University of Michigan---Curtin, Richard---Director of Consumer Survey
>> >> the university of michigan released its monthly sentiment index, showing consumers are feeling better, and much of it likely has to do with fuel prices. let’s take an inside look at the survey. richard curtin from the university of michigan joins us from ann arbor, michigan, where we know the dismo has begun to fall―the snow has begun to fall. a lot of speculation that declining energy prices coming off record highs has been boosting confidence. how much of a part of the story are the energy prices?
>> consumers think they declined forecaster than they ever expected and they’re down to where they were in june. so this was an important part of improving their sense of financial progress and confidence in their own financial situation.
>> can you put that in the context for us of what we could potentially see in the thick of the winter heating bills? a lot of the concern has been that even though prices have come down from the record highs, those winter heating bills will be up significantly from a year ago.
>> it’s confidence is certainly much lower than it was in july and recently we’ve only reversed about a third of the losses so consumers are well aware of the higher home heating bills this winter and are preparing for it by lowering the amount that they intend to spend over the holidays.
>> by how much?
>> well, actually, we have upped the forecast. now, i think, retails over the holidays will be―retail sales over the holidays will be about 5.5%, down from 6.7% a year ago and more or less equal with the prior year.
>> we’ve been looking all day in our programming at that outlook for the holiday season. ome are feeling more optimistic because energy prices have come down and there is more foot traffic in some stores. what is your sense, based on the survey? you talk about the 5.5% level. what else can you tell us about the holiday outlook?
>> well, the overall outlook is still quite lower. if you include durables and food and clothing and all of the full range of consumer goods, i expect real spending to only be up by 2% or 2.5% in the fourth quarter but on the holiday side, especially nondurables, we should expect some greater improvement. consumers do not think the worst is behind them. they’re still viewing the future with trepidation and frankly, their record indebtedness, negative savings and reliance on cash-out refinancing has them worried and they intend to rebuild their savings in the months ahead.
>> is that something different than you’ve seen in the past? because as we know, the savings numbers in the u.s. are typically very minimal. so, in terms of building their savings, is that something new?
>> no, i boont say―wouldn’t say it was something new but they haven’t been in the negative range that we’ve recently seen. the savings rate is the lowest it’s been since the 1930’s. so, the idea that they would increase their savings, maybe they’ll bring it up to zero. or maybe half a percent. out of their current disposable income so we’re not talking about a large change in savings but we are talking about a consumer who reached a tipping point in august when they suddenly decided the outlook was much more uncertain than they had anticipated and now they view the same things they did before then with greater trepidation and they’re more concerned about how things will turn out this winter and especially on gas and home heating prices.
>> richard, what can you tell us about how consumer confidence is tracking with business confidence?
>> i think business confidence is about in the same spot. it’s improved recently. but it’s still at a lower level than we’ve seen in mid 2005 or in early 2005. i think everyone is sort of a little more cautious about their own financial situation, whether they’re a business or household.
>> we will leave it there, richard. thank you for joining us.
>> you’re welcome.
>> richard curtin from the university of michigan. as consumers gear up for the holiday season, many retailers expecting to sell more than originally planned but how much are shoppers willing to spend on a custom-made, personalized baby doll? we’ll get some answers.
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Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Holiday story --- Suzanne (slow)
street, stocks gained across the board. oil prices lower, consumer confidence coming in stronger than expected. the dow, very interesting trade there, the dow jones industrial average coming within 25 points of the highest close in more than four years, however, ending the day off the highs of the day, up 45 points to 10,916. in terms of industry groups, steelmakers among the best performers. let’s bring in deborah kostroun from the big board for a closer look.
