The major indexes rose modestly, partly due to optimism about potential Federal Reserve action later this week. Moody’s, however, dampened the mood by warning that the U.S. faces a credit-rating downgrade if Congress avoids the fiscal cliff without making long-term plans for the deficit.
The Dow rose 69 points, with 24 of its 30 components advancing; the S&P 500 gained 4; and the Nasdaq was up by less than a point. Advancers led decliners by two to one on the NYSE and three to two on the Nasdaq. The prices of Treasuries weakened. Gold futures increased by $3.10 to close at $1,734.90 an ounce, and the price of crude oil rose 63 cents to settle at $97.17 a barrel.
In Earnings News:
- London-based Burberry Group PLC warned investors to expect its profits through March of next year to come in at the lower end of its expected range, or around 407 million British pounds. The forecasted result would still be above the equivalent period from the prior year, but analysts were concerned that the global luxury market could be weakening, and many luxury-goods manufacturers fell on the news. On the London Stock Exchange, Burberry’s stock (BRBY.L) dropped 20%.
In Other Business News:
- Moody’s Investors Service warned of a possible downgrade to U.S. sovereign debt next year if Congress avoids the fiscal cliff of tax increases and spending cuts but doesn’t take steps to implement a long-term deficit reduction plan in its place. However, Moody’s was comfortable with the long-term plan surfacing next year and not necessarily during the postelection lame-duck session of Congress.
- Coming in slightly under expectations, the U.S. trade deficit increased only 0.2% in July. The gap between exports and imports rose to $42 billion, near an 18-month low set in June. June’s trade gap was revised downward to $41.9 billion. The trade deficit stayed roughly flat due to both exports and imports falling for the month.
- The rate of increase of health insurance premiums for employer-sponsored plans slowed slightly this year, according to the Kaiser Family Foundation. The average annual premiums for family coverage rose 4% to $16,000, while individual employees paid an average premium of $5,615, up 3%. Premiums rose 9% the previous year. Kaiser said the slowing rate of growth was due to the slowing economy, more people putting off treatment, and higher deductibles.
- Ford Motor Co. will add 1,200 jobs at its Flat Rock manufacturing plant in Michigan by the middle of next year, the company announced today. The workforce additions will be dedicated to manufacturing the 2013 Ford Fusion. To make the plant more flexible for future models, Ford will invest $555 million in the facility, which also manufactures the Ford Mustang and, in a joint venture with Mazda, the Mazda 6. Ford’s shares (F) gained 0.40%.
It’s that time of year when travelers book—or try to book—holiday travel. For me, that means playing the game of finding my desired flights, getting the price I want (plus or minus $500, and usually “plus”), then frantically typing in my information before the quoted price expires, all while the airline’s website is screaming, “Only two tickets left at this price! Type faster, you moron, type!” But I rarely type fast enough, and twice already I’ve had a price expire before my eyes. I sometimes wonder if I would have better luck at winning carnie games.
Airlines can micromanage their prices because of the exclusively electronic format of their product. You can’t browse the shelves at a brick-and-mortar store and pick up a nonstop flight from San Francisco to Chicago to bring to a cash register. And now, according to a report in The Wall Street Journal, this type of exciting, never-know-what-you’re-gonna-get pricing is breaking free from the world of airline tickets and taking up residence on e-commerce sites like Amazon.com’s retail marketplace, where sellers from around the world compete with each other for the attentions of Amazon’s large customer base.
Using complex algorithms—and I knew this would all be math’s fault—retailers are beginning to constantly change prices on items to match or beat what their competitors are doing, so that their listings show up at the top of Amazon’s search results (because most of us filter by price). From The WSJ’s report: “The most frequent changes are for consumer electronics, clothing, shoes, jewelry, and household staples like detergent and razor blades.” One software maker is quoted as saying that its software helps to change the prices on two million products an hour.
This new pricing volatility can just as often help as hurt consumers: Prices tend to go down until the lowest-price vendor sells; prices at other retailers then jump nearly instantly, and the penny-war of attrition begins anew. But I don’t think constant volatility like this helps retailers in the long run. I’m so paranoid about airline price changes that it’s hard to pull the trigger on what may or may not be a good deal when I see it. What happens when that pricing volatility carries over to, for example, toothpaste? Will I forever worry that, if I wait a few more minutes or hours or days, I’ll be able to get it for 5 cents cheaper? What happens to retail-buying behavior when it becomes clear that no one can trust in the stability of prices? It’s only a matter of time before electronic price tags—already in use in some physical stores—become used everywhere. So if you see me in front of you holding up the checkout line, rest assured that I’m not slacking off; I’m waiting for the price on a pack of gum to settle at a price I can afford.