terça-feira, 30 de setembro de 2008

Consumer confidence up slightly

A key indicator of consumer confidence rose surprisingly in September, the highest reading since April, but the index was measured before all of last week's developments in the credit crisis.

The Conference Board said Tuesday that its Consumer Confidence Index rose to 59.8 from an upwardly revised 58.5 in August.

A survey of economists had expected the index to fall to 55, according to Briefing.com.

Despite the gain, the index was well below year-earlier levels as consumers grapple with a weak job market, falling home values and a volatile economy. Last September, the index stood at 99.5.

"These results did not capture all of the tumultuous events in the financial sector this month, and until the dust settles a bit more, we will not know the full impact on consumers' expectations," said Lynn Franco, director of the Conference Board Consumer Research Center.

Franco added that shocks tend to have a temporary adverse impact on consumer confidence for up to four months, unless the volatility results in significant job losses that extend that period.

This month, Wall Street and Main Street were rocked by the bankruptcy of Lehman Brothers, the rescue of American International Group, a series of bank failures and mergers and the debate over the $700 billion bailout package.

The turbulent stock market and the weak labor market will likely weigh on consumer confidence for months to come, according to Adam York, an economist at Wachovia. He noted that lower gas prices may be one reason why consumer confidence made slight gains this month.

"But this is not a sign that we're out of the woods. Confidence will remain under pressure for some time to come, certainly into next year," York said.

York said that the expected declins in personal consumption, a predicted loss of 150,000 jobs this month and an expected hike in the unemployment rate will continue to negatively impact consumer confidence.

Consumer outlook
The survey showed that consumers have an increasingly negative outlook for their circumstances in the short term, but expect their future to improve.

The Present Situation Index decreased to 58.8 from 65 in August, and from 65.8 in July. The Expectations Index rose to 60.5 from 54.1 in August and from 42.7 in July.

Consumers surveyed were increasingly negative regarding the state of the economy. Those who rated business conditions as "bad" increased to 34.2% from 32.7%, while those claiming business conditions are "good" declined to 12.5% from 13.7% last month. Last month, out-of-work Americans filed for jobless benefits at the highest rate in seven years.

Consumers' assessment of the labor market continued to worsen as well. Those saying jobs are "hard to get" rose to 32.8% from 31.7% in august, while those claiming jobs are "plentiful" decreased to 12.2% from 13.5%

However, the outlook for the job market slightly improved. The percentage of consumers anticipating fewer jobs in the months ahead declined to 26.8% from 30%, while those anticipating more jobs increased to 11.8% from 10.7%.

Prospects for better incomes decreased slightly, with 14.2% of consumers expecting to earn more, down slightly from 15.4%.

The index was based on a survey of 5,000 U.S. households conducted by TNS for the New York-based Conference Board, a business research organization. The index uses 1985 as its benchmark, setting the index at 100.

In a separate report Tuesday, home prices fell by the sharpest rate ever in July, 16.3%, according to Standard & Poor's/Case-Shiller's 20-city housing index. That's the largest drop since 2000

Mortgage Insurance Applications Down In August

New applications for mortgage insurance dropped to the lowest level in over a year, while new mortgage defaults and cures of existing defaults also increased during the month, according to a mortgage insurance association.

Mortgage insurance applications are typically required for home buyers who make less than a 20% down payment on a home purchase. In August, the number of new applications dropped to the lowest level in more than a year, at 65,546 applications, down from 86,734 applications in July, and 206,457 applications in August 2007. Newly issued policies also fell, to 53,476 new policies with a total value of $10.2 billion from 70,588 written for a total of $12.3 billion in July, mirroring steadily declining home sales in the U.S. The group wrote no bulk policies on pools of mortgages in August.

Borrower action on overdue mortgages stepped up in August, with increases in both the number of insured home mortgages that went into default as well as an increase in the number of defaulted mortgages that cured, or were brought current.

In August, 41,783 defaulted mortgages were brought into compliance, up from 39,229 brought into compliance in July.

Defaults also rose, to 72,818, from 68,831 in July.

The figures for the month of August were released Tuesday by the Mortgage Insurance Companies of America, which represents the largest private mortgage insurers and reports on delinquencies of mortgages they cover.

Primary insurance in force was only slightly changed for the month, at $801.7 billion, from $801.6 billion in July.

