NEW$ & VIEW$ (20 FEBRUARY 2014)

Note: Today, BEARNOBULL.COM also published:

Wal-Mart Offers Weak Forecast Wal-Mart offered a weaker-than-expected forecast for its recently started fiscal year and current quarter, further evidence of its struggles following the holiday-shopping season.

(…) the world’s biggest retailer confirmed its fiscal fourth-quarter earnings came in at the low end of its initial forecast.

Poor weather, an extremely competitive discounting environment and the continued growth of e-commerce weighed on traditional retailers over the holiday season and subsequent weeks. Wal-Mart previously said it experienced a rise in sales during the holiday season, but a weak January negated it.

For the recently started fiscal year, the company estimated adjusted per-share earnings of $5.10 to $5.45, compared with the $5.54 projected by analysts polled by Thomson Reuters.

Wal-Mart projected earnings of $1.10 to $1.20 a share for the current quarter, versus the consensus view of $1.23 a share.

For the fourth quarter, which ended Jan. 31, Wal-Mart posted an adjusted profit of $1.60 a share. Wal-Mart said comparable sales at its U.S. stores, its biggest unit, fell 0.4 percent in the fiscal fourth quarter. Overall revenue rose 1.4 percent to $129.7 billion.

The company in November had projected earnings of $1.60 to $1.70 a share, a range that fell mostly below consensus at the time. Last month, however, the retail giant warned that earnings could underwhelm due to rough winter weather and the consumer impact of food-stamp cuts in January.

Pointing up Considering Target’s own problems, WMT’s performance early in the year looks particularly weak. From the release:

We expect economic factors to continue to weigh on our outlook,” said Holley. “Some of the factors affecting our consumers include reductions in government benefits, higher taxes and tighter credit. Further, we have higher group health care costs in the U.S. These concerns, combined with investments in e-commerce, will make it difficult to achieve the goal we have of growing operating income at the same or faster rate than sales. In October, we forecasted a 3 to 5 percent net sales increase for fiscal 2015. Given these factors and the ongoing headwind from currency exchange, we expect to be toward the low end of the net sales guidance.

Here’s another economic factor affecting WMT’s customers (via ZeroHedge):

The “polar vortex” shock has arrived, only this time it is not in the form of another 12 inches of overnight snow accumulation but in the shape of household utility bills. A reader was kind enough to send us his just received ConEd bill for the month ended February 10. The result speaks for itself. It also speaks for where so much of US household disposable income will go in first quarter. Spoiler alert: not toward discretionary purchases.

And unfrotunately it will get worse before it gets better. On the back of a rapid decline in the “glut” of low cost natural gas (as stockpiles are drawn down to the lowest level since 2004) and the shift in forecast (that the freezing weather could last well into March), Natural gas futures are soaring (up over 10% today). This is the highest front-month futures contract price since December 2008 as “the possibility of periodic shortages now looms.”

And another one:image

And, eventually, that one:

U.S. Producer Price Index is Revamped; Shows a Pickup in Inflation Pressures

The Producer Price Index underwent major revision this month. It now includes prices for final demand of goods, services and construction as well as a reading of intermediate demand prices. The overall final demand PPI rose 0.2% in January (1.2% y/y) following a 0.1% uptick and no change in the prior two months. The 0.4% rise (0.9% y/y) in final demand for goods prices was the strongest gain in six months. A quickened 1.0% rise (-0.7% y/y) in food prices reflected a 1.1% gain (0.7% y/y) for consumers, a 1.4% increase (2.3% y/y) in the government sector and a 0.7% rise (-9.2% y/y) in export prices. Energy prices for final demand increased 0.3% (0.9% y/y). Prices for final demand excluding food and energy jumped 0.4% (1.3% y/y), the quickest monthly increase in two years. Finished core consumer goods prices were even stronger, however, and surged 0.7%. That pulled the y/y increase up to 2.1%.

