NBR Transcripts-090702
Thursday, July 02, 2009Unemployment Numbers Return to the Reagan Era
SUSIE GHARIB: The nation's labor market is now in its worst shape since Ronald Reagan was in the White House. The unemployment rate notched up to 9.5 percent in June. Stocks sold off on that news, with the Dow falling 223 points. Last month, employers slashed 467,000 jobs from payrolls, far more than expected. But as Suzanne Pratt reports, that headline number -- 9.5 percent -- may not tell the true story of just how many Americans are out of work.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chad Brown is a writer, but lately, he's been temping as a receptionist. While he'd rather be working full-time in his field, he's happy to have a job.
CHAD BROWN: My main focus is having a daily routine, get up, go somewhere, do my job and then be able to have money A to pay my bills and B, to have a life, both of which. It has helped get the creditors off my back a little bit.
PRATT: Brown is part of a large and growing group of under-employed people. While the government tracks those folks, it doesn't include them in the headline unemployment rate known as U-3, which is now 9.5 percent. To get a broader snapshot of the labor picture, experts say you need to focus on what's known as U-6. It includes that headline rate, plus the under-employed, plus those who recently stopped looking for a job but still want one. Today, we learned U-6 is an eye- popping 16.5 percent. That means one out of every six members of the civilian labor force is out of work or not fully employed. Economist Conrad Dequadros says watching U-6 is helpful in a recession for trying to get a sense of consumer spending.
CONRAD DEQUADROS, SR. ECONOMIST, RDQ ECONOMICS: It includes people who are not considered in the labor force because they are not looking for employment. So, it's just broader. I wouldn't say it's more accurate. It could be more relevant when it comes to trying to determine the path of household activity and consumer activity.
PRATT: But economist Stephen Gallagher says focusing on U-6 over dramatizes current job market conditions.
STEPHEN GALLAGHER, CHIEF U.S. ECONOMIST, SOCIETE GENERALE: We have a horrible unemployment rate at 9.5 percent. It's going up to 10, 10-plus percent. I don't know if we need to add bells and whistles on it to make it sound even worse than it is.
PRATT: Just as the official unemployment rate is expected climb higher, so too is U-6. Some experts fear it could reach a whopping 20 percent by next year. That would come as no surprise to Atrium Staffing, a Manhattan-based employment firm. CEO Rebecca Cenni says more and more companies are using part-time hires.
REBECCA CENNI, CEO, ATRIUM STAFFING: They're actually looking to put people in part-time positions that would normally dictate Monday through Friday, 9-to-5 jobs. Now, they're calling them in and asking for people to work Monday, Wednesday, Thursday from 10:00 to 4:00. They're looking to get as much as they can for as little as they can.
PRATT: No matter which measure of unemployment you watch, economists agree labor market conditions are simply terrible. And while the recession may end later this year, it could take well into next year before the unemployment rate finally peaks. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
President Obama's Economic Advisor Christina Romer Shares Her Boss' Plan
SUSIE GHARIB: President Obama tried to find a glimmer of hope in that dismal jobs report. He called June's job losses quote, less devastating than the previous quarter, adding that it'll take a few more months to turn the economy around. Stephanie Dhue spoke with the president's economic advisor, Christina Romer, about the outlook.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: So we saw unemployment higher than expected, now 9.5 percent, but if you include people who have given up, people who are working part-time when they'd rather work full-time, that number is 16.5. What does that say about the prospects for an economic recovery?
CHRISTINA ROMER, CHAIR, COUNCIL OF ECONOMIC ADVISERS: I think the main thing that it says is that this is a very severe recession which is something that we have known and the president certainly has been very interested in seeing not only the standard unemployment numbers, but the numbers that you mentioned that take into account the discouraged workers and the part-time workers. I think all it does say that we absolutely need to be taking the policies that we're taking to turn this economy around. That is job number one.
DHUE: Many economists are now expecting unemployment to peak at 11 percent, and that won't even happen until this time next year. What are you forecasting for when unemployment will peak?
