Interview: Analyst at Wachovia Securities
>> albertson’s shares had their best day in about 25 years, with a gain of just over 11%. that made it the best performer in the s&p today. that came after the grocery store chain said it may be up for sale. albertson’s has hired goldman sachs and the black stone group as financial advisors. their job to explore strategic alternatives. the shares rallying on speculation private equity firms may bid for the company. albertson’s has a market cap of $8.5 billion so potentially that could be the minimum asking price. the company has struggled for years trying to compete with wal-mart as wal-mart has made the food business a top priority. albertson’s earnings have declined in three of the last four years. a few years ago we talked about the employment report. while employers added 169,000 jobs in august and the unemployment rate declined to 4.9%, it is the outlook that remains unknown. our next guest says the consumer is potentially most at risk, given higher energy prices, so let’s get more perspective on the economy with gina martin, analyst at wachovia securities joining us from her firm in charlotte, north carolina. good afternoon to you.
>> good afternoon.
>> how much are you lowering your forecast for economic growth?
>> i think we can see 1-1.5%, even, shaved off economic growth over the next 2-3 quarters, particularly this month, september should be pretty difficult for consumers to get past that $3.00, 3.50, 4.00 they’re seeing at the pump and we expect they’ll slow purchases in response.
>> what about businesses?
>> i think businesses may rethink their plans but may hold off on some hiring going into the next several months. they’re certainly going to be impacted by higher gas prices, higher oil costs, in particular those businesses that are involved in distribution and transportation sectors are certainly going to be impacted as well as those businesses that had counted on labor day weekend travel to meet their plans. so i think businesses will be impacted a small amount, but consumers by far make up the great majority of economic growth, so consumers are where our concerns lie primarily.
>> let’s look forward into 2006. alan hubbard of the economic white house council says rebuilding efforts he believes ill balance out drags on the economy from the storm. do you believe in the long run that is being overly optimistic?
>> no. i think he’s correct in the long run. i think, though, that this storm is different than what we may have seen in the past, in particular those storms in florida last year in that rebuilding activity is probably not going to take place for several months. there is a lot of clean-up that still needs to occur and then planning for how to rebuild this area has to occur first. so we may not see any sort of significant boost in economic activity until next year, maybe even into the second half of next year.
>> i want to talk about the consumer a little bit more, because i know one thing you do that’s very interesting is take a look at how much consumers spend on fuel as a percentage of their disposable income. given what we’ve seen this week when it comes to crude, when it comes to home heating oil, when it comes to gasoline, how has the scenario changed?
>> before katrina hit, consumers were spending approximately 3% of their overall disposable income on oil and gas expenditures in total. that includes the home heating oil, that includes that gasoline expenditure. after katrina, i would imagine this number gets close to 4.5-5% depending upon the extension or the time period when we see these higher gas prices. if those higher gas prices extend into the heating oil season, we’re already expecting heating oil to be expensive this year consumers could see 5% of their disposable income going toward energy expenditure which is higher than we’ve ever seen.
>> traders taking off those bets that the fed will continue to raise after the september 20 meeting. where do you stand? how have you changed your view if at all?
>> we’re taking our bet off even on september 20. we think that the fed will hold off their measured pace of tightening on september 20. it becomes more data-dependent over the next couple of months so september, october, maybe even into november the fed will hold tight, sit back and wait for that data to come in. we anticipate that growth will be quite a bit slower in september and october, therefore holding back on the non-energy and non-food sorts of inflation. that will give the fed a little bit more room to remain steady where they are.
>> if the fed in fact does hold off on the september 20 meeting, what do you think then the fed will stay in the policy statement? because that would be quite a shift.
>> it would be a big shift, and i think what they will say is that they’re waiting on the effects of the hurricane damage. they anticipate the risks to inflation remain balanced and the risks to growth remain on the down side. they’re going to have to shift their expectations on the growth statement in that meeting.
>> very briefly, because we just have about 30 seconds, we’re seeing some estimates of 500,000 jobs potentially lost for the month of september. what are your estimates for what we could see for the september jobs report?
>> i think that 500,000 is certainly not beyond the range of possibility. i think more realistically we’re probably looking at 300,000-400,000 but 500,000 wouldn’t surprise me if we had a massive amount of job losses in that region, and those people are unlikely to be back at work during the september 12th―the week that contains september 12th which is when the b.l.s. survey comes out. a lot of this will depend on how the b.l.s. accounts for the hurricane impact. we’ll have to wait and see.
>> gina martin, economist at wachovia securities. microsoft has a setback. one of its customers is going somewhere else. we’ll have details on that.
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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
Unemployment rate --- Peter (slow)
Aftermath of the hurricane --- Deirdre (slow)
million barrels next month, half of that coming from the united states, the news comes as supplies are starting to come back. pipelines have reopened in the gulf of mexico. tankers starting to come into the louisiana offshore oil port. and the u.s. releasing oil from the strategic petroleum reserve. as for the day, crude oil futures for october delivery settling down 2.7%, ending the week at 67.57, gas futures tumbling as well, down 9.4%, heating oil down 4.9%, natural gas futures down shy ofn’t 6%. prices had a big run this week, gas and natural gas up 17%, heating oil futures up approximately 12%. with that in mind, let’s show you how the stock market closed on this friday. the dow losing 12 points, 10,447. the s&p down just over three points, 12 18 there. 1218 there. the nasdaq losing about 6 1/2 points, 2141. even with today’s declines in the stock market and the storm you had stock indexes ending the week with gains. let’s get more perspective. ahead of a three-day holiday weekend stocks drifting to the close. deborah kostroun joins us from the big board.
