The country
Sales at retailers rose less than forecast in January, showing it will be difficult for American consumers to sustain last quarter’s pickup in spending without bigger gains in employment.
Purchases increased 0.3 percent, the smallest gain since a drop in June, according to Commerce Department figures today in Washington. Other reports showed manufacturing in the New York area accelerated and confidence among home builders stagnated.
The sales data also indicated winter snowstorms may have played a role in the slowdown as Americans stayed away from restaurants and home-improvement stores. While Gap Inc. and Macy’s Inc. were among retailers topping analysts’ estimates as promotions lured post-holiday shoppers, rising food and gasoline prices may have caused households to cut back on non-essentials.
“There is some momentum in consumer spending, but it’s not particularly robust,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York, who correctly forecast the gain. “Things are recovering, but they’re not really healthy,” he said, and in addition, “the severe weather last month curtailed all kinds of outdoor activity.”
The Standard & Poor’s 500 Index retreated from a 32-month high after the reports, falling 0.4 percent to 1,327.35 at 11:54 a.m. in New York. The S&P Supercomposite Retailing Index decreased 0.1 percent.
Sales were projected to increase 0.5 percent based on the median forecast of 79 economists in the Bloomberg News survey. Estimates ranged from a gain of 1.1 percent to a drop of 0.5 percent. The December increase in sales was revised down to 0.5 percent from the 0.6 percent previously estimated.
Fed View
Federal Reserve policy makers are among those saying bigger gains in employment are needed to ensure American consumers sustain spending. While unemployment fell to 9 percent in January, from 9.4 percent in December, it has been 9 percent or higher since May 2009, the longest period of elevated joblessness since monthly records began in 1948.
Fed Chairman Ben S. Bernanke and fellow policy makers are awaiting further proof of a durable pickup in the labor market that will lift growth. That’s one reason why they are pressing ahead with a second round of monetary stimulus worth $600 billion.
Manufacturing in the region covered by the Fed Bank of New York expanded this month at the fastest pace since June, another report showed. The bank’s general economic index rose to 15.4 from 11.9 in January. Readings greater than zero signal growth in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut.
Builder Pessimism
The National Association of Home Builders/Wells Fargo said its sentiment index registered a reading of 16 in February for the fourth consecutive month, in line with the median forecast of economists surveyed by Bloomberg. Readings below 50 mean more respondents said conditions were poor.
Also today, figures from the Labor Department showed import prices climbed 1.5 percent in January, propelled by higher costs for commodities like food and fuel.
Eight of 13 major retail categories showed an increase in demand last month, led by auto dealers, grocery stores and service stations, according to the Commerce Department’s figures. Filling station sales advanced 1.4 percent.
The data, which aren’t adjusted for inflation, may have been boosted by rising gasoline prices. Regular fuel in January reached an average $3.10 a gallon, or 11 cents more than December, according to AAA, the nation’s biggest motoring organization.
Auto Sales
Sales climbed 0.5 percent at automobile dealers, consistent with industry figures that showed car purchases climbed last month to a 12.54 million unit annual pace that was the best since the government’s cash-for-clunkers program in August 2009.
Demand dropped 2.9 percent at building-material stores, the most since May, and restaurant receipts dropped 0.7 percent, the biggest decrease since March 2009. In contrast, the 1.3 percent gain at grocery stores was the biggest since August.
“Our results underscored signs that consumer confidence continues to improve,” Co-Chief Executive Officer Walter Robb said on a Feb. 9 conference call.
Winter storms spread from the Midwest and the South to New England, covering 71 percent of the country with snow on Jan. 12, according to the National Climatic Data Center.
Cutting Forecasts
Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales increased 0.4 percent after a 0.1 percent drop the prior month that was previously reported as a gain.
January figures combined with the revisions prompted some economists to cut forecasts for consumer spending this quarter. David Greenlaw, chief financial economist at Morgan Stanley, said purchases will rise 2.7 percent this quarter, down from his prior estimate of 3.3 percent.
