Friday AM May 2nd, 2008
by: Ed Mayberry
Houston executives polled by KPMG feel that although the national economy will slip into a recession, they remain confident about their own business prospects. In KPMG’s Business Climate Survey, about half expect the local economy to perform better over the next 12 months, according to Bud Giesinger from the firm’s Houston office.
“With the liquidity crisis and the sub-prime issues that the economy’s experienced since last summer, we’re seeing quite a bit of heightened awareness of pessimism around the country. However in Houston we’re not seeing that. While we’re seeing somewhat of a downtown from our prior-year surveys, we still see a very optimistic tone from the Houston executives in a variety of industries in the Houston area.” Ed: “What are some of those areas they are more optimistic about?” “Well, they look for expansion in their business to continue, and they’re looking to continue to invest in technology and people going forward. The really good companies are seeing this downturn as an opportunity to invest in certain areas, and they’re also looking at making investments in areas outside of Houston—internationally, as well as domestically.”
Giesinger says Houston executives are optimistic about the rest of this year.
“Seventy-three percent of the executives we surveyed in Houston expected that their company will improve performance going forward into ’08 and 23 percent said they would be about the same. And only three percent expect it to be poor.” Ed: “This week, the stimulus package—the tax rebates—started showing up. That was part of the poll this time, wasn’t it?” “It is. We asked executives throughout the country what they expected the impact of that would be, and Ed, it was really interesting: we pretty much got an evenly-split group on that. Roughly about half of them thought that they thought that would have a positive impact no the economy and it would serve the function of stimulating the economy as intended. But then we saw another half that thought that it would have minimal or no impact at all on stimulating the economy.”
Gasoline prices rank high as a negative as well as traffic and transportation. Over half of those surveyed expect to increase employees in 2008.
Consumer spending rose at a faster pace than expected in March. But almost all the gain occurred because of big increases in the price of energy and other products. The Commerce Department reports that consumer spending was up 0.4 percent in March, double the increase that economists had expected. However, once inflation was removed, spending edged up a much slower 0.1 percent. That represents the fourth straight lackluster performance as consumers have been battered by record gasoline prices, a deep slump in housing and rising job layoffs.
The number of newly laid-off workers filing claims for unemployment benefits soared last week. The Labor Department reports that claims for unemployment benefits rose by 35,000 to 380,000. Private economists had expected claims would rise by a smaller 18,000. The report on jobless claims came a day ahead of a report on unemployment for April. Economists expect that report will show that the unemployment rate edged up to 5.2 percent in April, from 5.1 percent in March. The economy is expected to lose 70,000 jobs, the fourth straight month of job losses.
Construction spending dropped sharply in March, with housing activity plunging. The Commerce Department reports that construction spending fell 1.1 percent to a seasonally adjusted annual rate of $1.1 trillion. It’s the fifth decline in the past six months. Building activity has fallen sharply in the face of a steep slump in housing and economic slowdown in other areas. The weakness was led by a 4.6 percent drop in private residential spending--the biggest monthly drop on records going back to 1993. Housing construction had dropped for 23 straight months before a small increase in February. But it remains in a slump as builders are still struggling to reduce record inventories in the face of poor demand.
A closely-watched gauge of the nation's manufacturing sector shows further contraction. The Institute for Supply Management says its April Manufacturing Index was unchanged from the previous month at 48.6. Any number below 50 indicates contraction. This marks the third straight month where contraction was indicated by the trade group for purchasing managers and executives. In a statement, Group Survey Chair Robert Ore says manufacturers are being squeezed by slow declines in new orders and production as prices continue to rise. The ISM says its employment gauge fell month-over-month, contracting at a faster rate.
The Federal Reserve has auctioned $24.12 billion in super-safe Treasury securities to big investment firms, part of an ongoing effort to ease credit problems. The auction--the sixth of its kind--fetched bids slightly less than the $25 billion being made available. That small reduction could suggest that demand for Treasuries may be moderating a bit. That might be viewed as a sign of some improvement in credit conditions. In exchange for the 28-day loan of Treasury securities, bidding firms can put up more risky investments, including certain shunned mortgage-backed securities, as collateral. Bidders' identities are not made public. The program began on March 27th.
