The jobs picture still looks sour, but there could be light at the end of the tunnel.
The bad news: The private sector slashed more jobs than expected in August, reversing a sixth-month trend of job gains. The good news: Overall employers announced fewer planned job cuts.
Private sector employers cut 10,000 jobs in August — a drop from the downwardly revised 37,000 jobs they added the month before, according to a report by payroll processing firm Automatic Data Processing.
Those cuts were worse than predicted. Economists polled by Briefing.com had expected the report to show 13,000 jobs added in August.
While jobs statistics are often a volatile measure, the drop is still enough to "heighten fears about a double-dip recession," Paul Ashworth, senior U.S. economist with Capital Economics said in a note to investors.
After the report was released, stock futures dipped slightly, but then rebounded as stocks popped up at the opening bell.
Job losses in the goods producing sector dragged down the entire measure, while the services sector actually saw a boost in employment. Both the construction and financial services industries cut jobs in August, continuing a three-year downward trend in those sectors.
ADP looks backward at the month, compiling data from actual payrolls. But earlier on Wednesday morning, a separate report showed employers’ plans for future job cuts sunk to a 10-year low during the month.
After rising for three months in a row, planned job cuts plummeted to 34,768 in August, the lowest level since June 2000 and down 17% from the previous month, according to outplacement firm Challenger, Gray & Christmas Inc.
Compared to a year ago, downsizing activity dropped 55% in August, and job cuts have eased 65% so far this year compared with the same period last year.
"Every other job market indicator seems to be stuck in first gear," said John Challenger, CEO of the firm. "In contrast, the layoff picture has improved so significantly that we are at pre-dot-com collapse levels when it comes to monthly job-cut announcements."
The separate jobs reports use different metrics, with ADP measuring only private sector job growth and Challenger compiling planned job cuts in the government and non-profit sectors as well as private industry.
"The two reports in combination give us a glimpse of exactly where we’re at: companies have stopped firing, but are not yet hiring," said Adrian Cronje, chief investment officer of investment firm Balentine.
Private sector businesses are holding cash on their balance sheets, he said, but are not hiring due to an uncertain outlook about future tax rates and fiscal policy.
According to Challenger, the industrial goods sector announced the most job cuts in August, but looking year-over-year, job cuts in the sector were down significantly overall.
The Challenger report also showed the government and non-profit sector shed the most jobs this year, accounting for 30% of all 2010 job cuts and eliminating three times more jobs than the pharmaceutical sector, which reported the second highest number of year-to-date cuts.
ADP and Challenger’s numbers set the stage for the government’s closely watched jobs report due Friday. Economists are expecting the report to show there were 120,000 jobs lost in August, an improvement over July’s 131,000 job loss.
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Hawaii’s initial unemployment claims were down 1.2 percent last week.
The Department of Business, Economic Development and Tourism released a report Thursday showing that a total of 2,466 first-time unemployment claims were filed statewide in the past week, compared to 2,497 claims during the same week in 2009.
Oahu, the Big Island and Maui all saw decreases in new claims filed, while Kauai had a significant increase in the number of first-time claims.
Kauai’s 231 new claims was an increase of 90, or 63 saving account payday loan.8 percent, compared to the 141 claims it recorded during the same week last year, according to DBEDT data.
Oahu showed 1,383 new claims last week, a decrease of 2.7 percent from last year. The Big Island recorded 430 first-time unemployment claims, down 12.1 percent, and Maui had 347 new claims, down 7.2 percent from the 374 first-time claims during this week last year.
Insitu Inc. has won a $43.7 million contract for up to 56 of its unmanned surveillance aircraft for the U.S. Marine Corps.
Bingen, Wash.-based Insitu, a wholly-owned subsidiary of The Boeing Co. (NYSE: BA), said it will now begin a 24-month engineering, manufacturing and development process to build and test its Integrator unmanned system.
Work on the project will be mostly split between locations in Bingen and across the Columbia River in Hood River and should be completed by September 2012, according to the U.S. Department of Defense website.