Insurers represented by the figures are AIG United Guaranty, a unit of American International Group (AIG), Genworth Mortgage Insurance Corp., a unit of Genworth Financial (GNW), Mortgage Guaranty Insurance Corp. (MTG), PMI Mortgage Insurance Co. (PMI) and Republic Mortgage Insurance Co., a unit of Old Republic International Corp. (ORI).

Consumer spending loses steam

Personal spending stagnated in August as the slowing economy continued to weigh on consumers, according to a government report released Monday.

The Commerce Department reported Monday that personal spending was virtually unchanged in August. Economists had forecast a 0.2% increase in personal spending.

Spending has not been this weak since February, when it was also flat.

Personal income, meanwhile, increased by 0.5% in August after a revised 0.6% decline in July. Economists surveyed by Briefing.com were expecting income to have grown by 0.2% last month.

After adjusting for taxes and certain price changes, however, real disposable income contracted 0.9%, according to the report.

"With the labor market remaining very weak, slow to negative growth in disposable income will most likely plague the consumer for at least the next six months," said Adam York, an economist at Wachovia Economics Group.

Consumer spending increased in May and June thanks to billions of dollars in payments sent to Americans as part of the Economic Stimulus Act of 2008.

The stimulus package was aimed at boosting consumer spending, which makes up the bulk of economic activity. But that spending waned as the stimulus program wound down.

The government said Friday that gross domestic product, the broadest measure of the nation's economic health, expanded at an annual rate of 2.8% in the April-June quarter, down from the 3.3% growth rate previously estimated.

With consumer spending accounting for two-thirds of the nation's GDP, "it's pretty clear now that were looking at a negative GDP number this quarter," said Bob Brusca, an economist at Fact and Opinion Economics.

Brusca noted that energy prices were subdued in August and that contributed to the income growth registered in the month. But he warned that "with weakness creeping into the economy, the outlook for income growth is not very good."

Monday's report comes as Congress prepares to vote on a controversial $700 billion bailout of the financial system.

The plan would use tax dollars to buy up bad mortgage-related assets from Wall Street companies in a effort to stabilize the financial markets and prevent further damage to the economy.

segunda-feira, 29 de setembro de 2008

FDIC chief : Hopes of home loan bailout

As Congress moves on the financial bailout plan, restructuring of troubled mortgages should be part of the final package, the head of the Federal Deposit Insurance Corp. said Tuesday.

FDIC Chairman Sheila Bair said she hoped that changes on home loans "will be a feature of that."

Under the $700 billion proposed bailout plan, the government could acquire troubled mortgage assets or provide a guaranty for delinquent loans, buying them and removing them from the overall pool of mortgages, Bair suggested.

Mortgage finance giants Fannie Mae and Freddie Mac, taken over earlier this month by the government which is operating them under a conservatorship, bought mortgages from banks and other lenders and guaranteed them in exchange for fees.

"We're highly supportive of Treasury's initiative," Bair said, stressing the need for a restructuring of distressed home loans in a comprehensive, streamlined manner.

Bair was speaking at a Brookings Institution conference on housing. She also reaffirmed that she believes it unlikely that the FDIC would have to use its "wide flexibility" to borrow from the Treasury if needed.

IndyMac failure sets back fund
The failure in July of Pasadena, Calif.-based IndyMac Bank tipped the federal deposit insurance fund - now at around $45.2 billion - below the target minimum level set by Congress, but Bair has said the agency's plan to raise the premiums charged U.S. banks and thrifts to replenish the fund likely will be sufficient.

"I think actually the banking sector is holding up pretty well," Bair said. The recent collapse of major investment banks and the cataclysm on Wall Street has shown that "there is some virtue to regulation. There is some virtue to leverage constraints," she said.

Investment banks have had more lenient guidelines in how highly leveraged they could become, with a much higher ratio of debt to their capital than commercial banks regulated by the FDIC that have access to the deposit safety net.

Referring to Treasury Secretary Henry Paulson and the current tumultuous events, Bair said, "Hank's got a whole lot of other people knocking on his door. I don't want to add to people knocking on his door."

Lennar sales tumble 53%

Lennar Corp., one of the nation's largest homebuilders, said Tuesday its third-quarter loss narrowed as it cut costs, but revenue fell by more than half amid a prolonged housing slump.

The Miami-based company's loss for the quarter ended Aug. 31 was $89 million, or 56 cents per share, compared with a loss of $513.9 million, or $3.25 per share, a year ago.

