January 10th, 2011 12:19 PM by Mel Samick
So what happened last week? The U.S. economy created far fewer jobs than expected in December, suggesting the Federal Reserve will complete its asset buying program, but the unemployment rate dropped to 9.4 percent, its lowest level since May 2009. Non-farm payrolls increased 103,000, below economists' expectations of 175,000. Private hiring rose 113,000, while government employment fell 10,000. The economy usually needs to create at least 125,000 jobs a month to keep the unemployment rate from rising, but a faster pace might be needed now since so many discouraged workers are sitting on the sidelines. As job growth picks up, these workers could re-enter the labor force, keeping upward pressure on the jobless rate.
Stocks declined last week, ending a winning streak that had endured over the five previous weeks, as investors digested a mixed employment report and turned their attention to next week's earnings season. The Dow Jones industrial average closed at 11,674 for the week. The Standard & Poor's 500 Index closed at 1,271, while the NASDAQ Composite Index fell to 2,703. The dollar rose slightly against a basket of currencies, while the price of gold fell to $1,368 an ounce. Not long after the jobs data was released, Fed Chairman Ben Bernanke told the Senate Banking Committee that the economy may be finally hitting its stride, but that it will take time for employment to return to normal levels.
Federal Reserve Chairman Ben Bernanke sketched a more optimistic outlook for the economy, but said a $600 billion bond-buying program is needed because it will take up to five more years to bring unemployment back to healthy levels. The Fed chief defended the central bank's much criticized decision in November to start buying $600 billion in Treasury's through June and, he gave no hint that the Fed would change its course. The bond purchases are designed to boost the economy by lowering interest rates and lifting stock prices. The program has been criticized by Republicans in Congress and some Fed officials who contend that it will do little to help the economy and could in fact hurt it by unleashing inflation and speculative buying on Wall Street. The move heightened tensions with trading partners including China, Germany and Brazil. The primary complaint was that it was really a scheme to push down the value of the dollar, giving U.S. exporters a competitive edge. The Fed chief said the threat of deflation; a dangerous drop in prices, wages and in the values of homes and stocks, and the potential for persistently high unemployment were sufficient reasons for the Fed to launch the bond-buying program. Bernanke said unemployment is likely to be close to 8 percent two years from now. The Fed chief also stated that the depressed housing market, deeper spending cuts from state and local governments, and rising gasoline prices threaten the economic outlook.
Here is what's brewing for this week:
· MONDAY: Employment Trends Index, after-the-bell earnings from Alcoa.
· TUESDAY: 3-YR Note auction; before-the-bell earnings from Lennar, Chevron interim results.
· WEDNESDAY: Weekly Mortgage Applications, 10-YR Treasury Note auction.
· THURSDAY: PPI, Jobless Claims, 30-YR Treasury Bond auction; after-the-bell earnings from Intel.
· FRIDAY: CPI, Retail Sales, Consumer Sentiment, before-the-bell earnings from JPMorgan.
Information provided by NYCB Capital Markets