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Rupee Drops, and Outlook Grows Darker for India

India’s economy slowed in early summer to its weakest pace since the bottom of the global economic downturn in 2009, government statistics released Friday evening showed.

The Central Statistics Office in New Delhi said that the economy grew 4.4 percent in the quarter ended June 30, well below economists’ expectations of 4.8 percent. The quarter was the weakest since output grew 3.5 percent in the quarter that ended March 31, 2009.

The accumulating signs of economic distress — slower growth, a widening current-account deficit, higher oil prices and rising inflation in general — suggest that the monthlong fall of the Indian rupee in currency markets may be a symptom of fundamental troubles in the Indian economy and not just part of the broader difficulties experienced by Asian emerging market currencies in recent weeks.

Hints that the Federal Reserve in the United States may soon shift to a tighter monetary policy have prompted global investors to shift billions of dollars out of financial markets from São Paulo to Jakarta to Mumbai, eroding the value of local currencies in developing economies. But the Indian rupee has fallen the fastest of any emerging market currency in the last month, down 8.1 percent. Broader investor disenchantment with emerging markets has been compounded here by worries about India’s economy, the third-largest in Asia after China’s and Japan’s.

Manufacturing and mining have been hit the hardest. A court-ordered halt to most iron ore mining across India for environmental reasons has hurt steel and other sectors; state governments have been raising taxes on the sector, and broader demand has begun to falter.

“The fact is, yes, the manufacturing sector has slowed down,” said Raj K. Singh, the chairman and managing director of the Bharat Petroleum Corporation, an oil refining and marketing company that is two-thirds owned by the Indian government and is one of the country’s largest businesses.

The data was released after stock market and currency trading had ended for the day, despite government promises to stay with the regular Friday morning release. After a week of considerable volatility, the rupee and the Mumbai stock market both had showed modest gains earlier Friday.

India enjoyed annual growth of 8 to 9 percent in the years leading up to the global financial crisis but has struggled to reach 6 percent since then, despite heavy government spending and large fiscal and trade deficits.

From corner stores to corporate boardrooms, the consensus in Mumbai these days is that stagnation may continue over the next few months, although almost no one expects a steep downturn.

Sitting in his office on Friday morning in front of an abstract Indian painting in blues and yellows, Mr. Singh voiced concern about a 7.2 percent drop in nationwide diesel consumption during the first three weeks of August from a year ago. Nationwide diesel consumption was also down 5.9 percent in July from a year ago.

But heavy monsoon rains have limited the need for diesel in irrigation pumps, making the comparison less clear, Mr. Singh cautioned. Rohit Dawar, the top diesel demand expert at the Petroleum Ministry in New Delhi, said in a telephone interview that diesel consumption had been artificially inflated in July and August last year by a peculiarity in government fuel subsidies, since removed, that temporarily made it cheaper to burn diesel instead of other fuels in industrial boilers.

Even allowing for all of these factors, however, “there is a slight slowdown” in diesel demand recently, Mr. Dawar said.

Plentiful monsoon rains, a key indicator for the Indian economy for thousands of years, have produced lush fields that could yet help stabilize broader measures of the economy in the coming months and forestall a steeper slowdown. While World Bank data show that value added in agriculture is only one-sixth of the economy these days, a good harvest could still play an outsize role in limiting recent increases in food prices.

Inflation will probably remain a problem, however, given that India relies almost entirely on imported oil, which becomes more expensive with each drop of the rupee. So important is oil to India’s trade deficit that desperate bidding for scarce dollars by Indian refiners helped drive the rupee briefly to a record low on Wednesday, before the Reserve Bank of India stopped the rout that evening by arranging to transfer dollars from its reserves to oil importers.

“Prices are rising for everything — petrol is more expensive, vegetables are more expensive,” said Bharat Hirji Gada, a local shopkeeper.

India has some advantages compared with European and other Asian countries that have experienced steep economic downturns following currency declines over the last two decades. The biggest advantage may be that the Indian government has long prohibited borrowing in foreign currencies by poor or middle-class households and by small and medium-size businesses.

