The Star Online: Business
The Star Online: Business |
- US third-quarter growth cut on weak inventories
- Merck to pay US$950MIL to settleVioxx charge
- JP Morgan to buy MF Global stake in LME
| US third-quarter growth cut on weak inventories Posted: 22 Nov 2011 05:06 PM PST WASHINGTON (Reuters) - The U.S. economy grew more slowly than previously estimated in the third quarter, but a drawing down of stocks held by companies and firm consumer spending suggested output would pick up in late 2011. Gross domestic product grew at a 2.0 percent annual rate in the July-September quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously reported 2.5 percent. While the pace of growth was weaker than economists had expected, the composition of the report, particularly still-firm consumer spending and the first drop in businesses inventories in nearly two years, set the stage for a stronger performance in the final months of the year. A deterioration in consumer sentiment likely had led businesses to anticipate weaker demand. With consumer spending showing resilience, analysts said they will now have to rebuild inventories, keeping factories busy. "The mix or composition of growth improved. Inventory investment was lower so firms are more likely to produce more goods going forward. And exports rose," said Cary Leahey, a senior economist at Decision Economics in New York. "So while you lost a half-percentage point in the revision to third-quarter growth, you might easily get it back in the fourth quarter of this year or the first quarter of next." Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months. U.S. stocks closed down for a fifth straight day as borrowing costs in Spain scaled another record high, underscoring the magnitude of the euro zone debt crisis. Prices for long-dated U.S. Treasury debt rallied, while the dollar was little changed against a basket of currencies. INVENTORIES A DRAG Despite the downward revision, last quarter's growth is still a step up from the April-June period's 1.3 percent pace. The government revised third-quarter output to account for an $8.5 billion drop in business inventories, the first decline since the fourth quarter of 2009. The drop in inventories lopped off 1.55 percentage points from GDP growth, which was partly offset by strong exports. Excluding inventories, the economy grew at an unrevised brisk 3.6 percent pace after expanding 1.6 percent in the second quarter. Consumer spending was taken down a notch to a 2.3 percent growth pace from 2.4 percent, but remained the quickest pace since the fourth quarter of 2010. But weak income growth could crimp spending going forward. Taking inflation into account, disposable income fell at a steeper 2.1 percent rate instead of 1.7 percent, the report showed. It had declined 0.5 percent in the prior three months. The failure of a congressional "super committee" to agree on a deficit reduction package of at least $1.2 trillion also clouds the outlook. It is less clear now that Congress will extend a payroll tax cut and emergency unemployment benefits due to expire next month. That potential fiscal drag, together with the festering European debt crisis, could undermine growth early next year and prompt further monetary stimulus from the Federal Reserve. Minutes of the U.S. central bank's November 1-2 policy meeting published on Tuesday showed a few Fed officials believed the outlook for modest growth might warrant more policy easing. "The complete failure of Washington to make any meaningful changes to spending or taxes could further harm confidence of both consumers and businesses," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "So we could get a really good fourth-quarter growth rate but much more modest gains in 2012, and that will weigh on investors and keep the Fed pushing as hard as it can, even if it is a string that it is pushing." REVERSAL OF TEMPORARY FACTORS Part of the pick-up in output during the last quarter reflected a reversal of factors that held back growth earlier in the year. A jump in gasoline prices had weighed on spending in the first half of the year, and supply disruptions from Japan's big earthquake and tsunami in March had curbed auto production. Business investment was revised down to a 14.8 percent rate from 16.3 percent as estimates for investment in nonresidential structures and outlays on equipment and software were lowered. The department also said after-tax corporate profits increased at a 3.0 percent rate after rising 4.3 percent in the second quarter. Exports grew at a stronger 4.3 percent rate instead of 4.0 percent, while imports rose at a much slower 0.5 percent rate rather than 1.9 percent. Elsewhere, there were revisions to show modest residential construction growth and weak government spending. The GDP report also showed inflation pressure subsiding, with a price index for personal spending rising at a 2.3 percent rate, instead of 2.4 percent. That compared to a 3.3 percent rate in the second quarter. A core inflation measure, which strips out food and energy costs, rose at a 2.0 percent rate rather than 2.1 percent. The measure -- closely watched by the Federal Reserve -- grew at a 2.3 percent rate in the prior three months. Full content generated by Get Full RSS. |
