Consumer confidence jumps in January

Consumer confidence rose sharply in January, the second consecutive monthly increase, according to the Conference Board Consumer Confidence Index released on Wednesday. It now is at its highest level in more than seven years.

The index now stands at 102.9 (1985=100), up from 93.1 in December. The Present Situation Index rose to 112.6 from 99.9, while the Expectations Index increased to 96.4 from 88.5 in December, the Conference Board said in its report.

The monthlyConsumer Confidence Survey^®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results wasJanuary 15.

Lynn Franco, director of economic indicators at The Conference Board, said, "Consumer confidence rose sharply in January, and is now at its highest level sinceAugust 2007(when the Index reached 105.6). A more positive assessment of current business and labor market conditions contributed to the improvement in consumers' view of the present situation. Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labor market, as well as their earnings."

Consumers' assessment of present-day conditions was considerably more favorable in January than in December. Those saying business conditions are "good" increased from 24.7 percent to 28.1 percent, while those claiming business conditions are "bad" decreased from 18.9 percent to 16.8 percent.

Consumers were also much more positive in their assessment of the job market. Those stating jobs are "plentiful" increased from 17.2 percent to 20.5 percent. Those claiming jobs are "hard to get" decreased from 27.3 percent to 25.7 percent.

Consumers' optimism about the short-term outlook also improved in January. The percentage of consumers expecting business conditions to improve over the next six months rose from 17.8 percent to 18.4 percent, while those expecting business conditions to worsen declined from 9.9 percent to 7.7 percent.

Consumers' outlook for the labor market was also more optimistic. Those anticipating more jobs in the months ahead increased from 14.6 percent to 16.7 percent, while those anticipating fewer jobs declined from 16.5 percent to 15.0 percent.

The proportion of consumers expecting growth in their incomes improved from 16.2 percent to 20.0 percent. However, the proportion expecting a decrease increased marginally, from 10.2 percent to 11.3 percent.

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Area home prices up in 2014; total sales off slightly

Home sales in the Peoria area slowed in the fourth quarter, bringing sales for the full year below 2013 levels, but overall the area saw continued recovery thanks to price gains, according to the Peoria Area Association of Realtors^® (PAAR).

Sales for 2014 were 4,883, down 1.4 percent from a year earlier when 4,952 homes sold, the association said. That was because sales in the fourth quarter were off nearly 3 percent, wiping away slight gains through the first three quarter of the year.

However, the association said, the average sales price set a record at $147,917, up 4.8 percent from $141,215 in 2013. The previous record average price for a full year was $146,292 in 2012. The median sales price was up 1.7 percent to $120,000, from $118,000 in 2013.

Still, 2014 inventory levels, closed sales, and new listings could not keep up with the gains of the previous two years. PAAR officials said that reflects market-slowing factors such as stagnant wage growth, inadequate mortgage liquidity and student loan debt, which are still reducing the numbers of young buyers and limiting buying and selling between all price levels of home owners.

Besides the slight decrease in closed sales, the number of new listings was off 0.3 percent for the year, to 7,752 from 7,779 in 2013. There were fewer homes to choose from, with the inventory of homes for sale at the end of the year at 2130, down 4.2 percent from 2,224 in 2013. Month’s Supply of Inventory decreased slightly, down 1.9 percent to 5.3 months from 5.4 months in 2013, with the market still evenly balanced between buyers and sellers.

Locally, new-home construction was down 10 percent, PAAR said. It has not returned to its five-year high reached in 2010, in part because local builders are still busy with home-replacement construction and renovation, as they step up to help Washington, East Peoria and Pekin residents ravaged by the Nov. 17, 2013 tornado.

Lower interest rates fueled buyer activity at all levels, and while the lower price rungs showed the most activity, it was the $500,001 and above priced homes that showed the largest growth, with a 35.6 percent increase over 2013. This increase in the upper price ranges drove up the average sales price. Increased demand in upper price levels may also reflect a shortage of available builders, since buyers in this price range are often also potential new-home-construction buyers, the association said.

