NBR Complete Transcript: 10-06-2006
Friday, October 06, 2006The Latest Jobs Report Isn't A Pretty Picture
SUSIE GHARIB: Surprising news about the job market today, as American businesses cut back hiring in September to the slowest pace in about a year. The Labor Department said today only 51,000 jobs were added to payrolls last month, much lower than economists had expected. But the unemployment rate improved to 4.6 percent. As Suzanne Pratt reports, the changing employment picture could impact interest rate decisions by the Federal Reserve.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The last time job creation in the U.S. economy looked this bad was in the period following hurricane Katrina last fall. Weakness in manufacturing and retail sectors were responsible for the lighter than expected additions to U.S. payrolls in September. Non-farm payrolls rose by a scant 51,000 jobs
last month. Offsetting some of the disappointment and complicating the labor picture was news the unemployment rate dropped to 4.6 percent from 4.7 percent.
ETHAN HARRIS, CHIEF U.S. ECONOMIST, LEHMAN BROTHERS: This was surprising that the unemployment rate fell given that job growth now is really just kind of keeping pace with the overall economy. So, it was surprising. I think that yeah, this is probably about as low as we`re going to get.
PRATT: But economists say the big story behind the September report is one of massive revisions, suggesting the labor market and perhaps overall economy are much healthier than originally thought. First, the August and July payroll numbers were both revised higher, including the addition of 60,000 more jobs in August, a much larger than normal revision.On top of that, in a preliminary estimate, the Labor Department said during the 12 months ended in March of this year, 810,000 extra jobs were added in the U.S. economy. A final benchmark figure will be released in February.
JOHN RYDING, CHIEF U.S. ECONOMIST, BEAR STEARNS: Bottom line from this report, I think the labor market is tighter than at any time since the second quarter of 2001.
PRATT: Experts say the revisions could change the way the Federal Reserve sees the economy. A tighter labor market suggests increased inflationary pressures, which might mean policymakers would still need to hike rates again. While no change in monetary policy is expected at the Fed`s October 24 meeting, financial markets have recently rallied on the belief the Fed will cut rates early next year.
RYDING: The market has been leaning heavily toward the Fed cutting rates and this report raises a little bit of a question mark against whether that`s an appropriate view.
PRATT: Some experts say the major lesson of today`s employment report is the diminished value of the monthly employment report. Some even suggest the government rethink the way it measures job creation in the U.S. economy. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One With Edward Lazear, Chairman of the president`s Council of Economic Advisers
SUSIE GHARIB: To find out how the Bush administration sees the employment picture, Washington bureau chief Darren Gersh talked today with Edward Lazear, chairman of the president`s Council of Economic Advisers. Darren began by asking if Lazear agreed with economists who called the jobs report a sign of a slow month.
EDWARD LAZEAR, CHIEF ECONOMIC ADVISOR: I wouldn`t characterize it as a slow month. I would characterize it as a month where we saw job growth pretty much in line with expectations. And the reason I say that is because we saw a job growth number of about 51,000. But we saw a revision of 60,000 up from August. So if you add those two together, what you end up with is 111,000 new jobs. The market was expecting somewhere in that neighborhood. So I would say this is pretty much what we expected in terms of job growth.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Still economists were looking for 125,000 for this month.
LAZEAR: Right.
GERSH: And they are always thinking that there might be revisions, but this was the slowest report since last October. So is this a sign, maybe, that we are in some kind of soft landing or maybe is it a little bit more trouble?
LAZEAR: No, I don`t think so. I see the labor market as still being very tight. The unemployment rate is down to 4.6 percent. We`re still seeing strong growth in -- people entering the labor force. And that is a key indication because people don`t have to enter the labor force. They only enter the labor force if there are jobs available. And we are seeing strong growth in labor force participation. That`s been up about 260,000 since July. So again, still on track for strong economic growth. Wages are continuing to grow. We are seeing nominal wage growth somewhere in the neighborhood of 4 percent for the year. That coupled with the decline in energy prices, which I`m sure everybody is happy to see gasoline prices are now down about $0.74 a gallon since early August. That -- what that means is that the paychecks that we`re seeing for workers will translate into real buying power.
