Thursday AM April 17th, 2008
by: Ed Mayberry, April 17, 2008 7:04:00 am
A new Federal Reserve report says the country's economic health deteriorated further in the early spring. Shoppers buckled under the strains of the housing and credit debacles and a weaker employment climate. The report says manufacturers and others businesses are being walloped by zooming prices for energy and other raw materials. However, companies' ability to jack up retail prices to customers was mixed, with some restrained by competitive pressures.
The Labor Department says increased prices for energy, food and airline tickets prevailed, despite the biggest drop in clothing prices in nearly a decade. The Consumer Price Index, a measure of retail prices, increased three-tenths of a percent in March after being unchanged in February. The core rate, which excludes food and energy, gained two-tenths percent. Both numbers were in line with expectations. Over the past 12 months, retail inflation has risen four percent, reflecting gains in energy costs, which are up 17 percent over that period. Food prices are up 4.4 percent.
There were fewer shovels going into the ground for the nation's homebuilders in March. The Commerce Department says construction of new homes and apartments plunged to the lowest level in 17 years. And signaling further contraction ahead, building permits dropped. Housing starts fell 11.9 percent to a seasonally adjusted annual rate of 947,000. That was a larger-than-expected decline. Permits, a gauge of future activity, fell 5.8 percent.
The Federal Reserve says industrial production surged three-tenths of a percent in March. That is better than expected. The rebound comes after a decline of seven-tenths percent in February. The March increase was led by a surge in output by utilities and in mining. Manufacturing rose one-tenth of a percent, marking a better showing after a half-percent drop in February. Industry was operating at 80.5 percent of capacity.
American Airlines parent AMR says it swung to a hefty first-quarter loss largely because of higher fuel prices. The Fort Worth-based carrier, the biggest U.S. airline, lost $328 million compared with a profit of $81 million a year earlier. Revenue rose to $5.7 billion from $5.43 billion a year ago, but a 45 percent higher fuel bill--caused by higher oil prices—more than wiped out those gains. Analysts polled by Thomson Financial expected American to lose $1.34 per share on revenue of $5.73 billion. American says it is also cutting additional capacity and speeding the replacement of its MD-80 fleet.
The parent of American Airlines says it will sell its investments in American Beacon Advisors for about $480 million to two private-equity firms. The move comes as airline companies struggle with high fuel costs. They have been raising fares and considering selling assets, such as frequent-flier programs. AMR said Wednesday it would sell American Beacon Advisors to Lighthouse Holdings, an affiliate of Pharos Capital Group and TPG Capital. AMR said it would keep a minority stake in the business. The transaction was mostly a cash deal.
A California judge has approved the settlement of a class-action lawsuit that will compensate about 800,000 Ford Explorer owners whose vehicles lost value because of a perceived rollover danger. The settlement ends lawsuits against Ford in California, Connecticut, Illinois and Texas. Those lawsuits claimed that Explorers lost $1,000 in resale value on average because of publicity stemming from a series of rollover accidents involving the SUV. The class action over the loss in value is separate from the numerous death and personal-injury lawsuits involving earlier Explorer models. Under the settlement, people who bought Explorers in model years 1991 through 2001 are eligible for $500 vouchers to buy new Explorers or $300 vouchers to buy other Ford or Lincoln Mercury vehicles.
FBI director Robert Mueller says there has been a “tremendous surge'' in mortgage fraud investigations, and he expects it to keep growing. At a Senate hearing Wednesday, Mueller estimated that the FBI has 1,300 investigations underway, 19 of them involving sub-prime lending practices by U.S. financial institutions. That's up from three months ago, when FBI officials said they were investigating 14 companies for possible fraud or insider trading violations. Mueller says the number of inquiries has increased to a level that required shifting agents from other projects onto mortgage fraud.
The U.S. Border Patrol headquarters for south central Texas will be the nation's first to harness the wind for some of its energy needs. Customs and border protection is seeking bids for the project and declined to comment on an estimated cost. Ten small wind turbines will be installed on the roof of a maintenance building at the Border Patrol's Del Rio Sector headquarters. Sector Deputy Chief Patrol Agent Dean Sinclair says he hopes to cut the energy costs at the 24-hour operations hub by at least seven percent. The Border Patrol's planned five-blade wind turbines are 8 1/2-feet tall and will each produce about one kilowatt per hour. Anything from a five mph breeze to gusts exceeding 100 mph will spin their blades. Texas is the nation's leader in wind-generated power.
