-area manufacturing.

The Chicago Purchasing Managers index of regional manufacturing activity soared to a reading of 61.7 in March, higher than Wall Street was expecting and up from 47.9 in February. A reading above 50 indicates expansion, and a reading below 50 shows contraction. The report was well-received, as it is a good indicator of Monday's national manufacturing report from the Institute for Supply Management.

Earlier Friday, the Commerce Department report that both consumer spending and personal incomes rose 0.6 percent last month appeared to lift investor sentiment, which has been dogged by concerns about a slowing economy. The increases were double what Wall Street had expected.

However, the data also showed that core inflation rose that month at the fastest rate since August _ which could give some investors pause, as quickening inflation could compel the Federal Reserve to raise interest rates. The inflation barometer that excludes energy and food shot up by 0.3 percent in February, leaving core inflation rising by 2.4 percent over the past 12 months, significantly higher than the Federal Reserve's 1 percent to 2 percent comfort zone.

But overall, investors were in a buying mood Friday, engaging in a bit of "window dressing," or buying up certain stocks to make their portfolios look stronger, ahead of the next quarter. They were also optimistic about the economy's resilience after the government's spring planting report, which showed farmers expect to plant a greater-than-expected 90.5 million acres of corn this spring. The U.S. Department of Agriculture had expected about 86 million acres.

In midmorning trading, the Dow Jones industrial average rose 36.13, or 0.29 percent, to 12,384.88.

Broader stock indicators were slightly higher. The Standard & Poor's 500 index was up 2.77, or 0.19 percent, at 1,425.30, and the Nasdaq composite index was up 5.71, or 0.24 percent, at 2,423.59.

Bonds slipped, with the yield on the benchmark 10-year Treasury note at 4.66 percent, up from 4.64 percent late Thursday. The dollar rose against other major currencies, while gold prices also edged higher.

Crude oil prices had been climbing for eight straight sessions, heightening the worry among investors that high fuel costs could eat into spending. But those fears were allayed somewhat by the spending data, while crude prices pulled back from six-month highs Friday by 35 cents to $65.68 a barrel on the New York Mercantile Exchange.

The spending data also allowed investors to brush off a report from the University of Michigan that showed consumer confidence slipped in March from a month earlier. Analysts often point out that a drop in sentiment doesn't necessarily mean a drop in spending.

Friday's data on the whole was indicative of slow and steady economic growth. Construction spending in January rose 0.3 percent, swinging from a 0.8 percent fall the previous month. The market was expecting another fall of 0.5 percent. Housing construction fell sharply but was offset by strong gains in nonresidential spending and local projects, suggesting that the slow housing market isn't defeating other areas of the economy.

Concerns that the economy is weakening too quickly has been a big factor in the market's volatility this quarter. The major stock indexes started out strong in January, with the Dow continuing its record-setting trek that began in 2006. But stocks took a huge dive on Feb. 27 as various worries _ about a possibile recession, tumbling overseas stock markets, the floundering subprime mortgage market, and the weakening dollar _ came to a head.

As the quarter wore on investors, assuaged by some reassuring data and calm words from the Federal Reserve, managed to keep the market from spinning out and steered the Dow above the psychological 12,000 mark and back near its January levels. But volatility is still high, and is likely to remain in the second quarter.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 202.87 million shares.

The Russell 2000 index of smaller companies was up 3.88, or 0.49 percent, at 802.78.

Overseas, Japan's Nikkei stock average rose 0.14 percent. In afternoon trading, Britain's FTSE 100 was down 0.05 percent, Germany's DAX index was up 0.66 percent, and France's CAC-40 was up 0.56 percent.

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Stock Market Looks to Retail Sales
3/11/2007
NEW YORK_Wall Street appears to have regained some stability after its nosedive two weeks ago, but investors aren't ruling out more turbulence if upcoming data shows consumers are spending less in the face of rising costs.

NEW YORK_Wall Street appears to have regained some stability after its nosedive two weeks ago, but investors aren't ruling out more turbulence if upcoming data shows consumers are spending less in the face of rising costs.

This week will bring several retail sales reports for February, as well the government's producer and consumer price indexes _ key gauges of inflation.

