Abayomi Azikiwe, editor of the Pan-African News Wire, covering the National March for Jobs in Pittsburgh on September 20, 2009. The event kicked off a week of protests surrounding the G20 summit. (Photo: Alan Pollock)
Originally uploaded by Pan-African News Wire File Photos
By Alan Rappeport in New York
Published: January 8 2010 13:52
Last updated: January 8 2010 14:32
The US economy shed 85,000 jobs in December, disappointing expectations that it might add jobs last month in a sign that companies continue to be cautious about hiring.
Official figures showed that the unemployment rate was unchanged last month, holding steady at 10 per cent. The data dashed hopes of a mounting recovery for the labour market, which has lagged painfully behind the rest of the economy.
Stock index futures edged into the red following the payrolls report, while treasury yields declined.
S&P 500 futures were down 3.8 points at 1,133.70, trading below fair value. Futures for the Dow Jones Industrial Average lost 31 points to 10,514.00. Nasdaq futures were 12.3 points lower at 1,865.25, also trading below the fair value reading, and the yield on the 10-year Treasury note fell 3 basis points to 3.791 per cent.
“The data strongly plays to a view that the recovery is tepid, without the development of a strong virtuous cycle from employment boosting income supporting consumption,” said Alan Ruskin, strategist at RBS Securities.
A bright note within the data was that November’s decline of 11,000 jobs was revised upward to show that the economy had added 4,000 workers that month. It was the first time since December 2007, when the recession officially began, that the US economy added workers.
During the last two years the US unemployment rate has doubled and the number of people unemployed has soared from 7.7m to 15.3m
In spite of recent signs of improvement in the economy, December’s payroll report adds to the pressure facing the US government continues to stem the flow of job losses and create new jobs.
The Federal Reserve, in its latest meeting minutes, pointed to the stubborn labour market weakness as an “important concern” and noted that it will take more than one solid employment report to forge a labour market recovery. It noted sharp declines in labour force participation, which in December declined further to 64.6 per cent.
“We still see unemployment remaining very elevated throughout 2010 and the rate would have risen sharply in December but for a plunge in labour force participation,” noted John Ryding and Conrad DeQuadros, economists at RDQ Economics.
Economists have been fearful that the extended periods of joblessness facing US workers is leading to skill erosion, creating “structural” changes in the make-up of the labour market, which usually experiences cyclical swings.
Hopes rose that December’s figures would be stronger because in the previous month businesses increased the amount of work they were giving their employees, wages ticked up, and use of temporary workers increased. All of those factors tend to foreshadow hiring.
Analysts had also taken heart that a steady slowing in jobless claims was a sign that businesses were ready to begin bringing on new employees.
Last month the average work week was flat at 33.2 hours, temporary help services added 47,000 jobs and average hourly earnings ticked up by 3 cents to $18.80.
It was worrying, however, that the broader measure of unemployment, which accounts for part-time workers and those who have given up actively looking for work but still want a job, rose to 17.3 per cent after slipping the prior month.
The manufacturing and construction sectors were among the hardest hit in December, shedding, 27,000 jobs and 53,000 jobs respectively. However, the healthcare and financial sectors were areas of job growth.
Additional reporting by Samantha Pearson
Copyright The Financial Times Limited 2010.
U.S. Stocks Pare Losses on Inventories Report
By KRISTINA PETERSON And DONNA KARDOS YESALAVICH
NEW YORK—U.S. stocks fell Friday as the government reported more jobs were lost last month than expected, and analyst downgrades weighed on the consumer staples sector.
Still, the declines were limited as U.S. wholesale inventories unexpectedly surged in November and rose by the most in five years.
The Dow Jones Industrial Average was down 23 points, or 0.2%, to 10584. Coca-Cola was the measure's worst performer, down 2.2% after J.P. Morgan Chase downgraded its investment rating on the stock to neutral from overweight, noting the next six months will be "difficult" for stocks it comeves in the beverages and household-products sectors.
The warning weighed on the entire consumer-staples sector. Colgate-Palmolive and Alberto-Culver, which aren't Dow components, also were downgraded. Colgate fell 2.6% while Alberto-Culver slipped 3.1%.
Boeing weighed on the Dow with a 1.6% drop after Macquarie Equities Research downgraded the aerospace company to neutral from hold, saying the stock looks overvalued. Meanwhile, General Electric climbed 1.7%, extending gains from Thursday.