J.C. Penney says a challenging economic environment is pushing it to extend its five-year store growth strategy. Meanwhile, the Plano-based department store chain will accelerate its expansion of new brands to draw frugal shoppers away from rivals. Penney President Ken Hicks told investors in New York that given the economic uncertainty, the retailer needs “to inspire customers to shop more with us and not the competition.'' Penney this week announced several new lines for teens, along with the launch of a new store brand of home furnishings and accessories called Linden Street. It also says it's expanding its store label lingerie brand called Ambrielle to include large sizes. It's also adding a collection of business casual offerings to its Stafford's men's clothing line. Chairman and Chief Executive Mike Ullman said last night that Penney plans to open 36 new stores this year instead of the 50 it had projected. It also aims to renovate 20 units this year, instead of the planned 65.
Six workers badly burned in a Georgia sugar refinery explosion remain hospitalized, but doctors and family say they are showing marked improvement. The February explosion killed 13 workers, including five who were being treated in the same burn center. The plant is owned by Sugar Land-based Imperial Sugar. Nine injured workers have returned home since being treated. Of the six still at doctors hospital in Augusta, two have recovered enough to move into the hospital's rehab unit. Three of the other four are still in critical condition, but the burn center's director says they are slowly improving. He says they have burns to their lungs as well as their skin and they remain at a high risk for infection. Justin Purnell is one of the men in the rehab unit. He suffered burns to 60 percent of his body and is now learning to use his hands again.
The House has passed an extension of current farm law, hoping to give Congress more time to finish a multibillion dollar farm bill that is stalled by a dispute over tax breaks. Negotiations on the roughly $280 billion, five-year bill are in disarray with lawmakers from the House and Senate squabbling over how to pay for it. The White House says both the House and Senate versions are too expensive and has threatened a veto of either one if it reaches the president's desk. House members object to several tax breaks in the Senate bill, including provisions to help owners of race horses, landowners who find endangered species on their property and those involved in litigation over the Exxon Valdez oil spill.
Theme park operator Six Flags is aiming to become an entertainment company with its own characters to entice thrill-seekers to its parks much like the Walt Disney Company. Six Flags CEO Mark Shapiro made the comments in a keynote speech at the gathering of the National Association of Broadcasters in Las Vegas. The company operates 21 parks in North America and Mexico, including Six Flags over Texas and Six Flags Hurricane Harbor in Arlington and Six Flags Fiesta Texas in San Antonio. It also plans to help develop a Six Flags theme park in Dubai. Shapiro, a former ESPN executive, took the helm of money-losing Six Flags in December 2005. He says the previous Six Flags strategy was based on its roller-coaster hardware, but now it'll focus on building anticipation to its rides through stories and characters while upgrading the attractions. Shapiro says the New York-based company has invested $100 million in revamping its business model, including purchasing half of Dick Clark Productions last year. Dick Clark Productions produces such events as the Golden Globes. Shapiro says ad revenues and licensing deals abroad are expected to add $50 million in new revenue this season.
A federal appeals court has upheld the structure of how extra payments by Entergy Arkansas customers are figured. The payments are part of a plan to allocate a roughly equal share of costs among the four states that get electricity from New Orleans-based Entergy. Entergy Arkansas customers are already paying about $230 million per year, while Louisiana ratepayers have lower bills. Louisiana challenged the way Entergy had previously allocated costs for power plants. The Federal Energy Regulatory Commission earlier ruled that Louisiana customers paid too much. The court upheld the establishment of a range for annual production costs to be paid by Entergy divisions in Arkansas, Mississippi, Louisiana and Texas. The Entergy divisions must pay costs within 11 percent of the average for the operating companies or make up the difference. The dispute has led Entergy Arkansas to begin proceedings to withdraw from the Entergy agreement, though process takes eight years. Entergy Arkansas will be able to withdraw in 2013. The U.S. Court of Appeals in the District of Columbia upheld a pair of FERC decisions from 2005. The court also affirmed FERC's ruling that all costs related to a hydroelectric power plant in Vidalia, Louisiana, are to be borne by Entergy's customers in Louisiana.