Last Friday's jobs data showed that U.S. employment hasn't been crippled by the slower areas of the economy, but investors want to know if average American is still financially healthy enough to feed economic growth.

The market is expecting the Commerce Department on Tuesday to show that retail sales rose in February by 0.3 percent from January. Also Tuesday, the International Council of Shopping Centers reports on chain store sales, and Redbook releases its retail sales index. Last week, individual retailers reported sluggish clothing sales for February.

Even if sales look robust, markets could be rattled by the producer or consumer price indexes. If they come in higher than expected, it would suggest that the Federal Reserve, which meets March 20-21, won't be able to lower interest rates later in the year _ a move that looked more probable right after Wall Street's big plunge, but which appears much less likely now that economic data has kept showing moderating growth.

After falling to four-month lows last Monday, the indexes rebounded and finished slightly higher on the week _ which many investors saw as promising, given that the previous week was the worst in more than four years. The Dow Jones industrials rose 1.34 percent, the Standard & Poor's 500 index picked up 1.13 percent, and the Nasdaq composite index rose 0.83 percent.

But the anxiety is far from over.

The Street will not only be watching economic data this week, but also news about the subprime mortgage market and currency trading. Jitters about financial backers bailing out of subprime lenders, who give loans to people with poor credit ratings, have been a big factor in stocks' recent volatility. So has the dollar's weakness versus the yen, which led many investors to take money out of high-yielding dollar assets bought with the low-yielding yen.

OTHER ECONOMIC DATA

On Tuesday, in addition to retail sales, investors will be looking at the Commerce Department's business inventories report for January _ which is expected to show a 0.1 percent rise _ and global staffing firm Manpower Inc.'s survey on hiring rates.

On Wednesday, the market is expecting the Commerce Department to report that the current account deficit narrowed in the last quarter of 2006 to $203 billion from an all-time high of $225.6 billion in the previous quarter; the current account is the broadest measure of foreign trade. The department will also be releasing import and export prices for February.

Thursday will bring some regional manufacturing data: the market is expecting the New York Fed's Empire State manufacturing index for March to fall to 17.0 from 24.4 in February, and the Philadelphia Fed's manufacturing index for March to rise to 4.0 from 0.6 in February.

On Friday, the Federal Reserve will report industrial production for February, which the market is predicting will rise by 0.3 percent, up from a drop of 0.5 percent in January. The Fed will also report February capacity utilization for February, expected to register at 81.3 percent, virtually unchanged from January.

The University of Michigan's preliminary data for consumer sentiment in March will also be released Friday. The market is forecasting a slight drop in the index to 90.5 from a reading of 91.3 in February.

EARNINGS COME BACK INTO FOCUS

This week will bring some earnings reports from financial services firms, which should give the market a better idea of whether investment houses can keep up their record-breaking profit trend this year. Goldman Sachs Group Inc. will release its earnings Tuesday, Lehman Brothers Holdings Inc. will report Wednesday; and Bear Stearns Cos. Inc. will report Thursday.

The market is expecting Goldman Sachs to report a first-quarter profit of $4.84 a share. Goldman closed at $201.70 Friday, in the upper half of its 52-week range of $136.79 to $222.75.

Lehman Brothers is expected to report first-quarter profit of $1.94 a share. Its stock closed at $75.83 Friday, in the upper half of its 52-week range of $58.37 to $86.18.

Analysts forecast that Bear Stearns will report first-quarter profit of $3.80 a share. Its stock closed at $151.98 Friday, in the middle of its 52-week range of $120.10 to $172.61.

General Motors Corp. will also be reporting fourth-quarter profit next week. The market is expecting a profit of $1.19 per share. GM closed at $30.99 Friday, in the middle of its 52-week range of $19 to $37.24.

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WASHINGTON, March 4, 2007 (AFP) - The US economic expansion suddenly seems more fragile than thought just weeks earlier, after a sharp downward revision to the past quarter's growth and renewed fears about the slump in real estate.

The latest revision to US gross domestic product (GDP) showed the world's largest economy expanded at a tepid 2.2 percent pace in the fourth quarter, instead of the 3.5 percent growth spurt in the official estimate a month earlier.

