VideoConsumers may not be talking with confidence, but when it comes to the biggest-ticket purchase that many of them will ever make, they seem to be buying with confidence.
Despite recent increases in unemployment statistics and mortgage interest rates, the latest news from the housing market bodes well for an economic recovery. Figures released by the Commerce Department show home construction in July at its highest level since April 1986 — even though 30-year mortgages have risen to an average 6.24 percent from their mid-June low of 5.21 percent, according to Freddie Mac. The home-buying public, one of the main drivers of recent economic growth, is apparently not slacking off.
According to the Commerce Department report, privately owned housing starts in July were at a seasonally adjusted annual rate of 1.872 million, 1.5 percent above the revised June estimate of 1.845 million and 12.4 percent above the July 2002 estimate of 1.742 million. Single-family homes continue to account for nearly all the gain; 1.521 million such homes began construction in July, up 1.5 percent from June and 14.4 percent from July 2002. The greatest growth was seen in the Northeast, where the number was 30.2 percent higher than a year ago.
The National Association of Home Builders released figures on Monday that are slightly more forward-looking but every bit as bullish. The association's Housing Market Index has hit a reading of 71 for August, an increase of 6 points from July and the highest level since January 2000. The index — a weighted, seasonally adjusted statistic — is derived from the assessments by builders of current single-family sales, expected single-family sales over the next six months, and buyer traffic; a reading of 50 or higher is considered positive.
"More than mortgage yields influence the demand for housing," wrote Moody's analyst Jessica Walker. "August's housing market index defied a further upturn by mortgage yields. Coincidentally, the 8.2 percent 30-year mortgage yield of January 2000 was well above its August-to-date average of 6.3 percent."
Moreover, "mostly because of recent tax cuts, the annual increase of disposable personal income is expected to rise from the 3.7 percent of 2003's second quarter to 5.1 percent by the final quarter," said Walker. "Nonetheless, the growth rates of both disposable personal income and household expenditures will be subject to considerable downside risk until employment realizes a substantive recovery."
Audit Committee Chair Attracts Premium Pay
A recent study conducted by The Todd Organization, an executive benefits consulting firm, has found that the largest public companies in the United States are paying a higher premium for independent audit-committee chairpersons while at the same time phasing out the use of stock options in their compensation packages to independent directors.
The study examined director compensation packages in 2002 and 2001 at 255 public companies with revenues of at least $5 billion. At those companies, the average stock-option compensation of directors dropped 12.1 percent from 2001 to 2002, leading to a slight decline in overall pay, from $114,490 in 2001 to $112,698 in 2002.
But while stock-option compensation is being phased out, other forms of stock compensation, including outright grants of shares, are rising in director pay packages, according to the study. The number of companies using direct forms of stock compensation rose by 38.5 percent, from 109 companies in 2001 to 151 in 2002.
The premium paid for audit committee chairpersons also rose in 2002. While 163 companies paid an average additional premium of $8,145 for the position in 2001, 184 companies averaged $11,499 in 2002, the year that the Sarbanes-Oxley Act was signed into law.
Sarbanes-Oxley requires that listed companies have audit committees composed entirely of independent directors and makes audit committees responsible for hiring and firing auditors.
Vivendi Weighs Universal IPO
International media giant Vivendi Universal SA is reportedly considering some kind of joint venture or IPO spinoff of its U.S. film, television, and theme-park unit, according to wire service reports.
At last report, high-profile suitors such as Metro-Goldwin-Mayer and Comcast Corp. were balking at the $14 billion asking price (last month, MGM withdrew an $11.5 billion offer). By Monday's deadline for final offers, Vivendi received bids for its Universal business from Edgar Bronfman Jr. and Liberty Media Corp. and was continuing talks with auction favorite NBC and media rival Viacom, according to Reuters.
"As time goes by, the likelihood of a full-scale sale happening is decreasing,'' said Mark Harrington, an analyst at Bear Stearns & Co. in London, according to Bloomberg. "The discrepancy between Vivendi's $14 billion asking price and recent bids is too large.''
The board of Paris-based Vivendi may weigh offers, alongside joint ventures like the one being pitched by General Electric's NBC television unit, as early as next week's board meeting. Vivendi CFO Jacques Espinasse told investors at a July meeting that he "wouldn't be opposed'' to participating in a larger division, such as a combined NBC and Vivendi Universal Entertainment, according to Reuters, citing Drew Borst, an analyst at research firm Sanford C. Bernstein.
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