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GE to merge oil unit with Baker Hughes to create service giant


General Electric Co (GE.N) said on Monday it would merge its oil and gas business with Baker Hughes Inc (BHI.N), creating the world’s second-largest oilfield services provider as competition heats up to supply more-efficient products and services to the energy industry after several years of low crude prices.

The deal to create a company with $32 billion in annual revenue will combine GE’s strengths in making equipment long-prized by oil producers with Baker Hughes’s expertise in drilling and fracking new wells.

Shares of Baker Hughes were down nearly 7 percent, a drop that executives said likely was due to the deal’s complicated structure.

“This is a good deal for all of the investors,” said Lorenzo Simonelli, head of GE’s oil and gas business who will lead the new entity, to be called “Baker Hughes, a GE company.”

GE is already the world’s largest oilfield equipment maker, supplying blowout preventers, pumps and compressors used in exploration and production. GE also has invested heavily in large data processing services just as the oil industry eyes its potential to boost oil recovery.

Baker Hughes, by contrast, is seen as one of the world leaders in horizontal drilling, chemicals used to frack and other services key to oil production.

The new company will vault Baker Hughes’s market share ahead of rival Halliburton Co (HAL.N), which tried and failed to buy Baker until the deal collapsed last May, and also compete heavily with Schlumberger NV (SLB.N), the world’s largest oilfield service provider, for customers.

Simonelli called Baker CEO Martin Craighead after the Halliburton deal collapsed, seeking some kind of business combination, with negotiations evolving over time to Monday’s announcement.

“Neither Lorenzo (Simonelli) or I needed to do this. We both followed our fiduciary responsibility,” Craighead said in an interview.

GE will own 62.5 percent of the new publicly-traded company. The deal is expected to close in mid-2017.

GE will have to pay $1.3 billion to Baker Hughes if the deal does collapse in what would be yet another windfall for Baker Hughes after Halliburton was forced to pay it $3.5 billion earlier this year when those companies’ merger collapsed.

For graphic on GE and Baker Huges merger click tmsnrt.rs/2e5Y3xa

“We don’t anticipate anything like what we’ve encountered before happening again,” Craighead said, stressing he expects the GE tie-up to be blessed by regulators.

GE and Baker Hughes will reach out to the Justice Department and European antitrust enforcers on Monday, according to a source close to the company. GE will argue to antitrust enforcers – who stopped the deal between Halliburton and Baker Hughes just months ago – that their deal is complementary, and that they are committed to any remedy needed to win approval, the source said.

A small part of GE’s business is selling equipment to Baker Hughes’ competitors and it will continue those sales, the source said.

All of GE’s oil and gas business, which generated roughly 14 percent of GE’s revenue last year, will go into the new company, leaving no energy units behind in its former parent, Simonelli said.

The “best performers” from the existing GE and Baker Hughes will form new management teams, he added, declining to comment on potential layoffs.

Analysts said there was little overlap between the businesses that would worry regulators.

“I don’t see any overlaps, significant overlaps,” said Tom Seng, a veteran of the energy business who teaches at the University of Tulsa.

OIL NEAR $50

The deal comes at a time when North American oil and gas producers are putting rigs back to work after a near-freeze in activity caused by a slump in oil prices that began mid-2014.

But the deal is predicated on a forecast for oil prices to rise to $60 per barrel by 2019, GE Chief Executive Jeff Immelt told investors Monday.

“This is a very compelling time for the deal,” Immelt said, noting he expects $1.6 billion in annual cost savings by 2020.

Global oil prices LCOc1 have risen by a third this year to near $50 a barrel.

Craighead, who will become vice chairman of the new company, echoed Immelt’s confidence.

“We see growth under any market environment,” Craighead said in an interview. “Our customers continue to spend massive amounts of money.”

The industrywide push for pumping more oil and natural gas at cheaper costs should only accelerate that trend, he said.