Revenue fell 53% to $1.11 billion from $2.34 billion.

Analysts surveyed by Thomson Reuters, on average, predicted a loss of 52 cents per share on revenue of $1.07 billion.

Deliveries of homes fell 49% in the quarter and the average sale price of homes fell 9%.

Lennar: More government help needed
"While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards," Chief Executive Stuart Miller said in a statement.

Miller said that the landmark housing stimulus bill enacted in July, which included a temporary, $7,500 tax credit for first-time homebuyers, has failed to stabilize the skid in U.S. home prices. He said more government intervention is needed.

Lennar (LEN, Fortune 500) has homebuilding operations in 14 states, including California and Florida, the hardest-hit housing markets in the nation.

Like other builders, the company's business has been hurting due to the combination of weakened demand for new homes, tightening mortgage lending standards and buyer uncertainty over how long home values will continue to drop. The business is also facing mounting competition from deeply discounted, foreclosed properties and other preowned homes on the market.

Builder cutting construction costs, jobs
To cope, Lennar has cut prices and is "aggressively" reducing construction costs, cutting jobs and consolidating divisions in an effort to improve results.

The builder ended the third quarter with $857 million in cash - an increasingly important indicator as the slide in home sales continues - and no outstanding borrowings under its credit facility.

During the quarter, Lennar delivered 3,791 homes, down from 7,636 in the same period last year. The sharpest drop occurred in Western markets.

The average sale price of homes delivered fell to $270,000 as the builder cut prices or offered incentives, such as discounts matching the $7,500 tax credit for first-time buyers.

In all, Lennar offered sales incentives amounting to $45,900 per home delivered during the quarter. That compares with incentives valued at $46,000 per home delivered in the same period last year.

New orders totaled 3,387 homes, down 42% from 5,804 last year.

Fewer buyers back out of home contracts
The cancellation rate from buyers backing out on home contracts was 27%, improving from 32% in the same quarter last year.

Lennar's backlog, or homes under contract yet to be delivered, fell during the quarter. As of Aug. 31, the figure stood at 3,554, compared with 6,367 units at the close of the same quarter last year.

The value of homes in backlog plunged by 53% from a year ago to about $1.05 billion.

Loss on land sales totaled $28.8 million in the third quarter, including $21.4 million of valuation adjustments and $10.9 million of write-offs of deposits and pre-acquisition costs related to about 900 home sites under option that Lennar does not intend to buy.

For the first nine months of Lennar's fiscal year, the company's net loss narrowed to $298.1 million, or $1.88 per share. That compares with a loss of $689.4 million, or $4.37 per share, in the same period last year.

Revenue fell to $3.3 billion, compared with $8.01 billion in the same period last year.

On the Internet, everybody knows your dog's name

If you suspected there were some security holes in all your password-protected online accounts - banking, e-mail, etc. - you would be right. And Sarah Palin, the Republican vice-presidential candidate who just had her Yahoo e-mail hacked, would agree.

But as the Palin episode shows, the weak link isn't the passwords themselves but those security questions you have to answer in case you forget the passwords. You know the drill. You set up an online checking account and answer questions about your high school mascot, the street you grew up on, and the name of your dog, which supposedly only you can answer. It's all safe as long as crooks don't have the answers, which now - thanks to blogs, Facebook, Twitter, and every other public forum people use to put every last detail of their lives online - they do.

Herbert Thompson says all he needs to break into a bank account is a person's name and place of employment - and about an hour, give or take. Thompson, of New York City consulting firm People Security, certainly knows more about hacking than your average Joe, but says that he - or an actual crook - doesn't need any special tricks, just patience and a facility with Google (GOOG, Fortune 500).

"Having the answer to biographical questions has quickly become the keys to the online kingdom," Thompson says. That is how the bad guys got into Palin's e-mail. Further proof of the value of this information, he points out, is that the black-market price of a set of answers to typical security questions for an individual is eight to ten times the price of a password. Passwords can change; basic facts of your identity generally don't.

If you have ever had someone successfully "phish" your bank account, you know what the cost is personally. But for the banks and merchants who are usually left holding the bag when an account is stolen, the loss is compounded.

Companies don't divulge what they spend on preventing such fraud, but the market for "identity-proofing" services is "safely in the billions," says Avivah Litan, a security analyst with research firm Gartner. "So you can imagine what is at stake, and these kinds of attacks are getting more widespread and increasingly sophisticated."

