Archive for October, 2009

Consumer spending falls as sentiment sours (Reuters)

Friday, October 30th, 2009 | Finance News

WASHINGTON (Reuters) –
U.S. consumers cut spending in September and turned gloomier this month, underscoring the fragile nature of the economy's recovery even as signs emerged that manufacturing activity may be picking up.

The Commerce Department said on Friday that consumer spending fell 0.5 percent last month, the largest drop since December, after a 1.4 percent increase in August. The decline, which was in line with market expectations, followed the end of a government program to boost auto sales.

A separate report showed factory activity in the nation's Midwest expanding for the first time in more than a year, but employment conditions deteriorated. A dismal job market appeared to weigh on consumers, with the Reuters/University of Michigan final index of sentiment for October slipping to 70.6, from 73.5 last month.

U.S. stock indexes briefly pared losses after the manufacturing data, but slipped back to session lows as investors worried about the health of the U.S. consumer.

"The irony is consumers are still in a funk even though monthly job losses are shrinking. The economy is in a recovery mode, but it will be a soggy recovery, unless the consumer starts to feel better and spend more," said Cary Leahey, an economist at Decision Economics in New York.

Government data on Thursday showed the economy grew at a 3.5 percent annual rate in the third quarter, probably ending a recession that began in December 2007.

With the labor market still too weak to support domestic demand, there are worries the economy's incipient recovery could wobble once the government support fades.

Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, had been bolstered by the popular "cash for clunkers" program, which provided discounts on some new motor vehicle purchases. But that program ended in August, and consumers retrenched last month.


Spending adjusted for inflation fell 0.6 percent, the biggest drop since December, after rising 1 percent the prior month, the Commerce Department said. Personal income was flat, but fell for a fourth straight month after adjusting for taxes and inflation.

"It sets up a very weak fourth quarter for consumption. It might be around flat to up 1 percent annualized in the fourth quarter," said Ian Morris, chief economist at HSBC Securities in New York.

"But if inventories add and you get some rise in business investment, you could get a much more decent fourth-quarter (GDP gain) of around 3 percent," he said.

The factory gauge from the National Association of Purchasing Management-Chicago offered some hope manufacturing activity would help support recovery as businesses stopped paring inventories.

The measure rose to 54.2 in October from from 46.1 in September. It was the first time the index had broken above the 50 line that separate contraction from expansion since September 2008. However, an employment subindex slipped further into negative territory.

A report next Friday is expected to show the U.S. unemployment rate rose to 9.9 percent this month from 9.8 percent in September. However, job losses are expected to slow to 175,000 from the 263,000 there were lost in September.

Analysts reckon that labor market slack and muted inflation pressures mean Federal Reserve policymakers, who meet on Tuesday and Wednesday, will keep their support for the economy in place for some time. The Fed cut overnight interest rates close to zero in December and have held them there ever since.

Despite the fall in disposable income, Americans saved more money last month. Savings increased to an annual rate of $355.6 billion, lifting the saving rate to 3.3 percent from 2.8 percent in August.

The spending report also showed a key inflation gauge monitored closely by the Fed, the price index for personal spending excluding food and energy, rose only 1.3 percent over the last 12 months. Fed officials would prefer to see it closer to 2 percent.

Separately, the Labor Department said wages rose a meager 0.4 percent in the third quarter, pushing the gain over the past year down to just 1.5 percent, the smallest on records dating back to 1982.

(Additional reporting by Lisa Lambert in Washington; Steven C Johnson and Walden Siew in New York; Editing by Neil Stempleman)


U.S. consumer sentiment dips in Oct: survey (Reuters)

Friday, October 30th, 2009 | Finance News

NEW YORK (Reuters) –
U.S. consumer sentiment slipped this month as Americans fretted about personal finances and focused on paying down debt, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its final index of sentiment for October slipped to 70.6 from 73.5 in September.

In spite of the decline, sentiment remained well above where it was a year ago. In November 2008, the index had collapsed its worst reading since mid-1980 at 55.3. This month's reading was also a touch above the median expectation of 70.0, according to a Reuters poll.