Activist investor Nelson Peltz, whose Trian Fund Management owns about 0.8 percent of GE as of June 30, told CNBC the new company would be able to go “nose-to-nose” with Schlumberger.

Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend from GE of $17.50 per share – or $7.4 billion – after the deal closes.

The new company, to be listed on the New York Stock Exchange, will have dual headquarters in Houston and London.

Baker Hughes shares rose as much as 5 percent in morning trade before reversing course to trade down nearly 8 percent at $54.60. Shares of GE slipped 0.1 percent to $29.18.

Centerview Partners and Morgan Stanley are advising GE, while Shearman Sterling is its legal adviser. Goldman Sachs Co is Baker Hughes’s financial adviser, with Davis Polk acting as legal adviser.

(Reporting by Ernest Scheyder in Houston, Swetha Gopinath and Ankit Ajmera in Bengaluru and Diane Bartz in Washington; Editing by Ted Kerr and Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/qn1zzlf7l5Q/us-baker-hughes-m-a-ge-idUSKBN12V0XN

Viacom names Bob Bakish acting CEO


Viacom Inc (VIAB.O) said on Monday it named Bob Bakish, a 19-year company veteran, as acting chief executive, replacing Tom Dooley.

Viacom had said last month that Dooley was leaving the company on Nov. 15.

Bakish, who most recently headed the company’s international media networks, was also named president and CEO of Viacom Global Entertainment Group.

The new unit combines the international media networks with Viacom’s music and entertainment group.

The appointment comes as Viacom, which owns Nickelodeon and MTV, hired financial advisers earlier this month to explore a merger with CBS Corp (CBS.N) following a proposal by Sumner Redstone’s National Amusements Inc, a majority shareholder of both companies.

“We are determined to move forward aggressively to strengthen Viacom for the future, whether as a stand-alone company or in a potential combination with CBS,” Chairman Tom May said in a statement.

There has been increasing speculation among media industry insiders that CBS and Viacom may recombine, with CBS CEO Leslie Moonves at the helm, after Redstone and his daughter, Shari Redstone, won the battle for control of Viacom, resulting in the departure of Viacom’s former CEO Philippe Dauman in August.

Bloomberg had first reported the news on Wednesday.

(Reporting by Anya George Tharakan in Bengaluru; Editing by Anil D’Silva)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/iPt3Tfqy3dA/us-viacom-moves-ceo-idUSKBN12V2CA

Wall St. ends flat amid election doubts, M&A flurry


Wall Street ended barely changed on Monday as investors digested the latest large-scale corporate mergers as well as the most recent twist in a tumultuous U.S. presidential election.

Stocks were jolted Friday by disclosure that the FBI was investigating more emails as part of a probe into Hillary Clinton’s use of a private email system, injecting fresh uncertainty over the Democratic candidate’s presumed lead in the presidential election over Republican rival Donald Trump.

Opinion polls have shown Clinton’s lead over Trump was narrowing slightly since early last week and it is not yet known if the email controversy will erode her support. The presidential and congressional elections are Nov 8.

“I wouldn’t be half-surprised to see more of this for the next week leading up into the election, where you don’t have investors willing to make a strong conviction on pretty much anything and just kind of playing wait and see,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

The Dow Jones industrial average fell 18.77 points, or 0.1 percent, to 18,142.42, the SP 500 lost 0.26 points, or 0.01 percent, to 2,126.15 and the Nasdaq Composite dropped 0.97 points, or 0.02 percent, to 5,189.14.

Closing out a big month for mergers, Dow component General Electric slipped 0.4 percent after the industrial conglomerate said it would merge its oil and gas business with oilfield services provider Baker Hughes. Baker Hughes fell 6.3 percent.

Level 3 Communications rose 3.9 percent after CenturyLink said it would buy the company in a deal valued at about $24 billion. CenturyLink fell 12.5 percent.

The market is also watching the outcome of the U.S. Federal Reserve meeting, which begins on Tuesday. While traders doubt the Fed will raise interest rates this week, they will be looking for signs to firm up their expectations for a hike at the central bank’s December meeting.

