Interview: BMO Nebitt Burns---Gregory, Michael---Economist
>> we’re looking at the fundamentals, across the board strong. job creation and productivity. with core inflation remaining quite low. so you’ll all the fundamentals point to continued good momentum in the economy.
>> an overview of the economy from treasury secretary john snow. here are today’s numbers. retail sales rose 7.3% to a record last year. the performance was capped by december’s gain of .7 of 1%. this followed a november rise that was revised to almost triple what was originally reported. now, excluding autos, the commerce department said sales last month rose .2%. on the inflation front producer prices last month increased .9% which is the most since september and more than double the average forecast of economists. if you back out food and energy, the core index rose .1 of a point for the second straight month. business inventories rose for a fourth straight month in november. the increase followed a revised .4 gain in october. the close on the 10-year, closing yield 4.35%. for more on the outlook to the economy, we are joined by michael gregory. michael is a senior economist. joining us from his office in toronto. welcome, michael.
>> good afternoon.
>> with all the economic data today i want to focus first on the p.p.i. number basically showing core inflation remains tame. no energy pass-through into that core number as of yet. how does that relate to the fed. do you see the fed having more reason now to pause after the next meeting when we reach 4.5%?
>> also from the import channel as well suggests that inflation on the ground now remains remarkably well. if we get the type of slowdown in the economy, we’re expecting, that’s consistent with the one and done scenario. that will be it for the time being.
>> you think we’ll lose the term measured pace at the next meeting?
>> i suspect that they will continue with the measured simply because there is some chance here that they still might have to go in march. keep in mind although inflation is very low now the fed is a little bit worried about what they refer to as the―the unemployment rate is historically low. the uretization rate rising. historically that has led to some pressures in the economy. i think they’ll want to see perhaps a couple more months before they’re prepared to take out that measured statement
>> then you factor in ben bernanke taking the reigns from alan greenspan. do you think there will be any politicking involved? will bernanke want to put his stamp on things and perhaps give him another reason to raise rates?
>> i think that’s one very good reason. if mr. bernanke does want to show some policy continuity which is the first thing that came out of his mouth when he was announced as mr. greenspan’s replacement, one way to do that would be to continue with the measured pace. but then again that’s literally a little more than two months away. a lot can happen in the economy between now and then.
>> we also got those december retail sales, a bit of a soft number there. how much of a risk do you see slowing consumer spending on the economy?
>> that’s a pretty significant risk. when you strip out impact of higher gasoline prices and service station receipts out of the retail sales, you had excluding autos and gasoline only a 0.1%, a very small increase in what people refer to as core retail sales. that suggests that the consumers are beginning to slow after a pretty long run here. and going forward with the housing sector looking like it’s rolling over and mortgage equity extraction starting to slow, we could be in for a slow period here led by the consumer sector.
>> and how will the fed look at the housing situation?
>> well, housing i think is one of the key things. literally it is―home price appreciation, double-digit home price appreciation that is fueling the gains that consumers are spending, that’s keeping the economy growing. if we get some signs here of housing starting to cool, then in fact, i think that will be one of the preconditions for a ped fed pause.
>> how do you characterize the help of the u.s. economy right now?
>> i think the economy is muddling long. i think growth is roughly around 3%, give or take a bit. that’s slightly below potential which is probably not a bad thing at this stage. because let’s face it the unemployment rate is low, capacity utilization rates are high. that suggests the economy could probably go for a little period of slightly below potential growth. but we are far away from a recession. and it looks like as the consumers sector starts to slow , as we saw with the inventory numbers today that business spending itself will start to pick up a bit. overall a pretty moderate pace for the economy.
>> look ahead to next week a new round of economic data, consumer price data coming out. what will you pay closest attention to?
>> obviously the core inflation number will be the most important. it does seem that we’ll be expecting another number there. a pretty stable price. the consensus is for 0.2% increase. that will keep the year-on-year inflation rate. core inflation rate unchange at 2.1%. just roughly at the top of the fed so-called comfort zone. perhaps a more important number is the industrial production. there we will get the capacity utilization. and that perhaps is one of the more important indicators these days. the fed does admit that inflation remains quite subdued now. they’re look a little further down the road to see whether or not inflation will pick up. and capacity utilization is one of those indicators.
>> thanks a lot.
>> thank you. thanks again to michael gregory.
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Listen Market briefing --- Lori (slow)
Guidant --- Bob (fast)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
boston is scientific responded johnson & johnson’s higher offer by raising its bid. that put guidant back on the clock. shares up 44 cents today closing at $70.84. guidant had a 4:00 p.m. deadline today to accept boston scientific’s new takeover offer over johnson & johnson’s. the deadline was extended to 6:00 p.m. eastern. that was withdrawn by boston scientific. bob bowden is following the bidding for for us. he is coming up. first let’s update you with the numbers. little change was the close on the major averages today with those gains coming late. the dow closes down two and a half points, 10,959. the s&p and nasdaq close with slight gains. and for the week, as you’ll see just by a tick, dow jones industrial average closes higher on the week. the s&p and the nasdaq also gain ground this week with the nasdaq the best performer up half a percent again on the week. more now on the battle for guidant. boston scientific raised its takeover offer, widening the gap between its offer and johnson & johnson’s lower bid. bloomberg’s bob bowden is following guidant. we haven’t heard anything yet from guidant despite that 4:00 p.m. deadline
>> that’s right. you stole my lead. we await that 4:00 p.m. deadline for guidant to respond. we are standing by to bring you an answer as soon as we have it. it was a long odyssey to get here. last night boston scientific’s bid of $25 billion was sweetened to $25.3 billion. look at the odyssey of johnson & johnson’s offer. they started out at $25.4 billion back in december 2004. then lowered it to $21.5 billion after a defibrillator recall. then moved it back up to $23.2 billion once they had a competitor. time is running out with that deadline. we should have a response before too long. john putman says another factor helping boston scientific is a provision in the offer that could serve to speed up the closing.
