Wednesday, January 16, 2008

U.S. Economy: Inflation Slows, Industrial Production Unchanged

(Bloomberg) -- Consumer prices in the U.S. rose at a slower pace in December and industrial production failed to grow, giving the Federal Reserve the room and reason to cut interest rates at their next meeting on Jan. 30.

The cost of living increased 0.3 percent after a 0.8 percent gain in November, the Labor Department said today in Washington. Output at U.S. factories was unchanged in December as exports helped make up for declines in auto and housing- related production, the Federal Reserve said separately.

Slower growth will make it more difficult for companies to pass on higher costs, suggesting inflation will cool from last year's pace, the fastest in 17 years, economists said. Investors' attention may now shift to Chairman Ben S. Bernanke's testimony on the economy tomorrow at a hearing in Congress.

``With the sluggish growth outlook and rising risk of recession, inflation concerns have receded,'' said Zach Pandl, an economist in New York at Lehman Brothers Holdings Inc., which correctly forecast the increase in prices. ``The Fed is clearly focusing on growth at this point.''

Economists had anticipated a 0.2 percent increase in consumer prices last month, according to the median forecast in a Bloomberg News survey.

Prices excluding food and energy advanced 0.2 percent, after a 0.3 percent increase, matching the median estimate.

Treasury notes were little changed after the consumer price report and later slipped. The yield on the benchmark 10-year note was 3.68 percent at 10:33 a.m. in New York, little changed from late yesterday. Stocks dropped after an Intel Corp. sales forecast spurred concern technology profits will weaken.

Capacity Use

Capacity utilization, which measures the proportion of plants in use, fell to 81.4 percent from 81.6 percent in November, indicating greater slack in the economy, the Fed's report showed. Economists had predicted a 0.2 percent drop in output and a capacity-in-use rate of 81.2 percent.

``There is nothing that would keep the Fed from cutting 50 to 75 basis points later this month,'' based on today's data, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp. in New York.

Traders anticipate the Fed will cut its benchmark rate to 3.75 percent, from 4.25 percent, this month, futures prices show. The chance of a 75 basis-point cut was 42 percent. Policy makers are next scheduled to gather Jan. 29-30. A basis point is 0.01 percentage point.

For all of last year, consumer prices rose 4.1 percent, the most since 1990. The core rate climbed 2.4 percent after a 2.6 percent increase in 2006.

Energy Costs

Energy prices last month rose 0.9 percent, after gaining 5.7 percent the previous month. Fuel costs were up 18 percent in 2007, also the most in 17 years.

Food prices, which account for about one-fifth of the CPI, increased 0.1 percent, the smallest gain of any month in 2007.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

The government yesterday said producer prices unexpectedly eased 0.1 percent at the end of a year that saw the biggest annual jump in more than a quarter century. The cost of imported goods was unchanged in December, a report last week showed.

PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.

Rents, which make up almost 40 percent of the core CPI, rose 0.3 percent.
 

Wells Fargo profit falls

(Reuters) - Wells Fargo & Co (WFC.N: Quote, Profile, Research) on Wednesday said its fourth-quarter profit fell 38 percent, the first decline in more than six years, hurt by rising losses from home equity loans.

However, the decline was smaller than expected, and shares of the financial company were up 41 cents, or 1.5 percent, to $26.90 in early trading on the New York Stock Exchange after climbing to a session high of $28.11.

The weaker results reflect how the housing slump and tight credit markets have affected even mortgage providers such as Wells Fargo, whose lending practices are considered conservative.

"Except for the admitted slip of getting involved in third-party home equity loans, they've done a fine job in a challenging market in avoiding credit missteps," said Thomas Russo, who helps invest more than $3 billion at Gardner, Russo & Gardner in Lancaster, Pennsylvania, including 4 percent in Wells Fargo. "They're not immune, but have less exposure."

Net income for the San Francisco-based bank, which is the nation's fifth-largest bank and second-largest mortgage lender, fell to $1.36 billion, or 41 cents per share, from $2.18 billion, or 64 cents, a year earlier. Revenue increased 8 percent to $10.21 billion.

Analysts on average expected a profit of 39 cents per share on revenue of $10 billion, according to Reuters Estimates.

Wells Fargo said it tripled the amount set aside for loan losses to $2.6 billion, including $1.4 billion tied to home equity loans. The latter reduced after-tax profit by 27 cents per share. In November, the bank significantly scaled back offering home equity loans through brokers.
 

Load shedding inquiry looms

(Fin24) - The public protector is considering whether or not to mount an investigation into the load shedding currently being experienced by South Africans, which, he says "is having a devastating effect ... on service delivery by government, is causing serious prejudice to the private sector and negatively affects the lives of many of the people."


In a letter to the chief executive of Eskom, Jacob Maroga, the public protector, Lawrence Mushwana, on Wednesday said that he is mandated to investigate on his own initiative or on receipt of a complaint, conduct by public entities that causes unlawful or improper prejudice to any person.


He poses a series of questions to the Eskom chief to help him decide whether to proceed.

He asks Maroga to explain the reasons for the load shedding, the measures that were put in place by Eskom to prevent what is causing the load shedding and the expected duration of the load shedding practice.

He also asks for detailed information "as a matter of urgency" on steps that have been taken by Eskom to address the reasons for the load shedding and the time frames within which the problems will be resolved.
 

Metorex guns for CRC control

(Fin24) - Metorex, the JSE-listed diversified mining group, said it was confident it would vacuum up the remaining 5% it needed to complete the takeover of Copper Resources Corporation (CRC), an AIM-traded company with mining prospects in the Congo.


"We already own 45% of the company," said Charles Needham, CEO of Metorex at the group's annual general meeting held in Johannesburg suburb, Rosebank. "We have approached between 7% to 8% of CRC shareholders who are outside the offer to sell us the shares on the same terms and conditions."


"What if something goes wrong?" a shareholder asked Needham.


Said Needham: "We are pretty certain about getting at least 5% of those."


Metorex bought 38.7% of CRC in July last year plus a 5% stake in its 75% held subsidiary MMK from the Forrest group for R600m. The Metorex share price stood around R24 at the time and it subsequently rose to an all-time high of 2 950c.


But by mid-January, Metorex's share price was 38% off its 12-month high and was last trading at 1 902c, another 5% decline on the day.

 Read more at Fin24