The SP 500 ended October down 1.9 percent, the third straight negative month for the benchmark index and its worst monthly performance since January.

Still, the SP 500 is up about 4 percent for the year. Investors have been heartened as SP 500 companies look set in the third quarter to end a streak of earnings declines. With most SP 500 companies reported, profits are expected to have risen 3.1 percent, according to Thomson Reuters I/B/E/S.

In earnings news on Monday, Zimmer Biomet Holdings shares plunged 14 percent after the medical devices company’s quarterly report. The stock was the biggest percentage decliner in the SP 500.

Nike shares dropped 3.5 percent following a BofA Merrill Lynch downgrade, weighing on the Dow.

About 6.8 billion shares changed hands in U.S. exchanges, above the 6.4 billion daily average over the last 20 sessions.

Advancing issues outnumbered declining ones on the NYSE by a 1.04-to-1 ratio; on Nasdaq, a 1.02-to-1 ratio favored decliners.

The SP 500 posted 7 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 39 new highs and 119 new lows.

(Editing by Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/HJFz4MCk9Mc/us-usa-stocks-idUSKBN12V15C

BlackBerry in software deal with Ford, first with an automaker


TORONTO/BOSTON BlackBerry Ltd (BB.TO)(BBRY.O) has signed a deal to work directly with Ford Motor Co (F.N) to expand the carmaker’s use of its QNX secure operating system, the Canadian technology company said on Monday, as Ford develops increasingly automated vehicles.

The deal with Ford is the first BlackBerry has done directly with a major automaker, though it currently sells its technology to auto industry suppliers.

The company is betting its future on expanding sales of software products, including to automakers and other manufacturers, after largely ceding the smartphone market to rivals including Apple Inc (AAPL.O), Alphabet’s (GOOGL.O) Google and Samsung Electronics Co Ltd (005930.KS).

Panasonic Automotive currently uses QNX software in the Sync 3 infotainment console that it supplies to Ford.

BlackBerry is hoping the new deal will expand use of BlackBerry’s software in Ford vehicles as the two companies identify other systems where it might be used.

“We can form the basis of the entire vehicle all the way from autonomous drive through to infotainment,” John Wall, the head of BlackBerry’s QNX unit, said in a phone interview.

Ford is ramping up its driverless vehicle efforts and plans to offer a fully automated vehicle for commercial ride-sharing in 2021, it announced in August.

QNX’s software is certified for use in autonomous driving and active safety systems, according to Wall.

“In the initial engagements you can think of an expansion into the cockpit; telematics, infotainment, cluster,” Wall said.

BlackBerry and Ford declined to say how QNX might be rolled out into new systems or discuss financial terms of the deal.

A dedicated team of QNX engineers based in Ottawa and Waterloo will work with Ford to expand the carmaker’s use of the Neutrino industrial operating system, as well as an overarching program that can control other operating systems and related security technology, BlackBerry said.

“We’re providing the plumbing for the vehicle that is both robust and safe and secure to allow the customers to build their applications on top of that,” Wall said.

Dan Dodge, who founded QNX in 1982, and stayed on after BlackBerry bought the company in 2010, left QNX at the end of 2015. Bloomberg reported in July that Apple hired him as part of its own self-driving plans.

(Reporting by Alastair Sharp and Jim Finkle; Editing by Andrew Hay)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/2WWfe2L2-uE/us-blackberry-ford-motor-idUSKBN12V2C0

Valeant ex-CEO, ex-CFO focus of U.S. criminal probe: Bloomberg


U.S. prosecutors are focusing on Valeant Pharmaceuticals International Inc’s (VRX.TO) former chief executive and chief financial officer as they build a fraud case against the drugmaker, Bloomberg reported.

The case against Valeant could yield charges within weeks, the report said, citing people familiar with the matter. (bloom.bg/2fnXLYp)

U.S. authorities are looking into potential accounting fraud charges related to Valeant’s hidden ties to Philidor Rx Services LLC, a specialty pharmacy company that the company secretly controlled, Bloomberg reported.

