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Liesman, Jane Wells>
Unemployment; Policies; Trade>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: What a week! The Dow shed more than 1,000 points to start the year. What you can do to keep your savings, your retirement, and your money on track.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Hiring surge, believe it or not, there was good news today. The economy added a lot more jobs than expected last month, making 2015 one of the best years ever for job creation.
HERERA: Strategy session. Our market monitor helps you navigate and find opportunities in this challenging market.
All that and more on NIGHTLY BUSINESS REPORT for Friday, January 8th.
MATHISEN: Good evening, everyone, and welcome.
It was a sour end to a week that ushered in anything but a sweet `16 for investors, not even that unexpectedly rosy jobs report could turn the tide. More on jobs in a moment.
Well, the story today, as it has been all week, was the stock market. Today was bad, the week worse, historically so. In fact, the S&P 500 lost nearly $1.1 trillion in market value over just the past five sessions. This was for stocks the worst first week of a trading year ever.
Today, the Dow Jones Industrial Average gave up 167 points to finish at 16,346. The blue chip index actually started the day with a triple-digit gain. The NASDAQ dropped 45. The S&P 500 slipped 21.
And for the week, the three major averages fell 6 percent or more. The Dow and S&P having their worst week since 2011, and it was only the third time in history that the Dow has lost 1,000 points or more in a week`s time.
And oil hit hard since the start of the year. It fell 10 percent overall this week.
Here`s a look back at the doozy of a week that was.
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(CHEERS AND APPLAUSE)
UNIDENTIFIED MALE: There`s the opening bell.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The whole world down 2 percent. So, happy New Year, everybody.
UNIDENTIFIED MALE: All hell`s breaking loose.
UNIDENTIFIED FEMALE: The worst start to the year for the Dow in 84 years.
UNIDENTIFIED MALE: S&P at the bottom of your screen, perhaps a little better than this time yesterday.
UNIDENTIFIED FEMALE: Today where`s the snapback.
PISANI: Right now, the Dow down 207 points, just off the low.
UNIDENTIFIED MALE: Another significant selloff. China down 7 percent overnight.
UNIDENTIFIED MALE: Dow dropping 400 points, we`re down 384 right now.
UNIDENTIFIED FEMALE: It`s a difficult finish to a difficult week. The Dow down about 6 percent, posting its worst first five-day start to the year ever.
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HERERA: And after the worst start to the year in stock market history, a lot of workers may be tempted to stop or reduce 401(k) and retirement plan contributions, but almost any financial adviser would tell you that is not a good idea. So, how do you stay the course and keep your emotions in check?
Sharon Epperson joins us with some tips.
Good to see you, Sharon, as always.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to be here.
HERERA: You say the first key is you have to have a plan.
EPPERSON: You have to have a plan. And the best thing to do to calm fears is to just automate it. Make sure you have a plan really to go at the start of 2016 and that means automate those retirement contributions and have those payroll deductions and know how much you can have taken out this year.
For a 401(k) for 2016, your maximum contribution is $18,000, $24,000 if you`re 50 or older. For an IRA contribution, $5,500, $6,500 if you`re 55 or older. And then the government in the last few months created a myRA, which is like an IRA, but it allows you to invest in very secure investments and still up to the $5,500 limit.
So, that`s another place to place your money if you don`t have a 401(k) at work.
MATHISEN: Seeing a week like this, a lot are tempted and presumably, some do, either they take their money all out of equities, stocks and move it to cash, or they stop contributing.
EPPERSON: Yes. That`s the worst thing you could do. You should actually be boosting your contribution, particularly to your 401(k) 1 percent to 2 percent every year, and this could make a huge difference.
If you`re 30 years old now, you haven`t saved anything yet, you make about $30,000, you want to retire at 65, don`t do anything and just continue to put 4 percent or so away, you`ll have about 60 grand by the time you`re ready to retire. But if you increase that contribution 2 percent every year and you get some increases in pay, we`re hoping, you could actually have half a million dollars in your nest egg.