Is there a way to plug the security hole? Quite possibly. In Palo Alto, another security expert, Markus Jakobsson, is preparing to launch a new kind of security-question system. Dubbed Blue Moon Authentication, the application relies on preferences rather than discreet factual - and thus extremely Google-able - tidbits about you. With Jakobsson's approach, users are asked to answer whether they like or dislike, say, Chinese food, heavy-metal music, garage sales, tattoos, or cats.

"It's easy for you to remember whether you like Chinese food and dislike tattoos, because it's part of who you are," says Jakobsson, a principal scientist at the Palo Alto Research Center. "But it would be very hard for a random person to guess enough of the answers correctly to gain access to a password reset."

If a bank were to adopt a Blue Moon security system, customers would have to submit to a battery of questions about their tastes and preferences. (It's a pain- but presumably less painful than being robbed.) Anyone trying to get into an account without a password would have to answer a series of questions about preference. Getting 11 out 16 correct, Jakobsson says, proves with 99.5% accuracy that people are who they say they are.

Whether that claim proves true should be known soon. Jakobsson is trying to license the technology to companies that will build and ultimately manage the security system. He's in the throes of hammering out a contract with an "Internet company that practically everyone online in the country has an account with," he says. He won't give the company's name, but sources say it's probably eBay. Neither Jakobsson nor eBay (EBAY, Fortune 500) would comment, but word is that by March or April, eBay users and, perhaps more specifically, eBay's PayPal customers, will have the choice of using Blue Moon as the mode to identify themselves and protect their passwords.

"Will the bad guys adapt to the stuff that Jakobsson is proposing?" asks Herbert Thompson, who's a Blue Moon fan. "They will try, and they have huge resources to throw at it. But when it's compared to finding out the name of a dog, it would be a huge step forward from where we are now."

Oil drops below $100

Oil prices tumbled Monday as concerns about global economic weakness outweighed signs that lawmakers are close to passing a $700 billion bailout of the U.S. financial system.

Light, sweet crude for November delivery was down $8.19 to $98.70 a barrel in morning trade on the New York Mercantile Exchange.

The price of oil spiked last week, marking its largest one-day gain ever, as traders scrambled to buy futures before the expiration of the October contract.

But that rally was "technical in nature" and did not result in any "bullish follow through," said Stephen Schork, oil industry analyst and publisher of the Schork Report.

The market is "focusing on the real demand destruction in place right now," Schork said.

Economic weakness worldwide, combined with a seasonal downturn in demand for petroleum products, could drive the price of oil to $75 a barrel, according to Schork.

Bailout. Monday's decline in the price of oil comes as Congress appears set to vote on a massive intervention in the financial system.

The controversial plan would use up to $700 billion in tax dollars to buy tainted mortgage-backed securities from Wall Street companies.

The plan seeks to make banks less reluctant to lend by removing the threat of future losses on the bad mortgage-related assets. That, according to proponents of the plan, will help get the economy back on solid ground.

Dollar. Oil prices were also pressured Monday by a stronger dollar.

The 15-nation euro fell to buy $1.4402 in morning trade from $1.4618 late Friday. The U.S. currency also gained ground against the British pound and held steady against the Japanese yen.

The dollar's strength comes as the crisis on Wall Street appears to be spreading to the European financial system.

In Germany, government regulators and several banks tossed a multibillion euro line of credit to Hypo Real Estate Holding AG in move aimed at shielding the country's second largest commercial property lender from going under.

Over the weekend, Dutch-Belgian banking giant Fortis NV was partially nationalized with a $16.4 billion rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank evaporated last week.

Gasoline. The national average price for a gallon of gas fell one cent overnight.

Regular gasoline fell to $3.643 a gallon Monday from $3.655 the day before, according to the American Automobile Association's daily survey.

Diesel prices also came down. The national average price for a gallon of diesel fell overnight to $4.084 from $4.095.

Gas shortages: get ready for more

While Congress and Bush administration officials have been working to complete a bailout plan and stem the financial contagion on Wall Street, a different kind of economic crisis emerged across the South this week: A severe, hurricane-related gasoline shortage has curtailed trucking from Atlanta to Asheville, N.C., and created a wave of panic buying among motorists.

The return of gas lines has largely flown under the radar of politicians who are usually keenly attuned, because their constituents are, to what's going on at the pump. But more of the Capitol gang should be paying attention to this.

