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Consumers Trade Down – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:05 +0000

Cash-strapped consumers are looking to get the most bang for their buck, forcing retailers to adapt to new spending habits, says Claire Gruppo, co-founder and managing director of investment bank and M&A firm Gruppo, Levey.”People aren’t comfortable paying for brands or an experience if they don’t feel it’s worth it,” Gruppo said, “and the trend we’re seeing across most brands is consumers seem to be trading down for ticket prices.” Americans have become more careful with their money, but the key to their behavior isn’t price, but value. For example, instead of buying a 20 t-shirt at Ann Taylor
, consumers will purchase it for 5 at Wal-Mart
or Kohl’s
. They’re still buying a t-shirt, but not at 20.The environment is very difficult. Instead of rising 0.7% as expected, on Thursday, the U.S. Commerce Department reported retail sales fell by 0.1% in July, and would have dropped by 0.6% if it were not the government’s “clash for clunker” program. Department store stales sunk 1.6%, while broader general merchandise stores, which includes mega-retailers like Target
, saw sales decrease 0.8%. The data reinforces the thesis held by many on Wall Street that business, rather than consumers, will lead the economic recovery.To navigate this trend, some retailers have become more careful in managing their inventory, by reducing product lines and offering fewer items within a line. The strategy is simple: offer the consumers what they’ll actually purchase. This way businesses are better able to streamline inventory and not tie upa lot of capital in items that aren’t going to move. The trick is to reduce inventories without shoppers thinking that they have fewer choices.”Good retailers are thinking not so much about discounting as much as adding items of lines of merchandise at different price points that they’re not going to have to sell at 50% off retail,” Gruppo said. “They’re starting different offerings at lower price points.”Gruppo highlighted Macy’s
recent performance as an example of this approach. “They beat expectations and raised their forecast for the year,” Gruppo said. “The brand has always been known for good value at department stores, and it’s the first piece of good news from something other than a big-box discounter.”
Gruppo expects retailers to operate in this fashion until consumer spending begins to turn around. “Until unemployment and lack of credit ease more than what we’ve seen this will be what the retail landscape will look like,” Gruppo said. The businesses that will have an edge through the end of the year will be the ones that offer lower prices but with strong value, Gruppo added.

July Job Cuts Expected To Wane – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 18:46:12 +0000

Wall Street may be encouraged by the waning level of job losses on Friday, but it will mean little to Americans stuck in unemployment lines and struggling to make ends meet.On Friday, the U.S. Labor Department is expected to announce that the national unemployment rate rose to 9.7% in July, as 300,000 Americans lost their jobs. Though large, the reading would be below June’s drop of 467,000. Dean Maki, chief U.S. economist at Barclays Capital, expects nonfarm payrolls to fall by 275,000 in July, which would mark the weakest contraction since August of 2008. Maki’s view is held by fellow economist Abiel Reinhart of JPMorgan Chase, who also expects payrolls to fall by 275,000.No matter what the figure ultimately is, it will be seen only as another jobless increase by the general public. Not only is unemployment at its highest level since the early 1980s, but also Americans have been out of work for the longest amount of time since 1948, when the government began keeping track. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed had been out of a job for 27 weeks or more. In a recent interview, Christian Weller, a senior fellow at the Center for American Progress and associate professor of public policy at the University of Massachusetts, Boston, argued that the current labor market is not comparable to that of the early 1980s because of the length of time it has taken to find a new jobs. Furthermore, the unemployment rate itself does not account for those working part-time jobs who would rather have full-time work.Prolonged unemployment has become a pressing problem for Americans, and policymakers, as an increasing number of individuals and families exhaust their jobless benefits, leaving them without the means to pay their mortgages, credit card bills, and food, not to mention the normal discretionary items that spur economic growth. Stagnated unemployment is also expected stymie the current recovery effort, as the U.S. economy loses the power of its vaunted consumer. Consumer weakness was exhibited in July weak retail sales. Forced to focus on the necessities, venders reported results slightly below expectations, pressuring shares of Wal-Mart Stores
, Costco Wholesale
, and Target
. The SPDR S&P Retail
exchange-traded fund on the other hand actually rose 0.8% in midday trading.
The only measure of solace Americans can take is that the intensity of payroll cuts have shown signs of waning. On Thursday the Labor Department reported individuals applying for jobless benefits for the first time fell to 550,000 for the week ending Aug. 1, down from an upwardly revised figure of 588,000 in the previous week. Furthermore, initial jobless claims declined an average of 57,000 from June to July, though partly owing to seasonal distortions. Friday’s employment report follows one delivered Wednesday by ADP Employer Services, which found the U.S. private sector terminated 371,000 positions in July. The finding was well below June’s revised 463,000 reading, but slightly ahead of the 345,000 fall analysts had expected. The data were developed with Macroeconomic Advisers.To be sure, problems remain. Global outplacement consultancy Challenger, Gray & Christmas, said planned layoffs at U.S. firms increased in July for the first time in six months to 97,373, and more than 30% from June when it had hit a 15-month low. Meanwhile, of people continuing to claim benefits rose last week by 69,000 to 6.3 million, after dropping for three straight weeks.