So, it`s something to think about.
HERERA: Huge, yes.
EPPERSON: That`s all you have to do. Just automate that 1 percent or 2 percent increase every year.
HERERA: And, of course, with the volatility this week, you have to be able to sleep at night.
EPPERSON: Yes.
HERERA: So the right investments, right?
EPPERSON: Picking that right investment mix for your risk tolerance, for the timeline that you have is really important, but the important thing to know is, whether you`re in your 20s or your 60s, you probably need to have a significant amount of equities in order to have that growth. Of course, it`s going to be more like 85 percent equities if you`re a young investor. If you`re middle age, you`re going to probably want more like 70 percent in stocks and a mix, of course, of U.S. and foreign equities.
But the thing people don`t realize, when you`re near retirement, even if you`re just retired, 65 years old, you should probably have about half of your money in stocks. You want that growth portion of your portfolio because you may spend two decades or more in retirement.
HERERA: Hopefully, yes.
EPPERSON: Hopefully. Hopefully. Hopefully, you`re healthy. We`re doing our core bar classes, we`re trying to make it work, eating right. I know we`re eating right.
MATHISEN: Right.
EPPERSON: So, you know, if that is you and if your life expectancy is going to be such that live you to your 80, think about how much you`ll need to live on, particularly with health care costs, and where are you going to find that growth in the equity market? So, stay calm, stay invested.
EPPERSON: Sharon, thank you, as always. Sharon Epperson.
MATHISEN: All right. More now on that blowout employment report and the nation`s revving jobs engine. Just look at the numbers. The economy created 292,000 jobs last month, way more than estimates. The unemployment rate steady, 5 percent, near what economists consider full employment. Wages, however, were relatively flat.
But as Eamon Javers tells us, this report wraps up a very strong year for the labor market.
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UNIDENTIFIED FEMALE: We`ll follow up with you soon, OK?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Washington, D.C., as many as 100 companies came to the hiring our heroes veterans employment fair today looking for new employees.
BEN LAMM, CAPITOL ONE CUSTOMER SOLUTIONS: We`ve got hundreds of job openings available right now. We hope to find some of that great talent at events just like we`re here today.
JAVERS: That employer demand showed up in the strong jobs number today, including increases in office workers, construction and health care, an indication that the U.S. economy and the warmer-than-usual month of December was stronger than many economists thought.
JAN HATZIUS, GOLDMAN SACHS CHIEF ECONOMIST: It`s little surprising. I mean, this was a good report. I think if you wanted to pick holes in it, you`d say there`s a big weather effect in it, but it`s hard to really get nervous, you know, when it`s 292.
JAVERS: The unemployment rate stayed steady at 5 percent and the average hourly earnings ticked down a penny to $25.24. That means that for the entire calendar year of 2015, the U.S. economy added 2.7 million jobs.
Now, that`s down from 3.1 million the previous year, but you`ve got to go all the way back to the late 1990s to find two consecutive years of greater job growth. The government experts also revised up the past two months of job growth, saying final calculations show 307,000 jobs were added in October and 252,000 were added in November.
JAMES PAULSEN, WELLS CAPITAL MANAGEMENT: If growth remains too weak, if China`s story is for real, the stock market`s got a problem.
JAVERS: So, what does this mean for the Federal Reserve? They continue to raise rates.
MARK LASRY, AVENUE CAPITAL CEO: I think they will continue. It will end up being a lot slower than people think. So maybe they raise it one more time this year.
JAVERS: Meanwhile, back at the job fair in Washington, Paulette Davidson said what most of the jobseekers told us today, she`s feeling good about finding a job.
PAULETTE DAVIDSON, JOB SEEKER: Just being here today gives me hope that, you know, things are starting to change. The nation itself is looking for people who need help, and everybody always needs a job. It just depends on what you`re willing to do.
JAVERS: And it looks like employers are willing to do a lot more hiring.