Foreign debt has been concentrated among blue-chip companies and wealthy individuals. Many of these loans are to borrowers whose revenue is largely denominated in dollars, limiting their currency exposure, said Haseeb A. Drabu, the chief economist for the Essar Group, one of India’s heavy industry giants.

“The bulk of it would be hedged,” he said.

Neha Thirani Bagri contributed reporting.

Target Cuts Outlook as Profit Drops 26%

NEW YORK — Target Corp. reported a 29 percent drop in first-quarter profit as unusually cool spring weather and financial pressures chilled customers' appetite for spending.

The company, based in Minneapolis, also on Wednesday cut its annual profit outlook, sending its stock down.

Target is the latest in a string of companies including rival Wal-Mart Stores Inc. that say bad weather and financial pressures like the higher payroll tax have squeezed business in the first couple months of the year.

While chilly weather was a big factor in depressing sales of spring clothing and other seasonal goods, Target said that a yo-yo economic recovery has continued to make shoppers stick to shopping lists and plan their spending.

"We remain cautiously optimistic about both the macroeconomic environment and consumer behavior," Gregg Steinhafel, chairman, president and CEO, told investors in a call after the earnings report. "Both of these business drivers continue to reflect slow, uneven growth and ongoing cross-current of positive and negative indicators, just as they have for the past few years."

In fact, while the housing market is showing signs of recovery and claims for unemployment insurance have been declining, shoppers, particularly younger customers, are still facing a weak job market, Steinhafel said.

A big hurdle for many low-price retailers has been tax changes. An increase in the payroll tax of two percentage points, which took effect Jan. 1, means that take-home pay for a household earning $50,000 a year has been sliced by $1,000.

Target said Wednesday that three-quarters of its customers surveyed were aware of this year's payroll tax increase. Among those, a majority have noticed the impact of the tax increase on their paychecks and indicate it's affecting their spending.

Still, Target, whose sales growth has been uneven since the recession, remains confident in its strategies to attract shoppers.

Target has reached out to customers with two big growth initiatives. It has been offering a larger selection of food and also a program, started in 2010, that gives shoppers a 5 percent discount when they pay with Target-branded credit and debit cards.

At the same time, Target continues to team up with new designers for limited-time partnerships. Earlier this month, Target announced its latest designer collaboration, with Phillip Lim. The collection is due out in September.

Last year, Target expanded into urban markets using smaller versions of its big-box stores in Seattle, Los Angeles and Chicago.

Target also started to expand into Canada earlier this year, its first foray outside the U.S. The company is opening the stores in waves that should add up to about 125 stores at locations once owned by Canadian retailer Zellers by the end of the year. During the first quarter, it opened 24 stores in Canada, and plans to open 20 more later in the second quarter.

Target said it earned $498 million, or 77 cents per share, for the three months ended May 4. That compares with $697 million, or $1.04 per share, a year earlier.

Excluding items related to its Canadian expansion and retirement of certain debt, the company earned $1.05 per share.

Sales rose 1 percent to $16.71 billion.

Analysts had expected earnings of 95 cents per share on revenue of $16.82 billion.

Revenue at stores open at least a year slipped 0.6 percent as the number of transactions fell 1.9 percent. That's considered an important measure of retail performance because it strips out the effect of stores that open or close during the year.

Target says that measure should improve to anywhere from a 2 percent to 3 percent gain in the current quarter. And while traffic should improve, it will continue to be challenging, Target told investors.

Target expects that adjusted earnings per share will be in a range between $1.09 and $1.19 for the current quarter.

For the full year, the company now expects $4.70 per share to $4.90 per share. That's down from its original guidance of $4.85 per share to $5.05 per share.

Analysts had forecast $1.11 per share for the second quarter and $4.63 per share for the year.

The results come a week after Wal-Mart, the world's largest retailer, reported that its first-quarter profit edged up just slightly, and the company struggled with a sales malaise in its namesake business.

Revenue at stores open at least year at its namesake U.S. business dropped 1.4 percent, the first decline since the second quarter of 2011.

Wal-Mart also offered a quarterly profit outlook that came below Wall Street's projections. Wal-Mart blamed a litany of factors affecting its budget-conscious customers, including a payroll tax increase, delayed tax refunds, job worries and bad weather. The company did say that sales this month have been rebounding.

