Archive for April, 2011

Instant View: Consumer spending, income rise in March

Friday, April 29th, 2011 | Finance News

NEW YORK (Reuters) – Rising gasoline and food prices lifted U.S. consumer spending in March and the increase in overall inflation from a year-ago was the largest in 10 months, government data showed on Friday.

KEY POINTS: * The Commerce Department said consumer spending increased 0.6 percent, rising for a ninth straight month, after an upwardly revised 0.9 percent advance in February. * Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent in March after a previously reported 0.7 percent rise. * When adjusted for inflation, spending edged up 0.2 percent last month after rising 0.5 percent in February.

COMMENTS:

OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:

"The data is pretty positive. We're seeing a further improvement in personal spending and personal income. That's the type of news that going forward could keep consumer spending well supported and ultimately keep the overall economy on track for a modest rebound. But I don't think it's going to have a big impact on the dollar because it doesn't really change the outlook for interest rates, which is the key driver for it."

GERARD GREENBERG, VICE PRESIDENT OF INSTITUTIONAL SALES AT MERLIN SECURITIES IN NEW YORK

"Each of the numbers, for the most part, was relatively in line with expectations, so there's nothing exciting here. Earnings are still the focus, but if the data was exponentially better or worse than expected it would matter."

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK

"Real incomes, when adjusted for inflation, are shrinking over time. What we are seeing in this monthly data is similar to what the quarterly GDP data yesterday, the story in the first quarter was higher gas prices are forcing people to spend more at the expense of other items."

"The inflation burden increased in the quarter, things were progressively worse as you moved from January to March."

"Income data also rose a bit more than expected, but it's not growth in wage and salary income that is driving the headline numbers, it's other income, things like dividends and capital gains, which were decent in March. Also we're still seeing significant transfer payments from the government, there is significant government assistance in the income numbers."

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, UNIT OF THOMSON REUTERS

"March personal income and spending gains of 0.5% and 0.6% respectively both outpaced their respective consensus estimates by 0.1%, but there was not much fresh information in the data, with Q1 totals already visible in the GDP report. Personal spending saw both January and February gains revised up by 0.2%, to 0.5% and 0.9% respectively, but revisions to income were minor (January down 0.1% to 1.1%, February up 0.1% to 0.4%). The momentum going into Q2 is moderately positive in real terms, even with prices up sharply on energy, though continued job gains will be essential to sustain the recovery's momentum.

"The personal income breakdown saw wages and salaries growth slow to 0.3% after 2 straight 0.4% gains, a reflection of weakness in wage growth. The upside surprise in personal income came from an above trend rise in government transfers, something which is unlikely to be repeated in the future trend. Spending in nominal terms was led by non-durables but in real terms by services which rebounded from a weak start to the quarter. The recent volatility in service spending looks similar to the picture from utilities output, which is sensitive to weather.

"There were no surprises from the price data, with a 2nd straight 0.4% rise in the overall PCE price index and a 0.1% gain in the core, the latter a slowing from 2 straight 0.2% gains with the march rise before rounding being 0.1308%. The yr/yr core PCE pace (unchanged at 0.9%) is still very low and even the overall yr/yr pace of 1.8% versus 1.6% is still acceptably moderate, though we did see yesterday that the Q1 data was quite strong on an annualized basis.

"The savings rate was stable at 5.5% but with February revised down from 5.8%. A 0.2% rise in real personal spending is the 11th straight monthly gain while a 0.1% rise in real personal income follows a flat February which was revised up from a 0.1% decline, and a 0.5% January gain that would have been negative were it not for the introduction of a payroll tax holiday. We can be encouraged that real disposable income has been able to avoid declines despite the surges in gasoline prices, though with wages soft and gasoline prices remaining firm gains in Q2 will require continued labor market recovery. Employment data remains as crucial as ever."

MARKET REACTION:

STOCKS: U.S. stock index futures maintain earlier gains.

BONDS: U.S. bond prices maintain slight earlier gains.

FOREX: The dollar holds losses versus euro and yen.

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Caterpillar raises profit outlook on demand surge

Friday, April 29th, 2011 | Finance News

BOSTON (Reuters) – Caterpillar Inc recorded a fivefold surge in profit and raised its forecast for the rest of the year, citing rising demand for its bulldozers, excavators and other heavy equipment.

The world's biggest maker of earth-moving equipment said on Friday it now looks for full-year earnings of $6.25 to $6.75 per share, up from its prior forecast of "near $6" and above analysts' expectations.

It also reported first-quarter profit of $1.84 per share, well above the $1.31 Wall Street expected.

(For a related graphic click: http://r.reuters.com/bak39r)

"It's a huge number on huge volume, that's the simplest way of describing it," said Eli Lustgarten, an analyst at Longbow Research. He noted that revenue came in more than $1 billion above forecasts.

The report comes a day after government figures showed that economic growth in the United States slowed sharply in the first quarter, with higher food and gasoline prices starting to weigh on consumer spending and sparking concern about inflation.

Commodity inflation is not necessarily bad news for companies including Caterpillar and General Electric Co that make equipment used in energy production and commodity extraction. Rising demand for and prices of metals, coal and oil are driving demand for Caterpillar's heavy equipment -- its sales to miners and other resource companies nearly doubled in the quarter, outpacing its construction equipment business.