Eamon Javers in Washington for NIGHTLY BUSINESS REPORT.
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HERERA: The strong employment report creates a bit of an economic puzzle. How can the economy be creating so many jobs, and yet, there`s hardly any growth?
Steve Liesman puts the pieces together.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forget China`s confusing economy, the U.S. economy is equally perplexing as investors struggle to understand a huge conflict -- U.S. jobs surging and soaring, U.S. growth weak and weakening. How can we create 292,000 jobs in December, as the government reported today, and 2.65 million jobs in all of 2015, but be growing an anemic 1 percent on GDP?
Job growth this strong usually goes along with GDP growth near 4 percent. GDP this week means the economy is not creating any jobs at all. And an inventory report from the government released just hours after the jobs number showed less stuff on wholesalers` shelves, that declined prompted forecasters to lower their estimate of fourth-quarter growth for the 8th time.
CNBC`s rapid update now sees growth at just 1.2 percent in the fourth quarter. That`s a full percentage point of growth that`s evaporated. The most pessimistic on the street, Morgan Stanley (NYSE:MS) looks for paltry GDP gains of just above zero. Some economists are simply ignoring the inventory drag on growth.
TOM PORCELLI, RBC CAPITAL MARKETS CHIEF U.S. ECONOMIST: And when you strip that out, you`re left with underlying aggregate demand that`s still running at a very nice clip, anywhere between 2 percent and 2.5 percent, and I think that`s the thing people should focus on.
LIESMAN: JPMorgan (NYSE:JPM) said today when confronted with such a sharp diversion between the labor market and GDP data, we tend to see the labor market data as more informative of future development. But some economists say the reason is that the relationship between jobs and growth isn`t what it used to be.
JAN HATZIUS, GOLDMAN SACHS CHIEF ECONOMIST: The facts are that we need a lot less measured GDP growth than we used to in order to see improvement in the labor market.
LIESMAN: That could be true because worker productivity growth has declined, so the economy is less efficient. Whatever the reason, in the world since the recession, a lot has changed about the economy that we used to know. Inflation, interest rates and growth are all running lower.
Now we may have to get used to an economy that can produce a lot of jobs but not a whole lot of growth.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
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MATHISEN: Let`s turn now to our guest for more analysis on today`s jobs report and discussion of the economy. Anthony Chan is chief economist at Chase.
Anthony, welcome, as always. Great to see you. Happy New Year.
ANTHONY CHAN, CHASE CHIEF ECONOMIST: Happy New Year.
MATHISEN: Let`s spend a little more time with Steve`s hypothesis. How can job growth be so hot when the economy is so not?
CHAN: Well, I think businesses are pretty confident that things are going to get better.
You`ve got to remember what happened in 2015. You had a very strong dollar that basically has net exports shaving off 0.5 percent or more off economic growth. We, of course, had the energy story. The expectation is that 2016 will at least make these headwinds a lot weaker than they were in 2015, and that`s why businesses are continuing to hire.
But there`s no doubt, the labor market is getting tighter. We`re going to create a lot less jobs in 2016 than we did in 2015. Last year, we created 2.7 million jobs. The year before that, 3.1 million.
This year, I think, we`re going to create 2.4 million. That`s not a bad thing, because with the unemployment rate at 5 percent, and will fall to a 4 percent handle, so we just don`t need to create 3 million jobs every year in this environment.
HERERA: But, you know, Anthony, let me push back on that just little bit, because we have yet to see the fallout from the drop in oil prices, and there`s a huge swath of the country where all of those jobs are dependent on a decent price for oil, and there is the expectation that we may start to see some pretty aggressive layoffs.
Does that affect your hypotheses on where job growth is going to be?
CHAN: Not at all, because we are still an oil importing country, and when you look at the number of consumers versus the number of people that are producing oil, you have a huge discrepancy. A lot more consumers benefit from the lower price of oil. I would love to see the price of oil going up so that a lot of these oil exporting, safe oil-producing states do a lot better, but in terms of the whole picture, it is not going to hurt us.
