Los Angeles Times - 31.10.2019

LATIMES.COM/BUSINESS THURSDAY, OCTOBER 31, 2019C3

ever, that the U.S. central
bank, after making three
successive rate cuts since
July, was hitting the pause
button.
He suggested that the
Fed had done enough
in light of continued moder-
ate growth in the U.S. econo-
my as well as an improve-
ment in the outlook, particu-
larly with the tentative
“Phase 1” trade agreement
announced by Trump earli-
er this month.
“We believe that mone-
tary policy is in a good
place,” Powell said at a news
conference Wednesday up-
on conclusion of the Fed’s
two-day meeting and release
of its official statement.
The statement was more
vague about the Fed’s likely
future path of interest rates,
but Powell said that it would
take a significant devel-
opment in the economy to
cause “a material reas-
sessment of our outlook” for
another Fed rate cut.
That could be a sizable
drop in job growth or con-
sumer spending, which have
been the pillars of the econo-
my, as well as a worsening of
trade tensions.
Investors were widely ex-
pecting Wednesday’s quar-
ter-point cut, and also ap-
peared to be looking for the
Fed to keep the door open on
future rate reductions. Fu-
tures markets were betting
that there was a 25% chance
of another quarter-point
rate cut at the Fed’s last
meeting of the year on Dec.
10 -11.
Stock markets nonethe-
less rose after Powell spoke.
Even though Powell tamped

down hopes for another rate

cut, investors apparently

took heart in his remarks

that the Fed could be sitting

on the new very low rate for a

long time.

“We would need to see a

really significant move up in

inflation that’s persistent

before we would consider

raising rates to address in-

flation concerns,” Powell

said. Inflation has been run-

ning below the Fed’s 2% tar-

get for years, and many ana-

lysts don’t see it rising fast

anytime soon.

With Wednesday’s cut,

the Fed’s key interest rate

stands at less than the rate

of inflation and, Powell said,

“will continue to provide sig-

nificant support for the

economy.”

Analysts, however, aren’t

so sure. The latest rate cut,

like the two earlier ones, was

telegraphed weeks earlier

and has already been priced

into stock markets. And

mortgage rates have fallen

by more than a full percent-

age point from last Novem-

ber, more than the total of

the Fed’s rate cuts, to an av-

erage of 3.75% for a 30-year

fixed loan as of last week.

“We’re not going to get

more good medicine for this

economy,” said Christopher

Rupkey, chief economist at

MUFG Union Bank in New

York.

Lawrence Yun, chief

economist at the National

Assn. of Realtors, said the

Fed’s actions have without

doubt helped boost a lack-

luster housing market. But

he noted that there are

many constraints for faster

growth in housing, including

unaffordably high prices

and difficulties getting

building permits.

In the third quarter,

housing made an outsized

contribution to the U.S.

economy, which grew at an

annual rate of 1.9%, the Com-

merce Department said.

That was down from 2% in

the second quarter and 3.1%

in the first three months of

this year.

Although that’s still mod-

erate growth, and fears of

imminent recession have

eased in recent weeks, the

Commerce Department re-

port showed the damage al-

ready inflicted by the trade

war. U.S. business invest-

ments and net exports both

fell for the second straight

quarter, joining U.S. manu-

facturing in a recession.

Powell said, however,

that he didn’t see evidence

the weakness in manufac-

turing or business invest-

ments was spilling into con-

sumer spending.

“What we continue to see

is good job creation,” he said.

“Unemployment has de-

clined again,” he said, noting

that it is now at a 50-year low.

“So it’s very positive,”

Powell added. “The consum-

ers are doing well and are fo-

cused on, you know, the good

job market and rising in-

comes. And that’s their prin-

cipal focus. So that is the

thing that’s pushing the

economy forward, and it

doesn’t seem to have been

affected so far by weakness

in the other areas.”

Powell has been under

heavy pressure from Presi-

dent Trump to make big rate

cuts, and his signal Wednes-

day that the Fed would be

pausing for now is likely to

draw more ire from the

White House.

As in the past, Powell de-

clined Wednesday to com-

ment when asked about

Trump’s remarks about the

economy.

Fed lowers its key interest rate

FED CHAIRMANJerome H. Powell said, “We

believe that monetary policy is in a good place.”

Michael ReynoldsEPA/Shutterstock

[Rate cut,from C1]

Mattel Inc.’s turnaround

had been overshadowed this

year by two big hurdles — a

lack of consistent sales

growth and an internal in-

vestigation into its account-

ing practices.

