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Retail sales in the U.S. increased more than forecast in September, a sign that consumers will help the economy avoid a recession even as the housing slump deepens.
The 0.6 percent increase followed a 0.3 percent gain the prior month, the Commerce Department said today in Washington. Purchases excluding automobiles rose 0.4 percent.
The report will ease concern the collapse in housing and a decline in consumer confidence will cause spending, which accounts for more than two-thirds of the economy, to retrench. Gains in jobs and wages are giving Americans the means to weather lower home values and reduced access to credit, economists said. Treasuries dropped after the release.
Sales at gasoline stations also rose strongly in September, up 2 percent following a 2.6 percent drop in August. However, this increase primarily reflected the fact that pump prices were rising last month after having declined the previous month.
Stocks in Europe and Asia fell, led by mining companies after Citigroup Inc. lowered its recommendation for the industry saying it was ``surprised'' by the shares' two-month rally. U.S. index futures also declined.
BHP Billiton Ltd., the world's largest mining company, and Rio Tinto Group paced the retreat. Alcatel-Lucent SA and Nokia Oyj sank following a sell-off in U.S. technology companies. Sony Corp. led Asian shares lower after the company's mobile-phone unit reported the first profit drop in two years.
``Some of the mining stocks have had huge moves up from their lows during the credit crisis,'' said Job Curtis, who helps manage about $2.2 billion at Henderson Global Investors in London ``I am a bit cautious. You can't forget that this is a cyclical sector and, at some point, we are going to see a downturn.''
But in the afternoon, ECB governing council member Axel Weber said rising inflation in the euro zone may require additional policy action, according to Dow Jones Newswires. The comments appeared to raise concerns on Wall Street that European growth could slow and that in the United States, inflation could prevent the Federal Reserve from making another rate cut.
Many investors have been betting on another rate reduction from U.S. policy makers, who lowered the target federal funds rate by half a percentage point on Sept. 18 in response to a tightening in the credit markets.
Wall Street's mood was also dampened when JPMorgan Chase & Co. lowered its revenue expectations for Baidu.com Inc., said Kelmoore Strategy Funds portfolio manager Matt Kelmon. That hurt technology companies, which had been rising strongly in recent days.
The U.S. average retail price for regular gasoline dropped 1.8 cents last week to 277.0 cents per gallon as of October 8, 2007, but is still 50.9 cents higher than last year. All regions were lower except on the West Coast where retail regular gasoline prices rose by 1.2 cents to 293.4 cents per gallon, the highest in the nation. The average price for regular grade in California was 299.6 cents per gallon, up 2.3 cents from last week and 39.5 cents per gallon over the previous year. The East Coast price fell 2.0 cents to 274.6 cents per gallon while the Midwest price decreased 2.7 cents to 275.5 cents per gallon, still 60.2 cents per gallon above last year. The region with the lowest price also tallied the largest decrease with the Gulf Coast falling 3.3 cents to settle at 266.7 cents per gallon. The Rocky Mountain region price decreased 0.8 cent to 280.2 cents per gallon.
The Commerce Department reported that the trade deficit declined to $57.6 billion in August, down 2.4 percent from the July imbalance. It was the lowest gap between exports and imports since January and a much better showing than had been expected.
The improvement reflected a 0.4 percent rise in exports, which climbed to a record $138.3 billion, as the decline in the value of the dollar against many other foreign currencies boosted sales of American farm products, industrial supplies and consumer goods to all-time highs.
Retailers were reporting sluggish September sales Thursday, with clothing sellers posting particular weakness and several warning of earnings shortfalls.
Many companies were quick to blame warmer weather for the lackluster results, saying high temperatures kept fall clothing items on the shelves. Broader-scale department-store chains performed weakly, with giants such as J.C. Penney (JCP - Cramer's Take - Stockpickr - Rating) and Nordstrom (JWN - Cramer's Take - Stockpickr - Rating) slashing their profit views.
One of the few bright spots came from retail giant Wal-Mart (WMT - Cramer's Take - Stockpickr - Rating), which posted a slight uptick in sales but offered a rosier profit forecast for the third quarter.
Wal-Mart's same-store sales rose 1.4% in the U.S., slightly shy of analysts' target for a 1.8% rise. Still, the company lifted its third-quarter earnings forecast to 66 cents to 69 cents a share from analysts' prior forecast of 62 cents to 65 cents. Analysts, on average, predicted earnings of 63 cents a share.
U.S. home foreclosures doubled in September from a year earlier as subprime borrowers struggled to make payments on their adjustable-rate mortgages, RealtyTrac Inc. said.
