NBR Transcripts-February 13, 2008
Wednesday, February 13, 2008Consumer Spending Gives the Economy a Much Needed Jolt
SUSIE GHARIB: Consumer spending perked up a bit in January and the nation's retailers hope that trend continues thanks to some help from Uncle Sam. The government reported today that retail sales unexpectedly rose 0.3 of 1 percent last month, after falling 0.4 of a percent in December. The report comes on the same day President Bush signed the $152 billion stimulus package. Suzanne Pratt reports on what today's data means for an economy that may be on the brink of recession.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Don't count out the U.S. consumer just yet. That seems to be the message of the January retail sales report. The data strengthens the argument of those who think the economy will be able to avoid recession. Even though Bear Stearns economist Conrad de Quadros says the report isn't as strong as it first appears, he still does not believe the economy is contracting.
CONRAD DEQUADROS, SR. ECONOMIST, BEAR STEARNS: Recession risks are high. But, at this point we think that the most likely scenario is weak growth rather than recession.
PRATT: Nevertheless, de Quadros says the details of the report suggest the consumer is stressed. Strong demand for clothing, new cars and gasoline were behind the surprising jump in sales. But, the increase in gasoline purchases actually reflected higher prices at the pump. In most other areas, consumers pulled back on their spending.
DEQUADROS: If you look at food away from home for example, restaurants and bars. If you look at the sports and hobbies and all of the non-essential spending, those areas showed declines as did the areas that were related to the housing markets.
PRATT: Other economists question the accuracy of the retail sales report itself. It showed a .6 of a percent jump in sales at auto dealerships and parts stores. That contrasts with industry figures that showed a nearly 7 percent drop in sales of cars and light trucks last month. UBS economist Jim O'Sullivan says the government uses the industry auto sales data when estimating growth for the overall economy.
JAMES O'SULLIVAN, U.S. ECONOMIST, UBS: In the end when the government puts together GDP data for autos they use the auto makers' numbers, not the retail sales report. Yes, it was stronger than expected, but much of the strength and much of the surprise was in a part that is not very reliable.
PRATT: Here's no question today's data keeps the debate going about recession. Most experts agree the key question remains unanswered as to whether consumer spending is slowing down or coming to a halt. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Retailers Hope to Stimulate Sales With Stimulus Checks
SUSIE GHARIB: As we mentioned earlier, President Bush signed the stimulus plan into law today and the IRS says the rebate checks will start hitting mailboxes in early May. The checks could be up to $600 for an individual depending on income and up to $1,800 for a family of four. With that much money on the line, you can be sure retailers are wondering what it means for them. Darren Gersh reports on just who benefits from the plan.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president called the economic stimulus act of 2008 a booster shot.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The bill I am signing today is large enough to have an impact, amounting to more than $152 billion this year or about 1 percent of GDP.
GERSH: Put in retail terms, that means 130 million customers with extra coin. At market researcher NPD Group, chief retail analyst Marshal Cohen thinks the money will give shoppers an emotional lift.
MARSHAL COHEN, CHIEF INDUSTRY ANALYST, NPD GROUP: It's really trying to get the consumer to think about spending the money again, to feel confident again. We're in a new economy now and the consumer is such a critical part of that. Getting the consumer to feel good in their psyche is really an important role.
GERSH: Cohen says consumers tell him they'll use their rebate checks to reward themselves and that means categories like jewelry will shine, electronics too. Travel may also tempt consumers. Mass retailers should get a lift. Wal-Mart plans to cash checks for free to draw in buyers and boost revenues. But Cohen says retailers will have to be aggressive.
COHEN: The retailers are going to be looking to offer, even in some cases bring in your $600 check and we'll give you a credit for $800 worth of merchandise. So you're going to see some deep discounts, some piling on for the revenues.
GERSH: The other big competitor for rebate checks is that stack of bills from previous buying binges. Consumer activist Stephen Brobeck is urging Americans to take this chance to pay off credit cards and other high interest debt.
STEPHEN BROBECK, EXECUTIVE DIRECTOR, CONSUMER FEDERATION OF AMERICA: It could be a very big deal for low and moderate income households with say $1,000 in payday loan debt. They can completely pay off that debt freeing them from huge interest obligations.
GERSH: So will they spend it or will they save it? Polls show eight out of 10 consumers plan to pay off bills or invest the money. But if they do what they did with the last stimulus, most Americans will end up like Ina Brodnax and split the difference.
