First time unemployment claims finally registered under the 400,000 expected number by coming in at 397,000. However, as usually happens, this figure will probably be adjusted up like it is every week when no one is paying attention. Last week was revised up from 402,000 to 406,000.
An interesting article below of how the USA economy could turn into another Japan with a lost generation.
Here are the top financial stories of the day:
1) Greek about face on vote, ECB rate cut boost shares-From Reuters
Stocks rallied for a second day on Thursday as Greece backed away from a proposed referendum that threatened its membership in the euro, which could destabilize global markets.
News out of Europe has kept investors on pins and needles for months. Investors are worried a possible default by Greece could trigger another financial crisis that could spread beyond Europe.
The European Central Bank provided a happy surprise early to investors with an interest rate cut, a sign of a more aggressive approach to confront weak growth in the region.
Greek Prime Minister George Papandreou backed away from his referendum proposal that could have derailed last week's long-awaited agreement to cut Greek debt and shore up European banks.
"There's just this extraordinary focus on Greece, the fast money in the market is interpreting the news out of Europe ... and they're saying this is good, this is bad," said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.
"A month or two ago people thought there was going to be a bigger crisis, more contagion. It's not happened, so people are trying to get more invested in equities, putting the risk trade back on."
Stocks associated with growth led, with energy the best-performing sector on Thursday. Equity performance has been highly correlated with the euro, which gathered steam throughout the day on supportive headlines from Europe.
The S&P energy index (SNP:^GSPE) rose 2.5 percent, while the technology index (.GSPT) gained 2.4 percent.
The Dow Jones industrial average (DJI:^DJI) was up 208.43 points, or 1.76 percent, at 12,044.47. The Standard & Poor's 500 Index (SNP:^GSPC) was up 23.25 points, or 1.88 percent, at 1,261.15. The Nasdaq Composite Index (Nasdaq:^IXIC) was up 57.99 points, or 2.20 percent, at 2,697.97.
Shares of mobile phone chip maker Qualcomm (NasdaqGS:QCOM), up 7.5 percent to $56.11, helped support the Nasdaq a day after the company forecast sales above forecasts.
The focus on Friday should shift more to the United States when the Labor Department releases October's non-farm jobs report. Economists polled by Reuters forecast the economy added 95,000 payroll jobs last month.
Data on Thursday showed fewer Americans filed new claims for jobless benefits last week, a sign the U.S. economy's growth is steady.
"What you are seeing is reasonably good economic numbers from the U.S., so you're not seeing anything that's in a negative way changing the focus," Kuby said.
Solid U.S. earnings, too, have provided a lot of underlying support for the market in recent weeks, he said.
After the close, shares of Starbucks (NasdaqGS:SBUX) rose 2.4 percent to $42.40 as it reported results.
About 8.38 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, in line with last year's daily average of 8.47 billion.
Advancing stocks beat declining ones on the NYSE by about 4 to 1 and on the Nasdaq by about 3 to 1.
2) Jobless Claims Decline-From The Wall Street Journal
New claims for unemployment benefits were down last week, showing some improvement for the still-weak labor market.
Separately, U.S. workers' productivity rose in the third quarter for the first time this year as the economy picked up some speed and labor costs declined.
Meanwhile, factory orders rose for the third consecutive month in September, an unexpected gain for a key sector of the economy.
Initial jobless claims fell by 9,000 to a seasonally adjusted 397,000
the week ended Oct. 29, the Labor Department said Thursday.
In the prior week, jobless claims were revised up to 406,000 from an originally reported 402,000, according to the newly released figures.
The four-week moving average of new claims, a more reliable indicator of the labor market's performance because it smooths out volatile weekly figures, dropped by 2,000 to 404,500 last week.
It was the first time weekly jobless claims fell below 400,000 since the week ended Sep. 24. Most economists believe jobless claims must fall below that mark for the economy to add more jobs than it is shedding. Economists surveyed by Dow Jones Newswires had forecast claims for last week would fall by 2,000 to 400,000.