There were 223,538 foreclosure filings last month, including default and auction notices and bank repossessions, the research company said today. California had the most with 51,259 and Florida was second with 33,354. The national foreclosure rate was one for every 557 households, according to RealtyTrac.
Foreclosures are deepening the U.S. housing recession by pushing more homes onto a market where sales and prices are dropping. The glut of unsold homes makes it difficult to sell or refinance without losing money. As many as half of the 450,000 subprime borrowers whose mortgages will re-set through November may lose their homes because they can't afford the higher payments, according to a report by Credit Suisse Group.
``The truth of the matter is that borrowers are going into default as soon as they hit their adjustments,'' said Rick Sharga, executive vice president of marketing at Irvine, California-based RealtyTrac.
To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.
The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.
Chevron Corp. shares came under pressure Wednesday after the oil giant warned investors to expect third-quarter net earnings "significantly below" the record $5.4 billion it posted in the previous quarter.
Drawing on preliminary numbers for the first two months of the quarter, Chevron late Tuesday blamed the weaker results on "a sharp decline in refined product margins for the downstream business and the impact of non-recurring items."
Valero Energy Inc. joined Wednesday the parade of big oil refiners issuing profit warnings, becoming the latest victim of higher crude prices squeezing margins.
The warning comes on the heels of similar moves by Chevron Corp, ConocoPhillips and Marathon Oil.
With oil prices of $75-$82 a barrel the norm in recent months, the cost of raw materials for makers of gasoline, jet fuel and heating oil has jumped significantly from year-ago levels, which were in the low $60-a-barrel range.
Against the gloom that descended on credit markets, banks have pulled off a surprising feat: selling $30 billion of loans for leveraged buyouts by offering some unusual bargains. They also accepted losses on the sales.
Now comes the hard part: what to do about the other 90% of the LBO loans in the pipeline.
Gone, too, even more suddenly, was investor demand for the loans -- and the price for them fell in step. That left Wall Street banks such as Citigroup Inc., Credit Suisse Group and J.P. Morgan Chase & Co. holding some $400 billion in debt they had promised as financing for purchases private-equity firms had in the works globally.
Unless the pace of sales quickens in the coming weeks, banks could be stuck holding these hundreds of billions of dollars of loans for months to come -- a big risk if the economy slows and corporate profits weaken. That could reignite tensions with the private-equity firms they have agreed to finance the deals for and increase the possibility of a fire sale to unload the debt.
Wall Street advanced sharply Tuesday as investors interpreted minutes from the Federal Reserve's last meeting as indicating the central bank is ready to keep cutting interest rates to boost the economy.
The minutes from the Federal Open Market Committee's Sept. 18 meeting, when Fed governors voted unanimously to cut rates a half percentage point, also showed that officials were concerned that the weakness in the dollar could lead to higher inflation. But the Fed -- signaling it is more willing to intervene -- also said that the economic outlook was uncertain because of the summer's credit crisis, and that there were still risks to growth that justified lower rates.
In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.
Cargo containers crammed with foreign-made goods that were supposed to set a record in August at major U.S. ports took an unexpected turn, with imports sinking 1.4% in another sign of the slowing of the economy.
Imports of items as diverse as toys and tiles could also be lower in September and October, when retailers will be stocking shelves for the holidays, because shell-shocked shoppers are expected to continue to pull back.
The falloff "reflects the consumer-demand-driven weakness in the U.S. economy," said Paul Bingham, an economist with Global Insight, a research firm that monitors cargo movements for the nation's top retailers.
The slump in oceangoing imports unloaded at the 10 largest U.S. container ports in August was the first drop since Global Insight began its monthly Port Tracker report in 2005. The number stunned some port watchers.
Trucking and logistics company Ryder set off economic alarm bells Monday morning when it issued an earnings warning that it attributed to the economic slowdown spreading beyond housing and construction.
The meltdown in the mortgage and credit markets this summer, and the corresponding hit to the U.S. housing and home building markets, have been well documented by economists and investors. Many have also been anticipated that the problem may spread beyond those sectors.
Ryder, which manages and operates a fleet of more than 140,000 vehicles ranging from tractor-trailers to light-duty trucks for a wide variety of companies' transport needs, said that it is seeing a slowdown in business activity from its clients.
Despite the strong gains on Friday I’m still on double-top watch for the S&P 500. It’s still just teasing the all time high set in July. (and the volume is still unimpressive… but we won’t talk about that until it actually matters…)