Prosecutors are examining the actions of Michael Pearson, Valeant’s former CEO, and Howard Schiller, the ex-CFO who led the company on an interim basis when Pearson went on medical leave, the report said.

Valeant’s U.S.-listed shares (VRX.N) closed down 12.4 percent at $17.82. The company could not be immediately reached for comment. A spokesman for Manhattan U.S. Attorney Preet Bharara declined to comment.

The Wall Street Journal had reported in August that U.S. prosecutors had opened a criminal investigation into Valeant over whether it hid from insurers its relationship with Philidor that helped boost its drug sales.

Valeant has seen its market value fall by some 90 percent in the last year as its drug pricing and other business practices prompted investigations by multiple U.S. government agencies and by Congress.

The drugmaker has taken a series of steps to restore investor trust, including cutting off ties with Philidor last October, conducting an internal review of that relationship, overhauling its board of directors and appointing new leaders to run its main businesses.

Earlier this year Laval, Quebec-based Valeant replaced Pearson with Perrigo Co Plc’s (PRGO.N) CEO, Joseph Papa. Pearson led Valeant since 2008 and drove its growth through serial acquisitions.

(Reporting by Ankur Banerjee in Bengaluru; Editing by Savio D’Souza)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/A4V9ujrnTfs/us-valeant-investigation-idUSKBN12V29J

CenturyLink to buy Level 3 Communications for about $24 billion


CenturyLink Inc (CTL.N) said it would buy Level 3 Communications Inc (LVLT.N) in a deal valued at about $24 billion to expand its reach in the crowded market that provides communications services to businesses and compete with rivals like ATT and Verizon.

CenturyLink shares slumped 12.5 percent to $26.60 in afternoon trading on Monday, while shares of Level 3 surged 4.5 percent to $56.46.

Both Level 3 and CenturyLink reported lackluster third-quarter results on Monday, BTIG analyst Walt Piecyk said.

“Level 3 was hoping to return to sequential growth in its core business but they weren’t able to,” Piecyk said. “CenturyLink is buying a company that in the last two quarters is showing some problems.”

The cash-and-stock deal, expected to close in the third quarter of 2017, comes as the companies struggle with a slowdown in their core operations and as they face telecommunications rivals like ATT Inc (T.N), Comcast Corp (CMCSA.O) and Verizon Communications Inc (VZ.N), who also offer internet and phone services to businesses.

CenturyLink aims to create a formidable enterprise telecom player as business clients seek more bandwidth and faster networks to move data traffic.

“We’ve become a much larger and more focused enterprise player,” CenturyLink Chief Executive Glen Post said in an interview after the deal was announced on Monday.

“Together with Level 3, we will have one of the most robust fiber network and high-speed data services companies in the world,” Post said separately in a statement.

Post, who has worked at CenturyLink since 1976, will lead the combined company, while Level 3 Chief Financial Officer Sunit Patel will keep that title of the merged entity.

Analysts were concerned over the fact that CenturyLink will be using its shares to cover the purchase price, which they said would raise its debt-to-equity ratio.

“Our hangup on valuation stems from the fact that CenturyLink is using its shares to fund 60 percent of the purchase price,” Morningstar analyst Michael Hodel said in a research note.

BIG PREMIUM

The offer of about $66.50 per share represents a premium of 42 percent to Level 3’s close on Wednesday before reports surfaced on a potential pact between the two companies.

CenturyLink forecast lower-than-expected fourth-quarter revenue of $4.28 billion-$4.34 billion, weighed down by a decline in its wireline business. The company expects an adjusted profit of 53-59 cents per share for the quarter.

Analysts polled by Reuters expect revenue of $4.38 billion and earnings of 64 cents in the fourth quarter.

Level 3’s reported third-quarter revenue of $2.03 billion, below the average analyst estimate of $2.07 billion. It posted earnings of $143 million, compared to $1 million a year ago, when it took a hit from the deconsolidation of its Venezuelan operations.

