For Immediate Release

Chicago, IL – August 12, 2009 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Colgate-Palmolive (CL), McDonald’s (MCD), International Business Machines (IBM), Fluor (FLR) and Moody’s Investor Service (MCR).

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Here are highlights from Tuesday’s Analyst Blog:

More Productive

Part of the reason for the unexpectedly strong reading in second quarter productivity is that it was coming off a lower base than we thought, as the productivity numbers for the first quarter were revised down to a gain of just 0.2% from a previously reported 1.8%. That is because output fell by 8.7% in the first quarter, not by the previously reported 7.2%. Hours worked were revised only slightly to a decline of 8.9% rather than 8.8%.

However, real hourly compensation was dramatically revised to a decline of 0.1% rather than the previously reported increase of 7.0%. The lower starting level there helps in part explain the big jump in real compensation in the second quarter, particularly in manufacturing, where the previously released number for the first quarter was an increase of 16.1% in real hourly compensation and a rise in unit labor costs of 16.6%. Those were revised down to just increases of 4.6% and 4.9%, respectively.

Given the size of that revision, it does not give one that much confidence in the second quarter numbers that were just released. The productivity numbers for all of 2008 were also revised downward to growth of just 1.9% from the previously reported 2.7% increase. That revision was entirely due to a downward adjustment in the estimate of output, to unchanged from 0.8% with hours unchanged at a decline of 1.9%.

While this sort of growth in productivity is unlikely to last, and it is largely a function of people getting laid off and the remaining work being spread among fewer people, it is still overall a good thing for the economy.

It is most certainly a good thing for companies. The surge in productivity goes a long way towards explaining how companies as diverse as Colgate-Palmolive (CL), McDonald’s (MCD), International Business Machines (IBM), Fluor (FLR) could manage to report higher earnings than a year ago in the face of falling revenues.

Negative operating leverage is normally a very rare thing, but was surprisingly common this quarter, with a total of 77, or 17.0% of the 452 S&P 500 firms that have reported have enjoyed higher EPS than a year ago, even though their revenues were down.

Raters Under Review

Rating agencies such as Fitch, Moody’s Investor Service (MCR), Standard & Poor’s Rating Services, and A.M. Best have recently come up against some strong criticism. This led to the Rating Accountability and Transparency Enhancement Act (RATE) of 2009, which was introduced in May. The bill has been referred to the Senate committee, but has not yet been passed. As per the new bill, the Securities and Exchange Commission (SEC) will be empowered to monitor the functioning of the rating agencies. Besides, both retail and institutional investors will also have the option of conducting legal proceedings against them in case of improper updation of facts.

We believe that the more stringent review process would make things a bit more difficult for rating agencies. While they continue to be protected by the right of freedom of speech and opinion, they will have to pay more attention to misrepresentation or improper representation of facts because this is the area that could increase unwanted litigation.

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