FOCUS ON THE 15: Storm of economic woes stirs up investors

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By Jim Victor | Saturday, July 05, 2008 |

Three days of calm, and then the storm. Stock markets turned stormy Thursday. And a downpour of sell orders pressured stock prices lower on one of the worst selloffs in a year. Oil continued to precipitate problems, with prices on the New York Mercantile Exchange climbing above $140 per barrel that day on unconfirmed reports that Libya may reduce oil output.

Further gloom was precipitated by banking sector worries as one brokerage research department

suggested that a number of major banks could need to raise yet more

capital.

With those two gray clouds darkening investor moods, our Quad-City Times Key 15 was pressured down 71.47 to 1,227.26.

Strangely, Thursday was a day of comforting economic developments on three fronts.

In housing, May’s existing home sales climbed 2 percent from April, according to the National Association of Realtors. The pace is still below one year ago. But unsold inventories declined from April’s levels too, as spring brought out buyers. Improvement in this area, one of the economy’s truly slow sectors, was a ray of sunshine.

In overall economic output, the U.S. economy grew even more than earlier expected. The Commerce Department revised higher, for a second time, its calculation of our first-quarter output, or gross domestic product. Analysts now report 1 percent real growth, even after stripping away growth that may have come from the inflation rate.

Consumer spending, which makes up about 70 percent of our output, was revised higher. Exports also were revised higher, along with business investment in new plants and new equipment. In short, the economy is forging ahead, better than earlier reported, despite the slowness in housing, autos and banking.

Quad-City employment offered yet another ray of sunshine. Our bistate area saw 197,781 employed in May, up by 1,228 jobs from last May. But May also is a month when the available labor force climbs, both here and nationwide, due to students and teachers leaving education pursuits. So the number unemployed and available also grew, a common seasonal feature.

Flooding continued to take a toll on area businesses. The railroad bridge leading to Tyson Foods’ meat processing plant in Columbus Junction, Iowa, collapsed Wednesday, taking a locomotive and its engineer down into the Iowa River. The engineer was hospitalized. And Tyson will leave Canadian beef processing. Tyson sold its Alberta operations, doing business as Lakeside Farm Industries, to Canadian-owned XL Foods. “Canadian packing plants have been running at less than 70 percent capacity because of a lack of cattle and labor,” said Kevin Grier, an analyst at Canada’s George Morris Center. The labor shortage comes as workers have been attracted away by growing oil drilling work in Alberta. Tyson shares were off .24 at 14.64.

Also a victim of flooding here, Isle of Capri was able to reopen its Davenport gaming operation at 3 p.m. Tuesday. It was the second closing and reopening due to flooding this year. Isle officials thanked their employees “as well as all the city employees who have made an extraordinary effort to protect not only our facility, but all of the buildings and businesses located downtown.” Isle of Capri shares were 1.27 lower last week to 5.17.

Agribusiness continues to be a major Wall Street focus. So Monsanto’s (b) earnings report on Wednesday was a high visibility event. Monsanto says sales for its third fiscal quarter climbed 26 percent to $3.6 billion. Profits climbed 42 percent to $1.45 per share, well above analysts’ consensus estimates of $1.34. Further, Monsanto went on to raise full-year guidance to $3.40 per share. With herbicide operations here, Monsanto’s seed, seed traits, and herbicide sales all grew. A 9 percent climb in corn seed sales fell short of analyst expectations, however, leaving Monsanto shares to fall 11.83 last week to 128.34.

The new week will be short but action-packed. July arrives Tuesday, and with it the important purchasing managers’ report on manufacturing, an insight into manufacturing activity ahead. Wednesday brings the latest tally on new factory orders. Thursday brings the nationwide employment report before we take Friday off to celebrate Independence Day. Celebrate that independence and all our personal freedoms, including free markets that allow us to work, build and compete.

Jim Victor is senior vice president-wealth management and financial advisor for Smith Barney, Davenport. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world.

The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. a) The firm is a market maker in the publicly traded equity securities of this company. b) Within the past 3 years, Citigroup or its affiliates has acted as manager or co-manager of a public offering of securities of this company.