The Ceridian-UCLA Pulse of Commerce Index (PCI) produced by
UCLA Anderson School of Management fell 36.8 percent in January
from the previous year, after a strong increase in December.

The index’s three month moving average is up 3.3 percent
thanks to the big gain in December, suggesting economic
recovery is proceeding slowly, according to the survey
published on Wednesday.

The PCI is now up 3.6 percent compared to one year ago,
marking its first year-on-year increase since April 2008.

The index tracks the volume and location of diesel fuel
being purchased around the United States. It anticipates shifts
in economic growth as it shows when and where increases and
decreases in shipments of raw materials and goods are taking
place, said Edward Leamer, the index’s chief economist.

“The interstates that crisscross the country are the
arteries of the system, and the product flowing in the trucks
are the life blood,” Leamer said. “If you don’t move that
product the economy comes to a grinding halt.”

The index is produced in conjunction with Ceridian, a
business services company that processes credit card payments.

The company’s credit card is used by 25,000 trucking
companies in the United States. Data from card transactions is
used to determine where fuel purchases are taking place.

“The weak January value supports the doubters who are
looking for GDP growth rates in 2010 much lower than the 5.7
percent we just experienced,” said Leamer.

Leamer said the index aims to have predictive power for
other economic indicators, particularly the Federal Reserve’s
monthly figures on industrial production.

Using Ceridian’s ability to track fuel purchases, the
report has tracked the number of gallons delivered through the
nation’s 7,000 truck stops along U.S. interstates since 1999.

(New York Ratings Team; Editing by Andrew Hay)

Some companies, including General Electric Co <GE.N> and Berkshire Hathaway Inc <BRKa.N>, lost the AAA stamp after financial losses hampered their performance.

But other companies, most recently Pfizer Inc <PFE.N>, have sacrificed top ratings for a more aggressive growth stance, often funded by debt.

While companies pay a price for reduced ratings in higher borrowing costs, analysts say the loss of a top-tier rating is not as dire a fate as in the past.

“Having pristine credit quality is not the most important factor for determining whether or not management has been a good steward of a corporation’s well-being anymore,” said Sean Egan, managing director at ratings firm Egan-Jones Group.

The allure of the AAA has been dimmed by the loss of confidence in ratings agencies, which have come under fire for assigning top ratings to risky mortgage securities that later defaulted — moves that exacerbated in the ongoing financial crisis.

The three main agencies, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, are paid by debt issuers to rate their creditworthiness on a scale that directly impacts the cost of selling debt. The top rating, AAA, was once a cherished grade, reflecting the solid financial position of the issuer.

“I don’t think there’s any real value in ratings today,” said Peter Schiff, president of investment firm Euro Pacific Capital. “That’s obvious, from the way they rated a lot of the structured products as investment grade.”

The agencies have “undermined their brand,” Schiff said, creating a “caveat emptor” reputation rather than one of trustworthiness.

CULTURAL CHANGE

The use of debt to fund business growth or reward shareholders has also increased in recent years, outweighing any perceived benefits from holding onto the top ratings rank.

Pfizer’s $67 billion acquisition of Wyeth cost the company the top ranking from Standard & Poor’s it held for 13 years. Pfizer will take on $22.5 billion in debt as part of the deal.

S&P now rates just four nonfinancial companies AAA: Johnson & Johnson <JNJ.N>, Exxon Mobil Corp <XOM.N>, Microsoft Corp <MSFT.O> and Automatic Data Processing Inc <ADP.O>.

GE had less control when it lost its top rankings earlier this year, hit by losses at its financial arm.

The U.S. conglomerate had enjoyed a top credit rating since 1956, making it the oldest member of the AAA club. Exxon Mobil was created from a deal involving top-rated Standard Oil Trust, which earned that rating prior to GE.

GE is a “poster child” of the waning worth of the top-tier rating, said Egan. Shares of the blue chip company rallied about 10 percent after the news it was downgraded only one notch, which came after weeks of speculation it would be cut further.