Rising gasoline prices haven't done U.S. auto manufacturers any favors. General Motors and Ford experienced double-digit U.S. sales declines in April from a year earlier. Toyota sales rose three percent. For GM, truck and SUV sales were down 27 percent, and overall sales were off 16 percent. Toyota car sales surged 12 percent, helped by demand for the subcompact Yaris and the hybrid Prius. Sales for the Prius were up 54 percent.
TXU Energy says it won't disconnect electric service for low-income customers or seniors if they fall behind on their bills this summer--but only if they agree to deferred payments. The utility also said it would provide $25 million to offer discounts for low-income customers. Jim Burke is chairman and chief executive of the Dallas-based utility. He says the aid could be in addition to a 20 percent discount authorized by the Public Utility Commission. The moratorium on disconnections will begin July 1st and run through September. Customers who are ill, disabled, get such aid as food stamps or Medicaid or are at least 62 years old can sign up for deferred payment. They must pay at least 25 percent of their monthly bill and pay the rest in equal amounts over the next five months. The requirement for partial payment of the current month's bill can be waived for customers who are both low-income and at least 62. TXU Energy is part of energy future holdings, which was formed by private investors who bought the former TXU Corporation for $32 billion last year. The new owners include private equity firms and Wall Street investment banks. Houston-based Reliant Energy offers a similar moratorium program.
A workers' strike that slashed Nigeria's oil output has ended and regular production will resume. The union behind the strike at an ExxonMobil unit in Nigeria said members would return to their stations and restore oil production immediately. That's after negotiators reached a broad accord with management. Irving-based ExxonMobil says it's already beginning to restart production. Before the strike, Nigeria was producing about 2.1 million barrels of crude a day. The strike helped drive oil prices to all-time highs. Royal Dutch Shell's local unit also is suffering from shortfalls after militants blew up transport pipelines. Shell has said it may not be able to meet supply contracts totaling 169,000 barrels per day through May. Nigeria is Africa's biggest petroleum producer and a leading supplier of crude to the United States. But China and India are also making inroads into Nigeria's petroleum sector, which is beset by militant and criminal activities. Some analysts estimate that up to ten percent of Nigeria's production is lost to black-market traders who steal oil from pipelines and ship it overseas for resale.
The union representing American Airlines pilots asked federal officials today to help expedite talks on a new labor accord with the nation's biggest carrier. Thursday marked the first day that the pilots' 2003 contract with Fort Worth-based American could be changed, but the two sides have made little progress. The Euless-based Allied Pilots Association asked the National Mediation Board to speed up the talks. The agency assigned a mediator to the case last month. Last fall, the union asked for pay raises of more than 50 percent to return their pay to 1992 levels, which company officials rejected as unaffordable. Pilots took wage and benefit cuts in 2003, when American and parent AMR Corporation were near bankruptcy. AMR earned $735 million in 2006 and 2007 but lost $328 million in the first three months of this year due largely to record fuel prices. Under federal law designed to avoid strikes, labor contracts in the airline don't expire; they become “amendable.” American is also facing negotiations with its flight attendants and ground workers.
American Airlines says it will no longer allow passengers to tip skycaps at Logan International Airport. The move comes after a jury awarded $325,000 to nine Boston skycaps who said the airline's $2-per-bag curbside check-in fee deeply cut into their tips and violated the Massachusetts tips law. American said that its decision to end tipping is in light of the jury verdict, as well as a new state law that will make triple damages automatic for violations of the state tips law. The Fort Worth-based airline said that the company it contracts with to provide curbside check-in has pledged to immediately raise the hourly wages of skycaps to minimum wage. A lawyer for the skycaps called the no-tips policy “retaliatory” and said she will seek an injunction to stop it.