The technology-heavy Nasdaq Composite edged down 0.3%. The Standard & Poor's 500-share index was down 0.4%, with consumer staples its worst-performing sector, followed by consumer-discretionary stocks. Just two sectors were in the black: industrials and technology.
Meanwhile, the dollar strengthened against the euro but was lower against the yen. Treasurys were mixed, with the two-year note recently up 3/32 to yield 0.980% and the 10-year note down 1/16 to yield 3.834%. Crude-oil futures slipped, while gold futures also fell.
Earlier Friday, the Labor Department reported that U.S. nonfarm payrolls fell by a larger-than-expected 85,000 last month. However, the government also revised upward earlier data, showing that jobs increased by 4,000 in November, the first gain in almost two years. The unemployment rate remained at 10%, slightly better than the 10.1% rate that was expected, although the share of the population that is under-employed—either unemployed or only able to find part-time work—grew in December to 17.3% from 17.2% in November.
"People might have had some unrealistic expectations about how the labor market was going to turn around," said Russ Koesterich, global head of strategy, scientific equity, at BlackRock. "While the economy is stabilizing it's likely to be a bit of a slower recovery than you typically have coming out of a recession because financials are still weak and the consumer is still overlevered."
A separate report showed U.S. wholesale inventories rose 1.5% to $386.26 billion, while Wall Street expected a 0.3% decline. The increase, coming even as sales leaped, was the largest since a 1.5% climb in October 2004.
But BlackRock's Mr. Koesterich said he wasn't surprised. "We had an enormous inventory drawdown this summer, and one of the things which helped to stabilize the economy is you're no longer having that inventory drawdown." He expects the restocking to help strengthen fourth-quarter gross domestic product.
Nevertheless, John Chisholm, chief investment officer at Acadian Asset Management, said the morning's data show "while there's certainly been a lot of recovery over the last nine months, there's still some potential bumpiness ahead."
Among stocks in focus, UPS jumped 5% after the company raised its fourth-quarter earnings guidance.
Meanwhile, Apollo Group fell 6% after the company received a Department of Education report regarding concerns about its handling of federal funding. The company reported a quarterly profit late Thursday that surpassed expectations.
Still to come, consumer credit data is set to be released at 3 p.m. EST.
Write to Kristina Peterson at kristina.peterson @dowjones.com
Dollar and bond yields drop as US jobs data disappoint
By Jamie Chisholm
Published: January 8 2010 07:27
14:00 GMT. The dollar slumped, bond yields dropped and equities pulled back from 15-month highs after an eagerly anticipated US labour market report came in worse than expected.
A Reuters poll of analysts had suggested that no jobs would have been lost or gained in December, and that the unemployment rate would inch up to 10.1 per cent. In the event, 85,000 jobs were lost last month, though revisions to earlier data showed payrolls had managed a small gain in November, the first increase since January 2008. The unemployment rate remained at 10 per cent in December.
The dollar gave up slim early gains to tumble 0.7 per cent on a trade-weighted basis to 77.52 as investors took the view that the economic revival was less healthy than originally thought, which might allow the Federal Reserve to postpone any monetary tightening. It lost 0.5 per cent to $1.4386 to the euro.
“The dollar fell because investors now see far less likelihood that the Fed will act upon rates,” said Andrew Wilkinson senior market analyst at Interactive Brokers. “Anyone wanting to take advantage of the low borrowing cost of the dollar, but has been too fretful about the possibility that the Fed might raise rates soon, can breathe a little easier today.”
US equity futures immediately fell back to show that the S&P 500 would open lower by 5 points at 1,137. US government bonds jumped, with the yield on the benchmark 2-year Treasury, the most sensitive to changes in official interest rates, plunging 7 basis points to 0.96 per cent. Ten-year bond yields, which had been up 2 basis points at 3.85 per cent prior to the report’s release, were later down 3 basis points at 3.80 per cent
The FTSE Eurofirst 300, which had climbed 0.6 per cent to its best level since early October 2008, gave up some of those gains to trade up 0.2 per cent at 1,062, while the FTSE 100 also reversed course to lose 0.3 per cent at 5,510.
Sentiment had earlier been helped by Wall Street finishing higher for the fourth day in a row, boosted by a strong performance from industrial bellwether General Electric and well-received retail sales reports.
The Vix index, a gauge of expected volatility for US stocks, had continued to dribble lower, losing 0.5 per cent to 19.06. This suggested investors were increasingly relaxed about the market. Often the Vix can rise ahead of the non-farm payrolls data as traders seek protection from any shocks, so the current level was a sign of complacency, said some analysts.