Measured using the previous formula, which is being phased out as the headline series, producer prices increased 0.6% in January (1.5% y/y) after a 0.4% December rise. Expectations were for a 0.2% gain. Energy prices improved 0.4% (1.6% y/y) and food costs rose 1.1% (0.7% y/y). Prices excluding food & energy increased 0.5% (1.7% y/y) versus an expected 0.1%. Consumer goods prices provided the strength here and gained 0.7% (1.6% y/y) while capital equipment prices rose a moderate 0.2% (1.2% y/y).

FYI, the core PPI’s 0.4% jump in January was on the heels of a 0.3% rise in December. This is a 4.3% annualized rate over the last 2 months. Recall that nonpetroleum import prices also rose 0.4% in January.

We got the CPI this morning.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.6 percent before seasonal adjustment.

Increases in the indexes for household energy accounted for most of the all items increase. The electricity index posted its largest increase since March 2010, and the indexes for natural gas and fuel oil also rose sharply. These increases more than offset a decline in the gasoline index, resulting in a 0.6 percent increase in the energy index.

The index for all items less food and energy also rose 0.1 percent in January (+1.6% YoY).

Interest-Rate Increase on Radar Conversation at the Federal Reserve’s most recent policy meeting turned to something that hasn’t been a serious topic for years: the possibility of interest-rate increases in the near future.

(…) a “few” Fed officials argued at a Jan. 28-29 policy meeting that increases might be needed soon to prevent the economy from overheating, according to minutes of the meeting released Wednesday. These officials were most likely from the Fed’s band of policy “hawks” who have largely failed in resisting the central bank’s easy-money policies. (…)

The officials argued that rules of thumb used by the Fed in the past, which prescribe an interest rate based on movements in the unemployment rate and inflation or economic output and inflation, point to the need for higher rates.

The argument was largely dismissed by other officials. Such prescriptions “were not appropriate in current circumstances,” others argued, because the economy is still emerging from an economic crisis. Moreover, low inflation, which by some measures is a percentage point below the Fed’s 2% target, has many officials oriented toward keeping interest rates down.


If you missed my Monday post (HARD PATCH COMING?), or doubted my analysis:

imageBloomberg’s Economic Surprise Index shows economic activity slowed before the harsh weather in December that is being blamed for recent weaker-than expected data. The slowdown probably reflects payback for over-accumulation of inventories during the second half of 2013 while revised data on retail sales suggest a much softer pace of household spending in the fourth quarter of last year. (…)

Downward revisions to retail sales data going back to November — to a 0.2 percent gain versus the initial estimate of a 0.5 percent increase — also point to a loss in momentum before the start of inclement seasonal factors.

Inventory accumulation was responsible for about 55 percent of nominal growth in the second half of 2013. Given the reduced pace of household spending, this has created an inventory overhang which has affected January industrial production and shown up in February regional manufacturing data. The overhang will probably be enough to restrain first-quarter growth.

In short, the initial estimates of growth made during the final six months of 2013 seem to have exaggerated the true underlying pace of economic activity. While the economy may not be headed for the “springtime swoon” it experienced the past few years, those expecting a burst of private sector activity sufficient to create a
sustained period of 3 percent growth will probably be disappointed.

‘J-curve’ recovery eludes Japan’s Abe Highest trade deficit hints at structural economic change

(…) Quarterly gross domestic product data released on Monday showed output failed to regain momentum at the end of 2013, as many economists had expected it would, largely as a result of weak net exports.

Exports actually declined by volume in January, for the first time in four months, a fall that was partly blamed on lower demand in China during the lunar new year.

“There has been no J-curve,” says one economist close to the government. “It’s been very surprising. We may need to consider whether there’s been a deeper change in the economy, one that means the old assumptions about the costs and benefits of a weak yen don’t apply any more.” (…)

The high proportion of energy in Japan’s imports may be one factor preventing the J-curve from taking shape, experts say. Rising electricity prices have been painful for many, but have not prompted a widespread shift to Amish-style living. Even finding alternatives to the grid can require importing, at least at first: sales of Chinese-made solar cells rose enough in January to add to the trade deficit, according to government data.

An increase in consumer demand ahead of the sales-tax rise is also supporting imports and widening the trade deficit, economists say. That is likely to subside after April, though at a cost to overall economic activity, since the tax rise will hit consumption of domestically produced goods as much as foreign ones.


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