Retail sales rose a seasonally adjusted 0.1% in September. Auto sales were strong, up 1.7% last month. Sales at gas stations were down 3.2% because gas prices were lower. Sales fell at Internet retailers, general stores, home centers, groceries and outlets that sell appliances and electronics. Sales rose at restaurants. Excluding autos and gas, sales were flat. Retail sales have risen 2.4% in the past 12 months, though the gain is a healthier 4.9% if gasoline is omitted.
The producer price index, which measures prices at the wholesale level, fell 0.5% last month. In September the wholesale price of gas sank almost 17%, marking the sharpest decline since January. That drove down the overall cost of goods by 1.2%. The cost of services also fell by 0.4% last month, the biggest decline since February. Core producer prices, excluding the volatile categories of food, energy and trade fell a smaller 0.3% in September. Over the past year, overall producer prices have fallen an unadjusted 1.1%.
Inventories at U.S. businesses were flat in August. Business sales fell 0.6% in August, the biggest drop since January. The inventory-to-sales ratio, an indication of demand, rose to 1.37 from 1.36 in July.
We are two weeks from the next Fed FOMC meeting, and that means the Fed publication of the Beige Book, a compilation of observations from the 12 Fed districts; not necessarily hard economic data. Six of the 12 Fed districts called the expansion "modest," while three reported "moderate" growth. Two districts, Boston and Richmond, saw an increase in economic activity, while Kansas City declined.
Labor markets "tightened in most districts" even as wage growth remained subdued, with increases concentrated among highly skilled workers (and yes, there is a connection between a lack of skilled workers and the wages workers are offered). Consumer spending "grew moderately," housing and commercial real estate improved, and banking and finance "were generally positive." Manufacturing "turned in a mixed but generally weaker performance," and the energy sector declined further.
The strong dollar acted like a brake on economic activity, particularly in manufacturing, energy and tourism. Price pressures were "contained" as some districts saw cheaper energy and commodities. In short, there is nothing in the Beige Book that seems to tell policymakers to raise interest rates.
The biggest corporate news of the day came in the form of guidance from Walmart (WMT). Watch out for falling prices. Walmart dropped its sales forecast for the year and warning that heavy investments in wages and in e-commerce would curb future earnings. Walmart warned that earnings per share would fall 6 to 12 percent next year before they would recover; profits should rebound by the fiscal year 2019, when earnings per share was expected to grow 5 to 10 percent a year. That's a long time to wait.
To soften the blow, Walmart announced it would increase share buybacks by $20 billion, which is about what they lost in market capitalization today, as the stock closed down 10%, shaving about 45 points off the Dow Industrial Average. Maybe they should have put the money into something a bit more creative.
Doug McMillon, Walmart's chief executive, said the company needed to invest to return to growth. McMillon said: "Retail history is very clear. Those that are unwilling or unable to change go away. That's why we're taking decisive steps now to change and grow our business."
One major change in retailing is the shift to online commerce, where Walmart is getting kicked by Amazon (AMZN). So Walmart will invest $2 billion in its e-commerce arm over the next two years, opening online grocery operations in 20 new markets. (compare this to the $20 billion buyback)
Netflix posted third-quarter earnings of 7 cents per share on $1.74 billion in revenue, just missing analyst expectations of 8 cents per share on $1.75 billion in sales. That's close enough to be forgiven, but the bad news came in the form of subscriber growth. Netflix (NFLX) added 880,000 new U.S. members in the quarter, much lower than the 1.19 million analysts expected. Netflix shares dropped 14%.
Bank of America (BAC) reported profit of $4.5 billion, or 37 cents a share, beating estimates by 4 cents. Revenue, however, fell 2.4 percent, to $20.9 billion, from the quarter a year ago. Third-quarter results were lifted by a 4 percent decline in expenses and lower charge-offs on loans. The bank also continued to build deposits, with its overall base up $50 billion from a year ago.
A year ago, the bank reported a $232 million loss, as it settled an investigation by the Justice Department into the sale of toxic mortgage-backed securities leading up to the financial crisis. So, the trick to turning a profit is to not get hit with billions of dollars in legal fees. Who knew?