“Consumer can’t quite keep up with exuberant expectations,” Mike Feroli, chief U.S. economist at JPMorgan Securities LLC in New York, said in a note to clients. Feroli said it will “be difficult” to achieve his forecast of 3.5 percent, and said spending is tracking closer to 2.5 percent to 3.0 percent.
Household purchases climbed at a 4.4 percent pace in the last three months of 2010, the biggest increase in four years.
It’s been 31 months since the Dow Jones Industrial Average closed above 12,000, enough time for Detroit to change mayors, the United States to change presidents and the average investor to change his mind about ever putting money in stocks again.
The last time the blue-chip index hit 12,000 was June 19, 2008, as the market started a slide that cut stock values nearly in half, bottoming out at 6,594 in March 2009. Since then, stocks have slowly climbed back up, though with Tuesday’s close at 12,040 the Dow remains 15 percent off its October 2007 high of 14,165.
The S&P 500 index also regained a milestone Tuesday, closing at 1,306. It last closed above 1,300 in August 2008. The Nasdaq composite closed at 2,751.
“The market runs on greed and fear, and now we’re back in the greed stage again,” said David Aquilina, senior vice president of investments for Leonard & Co. in Troy, Mich. “It’s nice because a lot of people are gaining confidence back, if not in the economy at least in the stock market.”
Stocks are a notable exception in an economy in which the national unemployment rate has remained over 9 percent for 20 months, and where home foreclosures are expected to continue increasing, more than a year after the official end of the recession.
One reason is the continued support of the Federal Reserve through bond purchases in the quantitative easing program.
“The feeling is, if the Federal Reserve is printing and the market is going back up, then we’ll stick with it,” Aquilina said.
The improvement in stocks also is luring back investors who fled to bonds and cash during the market’s plummet, added Nicholas Hopwood, a certified financial planner with Park Avenue Wealth Management LLC in Livonia, Mich.
“The 12,000 Dow is more of a psychological barrier,” Hopwood said. “But the more people see the market moving higher and higher, the more they could be willing to jump on the bandwagon.”
The recovery in stocks is largely driven by momentum in the markets, an improving business climate and the better returns stocks offer compared with U.S. Treasuries, noted David Sowerby, portfolio manager for Loomis, Sayles & Co. L.P. investment management in Bloomfield Hills.
“You’re seeing investors generally becoming more bullish,” Sowerby said, but he cautioned that there will be a give and take as the market moves forward.
“Investors should be cognizant that we do get 5 percent corrections more than twice a year, and a 10 percent correction on the average of once a year,” Sowerby said. “There will be a period when the market will test our courage.”
A Karbon brand ski jacket made in China for a company in Toronto costs more to buy in Canada than in the U.S.
Despite the fact, the Canadian dollar is now at or near par with the U.S. greenback, a price gap persists.
The gap has closed in the three years since the dollar first hit parity with its U.S. counterpart.
But only by about 10 per cent, says Hugh Schure, president of Schure Sports, the Toronto-based designer of Karbon brand skiwear.
That
Retail sales and industrial production both rose in December, indicating that the U.S. economic recovery is picking up as the new year begins.
Purchases climbed 0.6 percent, capping the biggest annual increase in more than a decade, Commerce Department figures showed today in Washington. Output at factories, mines and utilities increased 0.8 percent, the most in five months, according to data from the Federal Reserve.
Americans this year are forecast to boost the spending that accounts for 70 percent of the economy as tax cuts put more money in their pockets, increasing demand for Ford Motor Co. cars and Apple Inc. iPads. At the same time, an unexpected drop in consumer confidence indicates that rising gasoline prices and unemployment stuck above 9 percent pose a risk for sales.
“The expansion should no longer be described as fragile,” said Dean Maki, chief U.S. economist at Barclays Capital in New York, who today raised his forecast for fourth-quarter growth to 3.5 percent from 3 percent. The pickup in sales “is an important signal that consumers are more comfortable spending than they have been.”