But while recovery expectations have improved over the last year, "consumers continued to voice very dismal assessments of their personal financial situation," the report said.

"These grim financial evaluations, coupled with (consumers') intentions to increase savings and decrease their indebtedness, will limit any rebound in consumer spending."

The majority of consumers reported their finances had worsened in October for the 13th straight month, the report showed, "the longest and deepest decline in the 60-year history of the surveys."

"Confidence still strikes me as shockingly low," said Jeff Kleintop, chief market strategist at LPL Financial in Boston. "Consumers are still very pessimistic."

The index of consumer expectations fell to 68.6 from 73.5, with half of those surveyed expecting the unemployment rate to remain around its current level of 9.8 percent, a 26-year high. The current conditions index edged up to 73.7 from 73.4, its highest level since September 2008, when it stood at 75.

Inflation expectations picked up, with the 1-year inflation outlook rising to 2.9 percent from 2.2 percent in September. Consumers' five-year inflation expectations edged up to 2.9 percent in October from 2.8 percent the prior month.

(Editing by Chizu Nomiyama)


NYSE Euronext beats Street view; sells Liffe stake (Reuters)

Friday, October 30th, 2009 | Finance News

Cost-cutting helped NYSE Euronext (NYX.N) (NYX.PA) beat earnings expectations, and the transatlantic exchange operator announced the sale of a big stake in its U.S. derivatives exchange.

The parent company of the New York Stock Exchange said underlying costs dropped 10 percent in the third quarter and forecast that expenses this year would be considerably below its previous estimate.

Analysts said the European launch of NYSE Liffe Clearing helped drive third-quarter earnings, despite an overall trading volume drop and lower cash equities market share.

"Recent results have been a step in the right direction as management continues to realize synergies and control expenses," Credit Suisse analysts said in a research note.

NYSE Euronext said it was selling the stake in NYSE Liffe U.S. to Goldman Sachs (GS.N), Morgan Stanley (MS.N), UBS AG (UBSN.VX), hedge fund Citadel Securities, and Getco, the big electronic maker, to accelerate the growth of its U.S. futures exchange.

The bourse will remain the biggest shareholder of the U.S. part of NYSE Liffe, which offers trading on gold and silver futures and equity indexes, and plans to expand into U.S. interest rates.

The venture, which could challenge derivatives giant CME Group Inc (CME.O), adds to a growing list of exchange partnerships with banks and other big market players, as U.S. and European regulators push more "standardized" over-the-counter derivatives through transparent markets and clearinghouses.

"They're partnering to grow the business until it's profitable. So although it may be frustrating from an investor perspective, it's better not to be going it alone," said Edward Ditmire, analyst at Fox-Pitt Kelton.

"They're treating U.S. futures and Amex options (another joint venture) like a new product, and no new products are working right now," he added.

NYSE Euronext said third-quarter net revenue was down 13.8 percent to $624 million, hurt by a fall in global cash equities volumes and price cuts in the European and U.S. cash businesses.

Net earnings declined 28 percent to $125 million.

Excluding one-time items, the company earned $138 million, or 53 cents per share. Analysts on average had expected 46 cents per share, according to Thomson Reuters I/B/E/S.

NYSE Euronext, like rival Nasdaq OMX (NDAQ.O), has been under pressure from younger trading venues but has adopted new technology to speed up global trading. Its matched market share of NYSE-listed companies was 35.5 percent in the quarter, down from 42.5 percent last year.

However, its overall U.S. market share rose from July through September, and CEO Duncan Niederauer said in a statement the bourse's core businesses continued to stabilize.

NYSE Euronext runs exchanges in Paris, Amsterdam, Brussels and Lisbon, following its 2007 acquisition of Euronext. It is also a key player in the ongoing U.S. debate over dark pools, high-frequency trading, and other market structure issues.

Shares of the company rose 1.6 percent to 18.57 euros in Paris and were up 1.5 percent at $27.99 in U.S. premarket trade.

(Reporting by Daisy Ku and Jonathan Spicer; Editing by Rupert Winchester and John Wallace)