Focus: Economy
>> comments from anthony santomero. in a speech in philadelphia, he said the federal reserve can continue raising rates at a measured pace. also saying the economy will withstand the effects of hurricane katrina, rising fuel costs, along with a slowdown in home prices. and we spoke to him earlier on bloomberg television.
>> now, the question here is to what extent is there supply disruption and to what extent does oil price move up even more dramatically than it already has? now, i understand from your reports this morning that, in fact, oil has been moving down off of the $70 high. and this is a day-to-day, minute by minute thing. but clearly something we have to be aware of. at the end of the day, oil price movements are kind of like taxes on the ability of the consumer to spend.
>> in his speech, santomero said inflation will continue to be well behaved and while rising energy prices he says will ripple through the economy, higher inflation “should be a transitory phenomenon.” and the fallout from higher energy costs was reflected in economic reports today. one report showing manufacturing in the chicago area during august contracted for the first time since april, 2003. that does suggest record oil prices are slowing factory demand. the chicago purchasing manager index came in at 49.2 for august. below the previous month and also well short of what economists had been looking for. the dollar slumped in response against the euro. as well as the yen. today’s report does highlight tomorrow’s national manufacturing survey that comes your way from the institute of supply management. chicago often a precursor of how the national number will come in. economists surveyed by bloomberg estimaterring the national manufacturing number will rise to 57 in august. as you see on the screen. from 56.6 in july. in the meantime, economic growth in the u.s. last quarter was a bit slower than initially estimated. the economy expanded at a 3.3% annual pace. that is down .1% from the original estimate for second quarter g.d.p. this total u.s. output of goods and services limited by increased demand for imports and a slow joun in consumer spending. president bush’s top economic advisor ben bernanke says that hurricane katrina does raise some new question marks about growth.
>> the big issue for the u.s. economy as a whole is the effect on energy prices. that’s the gulf coast is a major source of production, refineries, the transmission. so we need to monitor the situation and see what impact it’s going to be on the energy situation. if the effects are modest, and we’re back up running within a few weeks, i think the overall effect of the economy will be fairly small.
>> bernanke also says consumer spending has shown resilience in the face of high energy prices. bernanke we should note is often mentioned as a possible successor to federal reserve chairman alan greenspan. as for treasuries today, take a look at this action. the 10-year treasury yield dropping. earlier touching 4% for the first time since july 1. you had prices jumping across the board today. as traders removed bets the fed will raise its interest rate target to 4.25% from the current level at 3.5%. as for the two-year, that price up 7/32. the yield down to 3.82%. so now let’s get the latest on the storm recovery efforts. with the mayor of new orleans saying it is possible that hurricane katrina left thousands of people dead in his city. mark crumpton joins us with the latest.
>> during an impromptu press conference at new orleans’ hyatt hotel, ray―mayor ray nagen said hundreds have been killed but the number is “most likely in the thousands.” he says authorities know there are a significant number of dead bodies in the water that now covers most of the city. and that others died in attics. the mayor said it will be at least two or three months before the electricity is returned. louisiana governor cath line blanco has―kathleen blanco has asked washington to free up national guardsmen to stop looters. a newspaper saying the gun section at a new wal-mart has been cleared out. as part of the ongoing relief effort, evacuees being housed in the superdome are being bused to the houston astrodome.
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we can start providing crude oil as soon as tomorrow. so it can happen very quickly. so within a couple of days of their request, they will start getting crude.
>> u.s. energy secretary samuel bodman telling us the u.s. government is opening the spigot on its emergency supply of crude oil in order to ease the shortages caused by hurricane katrina. hello. i’m ellen braitman. the bush administration has always maintained that the strategic petroleum reserve should be used only in the event of a supply disruption. well, bodman said hurricane katrina has met that test and as a result, the department of energy agrees to a request to lend oil to refining company which operates a refinery in port allen, louisiana.
>> we have made a decision which the president certainly strongly supports to tap into the strategic petroleum reserve in order to try to relieve any pressure on any refiners that are having difficulty getting access to crude oil.
>> bodman told us the crude oil can start moving as soon as tomorrow and that placid refinery could receive the crude oil within three days. three refiners have made requests for oil from the reserves. with the hurricane closing eight refineries in louisiana and mississippi over the weekend, one analyst says the real issue is gasoline, not crude oil. so he says the overall effect of the release of the oil will be limited.
>> the real story it seems is that the fact that we just can’t refine it fast enough so that’s a buildup. so the move to release reserves , it should help calm the market come.
>> we are standing by for president bush to speak live in the rose garden on the hurricane aftermath. while we wait let’s show you how the stock market settled on this last trading day of august. the dow ending the day up 69 points. the s&p rising just shy of 12 points. the nasdaq gaining 22. you had energy shares helping to lead those gains. and on this last trading day of august, keep in mind you had the s&p losing for the month, down 1.1%. nine of the 10 industry groups in the index traded down for the period. it was only energy shares that gained for august. up more than 4%. as for the dow and nasdaq, both losing 1.5% for august. as for the energy story, gas prices surged to another record. nymex gas futures gained more than 5.5%. at one point today, up 18% on concern refinery closures will hurt supply. oil prices, however, ended the day lower. crude futures down 1.3% to $68.94 due in part to the release of oil from the nation’s reserves. su keenan was at the nymex tracking that action and joins us now.