That's because nationwide our gasoline inventory is shockingly low. Liquidity must be restored soon to this market, or we could be facing a crippling run on the gasoline bank. And if you think Americans are outraged about Wall Street, wait until their Main Street grocery store doesn't get the bread and milk delivery for a week or two.

Back to the '70s
The scenes over the past several days in places like Nashville, Tenn., Anniston, Ala., and western North Carolina looked like file footage from 1979 - with bags over empty gas pumps and quarter-mile long lines of cars waiting to fill up at stations that hadn't run out. AAA reported that drivers were so desperate that they were following tankers to gas stations to ensure a fill-up.

In Georgia, Gov. Sonny Perdue got a waiver from the Environmental Protection Agency to temporarily allow stations to sell high-sulfur gasoline. (Correction: An earlier version of this story said Louisiana received the waiver and incorrectly named Perdue as that state's governor.) In Alabama, Gov. Bob Riley ordered a state of emergency to prevent price gouging by station owners that do have gas.

What's going on? The immediate answer is that the double whammy of Hurricanes Gustav and Ike, which swept through the Gulf of Mexico earlier this month, caused much of the Gulf's oil drilling and refinery production to be shut down. In particular Ike, which hit refinery-rich Southeastern Texas on Sept. 13, caused massive power outages in the Galveston and Houston areas.

As of this week, more than a dozen refineries around Texas City and Port Arthur were not operating at full capacity and, according to the Department of Energy, six refineries, with a combined capacity of 1.6 million barrels a day, were still not running at all.

A bigger problem
But while the current shortages can be traced directly to the two hurricanes, the severity of the problem points out a bigger issue: The U.S. has been operating for a while with razor-thin spare gasoline capacity.

In its most recent Weekly Oil Data Review, Barclays Capital pointed out that the U.S. gasoline inventory has reached its lowest level since August 1967, when demand was a little more than half its current level of 9.3 million barrels a day. At 178.7 million barrels, inventories are 21.6 million barrels below their five-year average.

None of this surprises industry watchers such as Matt Simmons, the chairman of Houston energy industry investment bank Simmons & Co. and chief spokesman for the Peak Oil movement. I recently wrote a profile of Simmons for Fortune ("The prophet of $500 oil") and I can report that he has been warning about the potential of gasoline shortages in the U.S. for months.

"Our system is so fragile," he told me recently. "All you need is a tiny change to go from 'Oh, we're in fine shape' to an unmitigated disaster."

Simmons points out that the gasoline weekly stock reports have been trending sharply downward since last winter (with a brief upturn in the spring), and that even before Gustav and Ike we were in "just in time" supply mode.

Getting back to a safer level of extra capacity isn't simple, either. Once the refineries get back up and running, they'll drain the already low crude oil inventories. Unless gasoline demand stays low, Simmons believes, we'll have a hard time clawing back to stability.

That's why he worries about a top-up catastrophe that could cripple the trucking industry and disrupt food deliveries.

As he told me the other day: "If we end up having gasoline shortages, the odds are about 90% that Americans will do what we always do: We'll top up our tanks. And in topping up our tanks, within three or four days we'll drain the pool dry and then within seven days we'll run out of food."

That sounds awfully dire. And it probably won't happen. But, then again, a couple of months ago hardly anybody would have predicted that AIG would collapse, Congress would be mulling a Wall Street bailout, and '70s-era gas lines would be back.

InBev shareholders OK Busch deal

InBev SA shareholders on Monday backed the company's $52 billion, or €32.8 billion, takeover of Anheuser-Busch Cos. - a deal that would form the world's largest brewer.

They also approved changing the company's name to Anheuser-Busch InBev and a capital increase and share issue that would raise up to $10 billion, or €6.9 billion, to pay for part of the deal.

Cutbacks in U.S.
InBev chief executive Carlos Brito also tried to soothe U.S. worries over possible job losses at Anheuser-Busch, saying he was sticking to his commitment not to close or make new cutbacks to its 12 "very efficient" breweries.

But he added some conditions to this promise: "provided there are no new or increased federal tax or state excise taxes or unforeseen extraordinary events that would negatively impact A-B's business."

The International Brotherhood of Teamsters, a trade union representing some 8,000 Anheuser-Busch truck drivers and other workers, warned that it would hold the company to its promises.

"Unexpected events can happen. The workers of Anheuser-Busch in the United States intend to keep the company to its word at keeping those plants open," said Timothy Beaty, the teamsters' director of global strategies.