Wells Fargo (WFC) reported a rise in quarterly profit for the first time in three quarters; they narrowly beat estimates. The bank earned $5.8 billion, or $1.05 a share, up 1% from the quarter a year ago.
BlackRock (BLK), the world's largest asset manager, topped analysts' earnings forecasts in the third quarter even as its profits fell. Earnings for the third quarter on an adjusted basis declined 5 percent, to $844 million, or $5 a share, from $890 million, or $5.21 a share, in the quarter a year ago. Overall assets under management fell to $4.5 trillion at the end of September, from $4.7 trillion at the end of June.
Delta Air Lines (DAL) led off earnings season for the airline industry with a strong report; third-quarter profit topped analysts' expectations, and it forecast that passenger unit revenue would decline in the fourth quarter year-over-year.
Yesterday Intel (INTC) reported less than stellar quarterly earnings, noting a slowdown in PC sales, among other things. Today comes news from Microsoft (MSFT) that they are selling their first ever laptop, the Surface Book, as fast as they can make them. Microsoft started taking preorders last week; five days later and they have sold out.
Apple could be facing up to $862 million in damages after a U.S. jury found the iPhone maker used technology owned by the University of Wisconsin-Madison's licensing arm without permission in chips found in many of its most popular devices. The jury in Madison, Wisconsin also said the patent, which improves processor efficiency, was valid. The trial will now move on to determine how much Apple (AAPL) owes in damages. The jury was considering whether Apple's A7, A8 and A8X processors, found in the iPhone 5s, 6 and 6 Plus, as well as several versions of the iPad, violate the patent.
Volkswagen (VLKAF) has been in trouble lately, as you know, for rigging emissions tests on diesel cars. Their CEO resigned. There are investigations on several continents. Millions of cars will be recalled. Sales have been suspended. So they named a new guy to take over North American operations, Winfried Vahland, a 25 year veteran of the company. Thanks but no thanks. Mr. Vahland has resigned. VW says it is because of a disagreement about reorganizing the North American unit and not because of the emissions scandal.
Goldman Sachs (GS) may be in hot water over its advisory role to Malaysia's troubled sovereign wealth fund - 1Malaysia Development Berhad, or 1MDB. The WSJ reports the bank received more than $350 million for consultant work related to the fund, which is currently under investigation for billions of dollars in missing money. The FBI and Justice Department have already begun examining Goldman's role in several of 1MDB's transactions.
Dish Network (DISH) has officially petitioned the FCC to deny the merger of Charter (CHTR) and Time Warner Cable (TWC) on "risk of significant harms," including a "suffocating duopoly." Dish noted the proposed deal would be no better than the one proposed between Comcast and Time Warner Cable, and stated the merger would result in two broadband providers (the other being Comcast) controlling 90% of U.S. high-speed broadband networks.
Facebook (FB) is now testing a dedicated video channel, intensifying its rivalry with YouTube for viewers' time and advertisers' spending. The channel would appear as a tab on the home page, allowing users to save clips that have appeared in their news feed and recommend videos based on other things they have watched. The move follows several other fresh initiatives by the social network for online video. Facebook recently said it would begin sharing ad revenue with video creators, unveiled a new feature called Suggested Videos, and has allowed public figures to livestream on its website.
Although it registered for an initial public offering in August, Neiman Marcus is pushing back its stock market flotation to 2016. The luxury department store chain, which is owned by private equity firm Ares Management and the Canada Pension Plan Investment Board, said stock market jitters prompted it to put the plan on hold. Only 26 companies went public in the third quarter, down from 59 in the same period of 2014.
Square, the mobile payments company that shares a chief executive with Twitter, today disclosed its documents for an initial public offering. The company revealed revenue of $850 million last year with losses of $154 million.
First Data Corporation priced its initial public offering today in what could be the largest IPO of the year. The KKR-backed company, which processes more than 40% of electronic payments in the U.S., has been marketing 160 million shares in the $18-$20 range, indicating an offering size of $3 billion and a valuation of almost $17 billion.
Albertsons is also going public, seeking to sell about 65 million shares between $23 and $26 a share, giving the grocer a market value of around $11.6 billion. Pricing was scheduled for this afternoon but is now being pushed back to tomorrow.
U.S. listings had raised about $30 billion through the end of Tuesday, compared with $82 billion by that point last year.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.