GERSH: But the work week was flat. And this month hourly earnings didn`t go up. And also we see if you look a little closer you see residential construction was off 16,000. Manufacturing in particular was off 12,000. And that was heavily concentrated in industries that have to do with housing, furniture, things like that. So are we seeing a little bit of weakness here?
LAZEAR: I don`t think so. I wouldn`t call it weakness. I would call it kind of a rebalancing of the economy. And let me tell you why. If we look at what has happened, particularly if we think about residential construction which everybody knows is the sector that`s been the weakest over the past few months, we are seeing that being offset almost completely by increases in nonresidential construction. I think of that as being actually a sign of a more robust economy. You hate to see an economy that is based primarily on strong consumption growth and strong housing growth and nothing else.
GERSH: The concern that the residential real estate folks are telling me is that the anecdotes out there are looking pretty ugly. And the Fed chairman was out there saying that we are in a substantial correction. But if you see these jobs going away in the manufacturing sector of -- that is related to housing, isn`t that an indication that maybe the housing correction could get worse?
LAZEAR: Obviously it could get worse. But I`m actually surprised by your comment. Because one of the things we do in addition to gathering numbers is we also talk to people in industry. We talk to bankers. We talk to finance people. We talk to manufacturers. We talk to retailers. And what we`ve been hearing from people out there is, in fact, that there might actually have already been a turn around. That if we look at, particularly financing in the housing market, we`re seeing some strength there. Some of the declines that we saw earlier in the year are now being turned around. People are saying that August was a pretty good month in terms of refinancing. We know retailing has picked up a bit. So there are a number of areas where we think, you know and again it`s too early to say. I`m not going to try and predict what the future is going to be. But it does look like there may be a turn around already. And that would be good, a turn around in the sense that we`ve seen a decline in some sectors. And that may be over.
GERSH: But the concern seems to be in Midwestern states, for example, Ohio, key election battleground. Surveys show that more than 80 percent of the people think that the economy is fair or poor. Are you going to be in trouble in this election because in key battleground states, people aren`t feeling the recovery that may be taking place elsewhere?
LAZEAR: One of the things that`s interesting is that if you look atthese surveys, people tend to say that the economy is poor, but they actually say that their own financial situation is considerably better than it was a few years ago. To be honest, it is a little bothersome to us in the sense that we would like people to recognize that the economy is strong. We believe it`s strong. The labor market is tight. We`re seeing very strong job growth, huge productivity growth over the past few years. Output is high, but when you do talk to the average American, I think they don`t see that the economy is as strong as it is. They do see their own personal financial situation strong. And the one thing I would just add to that is I think that much of that has to do with the increases in energy prices that you saw during the first half of the year. That was significant. And it really did hit people pretty hard. Of course, the good news on that front is that it has turned around and that the energy prices are declining at a rapid rate.
GERSH: All right, Mr. Lazear, thanks for your time.
LAZEAR: Thank you very much.
"Market Monitor"-Elaine Garzarelli, President of Garzarelli Capital
PAUL KANGAS: My guest "market monitor" this week is Elaine Garzarelli, president of Garzarelli Capital and welcome back to NIGHTLY BUSINESS REPORT Elaine. Good to see you.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to see you.
KANGAS: On your last visit with us in early March, you said that Wall Street was in a major bull market and you predicted that the Dow Industrial Average would reach a new record high within 12 months. Well, it did it this week in only seven months, so I compliment you on a great call.
GARZARELLI: Thank you.
KANGAS: You also predicted the Standard & Poor`s 500 Index would set a new record and it hasn`t. But do you still expect it any time soon?
GARZARELLI: Well, yeah. It is about 12 percent away from an all-time high. And I think that will happen sometime in the next 12 months.
KANGAS: Are you somewhat concerned that there hasn`t been a complete confirmation by other averages for the Dow`s new high?
GARZARELLI: Well, not by the NASDAQ, but the transports, the utilities, the S&P 600, the Russell 2000, the Amex, they all reached new highs earlier in `06. So the Dow was lagging and the S&P is lagging. I think they`ll all reach new highs again, except for the NASDAQ. That needs a 50 percent gain.
KANGAS: That needs quit a move. Where do your 14 market indicators stand currently?
GARZARELLI: They stand at a bullish reading of 48 percent.
KANGAS: They were 46 when you were with us in early March. That is bullish too.