InBev Chief Executive Carlos Brito said in a statement that the shareholders' vote of support showed they saw the strategic and financial benefits of combining with Anheuser-Busch.

"We are very pleased to complete this important milestone and we remain on track to close the transaction by the end of the year," he said in a statement. The deal still needs to be cleared by regulators and by Anheuser-Busch shareholders.

Capital increase approved
The company will also have to announce the detail of the share issue, now that it has secured shareholders' agreement for a capital increase to cover an existing equity bridge financing of $9.8 billion in place since the deal was announced in July. It also asked for an extra margin to cover any major currency fluctuations until the share issue is finalized.

More than three-quarters of InBev's shareholders voted in favor of the deal, the name change and the capital increase at a meeting at the company's Leuven, Belgium, headquarters.

They also backed the appointment of Anheuser-Busch (BUD, Fortune 500) chief executive August Busch IV as a director in the new company and changing control of Anheuser-Busch's existing $45 billion senior credit facility and the equity bridge financing of $9.8 billion.

InBev had already said its controlling shareholder - Stichting InBev, which owns a 52% stake - backed these changes with the support of at least another 11%.

Stichting InBev is controlled by three Brazilian financiers - including the investment banker and billionaire Jorge Paulo Lemann - and a group of Belgian aristocratic families.

The takeover would bring together the makers of Budweiser, Michelob, Bud Light, Stella Artois and Beck's and create the world's largest brewer, as well as the third-largest consumer product company.

InBev is currently the world's second-largest beer-maker, narrowly behind SABMiller. Swallowing Anheuser-Busch would see it capturing half of the U.S. beer market and a fifth of China and Russia's.

Foothold in emerging markets
The Belgian-Brazilian brewer said its foothold in emerging markets such as China and Brazil would boost sales of Anheuser-Busch's brands.

Anheuser-Busch agreed on July 14 to be taken over by InBev, heading off what had promised to be a long and acrimonious takeover battle for the St. Louis-based brewer. Ahead of the takeover, the company had already planned to save money by shedding 1,185 positions - mostly by offering early retirement and not filling existing vacancies.

Circuit City posts wider 2Q loss

Circuit City Stores Inc. said Monday its second-quarter loss widened, and the nation's second-largest consumer electronics retailer withdrew its fiscal 2009 outlook amid sluggish sales, poor traffic and heightened competition.

Circuit City (CC, Fortune 500) posted a loss of $239.2 million, or $1.45 per share, in the three months ended Aug. 31, compared with a loss of $62.8 million, or 38 cents per share, in the same quarter last year.

Sales declined 10% to $2.39 billion from $2.64 billion. Consolidated same-store sales declined 13.3%.

Analysts polled by Thomson Reuters expected a loss of $1.04 per share and $2.53 billion in sales.

"Clearly, the performance of the company is unacceptable to all of our stakeholders, and it is imperative that we take the right steps to accelerate our turnaround," James A. Marcum, vice chairman and acting president and chief executive officer, said in a statement.

The company also said it is "prudent" to withdraw its previous outlook for fiscal 2009.

Chief Financial Officer Bruce H. Besanko said sales remain challenged by a significant decline in traffic, competition and a weakened brand position.

Retailer focuses on holiday season
Circuit City also announced it is undertaking a comprehensive review of the business and has identified key initiatives for the holiday season, including a focus on enhancing shopping experience, improving inventory on key items and upgrading signage.

"Heading into our most important selling season, we are focused on consistent and successful execution in key areas that will drive traffic and build customer confidence," said Marcum, who replaced Philip J. Schoonover, who stepped down last week.

Marcum, who was appointed Circuit City's vice chairman last month, was one of three directors elected to Circuit City's board in June as part of a deal to defuse a proxy fight with Mark J. Wattles, whose investment firm holds a 6.5% stake in the company.

The company on Monday also said that while strategic options will always be explored, it is "prudent to focus internally on improving the company's performance in order to operate as a standalone business."

Blockbuster withdrew takeover bid in July
In May, Circuit City announced it hired Goldman Sachs & Co. to explore strategic options, but has never given an official timetable for any action. The move came as the retailer opened its books to Blockbuster Inc., which had made a takeover bid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. The Dallas-based movie-rental chain withdrew its bid in July because of market conditions.