>> the markets closed lower even though we did see the reprieve in oil and gas prices, crude oil down 1.90 a barrel, but look at the gainers in the s&p 500. capital goods at the top of the list. along with household goods, caterpillar gaining for a second day, the biggest gainer in the dow jones industrial average. procter & gamble the maker of foggers, they had a roasting plant partially flooded in new orleans. fogger’s is the top selling retail coffee brand and in fact new orleans is the second biggest coffee port in the u.s., arabica, the world’s biggest mover on the day. as they keep assessing damages in new orleans. starbucks is a big user of arabica. new orleans holds about 1/4 of the raw coffee in the u.s. chiquita has been forced to reroute shipments because their site was too damaged to receive goods. copper rose to a two-week high, gold rose to a two-week high as we saw a weak dollar raising questions about will the federal reserve stop raising interest rates?
>> taking a look at―even oil services, they were lower, entergy based in new orleans saying they have restored electricity to a majority of the refineries that lost power after hurricane katrina. they expect to restore power to three remaining refineries within the next 7-10 days. also, southern, a mississippi power utility saying they restored electricity to some of their customers as well. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> corporate america did some hiring in august even in the face of record energy prices. the labor department reporting that employers added 169,000 workers to payrolls and the unemployment rate falling to the lowest we’ve seen in four years. peter cope brings us the details from washington.
>> the economy did not create as many jobs in august as economists surveyed by bloomberg estimated but there are revisions to the prior months as well. employers added 169,000 nonfarm payroll jobs in august. the median forecast was 190,000 jobs. july and june were revised higher by a total of 44,000 jobs, more than making up that difference. the unemployment rate programs the bigger surprise today. economists expected it to hold steady at 5%. instead it dropped to 4.9%, the lowest since august of 2001.
>> since the month of may, households said they added 50,000 jobs, businesses added 600,000 job. this month a revision close to 200,000-plus so basically solid numbers. we’ve created a lot of jobs preceding katrina.
>> more on katrina in a moment but first looking beyond the headline numbers for august manufacturing lost 12,000 jobs in the month. the forecast was for the factory sector to be flat. there was strength in the service sector, health care and education hiring, up 43,000 in august. construction also up 25,000, and no real signs of runaway inflation in this report. average hourly earnings rose 0.1% in the month less than forecast in our survey, and the work week held steady at 33.7 hours for the fourth straight month. the report does not take into account hurricane katrina which is likely to cut into hiring in future months but the bush administration expects the labor market will bounce back.
>> over a million jobs from this area that are going to be temporarily interrupted, but we will recover as quickly as we possibly can, and in the long run the impact on the economy will―there will not be an impact on the economy.
>> now, with today’s numbers, since the start of the year the economy has created, on average, 194,000 -- 194,000 new jobs per month.
>> peter mentioning that katrina’s impact on hiring, while some demfts are -- economists are saying it may cost 500,000 jobs the next month, it will be the biggest decline in 30 years if we see that for september. in response to payroll numbers, prices and yields little changed on friday, you’ve got that 10-year yield at 4.02%, the yield remaining at a one-month low. as for the five-year, yield currently at 3.83% and as for the two-year that yield currently at 3.74% so not a lot of movement on the friday trade but over the past month a very different story. the yield on the two-year note has fallen about 30 basis points, about 1/3 of one percentage point, the fed may not continue to raise rates at the rate because of the data and hurricane katrina. let’s first look at currencies. the dollar down across the board, the euro posting its biggest weakly gain―weekly gain since november. economists at wall street’s biggest bond dealers including lehman brothers and goldman sachs reducing their forecast for third quarter economic growth and they are citing the aftermath of the hurricane. let’s get all the details on this from deirdre bolton.
>> lehman’s new york based economist writing in a research note that hurricane katrina had a devastating impact on the gulf economy. before the hurricane harris was calling for a third quarter growth rate of 4.1%. that’s now been cut to 3.8%. he lowered his prediction for the current quarter’s expansion to 3.8% from 1.4%.
>> it’s pretty much just katrina. if you look at the data flow going into the storm, the economy was looking very robust, including this morning’s employment number, so -- but the storm will damage growth in the third quarter. there is no question about that.
>> in the longer term, harris says he’s working under the assumption that the u.s. economy will shrug off this shock within a couple of months and rebuilding efforts will do a lot to make up for the damage in the region. lehman brothers not alone in its prediction. bear stearns went so far as to cut a full point off its third quarter g.d.p. estimate going from 4.5% to 3.5%. parry beth fisher is an interest-rate strategist for the firm.
>> certainly the labor market can suffer. it will suffer in the short-term. it will suffer along the entire gulf coast. the shipping industry, the oil industry, trucking, manufacturing, will suffer in that area, but how the economy takes it as a whole and starts to rebuild when jobs come back online, that’s the questions that we have.
>> goldman sachs, credit suisse first boston and bank of america securities made similar estimates to growth predictions. insurers estimate katrina caused property damage of as much as $25 billion making it the costliest natural disaster in u.s. history. ellen, back to you.
>> deirdre, thank you. a strike at boeing. more than 18,000 machinists went on strike for the first time in a decade. that after rejecting the company’s offer on wages and benefits, shutting down production. morgan stanley analyst scott bopka said it may cost boeing $70 million a day in lost revenue. it would give airbus an advantage. boeing the biggest decliner on the dow losing 2.5%. hurricane katrina relief efforts do continue. while the damage is still being calculated, economists measuring the fallout on the economy. deirdre will told us part of the story.
