TOP STORIES -- MAY 10-15
Consumer Prices Rise a Fifth Straight Month
Consumer prices climbed in April for a fifth straight month, with inflationary pressures on a wide variety of goods and services, the government said.
The Labor Department’s consumer price index rose by a seasonally adjusted 0.2%, less than half the 0.5% rate in March and below many analysts’ projections. And gasoline prices actually fell 0.3%, though motorists in the Los Angeles area who paid an average of $2.153 for a gallon of self-serve regular last month might not have noticed. (The statewide average hit a record $2.223 earlier in the week.)
But April’s core inflation rate -- excluding volatile energy and food prices -- was a higher-than-expected 0.3%, following a 0.4% uptick in March.
It’s core inflation that the Federal Reserve considers when determining interest rates. Many analysts said the rise in core inflation would put pressure on the Fed to boost rates, which might moderate economic growth and price inflation. At 1%, the Fed’s key rate is at a 46-year low.
*
Dow Dips Below 10,000 During the Week
Wall Street was roiled by rising oil prices, Mideast turmoil and inflation fears last week, with the Standard & Poor’s 500 index, the Dow Jones industrial average and the Nasdaq composite index posting their third straight week of losses.
On Monday, the Dow closed below 10,000 points for the first time since Dec. 10. The next day it sank sharply before regaining its footing and closing at 10,045.16 points. The index ended the week at 10,012.87 points.
For the year, the major indexes are all in negative territory. Some market professionals say the latest bull cycle is coming to an end. Others say Wall Street has just hit a rough patch.
*
Some Optimism on State Job Growth Front
Statewide, nonfarm employers added 16,300 net new jobs last month, according to a report by California’s Employment Development Department. The gains were broad-based but were only about half of what analysts were looking for, given that payrolls nationwide expanded by 288,000 in April.
The state’s jobless rate fell in April to 6.2% from 6.6% the previous month, but that was partly because discouraged workers dropped out of the labor force.
Economists said the pace of job creation in California was likely to pick up in the next few months. They cited several factors: Domestic and overseas demand for California-made goods and services is growing; the hard-hit Bay Area economy is improving; and companies that have tried to make do without hiring are reaching a point where they have to add permanent full-time workers to keep up with rising orders.
*
Agency OKs Landmark Water Transfer Pact
The board of the Metropolitan Water District approved a plan to pay farmers in eastern Riverside County and northeast Imperial County to stop planting on a portion of their land so irrigation water can be diverted to urban users.
The agency, which supplies water for 18 million people in six Southern California counties, estimates that the water transfer program will cost at least $100 million at the outset and probably will run into the hundreds of millions of dollars over the life of the 35-year agreement.
The arrangement with the 100,000-acre Palo Verde Irrigation District would create the biggest long-term transfer to date of agricultural water to urban use in the Western United States, experts said.
*
Workers’ Comp Costs Could Decrease Slowly
A veteran business lobbyist warned that the cost savings that analysts were projecting from the workers’ compensation overhaul, signed into law April 19 by Gov. Arnold Schwarzenegger, probably would not be reflected in premiums anytime soon.
And insurance industry executives cautioned that it was too soon for them to commit to sharply lower premiums in the second half of the year.
The Workers’ Compensation Insurance Rating Bureau, a research and statistical service backed by workers’ comp insurers, told Insurance Commissioner John Garamendi during a hearing that early projections indicated immediate savings of about 15% from the recent changes.
But premiums for coverage of medical care and compensatory benefits for injured workers, which soared by 15% a year over the last four years, aren’t likely to come down quickly enough to satisfy business owners expecting bills before Dec. 31, said Willie Washington, a legislative advocate for the California Manufacturers and Technology Assn. in Sacramento.
*
Cisco’s Earnings Up 23% as Sales Surge
Cisco Systems Inc. said its fiscal third-quarter profit rose 23% on the company’s biggest jump in sales in three years, easing investor concerns that demand for its computer-networking gear might be slipping.
The San Jose-based company earned $1.2 billion, or 17 cents a share, up from $987 million, or 14 cents, a year earlier. Revenue rose 22% to $5.6 billion, powered by Cisco’s core products and its more recent technologies.
Chief Executive John Chambers said the biggest gains were in sales to large business customers. He said Cisco planned to hire 1,000 employees in the rest of the calendar year, mostly in the U.S.
The company raised its projections for fiscal fourth-quarter sales to 23% to 25% more than the year-earlier $4.78 billion.
*
Parks, ESPN Drive Disney’s Profit Up 71%
Walt Disney Co. reported sharply higher profit as gains at its theme parks and the ESPN sports channel more than offset troubles at its movie studio and ABC television network.
For the fiscal second quarter ended March 31, profit rose 71% to $537 million, or 26 cents a share, from $314 million, or 15 cents, a year earlier.
On average, analysts had estimated Disney would earn 21 cents a share.
Sales rose 11% to $7.19 billion.
The second consecutive strong earnings report comes at an opportune time for Disney Chief Executive Michael Eisner, who has been fending off a campaign by dissident shareholders to oust him.
Disney said its profit would grow at least 50% this year, to about 98 cents a share, excluding one-time charges such as the possible sale of the Disney Stores. It was the second time this year that Disney elevated its earnings estimate.
*
NBC Completes Takeover of Universal
General Electric Co. and its NBC network completed the acquisition of Vivendi Universal’s U.S. entertainment assets, including its television and theme park businesses.
The official closing of the $14-billion deal created a media conglomerate to rival Time Warner Inc. and Viacom Inc.
GE is Universal’s fourth owner since public shareholders were bought out 13 years ago. Most recently, the studio struggled through the near-death financial experience of its last parent, the Paris-based water utility Vivendi Universal.
*
Magic Johnson Exec to Leave for Starbucks
Kenneth Lombard, the former investment banker who helped Earvin “Magic” Johnson build a nationwide real estate development and entertainment business, said he would leave the ex-Laker star to become president of the fledgling music and entertainment division of Seattle coffee titan Starbucks Inc.
Lombard, 49, will oversee Starbucks’ aggressive move into music retailing. The company, which has 7,500 stores worldwide, is installing computer equipment that allows customers to burn their own CDs from a database of tens of thousands of songs.
Lombard is president of Johnson Development Corp. and Magic Johnson Theatres. He also is co-managing partner of the Canyon-Johnson Urban Fund, a $300-million pool of public and private investors that fund real estate development in urban areas.
*
Vanity Fair Editor Took $100,000 Hollywood Fee
Graydon Carter’s increasing business ties to the world his magazine covers came under the spotlight when it was revealed that the editor of Vanity Fair received a $100,000 “consultant fee” from Universal Pictures, which financed the Oscar-winning film “A Beautiful Mind.” The fee, sources said, was for recommending that the book be turned into a movie.
Asked whether Vanity Fair’s ethical guidelines permit the editor to accept such payments, Maurie Perl, corporate communications chief at Conde Nast Publications, the parent of Vanity Fair, said:
“Graydon Carter is a great editor in chief. Chuck Townsend, president and CEO of Conde Nast Publications, and Graydon are completely on the same page regarding Graydon’s editorship of Vanity Fair.”
Others, however, say there should be a firewall between publications and the subjects they cover.
“When you’re running an important magazine, there’s an ethical line you just can’t cross,” said Ed Kosner, a former editor of Newsweek, New York magazine and Esquire, discussing the ethical responsibilities of magazine editors in general.
Carter declined to comment.
*
For a preview of this week’s business news, please see Monday’s Business section.