Unilever Loses Profit Power – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 09:46:14 +0000

Anglo-Dutch firm Unilever delivered what investors wanted on Thursday-a surprisingly good 2% rise in second-quarter volumes-but at what cost? The household goods company’s earnings sank 15% over the year, almost on par with rival Procter & Gamble’s disappointing profits drop, after it spent more on advertising and held back from hiking prices too much. Is this a one-off or the beginning of a worrying trend?Sanford C. Bernstein analyst Andrew Wood thinks the former. Although he expects Unilever
to report a 2% drop in earnings per share for the whole of 2009, he says that profitability will improve in the third quarter. The reason? Declining commodity costs, which will ease the recession’s squeeze on Unilever’s pricing power. The Anglo-Dutch firm hiked prices by 2.1% in the second quarter, but this was below expectations of 4%.Then again, it all depends on how successfully Unilever balances out easing cost pressures with advertising and promotions. “Strong advertising” was part of the reason why Unilever managed to strengthen sales of brands like Dove soap and Domestos cleaner, at a time when consumers might be tempted to switch to cheaper brands. Wood thinks the company will ramp up advertising even further in the second half of the year.Investors aren’t worried yet. Shares of Unilever soared 5.2%, or 98 euro cents , to 19.78 euros , during morning trading in Amsterdam on Thursday. Second-quarter sales grew by 1%, to 10.5 billion euros , while volumes rose 2%. This was particularly impressive given Procter & Gamble
‘s 11% reported decline in sales and rival Henkel
‘s 5% drop.”I am encouraged by the return to volume growth across all regions and the majority of countries and categories,” said Unilever Chief Executive Paul Polman. “We continue to focus on restoring volume growth while protecting margins and cash flow.”Consumer-goods rival Reckitt Benckiser
, maker of Harpic surface cleaner and air freshener Air Wick, reported a 20% rise in sales for the second quarter last month. But it is under threat from the impending loss of exclusivity on Suboxone, a treatment for heroin addiction, in the United States.

Retail Rumble – US-FOREX.US

Forex-Publisher — Tue, 04 Aug 2009 19:46:12 +0000

While economists have been eyeing unemployment figures and gross domestic product for signs the recession is ending, nothing gets the market pumped like Americans hitting the mall. Consumer spending is 70% of the economy; retailers report monthly sales on Thursday, and analysts think revenues will be down again.Barclays Capital analyst Jeff Black tells investors to expect a drop of 5.2% in July sales compared with last year. That’s slightly worse than June’s 5.1% decrease, but investors shouldn’t read too much into the decline since there are some mitigating circumstances. For one, 10 states have moved their annual sales tax-free shopping periods from July to August. Black says that could account for a 2% decline on its own. Retailers are also taking different approaches to dealing with the recession and lower sales. Some chains, like clothing store Abercrombie & Fitch
, have resisted lowering prices in an attempt to preserve their cachet with consumers. As a result, Abercrombie has seen sales fall sharply in the short term and, says Black, could see July sales down by 23% over 2008. Better results are on the horizon, though, and Black recommends the stock.Black also thinks investors should pick up shares of The Gap
, even though he bets sales fell 8% in July. Improving results at the firm’s Old Navy line of stores should boost the stock during the winter holiday season, he says.
American Eagle Outfitters
is also resisting the temptation to mark down merchandise in order to get it off the shelves in time for the back-to-school shopping season, writes analyst Roxanne Meyer of Swiss bank UBS. Urban Outfitters
, on the other hand, has opted to discount heavily, she says. Meyer thinks July sales dropped 8% at both stores.Outside of clothing, Target
is likely to post decent results, thinks Meyer. She predicts sales fell 5% at the giant chain but likes their promotions for back-to-school shopping. Dollar Tree, a chain of discount shops, is likely to see sales grow by 4.5%. Meyer recommends shares of Target and warehouse retailer BJ’s Wholesale Club
. She has a “neutral” rating on Dollar Tree
and warehouse chain Costco Wholesale
.
Shareholders have some reason to cheer ahead of Thursday’s results, though. On Tuesday, the Commerce Department said Americans spent more than economists had predicted, even though their incomes fell. The Associated Press contributed to this report.