>> oil investors sum up their concerns in three words, refineries, power and electricity. mike fitzpatrick from fimat said without refineries and a way to power them there is not much you can do with crude oil. and for most of the day, at one point we saw oil retouching the record prices above $71 a barrel, this overshadowed news that generally supports lower prices. such as the release of oil reserves and the opening of a key gateway to oil imports. that’s louisiana offshore oil port. a spokesman said it may unload its first tanker since the storm later tonight. the group has already started making deliveries to baton rouge where exxonmobil has a refinery and is capable of producing nearly half a million barrels of oil per day. kerr-mcgee has resumed operations with some workers back on the job. the company says all major facilities are intact with no structural damage. kerr-mcgee expects to produce about a third of what it normally puts out. the storm damage gulf accounts for one third of all domestic oil production and 20% of natural gas output. once again, with refineries shut down, the big story was gasoline. legg mason’s george garo says the problem is you can’t just put crude oil in your gas tank. out of concern for massive shortages, some refiners and wholesalers are already restricting the amount of fuel retailers can buy. n.a.g. edwards’ billow grady is among analysts predicting that $3 a gallon prices in chicago will soon be nationwide.
>> the very short run, the constrained refining capacity is a big issue. that’s why you are seeing these really large increases in gasoline prices in front of the monthly day.
>> so far, katrina has shut down 91% of the gulf’s crude oil production capacity, 83% of its natural gas. that is the latest report and slightly lower than initial estimates from the mineral management service in washington. a achillesly followed report on the trading floor―a closely followed report on the trading floor.
>> we will tie that in to what happened in the stock market today. we had energy stocks leading the advance in trading. deborah kostroun filed this report from the big board.
>> the dow closed right near its best level of the day. and the reason for that, the market really gaining in the last hour and a half. after crude oil closed―crude oil, it was down 87 cents. closing at $68.94 a barrel. that after getting above $70 a barrel yesterday. we did kind of go through that point earlier in the session with crude oil. however, closing down 1.25%. and crude oil, that was the determining factor in today’s session. also nymex gasoline, it was higher, also reports of gasoline at the pump gaining 50 cents overnight in some areas like dayton, ohio. also parts of michigan. natural gas, that index closing at a record high. natural gas, however, it was down 18 cents to 1147. very unusual for the summer and natural gas stocks, many, 15 stocks in that natural gas index, were higher. we also saw integrated oil. oil refiners and oil services, these stocks all higher. this really led the market all day. of the 24 industry groups in the s&p 500. they were all higher. however, we did see some of the oil services, even the oil shippers, those were higher after rates for shipping refined oil from europe to the u.s. soared. and that causing many of the oil shippers to be higher as well. taking a look at insurance stocks, this was insurance stocks actually ended higher. and this was the worst performer of the industry groups that really made a turnaround last in the session. even though many of the insurance stocks actually a little bit lower. and a.i.r. worldwide, that’s a storm modeler estimated yesterday that insured losses from the storm could be anywhere from $17 billion to $25 billion. and so what we did see also retail stocks, like wal-mart, dropping to another three-year low. however, tiffany’s, second quarter profit coming in better than expected. so a little bit of a mixed market for retail. i’m deborah kostroun, at the new york stock exchange.
>> let’s get more right now on the stock trading today. you saw companies that could benefit in the aftermath of hurricane katrina. helping to lead the nasdaq higher. robert gray has that story from the nasdaq market site.
>> the nasdaq closing out the month of august with a 1% rally. pretty much across the board. all the industry groups participating after crude oil prices closing lower overall on the nymex. and we did see for the month of august, however, the nasdaq declining 1.5%. following a 6.2% gain in the month of july. in fact, it was the worst august for the nasdaq since 2001. as we head into september, which has historically since the nasdaq began in 1971, has been the worst month of trading for the nasdaq. so we will be keeping an eye on how the trend continues as we begin september tomorrow. and i talked to brett sanders of sanders, morris and harris in houston who oversee $10 billion and say the yatch math of katrina is a cat―say the aftermath of katrina is a catalyst for buying energy stocks. and we see in the aftermath of katrina, he said they were buying energy in support firms like caldive shares and those shares were rising on the session. we saw global industries which has an oil―does oil and platform construction, they gained. and abatix, a maker of helicopters to reach those rigs. and also maintenance and construction services for petroleum and imperial industries, they dispose hazardous waste and d.x.p. enterprises rising to a record and they provide industrial maintenance, repair and supply services. and we saw the tanker stocks, alexander and baldwin among those stocks gaining on nasdaq. and the biotech index, showing strength today. tercica, won approval for their first product for children with a growth disorder. u.s. regulators designating the drug and orphan drug which is a status for rare disease treatment extending market exclusivity for the drug’s maker. at the nasdaq, i’m robert gray.
>> and news after the bell today from freddie mac. saying profit fell 60% in the first half of the year. that was on a decline in the value of financial contracts. and to protect against swings in interest rates. net income, $1.6 billion or $2.22 a share. freddie mac, the second largest source of money for home loans in the u.s. this is just a third earnings report for the company. since an internal investigation in 2003 found the company understated net income by $5 billion. taking a quick break. we will come back and take a closer look at those oil and gas prices. continuing to rise in the aftermath of the hurricane. how is that playing out for investors? keep it here. “after the bell” continues after this quick break.