A Sacramento County Superior Court judge denied the governor’s request to order State Controller John Chiang to pay many state employees the federal minimum wage, the latest in a two-year standoff.
Judge Patrick Marlette’s decision is the latest battle between Gov. Arnold Schwarzenegger and Chiang, whose office issues paychecks to 240,000-plus state workers.
About 200,000 faced earning $7.25 per hour — or $290 per week — since their bargaining units had not reached a deal with the governor last month.
The governor took the action in order to preserve cash as he and state lawmakers attempt to address a $19.1 billion shortfall for this current fiscal year. The cash-strapped state is looking at aggressive cost-cutting efforts to control spending, including possibly curbing payroll and programs statewide.
Friday furloughs ended last month, but the governor soon announced the federal minimum wage proposal in order to preserve cash.
But Chiang, a Democrat, said he would not follow the governor’s order unless the court demanded no fax pay day loan. The state 3rd District Court of Appeal found in favor of Schwarzenegger’s order, but Marlette’s ruling Friday delays the issue until July 26, with a full hearing next month.
So, state employees will likely receive their full paychecks, since checks are processed starting July 22.
State employees, many of whom lost about 15 percent of their pay with the three-day-per-month furloughs, would have been paid the federal minimum wage until a budget was passed, and then receive retroactive pay for the remainder of their salary.
Chiang has argued that the state’s computer system could not handle the minimum-wage request, and dramatically lowering pay for state employees could create legal problems for California.
The global economy grew at a stronger-than-expected pace in the first six months of the year, but the risks to recovery have greatly increased, according to the International Monetary Fund.
In an update of its World Economic Outlook, released Wednesday, the IMF raised its growth forecast for 2010 to 4.6% from the 4.2% estimate it made in April.
However, the international organization warned that the risks to recovery have "risen sharply" due to renewed financial turbulence.
It left its 2011 forecast for world growth unchanged at 4.3%.
The IMF said world economic growth exceeded forecasts in the first half of the year, largely driven by expansion in Asia.
But looking ahead, it offered a more dour view no fax payday advance.
It cautioned that "recent turbulence in financial markets - reflecting a drop in confidence about fiscal sustainability, policy response, and future growth prospects - has cast a cloud over the outlook."
For 2011, the IMF sees cooling growth in China to 9.6% from 10.5% this year.
In the United States, it predicts growth will slow to 2.9% next year from 3.3% in 2010.
It forecasts a slight improvement, though, in Europe. The IMF expects the euro area economy to grow 1.3% next year after expanding a mere 1% this year.
Moody’s Investors Service cut BP’s long-term rating by three notches Friday, marking the second downgrade in a month, citing the worsening impact of the oil disaster.
Moody’s cut BP’s senior unsecured ratings and long-term debt securities to A2 from Aa2 and said there could be further downgrades as it continues to review BP’s ratings.
"Moody’s update assessment is that the spill will have a sustained negative impact on the group’s free cash flow generation and overall financial profile for a number of years," said the rating agency in a statement.
Also on Friday, Moody’s downgraded the senior unsecured issuer rating of BP Finance by three notches to A3 from Aa3 and the senior unsecured issuer rating of BP Corporation North America by four notches to Baa1 from Aa3.
The rating agency had downgraded BP once before, on June 3. On that same day, Fitch Ratings also announced a downgrade of the oil giant. Since then, Fitch announced a second downgrade to just above junk status.
Moody’s referred to the BP’s agreement to set up a $20 billion escrow to cover damages and liabilities related to the spill as a "mildly positive development."
"Establishing a clear funding mechanism to make payments to injured parties may moderate pressure for the government to pursue more punitive actions," said Moody’s.
BP (BP) owns 65% of the well that is spilling up to 60,000 barrels per day in the Gulf, according to government estimates. The problem has been ongoing since April 20, when the Deepwater Horizon offshore rig, which is owned by Transocean (RIG) and leased by BP, exploded and sank, killing 11 workers.