Monroe, Louisiana-based CenturyLink, which provides telephone services mainly in rural areas, has been investing to grow its enterprise business and upgrade its networks in recent years. Level 3 has one of the most desirable global fiber networks and provides internet services to clients like Apple Inc (AAPL.O) and Netflix Inc (NFLX.O).

Including debt, the deal is valued at about $34 billion and would result in cost savings of $975 million per year, CenturyLink executives said on a conference call with investors.

“These are two companies looking for scale and synergies in reaction to the struggles that both companies are facing in their core business to deliver on growth,” BTIG analyst Walter Piecyk said in an email.

CenturyLink, which operates more than 55 data centers in North America, Europe and Asia and provides broadband, voice, video, data and managed services, has been exploring a sale of some of its data center assets. That sale process is underway, CenturyLink executives said on the call.

Colorado-based Level 3 narrowly avoided bankruptcy in the early 2000s and was helped by got a cash infusion of $500 million in 2002 from investors including Warren Buffett. It purchased enterprise company TW Telecom in 2014 for $5.65 billion.

It’s unlikely that the CenturyLink-Level 3 deal would face regulatory hurdles, analysts said.

The global enterprise market is “so crowded with competition, with more and more new entrants building fiber every day that we see little cause for concern by regulators,” Drexel Hamilton analyst Barry Sine said in a research note.

The breakup fee is of a “normal size” and will be divulged when CenturyLink files its merger agreement with regulators shortly, Post said without providing details.

BofA Merrill Lynch and Morgan Stanley were CenturyLink’s financial advisers. Evercore Partners provided a fairness opinion, while Wachtell, Lipton, Rosen Katz and Jones Walker were its legal advisers.

Citigroup acted as Level 3’s financial adviser and Lazard issued a fairness opinion. Willkie Farr Gallagher LLP as its legal adviser.

(Reporting by Malathi Nayak in New York, Narottam Medhora and Supantha Mukherjee in Bengaluru; Additional reporting by Lauren Hirsch in New York; Editing by Bernadette Baum and Alan Crosby)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/GvUiwkSvNjI/us-centurylink-m-a-level-3-communi-idUSKBN12V10T

Wells Fargo agrees to $50 million settlement over homeowner fees


NEW YORK Wells Fargo Co (WFC.N) has agreed to pay $50 million to settle a racketeering lawsuit accusing it of overcharging hundreds of thousands of homeowners for appraisals ordered after they defaulted on their mortgage loans.

The proposed settlement, which requires court approval, was disclosed in a filing on Friday in an Oakland, California federal court. If approved, it will resolve nationwide claims that Wells Fargo charged much more than it paid for third-party appraisals, exploiting borrowers who could least afford it and driving them further into default.

Wells Fargo’s settlement of the lawsuit comes as the bank is still recoiling from a scandal over sales targets that drove employees to create unauthorized accounts for customers. Multiple lawsuits over those practices are pending.

Spokesman Tom Goyda said Wells Fargo believes its appraisal practices were proper and disagreed with the lawsuit’s claims but settled to avoid further litigation.

Plaintiffs’ lawyer Roland Tellis said: “We’re very pleased to have negotiated a settlement that achieves our litigation goals.”

About 250,000 homeowners are covered by the proposed deal, he said.

Mortgage agreements allow banks to charge homeowners for the appraisals if they default on their mortgage loans, but Wells Fargo added large mark-ups to the amounts its third-party vendors charged, the 2012 lawsuit said.

Wells Fargo typically charged $95 to $125 for the type of expedited appraisal at issue, when the actual cost was $50 or less, the complaint said. The charges added hundreds or thousands of dollars to borrower’s mortgage loans over time, the lawsuit said.

Customers did not know they had been victimized because the charges were described on statements with cryptic labels such as “other charges,” the lawsuit said.