The El Segundo toy-

maker said it has overcome

both issues, sending shares

soaring.

Revenue, powered by ro-

bust gains from Barbie and

Hot Wheels, rose 3.1% to

$1.48 billion, the company re-

ported late Tuesday, top-

ping analysts’ estimates of a

small decline.

That gain was the biggest

since 2013.

Simultaneously, Mattel

said it had resolved a

whistleblower allegation

that derailed a $250-million

bond sale this year. The

company will restate the last

two quarters of earnings

from 2017, but the changes

won’t have a financial im-

pact.

Chief Financial Officer

Joe Euteneuer, who joined

the company just as the ac-

counting issues arose, will

leave Mattel after a transi-

tion period.

The company’s perform-

ance contrasted with that of

larger rival Hasbro Inc.,

which last week blamed dis-

appointing results on cus-

tomers changing and can-

celing orders ahead of U.S.

tariffs on Chinese imports

slated to take effect in De-

cember.

“We didn’t see any impact

from tariffs in the quarter

and we don’t expect any for

the year,” Mattel Chief Exe-

cutive Ynon Kreiz said Tues-

day in an interview. “We’ve

had solid, consistent execu-

tion.”

Kreiz, who took over

about 18 months ago, has

two prongs to his plan. The

first is stabilizing the core

business of making dolls and

action figures. The second is

better utilizing its brands by

pushing further into enter-

tainment, such as with fea-

ture-length films, streaming

shows and amusement

parks.

Mattel shares jumped

$1.45, or 13.8%, to $12.02. They

have advanced nearly 20%

this year through Wednes-

day’s close, barely trailing a

21.5% gain in the benchmark

Standard & Poor’s 500 in-

dex.

In North America, sales

were little changed at $822

million, meeting the compa-

ny’s expectations, Kreiz

said. International revenue

climbed 10%, driven by gains

in Asia.

An internal company in-

vestigation determined af-

ter reviewing the letter from

an anonymous whistle-

blower sent in August to its

auditing firm that the toy-

maker had understated an

income tax expense by $109

million in the third quarter

of 2017, and overstated it by

the same amount in the

fourth quarter, with no ef-

fect for the full year or on

subsequent periods.

The investigation also

found that the errors weren’t

disclosed to the company’s

chief executive once they

were discovered.

The investigation deter-

mined that the company

had a material weakness in

its internal control over fi-

nancial reporting. Mattel

pledged to fix the issue.

Another allegation from

the whistleblower letter was

that Mattel’s auditor, Price-

waterhouseCoopers, wasn’t

independent. The investiga-

tion found violations of audi-

tor independence rules but

otherwise determined that

the auditor was independ-

ent.

Jump in sales,

end of probe

lift Mattel stock

The toymaker’s shares

surge 14% after its best

quarter since 2013 and

its pledge to fix weak

accounting practices.

bloomberg

ROBUSTgains in Barbie and Hot Wheels sales pow-

ered Mattel’s 3.1% increase in revenue to $1.48 billion.

Mark LennihanAssociated Press

Boeing pushed to limit
expensive training for pilots
of its 737 Max jet, despite ac-
knowledging that a failure of
its anti-stall system could be
“catastrophic” if they did not
respond within 10 seconds,
according to new docu-
ments released by Congress
on Wednesday.
The documents were
among a trove of evidence
released by the House trans-
portation committee during
a hearing with Dennis
Muilenburg, Boeing’s chief
executive, who was testify-
ing before Congress for the
second time in two days
about two accidents involv-
ing the aircraft that killed a
total of 346 people.
Peter DeFazio, the
Democratic chairman of the
committee, said new evi-
dence showed the aircraft
could have been made safer
had Boeing not rushed de-
velopment as it sought to
compete with its rivals.
DeFazio said: “This was
inexplicable and inexcus-
able. We may never know
what key steps could have

been taken that would have

altered the fate of those

flights, but we do know that

a variety of decisions could

have made those planes

safer and perhaps saved the

lives of those on board.”

In marketing the Max to

its customers, Boeing

boasted that pilots would

not need to train on a simu-

lator to fly the new jet, the

documents showed. Simula-

tor training would have sub-

stantially increased the time

and cost needed to get the

jets in the air.

Committee members

said they had seen evidence

the aircraft manufacturer

had agreed to repay South-

west Airlines $1 million per

airplane if their pilots did re-

quire additional training.