That was the sharpest downward revision in a decade, and was attributed to weak business spending and a drawdown of inventories from cautious firms.

Still, most forecasters say the economy will muddle through 2007 at a sluggish pace, in line with Federal Reserve forecasts.

But some say the picture is more shaky than it appeared a few weeks ago. And many are renewing forecasts for interest rate cuts by the Federal Reserve sometime this year to help pick up the pace of economic activity.

Manufacturing has been sluggish, highlighted by the 7.8 percent drop in durable goods orders last month.

And some say the US has yet to see the full effect of the housing downturn, reflected in the 19.1 percent slide in residential investment in the fourth quarter.

The end of the real estate boom has resulted in high failure rates among risky or "subprime" mortgages, given to borrowers with below-average credit ratings, and some say this crisis could spill over.

"We are seeing cracks in this easy-money-now-not-so-easy environment," said Andrew Busch, analyst at BMO Nesbitt Burns.

He said 20 subprime lenders "have either shut down or been forced to shut down" and more failures are expected. While most major banks are not in the sector, a wave of failures could spread throughout the financial system, some warn.

Stephen Gallagher, economist at Societe Generale in New York, said the sub-prime lending pullback "is a mini crisis that raises questions about complacency in general."

"It has become a case of extreme illiquidity that tends to shake out weaker hands," he said.

Another concern is the rise in the Japanese yen, which could hurt the so-called "carry trade" that provides liquidity to the US and other markets.

These concerns have whipsawed global equity markets, which saw one of the worst weeks in years, sparked by a nine percent plunge in Shanghai's stock market on Tuesday.

"Hedge funds borrow yen at very low interest rates to fund US investments. When the yen strengthens, it makes the repayment of those loans more expensive," said Dick Green, analyst at Briefing.com.

"So, perhaps a rising yen will force some hedge funds to sell stocks to cover exchange rate losses. Perhaps."

Paul Sherard, economist at Lehman Brothers, said there may be some economic turmoil ahead but he sees no major crisis.

"Wobbly markets probably do not presage serious economic trouble ahead," he said in a note to clients.

"However, the global economy is still sitting uncomfortably in a configuration of ultimately unsustainable imbalances centered on a current account deficit of 6.6 percent of GDP in the US (2006) and current account surpluses of 9.1 percent in China and 3.9 percent in Japan."

Sherard said he expects "a gradual but generally orderly unwinding of these imbalances with occasional but inevitable bumps. But the market can be forgiven for getting occasional jitters that a faster and more painful path of adjustment may lie just ahead."

Federal Reserve chief Ben Bernanke told lawmakers Wednesday there was "no material change in our expectations for the US economy" since the official forecast delivered February 14, calling for growth a range of 2.5 to 3.0 percent for 2007.

Bernanke said the downward revision of the fourth quarter GDP numbers "was actually more consistent with our overall view of the economy than were the original numbers."

"So we expect moderate growth going forward," he added.

The possibility of a recession, evoked over the past week by former Fed chairman Alan Greenspan, has few followers. Among them, New York University economist Nouriel Roubini, who has been calling for a "hard landing" since last year.

"This hard landing will certainly be, at a minumum, a painful growth recession and, much more likely, a much more ugly outright recession," he said.

Others say the Bernanke view is more likely, saying consumer spending and other segments of the economy are holding up.

"If the US economy is sliding into recession .. someone forgot to tell the American consumer. Consumers, who account for 70 percent of economic activity, are still frolicking on the beach oblivious to the swirling storm clouds overhead," said Sal Guatieri of BMO Financial Group.

Nariman Behravesh, chief economist at the research firm Global Insight, said excluding inventory adjustments and other temporary factors, "you're looking at growth of around 2.5 percent and we think that may strengthen to about three percent by the end of the year."

He said this situation could mean rate cuts ahead if inflation stays in check, despite the hawkish rhetoric from the central bank.

"Our view is there is still chance that in the middle of the year, with the economy still sluggish, the Fed may cut once or twice. But I'm not going to make a huge bet on that."