Government Accountability Says Boeing’s KC-46 Tanker Project May Again Miss Production Deadline

11:05 AM, Apr 19, 2018 — The Government Accountability Office said in a report on Thursday that the Boeing (BA) KC-46 tanker project may be on track in terms of costs but again risks missing its production deadline.

Boeing’s first delivery of 18 of the KC-46 aircraft could slip to May 2019, the GAO said. The company already received an extension from August 2017 to October 2018 to deliver the airplanes.

“The GAO provides an update on the KC-46 about once a year, and this potential delay past the initial 2018 target for initial delivery will not surprise investors considering this has been widely speculated,” Canaccord Genuity analyst Ken Herbert said in a note to clients. “We do not expect Boeing to necessarily take a charge on the program this quarter, but we do expect additional charges before the delivery of the initial 18 aircraft.”

The program is consuming more cash than expected, but Canaccord said it further delays or additional charges will necessarily be a negative for Boeing’s stock, which is reflecting sentiment on the commercial aerospace cycle. The GAO said total development costs are now pegged at $5.9 billion — a billion dollars over the initial contract ceiling.

The government report highlights challenges including updating test aircraft to current configurations, “substantially” increasing the pace of the flight test program, certifying the refueling on necessary aircraft, additional retrofits and fixing the boom problem of contacting receiving aircraft outside the refueling receptacle, Herbert said.

Despite Boeing taking the necessary steps to address the risks, the GAO said in the report that it believes assumptions around acceleration of the flight test program, certification time for aircraft and risks associated with accelerated production are not realistic, he said.

The company will produce 49 aircraft before the program is complete, resulting in greater-than-expected retrofit and fix activity, Herbert said. The government said Boeing already needs to retrofit 18 aircraft with an updated wing design, and six with new flooring.

The Air Force is expected to initially purchase 179 aircraft at a unit cost of $245 million to replace a third of the existing KC-135 refueling fleet. The market, however, is much bigger amid the potential international sales and increased acquisitions by the US military, he said.

Boeing is required under its current contract to delivery the 18 KC-46s and nine sets of aerial refueling pods.

“So while we expect the program to be a greater cash investment than initially expected, and we do see the strong potential of delivery delays into 2019, we do not believe this will materially impact the narrative on Boeing stock,” Herbert said. “Sentiment on the stock today focuses on the strong commercial fundamentals, FCF growth and a very shareholder friendly capital allocation strategy, which we continue to believe is largely reflected in the stock.”

Companies: Boeing Company (The)
Price: 340.40 Price Change: -0.60 Percent Change: -0.18

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US Federal Reserve

Dallas Fed Forecasts GDP at 2.5%-2.75%; Near-Term Outlook `Solid,’ Long-Term Headwinds Remain

1:18 PM, Apr 16, 2018 — Dallas Fed economists said in a report on Monday that US gross domestic product will grow at a rate of 2.5% to 2.75% this year, underpinned by a strong household sector, improved business investment and stronger growth outlook outside of the country.

Unemployment is expected to dip to 3.7% this year from 4.1% while other measures of labor force slack likely will tighten, the Dallas Fed said. The economists focus on the U6 job rate, which is composed of unemployed people, marginally attached workers — those who would like a job but have given up looking for one — and those who are working part time but would prefer to work full time.

The U6 rate is now at 8%, near pre-recession lows, and it’s expected to improve further during 2018, the Dallas Fed said. Estimates of the number of disabled workers, previously incarcerated people and others who may join the workforce are also considered.

“Based on their analysis of the labor market, our economists continue to believe that, while improvements can be made in increasing employment, we are likely at or already past `full employment’ in the US,” the Dallas Fed said. “(That) suggests that businesses are increasingly struggling to find workers to fill low- and middle-skills positions. For example, in one of our recent surveys, 61% of Texas small-business respondents suggested they are unable to find workers to fill these types of positions. Due to this labor force tightness, it is our view that cyclical wage pressures should build during 2018.”

While inflationary pressures are building, economists also said they’re being offset by the impacts of automation and, to a lesser extent, globalization. Automation and business model disruption, pricing power of businesses is more limited than normal at this stage of economic expansion, the Fed said.

Growth will moderate in 2019 and 2020, and the Dallas Fed expects GDP growth of less than 2% in 2020 as the short-term stimulus of recent tax legislation and budget agreement begin to fade and monetary policy and financial conditions become less accommodative.

The near-term cyclical outlook is “solid,” but underlying trends are more concerning, Dallas Fed President Robert Kaplan said in a statement on Monday. An aging population is an issue as the median age has moved from 35.3 years in 2000 to 37.9 year in 2016, he said.

Automation is another long-term concern, as is the increasing government debt held by the public, which now stands at 75% of GDP, Kaplan said. The present value of unfunded entitlements is estimated at $49 trillion, he said. The recently passed tax and budget compromise legislation likely will make things worse.