Target's stock dropped 4 percent, or $2.86, to close at $68.40 Wednesday.

S&P revises Penn State's outlook over lawsuits

HARRISBURG, Pa. (AP) - The ratings agency Standard & Poor's has revised Penn State University's outlook to negative from stable, citing litigation against the school over the Jerry Sandusky child molestation scandal, but affirmed its long-term bond rating.

I.A.T.A. Raises Profit Outlook for World’s Airlines

IATA, which represents about 80 percent of global carriers, now expects the $630 billion airline industry to make a net profit of $4.1 billion this year, up from an earlier forecast of $3 billion but still less than half the $8.4 billion achieved in 2011.

IATA also said in its first forecast for 2013 that industry profits will rise further next year to $7.5 billion, helped by passenger traffic expansion of 4.5 percent and cargo expansion of 2.4 percent as global economic growth quickens to 2.5 percent from an expected 2.1 percent this year.

Profit margins will remain razor-thin at 1.1 percent in 2013 versus an expected 0.6 percent in 2012, the association added.

"The outlook improvement is due to airlines performing better in a difficult environment," Tony Tyler, IATA's director general and CEO said in a statement.

"The European sovereign debt crisis lingers on. China continues to moderate its growth and the impact of recent quantitative easing in Japan and the U.S. will take time to yield growth," he added.

The Geneva-based body said aircraft flew on average 79.3 percent full in the first eight months of this year with passenger demand increasing by 1.4 percentage points ahead of capacity.

"The fact that there are fewer spare seats on flights than would be expected at this point of the business cycle, when lower demand and rising aircraft deliveries tend to lower the proportion of seats sold, suggests airlines have resisted the temptation to win back revenue by increasing capacity," the association said.

ASIA, MIDDLE EAST

IATA's improved outlook is a boost for Asian airlines that have been plagued by weak earnings. In August, the world's largest air freight carrier, Cathay Pacific Airways, posted its worst first-half loss since 2003, hurt by high fuel costs, weak cargo demand and fewer premium passengers.

"Despite a slowdown in the Chinese economy, Chinese domestic demand is still growing at nearly 10 percent," Tyler said. "The demand for regional and long-haul travel has held up better than expected in the face of economic uncertainty."

Australia's Qantas Airways also posted a full-year net loss of A$244 million ($253.74 million) for the first time in 17 years and cancelled orders for 35 Boeing Dreamliner jets to cut costs.

Although Singapore Airlines Ltd, the world's No.2 carrier by market value, posted a net profit of S$78 million ($63.59 million) for the quarter ended June, it warned that profits at its cargo and passenger units remain under pressure.

North American carriers are expected to boost profits to $1.9 billion this year from $1.3 billion in 2011, after extensive restructuring. Asian profits of $2.3 billion continue to drive most of the industry's growth although they will be down from last year's $5.3 billion.

Europe, mired in an ongoing debt crisis, is expected to suffer wider-than-previously-expected losses of $1.2 billion.

Middle Eastern carriers gained market share during the first eight months of the year, with passenger traffic rising 17.1 percent and cargo demand increasing 14 percent from a year ago.

"The region's carriers continue to expand their long-haul market share with connections through their expanding hubs, IATA said.

Emirates Airline and other Middle Eastern carriers had a 11.5 percent share of international passenger traffic in August this year, up from 4.8 percent in 2002, according to IATA data.

The share could rise further as Emirates last month signed a deal where Australia's Qantas Airways agreed to use Dubai instead of Singapore as its hub for European flights from March 2013. Under the deal, Qantas will also end a 17-year old alliance with British Airways.

Globally, IATA raised its forecast for passenger demand despite weak confidence in Europe, but pushed its forecast for cargo into the red. The economically sensitive sector is expected to see a 0.4 percent contraction in 2012 instead of 0.3 percent growth as previously forecast.

About 40 percent by value of internationally shipped goods go by air and cargo demand is seen as a barometer for world trade and the health of the economy.

IATA represents some 240 airlines that in turn account for 84 percent of global air traffic.

(Additional reporting by Tim Hepher in PARIS; Editing by Matt Driskill)