Stocks rose, sending the Standard & Poor’s 500 Index to its longest weekly rally since 2007 as JPMorgan Chase & Co. reported record profits. The S&P 500 increased 0.7 percent to 1,293.24 at the 4 p.m. close in New York. Treasury securities fell, pushing up the yield on the benchmark 10-year note to 3.34 percent from 3.30 percent late yesterday.
Sentiment Slips
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for this month dropped to 72.7, the lowest since November, from 74.5 in December. Economists surveyed by Bloomberg News projected a gain to 75.5, according to the median forecast.
Americans anticipated stagnant incomes this year along with rising inflation, a product of the highest gasoline prices at the pump since October 2008.
The cost of living climbed 0.5 percent in December, led by higher fuel and food prices, figures from the Labor Department also showed today. For all of 2010 the consumer-price index rose 1.5 percent compared with a 2.7 percent increase the prior year.
The so-called core rate of inflation, which excludes volatile food and fuel costs, rose 0.1 percent for a second month. That held last year’s increase to 0.8 percent, the smallest annual gain since records began in 1958.
For all of 2010, retail sales increased 6.7 percent, the biggest one-year advance since an 8.2 percent jump in 1999.
Less Than Forecast
Last month’s gain in purchases fell short of the 0.8 percent median forecast of 83 economists surveyed by Bloomberg. Forecasts ranged from a decline of 0.1 percent to a gain of 1.3 percent cash till payday.
Eight of 13 major retail categories showed increases last month, led by a 2.6 percent jump at non-store retailers, which include Internet vendors. The increase was the biggest in more than two years. Demand at auto dealers climbed 1.1 percent.
Apple sold 7.5 million iPads as of the end of September, making it the best-selling tablet, and the device has generated almost $5 billion in revenue. The Cupertino, California-based company will provide an update on sales when it reports fiscal first-quarter earnings next week.
President Barack Obama signed into law an $858 billion bill on Dec. 17 extending Bush-era tax cuts for two years. The measure also renewed emergency jobless benefits for the long- term unemployed and cut 2011 payroll taxes by two percentage points. Economists such as John Herrmann at State Street Global Markets LLC in Boston said the tax package will boost consumer spending in early 2011.
Projected Pickup
Household spending this year will climb 3 percent, the most since 2005, according to the median forecast of economists surveyed this month. That’s up from a 2.6 percent median estimate in the December, before the legislation was signed.
Auto sales in December reached a 12.53 million annual pace, the highest since the government’s so-called cash-for-clunkers incentive program in August 2009, according to industry data.
Ford said Jan. 10 it plans to hire more than 7,000 workers in the next two years, including engineers with expertise in battery-powered cars. The Dearborn, Michigan-based company will hire 4,000 factory workers and 750 engineers this year and add 2,500 hourly workers next year, Mark Truby, a company spokesman, said in an interview in Detroit.
The University of Michigan’s confidence survey’s gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to a three-month low of 79.8 this month from 85.3 in December.
Rising Expectations
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 68.2, the highest since June 2010.
“Rising gasoline prices are definitely hurting people’s wallets,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “The more important thing is to focus on the expectations index, which shows consumers are feeling a little better about their finances in coming months and that will guide spending patterns up.”
Also today, inventories at U.S. companies rose 0.2 percent in November, the smallest gain in six months as companies struggled to keep up with increasing sales, according to another report from the Commerce Department. Companies may need to keep placing orders or pick up production to meet demand and restock shelves in coming months, sustaining the rebound in manufacturing into 2011.
Intel Corp. reported the best fourth-quarter earnings in company history Thursday, as both the chipmaker’s revenue and profit set new records.
Intel posted earnings per share of 59 cents. Analysts polled by Thomson Reuters had forecast earnings of 53 cents per share.
Revenue for the Santa Clara, Calif., company rose 8% over the previous year to $11.5 billion, topping analysts’ forecasts of $11.37 billion.
"2010 was the best year in Intel’s history. We believe that 2011 will be even better," Paul Otellini, Intel president and CEO, said in a written statement.
Revenue from Intel’s closely-watched Atom microprocessor and PC group was flat compared to the prior quarter, while its data center group posted a 15% increase in revenue.