Since then, BP has been unable to plug the leak. The company’s chief executive, Tony Hayward, was subjected to blistering Congressional testimony on Capitol Hill Thursday, where he was accused of "stonewalling."
BP’s stock has plunged 47% since the accident by Thursday’s close. The company was not immediately available for comment. Under pressure from the government, BP has canceled its dividend for the rest of the year.
The company was not immediately available for comment.
Morgan Stanley and JPMorgan Chase are the leading candidates to handle the underwriting of an initial public offering for General Motors, according to published reports.
A move to settle on underwriters would suggest that GM is getting closer to filing for an IPO. A sale of GM stock to the public would help taxpayers start to recoup most of the money GM received as part of a federal bailout.
Still, an offering will not take place before the fourth quarter, according to the Treasury Department, which holds a 61% stake in the company.
Morgan Stanley (MS, Fortune 500) and General Motors declined to comment on the reports in the Wall Street Journal and the New York Times, while a spokesman for JPMorgan Chase (JPM, Fortune 500) was not available for comment.
It would make sense that Morgan Stanley is in the running. GM’s vice chairman Stephen Girsky was formerly a managing partner at Morgan Stanley.
The Treasury Department also refused to comment on the reports but issued a statement late Thursday that said the selection of underwriters would be GM’s decision.
Treasury added though that the choice of banks would be subject to the department’s "agreement that the selection is reasonable." It also said that Treasury, not GM, will determine the fees paid to underwriters.
Both Morgan Stanley and JPMorgan Chase received their own federal bailout funds Treasury in 2008, although all that money has since been repaid. Still, the department likely has a fair amount of leverage in negotiating fees for the IPO with the banks.
But even a fee of 1% of the offering would likely generate more than $100 million in income for the firms — assuming that GM sells at least $10 billion worth of stock easy payday loans.
Independent International Investment Research estimates that the GM IPO will raise $12 billion, which would be enough to make it the second largest U.S. IPO on record, behind only the $17.9 billion IPO for Visa (V, Fortune 500) in 2008. It would be about 10 times the size of the Google (GOOG, Fortune 500) IPO in 2004.
The IPO is a key step for the Treasury Department being able to recoup some of the remaining $44 billion in taxpayer money the automaker has yet to repay.
While GM has repaid $7 billion in loans it got from treasury, Treasury received $2.1 billion in preferred GM shares along with the 61% stake in GM’s common shares in exchange for the help.
The Treasury Department is expected to sell some, but not all, of those shares in the IPO. Experts say it will take months, if not years, for the government to sell its entire stake.
GM shares would need to have a market value of $69 billion in order for Treasury’s common shares to recoup their portion of the bailout money. Numerous analysts last month estimated GM’s total market value at between $64 billion and $90 billion.
But it may prove difficult for GM to reach that value. The company’s peak market value was $61.3 billion in May of 1999, according to research by the Center for Research in Security Prices at the University of Chicago.
US Airways Group Inc. said Thursday it ended merger talks with United Airlines, the biggest carrier at San Francisco’s airport.
A union of the two companies would have would have created a carrier nearly as big as Delta Air Lines Inc., the nation’s biggest airline.
“It remains our belief that consolidation makes sense in an industry as fragmented as ours,” said Chairman and CEO Doug Parker. “Whether we participate or not, consolidation that leads to a more efficient industry better able to withstand economic volatility, global competition and the cyclical nature of our industry is a positive outcome.”
Parker, in his prepared statement, did not discuss why talks ended. But media reports indicate UAL Corp., United Airline’s parent, is considering a merger with Continental Airlines.
United Airlines accounts for one-third of the flights at San Francisco International Airport.
Onward and upward forecasts for 401(k) employee retirement accounts often disregard the fact that financial markets carry some inherent risk, which means there will be periods in which asset values decline. If a sharp decline occurs close to retirement, it spells serious trouble for investors who counted their chickens before they were hatched.
That’s why ongoing asset allocation, low-expense selections and considering your 401(k) in the context of all your investments should be your game plan.
