Stocks Fall as Jobs News Points Up Weak Economy

The December jobs decline of 524,000 didn't meet the market's worst fears, but it was still pretty bad. Next week brings data on inflation and manufacturing

U.S. stocks finished broadly lower Friday on light trading volume following a report December nonfarm payrolls fell 524,000 after plunging a revised 584,000 in October, and the unemployment rate jumped to 7.2% from 6.8%.

The December payrolls number, though modestly above official consensus forecasts, was not as bad as the 600,000 "whisper number" some market participants had feared. Average hourly earnings rose 0.3% after rising 0.4% the month before, and the average work week fell to a record low.

Traders also eyed a report that showed a 0.6% decline in U.S. wholesale inventories and a 7.2% slump in wholesale sales in November.

Recent data show the U.S. economy continuing to slide into the worst recessions in decades, according to S&P MarketScope. The weak December job figures were giving investors little reason to support the market ahead of the weekend, adds S&P.

Bonds rose as investors sought the safety of government debt amid the weakness in equities. The dollar index was solidly higher in a rebound. Gold futures finished stronger. Crude oil futures were lower as the weak economic data raised the prospect of softening demand for oil and gas.

On Friday, the 30-stock Dow Jones industrial average finished lower by 143.28 points, or 1.64%, at 8,599.18. The broader S&P 500 index shed 19.38 points, or 2.13%, to 890.35. The tech-heavy Nasdaq composite index fell 45.42 points, or 2.81%, to 1,571.59.

On the New York Stock Exchange, 22 stocks were lower in price for every nine that gained. Nasdaq breadth was 20-7 negative. Trading was slow.

Energy issues were among the worst performers on the weakness in crude oil futures.

Next week will bring a fresh wave of fourth-quarter earnings releases, with Intel (INTC) and Alcoa (AA) among the noteworthy names unveiling results. Data will be heavy as well with retail sales, the New York Empire State and Philadelphia Fed manufacturing indexes, industrial production, trade, University of Michigan consumer sentiment, cosnumer price index, producer price index, and import and export prices on the docket. The Beige Book for the month-end policy meeting will also be released.

No fewer than seven Fed officials will be speaking on a range of topics next week, including remarks by Chairman Ben Bernanke in London on Tuesday.

In economic news Friday, U.S. nonfarm payrolls dropped 524,000 in December after diving a revised 584,000 in November (from -533,000 previously). October's 320,000 decline was revised to -423,000 for a net -154,000 revision over the prior two months. Action Economics notes that some 2.6 million people lost their jobs in 2008.

The unemployment rate climbed to 7.2% from 6.8% (revised from 6.7%), the highest since January 1993. The average workweek fell to 33.3 hours from 33.5. Average hourly earnings were up 0.3% from 0.4% in November. Total private payrolls fell 531,000, with a 251,000 decline in the goods producing sector, a 101,000 drop in construction, and a 149,000 decline in manufacturing. The service sector lost 273,000 jobs. Government added 7,000 workers.

"Though the headline figure undershot the -600,000 whisper, the data are worse than expected given the back revisions, the drop in the workweek, and the unemployment rate, and should remain supportive for Treasury gains and weigh a bit on stocks and the dollar when all is said and done," says Action Economics.

U.S. wholesale inventories fell 0.6% in November after a revised 1.2% slide in October (from -1.1%). Sales plunged by a record 7.1% following a 4.5% drop in October (revised from -4.1%). Auto sales fell a whopping 10.6% and are down 24.2% year-over-year. Petroleum sales were down 25.1% and are down 24.0% from a year ago. Much of the weakness in the data was price induced given the collapse in oil prices, notes Action Economics. Excluding oil, sales were down 4.2% and inventories fell 0.4%. The inventory-sales ratio surged to 1.25 from 1.16. The inventory-sales ratio excluding petroleum rose to 1.36 from 1.31.

"These data are old, but continue to reflect the sharp deterioration in the economy and the subsequent dive in oil prices," says Action Economics.

In corporate news Friday, The Wall Street Journal reported that Robert Rubin, the former Treasury Secretary who has been sharply criticized over his role in the financial turmoil at Citigroup Inc. (C), plans to leave the bank and has submitted a letter of resignation, according to a person familiar with the situation. Rubin is senior counselor and a director.

In response to media inquiries, Lennar Corp. (LEN) said that "convicted felon Barry Minkow, acting as an agent for a disgruntled litigant, Nicolas Marsch III, posted false and inflammatory accusations concerning Lennar. Marsch's civil litigation against Lennar was just dismissed by a California Superior Court judge." Lennar adds that the posting was made only after evidence surfaced this week in litigation that Marsch & Minkow may have attempted to illegally obtain info relating to Marsch's legal proceedings against Lennar.

A five-member congressional oversight panel reports the Treasury has failed to reveal its strategy for stabilizing the financial system, not answered questions asked by a government watchdog, and has done nothing to help struggling homeowners, according to the Journal. In the most scathing criticism yet of Treasury's implementation of the $700 billion financial-rescue package, a draft report being issued by said there appear to be "significant gaps" in Treasury's ability to track hundreds of billions of dollars of taxpayer money.

Among stocks in the news Friday, CVS Caremark (CVS) said it sees 2009 EPS of $2.53-$2.61, below Wall Street estimates.

KB Home (KBH) posted a fourth quarter loss of $3.96 per share vs. a $9.99 loss as lower SG&A costs offset 56% lower revenues. The current quarter loss was seen wider than Street estimates. KB Home says it generated positive operating cash flow of $311.1 million during the fourth quarter and ended the year with $1.25 billion of cash and cash equivalents, mainly due to early redemption of public debt during the year.

Best Buy (BBY) narrowed its fiscal 2009 EPS guidance range to $2.50-$2.70, including an $11 million investment impairment charge, expenses related to its voluntary separation program, and other restructuring charges, vs. its previously announced range of $2.30-$2.90. The company says current guidance assumes a comparable-store sales decline of 2%-3% for fiscal 2009. Best Buy posted 6.8% lower December same-store sales and 4% higher total sales.

Apollo Group (APOL) posted first-quarter earnings per share (EPS) of $1.12, vs. 39 cents one year earlier, on a 24% revenue rise. The company says its flagship University of Phoenix contributed "significantly" to results.

Coach Inc. (COH) cut its 77 cents second-quarter EPS guidance to about 67 cents on lower-than-expected sales of $960 million. The company says North American same-store sales for the quarter declined 13%. Coach says it will not provide EPS guidance for the second half of 2009.

R.R. Donnelley & Sons (RRD) cut its $3.08-$3.11 2008 non-GAAP EPS from continuing operations guidance to $2.80-$2.90. The company says it has taken timely and difficult actions to ensure that it matches expenses with revenues and maintains strong liquidity. As a consequence of the unpredictable global environment, Donnelley doesn't expect to provide 2009 EPS guidance on its Feb. 25 conference call.

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