“While increasing the level of debt to GDP is a stimulus to economic growth in the short run, that stimulus can turn into a growth headwind when the government takes steps to moderate debt growth, as it certainly must consider doing in the years ahead,” he said. “As a consequence of this level of debt, the US is much less likely to have fiscal capacity to fight the next recession.”

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Boston Fed’s Rosengren `Quite Positive’ on Policy But Short-, Long-Term Risks Remain

9:27 AM, Apr 13, 2018 — Boston Fed President Eric Rosengren said on Friday that he and his colleagues are “quite positive” on the policy, citing fairly strong economic growth, falling unemployment and inflation close to the Federal Reserve’s 2% target.

Still, there are risks to the positive outlook, he said. Trade disruptions are unlikely at this point but the ongoing dispute between the US and China are cause for at least some concern.

“It would take a significantly broader set of trade actions than those reported to date to materially reduce the roughly $2.4 trillion in annual U.S. exports,” Rosengren said during a speech at the Greater Boston Chamber of Commerce’s Economic Outlook Breakfast in Boston. “Still, spillover effects are possible.”

An overheated boom-bust scenario may be more likely if unemployment moves far below policymakers’ expectations, he said. Today’s unemployment rate is below the Congressional Budget Office’s estimate of the natural rate, he said. Periods when unemployment dipped “significantly and persistently” below estimated natural rates historically have generated conditions that resulted in recession, Rosengren said.

In the longer term, the status of fiscal and monetary policy buffers call into question the ability to work against a shock or a downturn, he said.

“By using up so much fiscal capacity now — by which I mean the ability to lower tax rates or boost federal spending to offset economic weakness — the country risks not having sufficient fiscal capacity in the future when it might be needed,” Rosengren said.

There’s reason to be concerned about how quickly aggressive Fed policy can respond to large adverse shocks should they occur, he said, noting that the median forecast among Federal Open Market Committee members for longer-run interest rates are 2.9%. That’s “quite low” by historical standards, which likely are a result of slow labor force growth coupled with slow growth in productivity, he said.

If a recession were to occur, it’s possible and even “quite likely” that interest rates would reach zero again in a downturn as the Fed tends to lower rates by as much as 5 percentage points in a recession. Rosengren said he hopes these risks can be avoided.

“The economic outlook is good, but we all must be attuned to what could go wrong in the short term and in the long term, and what that implies for appropriate monetary policy,” he said.

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Global Trade Growth Strong, Escalating Tensions May Negatively Impact Outlook, WTO Says

12:01 PM, Apr 12, 2018 — The World Trade Organization on Thursday said trade growth remains strong, but escalating tensions between some countries may have an effect on business confidence and investment decisions.

Trade volume in 2018 is pegged by the organization at 4.4% as measured by the average of exports and imports, close to the 4.7% increase in 2017, the WTO said in a report released Thursday. Growth likely will moderate at 4% in 2019, down from the average rate of 4.8% since 1990 but well above the post-crisis average of 3%. Escalating tensions, however, may compromise its outlook, the organization said.

Growth in 2017 was the strongest since 2011 and was driven mainly by cyclical factors including increased investment and consumption expenditures, the organization said. Merchandise exports that grew 11% and commercial services that gained 7.4% were strong, though merchandise volume started at a low base.

“The strong trade growth that we are seeing today will be vital for continued economic growth and recovery and to support job creation,” the WTO said in the report. “However this important progress could be quickly undermined if governments resort to restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation. A cycle of retaliation is the last thing the world economy needs.”

WTO Director-General Roberto Azevedo urged governments to show restraint and settle differences through “serious engagement” and dialogue.

The US and China have been involved recently in a tit-for-tat trade spat. The US started by imposing tariffs on steel and aluminum, then said it would impose tariffs on $50 billion worth of Chinese goods. China, in response, threatened levies on an equal value of US wares.

Risks to trade, which appeared to be more balanced than at anytime during the financial crisis, have increased in light of recent trade developments, the organization said. Increases in restrictive trade policies and fears of retaliation will weigh heavily on global trade and output.

“The outlook that we are publishing today is quite positive,” Azevedo said. “It reflects the stronger economic growth that we have been seeing in both developed and developing countries, and which is forecast to continue. But let me be clear — these forecasts do not factor-in the possibility of a dramatic escalation in trade restrictions.”

Faster monetary tightening by central banks also may trigger fluctuations in exchange rates and capital flows that could could disrupt trade flows. Worsening geopolitical tensions globally also will likely reduce trade, though the magnitude of their impact is unpredictable, the WTO said.

It’s not all bad news, though, as there is upside potential should structural reforms and expansionary fiscal policy boost economic growth and trade in the short term.