Amid a growing embrace of all investment grade-rated companies in what Egan deems “a wholesale dilution of the AAA brand,” investors must find a different route to judge whether a company is sound or not, he said.

Egan said a shift in corporate culture that emphasizes shareholder returns over conservative financial policy — a change S&P also cites — is also aiding in the departure from traditional AAA value.

The Obama administration has proposed repealing legal rules on debt that encourage the use of ratings, as a way of reducing reliance on them.

The Securities and Exchange Commission is considering reforms and Representative Paul Kanjorski, House capital markets subcommittee chairman, has proposed legislation that would let the SEC dictate how agencies determine ratings.

Investors should “do their own due diligence” by hiring companies unaffiliated with underwriters and issuers to evaluate a company’s credit quality, said Schiff. “Obviously, these entities are not unbiased.”

(Reporting by Camille Drummond; Editing by Andrea Ricci)

American luxury retail has been, well, in shambles.

Since department store revenues began to plummet in September, luxury’s glossy image transformed to one that brings to mind strewn-about merchandise on a Saks Fifth Avenue floor.

Pricing structures have come under pressure as shoppers seek deep discounts, or worse, question price guidelines after aggressive reductions at the end of last year.  In the spring, markdowns crept dangerously close to the start of the season.  Clearly, discounts really are not what designers want their labels to be known for.

“For younger, newer designers, image is everything,” said fashion consulting firm Launch Collective’s Rob Spira, who recently co-curated the New York City Save Fashion pop-up shop to celebrate independent designers.

“Before, designers were coming to us for ideas to build funding,” Spira told Reuters at the Save Fashion store, which popular style Web site Refinery29 also co-curated.  “Now they’re looking for creative ways to sustain in this kind of environment.”

Refinery29 Editorial Director Christene Barberich said many rising designers complained recently that upscale department stores were canceling orders despite interest in their brands.

“These smaller companies don’t really have the resources to sustain their $60,000 orders when stores cancel,” said Barberich.

Save Fashion, around for a one month stint in the city’s Port Authority bus terminal, allows designers grappling with lower profit margins and less marketing money to sell their overstock at half-off or more.  The bright space houses about eight fresh designers every week — including Helmut Lang, Steven Alan, ACNE, Earnest Sewn, Rachel Comey, and Rogan — in a way that won’t recall “a shabby sample sale,” Barberich said. Rather, she dubbed it a “dream capsule department store.”

Save Fashion’s ad campaign, depicting a model wrapped solely in an American flag, says a lot. The event indicates a shift in how Americans may define high-end products once the smoke clears.

“Most of the designers here aren’t considered ‘luxury,’ but there is something about them that shows a future of luxury: smaller quantities, more care, more attention,” Barberich said, adding that some of the brands make their own patterns and trademark their own textiles.  “Here, it’s not dirt cheap, but it’s as cheap as it can be where the designers are still making some money or at least falling flat instead of going into the red.”   

Refinery29 Founder Philippe von Borries talks about alternative retail from the Save Fashion store

Department stores are expected to see a bumpy road to recovery this year.  In March, Fitch Ratings Services said it sees same store sales for luxury department stores underperforming the broader sector, with double-digit sales declines continuing in the first half.  Standard & Poor’s cut five department store credit ratings in April, sending Macy’s and J.C. Penney to junk status, and Neiman Marcus into even riskier territory.  Saks received a speculative B-minus rating from both agencies due to weakening store sales.

Meanwhile, the Dubai investment firm that owns Barneys New York gave the high-end store a capital injection last month to help it pay for its remaining shipments, one day after S&P cut Barneys to a deeply distressed ratings level.

“The nature of retail is changing,” Launch Collective‘s Spira said.  “Despite the fact that we’re in challenging times, to the consumer it has to seem like everything is still beautiful.”

(Reuters photo)