>> thank you, ellen. shares of steelmakers really gaining today. that after arcellor, world’s second biggest producer of metal, making a hostile bid for canada’s defasko, helping out many of the other steel stocks traded at the new york stock exchange. also maybe giving ideas of more consolidation taking place but you saw steel stocks performing well in today’s session. a lot of people talking about what’s happening on friday, black friday, with many of the retail names in the spotlight. shares of best buy rallying today after u.b.s. analyst not only saying that best buy, but also rival circuit city, are best positioned for the holiday shopping season. among the retailers of electronics, appliances and other so-called hard-line goods so you did see best buy and circuit city performing quite well. u.b.s. saying that the number of customers at company stores over the past few weeks has been higher than last year. that, according to discussion with employees, so helping out at least those two stocks. aeropostale upgraded by bank of america, and rising on the day. one of the things that bank of america said, they have a compelling turnaround story based on valuation, new strategy and product catalysts. also, just a lot of positioning with margin recovery potential, as well. bank of america expects shares to reach $27 within 12 months, so many of the other retail names not performing well. if you look at today’s session, you saw the s&p 500 rising for a sixth straight day and one of the things helping out was the fact that we got the minutes yesterday from the fed saying they may soon be ending their interest rate increases and that helping out many of the banking and financial stocks. crude oil dropping for the first day in three. those stockpiles rose, helping out crude oil. so the banking and financial stocks climbing. we’ve been seeing that all months in the―all month in the s&p 500 but the fact that the fed minutes clearly spelled out that interest rate increases may be winding down, that helping out the financials.
>> thanks so much. deb talking about best buy and retailers, there are more indicators pointing to a better-than-expected holiday shopping season. people are talking about this may be true for both retailers as well as the consumer. suzanne o’halloran has more on the holiday story.
>> the 2005 holiday shopping season may turn out to be pretty good. just a couple of weeks ago, forecasters were saying it could be the worst since 2002. since then, a combination of positive economic data coupled with price declines in gasoline and home heating oil, are renewing optimism about the season.
>> first of october, when i talked to consumers, they were going to give gifts in the price range of $20 to $25 or $26 to $35. a month later, november 1, consumers are giving gifts now from $35 to $50. that may not seem like a lot but when you’re buying gifts for nine, 10 people, that extra $10 a person is the difference between retailers have a positive retail sales christmas versus negative.
>> the key point is that consumer spending will be in line with last year, not necessarily better. it could be a little less, according to the national retail federation. sales are expected to rise about 6%. this figure was revised higher on tuesday and compares to nearly 7% in 2004. 2005 is already being touted as a big discount year and unlike last year, many of the stores are already offering those discounts. wal-mart, sears and others have heavy promotions in progress. wal-mart even saying it will match competitors’ prices on anything just so you shop in their stores. although the retail outlook is improving, analysts say some retailers will have a better season than others. apple is one name that continues to come up as analysts say demand is hot for the ipods.
>> ipod has a virtual monopoly on hard-drive based mp-3 players and flash memory drive mp-3 players, as well, with the nanoand shuffle. there are other competitors out there, lower price points, but anybody who’s everyone wants an ipod.
>> other likely hot sellers, microsoft’s new xbox 360 game console. it was released yesterday. it goes on sale in europe and japan in december. and, ellen, britt beemer told you there is no one hot gift item but analysts say sales of electronics should help retailers such as best buy and circuit city and luxury retailers, coach and tiffanys, are expected to have a good season.
>> thank you very much. in the meantime, let’s tell you about another story we’re following today. hormel foods having its worst day in six months, those shares tumbling 6.5%. the meat processor said 2006 earnings may come in at the low end of estimates. some analysts say hormel is being conservative, protecting earnings of $1.86 to $1.96 a share. the news overshadowed some of the positives in the company’s recent quarter. fourth-quarter profit jumped 17%, turkey prices rose and costs fell. hormel earned 59 cents a share, two cents more than what analysts were looking for and sales were up 10% to almost $1.5 billion. consumers, suzanne was talking about them, they are feeling better these days. much has do with energy, the drop in gas prices. consumer spending rose more than expected, according to the university of michigan. we’ll speak with one of the insiders behind the survey coming up.
