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1. Bernanke: No Soft Landing for Housing
2. Bernanke: Baby Boom Crisis Beginning
3. OPEC Pres: Possible Production Cut Coming
4. Retail Sales Rise Sharply in September
1. Bernanke: No Soft Landing for Housing
Federal Reserve Chairman Ben Bernanke admits that the housing market is going
through a "substantial correction" right now. That's far from the tune the Fed
was whistling earlier in the year when it said a soft landing was probable.
"It seems pretty clear now that the U.S. housing market is cooling," Bernanke
said in May. "Our assessment at this point . . . is that this looks to be a very
orderly and moderate kind of cooling."
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Yesterday, though, Bernanke relented, calling the decline in housing "one of the
major drags causing the economy to slow now" and that the slowdown could shave
as much as 1 percent off the nation's growth in the second half of 2006 and
"probably" impact growth in 2007.
"I think I would estimate that slowing housing construction will probably take
about a percentage point off growth in the second half of the year and probably
something going into next year as well," Bernanke said.
Bernanke made his remarks after a speech to the Economic Club of Washington
yesterday afternoon. The speech focused on baby boomers and their impact on the
economy. (See next article.)
The Fed is monitoring the housing market to see if there is any spillover into
other areas of the economy. "We'll be watching to see what extent this decline
in construction and moderation in housing prices affects consumer behavior and
behavior in related industries . . . that's a key," said Bernanke.
Bernanke believes that the healthy job market and low interest rates will help
the real estate sector rebound. He also pointed out that strength in commercial
real estate might help to offset the job losses in residential real estate.
"I think there are some strong fundamental underpinnings that should help the
housing market over the medium term. These include a good job market, strong
income growth, demographics, and continued low mortgage rates," he said.
"Ultimately, the housing market is going to be supported by those factors," he
added.
For now, both sellers and buyers are sitting on the sidelines, waiting for
prices to stabilize.
Editor's Note:
2. Bernanke: Baby Boom Crisis Beginning
Federal Reserve Chairman Ben Bernanke is warning the baby boom generation that
they must sacrifice in order to prevent future generations from suffering dismal
living standards.
"I suspect that many people would agree that a fair outcome should involve the
current generation shouldering at least some of the burden, especially in light
of the sacrifices that previous generations made to give us the prosperity we
enjoy today," Bernanke said in yesterday's speech to the Economic Club. "By
saving more today, we can reduce the future burden of demographic change."
"We can mitigate the adverse effect of the aging population on future
generations, but only by forgoing consumption or leisure today," he said.
"The decisions that we make over the next few decades will matter greatly for
the living standards of our children and grandchildren," he added, citing
research illustrating his point.
In just two years, the first wave of baby boomers hits the official retirement
age. The percentage of the population over 65 will rise to 12 percent in 2008
and 19 percent in 2030. That means fewer working Americans to support social
programs such as Social Security and Medicare.
Bernanke encouraged Americans to increase their savings. Otherwise, the baby
boomers will force future generations to face higher taxes, cuts in social
programs, and a higher federal deficit.
But Bernanke acknowledged that there is no solution for fixing the problem.
"Unfortunately, many years of concentrated attention on this issue by
policy-makers and economists have failed to uncover a silver bullet for
increasing household saving," he lamented. The U.S. savings rate has been
negative for 17 consecutive months.
Bernanke offered a couple of suggestions: Better financial education for
understanding alternative savings vehicles and automatic enrollment in 401(k)s
for new employees.
Editor's Note:
3. OPEC Pres: Possible Production Cut Coming
With oil prices recently dipping to seven-month lows, the Organization of
Petroleum Exporting Countries' (OPEC's) president said Thursday that the group
is considering an emergency meeting to discuss the possibility of cutting
output.
"We are toying with the idea of an emergency meeting," said Edmund Daukoru, a
Nigerian oil minister who is also serving as president of OPEC.
The comments came after oil prices rebounded Wednesday from a seven-month low
and jumped more than $1 a barrel Thursday. But prices for crude-oil futures in
New York are still roughly 23 percent below their July peak of $78.40.
A Financial Times report on Thursday said OPEC has informally agreed to cut
output 4 percent in coming weeks to defend the $50 to $55 per barrel price
range. It cited an unnamed OPEC official.
Dow Jones Newswires, citing an unidentified OPEC governor, said OPEC ministers
agreed to cut 1 million barrels a day from its current oil production levels,
with Saudi Arabia cutting 300,000 barrels per day, effective as soon as
possible.
"We each have an idea of what is an appropriate response . . . we agree that
something needs to be done," Daukoru said, referring to possible cuts in output.
"We will have to agree on how much, how soon and how we distribute it among the
member countries."
Daukoru said OPEC members would only agree on a formal position on oil cuts
after consultations. But he said Venezuela has already promised to announce a
cut of 50,000 barrels per day.
"Algeria also gave me some understanding," Daukoru said. "The Saudis were
already taking some measures on their own as part of leadership."
Saudi Arabia's ambassador to the United States had said on Wednesday that he did
not expect OPEC to hold an emergency meeting to discuss prices ahead of its
scheduled Dec. 14 meeting, despite the recent decline in prices.
Light, sweet crude for November delivery on the New York Mercantile Exchange
rose $1.19 to $60.60 a barrel in electronic trading by afternoon in Europe. The
price went as high as $60.97 during the day.
Nymex crude had settled on Tuesday at $58.68 a barrel, the lowest close since
Feb. 16.
