Issue XCVI

21 OCT 2016



Household spending and home building fuel modest US growth


WASHINGTON (AP) — Consumer spending and home construction are helping sustain modest U.S. economic growth despite problems caused by a strong dollar, low oil prices and an excess of business stockpiles.

The economy, as measured by the gross domestic product, grew at a 1.4 percent annual rate in the October-December period, the government said Friday. That was better than the 1 percent growth rate the government had estimated a month ago.

Much of the new-found strength came from consumer spending on services such as recreation, which helped offset a manufacturing slump caused in part by a global economic slowdown.

"The consumer and housing are driving the economy despite some nasty headwinds," said Nariman Behravesh, chief economist at IHS Global Insight. "Manufacturing for all intents and purposes is in a recession, whereas the service sectors are doing fairly well and housing has been a bright spot."

Nearly two-thirds of the upward revision in GDP came from the boost in consumer spending, which accounts for about 70 percent of economic activity. Analysts were encouraged by the revised fourth-quarter estimate, saying it provided momentum for the rest of the year, when they expect growth to reach a stronger if still-modest 2 percent annual rate.

"Real economic growth was stronger than we thought late last year, and this makes us more hopeful that the first quarter will be better than expected," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

Economists say that steady job growth will support further gains in spending and help ease the pressures from overseas. The rise in the dollar's value has contributed to a higher trade deficit by making U.S. exports more expensive overseas and imports less expensive for Americans.

Another source of weakness has come from the drop in oil prices, which has triggered layoffs at energy companies and sharp reductions in investment spending on drilling and exploration.

Friday's report showed that residential investment grew at an annual rate of 10.1 percent in the October-December quarter. That surge helped offset a 2.1 percent drop in nonresidential investment resulting in part from the cutbacks at energy companies.

Trade subtracted 0.14 percentage point from growth in the fourth quarter. This was slightly less than previously thought because the weakness in exports was less than previously estimated. A slowdown in inventory building cut 0.2 percentage point...

‘The morning that first-quarter GDP died’


American consumers are carrying the U.S. economy, but they aren’t carrying it very fast.

A number of forecasters on Monday chopped their estimates for first-quarter growth after a second straight subpar reading on consumer spending.

The economy is now expected to grow about 1.5%, down from a previous 2.3% estimate, an updated MarketWatch survey of analysts shows. The U.S. expanded at a 1.4% annual pace in the 2015 first quarter.

The bevy of downgrades took place after the government reported a meager 0.1% increase in consumer spending in February. The original 0.5% spike in January was also lowered to 0.1%.

“This is the morning that Q1 GDP died,” wrote Stephen Stanley, chief economist at Amherst Pierpont Securities. He cut his forecast to 0.6% from 1.5%. Consumer spending accounted for more than two-thirds of all U.S. economic activity.

Macroeconomic Advisers trimmed its estimate to 1% from 1.5% and Morgan Stanley reduced its first-quarter target to 0.6% from 1%.

Most economists had been expecting spending to accelerate as more workers get jobs and incomes rise. Cheap gas has also given Americans a little extra to spend on other necessities or to use for discretional purposes such as eating out.

Big stock-market losses early in the year, however, and brief talk of a potential recession might have caused consumers to back off, some economists say.

“The bottom line is that even though consumers are doing the heavy lifting in American economy, they have not thrown caution to the wind,” said Chris Christopher, director of consumer economics at IHS Global Insight.

Still, most economists predict growth will improve, though not at a breakneck pace. Stanley, for example, said job creation has been a better indicator of where the U.S. is headed rather than gross domestic product.

GDP has often been revised higher, as was the case in the fourth quarter. The government recently raised its fourth-quarter estimate to 1.4% from an original 0.7%.

The number of new jobs being created, meanwhile, continues to average more than 200,000 a month — effectively creating more consumers who can then go out and spend.


Why Macy’s Is Having Its Worst Day in Six and a Half Years


Investors are dumping Macy’s Inc. shares Wednesday.

The retailer’s stock is down as much as 15%, for its worst intraday percent decline since 2009, after Macy’s reported third-quarter sales that missed expectations and lowered its earnings, revenue and same-store sales guidance for the year ahead of the key holiday shopping season.

“A bit worse than feared,” is how Cowen & Co. analyst Oliver Chen described Macy’s release. He said the report is “bad for the rest of retail,” confirming his fears that inventories are bloated heading into the holiday season.

In Wednesday’s paper, The Wall Street Journal wrote about how retailers are facing an inventory pileup – a concerning trend signaling weak consumer spending heading into Black Friday.

