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1. Can the Government Ignore These Inflation Signs?
2. Consumers Tighten Their Purse Strings
3. Report: Ford Cuts Benefits, Nixes Raises for Salaried
4. U.S. Jobless Claims Rise 18,000
1. Can the Government Ignore These Inflation Signs?
Though the government tries to manufacture low inflation, it's getting harder
and harder to contain. Labor costs rose at the fastest pace in 24 years in
October while productivity -- which generally helps keep a lid on inflation -
stalled.
The Labor Department said today that productivity growth, the amount of output
per hour of work, was unchanged at 1.2 percent in the third quarter compared to
the second quarter. Economists were expecting a 1.3 percent gain in
productivity. Second quarter productivity was downwardly revised to 1.2 percent
from the original estimate of 1.6 percent.
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Wages and benefits jumped a more-than-expected 3.8 percent in the July to
September quarter. That's hot on the heels of a 9 percent increase in the first
quarter and a 5.4 percent increase in the second quarter. In the past year,
labor costs are up 5.3 percent, the fastest increase since 1982, says the
Associated Press. Economists were expecting a 3.4 percent hike in labor costs.
Rising labor costs can lead to inflation if companies pass on the costs to
consumers by raising product prices.
The Federal Reserve keeps a close watch on productivity growth as a leading
indicator of inflation. Former Fed chair Alan Greenspan emphasized the
importance of productivity growth offsetting increases in labor costs and
therefore quelling inflation.
However, Greenspan had the good luck to be the Fed chair as personal computers
and other technology improvements helped increase productivity. Now that
computers aren't getting much faster to make a difference, productivity has come
to a standstill and inflation can no longer be offset by productivity growth.
The end result is that the Fed and the Federal government don't have an outside
factor to help them keep inflation contained. The only way they'll be able to
stave off inflation? Higher interest rates.
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2. Consumers Tighten Their Purse Strings
Discount shoppers tightened their purse strings in October, resulting in
disappointing retail sales. Could it foreshadow a dismal holiday shopping season
for retailers?
Wal-Mart, the world's largest retailer reported mixed sales in October - a 0.5
percent gain in same-store sales, but a decline in comparison with earlier
months this year. Wal-Mart is forecasting that sales will be unchanged in
November compared to a year earlier.
"The news from Wal-Mart is definitely discouraging," said Ken Perkins, president
of RetailMetrics LLC, a research company in Swampscott, Mass, tells the AP.
"They are going to be very price aggressive. And it is going to have an effect
on everyone. It is going to force other retailers to cut their prices, which in
turn will squeeze their profit margins."
Wal-Mart's size gives it the ability to force distributors to lower prices even
on hot-selling products. That creates a domino effect in which competitors also
cut their prices, which results in lower profit margins for all.
Other retailers aren't faring much better. According to Thomson Financial, 28 of
the 50 retailers that have reported earnings so far missed expectations, while
22 beat estimates. Other retailers missing expectations were BJ Wholesale,
Pacific Sunwear, and Target. Target posted a respectable gain in sales of 3.9
percent, but analysts were looking for 4.2 percent growth.
Department stores were an exception. Federated, which owns Macy's and
Bloomingdale's, posted a 7.7 percent increase in same-store sales, beating
analysts' estimate of 6.2 percent.
Luxury department stores Saks and Nordstrom posted 9.2 percent and 10.7 percent
sales gains, respectively. That was well above estimates of 3.6 percent and 6.2
percent.
J.C. Penney's sales grew 8.1 percent, well above the 6.2 percent estimate.
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3. Report: Ford Cuts Benefits, Nixes Raises for Salaried
Ford Motor Co., which last week announced a $5.8 billion third-quarter loss, is
reportedly cutting back health care benefits for some white-collar retirees,
boosting health care premiums for salaried workers and won't give them merit pay
raises next year.
The benefit cuts were announced Wednesday in an information packet to the
salaried workers, The Detroit News reported Wednesday. It said it had obtained a
copy of the memo.
Ford said that starting in 2008, it no longer will provide health insurance for
Medicare-eligible salaried retirees. In its place, Ford said it will give them
$1,800 a year for supplemental insurance or out-of-pocket health costs.
Ford said it also will stop providing health coverage for dependent children of
retirees who are 65 or older. The company now covers some employees' and
retirees' children up to age 25.
Ford also said it was raising health care premiums effective June 1 for most
salaried workers by about 30 percent for the second straight year.
The Dearborn-based automaker spent $3.5 billion last year for health benefits
for 590,000 employees, retirees and dependents. Two-thirds of the cost was for
retiree health care.
In addition to the health care cuts, Ford's white-collar workers will not get
merit pay raises next year for the first time in 13 years, the company said.
Ford did say that it would begin a partial match to salaried employees' 401(k)
retirement contributions next year. It had suspended such matching contributions
in July 2005.
In March, DaimlerChrysler AG's Chrysler Group said it would link its health care
plan for active and retired salaried employees to their salaries, with top
executives responsible for up to 100 percent of their premiums.
General Motors Corp. has said that it will cap its salaried retiree health care
costs at 2007 levels.
© 2006 Associated Press.
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4. U.S. Jobless Claims Rise 18,000
The number of U.S. workers applying for jobless benefits rose by an unexpectedly
large 18,000 last week to 327,000, but remains at levels that still point to a
relatively healthy jobs market, government data showed on Thursday.
The latest figures from the Labor Department cover the week ending Oct. 28 and
mark the highest claims since the July 8 week, when they were 334,000.
The numbers compare with Wall Street forecasts for claims of 310,000. Claims for
the prior week were revised to 309,000 from an initially reported 308,000
applications for aid. A Labor Department official said there were no special
factors explaining last week's gain in the seasonally adjusted numbers.
The four-week moving average - regarded as a more representative gauge of
underlying employment trends - rose to 311,250 from 305,500 the week before.
The number of people who remained on the benefits rolls after drawing an initial
week of aid declined by 27,000 to 2.415 million in the week ended Oct. 21, the
latest week for which data are available. This was the lowest level of continued
claims since the week of June 17 and compared with a consensus forecast for 2.44
million claims .
The weekly jobless data were gathered too late in the month to have any bearing
on October's employment report, due out on Friday. Analysts polled by Reuters
expect 125,000 new nonfarm jobs were created in October, up from just 51,000 the
previous month, and forecast that the unemployment rate would stay put at 4.6
percent.
© 2006 Reuters.
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