And, by the way, when you say that consumers are not benefiting, look at the data. When you look at car sales, they`re at the highest pace in 2015 in over 15 years. When you look at some areas like leisure and hospitality, people are taking vacations, people are flying. There`s just some things, they may not be spending as much money on department stores, but they`re certainly spending it in other ways.
MATHISEN: The hiring, you say, suggests that businesses are confident about an improving 2016. Are you? What`s your prediction for GDP this year?
CHAN: I think in 2016, we`re going to see growth somewhere around 2 percent. There is sluggish productivity in 2015, and productivity is not as good as I would like it to be in 2016, and that`s one of the reasons why jobs at some point will be a lot weaker in 2016 than they were in 2015, but that doesn`t mean no jobs being created.
I think an average of about 200,000 per month, which will be a little bit less than 2015, when we had 221,000, but that`s not a bad number when the Federal Reserve tells us that all you need is between 100,000 to 125,000 jobs per month just to absorb the natural growth in the labor force.
MATHISEN: All right. Anthony, thank you very much. Have a great weekend.
CHAN: My pleasure.
MATHISEN: Anthony Chan with Chase.
HERERA: And still ahead, the best strategy for picking stocks amidst all this volatility, according to our market monitor, and he has some names that he`s investing in for the long haul.
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MATHISEN: President Obama announced a new counterterrorism task force today. The unit will work to combat online propaganda of the Islamic State and other terror groups. The White House`s national security team is also out in Silicon Valley today talking to tech company CEOs about curbing terror recruitment online.
HERERA: Ford sets a sales record in China, and that`s where we begin tonight`s "Market Focus." The U.S. automaker sold 1.1 million vehicles in that country last year, a 3 percent increase from the year prior, thanks to strong demand for SUVs. Shares of Ford fell more than 1 percent to $12.54.
American Eagle Outfitters (NYSE:AEO) warning its core sales would miss Wall Street expectations for the fourth quarter. Still, the CEO of the teen retailer described its holiday sales as solid. That wasn`t enough, though, to appease investors. Shares fell more than 16 percent to $13.24.
MATHISEN: FedEx (NYSE:FDX) moved one step closer to acquiring TNT Express (NYSE:EXPR) after the European union regulators approved the deal following a six-month investigation. The deal valued at about $5 billion expands EedEx`s European operation. The stock rose fractionally, $134.71 was the close on this down day.
Chipmaker Maxim Integrated shares getting hit today after reports that both Texas Instruments (NYSE:TXN) and Analog devices have decided against pursuing a takeover of the company. Both had been in talks with Maxim about a possible purchase since the fall, and that pressured shares of maxim, which fell more than 5 percent. TI and Analog Devices (NYSE:ADI) dropped as well, as you see there.
HERERA: This week`s market monitor says buying value stocks is the key to this market. He is Jamie Cox, managing partner at Harris (NYSE:HRS) Financial Group. Last time he was on back in August, he recommended Johnson Controls (NYSE:JCI), which is down 23 percent, Rockwell Automation (NYSE:ROK), which is down 20 percent, and Precision Cast Parts, which is being acquired by Warren Buffett`s Berkshire Hathaway. It`s up 20 percent.
Good to see you, Jamie. Welcome.
JAMIE COX, HARRIS FINANCIAL GROUP: Hi, Sue. How are you?
HERERA: Good, thank you. Let`s get right to your stock picks.
We`re going to start with Walmart. Part of the reason you like it is the dividend yield.
COX: Yes. Among my picks, you will see a common theme. This year is going to be the year where growth actually turns into value, and Walmart is a perfect example with a dividend yield of 3.2 percent. Walmart has always been compared over the last couple of years to Amazon (NASDAQ:AMZN) and how Amazon (NASDAQ:AMZN) is going to, you know, destroy Walmart. I think nothing could be further from the truth. Walmart has been investing and had some expense these were sort of debting its earnings last year, and this year, that will wash away as the earnings reports come through.
