U.S. Economy: Consumer Sentiment Falls, Prices Steady (Update1)

Aug. 14 (Bloomberg) -- Confidence among U.S. consumers unexpectedly fell in August as concern over jobs and wages grew.

Today’s figures, including an unchanged reading in the cost of living, underscore the damage that the biggest drop in gross domestic product in any recession since the 1930s has had on households and retailers. With little sign that $1 trillion of injections into the banking system is feeding through to inflation, Federal Reserve policy makers are forecast to sustain their efforts until a recovery is secured. Stocks tumbled.

“If consumers are lacking confidence, then they will not be able to help us spend our way out of this long, dark recession,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Households are still concerned about the jobs outlook, and certainly, Fed policy is also gearing off of the labor markets as no Fed has lifted interest rates while the unemployment rate is rising.”

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 this month, the lowest since March, from 66 in July. The measure reached a three- decade low of 55.3 in November. The Labor Department said its consumer price index was unchanged from June as forecast, and dropped by 2.1 percent -- the most in six decades -- from July 2008.

Economists had forecast the confidence index would rise to 69, according to the median projection in a Bloomberg News survey. Estimates ranged from 64 to 75.

Stocks, Treasuries

The Standard & Poor’s 500 Index declined 0.9 percent to close at 1,004.09. The gauge yesterday reached the highest level since October. Treasuries rose after the consumer price report showed no sign of inflation, and benchmark 10-year note yields fell to 3.57 percent from 3.60 percent late yesterday.

The worst employment slump in seven decades has caused salaries to stagnate, rocking even Americans who still have jobs. The need to rebuild savings following the record drop in wealth from the plunge in stocks and home values will keep limiting spending in coming months, analysts said.

Retailers including Nordstrom Inc., Abercrombie & Fitch Co. and American Eagle Outfitters Inc. have used discounts to lure consumers on tight budgets.

Wal-Mart Stores Inc., the world’s largest retailer, said yesterday that sales at U.S. stores open at least a year fell 1.2 percent. Eduardo Castro-Wright, the company’s U.S. stores chief, attributed the drop to stronger than expected deflation in grocery prices.

Tame Inflation

“I don’t really see inflation as being much of a threat over the next several months because there’s just too much slack in the economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

The inflation report from Labor showed that excluding food and energy costs, the so-called core index rose 0.1 percent, also as anticipated.

Separate figures showed that industrial production rose for the first time in nine months in July as a federal “cash- for-clunkers” program spurred demand for cars and automakers completed mid-year overhauls of their factories. The Fed said output at manufacturers, mines and utilities increased 0.5 percent increase after a 0.4 percent drop in June.

“It’s a start of the recovery in manufacturing,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “A lasting recovery in manufacturing depends on whether the pickup in auto demand can be sustained.”

Capacity utilization, the proportion of factory volume in use, rose from its lowest level since record-keeping began in 1967, increasing to 68.5 percent from a revised 68.1 percent the prior month.

Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

China Billionaire Huang Faces Hong Kong Probe for Alleged Fraud

Aug. 8 (Bloomberg) -- Hong Kong’s securities regulator accused Huang Guangyu, China’s second-richest man, of committing stock-market fraud causing losses of about HK$1.6 billion ($206 million) for a company he founded and its shareholders.

The former chairman of Gome Electrical Appliances Holdings Ltd. and his wife Du Juan are accused of organizing a share repurchase by the company in January and February last year so Huang could use the proceeds to repay a HK$2.4 billion personal loan, the Hong Kong Securities and Futures Commission said.

“This transaction was a fraud or deception in a transaction involving securities,” the commission said in a statement on its Web site late yesterday. “The share repurchase had a negative impact on Gome’s financial position and was not in the best interests of the company and its shareholders.”

Huang, a peasant’s son who became China’s youngest self- made billionaire, was detained by Beijing police in November for “economic crimes” and has not made a public statement since. The police haven’t responded to a fax asking about his whereabouts. Du is also under investigation, Beijing police said in a faxed statement in January. Repeated calls to her Hong Kong mobile phone have been diverted to a voice mailbox.

Gome, China’s second-biggest electronics retailer, fell 7.8 percent to close at HK$2.37 in Hong Kong trading yesterday, the most in almost eight months. The stock resumed trading June 23 after a seven-month trading halt following the detention of Huang, Gome’s largest shareholder.

Hearing Date
Hong Kong’s High Court ordered Huang, Du and the two companies through which he holds his stake in Gome not to remove from the city assets worth as much as HK$1.66 billion, legal documents showed. The court will hear the commission’s case on Sept. 8, according to the Hong Kong judiciary’s Web site.

The securities commission is continuing investigations into the assets, it said. The injunction will ensure there are sufficient assets to satisfy any restoration or compensation orders, the statement said.