Pharma Wobbles Ahead For Reckitt – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 09:46:04 +0000

Reckitt Benckiser has an answer for most consumers, whether it’s surface cleaners like Harpic or health products like Strepsils, but does it have an answer for its pharmaceutical division? The unit will lose exclusivity on its Suboxone heroin-addiction treatment in the United States later this year, and doesn’t seem to have a secret weapon to counter the imminent generic onslaught-which could wipe out 80% of Reckitt’s Suboxone earnings.This won’t be a total disaster: Reckitt Benckiser’s pharmaceutical revenues account for less than 10% of the company total, and the company’s strong second-quarter results on Wednesday showed the rest of its brand portfolio performing well despite the downturn. But Suboxone is a crucial driver of growth for the pharmaceutical unit, which grew recurring sales by 46% in the second quarter, streets ahead of other segments like home care, up 7%, or health and personal care, up 9%.”[The loss of Suboxone] will be a massive drag on operating performance,” said Andrew Wood, an analyst with Sanford C. Bernstein, who rates Reckitt Benckiser “market perform.” He told clients earlier in the week that Suboxone was one of the reasons he was cautious on the stock, along with slowing operating momentum.Shares of Reckitt Benckiser
fell 0.4%, or 11 pence , to 28.52 pounds , during morning trading in London. The firm reported an expectation-beating set of quarterly results on Wednesday, with sales up 20%, to 1.9 billion pounds , and profits up 31%, to 310 million pounds . Reckitt also raised its sales guidance for this year to 5%-6% growth, from 4%, and its profit expectations to 10%-11% growth, from 8%-10%, excluding currency volatility.Reckitt has benefited from price rises on its products and slowing commodity costs, while increasing operating efficiency by cutting costs elsewhere in the business. Sanford C. Bernstein’s Wood said that the company’s new targets were “reasonable” and “achievable.”But Wood also said the big “unknown” was the Suboxone exclusivity loss. He said Reckitt could only perhaps postpone the process by one quarter at most, but that it could still begin in the fourth quarter.
Reckitt said it “continues” to search for ways to offset the impact of incoming generic competition.

Reducing GDP Negatives – US-FOREX.US

Forex-Publisher — Fri, 24 Jul 2009 20:45:58 +0000

The U.S. economy is in transition, and the reduction of negatives expected in the second quarter, gross domestic product, will be an important guide to the rest of the year.”The consumer is still weak, making this a business-led recovery, which isn’t perfect, but we’re moving in the right direction,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank, who expects a contraction of 2%. The Commerce Department will release its second-quarter GDP report on Friday, July 31, which is expected to show significant improvement from the 5.5% drop in the first quarter, and 6.3% contraction in the fourth quarter of 2008. The U.S. economy has been in a recession since December of 2007, having been beset by the worst economic and financial crisis since the Second World War. Separately, the second-quarter report will also include revisions dating back five years.Like LaVorgna, David Wyss, chief economist at Standard & Poor’s, expects the economy to shrink, but at a much less slower pace. “We’re looking for a drop of 2%, but if it falls further, it will cast a lot of doubt on the third quarter,” Wyss said. Wyss said consumer spending will be the most critical component of the report. “We expect it to be flat, but they say flat is the new up,” he quipped. “If it’s strong or positive, that’ll be a good sign going into the third quarter.” The other components Wyss will pay special attention to are capital spending and exports. “Capital spending will have a reduced rate of decline, but if it came out flat, or down only 4% or 5%, it would be encouraging,” Wyss said. Business spending has fallen dramatically throughout the economy, ranging from companies like Microsoft
, JPMorgan Chase
, Alcoa
and Walt Disney
.Steven Wieting, chief U.S. economist at Citigroup, anticipates a 1.3% contraction. “These developments are consistent with stabilization and the end to a recession,” Wieting said.
Alan Levenson, chief economist at T. Rowe Price, expects a decline between 0.5% and 1%. “There will be a contribution from inventories, consumer spending will be fairly neutral, and the fiscal stimulus begins to kicks in which will be a big contribution,” Levenson said. “It’s not exciting in terms of strength, but after being down so far for two quarters it’ll fell good.”Looking forward, Levenson said that, for the most part, the negatives that have confronted economic growth will disappear during the third quarter. These include consumer and business spending, housing, as well as inventory liquidation, which will take places at a slower rate.