While new jobless claims have edged down two of the past three weeks, the improvement likely has been too small to reduce the unemployment rate.
The government's official tally of U.S. employment will be released Friday. Economists predict the rate will remain unchanged at 9.1%.
High unemployment remains among the most significant challenges for the U.S. economy. On Wednesday, the Federal Reserve projected that unemployment will remain near or above the 8% mark through 2013.
Fed Chairman Ben Bernanke said that forecast was "unsatisfactory" and called on Congress and the White House to assist the central bank in boosting employment.
Thursday's report showed the number of continuing unemployment benefit claims--those drawn by workers for more than a week--totaled 3,683,000 in the week ended Oct. 22. Continuing claims are reported with a one-week lag.
That number was a 15,000 fall from the prior week.
The unemployment rate for workers with unemployment insurance was 2.9% for the week ending Oct. 22, the same as the prior week, the new data showed.
The state-by-state breakdown in initial jobless claims, which is also released with a lag, showed the biggest rise the week ended Oct. 22 was in California. Claims there rose by 7,176 amid more layoffs in the service industry. The largest decline in claims was in Florida, down 2,230 as the agriculture, manufacturing and several other sectors saw fewer layoffs.
A Labor Department official said there was nothing unusual about the latest jobless claims state level data.
Productivity Advances
Nonfarm business productivity rose at a 3.1% annual rate in July through September, after dropping by 0.1% in the previous three months and by 0.6% in the first quarter, the Labor Department said Thursday. Unit labor costs, meanwhile, fell by 2.4% in the third quarter.Economists polled by Dow Jones Newswires were expecting productivity to rise by 3.1% in July through September and labor costs to fall by 1.2%.
The pickup in productivity came as the U.S. economy accelerated in the third quarter, growing at a 2.5% annual rate, after barely growing in the first half of the year. Americans have started to spend more since the summer, fueling the pickup in economic growth, but the trend may not be sustainable because consumers have had to tap into their savings to do so.
Thursday's report showed that labor costs fell for the first time this year. With unemployment high, workers are in a weaker position to demand higher salaries, allowing companies to keep labor costs down.
Meanwhile, nonfarm business output rose by 3.8% during the third quarter, following a 1.8% increase in the April to June period.
The government report also showed that hours worked increased by 0.6% during July through September, following a 2.0% rise in the second quarter.
Productivity in manufacturing, a sector that drove the recovery at the beginning but has suffered a setback in recent months, increased by 5.4% in the third quarter, compared to a 2.3% decline in the previous three months.
Factory Orders Increase
U.S. factory orders rose for the third consecutive month in September, an unexpected gain for a key sector of the economy. Orders climbed by 0.3% from the prior month to $453.54 billion, the Commerce Department said Thursday. Economists surveyed by Dow Jones Newswires had forecast a 0.2% decline.August orders inched ahead 0.1% and July orders gained 2.1%.
In a positive sign, capital investment on equipment by U.S. businesses also rose. Non-defense capital goods orders excluding aircraft jumped 2.9%. The category of orders serves as an indicator of the confidence businesses have in the economy.
Manufacturing, a key driver of the economy early in the recovery, hit a rough patch this year, though there are some indications that activity is picking up.
An Institute for Supply Management report Tuesday said the manufacturing sector barely expanded in October. The ISM purchasing managers' index fell to 50.8 last month from 51.6 in September. A reading above 50 indicates expanding activity.
Despite a slow start, the outlook for the fourth quarter was positive. The ISM's new-orders index increased to 52.4 from 49.6, and the factory-employment index remained expansionary, at 53.5 from 53.8 in September.
Thursday's Commerce Department report showed that the rise in factory orders during September was driven by most categories outside the transportation sector.
Transportation orders plummeted 7.1% on the back of weaker auto and aircraft demand.
Excluding transportation, factory orders were up 1.3% in September, the biggest gain since March. Orders dipped by 0.1% in August.