In the second quarter, Circuit City's video sales saw a high single-digit decrease, with low single-digit sales growth in flat-screen televisions unable to offset significant sales decreases in tube and projection televisions. Sales of camcorders and DVD hardware fell by double digits. Sales of digital TV converter boxes did offset some of the declines in the category, the company said.

Sales of information-technology products fell by double digits in the first quarter, as sales of notebook computers grew and sales of desktop computers continued to decline.

Sales of extended warranties fell about 8% in the quarter, and revenue from Firedog, the company's PC services and home-installation business, decreased 5%, Circuit City said. Internet- and call center-originated sales grew 1%

Consumer spending loses steam

Personal spending stagnated in August as the slowing economy continued to weigh on consumers, according to a government report released Monday.

The Commerce Department reported Monday that personal spending was virtually unchanged in August. Economists had forecast a 0.2% increase in personal spending.

Spending has not been this weak since February, when it was also flat.

Personal income, meanwhile, increased by 0.5% in August after a revised 0.6% decline in July. Economists surveyed by Briefing.com were expecting income to have grown by 0.2% last month.

After adjusting for taxes and certain price changes, however, real disposable income contracted 0.9%, according to the report.

"With the labor market remaining very weak, slow to negative growth in disposable income will most likely plague the consumer for at least the next six months," said Adam York, an economist at Wachovia Economics Group.

Consumer spending increased in May and June thanks to billions of dollars in payments sent to Americans as part of the Economic Stimulus Act of 2008.

The stimulus package was aimed at boosting consumer spending, which makes up the bulk of economic activity. But that spending waned as the stimulus program wound down.

The government said Friday that gross domestic product, the broadest measure of the nation's economic health, expanded at an annual rate of 2.8% in the April-June quarter, down from the 3.3% growth rate previously estimated.

With consumer spending accounting for two-thirds of the nation's GDP, "it's pretty clear now that were looking at a negative GDP number this quarter," said Bob Brusca, an economist at Fact and Opinion Economics.

Brusca noted that energy prices were subdued in August and that contributed to the income growth registered in the month. But he warned that "with weakness creeping into the economy, the outlook for income growth is not very good."

Monday's report comes as Congress prepares to vote on a controversial $700 billion bailout of the financial system.

The plan would use tax dollars to buy up bad mortgage-related assets from Wall Street companies in a effort to stabilize the financial markets and prevent further damage to the economy.

Credit: Know your limits

Consumers know all too well that going over their credit limit can mean a nasty fee, a higher interest rate and maybe even a lower credit score.

But few people are aware that merely approaching their limit can have costly consequences as well.

That's because your debt-to-limit ratio, or "debt utilization," is a key component of your credit score. Your debt-to-limit ratio is calculated by dividing what you've spent by your total credit limit.

If you have a $5,000 limit and you've charged $4,000 this month, your debt-to-limit ratio is 80%, which is enough to signal to lenders that you are a high risk borrower.

As a result, lenders may increase your annual percentage rate (APR) or deny you a loan - even if you pay off your credit card balance every month and have never exceeded your limit.

About 14% of Americans use at least 50% of their available credit, according to Experian's 2007 national score index study. But, experts recommend keeping your debt-to-limit ratio under 30%, or even under 10% if possible.

That means if your limit is $5,000, then you should aim to charge less than $500 a month.

The lower your debt-to-limit ratio, the better your credit score will be. And to that end, there are two basic ways to improve your debt utilization: raise your credit limit or lower your debt.

Raise your limit, lower your debt
Your credit card limit is listed on your monthly bill, but it can change from one billing cycle to the next. That's because credit card issuers can raise or lower your limit as they see fit.

But even though credit card issuers generally dictate what your limit is, consumers do have a say. You can call and request that your limit be raised, as the more available credit you have, the better your debt-to-credit ratio will be.

"If you have a good credit history your credit card issuer will up your limit, but if your history isn't great then they can say 'No,' which isn't necessarily a bad thing," according to Bill Hardekopf, CEO of LowCards.com.

"Getting turned down for a higher credit limit may be a blessing in disguise," Hardekopf said. Chances are it's a signal that you should reduce your spending or pay down your credit card balances instead.

When paying down debt, it's important to consider that your debt utilization is calculated per card and cumulatively. That means that leaving one card nearly maxed out will negate all the hard work you've done paying down the balances on other cards.