In addition, Walmart has the neighborhood markets that are a smaller play, and I think for the first time, they may deal with something that consumers hate most about going into Walmart, and that`s going into Walmart, because you can actually pick up the groceries at the curb. You can order them online and pick your groceries up in a drive-through-type fashion.
And in addition, the other thing that I think people fail to realize is that the decline in energy prices will benefit Walmart, because they have a large cost structure, fleets of trucks. The goods that they buy will definitely lower the cost to Walmart.
MATHISEN: Right.
COX: In addition, the lower energy prices directly impact the shoppers that shop at Walmart the most.
MATHISEN: Jamie, you seem to favor these little, tiny companies that nobody likes. Your second choice is -- nobody knows of -- your second choice is Microsoft (NASDAQ:MSFT). Why?
COX: That`s right. No lottery tickets for me, Tyler, not today on these.
I love Microsoft (NASDAQ:MSFT). It`s a company that people -- people look at Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), and they say Microsoft (NASDAQ:MSFT) is old tech and Apple (NASDAQ:AAPL) is new tech. What they fail to realize is that the subscription revenue that Microsoft (NASDAQ:MSFT) produces, produces a cash flow opportunity for investors that you can set in the stock and just draw a nice 2 percent, 2.5 percent dividend.
And Microsoft (NASDAQ:MSFT), actually, is getting its act together where they started to pay attention to Amazon (NASDAQ:AMZN), too. One of the darlings of Amazon (NASDAQ:AMZN) is Amazon (NASDAQ:AMZN)`s web service, and Microsoft (NASDAQ:MSFT) has rolled out a product called Azure that`s actually at a run rate of over 100 percent growth. So, I think people could look at Microsoft (NASDAQ:MSFT)`s earnings for the first time going up.
HERERA: And in the last like 30 seconds that we have, AT&T (NYSE:T), a pretty hefty dividend, 5.5 percent.
COX: Telecoms are really easy. Dividend yields on Verizon (NYSE:VZ) and AT&T (NYSE:T) are over 5 percent. It`s a good place to be for every investor and has been for almost 100 years now. So, that hasn`t changed and people should have those in their portfolio pretty much all the time.
HERERA: All right. Jamie, a pleasure to see you again. Thanks for spending time with us. Have a good weekend.
COX: Thank you.
HERERA: Jamie Cox with Harris (NYSE:HRS) Financial Group.
MATHISEN: While investors this week were focused on the market, some business owners in southern California were focused on the rain. El Nino arrived on the West Coast, and as Jane Wells reports, it`s keeping some people very, very busy.
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JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s finally here, and it`s making a mess.
UNIDENTIFIED MALE: Yes, this is leaking on the outside of the pipe.
WELLS: But El Nino is also raining down business for people like roofers.
UNIDENTIFIED MALE: It`s going to be busy, busy, busy.
WELLS: Californians are trying to prepare themselves for a sudden change in the weather. This was the storm channel outside our office on Monday. Here it is 24 hours later. And water levels aren`t the only thing spiking. So are applications for flood insurance.
More than 28,000 flood insurance policies were bought in California this fall, an unprecedented 12 percent increase. 20,000 of those policies were bought just in November, and we don`t even have December numbers yet.
AHSHA TRIBBLE, FEMA DEP. REGIONAL MGR.: We`ve really been trying to get the word out that there is a risk upcoming because of El Nino. It`s winter, we are going to have flooding. We`re already starting to see rain today. So, we do expect that this uptick is going to continue.
One floor, single-family.
One of those new customers applying for flood insurance is me. It doesn`t kick in for another 30 days. While regular homeowners insurance covers damage caused by water falling, it doesn`t cover damage caused by water rising or the mud that flows with it. That`s what flood insurance is for.