The current quarter looks to be strong as well.
"The guidance for the first quarter of 2011 was much better than people expected," said Daniel Amir, an analyst at Lazard Capital Markets. "That was a positive surprise."
Amir said Intel’s new Sandy Bridge processor line is likely to boost revenue. The bottom line will also be helped by an extra week in next quarter’s calendar.
Meanwhile, the company’s gross margin in the fourth quarter was 67.5%, above expectations and slightly improved from last quarter’s 67%.
The strong quarterly results pushed Intel to new full-year highs as well. Revenue of $43.6 billion, operating income of $15.9 billion, net income of $11.7 billion and earnings per share of $2.05 all set records.
Intel is a closely watched bellwether by analysts. A strong showing by Intel tends to indicate increased demand for tech spending by consumers and businesses — a sign that the economy is improving.
It’s already been a busy week for the chip manufacturing sector.
On Monday, Intel (INTC, Fortune 500) announced a $1.5 billion, six-year agreement with graphics chip-maker Nvidia that will allow Intel access to patents for graphics chips.
And chip maker AMD (AMD, Fortune 500) announced the immediate resignation of CEO Dirk Meyer, sparking uncertainty about what the future holds for Intel’s chief rival.
Christmas has come and gone but Canadians have continued to shop, lured into stores by discounts on big ticket items, such as appliances and big screen TVs, industry observers report.
But those same observers caution that consumer spending could slow in the New Year as economic growth moderates and consumers feel the weight of their record debt loads.
While little hard data is available at this time, there are few indications the industry fell short of the Retail Council of Canada
RBC Economics is predicting the pace of Canada
With a new mandate looming that will require business owners to file millions more tax forms, the Internal Revenue Service has begun the daunting process of figuring out how to turn the law’s sweeping demands into actual rules for taxpayers.
The new regulations, which kick in at the start of 2012, require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services that year. That promises to launch a fusillade of new paperwork: An estimated 40 million taxpayers will be subject to the requirement, including 26 million who run sole proprietorships, according to a report released this week by National Taxpayer Advocate Nina Olson.
Olson’s office, which operates independently within the IRS, flagged the new reporting requirements as one of its priority issues for the next year. Like many who have delved into the details of the new rules, Olson is concerned about their far-reaching scope and potential unintended consequences.
"The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance," the Taxpayer Advocate Service wrote in a report released this week.
The new rules are aimed at reducing the "tax gap" between what individuals and businesses owe and what they actually pay. The federal government misses out on estimated $300 billion each year from tax underpayment. The expanded reporting requirements, which Congress slipped into the landmark health care reform bill passed in March, are an attempt to create a paper trail of 1099s exposing business-to-business payments that might otherwise stay off the radar.
But the cost of that paper trail could swamp the small companies, sole proprietors freelancers forced to generate it. Pennsylvania business networking organization SMC Business Councils surveyed its members and found that they currently average 10 filings a year of 1099 forms. The new rules would push that average to more than 200 filings per year for a typical small business, the industry group estimates.
The IRS will have broad leeway to interpret the rules — and it’s already showing signs that it will look for ways to staunch the paperwork flood.
In a late May speech before the two payroll industry trade group, IRS Commissioner Douglas Shulman announced a major exception to the new rules: The IRS plans to exempt transactions made through credit and debit cards. A separate reporting requirement kicks in next year that will cover card transactions and help the IRS spot unreported payments made through those channels, "so there is no need for businesses to report them as well," Shulman said. "Whenever a business uses a credit or debit card, there will be no new burden under the new law."
How much of a sigh of relief you should breathe depends on what kind of purchases your business makes. Some big-ticket consumer items that are typically paid by card — airline tickets or hotel stays, for example — will be 1099-free. But SMC Business Councils President Tom Henschke, a vocal critic of the new law, estimates that exempting credit-card transactions would affect less than 10% of his members’ reporting requirements.
"Most of the small businesses out there that do small business [purchasing] don’t do it by credit card," he said. "One of the reasons is the transaction cost is very high — 2% to 3%."