And a higher limit isn't always better. "If you are a spender and the temptation is there to spend more than what you can really afford, [then a higher credit card limit] can send you into the debt spiral," Hardekopf said.

It's also possible that potential lenders will view a sky-high credit limit as potential debt, which can count against you if you are trying to get a mortgage or a car loan.

Ultimately, "it boils down to how you handle debt. If you handle debt responsibly, then go for a higher limit," said Greg McBride, senior financial analyst at Bankrate.com. But, consider whether "that higher credit limit is going to represent temptation to run up additional debt."

Ideally, you want to illustrate that you can keep your spending under control, and that means "your focus should be on paying down debt, not racking up more," McBride said.

Pitfalls to avoid
Signing up for new cards to boost your total available credit and make your debt utilization appear lower can work against you, experts say. In fact, opening new accounts can even lower your credit score.

"Recent credit inquiries constitute 10% of your score," McBride said. And each new inquiry means potential points subtracted from your total.

Additionally, closing unused cards is also a bad idea.

"When you close an account the amount of 'overall' available credit decreases, which could cause an increase in your [debt] utilization and inadvertently lower your score," said Deanna Templeton, director of consumer education for Credit.com.

Templeton also recommends using old credit cards periodically, just to prevent your issuer from closing them because of inactivity. "Every so often charge something small like gas or dinner, and then pay it off when you get the bill," she said.

Walgreen profits surge 12%

Walgreen Co. said Monday higher sales and cost-cutting boosted its fiscal fourth-quarter profit 12% amid a difficult economic environment.

Profit for the quarter ended Aug. 31 increased to $443 million, or 45 cents per share, from $396.5 million, or 40 cents per share, a year earlier.

Results include a $79 million vacation accrual adjustment. Revenue rose 9% to $14.6 billion from $13.42 billion last year.

Analysts polled by Thomson Reuters expected a profit of 45 cents per share on revenue of $14.67 billion.

Sales in stores open at least one year, a key retail metric known as same-store sales, rose 2.6% during the quarter, including a 3.7% rise in front-end, or nonprescription sales.

Deerfield, Ill.-based Walgreen (WAG, Fortune 500) said it increased promotions and discounts to combat economic weakness. Those moves increased sales, but not to the degree Walgreen had hoped, and the company said it will reduce promotions.

For the full fiscal year, Walgreen earned $2.16 billion, or $2.17 per share, on $59.03 billion in sales. It opened or acquired 561 stores, giving it 6,443 locations in 49 states; Washington, D.C.; and Puerto Rico. Walgreen plans to open 495 new stores in fiscal 2009.

The company made no comment on its efforts to buy California-based rival Longs Drug Stores Corp. Walgreen has offered $2.8 billion, or $75 per share, for the company, which would give Walgreen a larger presence in California and Hawaii.

Longs management prefers a bid from CVS Caremark Corp. worth $2.7 billion, or $71.50 per share, which has already received regulatory approval.
Walgreen Co. said Monday higher sales and cost-cutting boosted its fiscal fourth-quarter profit 12% amid a difficult economic environment.

Profit for the quarter ended Aug. 31 increased to $443 million, or 45 cents per share, from $396.5 million, or 40 cents per share, a year earlier.

Results include a $79 million vacation accrual adjustment. Revenue rose 9% to $14.6 billion from $13.42 billion last year.

Analysts polled by Thomson Reuters expected a profit of 45 cents per share on revenue of $14.67 billion.

Sales in stores open at least one year, a key retail metric known as same-store sales, rose 2.6% during the quarter, including a 3.7% rise in front-end, or nonprescription sales.

Deerfield, Ill.-based Walgreen (WAG, Fortune 500) said it increased promotions and discounts to combat economic weakness. Those moves increased sales, but not to the degree Walgreen had hoped, and the company said it will reduce promotions.

For the full fiscal year, Walgreen earned $2.16 billion, or $2.17 per share, on $59.03 billion in sales. It opened or acquired 561 stores, giving it 6,443 locations in 49 states; Washington, D.C.; and Puerto Rico. Walgreen plans to open 495 new stores in fiscal 2009.

The company made no comment on its efforts to buy California-based rival Longs Drug Stores Corp. Walgreen has offered $2.8 billion, or $75 per share, for the company, which would give Walgreen a larger presence in California and Hawaii.

Longs management prefers a bid from CVS Caremark Corp. worth $2.7 billion, or $71.50 per share, which has already received regulatory approval.
 

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