The plaintiffs had sought triple damages under the U.S. Racketeer Influenced and Corrupt Organizations Act. The lawsuit said sending invoices and statements with the fraudulently concealed fees constituted mail and wire fraud sufficient to allege racketeering.

In court filings, lawyers for Wells had called those claims “far-fetched.” The U.S. Office of the Comptroller of the Currency and courts have recognized that fees similar to Wells Fargo’s can include a profit margin, the lawyers said.

The case is: Bias et al v Wells Fargo Co, U.S. District Court, California Northern District, no 12-cv-664

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/_eyPmmMkJO4/us-wellsfargo-settlement-idUSKBN12V27F

Under fire, Carney to stay extra year at Bank of England


LONDON Bank of England Governor Mark Carney said on Monday he will stay in his job for an extra year until the end of June 2019 to help smooth Britain’s departure from the European Union, but he will depart two years short of a full term.

Carney, who has come under heavy criticism from pro-Brexit politicians for warning before June’s referendum of the economic risks of voting to leave the EU, had the option to stay at the Bank until 2021.

But the Canadian decided against serving the full eight years available to him.

“I would be honoured to extend my time of service as Governor for an additional year to the end of June 2019,” he said in a letter to finance minister Philip Hammond, which was published by the Bank.

“By taking my term in office beyond the expected period of the Article 50 process (for Britain to leave the EU), this should help contribute to securing an orderly transition to the UK’s new relationship with Europe,” he said.

Prime Minister Theresa May, who has tried to dampen the pressure on the central bank chief, welcomed his announcement. Her spokeswoman said it would provide “continuity and stability” while Britain negotiates its EU exit.

Sterling, which has slumped around 20 percent since the Brexit vote on worries about Britain’s economic prospects, hit its highest level on Monday at $1.2240 on the news of Carney’s extension. [GBP/]

Elizabeth Martins, an economist with HSBC, said the announcement of a one-year extension appeared to be a “bit of a half-way house” that would help Britain get past the potential volatility of the Brexit negotiations.

“I guess that markets would have liked to see a 2021 extension, and expected it given indications in the media. But this will go down better than an earlier departure,” she said.

But Conservative lawmaker and outspoken Carney critic Jacob Rees-Mogg told Reuters: “I think the uncertainty was bad, but I still think he ought to have gone because of his bias over Brexit.”

Carney had previously said he would announce by the end of this year whether he would stick to his original departure date of mid-2018, when Britain is likely be deep in the process of extricating itself from the EU.

Most economists in a Reuters poll expected Carney to agree to stay on beyond 2018.

The 51-year-old is the father of four school-age children and he said last week his decision would be based on personal rather than political considerations.

But the pressure on Carney has echoes for central bank chiefs elsewhere. U.S. Republican presidential candidate Donald Trump has said the Federal Reserve has kept interest rates low because of political pressure from the White House.

And German Chancellor Angel Merkel said in April that it was legitimate for people to question the European Central Bank’s record low interest rates.

UNDER PRESSURE

Under the terms of the appointment he took up in 2013, Carney agreed to stay at the Bank for five years with the option to stay for a further three. Around a year ago, he hinted at the possibility of taking up the extension.

But since then, pressure has built on the first foreigner to run the British central bank in its 322-year history.

May took the unusual step of criticising the effects of low interest rates earlier this month and Carney has faced persistent criticism from eurosceptic lawmakers in her Conservative Party, who accused him of compromising the Bank’s independence by warning of the economic risks of Brexit.

However a spokeswoman for May said on Monday that the prime minister was “clear in her support for the governor”. Asked if he was the best man for the job, she said: “Absolutely.”

“It is clearly a decision for him, but the PM would certainly be supportive of him going on beyond his five years,” the spokeswoman added. “The PM has always had a good working relationship with the governor of the Bank of England and intends to continue that.”

Carney met May on Monday for what his office said was a regular meeting.

The career plans of a man once dubbed the “outstanding central banker of his generation” have gripped financial markets. Some of the recent slide in sterling and rise in government bond yields have been attributed by analysts to the prospect of Carney leaving the BoE.

