Economy Watch: Bernanke Speaks; New-Home Sales Wilt

February 25, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user LancerE

Twice a year, Federal Reserve Chariman Ben Bernanke reports to Congress on the economy, and Wednesday was the day. He promised low, low rates for a while longer–“an extended period,” which is a phrase that has turned up again and again from the Fed since the early days of the Panic of 2008.

And why is that? “As the impetus provided by the inventory cycle is temporary and as the fiscal support for economic growth will likely diminish later this year, a sustained recovery will depend on continued growth in private-sector final demand for goods and services,” Bernanke continued. “The job market remains quite weak.”

Not only the job market. According to the U.S. Department of Commercial on Wednesday, the sale of new homes in the U.S. dropped 11.2 percent in January, to the surprise of economists who had been expecting a rise. Seasonally adjusted annualized sales were 309,000 during January, the lowest since Commerce began tracking new-home sales nearly 50 years ago.

GGP Still in Play

Australian mall owner Westfield Group may be in the running for a piece of General Growth Properties Inc., according to unnamed sources cited by the Wall Street Journal on Wednesday. Brookfield Asset Management is also still interested, particularly in a plan for GGP divide itself into two parts with the help of a capital infusion from Brookfield.

The split wouldn’t be 50/50, however. One part would get about 200 stabilized malls, while the other would get more risky assets, the better to appeal to investors who enjoy that kind of thing.

Simon Property Group, perhaps anticipating its role as spurned suitor, said in a statement on Wednesday that dividing the company would be “a risky equity play on the backs of its unsecured creditors… General Growth has preempted its own self-proclaimed ‘process’ in favor of a highly speculative and risky plan to attempt to raise $5.8 billion of new capital in today’s uncertain times.”

Dollar Tree Up, Blockbuster Stumbles

In a pair of sign-of-the-times retail stories, Chesapeake, Va.-based Dollar Tree Inc. reported on Wednesday a fourth-quarter (ended January 30) rise in profits of 28 percent. Same-store sales rose 6.6 percent in 4Q09 compared with the same period a year ago. During the fiscal year ended January 30, the company opened a net of 215 stores nationwide.

On the other hand, Dallas-based Blockbuster Inc., stuck in a billion-dollar debt morass, reported a 4Q09 loss of $435 million on Wednesday, and same-store sales dropped 16 percent compared with the same quarter last year. Not even the holiday season juiced the company’s revenues this time around.

But the video rental chain suffers from a more fundamental problem than a sluggish economy: namely, it’s not the 1980s any more. Mail-order videos, video vending machines, cable on demand and other media are eating Blockbuster’s lunch, and the company’s forays into those video delivery strategies are still lagging behind its competitors.

Wall Street had a good day on Wednesday, with the Dow Jones Industrial Average up 91.75 points, or 0.89 percent. The S&P 500 and the Nasdaq gained 0.97 percent and 1.01 percent, respectively.