>> i think the offer is superior. particularly with the sweetener that they put in if they don’t close this deal or this transaction by march 31, they will increase the offer on a daily basis by a rate of 6% over a period of a year or so. there’s some mitigation there of a longer closing.
>> guidant shares are up about 2/3 of 1% today. they are up eight of the last nine sessions. you see a disparity in boston scientific in j&j on the day today with different directions there. back to you.
>> thank you, bob. the dow finishing near unchanged today. this week brought a lot of questions and few answers. for more on today’s trading action here’s a report from debra kostroun.
even though we had a very strong finish to friday’s close of the stock market , still for the week the rally kind of slowing down a little bit this week. and remember, throughout the week we saw the dow jones industrial average closing above $11,000 three days in a row. didn’t see that on thursday and friday. for the week the dow and the s&p up just fractionally. some very big themes emerge. now with some disappointing earnings forecast from some big named companies like alcoa, dodge and also dupont, just to name a few. also several downgrades this week. something we haven’t seen in a while. g.m. they were off to a good start for the year. at one point the stock was at 15% year-to-date. by the close of today’s trading up only 5% that dieing whole lot better on that last year. it was down 51%. general motors’ biggest loser today even though they said results will be improved this year and next year. but they did not say when they will return to profit. in tyco, the second most actively traded stock on the day. the company expects first quarter profit to be below forecast for the third time in a year. they have cut those forecasts. and that news on the forecast seemed to overshadow the other big news from tyco. and that was that the company will split into three parts. retail got a late day push like the rest market . but for the day a little bit of a mixed picture as some retail stocks were higher, some is lower. retail sales rose less than forecast. that was limited by a surge in gasoline costs. and gold stocks like gold corp coming in at a record. that after gold rose to a 24-year high. also gold saw a third weekly gain in a row. gold is actually up 90% over the past five years. and lucent, that was the most actively traded stock on the day. that after they said first quarter sales unexpectedly tumbled and revenue this year will miss forecast. that also caused other telecom stocks to be lower. i’m debra kostroun at the new york stock exchange for bloomberg news.
>> the nasdaq rose for a second week. the rally slowed on concern about earnings on iran. robert gray has details on today’s nasdaq trading from the market site in times square.
>> the nasdaq composite rose slightly on friday making it eight out of nine sessions per gains in the new year. though we’ve seen this rally starting to sputter a little bit as the days have warn on. the nasdaq gaining just half of 1% this past week compared to a gain of 4579% in the first week of 2006. clearly the focus will be on earnings in the coming week. steve saks, the head of trading saying there’s a lot more expectation built into earnings season given the runup in stocks that we’ve had. so i wouldn’t be surprised to see the market turn cautious as we see the numbers. investors also on friday saying there was some concern about iran’s nuclear program which was limiting some of the gains during friday’s trading. as far as the industry groups go, take a look at the semiconductors, falling on friday. down half of 1% now. the semiconductors have helped to lead the rally. but we’ve seen them start to fall in the past couple of sessions. also, the telecom stocks which are the strongest industry group falling on friday. we did see hardware and transport stocks leading the gains. as far as the individual stocks go, apple computer will be a big mover in the next week, reporting its earnings next week. and this past week report from expo on the first quarter sales at 5.7 billion, selling $14 million ipods. piper jaffray raising estimates for 2006 and 2007 with the $103 price target on apple. we saw google shares rising. a $500 price forecast on google for friday. at the nasdaq i’m robert gray.
>> thanks, robert. let’s have a check of energy trading today. crude oil futures ended the day unchanged as conflict over iran’s nuclear program fuels concern about possible zuppingses to supply. nymex crude futures ended at $63.92 a barrel. after surging to a three-month high yesterday. on a weekly basis crude is roughly 1/3 of apers lower. checking other commodities, gas and heating oil futures moved higher. natural gas futures continued to slide. they are now down more than 21% year to date. let’s go ahead and look at the natural gas futures which are most responsive to the unseasonably warm weather now taking place across the country. just a few weeks ago mid december, natural gas surged above the never-before seen price of $15 per million british units. since then futures have plunged down 40%. and bill wallace says we could see prices fall to the low $8 range.
>> you walk right here in new york with just a light jacket on. that isn’t good for gas prices. it’s warm across the country. that thing could have still a lot of downside. wouldn’t be surprised to see a $1 or $2 come off it. at some point winter gets back to normal. maybe a little bounce out of it. we’re about a third of the way through the coldest part of the winter. there’s no substantial pull.
>> meanwhile, citigroup’s kyle cooper says investors are keeping an eye on iran. opec’s number two producer, the possibility of u.n. sanction’s against research raises concern about supply. the iran situation is a reason our weekly poll of analysts shows the most bullish response since march. when asked to predict the direction of crude oil for next week, 25 of 42 analysts or 60% says said prices would rise. 21% said prices would fall. the nymex oil markets will be closed monday for the holiday. precious medals now. gold rose to a 24-year high in new york and london capping third weekly gain. investors bouth met dwrool diversify and seek higher returns. gold, nearly a 1579% gain. $557 at close. over the week another big move. oil prices gaining nearly 3%, $15.80. once again gold futures for the week. investment demand helped send gold up 90% in the five years ending december 31. and u.s. retail sales for less than forecast in december. michael gregory, senior economic―economist at b.m.c. will tell us what it may mean for our economy.