ROMER: I mainly have been looking at a lot of the private forecasts, and I think most of the private forecasts certainly do have the unemployment rate going up through at least the end of this year. The key thing about the unemployment rate is, it doesn't turn around until you actually have not just positive GDP growth, but pretty robust GDP growth. You need to get it over sort of 2, 2 1/2 percent. And so that's absolutely what we're looking at and concentrating on, is how do we not just turn the corner, but turn the corner and get strong growth?
DHUE: The economic recovery package doesn't seem to have done much to lessen the blows. Do we need to scrap it and start over?
ROMER: I do think we need to be very careful that the stimulus package has absolutely lessened the blow for a lot of workers, extending unemployment insurance, a lot of aid to the states. All of that was very much designed to lessen the blow to individuals. The other thing to realize is we have, as bad as the job loss is this month and the month before, it's less bad than we received back in December, January and February and that's an important step. I mean you have to start having smaller job losses before you actually get job gains.
DHUE: Did the second stimulus package in the cards, do we need to be doing more to stimulate the economy and would you craft that package differently than the previous plan that's taken a while to kick in?
ROMER: Well, of course, what we're concentrating on now is getting the first stimulus package out there and doing what it needs to do for the American people, so spending does ramp up over time and so we have been anticipating that come summer, come fall, that we're going to have more effects on the economy than we saw in the first and second quarter. And so we're going to be monitoring that very closely to see if we're getting the kinds of effects that we were anticipating and hoping for.
DHUE: Did you underestimate how long it will take the agencies to get the money out into the economy?
ROMER: We actually worked back in the transition with the OMB transition team about what's a realistic estimate. What we actually have found is that what we were anticipating is about exactly what's happened. So we did know it would take time. The important thing to realize is we are making crucial steps. I think the number we just had was something like 1900 highway construction jobs have already been started. That's certainly money getting out the door.
DHUE: Longer term interest rates are heading higher with a $3.5 trillion budget deficit. Are we at risk of higher inflation?
ROMER: First thing you have to realize is that a lot of these long- term interest rates, especially on say U.S. government bonds, part of the reason they were so low for a while is because people were scared. Right, and that was what we often call the flight to quality, and so part of the rise we actually think is people saying, you know what, it looks like our financial system is stabilizing and maybe people being less frightened and going back into more risky assets. In terms of inflation, the truth is, you don't really get inflation until the economy is nearing full employment usually and so as we know from today's unemployment numbers, we're at 9 1/2 percent. So I think it's very unlikely that we see inflation develop. It's going to do something, of course the Federal Reserve will be watching as we go forward and when we start to get the kind of recovery we hope for and anticipate, when the unemployment rates starts to get low again, then it's absolutely an issue, but that's a ways away.
DHUE: We've been speaking with Christina Romer, chairman of the Council of Economic Advisers. Thanks for joining us.
ROMER: Great to be here.
"Market Monitor" -James Grant, Editor "Grant's Interest Rate Observer"
PAUL KANGAS: My guest "Market Monitor" this week is James Grant, the editor of the popular publication "Grant's Interest Rate Observer." Jim, welcome back to NIGHTLY BUSINESS REPORT.
JAMES GRANT, EDITOR, "GRANT'S INTEREST RATE OBSERVER": Thank you, Paul.
KANGAS: On your last visit with us just about a year ago today, you warned that the economy would get worse and stocks weren't cheap. Right on both accounts. I congratulate you there, but could today's jump in the unemployment rate be the last shoe to drop?
GRANT: Proverbially, Paul, the labor market is a lagging indicator. You know, people expect and hope that indeed many now pray for a fast and satisfying recovery in the labor market. It doesn't really happen typically until well after the end of a recession. In 1991, the recession ended in March and not until 1993 did job creation begin in earnest. Similarly in 2001, the recession ended. Not until 2003 was the job market percolating. So, you know, today's numbers disappointing to be sure, but it's not exactly outside the pale of expectation.