GARZARELLI: Yes, it was. And then they went to a correction signal in May and we had a 7.7 percent correction in the S&P, 15 percent in the NASDAQ.
KANGAS: Right.
GARZARELLI: . which ended June 13th. And we`re now in another phase of the bull market.
KANGAS: What are your thoughts on the weak September employment report that was out today?
GARZARELLI: Well, with the revisions, it really wasn`t so weak. Actually it was stronger than expected. So there is some fear that the Fed may not ease as soon as the markets had expected. I don`t think that is the case.
KANGAS: Is the Fed through hiking rates once and for all? Is that it for this cycle?
GARZARELLI: I think so. And even if they did raise rates one more time, it wouldn`t change our outlook.
KANGAS: What about the housing industry? Where do you stand on that?
GARZARELLI: I think it`s pretty much bottomed here because the mortgage rate is down a full percent from its high and that should stabilize the housing industry.
KANGAS: How about oil prices? Do you think they will stay between $55 and $65 per barrel?
GARZARELLI: I do because I see the economy slowing not only here inthe U.S., but around the world. And that is the major reason I think oil prices were so high before. So I think they will stabilize.
KANGAS: That`s good news to hear. In early March, you recommended the purchase of four securities. Let`s see how they have done since then. The first two, industrial select spider over in the American up 4.5 percent. Motorola did well, up 16.7 percent, good call. Still with those two?
GARZARELLI: Yes, I am.
KANGAS: OK. The other two Oracle, look at that gain, 42.2 percent. That was a great call. And Dupont has done well up almost 10 percent, all winners. Very nice, Elaine. I compliment you.
GARZARELLI: Thank you. Three times better than the S&P. So that was a good week.
KANGAS: Very good indeed. How about some new recommendations for our viewers?
GARZARELLI: OK. First one is Dow Chemical. I think the chemicals are ready to take off because oil prices have come down. Dow is down 17 percent just in the last 12 months.
KANGAS: We can see that on the chart, yeah.
GARZARELLI: OK, the next one is Intel. And I think capital spending will lead the way in the economy -- with the economy in `07.
KANGAS: That one is --
GARZARELLI: That stock is down 73 percent from its all-time high, 25 percent just in the last year.
KANGAS: We have a minute left and time for a couple more maybe. Let`s try.
GARZARELLI: OK, good, Hovnanian is a home builder down 60 percent and that is a New Jersey-based company. And the last one is the old Philip Morris and that is Altria with a dividend yield.
KANGAS: I was going to say, nice dividend. Everybody likes it with the dividend.
GARZARELLI: Exactly. KANGAS: All right, we will have to see how these stocks fair in the coming months. Any last thoughts for our viewers? We have about 20 seconds.
GARZARELLI: Yeah, no, I`m very bullish on the economy. It`s the best economy I have seen in my career, even though I know it sounds strange with the budget deficit down to 1 percent of GDP and the international deficit is getting better too.
KANGAS: I meant to ask you also, do you personally own any of the securities you recommended tonight?
GARZARELLI: Yes, I do.
KANGAS: OK, you own them all. OK, very good. Elaine as always, I thank you for being with us.
GARZARELLI: Nice being here. Thank you.
KANGAS: My guest, Elaine Garzarelli of Garzarelli Capital.
"Last Word"-Respectable Re-gifting
SUSIE GHARIB:And finally tonight, with the holiday gift-giving season fast approaching, this might be good news. A new survey of 1,500 American adults shows that giving gifts that you have received to others, a process known as re-gifting, is now acceptable. Seventy eight percent of consumers polled felt it was OK to re-gift some or most of the time. In years past, giving away something someone gave you was seen as taboo and a socially unacceptable move. But the poll showed that more than half of those responding, 52 percent, have re-gifted. So Paul, if you`re thinking of re- gifting that horrible tie someone gave you for Christmas last year, you shouldn`t feel guilty about it.
KANGAS: Well, I certainly would, if by mistake I gave it to the person that gave it to me in the first place.
GHARIB: That would be horrible.
KANGAS: Yes, it would.
GHARIB: You have to keep track of who you got the gift from.