“Overall we are encouraged by the continued recovery and are optimistic about 2015, given recent economic reports,” said PAAR President Phil Harvey. “Gross domestic product growth is rising at a 5 percent annual rate. The national unemployment rate is under 6 percent and we are in the midst of the largest stretch of job gains on record. The deficit is down by two-thirds and gas prices are at multi-year lows.

“If expected economic tailwinds stick around as they should, housing will get a boost in 2015; qualified first-time buyers need good jobs, down payment money and access to mortgage options with attractive interest rates. We are watching for movement on housing finance reform and expect rates to remain stable until mid-2015 when the Fed is expected to raise key federal fund rates,” he said.

“Locally, builders report that they are looking forward to a good 2015 season. Pent-up building demand means that potential buyers are seeking them out to begin breaking ground this spring. As the activity of rebuilding homes in Washington, East Peoria and Pekin gets closer to completion, builders will once again be available for traditional new construction,” Harvey added.

Peoria Area Association of REALTORS^®

YEAR-END SALES, AVErage & Median Sales Prices

Cat reports profit for 2014; says 2015 will be 'a tough year'

It was less than two months ago that Doug Oberhelman warned that dropping oil prices, while good for consumers, would wreak short-term havoc for Caterpillar Inc.

On Tuesday, the Caterpillar chairman and CEO’s warning was repeated when the company gave a less-than-rosy outlook for 2015 while reporting fourth quarter 2014 sales were down from the previous year. Oberhelman said 2015 will be “a tough year” for Caterpillar.

It was news that caused quick and sharp reaction on Wall Street despite the fact the company had what he called an overall good year in 2014.

Caterpillar’s 2014 profit was $3.695 billion, down 2 percent from $3.789 billion in 2013. Sales and revenues for the year were $55.184 billion, slightly off from $55.656 billion in 2013. However, profit per share was $5.88 a share, up from $5.75 a share in 2013. Excluding restructuring costs the 2014 profit per share was $6.38, compared with $5.97 a share in 2013.

Oberhelman said profit per share was higher because of actions the company took to control costs. “Overall, we had many positives and a better year in 2014 than 2013,” he said. “Our emphasis on cost management, operational execution and cash flow helped us deliver better profit per share than both 2013 and the 2014 outlook we provided at the start of the year. At the mid-point of our original 2014 outlook, we anticipated sales and revenues of $56 billion and profit of $5.30 per share, or $5.85 per share excluding restructuring costs. We ended the year with sales and revenues within 2 percent of $56 billion and delivered much better profit per share. In addition to improved profit, Machinery, Energy & Transportation (ME&T) operating cash flow was higher than we expected and the third best year in our history.  

“It was a great year for Energy & Transportation with record sales and profit. Sales were also up and profit improved substantially in Construction Industries. The increase in Construction Industries’ sales was primarily in North America and was partially offset by sales declines in other regions. While our construction sales were up in 2014, the industry is still well below prior peaks in every major region due to relatively weak economic growth for most of the world. Prices for key mined commodities, particularly copper, coal and iron ore, declined in 2014.  Weakening commodity prices, along with improved mine productivity, led to lower sales for Resource Industries.  We haven’t seen evidence of an upturn in equipment orders yet and sales of mining equipment remain depressed,” Oberhelman added.

The fourth quarter, however, was down and it brought full-year numbers down with it. Sales and revenues were $14.244 billion, down from $14.402 billion in the last three months of 2013. Fourth quarter profit was down 25 percent, to $757 million, or $1.35 a share, from $1.003 billion, or $1.54 a share, in 2013. A chief reason for the decline was the negative effect of a strengthening dollar against the euro and the yen.

