Consumer Spending Down, Fiscal Cliff Lurks - Analyst Blog
30 November 2012 - 9:59AM
Zacks
This morning’s lackluster Personal Income & Outlays report
for October shows that the economy may not be strong enough to
withstand ‘Fiscal Cliff’ jolts. While some of the spending weakness
in today’s report likely reflected disruptions from Sandy, the
trend wasn’t looking that encouraging even in the third quarter GDP
report on Thursday, where the consumption numbers were revised
lower even as the headline growth number was revised higher.
Today’s report shows 0.2% drop in consumer spending versus the
unrevised 0.8% gain in September. Income growth was unchanged
versus the 0.4% gain the month before. Overall, this is a weak
reading of the consumer economy, but largely corroborates the soft
same-store sales numbers we found from retailers on Thursday. GDP
growth estimates for the fourth quarter have been coming down in
recent days and this report will further accelerate that trend.
Negotiations to resolve the ‘Fiscal Cliff’ issue don’t seem to be
making any headway at this stage, meaning that we are likely weeks
away from something resembling a resolution. But the expected tax
changes next year that any resolution will accompany, particularly
on dividend tax rates, is prompting companies to speed up their
scheduled quarterly dividend payouts and many are coming out with
special one-time dividends.
Quite a few companies are going to the extent of issuing debt to
finance the special dividend payouts. The special dividend
announcements from Carnival (CCL),
Costco (COST), Murphy Oil (MUR)
and Brown-Forman (BF.B) would fall in this latter
category. Bond investors are not thrilled with these debt-financed
special dividends and the rating agencies are clamping down, but
the trend doesn’t seem to stopping.
BROWN FORMAN B (BF.B): Free Stock Analysis Report
CARNIVAL CORP (CCL): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis Report
MURPHY OIL (MUR): Free Stock Analysis Report
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