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At the end of its third quarter, Macy’s merchandise inventory was up 4.6% from a year earlier. That’s as owned plus licensed same-store sales for the period fell 3.6%, missing the 0.2% increase analysts had forecast, according to Consensus Metrix.

“We are disappointed that the pace of sales did not improve in the third quarter, as we had expected,” wrote CEO Terry Lundgren in the company’s earnings release.

“Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy’s and Bloomingdale’s stores in tourist centers, which are some of our company’s largest-volume and most profitable locations.”

Macy’s has struggled with slumping sales as consumers have come to prefer electronics and experiences versus traditional department stores offerings of apparel and home furnishings.

Heading into the holiday season, Mr. Lundgren said Macy’s is shifting into overdrive to focus on sales-spurring activities. For the full year, Macy’s cut its owned plus licensed same-store sales expectation to a drop of between 1.8% and 2.2%, compared to its previous outlook of flat comparable sales.

With Wednesday’s loss, Macy’s stock is now down 44% from its record closing high of $72.80 in the middle of July. The S&P 500, by comparison, is off only 2.4% in the same time.

Despite the recent weakness, Stifel Nicolaus analyst...

Macy's lowers outlook as sales fall short

Macy's Inc. on Wednesday reported a steeper-than-expected slide in third-quarter sales and forecast declining results for the key holiday quarter, while the department-store chain said it wouldn't pursue a spinoff of its real-estate assets.

Shares of Macy's fell 13% to $40.80 Wednesday morning, trading at levels not seen in more than two years.

Macy's has been struggling with slumping sales as the traditional department store offerings of apparel and home furnishings have fallen out of favor with consumers. The company on Wednesday cut its guidance for the year and said a key sales metric will fall during the holiday quarter, adding to concerns over weak consumer spending.

Macy's, which had been under pressure from investors to make better use of its real estate, said it won't move to spin off its properties into a real-estate investment trust. The retailer's board concluded a REIT wouldn't provide enough value, the company said, but that it could revisit such a REIT transaction in the future.

Instead, Macy's said, it plans to explore dispositions and joint ventures as well as redevelop its flagship stores in big markets like Manhattan and San Francisco.

Macy's announcement comes a day after McDonald's Corp. announced it wouldn't spin off its vast U.S. real estate holdings, saying it would be too risky to its business model. Sears Holdings Corp. spun off its real estate earlier this year into a new company called Seritage Growth Properties.

Macy's tepid third-quarter results arrive as the retailer heads into the important holiday shopping season. Unsold goods have been piling up on retailers' shelves, a worrisome trend that signals weak consumer spending. At the end of its third quarter, Macy's merchandise inventory levels were up 4.6% from the prior year.

Chief Executive Terry J. Lundgren said the company was disappointed that its sales pace didn't improve in the third quarter. Mr. Lundgren cited weak spending by domestic customers in key apparel and accessory categories as well as a slowdown in buying from international buyers at its Macy's and Bloomingdale's stores.

In an effort to bolster sales growth, Macy's said it is ramping up expansion plans for its off-price store format, Macy's Backstage, which it launched in the fall. Macy's is planning to open 50 Backstage stores in the next two years, including 10 in existing Macy's locations.

Off-price stores have been...


Former Subway Pitchman Jared Fogle Pays $1 Million To Victims


Fogle has agreed to plead guilty to child pornography in a deal here he has to pay 14 victims $100,000 each

Former Subway restaurant spokesman Jared Fogle has paid $1 million in restitution to his victims, who were secretly photographed or whom he paid for sex.
Fogel agreed to plead guilty to child pornography and sex-crime charges. Ten victims have received a total of $1 million, ($100K each) in restitution and four other victims will receive theirs by the time he is sentenced in November. Assistant U.S. Attorney Steven DeBrota in Indianapolis said Thursday

The plea deal will see Fogle serve between five and 12½ years in prison, according to DeBro,

The plea deal will see Fogle serve between five and 12½ years in prison after a stunning downfall.
Fogle became the face of the restaurant chain, appearing in ads nationwide,
15 years ago after he lost more than 200 pounds on what he described as the Subway diet.

Jared Fogle Kiddie Porn, Child Sex Victims Get $100,000 Each


Jared Fogle is led from federal court in Indianapolis after pleading guilty to charges involving child pornography and traveling for illicit paid sex with minors.

More than a dozen victims of former Subway pitchman Jared Fogle are getting at least $100,000 each in restitution after his guilty plea to child pornography and sex crime charges. Ten people have already been paid and four others could get their checks before he's sentenced next month.

