Zacks Analyst Blog Highlights: Deere, Tractor Supply, Potash, Wal-Mart and The Hartford Financial Services Group

Mar 29, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, March 29, 2011 /PRNewswire/ -- Analyst Blog features: Deere (NYSE: DE). Tractor Supply (Nasdaq: TSCO), Potash (NYSE: POT), Wal-Mart (NYSE: WMT) and The Hartford Financial Services Group Inc. (NYSE: HIG).


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Here are highlights from Monday's Analyst Blog:

Personal Income, Spending Rise

The components of Personal Income are as important as is the total number. As I noted above, the unusually large jump in January was primarily due to the change in the payroll tax. In total, personal income rose by $38.1 billion, a big decline from the rise of $147.4 (revised from $133.2) billion in January (seasonally adjusted annual rates, as are all the subsequent numbers on the components of personal income).  Since the reduction in the payroll tax is only for one year, this is not a particularly high quality source of personal income growth.

On the other hand, it is probably of higher quality than government transfer payments (for example Social Security and Unemployment Insurance benefits). Those fell by $1.1 billion in February after falling by $0.1 billion in January.

In January, private sector wages rose by $16.4 billion, down from a $16.7 billion increase in January. However, there was a big upward revision to the January number -- they were originally reported as an increase of $14.8 billion.

Wages in the goods-producing sector fell by $1.0 billion in February, down sharply from a $12.0 billion increase in January. Offsetting that, wages in the private-service sector were up $17.4 billion versus an increase of $4.7 billion in January. Overall government wages rose by $0.3 billion after rising $2.5 billion in December.

Private wages and salaries are the most important and highest quality, form of personal income. Government wages have to be paid out of either taxes or government deficits. Government workers do, however, spend their money in the private sector, just like private-sector workers do.

Proprietors Income

Another important source of personal income is proprietors' income. In other words, what the self-employed and small businesses were earning. That increased by $2.5 billion in February, down from a $3.9 billion rise in January. Farm proprietors incomes rose by $0.5 billion, matching a $0.5 billion increase in January.

Strong commodities prices have led to a stunning increase in farm incomes. Farm proprietors' incomes have risen every month since March of last year. The overall strength down on the farm helps explain why the Great Plains states like the Dakotas and Nebraska are weathering the downturn so much better than the rest of the country. It is also a good sign for firms that are tied to the farm economy, such as Deere (NYSE: DE). Tractor Supply (Nasdaq: TSCO) and Potash (NYSE: POT). It also suggests that perhaps Willie Nelson needs to find a different recipient for his charity concerts.

Non-farm proprietors' income rose by $2.5 billion, down from a $3.7 billion rise in January. In other words, what we normally think of as small business income is showing signs of getting back on track, but is hardly booming the way farm income is. Farm proprietors' income is tiny relative to non-farm at just $58.0 billion versus $1.0366 trillion.

Since July 2010, non-farm proprietors' income is up a nice, but hardly exciting 3.0%. Non-farm proprietors' income actually peaked back in December of 2006 at $1.1129 trillion, so small business income is still 6.9% below peak levels. On they other hand, it bottomed out in May 2009 at $971.6 billion, so we are now 6.7% above the valley floor.

Other Forms of Income

Rental income rose by $8.3 billion in January, up from a $8.2 billion increase in January. Rental income has increased every month since November 2009. Given the still-weak condition of the real estate market, this is somewhat surprising, but a sign that it is slowly on the mend.

Capital income, or income from dividends and interest, rose by $7.7 billion after it rose by $8.8 billion in January. This income is particularly important to retirees. While interest rates are still very low by any historical measure, they have increased over the last few months, most notably longer term T-notes. Interest income fell by $1.0 billion in February, matching its January decline.

Dividend income rose by $8.6 billion on top of a $9.9 billion increase in January. Dividend income can be a bit erratic month to month, but the general trend seems to be upwards, since October total dividend income is up by 4.5%. The decision to allow most of the "too big to fail" banks to substantially increase their dividends means that dividend income is likely to continue rising nicely over the next few months. The decision was however, very ill advised from the point of view of banking system soundness and safety.

The final big component of personal income is government transfer payments. Like government salaries, this source of income has to come from either taxes or increased deficits and so it is a less desirable source of personal income from the point of view of the economy as a whole.

However, it is still income that gets spent in the economy. Wal-Mart (NYSE: WMT) really doesn't care if the money spent in its stores is from the elderly using their Social Security checks or the dividends they get from their investments, or really if it is retirees shopping there or people still in their working years spending their wages there, or their unemployment benefits. Transfer payments rose this month by $1.1 billion, after falling 0.1% in January.   

Over the long-term, though, the economy cannot simply grow through ever-increasing amounts of money being handed out by the government. Those payments are very useful in the short run to help hold up overall consumer spending when the economy has turned soft. In the long run, the economy needs income from wages and salaries, and from small businesses earning profits. It is those earnings and profits that pay the taxes that support the transfer payments.

S&P Raises Outlook on Hartford

On the back of lower investment losses and strong performance in the fourth quarter, the rating agency Standard & Poor's (S&P) Ratings Services has upgraded its outlook on The Hartford Financial Services Group Inc. (NYSE: HIG), as the company diverts to safer risk profiles in its investment portfolio.

S&P has raised the outlook to "stable" from "negative," while it resumed Hartford's counterparty credit rating stands at "BBB".

Hartford's performance in its underwriting business continued to be strong, and besides, the company's move to reduce its exposure to real estate related securities and hedge funds contributed to boosting the outlook.

Fitch Ratings also raised the outlook in February to "stable" from "negative," while it resumed Hartford's ratings of "BBB" issuer default ratings ("IDR").

Recently on February 3, Hartford posted a solid net income of $619 million or $1.24 per share in the fourth quarter of 2010 as opposed to a net income of $557 million or $1.19 per share. In fiscal 2010, net income was $1.68 billion or $2.49 per share as against a net loss of $887 million or $2.93 per share in fiscal 2009.

Better investment results, strong growth in assets under management, reduced levels of net realized capital losses and Hartford's impressive book value during the quarter led to strong net income, which has in turn improved the ratings of Hartford.

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