The good news is that 401(k) investors have continued to automatically invest six to seven percent of their income in these important retirement savings vehicles despite the market volatility of the past two years. In addition, the majority of companies that temporarily suspended their matching contributions to 401(k)s are expected to reinstate them by the end of this year.
The bad news is that the panicked moves by investors into more conservative portfolio choices amid the downturn seems to have frozen their investment confidence.
"At the peak of the stock market, 401(k) investors had 70 percent of their portfolios in equities and by the bottom of the market a year ago that number had fallen to 50 percent," said Pamela Hess, director of retirement research for Hewitt Associates in Lincolnshire, Ill. "Even though the market has rebounded, no money moved back into equities, and that means it has been locked into inferior-performing investments because they have no overall strategy."
Pin some of the blame on the 401(k) offerings of many employers. They began to offer a bushel of different investment choices that were more confusing than diversifying to the average worker. The large number of names and styles of mutual funds made many investors decide to stick with the simplest money-market type of choices. They didn’t want to invest in something that wasn’t prudent or wind up with overlapping funds.
A dramatic rise in the offering of target-date funds, which aim toward a date that’s usually retirement age, has been the strongest 401(k) trend in recent years. The problem is that, although these start out with an asset mix favoring equities and gradually ease into more fixed-rate choices as the end-date nears, they carry no guarantee.
Their asset allocation steps do not preclude a potential nosedive such as they took in the 2008 debacle. Results of various target funds also differed considerably.
"For many people, target-date funds may be the best option, but for others it is a terrible choice because age is not the most important criteria for investing," warned Harold Evensky, certified financial planner and president of Evensky & Katz, Coral Gables, Fla. "Two 60-year-olds with the same income, family and neighborhood may have radically different retirement needs, and each has to look at the risks and rewards of their particular portfolio."
Fewer 401(k) investors made an investment trade in the past year than in the five years that Hewitt Associates has been tracking such moves. Their balances have still not returned to their levels at the end of 2007, the consulting firm found.
"While the ’stay the course’ message has been heeded by 401(k) investors, the message now should be to do some realistic planning for their account," said David Wray, president of the Chicago-based Profit Sharing/401(k) Council of America. "They changed their allocation for new money to be more conservative, but they should be figuring out what they’re actually going to need to spend in retirement."
Wray encourages investors to look beyond the names of funds and examine their prospectuses to see what they’re really getting. For example, if you have a greater risk tolerance than your target fund, it may be too conservative.
"More employers are offering tools to make better investment decisions, and more companies are advertising that fact," said Hewitt’s Hess. "It’s a balancing act, in that companies want to give enough information but don’t want to be in a position of telling them what to invest in."
Some companies are trimming back their number of investment choices to make them clearer, while others are adding brokerage self-directed accounts in which investors opt for stocks or exchange-traded funds.
Investors who aren’t sure how to initiate a strategy could start with 60 percent stocks and 40 percent bonds, then adjust up or down from there, said Evensky. Stocks carry more market risk and bonds carry more inflation risk, so you must find the balance best for you, he said. Keep in mind all of your other investments when making your 401(k) decisions.
"Money in your personal account and money in your 401(k) should be treated holistically because all of it is your money," believes Evensky. "Some people have the same mutual funds in their 401(k) as in their taxable accounts, and that means a lot of redundancy."
With investment returns likely to be modest for an extended period of time, expenses become more important, he said. An extra percentage in annual cost could have an impact on how much return you keep. He often recommends stock index funds for his clients’ 401(k) accounts because their lack of active management means expenses are low and you’ll also be assured of market return.
Stocks ended lower Wednesday, but higher for the quarter after a strong showing in March, as downbeat jobs and manufacturing reports cooled a recent runup.
The Dow Jones industrial average (INDU) lost 50 points, or 0.5%, to end at 10,857.31. The S&P 500 index (SPX) slipped 4 points, or 0.3%. The Nasdaq composite (COMP) lost 7 points, or 0.3%.