"We expect that the pace of world economic growth will support continued recovery in the key industries we serve," said Doug Oberhelman, who took the reins as chief executive of the Peoria, Illinois-based company last June.

Caterpillar joins a string of strong earnings reports from industrials ranging from 3M Co to Komatsu Ltd.

Its shares rose 2.8 percent to $115.85 in premarket trading, above their lifetime high on the New York Stock Exchange. As of Thursday's close, they were up 63 percent over the past year, more than four times the pace of the rise in the Dow Jones industrial average, of which Caterpillar is a component.

QUAKE EFFECT

The company reported first-quarter profit of $1.23 billion, compared with $233 million, or 36 cents per share, a year earlier.

Revenue rose 57.2 percent to $12.95 billion, above expectations of $11.69 billion, according to Thomson Reuters I/B/E/S.

Earlier this week Komatsu reported operating profit had doubled, citing demand in China and a recovery in the United States and Europe. The Japanese company said it was unclear what effect Japan's March 11 earthquake, tsunami and nuclear crisis would have on its results this year.

Caterpillar said the aftermath of the Japan quake, which has shaken supply chains around the world, would weigh on its full-year results, pulling down revenue by about $300 million and operating profit by $100 million.

The company is expected to close its $7.6 billion acquisition of mining equipment maker Bucyrus International later this year. Caterpillar officials in March said they might complete the purchase without issuing new shares because of its expected strong profit growth this year.

The company noted that it added 20,813 workers over the past year, about a third of whom work in the United States. That represented a 19.3 percent increase in headcount.

(Reporting by Scott Malone; editing by Robert MacMillan, John Wallace, Dave Zimmerman)

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MBA Rankings: A Better Way

Friday, April 29th, 2011 | Finance News

To say that MBA programs have undergone significant changes over the past three decades is an understatement. There have been dramatic shifts in approaches, curricula, and the overall MBA experience, all with a decidedly student-centric focus. Media rankings, such as those published by Bloomberg Businessweek, have played an influential role in this transformation by shining a light into an insular academic world, opening it up to scrutiny and increased accountability. In particular, rankings have shown business schools they must operate within a larger environment, one in which multiple stakeholders (students, businesses, society at large) have a vested interest in the educational process. To be certain, business schools now understand this message and have set a course to work on improving their MBA offerings.

Yet for all the good that has come from the rise of rankings, our research suggests that ranking systems fall short of achieving their primary objective,
which is to summarize comprehensively educational or academic quality -- the most fundamental product of any MBA program. Despite decades of discussion, a complete understanding of MBA program quality has yet to be achieved. Accordingly, we recently completed a project to define MBA program quality exhaustively (read a short summary here). Put simply, our findings suggest that MBA quality is multifaceted, and although rankings capture some important aspects of academic quality (e.g., student economic outcomes), they fail to assess adequately a number of critical features of the educational process, such as the quality of curricula, educational environment, and student learning, to name a few.

What our research implies most significantly is that if we are truly concerned with continuous improvement of educational quality, we must not only recognize the complex and multifaceted nature of MBA program quality, but also build a system that adequately captures and presents these
features. One promising way of accomplishing this is to develop a more complete rating (as opposed to ranking) system built on a comprehensive set of quality indicators. Rating systems are as commonplace as rankings (e.g., Standard & Poor's, Consumer Reports, Zagat, etc.), but they function in a very different way. A central advantage of a rating system is that it can supply data to end users on a broader range of quality factors. Further, unlike rankings in which weightings are predetermined, rating systems allow users to apply their own weighting based on the criteria they view as personally important or relevant to their concerns.

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A positive by-product of a rating system is that it more clearly highlights differences among programs and implies that one criterion isn't necessarily better than any other. This aspect of ratings is likely to encourage MBA programs to identify their key values and subsequently invest in
their strengths in order to serve their mission more fully. Unfortunately, rankings all too often encourage schools to chase the same small set of heavily weighted criteria regardless of their educational mission. A rating system, however, would make it perfectly apparent when schools possess equivalent levels of quality on any given criterion, whereas a rank, by its very nature, forces even the most miniscule of differences to appear significant.

Because ratings are not concerned with declaring a "winner," the end result is a system that provides flexibility, transparency, and increased usability to all stakeholders. With more than 700 programs now accredited by AACSB or Equis, it is hard to see the value of continuing to provide such limited information to consumers on a narrow set of factors typical of most rankings. A rating system could be used to establish distinctive sets of schools that achieve high levels of quality on different indicators, where the number
of schools able to achieve such levels of quality is limited only by their own efforts and accomplishments. Finally, a rating system would serve all business school stakeholders better by providing the types of information that can truly shape decision-making, within and outside business schools. End users could query a rating system to address their particular needs, such as recruiters interested in programs that have high-quality international internships or applicants who want a program that emphasizes the development of team skills.

We know that MBA program stakeholders care deeply about educational quality, and they deserve to know more about the variety of factors that contribute to it. But we must also recognize that providing transparent information about MBA program quality is not a zero-sum proposition. There is certainly room in the marketplace for alternative systems to co-exist with present ones. It is crucial that any new system fully capture the nuances of
quality and be administered by independent and objective groups. We hope our research in comprehensively defining MBA quality will help bring this new alternative to life.

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