New Home Sales Test Market – US-FOREX.US

Forex-Publisher — Thu, 23 Jul 2009 20:46:09 +0000

Existing home sales in June gave Wall Street hope the troubled market is on the mend. The real test will come Monday when the government reports new-home-sales figures, which don’t benefit from mortgage foreclosures.Abiel Reinhart, an economist at JPMorgan Chase, believes new home sales in June grew moderately to 350,000, in line with expectations. The housing market has recently experienced some moderately encouraging trends, like a mild increase in home building sentiment, as well as the respectable gain in new-family-home construction. “Both of these numbers suggest that at least in the single-family segment we probably reached the bottom back in January, and at this stage it’s encouraging to see either stable or slowly increasing sales,” Reinhart said.On Thursday the National Association of Realtors reported existing home sales rose 3.6% in June, from May, exceeding expectations. It was the first time the industry had experienced three straight months of gains since 2004. The housing sector responded by rallying in midday trading, as home builders such as D.R. Horton
rose 9.2%, Lennar
jumped 8.8% and KB Home
gained 8.7%. Overall, the sector rose 5.7%, as measured by the SPDR S&P Homebuilders
exchange-traded fund, while the Dow reached 9,000 for the first time since January. Last week, the U.S. Commerce Department reported that June housing starts unexpectedly rose to 582,000, the highest level since November of 2008. Building permits meanwhile rose by 8.7%, with multifamily home permits lifting 18.8% and single-family permits moving up 5.9%. At the time of the release, Reinhart noted that builders are increasing single-family permits and starts may mean that they are already seeing more gains in single-family sales.
The NAR estimated that first-time buyers accounted for 29% of existing homes sales in June. Anna Torma, home builder analyst at Soleil, said the improvement in existing home sales was due to bargain-hunting for foreclosures and the benefit of the 8,000 tax credit for first-time home buyers. Despite the good news, Torma expects that rising unemployment, increasing numbers of foreclosures and tight credit markets will continue to weigh on existing home markets.Thursday’s report on existing home sales in June follows another released Wednesday by the Federal Housing Finance Agency indicating more stability in home prices. “Other price measures, including the LoanPerformance, Case-Shiller and Radar Logic figures, have suggested that price declines are moderating, but they are not as strong as the FHFA index,” JPMorgan’s Reinhart said.

Housing Fits And Starts – US-FOREX.US

Forex-Publisher — Fri, 17 Jul 2009 19:46:06 +0000

Housing data this week were encouraging, with home building figures and industry sentiment measurements exceeding expectations, and some forecasters are straying into 2009′s heresy and calling bottoms for the national residential housing market.June housing starts unexpectedly rose to 582,000, the highest level since November of 2008, the U.S. Commerce Department reported Friday. The Street had forecast starts to slide to 530,000, from the 562,000 revised level recorded in May. The jump was driven by a 14.4% increase in single-family home construction, the fastest rate since December of 2004. The 470,000 total was also the highest level since October 2008, though still well below the peak in January of 2006.Building permits meanwhile rose by 8.7%, with multi-family home permits lifting 18.8%, and single-family permits moving up 5.9%. Overall homes still under construction fell by 3.4% to levels not seen since the early-90s, and single-family homes under construction slipped 1.9% to a record low of 312,000. Friday’s data come a day after the National Association of Home Builders/Wells Fargo Housing Market Index showed slight improvement in sentiment, lifting to 17 in July, up from 15 in June. Readings below 50 in the index indicate more builders view market conditions as poor rather than favorable. Michelle Meyer, an economist at Barclays Capital, called the week’s news encouraging, and reinforced her view that single-family starts are at a trough. Investors responded well to the data, as the SPDR S&P Homebuilders
exchange-traded fund rose 1.2%, or 15 cents, to 12.46. Housing stocks like KB Home
rose 2.3%, while Lennar
gained 1.9% and D.R. Horton
moved up 0.8%. Abiel Reinhart, an economist at JPMorgan Chase, argued the numbers suggest that the second quarter was the last in which there was a large drop in real residential investment spending. “Residential investment should turn about flat in this quarter, and a large increase in the fourth quarter is quite possible,” Reinhart said. “The housing starts report is also a positive indicator of new home sales.” Reinhart added that though the number of June home sales hasn’t been released yet, the fact that builders are increasing single-family permits and starts may mean that they are already seeing more gains in single-family sales.
The housing market still has a long road to recovery. For example, Anna Torma, homebuilder analyst at Soleil, pointed out that building permits, which lead housing starts, indicate that starts will decline in the coming months. She also noted the NAHB/Wells Fargo HMI sentiment for future sales was unchanged in July. The market also faces macroeconomic headwinds like rising unemployment, tight lending standards and the ongoing increase in foreclosures. “We believe the housing market will remain under pressure through 2009,” Torma said. “In 2010, we expect a shallow recovery in demand, with pricing remaining under pressure. However, we note that if we see an extended recession, the housing market could remain under significant pressure through 2010.”