Emails previously pro-

vided to the committee show

Boeing was asking the regu-

lator not to force it to men-

tion its anti-stall system,

which has been implicated

in both crashes, in the ma-

nual for the new aircraft.

The documents released

Wednesday show Boeing

pushed for such an outcome

despite recognizing inter-

nally that if a pilot took long-

er than 10 seconds to re-

spond to the system failing,

the consequences would be

“catastrophic.”

John Hamilton, Boeing’s

chief engineer of commercial

aircraft, who helped develop

the 737 Max, told lawmakers

that the company had

looked at the need for a 10-

second response time. “We

took it into sim[ulator] with

pilots and the typical reac-

tion was four seconds,” he

said.

The committee also re-

leased a complaint in 2018 by

a senior manager at Boeing

that workers making the

Max were “exhausted” by

the pace of production, and

that safety was being com-

promised.

Rep. Albio Sires (D-N.J.)

said the manager warned in

an email: “Right now all my

internal warning bells are

going off. And for the first

time in my life, I’m sorry to

say that I’m hesitant about

putting my family on a Boe-

ing airplane.”

Muilenburg acknowl-

edged the company had

made errors in the design of

the Max jet, which remains

grounded worldwide after

the two accidents.

But he denied Boeing

had a wider cultural prob-

lem with safety.

The Boeing chief execu-

tive also defended his pay,

having received a multimil-

lion-dollar bonus for 2018.

Muilenburg was paid $23.4

million last year — a 27% in-

crease from 2017. The com-

pensation included a $13-

million bonus.

He refused to promise

not to take a salary this year,

prompting an angry re-

sponse from Rep. Steve Co-

hen (D-Tenn.).

“You continue to work

and make $30 million a year

after these two horrific acci-

dents that caused all these

people’s relatives to go, to

die,” Cohen said. “You are

not taking a cut in pay at

all?”

Muilenburg, who has

sought to restore confidence

in the 737 Max by taking part

in recent test flights, was

also compelled to admit that

he could not remember ever

flying on the aircraft before

the accidents.

Hamilton admitted he

could only “count on one

hand” the number of times

he had flown the jet.

Several members of the

committee called for Muilen-

berg to step down. “You are

at the top and it is pretty

clear to me, the families of

the victims and the public

that you should resign im-

mediately,” said Rep. Jesus

“Chuy” Garcia (D-Ill.).

© The Financial Times Ltd.

2019. All rights reserved. FT
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      trademarks of the Financial
      Times Ltd. Not to be
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RELATIVEShold photos of 737 Max crash victims as Boeing CEO Dennis Muilenburg’s testifies Wednesday.

Olivier DoulieryAgence France-Press

Boeing downplayed need

for 737 Max pilot training

House panel releases

documents showing

the push to cut costs.

By David Koenig

Facebook Inc. reported

solid third-quarter results

Wednesday, showing steady

growth in its user base even

as it faces broad regulatory

threats and criticism over its

power and its effects on soci-

ety.

The social media giant’s

profit and sales posted dou-

ble-digit jumps during the

July-through-September

quarter. Facebook said it

earned $6.09 billion, or $2.12

per share — up 19% from

$5.14 billion, or $1.76 per

share, in the same quarter

last year. Revenue grew to

$17.65 billion, up 29% from

$13.73 billion in the year-ear-

lier quarter. Analysts on

FactSet had expected earn-

ings of $2.11 per share and

revenue of $17.37 billion.

Facebook ended the

quarter with 2.45 billion

monthly users, up 8% from a

year earlier. It also said that

about 2.8 billion people use

at least one of its services —

Facebook, Messenger,

WhatsApp or Instagram —

at least once a month.

“Advertisers continue to

support Facebook, despite

the many controversies

swirling around the com-

pany, and the user base also

continues to expand around

the world,” said EMarketer

analyst Debra Aho

Williamson.

The Menlo Park, Calif.,

company has had a rough

couple of years and is under

growing regulatory scrutiny

around the world. In the

United States it faces sev-

eral government investiga-

tions for alleged anti-com-

petitive behavior, including

probes by the Federal Trade

Commission and 46 state at-

torneys general.

Chief Executive Mark

Zuckerberg faced prickly

questioning from members

of Congress last week when

he testified about the com-

pany’s plans for a digital

cryptocurrency.

Facebook’s stock rose 4%

in after-hours trading after

the earnings report.

Facebook reports

double-digit gains

Its third-quarter

earnings rise 19% and

revenue increases

29%, beating analyst

expectations.

associated press