A positive performance in Asian markets allowed the FTSE World equity index to remain positive despite the wobble in European bourses after the labour data, rising 0.5 per cent to 352.9, just shy of recent highs.
The FTSE Asia-Pacific index rose 0.6 per cent. The Nikkei 225 was the star performer, adding another 1.1 per cent to hit 10,798, a fresh 15-month high, as chip stocks saw good demand on global growth hopes.
The Kospi in South Korea climbed 0.7 per cent to 1,695 after the country’s central bank left interest rates unchanged. But the won rose close to its best levels since autumn 2008 – up 0.7 per cent to Won1,29.40 versus the dollar – as the Bank of Korea appeared not to rule out a rate rise in March.
Chinese stocks initially had another bad day as investors continued to fret about the authorities’ moves to damp lending and concerns rose that the coming flood of IPOs would choke the market. However, a late rally helped the Shanghai Composite eke out a 0.1 per cent advance to 3,196. Hong Kong’s Hang Seng rose 0.1 per cent to 22,297.
Currency trading was initially quiet as investors were reluctant to take positions ahead of the US data.
The yen had another wobble, however. An apparently chastened Naoto Kan, the new Japanese finance minister, had to backtrack on his comments about wanting a weaker yen, and on Friday he stated that markets should decide forex rates. This helped the yen to gain, before Mr Kan then knowingly added that he still had the authority to intervene, should he wish, which promptly caused it to slide again.
The yen was later trading up 0.1 per cent against the dollar to Y93.12 and 0.2 per cent to Y133.35 versus the euro.
UK gilts showed little reaction to news that factory gate inflation rose in December at its fastest annual rate in nearly a year. The yield on the 10-year bond, which was up 2 basis points ahead of the report, later traded at 4.05 per cent.
The revised reading for eurozone GDP confirmed that the region’s economy grew by 0.4 per cent between the second and third quarters of 0.4 per cent, while the unemployment rate hit 10.0 per cent in November, its worst level since August 2008. The benchmark European government bond, the German 10-year Bund, saw its yield rise 4 basis points to 3.34 per cent.
The yield on Japanese benchmark bonds rose 2bp to a two-month high of 1.37 per cent as investors expressed concern that Mr Kan was less concerned about fiscal discipline than his predecessor.
Gold jumped 0.5 per cent to $1,137 as the dollar dropped, while oil dipped 0.6 per cent to $82.18 a barrel on economic growth concerns.
Copyright The Financial Times Limited 2010.
AIG bail-out attracts further scrutiny
By Tom Braithwaite in Washington
Published: January 8 2010 00:57
The government bail-out of AIG’s counterparties was placed under fresh scrutiny on Thursday with the publication of e-mails showing the Federal Reserve Bank of New York pushing the insurance group to keep details of the deal private.
Unresolved in the e-mail traffic between lawyers and regulators is whether the New York Fed, regulator to much of Wall Street, acted out of concern for the market or for its own political position.
Darrell Issa, the senior Republican on the House oversight committee, requested information from the New York Fed and AIG about the circumstances behind $27.1bn in payments to banks, ranging from Goldman Sachs to Société Générale, made to cancel derivatives contracts.
He obtained e-mails showing the New York Fed pushing the insurance group to delay releasing information related to the payments and restrict the degree of detail provided to the Securities and Exchange Commission. Pressure from the SEC and Congress prompted AIG to file more details later.
“The American taxpayers, who own approximately 80 per cent of AIG, deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information,” said Mr Issa. “This news ought to serve as a cautionary tale to those who advocate giving the Federal Reserve even more power over the US economy.”
The Fed has made no secret of its attempts to prevent the disclosure of the names of the banks who received payments. Officials at the central bank argued publicly last year that disclosure would hurt AIG’s future business and could destabilise the market.
As details have emerged, the Fed has continued to defend the payments, arguing there were risks to the financial system had AIG collapsed and been unable to fulfil its contractual obligations, and that it proved impractical to obtain discounts on the deal from the banks, with parties including the French banking regulator opposing a “haircut”.
The New York Fed used a special purchase vehicle, Maiden Lane III, to buy collateralised debt obligations from 16 institutions, which were AIG’s credit default swap counterparties.
The institutions had been demanding increasing collateral payments from AIG, threatening to tip the insurance group into bankruptcy. The New York Fed decided that the only way to protect the insurer was to buy the underlying CDOs from the banks.
Copyright The Financial Times Limited 2010.
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