Stocks fall on data showing that the U.S. consumer is cutting back on spending

This morning’s data from the Commerce Department on personal income and spending is a cold shower to any optimist thinking that consumer spending might step up to save economic growth in the United States. With the U.S. economy growing at an annualized rate of less than 1% in the first half of the year and with Washington set to remove stimulus from the economy (the end of the Fed’s QE2 program of Treasury buying, for example, or the debt ceiling’s small but still significant cuts to the 2012 budget), financial markets didn’t need this morning’s bad news from the consumer sector. Personal income rose by 0.1% in June—below the 0.2% increase in May and the slowest rate of growth since November—and personal spending fell by 0.2% after a 0.1% increase in May.

For spending to drop while income is still edging up is a bad sign. Read more

Nasty surprise in this morning’s revision to first quarter U.S. GDP numbers.

Not on the top line really. Real (that means after subtracting inflation) GDP growth for the quarter stayed at 1.8% in these revisions, exactly the same as in the last estimate. (All GDP numbers are estimates until the final reading comes in about a year after the quarter is over. Of course, nobody cares by that point.)

Economists had been expecting that the revision would take growth up to 2.0% for the quarter.

As economists had expected, increases in exports, nonresidential fixed investment, and inventories pushed the GDP growth figure upwards in this revision. And as expected an increase in imports took back some of those gains.

What economists hadn’t been expecting, however, was a downward revision to personal consumption expenditures. Read more

Update AmBev (ABV)

Oh, Canada!

Maybe AmBev (ABV) should challenge Canadians to see if they can out drink the company’s Brazilian customers.

In the just completed fourth quarter of 2010, AmBev announced on March 3, organic sales volume grew in Brazil by 3.6% and in southern Latin America by 2.6%–but fell by 5.3% in Canada. (If you own this stock, remember to ask for Labatt in Canada.) Thanks to volume growth and price increases net sales climbed by 12%.

Sales in Canada have been a problem for quarters now so this most recent decline isn’t a new problem on the downside. Neither are rising costs for raw materials such as sugar (or actually the rising cost of hedges against higher sugar prices).

What is new is worry that slowing growth in Brazil, as the government fights inflation, will cut into beer sales. For 2011 “there are some pros and cons,” CEO João Castro Neves told analysts on March 3. “A clear pro for 2011 is the low unemployment figure – the lowest we’ve ever had in Brazil.” But that’s balanced by a con since the government has decided to deliver a smaller than expected increase to the minimum wage in 2011.

Under these circumstances the company’s ability to increase EBITDA (earnings before interest, taxes, depreciation, and amortization) margins by 3.1 percentage points to 51.3% was pretty impressive. Read more

Update Luxottica (LUX)

Not very ambitious, are they?

Luxottica, the biggest maker of eyeglasses in the world and a member of my Jubak Picks 50 long-term portfolio, announced that it looking to increase sales in emerging markets by about 20% in 2011, achieve double digit growth at its premium and luxury brands (such as Ray-Ban and Oakley), and grow volumes in China and India by 120% over the next three years.

Did I leave out plans to open 40 Sunglass Hut stores in India, 15 in Brazil, and 50 in China? (The company also acquired 70 stores in Mexico at the end of 2010.)

Oh, and by the way, on February 28, Italian company, which also makes eye glasses under license for fashion houses such as Prada and Chanel, also reported a 16% increase in sales for the first quarter, a 1.2 percentage point increase in gross margins, and an increase in net income of 88% from the fourth quarter of 2009.

For the full year, Luxottica reported a 35% increase in net income on a 14% increase in sales. The company announced that it planned to raise its annual dividend payment by 26% to 44 euro cents a share. At the March 2 closing price that works out to a yield of 1.9%.

Luxottica is benefitting from the economic recovery in the United States. The company forecast 2011 sales growth of 4% to 7% in the U.S. retail segment. Sales in North America (about 60% of the company’s total sales) at the wholesale level to stores such as Target (TGT) of fashion-label licensed eyeglasses will grow by 10% to 12% in 2011, the company projects.

But the big driver of sales growth will continue to be the world’s emerging markets, where the company has tripled sales in the past six years. Luxottica forecast that it will finish the year with 500 stores in China. Read more

Growth keeps coming in softer than expected

I’m starting to see a theme here. And it’s not one I like.

Last week the GDP and durables numbers showed a U.S. economy that is still growing but that is growing a little more slowly that projected. That’s what the consumer spending numbers released yesterday, February 28, show too.

I had expected the U.S. economy to accelerate in the first half of the year before leveling off to sustained growth of 3% or so in the second half.

Now? Too early to throw out that scenario. But early enough to go, Hmmm….

In January, according to data from the Commerce Department, consumer spending rose by just 0.2%. (The Commerce Department also revised the increase in consumer spending in December down to 0.5% from the 0.7% reported a month ago.)

The January increase was the smallest since June. Part of that was undoubtedly the effect of the winter storms during the month. But some of it also seems to have been the result of higher food and fuel prices cutting into eating out and shopping.  And, horror of horrors, U.S. consumers look like they might have actually saving—rather than spending– some of the money from the payroll tax cuts passed by the lame duck Congress in December. Incomes climbed 1% for the month, but the savings rate increased to 5.8% from 5.4% in December. What concerns me is that while the weather was better in February than January, the turmoil in Libya was worse than that in Egypt and oil prices that had gone up on worries over disruption in Egypt, a relatively minor oil producer, went up much more on worries over disruption in Libya, a major oil producer. If consumers were nervous in January, it’s likely that they were even more nervous in February. Read more