Henschke thinks the main beneficiaries of the exemption are likely to be credit-card companies, which will gain an added hook to get small businesses to pay their fees pay day loans. Nolan Newman, a Seattle CPA who specializes in small-business needs, says it’s certainly possible that card usage will rise as a result: "If I’m a small business and I use my credit card moderately, would I try to increase my volume with which I pay vendors with it? Maybe."
Henschke foresees another unintended consequence of the new reporting provisions: that in order to cut down on tax forms to be filed, businesses will trim the number of vendors they do business with. "I’ve actually heard businesses talking about consolidating their purchases, going from 150, 200 vendors, down to less than 100," he said. "That will most certainly lead to some small businesses being swept under the door."
The taxpayer advocate’s office shares that concern. "Many large vendors already have computer systems that can track purchases by customer. They are likely to advertise that they will track each customer’s total purchases and send them a report at the end of the year that business customers can use to comply with the Form 1099 filing requirement," the office wrote in its report. "Small businesses that lack the capacity to track customer purchases may lose customers, leaving the economy with more large national vendors and less local competition."
That was just one of seven major pitfalls the Taxpayer Advocate Service foresees in the new rules. It also questions whether they will actually do much to close the tax gap. Because of product returns and other complications, the payments documented by the 1099 trail won’t match up cleanly against the revenue businesses report. "The IRS will face challenges making productive use of this new volume of information reports," Olson’s office concluded.
That could help explain one otherwise puzzling aspect of the new tax law, which is that despite the sweeping reporting requirements, the Joint Committee on Taxation — a nonpartisan Congressional committee that analyzes pending tax legislation — estimated that it would bring in only about $2 billion a year in new tax revenue. Committee staffers wouldn’t comment on the record.
"Judging from the estimate that the committee has made, they didn’t think it was that far-reaching," said Eric Toder of the Tax Policy Center, a nonpartisan think tank. "Does it close a lot of the tax gap? No."
The IRS did not return repeated calls and e-mails asking for clarification on its timeline for drafting the new regulations.
In his talk to accountants in May, Shulman put off questions about the expanded 1099 reporting, saying that even the idea of exempting credit-card transactions was just "an example of where we are headed, not as a complete implementation plan." The agency is currently seeking public comment on how it should implement the new rules.
The IRS has some leeway in implementing the new law — but only some. "The regulations are supposed to implement the intent of Congress; they’re not supposed to be independent policy-making," Toder said. "But obviously, there’s some discretion there."
Shulman himself hinted that it may take new legislation — not just IRS regs — to fix what Congress has wrought. "We won’t hesitate to consider alternate approaches," he said in his speech, "including working with Congress to address any potential implementation issues that may arise during this process."
Combined Austin Energy and Austin Water bonds totaling about $200 million garnered "AA-" ratings and are scheduled to sell next month, Fitch Ratings reported Friday.
The utility revenue refunding bonds were rated in two series of $98.8 million tax-exempt and $100.9 million in direct subsidy-build America bonds. The release said the bonds are expected to sell via negotiation early next month. They are secured through the utility company's net revenue.
The rating agency also reaffirmed grades for three city of Austin outstanding bonds: $498 million in outstanding combined utility system revenue bonds at "AA-"; $1 billion in outstanding city of Austin electric utility system revenue bonds at "AA-"; and $1.5 billion in outstanding water and wastewater system revenue bonds at "AA-."
Overall outlook was listed as stable cash advance companies. Fitch cited Austin Energy's stable service territory, diverse supply mix and competitive rates. The agency said rate increase delays could cause some concern to creditors and though Austin Energy has low debt, that could change as the company pursues 35 percent renewable energy by 2020.
"While rates are competitive and fuel adjustment charges are adjusted regularly, the utility's base rates have not been changed since 1994," Fitch said in the release. "Raising some concern about city council's willingness to raise rates in the face of declining financial performance"
Austin Energy powers more than 407,926 customers and Austin Water provides treated water and wastewater to about 209,994 and 196,842 customers, respectively.
Powered by WordPress -- XHTML 1.0