Disappointing jobs report clouds upbeat markets

Farrar:  Brian Ford joins us now from RBC Wealth Management for his Monday morning analysis of business and financial news.  Good morning, Brian.

Ford:  Morning, Wayne.  How are you?

Farrar:  All right.  Well, there was a disappointing jobs report for December that came out on Friday.  We keep seeing little glimmers of optimistic news about the economy, but where are the jobs?

Ford:  Well, you know, it's a really good question and I'd like to talk about that.  I did note that, Wayne, we had a pretty decent, pretty decent start to January already.  The S&P 500, while it was down a little bit last week, the NASDAQ was also down about one percent, the Dow Jones was up about one percent last week, which we note that this is a pretty interesting correlation between the first week of January and the performance of the Dow in years past and what happens for the whole year.  We'll stay tuned on that, but it was at least a positive turn for the Dow; but you're right, the big news last week was the jobs report came out worse than some people had expected.  There were 103,000 new jobs created in December, but expectations, Wayne, had been for 175,000 or more.

Wayne, I think that this economy has now become like a giant Rorshach test, that's how I see it, or what some people would call an ink blot test for the market.  You know, Wayne, this is the one where some people see different things when they look at an ink blot.  Have you ever done one of those tests?

Farrar:  Oh, yeah.

Ford:  Well, you know, I say that, Wayne, because if you're out of work right now, you see only negative aspects to this kind of data, but if your business has picked up, or maybe you're an economic growth official, you're seeing positive trends.  It totally depends upon your view of things, which I think continues to make this a very challenging environment for investors and business owners alike.  I did note, Wayne, that the NASDAQ, which is heavy on technology stocks, is now higher than it was before the recession began officially in late 2007.

Farrar:  And there are some other encouraging notes, mergers and acquisitions appear to be up.  We have a big one in North Carolina.

Ford:  Yeah, this is a good old-fashioned merger to talk about.  This one, electric utility world, Charlotte-based Duke Energy is buying Raleigh-based Progress Energy in a deal which will make the combined company the largest utility in the US.  The deal comes at a small 7 percent premium for Progress shareholders, and will eventually produce about six to seven hundred million dollars' worth of fuel savings within five years, the companies say.  The combined companies will serve over seven million customers from Ohio down to Florida and Wayne, as we've mentioned before, deals like this show us that companies are willing and interested to spend their idle cash, which is very large right now, to improve shareholder returns and we see this as a generally positive sign.

Farrar:  We like to look at the state and regional economies whenever possible.  What's the outlook for 2011?

Ford:  Well, this is good.  There's some, to get some local perspective, the Richmond-based group called the Virginia Council of CEOs has come out with its survey of local heads of companies and how they feel about the economy.  Now, Wayne, these are typically smaller companies, with revenues from 1 to maybe 20 million; they cover industries such as manufacturing, construction, retail and finance.  Basically, these CEOs feel business is getting somewhat better, still not great, but they do expect to hire in 2011.  On a side note, we saw last week where Richmond-based Genworth is cutting about a hundred jobs locally, but these CEOs, over half of them said they expect to hire new employees in the next six months.  Also 70 percent of them said they expect their sales to be up over the next six months.

Now it's not all peaches and cream.  As they cite the oft-heard concerns about the budget deficit and federal health care reform and what that will mean exactly for small business owners, generally, for now, the news is improving for these business owners.

Farrar:  Okay, several things there for the good news fans, but there is something ominous on the horizon, the price of oil.

Ford:  Yeah, obviously, commodities have captured attention for a lot of people over the past year or two.  Certainly, gold and silver and wheat and cotton and all these.  Now oil certainly has continued to creep back up; we've been watching that.  Consumers are particularly feeling it at the pump again, as prices broke over three dollars a gallon, and analysts say that four dollars a gallon is possible by summer.

Here's another catalyst, Wayne, the trans-Alaska pipeline was shut down Saturday morning to control a leak; now that may not have garnered your attention, but this is a very big deal because this pipeline carries nearly a million barrels of oil a day from northern Alaska to the south.  This pipeline has gotten a lot of attention lately because it is owned by a consortium of the biggest oil companies, including, you guessed it, BP, which owns 47 percent of the pipeline.  A lot of analysts are citing this as yet another sort of public perception problem for BP.  Obviously, we don't know how long this pipeline will be shut down, or how severe the leak will be, but it does mean a backup of supply to the market of oil, which is very likely to cause oil prices to be going up over the near term.

Farrar:  Okay, any final thoughts?  We have about twenty seconds.

Ford:  Yeah, I would say that in general, we've got some interesting data coming out this week.  The data is coming out that says that, let me see here, unemployment trends are coming out again.  We're also going to hear about the National Federation Retail Show and the Auto Show, so we're getting lots of information from major US manufacturers.

Farrar:  Okay, Brian Ford of RBC Wealth Management.  Thanks for your insights and since next Monday is a holiday on Wall Street, I'll talk to you in two weeks here.

Ford:  Okay, Wayne.

Farrar:  Okay. Thanks, Brian.