INA BRODNAX: They want you to put it back in the economy, so I'll do a little bit of both.
GERSH: Timing will be an issue for retailers. It's likely some shoppers will put off buying now until the checks come later this spring. NIGHTLY BUSINESS REPORT, Washington.
"The New Business of Education"-Charter Schools
PAUL KANGAS: The Federal No Child Left Behind Act has radically changed the education industry, boosting standardized testing and funding for charter schools. Those schools have seen tremendous growth as parents seek more choices for their child's education. As we continue our series, "The New Business of Education," Diane Eastabrook looks at the rise of charter schools.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Destiny, I'm Diane Eastabrook. The 500 students at Chicago's Noble Street college prep are used to classroom visitors. They are also used to stricter rules, a stricter dress code, longer school hours and a longer school year than students at Chicago's other public schools. Noble Street is one of Chicago's five charter schools. It was authorized by the city's public school system and receives about $7,000 a year per pupil from the system. That's slightly less than the public schools receive. But as a charter school, Noble Street doesn't have to follow the same rules and regulations as Chicago's public schools. Superintendent Michael Milkie says that gives him a lot more budgetary and academic freedom.
MICHAEL MILKIE, SUPT., NOBLE STREET CHARTER HIGH SCHOOL: We have a college counseling course that wouldn't be allowed under the union contract where a non-certified college counselor is really the teacher of that class and guides the students through every step of the college application process.
EASTABROOK: There are about 3,000 charter schools nationwide. Their supporters claim that having greater flexibility allows charter schools to tailor curricula that better meets the needs of their students. But in exchange for that flexibility, the schools must meet stricter student performance standards than public schools or face possible closure. Liz Howard is the associate director for the Center for Nonprofit Management at Northwestern University's Kellogg school of management. She says charter schools are the product of the school reform movement of the 1980s.
LIZ HOWARD, ASSOC. DIRECTOR, CENTER FOR NONPROFIT MNGT.: They are a different method of educating children in the sense that the vast majority of charter schools are very small schools. They may focus on a particular curricular or age group which enables them to have a more laser-like focus.
EASTABROOK: In Chicago, charter schools are run by non-profit organizations. But elsewhere, for-profit service and support companies advise and operate charter schools. In Florida, privately-owned charter schools U.S.A. operates schools. The firm gets a portion of the public dollars its charter schools receive.
Another for-profit firm, Academica, manages 30 charter schools in Florida and makes money by charging schools a management fee. Academica President Fernando Zuelueta says his company does everything from designing schools to hiring teachers to maintaining records.
FERNANDO ZULUETA, PRESIDENT, ACADEMICA: You don't want your principal spending his or her time doing this kind of work. You want them focusing on ensuring that the students are getting the best education possible.
ESTABROOK: Corporate America has played a central role in the development of many charter schools here in the U.S. Family foundations established by business leaders like Bill Gates and Michael Dell have contributed millions of dollars to the charter school effort. Chicago's Roweclark (ph) math and science academy is named after Exelon Corporation CEO John Rowe and Commonwealth Edison Chief Executive Frank Clark. Exelon and the two executives collectively donated more than $4 million to cover the school's start-up costs. Rowe thinks corporations have an obligation to serve their communities.
JOHN ROWE, CHAIRMAN & CEO, EXELON CORPORATION: From my point of view there is just such a huge need in U.S. society to have people becoming technically proficient in the various sciences, so it is a natural for us.
EASTABROOK: Experts say in the past decade about five percent of the nation's charter schools have been closed for poor performance. The hope is that better data will help states and school districts better track the progress of charter schools and reduce failure rates. But until that happens, questions will remain as to whether charter schools can offer a better product for the same taxpayer dollars as public schools. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
GHARIB: Tomorrow, as we continue our series "The New Business of Education," Jeff Yastine looks at education technology, specifically how many high-tech companies see education as a market with tremendous potential for their products.
"Street Critique" -Kevin Depew, Executive Editor Minyanville.com
PAUL KANGAS: Tonight's "Street Critique" guest says even with today's run-up in stocks, we're well into a bear market. He's Kevin Depew, executive editor of the financial education website minyanville.com. Kevin, welcome back to NIGHTLY BUSINESS REPORT.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Thanks very much, Paul.
KANGAS: Well, it certainly didn't feel that bearish on Wall Street today! Tell me about what you're seeing that makes you a bear.