The 8th annual Diversity Summit is being held today at the Sugar Land Marriott Town Square on City Walk. The summit is focusing on “Global Impact on Houston Economy,” with experts discussing the role of diversity in the business world. Featured speakers include the Chancellor Dr. Renu Khator of the University of Houston, Sugar Land Mayor David Wallace, U.S. Congressman Nick Lampson, and representatives from the Greater Houston Partnership, the U.S. Citizen and Immigration Services and the Texas Medical Center.
The C.T. Bauer College of Business Alumni Organization has launched an online auction to provide scholarships for 100 outstanding students. Auction items have been donated by Vauer College and friends of Bauer College, ranging from week or weekend stays at vacation homes, art, golf games, sunset cruises on a donor’s yacht and dinner with TV anchor Dominique Sachse. Bidding started Thursday and continues through May 20th at the Web site.
San Antonio-based AT&T on Sunday is launching its new video service for cell phones. The company will charge $15 per month for ten channels. AT&T Mobile TV is similar to the Verizon Wireless V Cast Mobile TV, and is operated by the same company, Qualcomm. AT&T already has a mobile video service called CV, which is based on different technology. It works like Internet video, providing short clips on demand. Qualcomm's Mediaflo service is more like regular TV broadcasts, constantly streaming shows. The eight channels shared with Verizon Wireless are CBS Mobile, Comedy Central, ESPN Mobile TV, Fox Mobile, MTV, NBC 2Go, NBC News 2Go and Nickelodeon. The two channels that will be exclusive to AT&T are Pix, which screens movies from Sony Pictures, and CNN Mobile Live.
ExxonMobil says record crude oil prices helped it to post a 17 percent increase in first-quarter profits. The gain was $10.9 billion. Even so, the results fell short of Wall Street expectations. Profit margins weighed on the performance of the world's largest publicly-traded oil company. The surge in prices on refined products, such as gasoline, failed to keep pace with the huge jump in crude prices.
Marathon Oil says its first-quarter profit rose two percent as revenue surged. The Houston-based company said it earned $731 million in the January-March period compared with $717 million for the same quarter in 2007. Revenue jumped 39 percent to $18.1 billion from $13 billion last year. Excluding one-time items, Marathon posted an adjusted profit of $767 million.
Centex says it swung to a loss in the fiscal fourth-quarter on hefty impairment charges as the housing market continued its swoon. The Dallas homebuilder says it lost $910.5 million in the quarter ended March 31st. The result includes an impairment charge of $362 million to cover the declining book value of unsold homes and a loss of $395 million from a land sale. Revenue fell 36 percent to $2.31 billion, just above Wall Street estimates of about $2.2 billion. Chief Executive Tim Eller says the company faced “the most difficult housing market in decades.”
Liverpool Football Club’s Champions League exit signaled the end of the most tumultuous season in the English soccer club's history. Now, the gloves are off in the boardroom battle. Manager Rafa Benitez talked after Wednesday's semifinal defeat to Chelsea about signing new players in the offseason. The challenge will be getting the feuding owners to agree on anything. Dallas businessman Tom Hicks is confident of buying out co-owner George Gillett's 50 percent stake to gain full control of the club. Hicks is trying to raise equity to complete a deal before the season resumes in August, an executive familiar with the deal told the Associated Press. But Gillett isn't even on speaking terms with Hicks and has vowed never to sell to him. In turn, Hicks, who also owns the Texas Rangers baseball team and the NHL's Dallas Stars, says he'll veto Gillett selling to a Dubai consortium. Gillett, who owns the NHL's Montreal Canadiens, believes the consortium led by London-based Amanda Stavely is a more suitable owner and an agreement has already been reached. The feuding Americans are considering using a British parliamentary inquiry into soccer governance as a platform for more bloodletting. Whoever is running Liverpool when the Premier League season resumes in August, it's likely Benitez will be the one constant factor.