But his critics have remained on the attack.

John Redwood, a leading eurosceptic lawmaker, said the Bank had been wrong to cut interest rates to a record low in August and take other stimulus measures as a response to the referendum result. He also criticised Carney for earlier misleading markets by giving steers on when interest rates might rise.

“You need a governor with judgement who studies the numbers carefully and says rather less than the Bank of England have been saying in the last year,” Redwood said before the announcement of Carney’s extension.

(Additional reporting by David Milliken; Editing by Stephen Addison and Giles Elgood)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/eR-zKJME_9o/us-britain-boe-carney-idUSKBN12U0YB

U.S. consumer spending ends third-quarter with strong momentum


WASHINGTON U.S. consumer spending rose more than expected in September as households boosted purchases of motor vehicles and inflation increased steadily, which could bolster expectations of an interest rate hike from the Federal Reserve in December.

The Commerce Department said on Monday that consumer spending, which accounts for about 70 percent of U.S. economic activity, increased 0.5 percent after dipping 0.1 percent in August. Last month’s rise in consumer spending offered a fairly strong handoff from the third quarter to the current quarter.

The report was published ahead of the start of the Fed’s two-day policy meeting on Tuesday. The U.S. central bank is not expected to raise rates at this meeting, which comes about a week before the Nov. 8 presidential election, but is expected to do so in December.

“The latest data should be of comfort to the Fed. Spending continues to underpin growth and, combined with positive developments on the labor market and inflation, should enable the Fed to tighten policy in December,” said Greg Daco, head of U.S. macroeconomics at Oxford Economics in New York.

Economists had forecast consumer spending rising 0.4 percent last month. When adjusted for inflation, consumer spending rose 0.3 percent after falling 0.2 percent in August.

The spending figures were incorporated into last Friday’s report on third-quarter gross domestic product. Consumer spending increased at a 2.1 percent annual pace after advancing at a robust 4.3 percent rate in the prior period.

A separate report on Monday showed factory activity in the U.S. Midwest hit a five-month low in October amid declining production and weak growth in new orders. The report from the Institute for Supply Management-Chicago suggests prolonged weakness in manufacturing as the sector continues to deal with the aftermath of a dollar rally and lower oil prices.

U.S. stocks were trading marginally higher as investors showed caution ahead of next Tuesday’s elections. The dollar .DXY rose against a basket of currencies, while U.S. Treasury yields fell.

INFLATION TICKING HIGHER

Consumer spending combined with a spurt in soybean exports and a turnaround in inventory investment to boost economic growth to a 2.9 percent pace in the third quarter. The economy grew at a 1.4 percent rate in the April-June quarter.

Rising wages due to a tightening labor market should help support consumer spending. With consumer spending firming, inflation continued to gain steadily last month. The personal consumption expenditures (PCE) price index increased 0.2 percent after a similar gain in August.

In the 12 months through September the PCE price index rose 1.2 percent, the biggest gain since November 2014, after advancing 1.0 percent in August.

Excluding food and energy, the so-called core PCE price index rose 0.1 percent after advancing 0.2 percent in August. In the 12 months through September the core PCE rose 1.7 percent after a similar increase in August.

The core PCE is the Fed’s preferred inflation measure and is running below its 2 percent target.

“Overall inflation is accelerating as energy prices and the U.S. dollar have stabilized since the spring. Stronger wage growth from the tight labor market will also help push up inflation over the medium term,” said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh.

Consumer spending last month was lifted by a 1.3 percent surge in purchases of long-lasting manufactured goods such as automobiles. Spending on services rose 0.3 percent.

Personal income increased 0.3 percent in September after rising 0.2 percent in August. Wages and salaries advanced 0.3 percent after edging up 0.1 percent the prior month. Savings fell to $797.8 billion from $820.5 billion in August.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/SUyAg7Ma-Jc/us-usa-economy-idUSKBN12V1BM