DEPEW: Well, you're right. We take a longer-term look and a longer- term approach. What we're seeing are the same things that we saw towards the end of 2007, a narrowing in participation in the market. If you look at the individual components of the S&P 500, Paul, there are only about 1/3 of those stocks outperforming the index year over year. And by definition, when you have fewer stocks outperforming the index, it's going to be tough to be an individual stock selector.
KANGAS: So the cause of it, you think, are still the credit problems which are far from over? Is that right?
DEPEW: Absolutely. This is going to be a 2009 problem to try to sort through. These problems are not -- in fact they're getting worse. We've seen even problems spreading to student loan and auction rate securities over the last couple of days.
KANGAS: Are there any specific stocks that you see doing well in this bearish environment?
DEPEW: Well, there are and there are always stocks to buy in a bear market. We're focused on consumer staples. First stock I like is Sara Lee (SLE).
KANGAS: OK, we have it up here on the screen. Closed at $13.60 today. That's about $5 below its 52-week high.
DEPEW: Right. I was on this company's conference call about a couple of weeks ago. And it's interesting, because they have the same problem all food service companies do, increasing grain prices, but they have pricing power. They raised prices last year. Consumers did not push back and they're going to raise prices again.
KANGAS: OK, that's SLE on the New York Exchange, correct?
DEPEW: Yes.
KANGAS: Let's have another choice.
DEPEW: Fortune Brands (FO). Another company I was on their call. Now, they have a large significant portion of their revenue comes from home products, a little bit over half. But their growth is in distilled spirits. And consumers, they're finding even in recessionary environments are not trading down. I guess in recession, liquor is the last to go.
KANGAS: FO is the trading symbol on the big board there. And how about a third choice? We have time for that.
DEPEW: The consumer staple spider ETF, XLP is the symbol. That contains 39 companies. It's in that sector that we like. If you go back and look at this quarterly, it's just now turning up in performance versus the S&P 500 and I think longer term, that this is a sector that is finally about to have its day again.
KANGAS: XLP also trading on the big board, I believe. You're really in a defensive portfolio there, are you not?
DEPEW: That's right. You have to have your guard up sometimes. Keep your hands up in a tough fight.
KANGAS: Kevin, do you own or have any other disclosures for the stocks you mentioned?
DEPEW: I do. I own all three of those, Paul.
KANGAS: That's a vote of confidence on your part, isn't it?
DEPEW: Put your money where your mouth is.
KANGAS: There you go. Thank you for being with us. We'll see you soon again.
DEPEW: My pleasure.
KANGAS: My guest, Kevin Depew, executive editor at minyanville.com.
"Money File"-Don't Spend the Stimulus Check
SUSIE GHARIB: Back now to one of our top stories, the stimulus bill signed by President Bush today. Our money file commentator says now is not the time for a spending spree. She's Harriet Johnson Brackey, personal finance columnist at the "South Florida Sun Sentinel."
HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN SENTINEL: I don't believe that survey that says only 5 percent of consumers plan to splurge if they get tax rebate checks and the rest will be models of financial restraint? No. So, with apologies to Congress and the White House, I'm going to refuse to accept the job of jump-starting the economy. I say spending the tax rebate check on new stuff is not very wise. I know the distress consumers are going through, because salaries aren't going up enough, debts are growing and the costs of basic needs, such as food and gas, are through the roof.
So here's what I'd suggest you do with the approximately $3,000 a family of four may get from the tax rebate and an average tax refund. Number one, pay down credit card debt. Number two, put something extra toward your mortgage or stick the money in a college savings plan. Increase your retirement contributions. Give it to your teenager and show him or her how to pick out a stock. Begin a rainy day emergency fund. Give it to a food bank and take a tax deduction. Or take a flier on a mutual fund you've been interested in.
Eventually, I think the economy will get back on course, even as we all take care of the personal finance basics. So skip the flat screen TV and use the money to improve your own financial picture. I'm Harriet Johnson Brackey.
"Last Word"-Valentines Text
SUSIE GHARIB: And finally tonight, tomorrow is Valentine's Day. While it's still traditional to send candy and flowers, a new trend is sending text messages. AT&T says text message traffic jumped 30 percent last February 14. That's more than Thanksgiving, New Year's and Christmas. Now here are some popular Valentine's Day messages. AML, that means all my love. IWALU is short for I will always love you. And Paul, if I was at the New York Stock Exchange, instead of sitting right next to you here in Miami, I would send you one that says MUSM and that means, miss you so much.
KANGAS: It's great to have you here. But husband Fred's in New York City. You better send that to him.