| Merck to pay US$950MIL to settleVioxx charge Posted: 22 Nov 2011 05:03 PM PST NEW YORK (Reuters) - Merck & Co will pay roughly $950 million to settle criminal and civil charges that it promoted the painkiller Vioxx for an unapproved use, the U.S. Justice Department said on Tuesday. The fine will conclude a long-running investigation into Merck's promotion of its one-time blockbuster drug, which was withdrawn from the market in September 2004 after being linked to heart risks. The Justice Department alleged that Merck promoted the drug for treating rheumatoid arthritis before it had been approved for that condition by the U.S. Food and Drug Administration. The case is one of the largest settlements by a major pharmaceutical company over marketing drugs in the United States for uses that have not been approved by the FDA, known as off-label promotion. "We will not hesitate to pursue those who skirt the proper drug approval process and make misleading statements about the safety and efficacy of their products," said Tony West, the Justice Department's assistant attorney general for the civil division, in a statement. Merck pled guilty to a misdemeanor charge and will pay a $321.6 million criminal fine for introducing the misbranded drug Vioxx into interstate commerce. It also agreed to pay an additional $628.4 million civil settlement to resolve additional allegations regarding its off-label marketing of Vioxx and alleged false statements about the pill's heart safety. The U.S. government will recover $426 million of that amount, while the remainder will go to the states in the lawsuit. HEART RISKS The Justice Department said Merck also agreed to a corporate integrity agreement to strengthen oversight over its marketing. Merck said the settlement does not mean it admits liability or wrongdoing. "We believe that Merck acted responsibly and in good faith in connection with the conduct at issue in these civil settlement agreements, including activities concerning the safety profile of Vioxx," said Bruce Kuhlik, executive vice president and general counsel of Merck, in a statement. The large American drugmaker had already told investors in October 2010 it was taking a $950 million charge related to the U.S. government probe. The civil settlement agreement is signed with the United States and individually with 43 states and the District of Columbia, but previously disclosed litigation with seven states is still unresolved, Merck said. States have said the company misled regulators about the dangers associated with Vioxx, which has been linked in lawsuits to increasing users' risk of heart attacks and other serious cardiovascular side effects. In 2007, Merck also agreed to pay $4.85 billion to settle lawsuits filed by thousands of former Vioxx users, who alleged the pill caused heart attacks. Full content generated by Get Full RSS. |
| JP Morgan to buy MF Global stake in LME Posted: 22 Nov 2011 05:00 PM PST LONDON (Reuters) - J.P. Morgan will soon announce it has bought a 4.7 percent stake in the London Metal Exchange (LME) from defunct U.S. brokerage MF Global, two people familiar with the situation said, making it the exchange's largest shareholder. The U.S. investment bank would pay 25 million ($39.1 million) pounds for the stake in the world's largest metal market, the sources said, implying a total value of around 530 million pounds for the operator. An announcement could come as early as this week. The sale to J.P. Morgan could shift the odds in the takeover battle for the LME, one of the few exchanges to still operate an open outcry ring, which has thrown its doors open to a potential 1 billion pound takeover. The LME would open its books to potential bidders by December 8, a spokesperson for the exchange had said earlier. But a source close to the LME later said this now seemed ambitious, and that the date could be pushed back. J.P. Morgan, which already holds a 6.2 percent in the LME, declined to comment. The LME also declined to comment, as did KPMG, the administrators for MF Global's UK unit. Goldman Sachs is also a large shareholder in the LME. Two likely contenders for the 1877-founded group are the Chicago Mercantile Exchange and the IntercontinentalExchange energy market, both U.S. groups. J.P. Morgan would separately also buy the B-shares held by MF Global for 2 million pounds, one of the sources said. These shares give the holder the right to trade on the LME and can be sold separately to other members of the exchange. J.P. Morgan is already holding B-shares, and it was unclear what would happen to the new shares it would now acquire. Industry sources told Reuters last Wednesday that MF Global's ring dealing seat on the LME will be bought by U.S.-based broker INTL FCStone. Selling the stake would be a boost for creditors of futures brokerage MF Global, which filed for bankruptcy protection last month, and for its clients, some of whom have seen their positions frozen ever since. The shortfall of customer funds at MF Global may be around $1.2 billion, about double initial estimates from regulators, the trustee liquidating the company said on Monday. Regulators are investigating what happened to the money and whether MF Global may have improperly mixed customer money with its own -- a major violation of industry rules. No charges have been filed. ($1 = 0.6400 British pounds) Full content generated by Get Full RSS. |
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