JANET RUIZ, INSURANCE INFO. INSTITUTE: More than 20 percent of the claims come in from low to moderate flood risk. So, it`s very important that people pay attention and get the insurance, even if they`re not in a high- risk area.
WELLS: Premiums go into a federal pool administered by FEMA, but it can be expensive. For me, the highest coverage possible would cost $430 for the year. That`s a lot, yeah. $430 compared to what it would cost to replace hardwood floors, furniture. I bought it, at least for this year.
And while no one knows what this year will hold, El Nino is already keeping roofer John Wolf of CI Services hopping.
JOHN WOLF, CI SERVICES ROOFING: Right now, we have work that will take us all the way in until probably February into March.
WELLS: When it rains, it pours, in more ways than one.
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
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MATHISEN: Coming up, how safe is your neighborhood? There`s an app for that, and tonight you`ll meet the entrepreneur who had the bright idea to create it.
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MATHISEN: Here`s a look at what to watch next week. Earnings season kicks off. Alcoa (NYSE:AA) kicks them all off on Monday, followed by the big banks later in the week. JPMorgan (NYSE:JPM) Healthcare Conference, the biggest health care investing event of the year gets under way. And President Obama will deliver his final State of the Union Address Tuesday. And that is what to watch next week.
HERERA: The Securities and Exchange Commission banned Point72 Asset Management`s Steven Cohen from managing funds that manage outside money, but only until 2018. The deal with the SEC settles allegations that Cohen failed to effectively monitor a former portfolio manager who was convicted of insider trading.
MATHISEN: So, how safe is your neighborhood? It`s a question you might ask if you`re thinking of buying a house or a business. Making that information easy to find on a computer, even a cell phone, is tonight`s "Bright Idea."
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MATHISEN: Baltimore 2015. Police in riot gear, days of unrest in the street following the death of a man in police custody. Indelible images. It was there in the city by the Chesapeake that Colin Drane founded SpotCrime. It`s a website that maps crime data.
COLIN DRANE, SPOTCRIME.COM FOUNDER: It`s crime data. It`s not super sexy.
MATHISEN: But it is a business, one that employs roughly 30 part-time workers and claims more than 1 million subscribers. Those customers use it to look city by city, even block by block at the incidents of crime. Arrests, assaults, burglaries, shootings. Drane says his data cover roughly 70 percent of the U.S. the price -- nothing for subscribers.
Drane makes his money by selling ads on his website and to accompany the 150 million or so e-mail alerts he sends out annually. That revenue, he says, should total more than $300,000 this year. Then there are fees from partners like Trulia, the real estate company, that pay to tap SpotCrime`s data.
Acquiring and scrubbing that data isn`t easy.
DRANE: The expectation is that all police departments collect the data the same way, and if you just ask, they`ll give it to you, and that is absolutely not the case.
MATHISEN: Every law enforcement agency in the country, about 18,000 in all, has its own method of data collection, its own technical limitations, and perhaps most important, it is own attitude about sharing what they`ve got.
UNIDENTIFIED MALE: Very current.
MATHISEN: Moreover, some choose to farm out their data work to for-profit vendors. That complicates Drane`s job.
DRANE: They`ll restrict the public and say, hey, you can look at this, but you can`t share it with your neighbors or you can`t write it down, or you can`t tabulate it yourself, and, you know, that makes no sense.
MATHISEN: Kalamazoo, Michigan, just hired such a vendor interrupting SpotCrime`s data flow from that city, at least for now.
At the same time, municipalities like Jersey City, New Jersey, see a benefit in open flow and access.
BRIAN PLATT, JERSEY CITY OFFICE OF INNOVATION: Transparency is often intimidating.
MATHISEN: Brian Platt is Jersey City`s director of innovation, the open data portal there provides access and incident updates monthly.
PLATT: It`s unfiltered, not us giving you a message that we`ve crafted. We want to make sure that the public can help us identify the issues and our challenges and our weaknesses, and we can fix them together.