GHARIB: I will. I will, thank you.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened higher and stayed that way on that rise in January retail sales when a drop was expected. Better than expected results from Coca-Cola also helped the Dow jump about 100 points early on while the NASDAQ Composite rose 30 points. The market pulled back a bit during mid-session as buyers took a breather, but they came on strong again in late trading on growing confidence that recession worries have been overdone. The Dow Industrial Average closed up 178.83 points at 12,552.24. The NASDAQ Composite up 53.89 ending at 2373.93. Standard & Poor's 500 Iindex gained 18.35 points to 1367.21. In the bond market, the 10-year note fell 19/32 to 98 2/32, putting the yield at 3.73 percent.
Big board volume leader as it so frequently is, Citigroup (C) on 21 3/4 million shares today, moving up $0.13.
Followed by General Electric (GE) $0.61 gain there.
EMC Corp (EMC) edged $0.07 higher.
Time Warner (TWX) a $0.36 gain.
AT&T (T) had a decent day, up $1.16 a share.
Pfizer (PFE) a $0.06 gain there.
$0.51 advance in Bank of America (BAC).
Wells Fargo & Co (WFC) up $0.55.
Ford Motor Co (F) gained $0.12.
And completely this sea up upsides, JPMorgan Chase (JPM) $0.79 gain, all on the upside in the 10 most actives.
ExxonMobil (XOM) gained $1.11. The U.S. government is backing the company in an effort to win fair compensation from Venezuela for assets it seized. Venezuela has stopped oil shipments to ExxonMobil in retaliation and the battle goes on.
Coca-Cola Co (KO) $0.53 loss despite fourth quarter adjusted earnings of $0.58, $0.03 above the Street estimate. Unit case volume was up 5 percent.
Hewlett-Packard (HPQ) another Dow stock, up $1.17. The company signed a seven-year $675 million deal to provide services to Unilever. That's the big Anglo-Dutch company.
Moving along we see United Health Group (UNM) $1.30 loss there. As you heard, the New York State attorney general is investigating the health insurance industry over deceptive practices. The whole sector was weak was on that news today, like Aetna (AET) and Humana (HUM) also on the downside.
Deere & Co (DE) $0.94, big earnings though, up 54 percent from last year. First quarter, $0.83 up from $0.52 and a nickel above the Street estimate. But the company sees second quarter earnings below the Street consensus and that's what hurt the stock.
Acco Brands (ABO) which is into office products, up $2.13. Fourth quarter earnings excluding one-time items, $0.66, up from $0.50 last year. That's a 33 percent rise from a year ago.
And Jones Apparel (JNY) gained $1.70. Fourth quarter earnings excluding items, $0.09 a share, $0.02 above the Wall Street estimate.
Dean Foods Co (DF) fell $1.70. Fourth quarter earnings excluding one- time items dropped to $0.27 from $0.61 a year ago, $0.03 below the Street consensus.
And MGIC Investment (MTG) down $1.57. The company is booking a $1.2 billion research deficiency for home loan defaults and that'll result in a fourth quarter loss of $18.17 a share. The Street was looking for a loss of only about $8 so bad news on MGIC.
Apple (AAPL) topped the NASDAQ's most active, up $4.54.
And look at that gain in First Solar (FSLR), up nearly $53 a share. The company, fourth quarter earnings $0.77, way up from $0.12 last year and $0.24 above the consensus. The whole solar panel group was very strong today on that news.
Google (GOOG) up $16.53.
Baidu.com (BIDU) up $15.66. Fourth quarter earnings were better than expected, $0.92, the Street estimate was only $0.75. The company was rather cautious in an outlook, but in after hours trading, Baidu stock gained another $10 from this price.
Microsoft (MSFT) $0.62 gain there. That was fifth in volume on NASDAQ.
Research in Motion (RIMM) up $5.26.
Yahoo! (YHOO) closed up $0.31. The "Wall Street Journal" reports Rupert Murdock wants to combine his myspace and other assets with Yahoo! That would certainly make an attempt to thwart Microsoft bid for Yahoo! wouldn't it?
Cisco Systems (CSCO) $0.63 gain there.
Applied Materials (AMAT) up $1.84, on good earnings out yesterday.
Intel (INTC) a $0.31 advance there.
And finally, shares in Blue Nile (NILE) sank $9.18 after the online jewelry retailer posted fourth quarter earnings of $0.45, up from $0.35 a year ago, but it sees first quarter profits of only between $0.11 and $0.14 per share on flat sales.