“The fact that all regions are experiencing upswings in trade and output at the same time could also make recovery more self-sustaining and increase the likelihood of positive outcomes,” the WTO report said.

Because of the increasing uncertainty outlined by the organization, trade growth in 2018 likely will fall between 3.1% and 5.5%, the report said. The rate, however, will depend on current forecasts for gross domestic product. Further escalation of restrictive trade policies or other shocks that negatively impact global economic activity may result in trade growth outside of the range, the WTO said.

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Walmart’s Online Grocery Expansion Gets Delivery Boost From Postmates Couriers

11:16 AM, Apr 10, 2018 — Walmart’s (WMT) expanding online grocery delivery service will be using Postmates couriers to send orders to customers as the world’s biggest retailer looks for more ways to appeal to shoppers who are increasingly taking their business online.

Postmates “will help power” Walmart’s deliveries of groceries that are ordered online starting Tuesday in Charlotte, North Carolina, the companies said in a statement. The service will expand to reach more than 40% of US households over the coming months.

The tie-up with San Francisco-based Postmates, with its fleet of 160,000 couriers, builds on Walmart’s move last month to expand its grocery delivery service, which has a $9.95 fee and a minimum order of $30.

Brick-and-mortar retailers have been looking for more ways to challenge the dominance of e-commerce giant (AMZN), which entered the grocery business last year with its acquisition of Whole Foods Market.

“Customers are busy, they are managing jobs, soccer practice, dance lessons and social schedules,” Mark Ibbotson, executive vice president of Walmart US’s central operations, said in the statement. “We are on a mission to do more than keep a little extra money in their pockets.”

Groceries will be picked by Walmart personal shoppers and delivered by a member of the Postmates Fleet, and can arrive the same day, the companies said. Walmart said in March it was expanding online grocery delivery to more than 100 metro areas from six markets currently, and was planning to add 1,000 more stores to its online grocery pickup service.

Companies: Walmart Inc.
Price: 86.36 Price Change: +0.08 Percent Change: +0.09

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Nonfarm Payroll Growth Eases in March But Remains at Healthy Level

9:55 AM, Apr 6, 2018 — Nonfarm payroll employment growth continued in March with the manufacturing, mining and health care sectors seeing some of the biggest increases in employment while the jobless rate remained unchanged.

Some 103,000 roles were added to total nonfarm payroll employment in March compared to 326,000 roles added in February, according to data published by the US Bureau of Labor Statistics. Analysts had expected 185,000 new jobs. The unemployment rate was unchanged at 4.1% for the sixth consecutive month and average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $26.82.

At 1.3 million, the number of long-term unemployed -those out of work for 27 weeks or more- was little changed in March and accounted for 20.3% of the unemployed. Over the year, the number of long-term unemployed was down by 338,000.

Employment in manufacturing rose by 22,000, with all of the gain in the durable goods component. Employment in fabricated metal products increased over the month by 9,000. Health care added 22,000 jobs, about in line with its average monthly gain over the prior 12 months and employment in mining increased by 9,000 in March, with gains occurring in support activities for mining and in oil and gas extraction.

In other major industries, including wholesale trade, transportation and warehousing, employment changed little over the month

“After red-hot hiring in February, a slowdown in March does not come as a surprise. It is also worth noting that typically payrolls in March disappoint on average by -48K, the most next to May” Leslie Preston, a senior economist at TD Economics, said. “Smoothing the hiring trend over a few months shows a healthy pace of job gains. The fact that the unemployment rate remained at its low 4.1% level, and wage growth accelerated, are better indicators of the health of the US labor market.”

“While some might be a bit disappointed by the modest headline hiring tally, we are inclined to discount it. Continued progress in wage growth should give the FOMC the green light to continue to raise rates at a gradual pace. We expect two more 25 basis point hikes in 2018, but if inflation starts surprising to the upside there is certainly an upside risk to this view,” Preston added.

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Oil Drilling

Oil Futures Prices Pare Losses After Larger-Than-Expected Decline in US Stockpiles

12:11 PM, Apr 4, 2018 — Oil futures prices were paring losses on Wednesday afternoon after government data showed a bigger-than-expected decline in US inventories of crude oil last week.

West Texas Intermediate crude oil futures, the main US oil benchmark, were 0.6% lower at $63.12 per barrel in recent trade, up from an intraday low of $62.16 per barrel. Brent crude futures, the international gauge, were down by 0.8% at $67.61 per barrel, also up from an intraday low of $66.69 per barrel. .

US commercial crude oil inventories fell by 4.6 million barrels to 425.3 million barrels in the week ended March 30, according to data published by the Energy Information Administration. This compares to the American Petroleum Institute’s forecast, released on Tuesday, for a 3.3 million barrel weekly increase.