Wall Street reached the end of a solid quarter, even with Wednesday’s losses. The Dow gained 4.1% over the first three months of the year, after a 5.2% advance in March, while the S&P added 4.9% for the quarter. The tech-heavy Nasdaq had the strongest quarterly showing, up 5.7%.
Wednesday’s declines were broad based, with 25 of the blue-chip Dow’s 30 components ending lower.
"The market has finished higher on 23 of 25 trading days, so now it’s taking a break and adopting a wait-and-see attitude," said Art Hogan, chief market strategist at Jefferies & Co., noting that the market is closed on Good Friday.
Stocks ended slightly higher Tuesday, pushing the Dow to a fresh 18-month high as investors digested mixed reports showing a rise in consumer confidence and continued weakness in the housing market.
Jobs: ADP released its monthly report on employment before the opening bell, showing that private-sector employers cut 23,000 jobs in March. This was in sharp contrast to expectations of a 40,000 job increase, according to economists surveyed by Briefing.com.
In February, the private sector cut a revised 24,000 jobs. ADP has not reported an increase in monthly payroll numbers since January 2008, when 34,000 private-sector jobs were added.
ADP was "a disappointment," said Hogan, especially because expectations are fairly high for Friday’s government report on the unemployment rate.
"Census jobs should boost Friday’s data, but it’s a tree that falls in the forest where no one stands," Hogan said. "I can’t remember the last time such an important report came out when the market is closed."
Economy: The Chicago PMI, a regional reading on manufacturing, was released shortly after the market opened and pushed equities further down. The index slipped to 58.8 in March from 62.6 the previous month. Economists predicted a smaller drop, to 61.
Also after the market opened the Census Bureau reported factory orders for manufactured goods rose 0.6% in February, slightly higher than analysts’ expectations but significantly less than January’s 2.5% increase.
"We’ve gotten to that point in time when we need Goldilocks-type data, meaning it falls in just the right range," Hogan said. "If reports are too positive, people will be worried the [Federal Reserve] will raise interest rates; too negative, and concerns are raised that the recovery is weak or nonexistent."
Energy stocks and oil prices gained earlier in the session after President Obama announced plans to open large sections of the eastern Gulf of Mexico and an area off the Virginia coast for oil drilling.
Companies: Shares of Research in Motion (RIMM) plunged 5% in after-hours trading after the company reported a profit of $710.1 million, or $1.27 per share. That missed estimates from analysts polled by Thomson Reuters, who estimated earnings of $1.28 per share.
With the first quarter of the year ending with Wednesday’s session, Hogan said the market will be looking to see if company earnings estimates are hiked for 2010.
"The new focus is going to be on corporate America’s ability to start earning money," Hogan said. "We’ll see more mergers and stock buybacks — and investors will be watching to see how companies deploy their cash."
Outlook: The strong showing in the first quarter of the year means the market will likely see a pullback or about 5-7% in the next quarter, said Peter Cardillo, chief market economist at Avalon Partners.
"We could see a mild correction as early as mid-April, even when companies are in the middle of reporting strong first-quarter earnings," Cardillo said. "That sentiment is already priced into the market."
Throughout the rest of 2010, Cardillo expects continued focus on job market data and corporate earnings. Stocks could end the year 3-5% higher, he said.
World markets: Asian stocks finished lower. In Japan, the Nikkei index lost 0.1%, and the Hang Seng in Hong Kong slipped 0.6%.
In Europe, London’s FTSE 100, France’s CAC 40 and Germany’s DAX ended slightly higher after a choppy session.
The dollar and commodities: The dollar fell against the euro and British pound but rose on the yen.
U.S. light crude oil for May delivery rose $1.39 to settle at $83.76 a barrel, the highest closing price in almost 3 months.
COMEX gold for June delivery added $7.80 an ounce to $1,116.10.
Bonds: Treasury prices were higher, with the 10-year yield falling to 3.83% from 3.87% late Tuesday. Bond prices and yields move in opposite directions.
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