© 2006 Associated Press.
Editor's Note:
4. Retail Sales Rise Sharply in September
Shoppers encouraged by cooler temperatures and falling gas prices went on a
clothes shopping spree in September, giving many retailers better-than-expected
gains and lifting the industry's spirits two months before the holiday season. A
notable exception was Wal-Mart Stores Inc.
As retailers reported their results Thursday, the department stores and teen
merchants including Abercrombie & Fitch Co. Inc., J.C. Penney Co. Inc. and Saks
Inc., were among the leaders. The robust gains prompted many retailers to raise
their third-quarter earnings outlook.
The laggards again included Gap Inc. and Pier 1 Imports Inc., whose sales
continue to languish.
Nonetheless, "this is a really strong month," said Ken Perkins, president of
RetailMetrics LLC, a research firm in Swampscott, Mass. "The back-to-school
momentum was strong, weather was really favorable, and the big plummet in
gasoline prices certainly put more disposable money into consumers' wallets."
The news was encouraging because analysts had braced for a consumer spending
slowdown in the second half of the year as the economy cooled. But consumers
have remained resilient.
The International Council of Shopping Centers-UBS index of retail sales was up
3.8 percent in September, but excluding Wal-Mart's results, the tally rose a
robust 6.0 percent. The index is based on same-store sales, those from stores
open at least a year; they are considered an accurate measure of a retailer's
health.
While September's sales pace matched the average same-stores gain during
retailer's fiscal period so far, the tone of the merchants' reports was much
more upbeat than in previous months.
"Right now, we are in a sweet spot for spending," said Michael Niemira, chief
economist at the ICSC.
But the deteriorating housing market remains a big concern. In the last few
years, a booming home sales and record low interest rates spurred spending as
consumers taped into their rising home equity.
Meanwhile, although the Conference Board last week reported a rebound in
consumer confidence in September, the survey showed lingering concerns about the
job market. Employment showed modest gains in August, with wages barely up, and
analysts are forecasting only a modest increase of 120,000 jobs for September.
The Labor Department reports that figure Friday.
Still, declining gasoline prices, which have fallen 50 cents a gallon in recent
weeks, should help ease concerns about the job market. Economists had worried
that rising energy costs would derail the labor market as companies look to cut
costs by laying off workers.
In a positive sign, the Labor Department reported Thursday that the number of
newly laid-off workers filing claims for unemployment benefits fell last week to
the lowest level in 10 weeks. The government reported that 302,000 people filed
claims last week, the smallest number since the week ending July 22.
Wal-Mart, the world's largest retailer, which has blamed soaring gas prices for
slowing sales, didn't benefit from lower prices at the pump last month. It said
its same-store sales rose 1.3 percent, well short of the 2.1 percent expected by
analysts surveyed by Thomson Financial. The company said its sales, which were
measured against September 2005 figures, paled in comparison because the
year-earlier results were bloated by a rush of pre- and post-hurricane shopping.
Wal-Mart had lowered its own same-store projection to 1.3 percent from 1.8
percent, saying it had miscalculated its sales figures.
For those merchants like BJ's Wholesale Club Inc., which sell gasoline, lower
gas prices depressed business. BJ's reported a 0.9 percent decline in
same-stores in September, below the 2.3 percent gain analysts forecast.
Meanwhile, discounter Target Corp. posted a 6.7 percent gain in same-store
sales. The results beat the 5 percent analyst estimate. Target also raised its
third-quarter outlook.
Department stores, whose business has been rebounding in recent months, did
particularly well in September, helped by strong fashion and cooler
temperatures.
Nordstrom reported a 13.4 percent gain in same-store sales, beating the 3.8
percent Wall Street projection.
Saks, which operates upscale Saks Fifth Avenue, reported a 10 percent increase
in same-store sales, better than the 3.8 percent estimate.
Penney, which stumbled in August, rebounded in September with a 10.2 percent
gain in same-store sales, better than the 5.2 percent estimate.
Federated Department Stores Inc., which acquired May Department Stores Co. last
year, had a same-store sales gain of 6.2 percent, above the 5.5 percent
estimate. Same-store sales include only Macy's and Bloomingdale's.
In a statement Thursday, Federated Chairman Terry J. Lundgren said customers
have responded positively to the conversion of most of the former May Co. stores
to the Macy's brand in September.
Federated also raised its third-quarter and annual profit outlook, based on a
strong month.
Limited Brands Inc.'s same-store sales jumped 12 percent, much better than the
7.7 percent Wall Street anticipated.
Gap, which is making over its fashion assortment, had a 3 percent decline in
same-store sales, though better than the 3.6 percent decline that Wall Street
projected.
Pier 1, whose Chairman and CEO Marvin Girouard recently announced he would
retire early next year amid a three-year slump, continues to struggle. The
retailer posted a 10.1 percent decline in same-store sales in September, worse
than the 7.7 percent dip Wall Street anticipated.
Abercrombie & Fitch had a 10 percent gain in same-store sales, better than the
5.5 percent estimate.
On Wednesday, Hot Topic, Inc. reported a 7.3 percent decline in same-store
sales, worse than the 5.6 percent drop analysts projected, and American Eagle
Outfitters Inc. reported a 19 percent gain in same-store sales, better than the
11.3 percent increase. On Tuesday, Kohl's Corp. reported a robust 16.3 percent
gain in same-store sales, exceeding the 8 percent estimate.
© 2006 Associated Press.
Editor's Note:
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