Americans Say No To New Loans – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 22:46:25 +0000

A survey of credit unions found Americans are turning down credit,opting instead to hold on to their cash and pay down existing loans. Since the leaner months of 2008 and early 2009, though credit has become more available, there’s less demand for it. Some of the bigger banks have cut credit lines, but credit unions are still lending-when they can find willing customers.The Credit Union National Association reported the rate of savings among clients of 450 credit unions grew by 7.3% in the first five months of the year, while loan growth reached only 0.5%. The savings increase is among the strongest since 1992, when the country had just gone through a similar financial shock. Still, loan growth is slower now then it was even during the Savings and Loan recession.The data suggest that consumers are cutting back on spending in order to save, as well as reduce their debt. Bill Hampel, chief economist of CUNA, credited excessive debt, diminished wealth and job insecurity as the primary drivers behind the development. “Interest rates are low right now, and if someone is cutting back on spending and has extra cash at the end of the month, they’re probably going to pay down their debt,” said Hampel.The survey also adds an extra dimension to the thesis that consumer spending-and by extension the economic recovery-is stifled by diminished credit lines from banks and credit card companies like JPMorgan Chase
, Citigroup
and American Express
. The big lenders have been cutting unused lines, supporting the lack of demand hypothesis. Credit unions managed to get through the financial crisis quite well. Having operated in a relatively conservative fashion, credit unions have not had to cut back on their supply of credit, yet still have experienced weak demand for loans.The survey comes at a time when Americans have been increasingly unable, or unwilling, to pay their debts. Last week the American Bankers Association found credit card and home equity loan delinquencies reached new heights in the first quarter.
Hampel expects consumers-who account for about two-thirds of the economy-to behave in this way for the foreseeable future. “Our outlook is the recovery will be tepid by historical standards once it begins, even being so weak that Americans won’t even notice the difference,” he said. If that is the case, the recovery’s slow pace will be reinforced by consumers forced to sit on their wallets while they wait for their debt to shrink, the financial and housing markets to replenish their personal wealth, and for the labor market to turn around.

U.S. Retail Sales Improve In June – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 19:46:08 +0000

Retail sales met expectations in June, but there’s still a long way to go before economic recovery.While the figures were in line with estimates, the U.S. Commerce Department found the June rise of 0.6% was mostly due to higher gas prices and auto sales. Further examination reveals an increase of only 0.3% when excluding motor vehicles.Core retail sales, which also exclude sales at building materials stores, fell 0.1% in June, marking the fourth consecutive month of declines. Though the core number hit expectations, Mike Feroli, senior economist at JPMorgan Chase, argues the data are still abysmal.”The weakness in core retail sales is especially disconcerting given the amount of public income support being disbursed to consumers,” Feroli said. Despite the figures, the SPDR S&P Retail
exchange-traded fund rose 1.3%, or 35 cents, to 267.67; and the Consumer Discretionary SPDR
ETF rose 1.2%, or 27 cents, to 22.73; while the Vanguard Consumer Discretionary
ETF gained 1.1%, or 39 cents, to 35.44. Retailers like Urban Outfitters
also moved up 1.0%, or 21 cents, to 20.57, and entertainment conglomerate Walt Disney
lifted 1.5%, or 33 cents, to 23.03.
The retail sales report contributes to a recent spate of muted consumer spending-related data. On Tuesday, the Credit Union National Association Survey found consumers are refusing new forms of credit and are instead favoring savings. Last week, the Reuters/University of Michigan Survey of Consumers found confidence fell to 64.6 in July, well below analyst expectations, as well as June’s 70.8 reading. Americans have been struggling financially because of continued economic weakness, rising unemployment and eroding wealth. For example, family wealth in the U.S. dropped by 16 billion by the end of March 2009, from its peak in June 2007, marking the fastest rate of decline in any 21-month period since the data were compiled in 1952.