CHICAGO, March 29, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: Deere (NYSE: DE). Tractor Supply
(Nasdaq: TSCO), Potash (NYSE: POT), Wal-Mart (NYSE:
WMT) and The Hartford Financial Services Group Inc. (NYSE:
HIG).
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Here are highlights from Monday's Analyst Blog:
Personal Income, Spending Rise
The components of Personal Income are as important as is the
total number. As I noted above, the unusually large jump in January
was primarily due to the change in the payroll tax. In total,
personal income rose by $38.1
billion, a big decline from the rise of $147.4 (revised from $133.2) billion in January (seasonally adjusted
annual rates, as are all the subsequent numbers on the components
of personal income). Since the reduction in the payroll tax
is only for one year, this is not a particularly high quality
source of personal income growth.
On the other hand, it is probably of higher quality than
government transfer payments (for example Social Security and
Unemployment Insurance benefits). Those fell by $1.1 billion in February after falling by
$0.1 billion in January.
In January, private sector wages rose by $16.4 billion, down from a $16.7 billion increase in January. However, there
was a big upward revision to the January number -- they were
originally reported as an increase of $14.8
billion.
Wages in the goods-producing sector fell by $1.0 billion in February, down sharply from a
$12.0 billion increase in January.
Offsetting that, wages in the private-service sector were up
$17.4 billion versus an increase of
$4.7 billion in January. Overall
government wages rose by $0.3 billion
after rising $2.5 billion in
December.
Private wages and salaries are the most important and highest
quality, form of personal income. Government wages have to be paid
out of either taxes or government deficits. Government workers do,
however, spend their money in the private sector, just like
private-sector workers do.
Proprietors Income
Another important source of personal income is proprietors'
income. In other words, what the self-employed and small businesses
were earning. That increased by $2.5
billion in February, down from a $3.9
billion rise in January. Farm proprietors incomes rose by
$0.5 billion, matching a $0.5 billion increase in January.
Strong commodities prices have led to a stunning increase in
farm incomes. Farm proprietors' incomes have risen every month
since March of last year. The overall strength down on the farm
helps explain why the Great Plains states like the Dakotas and
Nebraska are weathering the
downturn so much better than the rest of the country. It is also a
good sign for firms that are tied to the farm economy, such as
Deere (NYSE: DE). Tractor Supply (Nasdaq: TSCO) and
Potash (NYSE: POT). It also suggests that perhaps
Willie Nelson needs to find a
different recipient for his charity concerts.
Non-farm proprietors' income rose by $2.5
billion, down from a $3.7
billion rise in January. In other words, what we normally
think of as small business income is showing signs of getting back
on track, but is hardly booming the way farm income is. Farm
proprietors' income is tiny relative to non-farm at just
$58.0 billion versus $1.0366 trillion.
Since July 2010, non-farm
proprietors' income is up a nice, but hardly exciting 3.0%.
Non-farm proprietors' income actually peaked back in December of
2006 at $1.1129 trillion, so small
business income is still 6.9% below peak levels. On they other
hand, it bottomed out in May 2009 at
$971.6 billion, so we are now 6.7%
above the valley floor.
Other Forms of Income
Rental income rose by $8.3 billion
in January, up from a $8.2 billion
increase in January. Rental income has increased every month since
November 2009. Given the still-weak
condition of the real estate market, this is somewhat surprising,
but a sign that it is slowly on the mend.
Capital income, or income from dividends and interest, rose by
$7.7 billion after it rose by
$8.8 billion in January. This income
is particularly important to retirees. While interest rates are
still very low by any historical measure, they have increased over
the last few months, most notably longer term T-notes. Interest
income fell by $1.0 billion in
February, matching its January decline.
Dividend income rose by $8.6
billion on top of a $9.9
billion increase in January. Dividend income can be a bit
erratic month to month, but the general trend seems to be upwards,
since October total dividend income is up by 4.5%. The decision to
allow most of the "too big to fail" banks to substantially increase
their dividends means that dividend income is likely to continue
rising nicely over the next few months. The decision was however,
very ill advised from the point of view of banking system soundness
and safety.
The final big component of personal income is government
transfer payments. Like government salaries, this source of income
has to come from either taxes or increased deficits and so it is a
less desirable source of personal income from the point of view of
the economy as a whole.
However, it is still income that gets spent in the economy.
Wal-Mart (NYSE: WMT) really doesn't care if the money spent
in its stores is from the elderly using their Social Security
checks or the dividends they get from their investments, or really
if it is retirees shopping there or people still in their working
years spending their wages there, or their unemployment benefits.
Transfer payments rose this month by $1.1
billion, after falling 0.1% in
January.
Over the long-term, though, the economy cannot simply grow
through ever-increasing amounts of money being handed out by the
government. Those payments are very useful in the short run to help
hold up overall consumer spending when the economy has turned soft.
In the long run, the economy needs income from wages and salaries,
and from small businesses earning profits. It is those earnings and
profits that pay the taxes that support the transfer payments.
S&P Raises Outlook on Hartford
On the back of lower investment losses and strong performance in
the fourth quarter, the rating agency Standard & Poor's
(S&P) Ratings Services has upgraded its outlook on The
Hartford Financial Services Group Inc. (NYSE: HIG), as the
company diverts to safer risk profiles in its investment
portfolio.
S&P has raised the outlook to "stable" from "negative,"
while it resumed Hartford's
counterparty credit rating stands at "BBB".
Hartford's performance in its
underwriting business continued to be strong, and besides, the
company's move to reduce its exposure to real estate related
securities and hedge funds contributed to boosting the outlook.
Fitch Ratings also raised the outlook in February to "stable"
from "negative," while it resumed Hartford's ratings of "BBB" issuer default
ratings ("IDR").
Recently on February 3,
Hartford posted a solid net income
of $619 million or $1.24 per share in the fourth quarter of 2010 as
opposed to a net income of $557
million or $1.19 per share. In
fiscal 2010, net income was $1.68
billion or $2.49 per share as
against a net loss of $887 million or
$2.93 per share in fiscal 2009.
Better investment results, strong growth in assets under
management, reduced levels of net realized capital losses and
Hartford's impressive book value
during the quarter led to strong net income, which has in turn
improved the ratings of Hartford.
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