Commerce said durable-goods orders fell a revised 0.6% in September; non-durables rose 1.0%.
Orders in September for capital goods slipped 0.8%. Defense capital goods orders jumped 8.9%.
Excluding defense orders, overall factory orders in September were up 0.2%.
The report showed September factory shipments rose 0.3%. Unfilled orders, a sign of future demand, were up 0.9%. Inventories barely inched ahead.
3) Could Japan's economic malaise strike here in U.S.? From USA Today
If you wonder what haunts Federal Reserve Chairman Ben Bernanke's dreams, it's Japan.
Japan has suffered more than two decades of subpar economic growth, made all the more miserable by falling consumer prices, a stagnant real estate market and a moribund stock market. The worry: that the U.S. economy devolves into something like Japan's.
Some of the similarities between Japan's economic woes and the U.S.' are striking. Both countries have aging populations. Both have ultra-low interest rates, which don't seem to be having much effect in stimulating the economy. And both countries are struggling with high debt loads.
Could the U.S. be entering a multi-decade recession like Japan's? Probably not, experts say: Japan's main problem was reacting too slowly to its problems, and the U.S. has reacted fairly swiftly to the economic crisis. Nevertheless, some of the problems the U.S. faces now could take another two to five years to fix — and investors could learn a thing or two from the Japanese experience if hard times drag on.
The U.S. recession officially began in December 2007 and ended in June 2009, according to the National Bureau of Economic Research. To most people, though, it still feels like a recession.
Unemployment stands at 9.1%, according to the Bureau of Labor Statistics, and gross domestic product grew at a tepid 1.3% in the second quarter and is estimated to have grown at an annual rate of 2.5% from the second quarter to the third.
Miserable as current conditions are, they pale in comparison with Japan's problems. "It's not the lost decade — it's the lost two decades," says Bill Kennedy, portfolio manager for Fidelity International Discovery fund. Japan's period of malaise began in 1990, and the country is still struggling today.
How bad is it? The Nikkei stock index is down 80% from its 1989 peak. Property prices fell more than 80%.
Could the U.S. see a period like Japan's? "It's an increasing possibility," says Ryan Brecht, senior economist at Action Economics. Some of the similarities are striking.
For example, Japan's woes started with an overheated real estate market and frenzied borrowing — two problems that will sound familiar to anyone in the U.S. Home prices in the U.S. have fallen more than 30% since 2006, according to Standard and Poor's. The Japanese real estate market has yet to fully recover from its 1980s excesses.
Both the U.S. and Japan have seen heavy losses in their stock markets. The Wilshire 5000, a broad measure of the U.S. stock market, is down 18% from its 2007 high. Both countries suffer from high debt: Consumer debt in the U.S., and corporate debt in Japan. And the aging populations in both countries mean fewer younger workers will have to support more retirees.
The Japanese made matters worse in three ways:
•Japanese banks were slow to write down bad debt. "They took 10 years to recognize the non-performing loans," Kennedy says. "They kicked the can down the road."
Japan's corporations gradually paid down their debt, but during that time, they weren't making investments, says Kenichi Amaki, portfolio manager for the Matthews funds. Because the companies weren't investing in factories and employment, economic growth remained anemic.
•After the initial meltdown in 1990, the Japanese central bank kept rates too high for too long. Japan's short-term prime lending rate was 6.88% in 1991 and 3.91% in 1992, even though property values plunged 5.11% in 1992. Japan didn't drop rates to nearly zero until 1995.
•Worried by threats of a credit downgrade because of the country's high level of debt, Japan raised its consumption tax in 1997, which slowed the economy just as it was beginning to recover. "It's fair to say that the Japanese repeated what we did in 1937 — raised taxes too soon," says John Silvia, chief economist for Wells Fargo bank.
Japan now has persistent deflation — a period of falling prices. Part of that is because China can supply low-priced, quality goods. "Even though Japan is cutting supply, for every one unit that Japan cuts, China is there with three more units," Amaki says. Also, Japanese consumers have a deflationary mentality: If you wait long enough, prices will fall.