Gome, which had 859 stores in China at the end of last year, isn’t a defendant in the case, and its assets aren’t subject to the court order, it said in a statement. “The business of the company or its subsidiaries is not and will not be adversely affected by the Court Order,” it said.
The electronics retailer will report first-half earnings in about a week’s time. “We do not think this will affect the company’s operation,” Deutsche Bank AG analysts Anne Ling and Chen Feng said in a note to clients yesterday. They have a “hold” rating on Gome’s stock.
Earnings Growth

Gome posted a 7 percent decline in net income to 1.05 billion yuan ($154 million) last year, after at least three years of annual profit growth in excess of 33 percent.
The Hong Kong watchdog is seeking orders that Huang, Du and the two companies owned and controlled by them reimburse the parties who lost money in the buyback, in particular Gome, or pay damages to the retailer, according to its statement. The other two defendants named in the court order are Shinning Crown Holdings Inc. and Shine Group Ltd.

Huang, ranked by Forbes magazine as China’s second-richest man last year worth $2.7 billion, is also known as Wong Kwong Yu. He was Gome’s chairman until January. Nicknamed “China’s Sam Walton” after the Wal-Mart Stores Inc. founder, Huang dropped out of school at 16 and traveled to Beijing with his brother, Huang Junqin. They carried a bag of radios, batteries and other electronics devices from factories in their native Guangdong province, to sell in the capital.
Gome, founded in 1987, was China’s biggest electronics retailer until last year, when it was overtaken by Suning Appliance Co.

P&G Philippines appoints new country President-GM

Consumer goods manufacturing giant Procter & Gamble Philippines, maker of household-name brands such as Safeguard, Downy, Pampers, Pantene and Olay, announced Tuesday a change in management roles aimed at further sustaining the growth of its business in the Philippines.
Turkish national Mr. Siddik Tetik formally assumed the role of President and General Manager of the P&G Philippines operations starting July 2009. Mr. Tetik will succeed the company’s chief of three years, American Mr. James M. Lafferty.

With the change in leadership, Lafferty says the company is poised to take on more challenges ahead and is geared to become a stronger player in the market. “We have been operating in this market for close to 75 years – and our brands continue to occupy leadership positions in the market. Mr. Tetik is a seasoned P&G leader, who is coming from his role as leader of our Gillette business in GreaterChina. He has vast experience in developing markets across the world, and he is the perfect fit to succeed me to take the P&G Philippines business to the next level,” adds Lafferty.

Lafferty will remain in the company for the next six months to ensure a smooth and effective transition within P&G Philippines, after which he will retire to pursue other interests. A formal hand-over ceremony will be made in January 2010.

Siddik Tetik meanwhile says he is thankful for the new role that has been assigned to him and is prepared to lead the Philippines operations.

(Manila Bulletin: http://www.mb.com.ph/articles/215408/pg-philippines-appoints-new-country-presidentgm )

BSP reports seven-fold rise in FDI inflows

MANILA, Philippines – Foreign direct investments posted a net inflow of $379 million in May, in what monetary officials said was an indication the economy would weather the crisis this year without sinking into recession.

“These inflows were more than seven times higher than the year-ago level, and reflected the favorable sentiment of foreign investors following earlier signs of stabilization in the global economy,” BSP Governor Amando Tetangco Jr. said in a statement yesterday.

According to the BSP, net inflow of FDIs stood at only $50 million in May last year.
In the first five months of the year, total net inflow of FDIs reached $1.03 billion, up 86 percent from $552 million in the same period a year ago.

One of the biggest sources of FDI was the equity infusion of Japanese firm Kirin Holdings Corp. to beverage giant San Miguel Brewery.

Earlier reports said that, under an agreement between the two parties, Kirin increased its stake in San Miguel to 48.3 percent after buying an additional 5.05-percent stake in the company for P6.89 billion ($143 million).

Apart from manufacturing, other sectors that benefited from inflows of FDIs in the first five months were real estate, construction, financial intermediation, and trade and commerce.

The Philippines saw a decline in foreign investments—both portfolio and direct—shortly after the United States sank into a recession. The US economic turmoil had affected even appetite for investments in emerging economies like the Philippines.

But according to officials, risk appetite has gradually been improving amid signs that the world economy is on its way to stabilization.

Tetangco said reports of gradual movement toward stability would continue to sustain inflows of investments to the Philippines.

The World Bank and the International Monetary Fund have projected that the Philippine economy would contract this year by 0.5 and 1 percent, respectively. They cited the ill effects of the global crisis on the domestic economy.

Analysts said the Philippines is affected by the turmoil on several channels, including investments, remittances and exports.

The economy, measured in terms of gross domestic product, grew by a measly 0.4 percent in the first quarter, the slowest rate in a decade.

However, the country’s economic managers said the Philippines would not fall into a recession this year and that growth would be faster in the succeeding quarters.

The government expects GDP this year to grow between 0.8 and 1.8 percent.

(Philippine Daily Inquirer)