Economic Report

1
Economic Report

• Janan Hatem
• Lauren Ewald
• Bejan Motamedi

2
Earnings Warnings

• Colgate-Palmolive, The New York Times, CarMax, RF
  Micro Devices, Wendy's, and Ethan Allen all
  reported they will miss their earnings target.
• Warnings are being heard across many sectors
  indicating concerns about the pace of economic
  and earnings growth.

3
Rising Oil Prices

• Crude futures hit 50 per barrel.
• Saudi Arabian oil official said the world's
  largest petroleum exporter would raise its
  production capacity by nearly 5 percent in a bid
  to calm prices.
• Although oil is at an all-time high, prices are
  not at record levels when inflation is taken into
  account. Adjusting for inflation, today's prices
  are still more than 30 below the level reached
  in 1981 after the Iranian revolution.
• This is not easing fears in the market and there
  is concern over the amount of excess oil
  production available if there is prolonged
  interruption to the oil supply.
• Also, could the surge in oil price lead to a
  global recession???

4
Concerns for Home Lending

• Inappropriate accounting at Fannie Mae
• SEC is conducting an informal inquiry which shook
  investors' confidence as FNM is at the center of
  the housing market. 
• Worries about problems at Fannie Mae created
  residual worries that home lending activity would
  be interfered with and that there would be a
  slowing effect on the economy. 
• Shares of FNM fell 15.2 for the week.

5
The Fed

• FOMC raised the fed funds rate by 25 basis points
  to 1.75.
• Market was disappointed that the FOMC didn't
  provide a direct indication that it would be
  refraining from raising rates at upcoming
  meetings. 
• The August FOMC minutes contained an
  acknowledgment that the longer-term view included
  a significant cumulative policy tightening on the
  way to a neutral funds rate target.

6
Yield Curve

• The Yield Curve is beginning to flatten, which
  indicates slowing economic growth.
• The third consecutive decline in the Leading
  Indicators report (-0.3) contributed to
  that belief. 
• The flattening curve creates profit concerns for
  banks, which capitalize on the interest rate
  spread between their borrowing (at the short-end)
  and lending (at the long-end) activity.

7
Last Weeks Industry Stats

• Concern the market may be overbought.
• Thrifts mortgage (-7.34)
• Lagging
• Tobacco (-6.40), Airlines (-5.36), Household
  Products (-5.33), Steel (-4.27), and
  Pharmaceuticals (-3.87). 
• Leading
• Oil gas Exploration (3.72), Oil Gas
  Refining (3.38), Oil Gas Equipment and
  Services (2.65), and Oil Gas Drilling (2.10).

8
Consumer Confidence

• The Consumer Confidence Index fell 1.9 points to
  96.8 from a revised reading of 98.7 in August.
  Analysts had expected a reading of 99.5.
• In part due to deterioration in consumers'
  assessment of employment conditions
• Consumer outlook for next six months is
  relatively unchanged

9
More to Come This Week

• Final gross domestic product reading for the
  second quarter is due Wednesday.
• The GDP is expected to have grown 3 percent.
  This would indicate decent economic expansion,
  but still less than the 4 percent to 4.5 percent
  economists had hoped for in the beginning of the
  year.
• Purchasing managers index- a measure of business
  buying and the wholesale market.
• Expecting a 58.3 reading on the index for
  September, down from 59 in August, as higher fuel
  costs led to a slight decrease in business
  spending.
• Coca-Cola Co., PepsiCo Inc. and its chief
  bottler, Pepsi Bottling Group Inc. will issue
  earnings reports.
• The nations automakers are scheduled to announce
  their September sales results Friday.

10
Election 2004 Presidential Ballot

• Bush47.8
• Kerry46.1
• Other2.2
• Not Sure3.9

11
Summary

• There is a lot of important economic news coming
  out this week!
• There are concerns that economic growth is not as
  strong as was predicted.
• The FOMC indicates they are going to continue
  tightening rates
• Pressure on Consumers and Investors