KANGAS: In this environment, how do you formulate your interest rate outlook?
GRANT: Guessing. (LAUGHTER)
KANGAS: Yes, but you're often very accurate and (INAUDIBLE) now?
GRANT: Well, the interest rate that people tend to watch of course is the rate that the Fed Reserve sets or fixes to use a less delicate word and that's the Federal funds rate, the overnight lending rate in the banking system and the Fed in its august, Solomonic wisdom has fixed a rate very near zero. And I keep on -- I keep on waiting for an outraged cry from the constituency of American savers. Maybe there's not enough of them to form a quorum. But the Fed has now really promised us it will keep that particular rate close to zero for a long time, which leads me to think that we're going at some point -- inconvenient (ph) point without the ringing of a bell, we're going to have an inflation problem.
KANGAS: OK. So your current investment strategy is what?
GRANT: Well, I am -- first of all, I believe the patient's going to live, I think that this recession will end and we ought to become less bearish. We ought to become less bearish as markets fall and I am endeavoring, Paul, just once to do that. And so we are -- we at Grant's, we're looking for opportunities on the long side and we think we found some.
KANGAS: So the deeper they fall the better the bargain?
GRANT: Yes, the lower the stock price, all things being the same, the more one ought to be interested. It's not unlike shopping at Macy's. We don't fly from bargains on Main Street. Why should we be repelled by them on Wall Street? So one must -- yeah, one must be brave.
KANGAS: Understood.
GRANT: And opportunistic, Paul.
KANGAS: Of course. That's part of Wall Street. Last July you gave our viewers three buy recommendations. Let's see how you fared. Fidelity National (FNF) about the same as it was, but it got as high as 22. I assume you sold it at the high?
GRANT: Always, Paul.
KANGAS: Are you still with it?
GRANT: Yes.
KANGAS: OK. Tocqueville Gold Fund (TGLDX) down 17 percent. What do you make of that?
GRANT: I still like it a lot, I still like gold a lot. Gold is a speculation on what I regard as a near certainty which is that central banks will overdo it.
KANGAS: OK, so you're still with it. All right. You had a third recommendation which didn't do too well. This is an open-end fund, Wintergreen Fund (WGRNX), down 23.5 percent. Are you still with that?
GRANT: Yes, David Winters is a superb investor and I have no doubt but that when markets recover, his fund will do better.
KANGAS: Well, you did describe them as long-term investments.
GRANT: Yes, long term is the last refuge of the (INAUDIBLE). But I'm emphatically bullish on them all.
KANGAS: OK. How about some new recommendations?
GRANT: Yes. I have two and they're both plays on recovery. One of is Olin Corp (OLN), a very old (ph) and consistently dividend paying maker of basic chemicals and of ammunition and the ammo business, you may or may not be happy to hear is going gangbusters, the chemical business much so. I'm bullish on Olin and I'm bullish on the world's biggest commercial real estate broker, CR Richard Ellis (CBG), CBG on the New York Stock Exchange and that one is a play on the recovery in renting and leasing in real estate.
KANGAS: Well the stock some signs of recovery on the chart we have up here.
GRANT: Are you a chart reader, Paul?
KANGAS: Well, sometimes, anything that will help.
GRANT: I don't know about the charts, but they are both -- as they say on Wall Street leveraged plays on recovery. I should say that CB Richard Ellis is in fact leveraged on its balance sheet and it is risky so no whining. This is a high powered option on the recovery.
KANGAS: Do you own --
GRANT: Yes, I do.
KANGAS: I know you always own what you like. OK.
GRANT: Well, often.
KANGAS: All right, Jim as usual, I want to thank you for taking the time to be with us.
GRANT: Thank you for having me and happy Fourth of July.
KANGAS: And the same to you, my guest, James Grant of "Grant's Interest Rate Observer."