“We are disappointed that we missed our profit outlook in the fourth quarter. That said, 2014 overall was a successful year as we continued to execute on the things we can control. Our overall market position for machines improved for the fourth consecutive year; the quality of the machines delivered to customers was better; safety in our factories continued to improve and inventory turns were better. Our balance sheet is strong, and we repurchased $4.2 billion of stock in 2014 and raised the quarterly dividend by 17 percent,” Oberhelman said.

The miss on profit-per-share ended a string of four consecutive quarters in which the company beat the estimates of Wall Street analysts. This time, those analysts estimates a profit of $1.55 a share on sales and revenues of $14.18 billion.

That contributed to the negative reaction of investors; Caterpillar stock value dropped 8 percent in early trading on the New York Stock Exchange before making a slight comeback later to close at a 52-week low of $79.85 a share, down $6.18 or 7.18 percent. More than 27 million shares, or five times the daily average, traded.

As much or more to blame for the sell-off was the company’s negative outlook for 2015. The company projects sales and revenues of about $50 billion for the year, well off the preliminary forecast of $55 billion from analysts. The company forecasted earnings of $4.60 a share, including restricting costs. Oberhelman tabbed falling oil prices as the reason.

“The recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in our sales and revenues outlook. Current oil prices are a significant headwind for Energy & Transportation and negative for our construction business in the oil producing regions of the world. In addition, with lower prices for copper, coal and iron ore, we’ve reduced our expectations for sales of mining equipment. We’ve also lowered our expectations for construction equipment sales in China. While our market position in China has improved, 2015 expectations for the construction industry in China are lower,” Oberhelman said.

“While we are, without a doubt, facing a tough year in 2015, we’re driving cost management through additional restructuring actions and continued operational improvements gained from our focus on lean management. While 2015 will be difficult, the work we’ve done to improve our cost structure, market position and quality will position us for better results when the world economy and the key industries we serve improve,” Oberhelman added.

In a meeting with reporters Tuesday, Group President and CFO Brad Halverson said the fact sales and revenues were down while profits were up “is a testament to the work of our team.” He added that the company gained global market share for the fourth consecutive year and that employees will be rewarded this spring with bonuses. “The operating efficiency we have now is the best in my career,” Halverson said.

He noted, however, that if the outlook for 2015 comes true, it would be the third consecutive year sales and revenues were down from the previous year, something he said hasn’t happened since the 1930s.

“We’re ready for 2015. We know exactly what we have to do. We have to continue to focus on customer service and market share. I am very confident we’re doing what we need to do to deliver to our shareholders,” Halverson said.

Noting that Caterpillar is a cyclical company, he said the company knows business will turn around. Europe, for example, was 40 percent off its peak economy last year and most other markets Caterpillar serves were down, as well, including China and Brazil. “Europe won’t be down forever; nor will Brazil and China. And we will keep delivering good value,” he said.

One of the bright spots in 2014 and for 2015 will be North America. After that market was a drag on company revenues for several years, it now is showing strength, particularly in construction markets where demand continues to be strong.

The oil and gas industry will account for most of the company’s revenue decline in 2015 but Oberhelman said in an interview Tuesday with CNBC that he expects that and continued low interest rates will be a short-term problem that will turn into a long-term gain for the company.  

Some highlights in Caterpillar’s earnings report include:

• Inventory declined about $1.1 billion during the fourth quarter. The decline was good for cash flow, but unfavorable to profit, the company said. Inventory decreased about $420 million for the full year.
• Cash flow for Machine, Energy and Transportation was $7.5 billion.
• Sales and revenues increased in Construction Industries and Energy & Transportation segments in North America in the fourth quarter. Energy & Transportation, however, was the only segment that had an overall gain in the quarter.
• Cat Financial reported revenues of $2.89 billion for 2014, an increase of $100 million, or 4 percent, from 2013. Profit was $535 million, a $22 million, or 4 percent, increase from 2013.
• Caterpillar’s global workforce was 114,233 at the end of 2014, compared with 118,501 at the end of 2013. The decrease was largely because of restructuring.

The full report can be viewed at www.cat.com.

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