Marketplace: News Archives

Monday, October 30, 2000
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It's Monday, October 30th. I'm David brown sitting in for David Brancaccio.

Started your Christmas shopping? Signed off on a new car? Closed on a new home? Join the club. Americans are on a spending spree. The Commerce Department says that consumer spending surged last month, posting the largest gain in seven months. Income also rose sharply, boosted by a big government farm subsidy. What does it say about the economy? From New York, Marketplace's Jessica Smith has details.

Smith: "Imagine a bunch of air traffic controllers sitting around watching a big jumbo jet on their screens, trying to figure out if it's gliding in for a landing, or if it's still flying around at a high altitude. If only the U.S. economy were that easy to read. The latest economic report shows a 1.1 percent increase in income, and an 0.8 percent rise in consumer spending. That's the biggest gain for both categories in months, but Cynthia Latta, principal U.S. economist at Standard & Poors, still sees good news."

Latta: "We also have a slowdown in business spending. Consumers are only two-thirds of the economy. They're the single biggest piece of it, but still only two thirds. We are seeing signs of the soft landing."

Smith: "For another interpretation, economist Ian Sheperdson, at the consulting firm High Frequency Economics:"

Sheperdson: "I think the key message from these numbers is that talk of a big slowdown in the economy is grossly premature, at least from a consumer's point of view. And the consumer is two-thirds of the economy."

Smith: "Not that the plane will crash, but Sheperdson doesn't believe it's on the runway yet. Which means central bankers and financial markets will be on the watch. So what will it take to slow down consumer spending? Obviously not higher fuel prices or the fall in hi-tech stock prices. In New York, I'm Jessica Smith for Marketplace."

It's not all happy news today. There are some long faces over at Pep Boys. Though Manny, Moe and Jack will be staying on, the auto parts retailer says 1,500 others will be leaving the company as it closes 38 unprofitable stores and two distribution centers. The company says it hopes that by streamlining its operations, that'll boost Pep Boys sagging stock price, which has been trading at less than five dollars a share. And though the company will continue to keep parts flowing through some 600 stores nationwide, Pep Boys figures this round of cuts will equal a savings of $70 million a year. Investors didn't seem that impressed today; shares in Pep Boys closed slightly lower.

Another story from the layoff front. Four hundred people who work at Prudential Securities will be looking for a job as the company closes its institutional bond business. Prudential says it wants to shift its focus to retail bond accounts. This decision comes at a time of rapid consolidation in the banking sector. The U.S. Supreme Court today tossed aside a challenge to the massive $246 billion tobacco settlement. The court refused to hear a case brought by two smokers from Oklahoma who argued the settlement violated anti-trust laws because tobacco companies, in reaching an agreement with the government, merely planned to pass along the costs of the settlement to their customers. From Washington, Marketplace's Stephen Henn reports.

Henn: "This year alone, wholesale cigarette prices have gone up around a quarter a pack. And Allen Seger, a professor of public health policies at Boston University, says that raises questions about who's paying for Big Tobacco's past bad deeds."

Seger: "Some people would argue that the tobacco settlement was a backdoor tax increase and a tax on cigarettes falls on people who smoke. And people who smoke have disproportionately low incomes."

Henn: "But the Supreme Court today refused to hear a case which argued Big Tobacco illegally colluded with state governments to hike prices on its consumers. And the decision will allow the $246 billion settlement to stand. Meanwhile on Capital Hill, the Clinton Administration is trying to convince Congress to keep funding the feds' own lawsuit against tobacco companies. The suit would cost the Justice department about $24 million next year, but it could cost tobacco companies billions if the government won. According to Mary Aaronson, an expert on the ongoing battles with Big Tobacco, it's not just pro-tobacco Congress people who are beginning to get cold feet about the federal case."

Aaronson: "It could conceivably cause insolvency for the industry. And if there were insolvency for the tobacco industry, what would that do for the state settlement?"

Henn: "And so the question is, 'Is it possible to collect another pound of flesh without killing the patient?' In Washington I'm Stephen Henn for Marketplace."

That's the top of our news for Monday. The Dow was solidly up, the Nasdaq equally down, and the numbers are coming up shortly.