Interview: Chief Economist with Wachovia
>> and welcome back. let’s go ahead now and run through treasuries and currencies for you today. treasuries fell on a greater-than-expected g.d.p. reading for the third quarter. it was the first take on that. down 4/32 with the yield pushing to 5.57%. five-year today down 3/32. the yield up to 4.45%. and the short end of the curve, the two-year down 2/32 and you saw that as well. the u.s. economy grew at a 3.8% annual pace in the third quarter. despite higher energy costs and hurricane katrina. what’s fueling the growth and how long can the momentum last? joining us you is john silvia, chief economist with wachovia. he is in charlotte, north carolina. hi, john. thanks for joining us.
>> hi, lori.
>> we put those bond boards up for you. third quarter g.d.p. coming in better than expected. so what are you reading from this reaction in the bond market , especially the 10-year yield pushing so close to 4.6% now?
>> i think the bond market has it right. not only did you have good, solid economic growth but broad based. you had contributions from consumer spending. investment spending. government spending and residential investment. so i think the whole spectrum says the economy has forward momentum. i also want to pick up on what point suzanne made that i thought was very critical and that was that p.c. deflator going up over 3.5%. i think the bond market looked at that and said hmmm, there might be more inflation here than we first discounted.
>> are you concerned that the rate of inflation we saw will accelerate through the end of the year?
>> we think it will accelerate. i think a lot of the prices in terms of energy prices will continue to feed through. in terms of the consumer budget. i think the higher transportation costs, the heating oil costs, natural gas prices, will feed through business costs. so we do see continued upward pressure on prices through the end of the year.
>> do you think the fed is doing a good job of keeping a container on inflation?
>> i think suzanne also did a good job for us when she mentioned both the core and the total p.c.e. deflator. because what’s happening here is you’re getting two very different pictures. the overall being 3.5% plus. and the overall core being about 1.5%. so you see a real distinction there. and now the fed is really going to be challenged here to decide which price or inflation target they’re really following. the total, or the core. it gives you two different outlooks for monetary policy.
>> what is your outlook? what do you think the right direction is?
>> we think they will go with the overall number. they will talk about the core deflator. being sort of contained. but we still think the bias on rates is to follow them up in terms of raising the federal funds rate, both november and december.
>> the next meeting with the fed on rates is tuesday. widely expected to get that bump up. a quarter percentage point. do you expect the commentary to change at all, the tone there to change?
>> no, i don’t think the tone will change. because i think from the fed’s point of view, they are still fairly accommodative and in december they will do another 25 basis points. i think the fed in a way is feeling itself as a little bit behind the curve in terms of catching up to some of this inflation feeding through the system.
>> getting back to this morning’s g.d.p. reading, this is the first takes, they do three takes as we all know. will we face an upward or downward revision?
>> we think a downward revision because we don’t know a lot about trade and what happened to the port of new orleans. we also don’t know very much about inventories. those two key factors, we don’t have a lot of data on. i think the revisions as they come through will probably hit on the downside here in terms of overall g.d.p.
>> we have evidence―do you think we have evidence of what the impact for katrina has been or should we wait for those revisions?
>> i think we’re seeing the impact. when you look at jobless claims and we looked at capital goods orders. when you’re looking at the consumer confidence numbers that came out earlier today, you are seeing the impact of the hurricanes and my bet is that going forward, that 3.8% g.d.p. we saw in the third quarter is probably the best we’re going to do for the next two or three quarters.
>> ok. as you mentioned, consumer confidence reading came out, a little bit of a disappointment there, is this a forewarning of a slowdown in consumer spending? is there a tie-in in?
>> i think there is a tie-in. if you look at the components of consumer confidence, the buying intentions were really hit in a number of different areas. and intriguing also consumer inflation expectations were raised for the highest rate they’ve been. in over 10 years. so i think the consumer is saying, listen, we’re going to cut back our buying a little bit because we are concerned that inflation is picking up.
>> and this could translate into trouble come holiday season.
>> well, i think again for a lot of retailers, christmas sales will be good. but perhaps not as good as they had hoped.
>> so let me get you to sum up your statements. you did mention talking about inflation earlier. but what beside that would be the biggest risk to economic growth here in the fourth quarter?