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street were hammered by that worse than expected jobs report, which dashed recent hopes that the economy was stabilizing. Neither a better than expected 1.2 percent jump in May factory orders, nor a drop in new weekly jobless benefit claims did much to cushion the sell-off. By noon, the Dow was down nearly 180 points and the NASDAQ off 45 points. The market remained at the broadly lower midday levels right on through to the close, but the close was anything but normal for the New York Stock Exchange. The big board extended trading by 15 minutes so it could process orders delayed by glitches in its computer network. So the Dow Jones Industrial Average finally closed down 223.32 points at 8,280.74. In this four-day week, it rose twice, fell twice, had a net loss of 157.65 points. The NASDAQ Composite tumbled 49.20 to close at 1,796.52 today. It also rose twice and fell twice this week for an overall loss of 41.70 points. Standard & Poor's 500 down 26.91 to 896.42 today and for the week, it lost 22.48 points. Over in the bond market, the 10-year note gained 13/32 to 96 29/32, putting the yield at exactly 3.50 percent.
Topping the big board active list on 26.8 million shares, Bank of America (BAC) down $0.41.
Then Citigroup (C) with a $0.09 drop. Citigroup and GE Capital and GE (GE) down $0.32 also, but Citigroup and GE Capital have preliminary talks to connect their credit card businesses, but they decided against the idea, couldn't agree on price.
Moving along, Ford Motor Co (F) a $0.02 drop there.
Pfizer (PFE) fell $0.42.
Sprint Nextel (S) dropped $0.29.
Wells Fargo (WFC) $1.06 loss.
JPMorgan Chase (JPM) fell $1.50.
Keycorp (KEY) $0.04 drop.
And Wal-Mart Stores (WMT) was down $0.58, tenth in volume.
Oil stocks weak because of the weakness in the economy as that jobs report suggested. ExxonMobil (XOM), Chevron (CVX), Conocophillips (COP) and Hess (HES), Marathon Oil (MRO) all substantial losers today.
And the staffing stocks weak because of the weak economy, no jobs around for the moment. Manpower (MAN) down $3.
Almost $1 drop in Monster Worldwide (MWW).
And Robert Half International (RHI) down $2.23.
Boeing (BA) was down $1.40 even though the company delivered 125 commercial aircraft in the second quarter. That's only one less than a year ago.
Then Continental Air (CA) moved up $0.57. Morgan Stanley upgraded it from "equal weight" to "over weight."
And Oshkosh (OSK) up another $1.50, follow through strength after gaining $3.89 yesterday after the company was awarded a Department of Defense contract for about $1 billion worth of all-terrain vehicles.
Johnson Controls (JCI) down $2.06. Deutsche Bank downgraded it from "buy" to a "hold."
And then Aquity Brands (AYI) losing $2.12. Third quarter earnings excluding items, $0.54 a share, $0.03 below the Wall Street estimate.
And this self storage company, Sovran Selfstorage (SSS) down $1.49. The company is cutting its quarterly dividend from $0.64 to only $0.45 a share.
And finally, M&T Bank (MTB) up $1.24. The Raymond James financial brokerage started coverage of the stock with an "out perform" rating.
The NASDAQ actives, Apple (AAPL) down $2.81.
Microsoft (MSFT) $0.67 loss there.
Google (GOOG) fell $10.50 a share.
Intel (INTC) $0.32 drop there.
Research in Motion (RIMM) fell $0.25.
Not a gainer to be seen in this active list on NASDAQ. Cisco Systems (CSCO) down $0.30.
$0.70 drop in Oracle (ORCL).
Amazon.com (AMZN) fell $2.28.
Qualcomm (QCOM) $0.48 loss there.
And then rounding out the 10 most actives, Dell (DELL) with a $0.42 loss.
Elsewhere, Illumine (ILMN) tumbling $4.68. The company cut its second quarter revenue guidance from a high of $173 million to $161 million at best and it blames the short fall in its lighting array business.
Another loser was Sepracor (SEPR) down $3.22. The company's early phase II studies of its depression treatment failed to meet the goals.
Those are the stocks in the news tonight.
