Consumer sentiment drops to nine-month low

10/11/2013 9:58 AM

10/11/2013 8:20 PM

Consumers turn gloomy

Consumer sentiment in the U.S. fell in October to a nine-month low as the government’s partial shutdown and the debt ceiling debate caused outlooks to sour.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index of decreased to 75.2 this month from 77.5 in September. Economists in a Bloomberg survey projected a drop to 75.3, according to the median estimate.

Households are becoming pessimistic about the economy as the shutdown heads into a third week and the deadline looms for raising the debt limit and avoiding a default. Nonetheless, rising wealth, lower gasoline prices and a resilient job market are preventing confidence from slipping even more, indicating the economy can bounce back once lawmakers reach a compromise.

“Confidence is down a bit given the shenanigans in Washington,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the top-ranked sentiment forecaster over the past two years, according to data compiled by Bloomberg. “The labor market has been improving, and hopefully this degree of turmoil in Washington is just temporary.”

Projections of the 68 economists surveyed by Bloomberg ranged from 65 to 80. The index averaged 89 in the five years leading up to the economic slump that began in December 2007, and 64.2 during the 18-month recession that ensued.

GM likes Escalade

General Motors, revealing a redesigned Cadillac Escalade, said it may apply the name to other luxury vehicles within the Cadillac brand.

“There’s a lot of equity in Escalade and I’d like to explore the notion of other vehicles that would carry that brand name,” Bob Ferguson, head of Cadillac, said this week in New York following the unveiling of the 2015 version of the large, luxury sport-utility vehicle during an evening attended by Donald Trump.

The Escalade is one of 10 new or redesigned Cadillacs that GM is bringing out in the U.S. by the end of 2015. The product push includes the ATS, a compact sedan, which helped increase Cadillac’s U.S. sales by 29 percent this year through September. U.S. sales of all versions of the Escalade peaked in 2004 at 62,250 and fell to 23,340 last year, according to researcher Autodata Corp.

The Escalade faces twin threats from smaller, car-based SUVs that get better gas mileage and more competition from high- end offerings in coming years. Fiat SpA’s Maserati plans production of the Levante SUV in 2015, while Volkswagen AG’s Bentley has said it will start selling the world’s most expensive SUV at about 180,000 euros ($244,000) in three years. Rolls-Royce Motor Cars Ltd., the ultra-luxury-car maker owned by Bayerische Motoren Werke AG, also has said it’s considering an SUV.

The redesigned 2015 Cadillac Escalade includes a sleeker exterior and a wood-trim interior, among the changes Detroit- based GM has made to boost sales of the large SUV and make it more luxurious. The redesigned version should increase U.S. sales at least 10 percent next year, Ferguson said

Ethanol mandate to be cut?

Ethanol fell for the first time in five days after the U.S. Environmental Protection Agency said it’s considering scaling back legal requirements on the use of the fuel next year. Renewable Identification Numbers dropped to the lowest level since January.

The biofuel futures declined as much as 0.7 percent. A proposal from the EPA would cut the mandate to 15.21 billion gallons for renewable fuels in 2014 from the 18.15 billion gallons established by a 2007 law, according to an internal document provided to Bloomberg.

The agency would call for the use of 13 billion gallons of conventional corn-based ethanol and 2.21 billion gallons of advanced biofuels such as biodiesel, down from 13.8 billion gallons and 2.75 billion gallons respectively this year, according to the proposal.

“The whole focus right now is the EPA,” said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York. “There’s a rumor they’re going to reduce the 2014 requirements, which will affect ethanol further down the curve but we’re still seeing a bit of the effect today. Producers are locking in positive margins now.”

Denatured ethanol for November delivery dropped 0.6 percent to $1.718 a gallon on the Chicago Board of Trade at 10:31 a.m. Futures are down 22 percent this year

JPMorgan cuts buybacks

JPMorgan Chase Co., which today reported its first loss under Chief Executive Officer Jamie Dimon, said it has scaled back stock repurchases.

The bank repurchased $739.7 million of shares in the third quarter, down from $1.17 billion in the three months ended June 30 and $2.58 billion in the first quarter, according to a supplemental filing posted on the New York-based lender’s website today.

“We’re doing very little stock buyback right now,” Dimon said today on a conference call.

Charles Peabody, an analyst at Portales Partners LLC, said last month that the lender could be forced to halt its $6 billion repurchase program as fines and penalties on the bank grow. The third-quarter loss was fueled by a $7.2 billion charge tied to litigation and regulatory probes.

Bank executives were asked today about the possibility of litigation expenses affecting capital plans submitted to regulators or altering the pace of share repurchases.

“We don’t expect or believe that there should be any repercussions, but they’re ultimately up to the regulators’ decisions,” Chief Financial Officer Marianne Lake said.

JPMorgan suspended a $15 billion buyback plan last year to boost capital levels after a bet on credit derivatives in London that ultimately cost the firm more than $6.2 billion. Dimon in March won conditional Federal Reserve approval for $6 billion in buybacks. The Fed required the company to “address weaknesses” in its planning process.

The bank said in July, when making projections on leverage ratios, that its calculations assumed $6 billion to $8 billion in annual repurchases.

Car sales rise in China

China’s passenger-vehicle sales rose 21 percent in September to an eight-month high, as Japanese automakers rebounded from the consumer backlash sparked by a territorial dispute last year.

Wholesale deliveries of cars, multipurpose and sport- utility vehicles climbed to 1.59 million units last month, the most since the 1.73 million sold in January, the state-backed China Association of Automobile Manufacturers said Friday. That compared with the 1.5 million-unit median estimate of five analysts surveyed by Bloomberg.

Protests erupted across China last September after Japan moved to purchase a group of disputed islands – known as Senkaku in Japan and Diaoyu in China – from their private owner. Japanese cars were vandalized and businesses attacked, and the ensuing slump in demand caused Toyota and Honda to report their first annual sales declines on record in the world’s largest vehicle market.

“Last September was the peak of the anti-Japanese sentiment, so we are coming off a low base,” said Harry Chen, a Shenzhen-based analyst at Guotai Junan Securities. “The Japanese have improved a lot, but their recovery is still incomplete.”

Cracker Barrel sued

The estate of a woman fatally shot along with her two daughters has sued a Cleveland-area Cracker Barrel restaurant, alleging it failed to protect them from her estranged husband.

The lawsuit was filed late Thursday in Cleveland by the brother of Katherina Allen. She was shot in April 2012 at the restaurant in nearby Brooklyn, Ohio.

The lawsuit seeks more than $125,000 in damages. It says the restaurant failed to properly train employees to handle a volatile situation.

Kevin Allen angrily confronted his wife at the restaurant and left, then returned and began shooting. Responding officers killed him.

Email and phone messages left Friday morning at the Cracker Barrel Old Country Store headquarters in Lebanon, Tenn., weren’t immediately returned.

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