The $100,000 checks were hand-delivered to 10 victims or their parents over the past several weeks, with each signing a form saying that they had received the money and that it is intended to benefit that particular victim, Assistant U.S. Attorney Steven DeBrota told The Associated Press on Thursday.
Three adults and seven minors had received their checks as of Thursday, said DeBrota, who said he's handled only one other case in which restitution was paid to victims before sentencing in nearly a quarter-century of prosecuting child porn cases.

DeBrota said that by the time a federal judge sentences Fogle on Nov. 19 to a minimum of five years in prison, prosecutors expect to have either presented checks to Fogle's four other victims or to have plans in place to disburse those funds to them.

That money will pay for mental health counseling, medical care and other needs the 14 victims might have now or in the future to help them recover from the trauma.
DeBrota said that money will help them "go on with their lives and put them where they should have been had none of this happened."
Fogle, 38, a father of two, agreed to plead guilty Aug. 19 to one count each of traveling to engage in illicit sexual conduct with a minor and distribution and receipt of child pornography. Prosecutors have agreed not to seek a sentence of more than 12½ years in prison, and Fogle agreed not to ask for less than five years.

Fogle became a Subway spokesman more than 15 years ago after shedding more than 200 pounds as a college student, in part by eating the chain's sandwiches. Subway ended its relationship with Fogle after authorities raided his suburban Indianapolis home in July.

Court documents detailing the charges against Fogle say that he had sex at New York City hotels with two girls under age 18 —one of whom was 16 at the time - and paid them for that sex.
Fogle's attorneys didn't respond to a request for comment.


U.S. consumer spending rising solidly; manufacturing still weak


U.S. consumer spending appeared to grow at a fairly healthy pace halfway through the third quarter, pointing to solid domestic demand that could persuade a cautious Federal Reserve to hike interest rates on Thursday.

Other data on Tuesday, however, showed manufacturing continuing to struggle under the weight of a strong dollar and softening global demand. Factory activity in New York state contracted in September for a second straight month.

"Today's data are positive news for final demand in the third quarter and should give the Fed more confidence in the spending outlook," said Laura Rosner, an economist at BNP Paribas in New York.

The Commerce Department said retail sales excluding automobiles, gasoline, building materials and food services increased 0.4 percent in August after an upwardly revised 0.6 percent increase in July.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product and were previously reported to have increased 0.3 percent in July. It was the latest indication of sturdy economic momentum and suggested the recent stock market sell-off had little immediate impact on consumer spending.

Signs of sustained strength in the economy could encourage the U.S. central bank to raise its benchmark overnight interest rate from near zero. The Fed's policy-setting committee meets on Wednesday and Thursday against the backdrop of a tightening U.S. labor market, low inflation and slowing global growth.

U.S. financial markets have sharply dialed down expectations of a rate hike in the wake of the recent volatility in global equity markets and are now pricing in a 25 percent probability that the Fed will announce a rate hike this week.

Data ranging from employment to housing have suggested the U.S. economy retained most of its momentum from the second quarter, when output expanded at a 3.7 percent annual pace. Consumer spending grew at a 3.1 percent rate during the same period.

U.S. stock index futures and prices for U.S. Treasuries fell after the data, while the dollar edged up against a basket of currencies.


Overall retail sales rose 0.2 percent last month as strong gains in auto sales were offset by a 1.8 percent drop in the value of sales at service stations due to a decline in gasoline prices.

Retail sales increased by an upwardly revised 0.7 percent in July. Economists polled by Reuters had forecast retail sales increasing 0.3 percent...

Retail sales rose modestly in August


Retail sales increased modestly in August despite market turmoil as consumers continued to benefit from low gasoline prices and strong job and income growth.

Sales at stores and online rose 0.2%, the Commerce Department said Tuesday, slightly below the 0.3% increase projected by economists. Excluding volatile autos and gasoline, sales advanced 0.3%. Commerce slightly revised up its sales estimate for July from 0.6% to an even stronger 0.7%.

In August, sales rose solidly at health and personal care stores, grocery stores, clothing stores, general merchandise stores, sporting good stores and restaurants. But despite a strong housing market lately, they slipped at building material retailers and fell sharply at furniture stores.

The Federal Reserve is expected to closely scrutinize the report as a barometer of consumer spending as it weighs its first interest rate hike in nearly a decade at a two-day meeting that begins Wednesday.

Consumer spending has picked up in recent months after a choppy showing early in the year -- gains that some economists attribute to milder weather after a harsh winter and Americans' growing belief that low pump prices will be around for a while.

But consumer confidence measures have fallen since mid-August amid a sharp selloff in stocks that has dented household wealth.