Japan's declining population plays a role, too. The median age in Japan — half are younger, half are older — is 44.8 years, according to the Central Intelligence Agency. In the U.S., it's 36.9 years. In both the U.S. and Japan, the median age is creeping higher, meaning there are fewer young people to contribute to pensions and health care. But the U.S. population continues to grow, which eventually translates into GDP growth.
Finally, Japan has been hit with bad luck. "The balance-sheet recession ended in 2006," Amaki says.
"Companies became more willing to take on debt to finance growth." The 2008 financial crisis soon put an end to that, and the 2011 earthquake, tsunami and nuclear power station meltdown put a big cramp in Japan's GDP.
Why it's different in U.S.
Economists say that the U.S. may avoid a Japan-like period of malaise. The Federal Reserve was very quick to react to the 2008 financial crisis, pushing interest rates down to near zero.
U.S. consumers are paying down their debt and saving more, Amaki says. Although that's a slow process, consumers have come to realize that paying off a debt is like getting a raise: It increases your disposable income. Eventually, that will translate into more spending. "The American consumer won't change," Silvia says.
What could go wrong? Plenty. "When I look at the argument between political parties about whether to rein in spending or raise taxes, it reminds me of what happened in Japan," says Amaki, referring to Japan's increase in consumption taxes. In the short term, he says, raising taxes or slamming on the brakes in spending would be "a terrible idea."
Similarly, a rate increase could weaken economic growth further, Silvia says. "Housing starts are continuing to struggle with mortgage rates at 4%," he says. Raising rates would make the struggle even worse.
Lessons for U.S. investors
For investors, the specter of a long period of malaise means a long period of low returns. Nevertheless, despite the chronically bad market, some Japanese stocks fared well. What investors can learn from Japan:
•Profits. "Stock prices follow earnings," Kennedy says. Although the broad market fared poorly in Japan, some industries fared better than others. Japanese financial services companies, for example, were a disaster. "It's appalling how much wealth destruction they caused," Kennedy says. Not surprisingly, Japanese bank earnings have been poor.
But some Japanese industries did well. Autos, for example, prospered until competition from South Korea cut into sales. (The rising value of the Japanese yen also made Japan's autos more expensive abroad.) Japanese factory automation is now doing well, although it, too, may be threatened by competition from China.
•Price cutting. In a deflationary period, people love bargains. Companies that can undercut competitors with quality items flourish in a deflationary environment. So it's no surprise that domestic Japanese stores that cater to bargain-hunters fared well. "Any area where the consumer feels like he or she is getting a good deal," Kennedy says.
One example — not in Kennedy's portfolio, according to Morningstar — is Don Quijote, a discount store that has grown to 150 stores since 1980. The company offers an eclectic mix of bargain products and amusements, including a yet-unfinished roller-coaster in downtown Tokyo.
•Flexibility. The downfall of many Japanese companies was that they didn't react quickly enough to change. Japan's automakers, for example, have struggled against their Korean competition, as have electronics manufacturers. "The big difference between U.S. and Japanese companies is the ability to reinvent themselves," Kennedy says.
In the U.S., the low value of the dollar has given manufacturers a boost: U.S. goods sold abroad are now cheaper because of the swooning greenback. And, while the U.S. manufacturing sector is always described as shrinking, that's because U.S. factories are highly efficient. The U.S. manufacturing sector remains the largest in the world.
If you're betting on a long, subpar period — and many investors, such as Bill Gross of Pimco are doing just that — then you can learn some lessons from Japan. Look for domestic companies with rising earnings and an ability to cut prices.
And be careful what you wish for, Amaki says. "When I see the arguments between political parties about raising taxes or cutting spending, I think of what happened in Japan in 1997," he says. "It would be a terribly bad idea."
Quote of the Day from Dave Ramsey.com:
If you can't see the bright side of life, polish the dull side. — Anonymous
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