Paul Kangas; Stocks In The News
PAUL KANGAS: Stocks opened broadly lower as that much weaker than expected jobs report gave investors an excuse to take profits after the sharp recent run up. An hour into trading, the Dow posted a 49 point loss. NASDAQ was off 14. A budding rally was cut short by a tumble in GM stock on that Kerkorian news, but the Dow partially recovered from a 55 point mid- afternoon deficit as oil prices eased. Today, the Dow Industrial Averageclosed off only 16.48 at 11,850.21. This week, it fell twice and rose three times, for a net overall gain of 171.14 points. The NASDAQ Composite was off 6.35, ending at 2299.99 today. It also fell twice and rose three times this week for a overall gain of 41.56 points. Standard & Poor`s 500 Index was down 3.64, ending at 1349.58 today. Over in the bond market, the 10- year note fell 23/32 to 101 12/32, putting the yield up to 4.70 percent.
Big board volume leader on 29.2 million shares was General Motors (GM) down $2.08, traded as low as $30.50 as Kirk Kerkorian backed away as you heard.
Micron Tech (MU) down $2.40. After the close yesterday, out with fourth quarter earnings of $0.08, up from $0.07 last year, but well below the Street expectation of $0.14 a share. Today, Merrill Lynch downgraded Micron from "buy" to "neutral" and Goldman Sachs repeated a "sell" recommendation.
Lucent Tech (LU) was down $0.08.
And then CVS Corp (CVS), the big drug store chain, down $1.61. The stocks of drug store chains, pharmacy benefit manager, drug wholesalers, all down today on the news that First Data Bank could be forced to lowerits benchmark drug prices used by health plans and Medicaid programs to determine what they pay pharmacies. Let`s have a look at some other majors in that field.
Amerisourcebergen (ABC) down on $0.78.
But Cardinal Health (CAH), Caremark Rx (CMX), McKesson (MCK) and Medco Health Solution (MHS) all more than $2 losers, rough group.
Getting back to the active list, Sprint Nextel (S), fifth in volume, was up $0.62 a share.
Then Walgreen Co (WAG) affected by the news on CVS, down $0.73.
And then Time Warner (TWX) a $0.17 gain.
Qwest Comm (Q) rose a nickel.
EMC (EMC) a $0.30 gainer.
Pfizer (PFE), tenth in volume, was down $0.09 a share.
Sovereign Bancorp (SOV), the Philadelphia company, up $2.50. "The Wall Street Journal" today reported there could be a boardroom battle next week which just might oust CEO Jay Sidhu, who some of the directors believe - well they blame him for the stock`s lackluster performance in recent months.
Global Signal (GSL) up $3.84. This is a company that operates communications towers and Crown Castle International will acquire it for $5.8 billion. It`ll either be 1.61 shares of Crown Castle or $55.95 a share for Global Signal shareholders.
CBOT Holdings (BOT), Chicago Board of Trade, doing very well, up $6.66. The company`s agricultural complex traded a record 929,546 contracts yesterday alone.
Agco (AG), farm machinery company, down $1.55. The company warned 2006 earnings and revenues will fall short of expectations due to weak market conditions in its business.
Salesforce.com (CRM) up $2.39 Bank America upgraded it from "neutral" to "buy" and boosted its price target from $34 to $46 a share.
On the downside, Omnicare (OCR) losing $2.07. The nursing home pharmacy provider will pay $52.5 million to settle charges it fraudulently billed Medicaid. Google (GOOG) topped the active list, up $8.69. You heard the news there.
Intel (INTC) a $0.15 loss.
Apple Computer (AAPL) down $0.61.
Research in Motion (RIMM) fell $1.23.
But Cisco Systems (CSCO) bucking the trend, up $0.19 a share, fifth in dollar volume.
Microsoft (MSFT) dropped a nickel.
Sandisk (SNDK) moving up $1.92.
$0.22 gain in Applied Materials (AMAT).
Starbucks (SBUX) down $0.28.
And Oracle (ORCL) a $0.07 loss, tenth in volume.
Chattem (CHTT) up $9.77. The company markets health care products and this is a positive reaction to the company`s acquisition of some of Johnson & Johnson`s brands.
And then Mobility Electronics (MOBE) losing about 42 percent of its value today. The company will lose two major contracts, one with Dell and one with Energizer Holdings.
And those are the stocks in the news tonight.