>> i think the biggest risk in the fourth quarter is that feeding through not only of consumer confidence but business confidence. in terms of how people feel post holiday season. so what we may see in november and december is a significant slowdown and capital goods orders. that will be a signal that business investment spending is slowing. and if consumer confidence stays at a fairly low level, it may be yes, they will spend for christmas because they always spend for christmas. but post holidays, i think the budget for the consumer is going to be hit.
>> we’ll have to leave it there. john silvia, thank you for joining us. an economist with wachovia. stay with us, we’ll be back after this.
>> hurricane katrina took a bite out of the energy companies reporting earnings today. chevron took the biggest hit with a 12% profit gain that was much lower than expected. bloomberg’s margaret popper joins us with more.
>> thanks, lori. chief executive david o’reilly said higher oil and gas prices couldn’t compensate for a 40-day shutdown of chevron’s biggest refinery. chevron reported third quarter earnings of $3.6 billion or $1.51 a share. analysts had been expecting profits to climb 31% to $4.2 billion. national city analyst james halloran says the street missed, not chevron.
点击播报
Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
US economy --- Suzanne (slow)
Energy --- June (slow)
indictment of lewis libby, vice president dick cheney’s chief of staff in connection with the leak of a c.i.a. agent’s name in retaliation for her husband’s criticism of the iraq war. libby was indicted on five counts by a grand jury. including obstruction of justice and making a false statement. libby resigned shortly after the indictment papers were released. bloomberg’s mark crumpton will have all the details in our world and national news report later in the half-hour. in the meantime stocks surged to their first weekly advance in october after reports showed economic growth accelerated last quarter without spurring inflation. it was the biggest rally since april 21. 29 of the 30 dow industrials finished higher. i.b.m. was the exception. checking your major averages, the dow and s&p have their best rally in six months. with the gain on the dow of nearly 2%. the s&p gains more than 1.5%. and the nasdaq up one third of 1%. the dow closed at a huge week with the rally. deborah kostroun has been following what was moving in today’s session.
>> what a difference a day makes for the last three sessions in the dow jones industrial average. we had a cumulative loss of 155 points but today, wiping out all of those losses for the past three days. and the dow and the s&p 500 closed higher for the week. for the first time this month. gainers in the s&p 500, you saw real estate, retail, and also some of the consumer services. laggards in the s&p 500. of the 24 industry groups, only one was lower and that was auto. and very surprising that you saw tech hardware with just a minimal gain. mainly because you saw gateway on the day. they reported third quarter numbers that were better than expected. amid higher sales of computers to retailers, hewlett-packard, that was the biggest gainer in the dow jones industrial average but on the other end what you did see of the 30 members in the dow jones industrial average, only one was lower and that was i.b.m. qualcomm also another reason why technology was really struggling on the day. crude oil, it was little changed. but as we kind of take a look at some of the integrated oil stocks, chevron, even though their earnings were worse than expected, their third quarter profit still rose 12%. that was the smallest gain among many of the major oil companies. that as the hurricanes in the gulf of mexico, curbing output, mainly because you have to remember that chevron, they had to close down some refineries and idle offshore wells because of the hurricane. taking a look at the drug stocks, bristol myers squib, bristol myers was down. the company cut its full-year earnings estimates. also they are discussing plans to end an agreement with merck to jointly develop a diabetes pill. after u.s. regulators saying last week they need more information to clear that drug for sale. and avon, that was the biggest gainer in the s&p 500. their third quarter revenue was better than expected. h.m.o. stocks generally having a pretty good week. mainly as we’ve been hearing a lot of earnings reports. coventry health earlier in the week. but aetna, they raised their 2005 profit forecasts. third quarter profit rose 25%. i’m deborah kostroun.
>> thanks, deborah. friday’s g.d.p. report pushed the nasdaq higher for the second day and second straight weekly gain as well. robert gray has detailed in today’s nasdaq trading from the market site in times square.
