Sunday, January 28, 2007

Durable Goods Were Up in December; New Home Sales Were Down 17.3% in 2006

In two separate releases, the Commerce Department showed some strength in manufacturing. House sales did a bit better in December, but were way below a year ago. Particularly relevant to Wichita, new orders for aircraft and aircraft parts excluding defense orders were up by $3.8 billion.
To quote the Wall Street Journal, "A surge in aircraft orders accounted for a large part of the gain, but orders for "core" capital goods excluding defense and aircraft were also up at a good clip."

Friday, January 26, 2007

NBC is wroth about a breach of its rules: What about the shareholders' money?

Victor Jung used to be the treasurer at NBC Universal. According to this morning's Wall Street Journal. He has been charged with stealing some $800,000 over a six month period. Mr. Jung set up a corporation "NBCU Media Productions LLC and wired transferred funds from a GE account" to bank accounts in its name. These accounts financed some fancy flings and a place in the Hamptons.

He was arrested 6:00 A.M. yesterday.

I wonder what he was thinking? "They won't notice $800,000: it's rounding error."

Of course, maybe he is innocent. Perhaps in the wacky world of the media, he was simply facilitating the extravagence of his superiors.

The unsung hero of the piece is the internal auditor who caught him. Internal auditing has been booming after the wakiness of the internet boom went out of fashion. What was ordinary business practice was seen to be just plain silly when that bubble burst. Sarbanes Oxley has super charged the boom. The most recent figures I saw had internal auditors' salaries growing in double digits. The demand outstrips the applicants off into the future.

Most interesting in this news story is NBC Universal's reaction:

Consider its public statement: "NBC Universal is committed to and vigilant about the enforcement of its compliance policies. When we discovered the potential integrity breach, we promptly brought it to the appropriate authorities and are cooperating fully with the investigation. We will continue to monitor the situation to its resolution."

That is a far cry from "That blankety blank stole the shareholders' money and we want every red cent back!" Perhaps the flack under the NBC peacock is singing a song for his grey flannel superiors at GE where the corporate culture is probably a lot less flamboyant.

In general, the return to corporate sanity after the internet bubble burst is salutary. But I also wonder whether in the post Sarbanes-Oxley world, companies are worrying more about following the rules, than growing the value of their businesses?

Thursday, January 18, 2007

Click Here to See the Oil Price's Ups and Downs

Crude oil prices dropped two dollars today after reports that inventories are up. The Wall Street Journal has provided this graph of its history in real terms and in nominal terms. The real price is the price adjusted to the U.S. price level in January, 2007.

Is My Understanding of the English Language Becoming Obsolete?

In today's Wall Street Journal, Joe Dickerson, an analyst at Atlantic Equities LLP, is quoted saying that J.P. Morgan "is making tangible progress on leveraging its diverse business model to the bottom line." Atlantic Equities is a London independent research firm.

What does he mean? By "diverse business model," does he mean that J.P. Morgan has multiple business models? Or does he mean that the bank's business model is based on a diversity of business (each with its own business model)?

I have a personal preference for the more straightforward verb "lever" over the rethreaded noun, "leverage." Whatever my preference, I know I am spitting into the wind on this one. That said, how does one lever a diverse business model to a bottom line? That is not a matter of levering or amplifying.

So what does he mean? My hunch is that J.P. Morgan has made progress integrating banks it has bought and achieving some economies of scope between such diverse businesses as securities trading, investment banking, retail banking, and credit cards. And perhaps he is right.

If I were an investor in J.P. Morgan, my worry would be this: The bank is gaining an earnings boost from over levered consumers who are falling back on their credit cards lines. Will that interest income disappear in the future when some of those balances evaporate into loan loss reserves?

Friday, January 05, 2007

National Employment

The national unemployment rate was 4.5 percent and national payrolls grew by 167,000 jobs in December. In November, Wichita's unemployment rate fell to three tenths percent below the national employment rate.

Although the transportation sector (which includes the aircraft industry) lost five thousand jobs nationwide, the losses were overwhelmingly were among firms producing motor vehicles and parts. The American automotive industry is suffering from both a declining vehicle market and stiff foreign competition. Employment in motor vehicles and parts has declined 4.9 percent over the last twelve months while jobs in the rest of the transportation equipment sector increased by two percent.

Overall, employment is doing well. Jobs were 1.4 percent higher in December, 2006 than in December, 2005. This steady growth seems to be holding up despite the economy's slower second half growth (see the chart.)

The Wichita Job Market

Wichita's unemployment rate dropped to 4.2 percent from 4.4 percent from October to November. This reflected strong growth in payrolls in the metropolitan area. In the Bureau of Labor Statistics' November Metropolitan Employment Report, businesses reported 294.4 thousand workers on their payrolls. This was a full thousand more than in October. Jobs grew 1.8 percent over November last year.

The job growth reflects the continuing strength of the local economy, particularly the aircraft industry. That industry's unfilled orders have grown. The job growth is the more impressive given that Raytheon Aircraft has been operating under a job freeze while its pending sale was being resolved.