Total motor gasoline inventories fell by 1.1 million barrels compared to a drop of 3.5 million barrels a week earlier. Distillate fuel inventories increased by 0.5 million barrels compared to a drop of 2.1 million barrels the week before. And propane/propylene inventories rose by 0.6 million barrels compared to a drop of 1.2 million barrels last week

Price: 22.57 Price Change: +0.34 Percent Change: +1.53


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GE Healthcare

GE Healthcare Sells Assets to Private Equity Firm Veritas for $1.05 Billion

1:47 PM, Apr 2, 2018 — General Electric (GE) said its GE Healthcare branch sold off a part of its business to private equity firm Veritas Capital in a $1.05 billion deal, according to a statement on Monday.

A Veritas affiliate agree to buy the Enterprise Financial Management, Ambulatory Care Management, and Workforce Management assets that comprise GE Healthcare’s Value-Based Care Division for cash, the companies said.

“With Veritas’ support and resources, we are excited to continue deepening our commitment and capabilities to help healthcare providers manage their financial, clinical, and employee workflows across the continuum of care,” said Jon Zimmerman, vice president and general manager of value-based care solutions at GE Healthcare.

For Veritas, the deal gives it the ability to “take advantage of a $9 billion market that continues to benefit from favorable sector trends, particularly a real and urgent need to digitalize our healthcare system,” said Chief Executive Officer Ramzi Musallam.

GE Healthcare is the arm of the industrial conglomerate that provides medical technologies and services, from ultrasounds to delivery of anesthesia. It will “continue to significantly invest in core digital solutions, such as smart diagnostics, connected devices, AI and enterprise imaging,” said CEO Kieran Murphy.

The deal is expected to wrap up during the third quarter of this year.

Companies: General Electric Company
Price: 13.15 Price Change: -0.33 Percent Change: -2.48

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Tesla Motors

Tesla Shares Drop to Lowest in Almost a Year as NTSB Investigating Fatal Crash

3:28 PM, Mar 27, 2018 — Tesla (TSLA) shares plunged Tuesday after the National Transportation Safety Board said on Twitter that it’s investigating a fatal crash involving one of the company’s cars last week.

Two NTSB investigators are conducting a field investigation into the crash that happened on March 23 near Mountain View, California. It’s “unclear if automated control system was active at time of crash,” the NTSB said on Twitter. “Issues examined include: post-crash fire, steps to make vehicle safe for removal from scene.”

Tesla shares on Tuesday dropped 7.8% to the lowest level in almost a year.

Vilas Capital Management’s John Thompson told Marketwatch that Tesla will be bankrupt within four months unless Elon Musk “pulls a rabbit out of his hat.” He said he doesn’t see the company ever turning a profit and that its income statements is one of the worst he’s ever seen. Thompson has a big short position on the company — in fact, his fund’s biggest position is the Tesla short, according to Marketwatch.

Companies: Tesla, Inc.
Price: 280.33 Price Change: -23.85 Percent Change: -7.84

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facebook app on phone

Facebook Set for FTC Probe Into Privacy Practices Data Use; Expands Local News Content

2:48 PM, Mar 26, 2018 — The Federal Trade Commission added to the woes of Facebook (FB) on Monday, saying it would investigate the privacy practices of the social media giant in the wake of complaints about how data collected from profiles has been used.

The FTC said in a statement that it “has an open non-public investigation into these practices” after recent press reports raised “substantial concerns” about Facebook, which saw its stock price tumble again and skid to the lowest intraday since early July.

“The FTC is firmly and fully committed to using all of its tools to protect the privacy of consumers,” said Tom Pahl, acting director of the FTC’s bureau of consumer protection.

Facebook has been under pressure in recent days after news reports that a British data science consultancy and marketing agency known as Cambridge Analytica could be in possession of Facebook user data that was improperly obtained by a researcher at Cambridge University.

In an interview with CNN, Facebook Chief Executive Mark Zuckerberg apologized for what he described as “a major breach of trust”, vowing to make sure that it would not happen again.

Earlier on Monday, Facebook said it will prioritize local news for its members in all countries, expanding an update which had already been put in place for US-based users of the social media company earlier this year.

The company said that it is expanding the update, whose objective is for people to see topics that have a direct impact on their community and discover what is happening in their local area, to “people in all countries, in all languages.”

“Now, people around the world will see more news on Facebook from local sources covering their current city and other cities they may care about,” a statement issued by Alex Hardiman, head of news product, and Campbell Brown, head of news partnerships, said on Monday.

“With this update, we’re helping local publishers who cover multiple, nearby cities reach audiences in those cities. We’ll consider a publisher as local to multiple cities if the people in those cities are more likely than the people outside of those cities to read articles from the publisher’s domain,” the statement continued.

Price: 154.26 Price Change: -5.13 Percent Change: -3.22

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