>> friday’s g.d.p. report helped to boost the nasdaq composite higher for the day and also for the week. that g.d.p. report showing the economy accelerating in the third quarter without spurring inflation. and we saw a broad based rally. we saw above average volume in friday’s session and we saw advancers outpacing decliners by a 2-1 margin on the nasdaq. as i mentioned, a broad based rally. the transports the strongest group after that g.d.p. report showing the economy accelerating. the banking stocks, the industrials where you see the retail stocks moving higher and computer related shares participating as well. and speaking of computer related, microsoft shares were strong in friday’s session. after they reported earnings after the close thursday night. they accelerated their stock buyback program to $19 billion. even though their forecast was a little bit conservative. many analysts said. and it would be below their average estimates. credit suisse first boston upgrading the stock to an outperform. noting the conservative forecast was very beatable for this quarter, also noting that share buyback program in their notes. we also saw the nasdaq gainers including j.d.s. uniphase. one of the big percentage gainers. the world’s number one maker of fiber optic networks saying in an s.e.c. filing it was raising its fiscal first quarter revenue and it would be above its previous forecast back on september 1, the mid point of that range. also amgen shares rising after getting e.u. approval for their treatment for mouth sores and cancer patients undergoing blood and bone marrow transplants and bed, bath & beyond, a retail stock rising on the report. and t.h.q. raising its forecast for the year. and gamers are upgrading to the new microsoft xbox 360 and the sony playstation due out next year. i’m robert gray.
>> the president of overstock.com apologized to investors in japan for the company’s widening loss and said it was “my bad.” the loss widened to 75 cents a share from 16 cents a year earlier. revenue was up 64%, the new payroll and inventory system was not ready when planned. and the president says that caused the company to lose money by tracking orders and performing other customer service functions by hand. despite a hurricane season that rocked much of the southeast the u.s. economy grew faster than expected during the third quarter. suzanne o’halloran and what that report means for the fed.
>> it appears that energy prices did little to curb economic growth last quarter. the u.s. economy grew at a 3.8% annual rate. that’s higher than―than the previous quarter and better than what economists were expecting. the g.d.p. price index, a measure of inflation closely watched by the fed, rose nearly 4%. take out food and energy, the rise was 1.3%. that’s the slowest since 2003. car sales added .6 points to third quarter growth but economist robert kubard says take that away and the report is not nearly as strong as it looks.
>> what we saw was almost all of though big sales were concentrated in july. june and july. and then they fell off quite sharply. they cannot sell a lot of cars unless they give them away at prices that actually end up in losses. that’s not stable.
>> even though u.s. stocks had a banner day, economist andrew pile says not so fast. he thinks today’s number could be a false positive. and reminds us that consumer confidence fell to its lowest level in 13 years today. and that’s according to the university of michigan sentiment index.
>> consumers are still very much concerned about the prospects going forward. whether it’s employment, incomes, and that could weigh on sales performance in q-4. we may soon be forgetting the strength we saw in q-3.
>> more evidence that may -- that may indicate a slowdown in consumer spending. wage growth and the savings rate, wages increased 2.3% in the third quarter. that’s the smallest year-over-year rise since record keeping began in 1981. and the savings rate fell below zero. bottom line, consumers are spending more than they’re making. couple that with higher heating costs this winter and some economists remain concerned as for the fed which meets next tuesday, another quarter point rate hike is expected. a bloomberg survey shows policymakers will lift rates to 4% at next week’s meeting. lori, back to you.
>> thank you for that, suzanne. this week crude oil ending higher continuing its see-saw performance but gasoline down the for the yankee as was heating oil. june grasso has a look at energy.
>> crude oil was little changed on signs high prices have cut demand and repairs to u.s. production facilities along the gulf of mexico are progressing at a slow rate. retail fuel prices jumped to records in the days after the hurricanes disrupted production. the high price of―curtailed demand. for the week crude oil was nearly 1% higher. continuing with an oscillating performance for the last several weeks. michael fitzpatrick of fimat u.s.a. says there are both bearish and bullish factors. but none are strong enough to push prices strongly in either direction. heating oil was little changed today. but fell about 1% this week for its fourth weekly drop. as temperatures in the u.s. northeast were forecast to be higher than normal next week. heating demand in the region will be 7% below normal over the next seven days according to forecaster weather derivative. the most used heating fuel, natural gas, fell a little more than 5.5%, 4.6% today. but was higher by nearly .5% for the week, snapping a three-week losing streak. regular gasoline at the pump fell 1.9% to $2.55 a gallon average nationwide. according to triple-a. but pump prices are still 26% higher than a year ago. gasoline is down nearly 1% this week. the fourth weekly drop in a row. that’s its longest streak of weekly drops in four years. let’s take a look at the week ahead for crude oil and a bloomberg survey, 38% of analysts questioned said oil prices would be little changed next week. 37% said prices would decline. and 25% forecast an increase. so it should be an interesting week next week, lori.
>> thanks, june. up next, we’ll have more on the economic numbers from this friday and look ahead to the fed meeting on tuesday with the chief economist with wachovia. stay tuned.
