Money & Business
Money Watch: More Unfriendly Skies
In announcing the air carrier's quarterly results last week, UAL Chairman Glenn Tilton noted that "by maintaining focus on United's customers, our employees turned in operational performance near top levels in the company's history." But instead of bonuses, many workers can now expect their future pension benefits to be slashed. That's because a bankruptcy court judge approved United's request to offload pension plans covering 120,000 current and retired workers to the Pension Benefit Guaranty Corp. While United unions vowed to fight what will amount to the biggest pension default in U.S. history, an even bigger threat is looming. Once United jettisons its underfunded pensions, it will enjoy a competitive advantage over other carriers with similar pension shortfalls. Delta, with a $5.3 billion pension deficit, already warned investors last week about possibly having to file for bankruptcy. While Delta is trying to avoid that route, United may have set an unfortunate precedent.
Money Watch: Consumers: Do as I Do, Not as I Say
Since consumer spending is the lifeblood of the U.S. economy, Wall Street constantly monitors the pulse of would-be shoppers. This could explain why investors are down in the dumps. The only thing households seem to be in the mood to buy is Prozac. Last week, the University of Michigan's closely followed consumer sentiment index fell for the fifth straight month. But confidence surveys miss a key aspect of American consumerism--sometimes, being depressed motivates shoppers to spend more. Case in point: The Commerce Department reported last week that retail sales in April jumped 1.4 percent--a full percentage point better than most economists had expected. No wonder Dean Croushore, an economics professor at the University of Richmond, notes that economists "can ignore consumer-confidence indexes in forecasting consumption spending."
Money Watch: Storm Clouds Over Bentonville
It's an age-old Wall Street tradition to blame weather for bad business. It's also a sure sign there are underlying problems at the company doing the finger-pointing (after all, no one credits better-than-expected weather when record profits are reported). This explains why the markets reacted so negatively last week when Wal-Mart CEO Lee Scott attributed lackluster first-quarter earnings at the world's biggest retailer in part to "a cooler and wetter spring than normal." Funny, Mother Nature didn't seem to rain on rival Target's parade. Wal-Mart is now warning investors that second-quarter profits will also fall short of analysts' expectations. Does Wal-Mart know something the Weather Channel doesn't?
Money Watch: Breaking Ground
The housing market has been sending mixed signals lately. Sales of existing homes shot up 1 percent in March to the third-highest level ever. "With mortgage interest rates remaining historically low, gains in the labor market and economic growth appear to have lifted the confidence of home buyers," says David Lereah, chief economist for the National Association of Realtors. But it's the confidence of home builders that matters more. A home buyer may simply be purchasing a house to live in it. Home builders break ground only if they have faith the economy will remain strong by the time they're finished. In March, housing starts plunged 17.6 percent. This may have been an aberration, but if April housing starts come in shy of the 7 percent forecast, Wall Street is likely to regard that as a vote of no confidence in the economy.
Money Watch: Price Gauge
Inflation is funny: It raises the price on a wide assortment of goods--with the notable exception of stocks. So while retailers would embrace a modest uptick in prices, investors are hoping the consumer price index grew less than 0.4 percent in April, as economists have predicted.
Cooling off
Consumer price index
Sept. 2004 0.2 pct.
Jan. 2005 [n.a.]
April 0.4 pct.*
*Estimate
Note: reflects month-over-month increase in CPI
Sources: Labor Department, Reuters
Chart by USN&WR
This story appears in the May 23, 2005 print edition of U.S. News & World Report.
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