TOP STORIES -- Dec. 1-5
Dow Still Struggling to Reach 10,000 Mark
The Dow Jones industrial average came up short last week in its latest run at the 10,000 mark -- a milestone not reached by the market’s most widely watched index since May 2002.
A rally Thursday failed to gain traction the next day when the government’s jobs report was surprisingly soft.
Stocks bounced early in the week on positive economic news, including strong reports on factory orders and construction, as well as a promising start to the holiday shopping season. But investors couldn’t muster the momentum to push the Dow back above 10,000 or the Nasdaq composite index past 2,000.
The Nasdaq surpassed 2,000 on Wednesday but couldn’t hold above that level. Investors sold tech shares, and Nasdaq ended the week down 1.1%. For the week, the Dow rose 0.8% to 9,862.68, and the Standard & Poor’s 500 index gained 0.3%.
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Bush Rescinds Tariffs on Imported Steel
President Bush lifted tariffs on imported steel, averting a costly global trade war but angering the domestic steel industry and many of his Republican allies from Rust Belt states, where steelworkers have benefited from the protective measures he imposed early last year.
His decision came after the European Union threatened to levy $2.2 billion in tariffs on U.S. exports. Other trading partners made similar threats.
Many California manufacturers applauded the White House’s decision to repeal the tariffs 16 months before the protections were to end.
Despite protests from the domestic steel industry and labor unions, the Bush administration said that the tariffs were being removed because the U.S. steel industry had used the “breathing space” to restructure and was strong enough to face foreign competition.
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Roy Disney Quits, Urges Eisner to Step Down
With a volley of harsh words, Roy Disney quit the board of the company founded by his uncle Walt Disney and called for the resignation of Chairman Michael Eisner, saying the entertainment company had “lost its focus, its creative energy, and its heritage.”
Disney told Eisner in a three-page letter that “you are no longer the best person to run” Walt Disney Co. The 73-year-old vice chairman accused Eisner of maneuvering to have the board’s nominating committee leave his name off the slate of directors to be elected in the coming year -- “effectively muzzling my voice.”
Eisner declined to comment.
Stanley P. Gold also quit the board while vowing to press for Eisner’s ouster.
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November Job Gains Miss Expectations
American employers added 57,000 workers to payrolls in November, the Labor Department said, extending the country’s run of job gains to four straight months but falling well short of expectations.
The showing helped to trim the unemployment rate to 5.9% from 6%. But the employment increase was barely one-third the size analysts had predicted.
The comparatively weak showing reignited political debate over President Bush’s stewardship of the economy and revived worries that a wedge has been driven between economic growth and job growth.
Economists found some silver linings in the November numbers. New hiring, though modest, was pretty much across the board. The manufacturing sector shed a net 17,000 jobs, a big improvement over 100,000-a-month losses of a few years ago.
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Boeing CEO Resigns; Tanker Deal Is Delayed
Boeing Co. Chairman and Chief Executive Philip M. Condit unexpectedly resigned, as the world’s largest aerospace company moved to restore an image sullied by scandal.
The company said that Condit, 62, was not forced out but that its board decided that a “new structure for the leadership was needed.” Boeing’s named a former company president, Harry C. Stonecipher, 67, as CEO.
The Pentagon stepped up an inquiry into allegations that Boeing’s finance chief, Michael Sears, began recruiting a top Defense Department procurement official to join Boeing at the same time it was bidding on an $18-billion contract for aerial refueling tankers. Boeing fired Sears and the former Pentagon official, Darleen Druyun, last month, citing breach of company policy. Sears has denied the allegations.
The Pentagon said it would delay the deal for 100 Boeing air tankers until officials investigated circumstances surrounding the awarding of the contract. Boeing has denied wrongdoing.
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SEC Proposes New Rules for Fund Industry
The Securities and Exchange Commission launched a regulatory strike against the illicit practices that have rattled the mutual fund industry in recent months and shaken public faith in an investment once viewed as a haven from financial trickery.
The agency proposed new measures to prevent after-hours trading and other improper practices. The commission ruled that fund firms must appoint an internal watchdog who would report to the board of directors. The 5-0 votes represent the SEC’s most visible attempt to tighten rules governing mutual funds since revelations surfaced of widespread trading abuses.
SEC Chairman William H. Donaldson said the measures were the first in a series of new rules planned for the fund industry in coming months.
The agency is proposing, among other things, that buy and sell orders from fund investors must be delivered to the mutual fund company or be well on their way to the fund by the closing bell.
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In Upset, Northrop Wins Missile Defense Deal
Northrop Grumman Corp. and Raytheon Co. won a major Pentagon contract valued at potentially more than $10 billion to develop and build a new rocket that could destroy ballistic missiles in the early stages of flight.
In a high-profile competition, the Northrop-Raytheon team upset Lockheed Martin Corp. and Boeing Co., both of which have long been the nation’s leading contractors on developing missile defense systems.
The contract to develop and test the so-called kinetic energy interceptor was initially valued at $4 billion over eight years, but analysts said its potential worth would be far greater once production began in 2010.
Since taking the helm of Century City-based Northrop this year, Chairman Ronald D. Sugar has pushed hard to make the company a bigger player in the development of the nation’s missile defense system.
Although the contract initially will have little effect on Northrop’s earnings, Sugar said, the program eventually “could result in a very significant stream of annual revenue.”
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Employers Dismayed by Workers’ Comp Rate Cut
State Insurance Commissioner John Garamendi said workers’ compensation carriers would cut California rates by an average of 3.6% next year -- a rollback he hailed as a “dramatic” reversal of several years of rising premium increases.
But employers called it a pittance, saying it would do little to help immediately tame rates.
The State Compensation Insurance Fund, the public entity that provides coverage to more than half of California’s businesses, plans to cut rates for policies renewed after Jan. 1 by 2.9% -- far short of what many had hoped after the Legislature passed workers’ comp reforms. Garamendi had recommended that all carriers institute a 14.9% rollback next year.
Garamendi urged the Legislature to get cracking on another round of reforms to reduce California’s workers’ comp rates to the national norm. The state’s average rates are more than double the U.S. average.
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FAO Seeks Chap. 11 Bankruptcy Protection
FAO Inc., the company that owns toy retailer FAO Schwarz, filed for Chapter 11 bankruptcy protection, a victim of the fierce toy wars pitting specialty stores against mass-merchandise discounters. It is FAO’s second bankruptcy filing this year.
FAO said it might be forced out of business if it couldn’t find a buyer for its FAO Schwarz and Right Start chains by Dec. 15. FAO said it would liquidate Zany Brainy, a chain of 89 stores selling education-themed toys.
FAO, which has not posted an annual profit since 1994, has suffered a succession of problems in the last decade related to overexpansion and ill-fated acquisitions. After suffering through most of 2002 with fall- ing sales and profits, FAO filed for bankruptcy in January. The company emerged from Chapter 11 in April but said this fall that it was having trouble getting enough financing to get through the holiday sales season.
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AT&T;’s President Unexpectedly Resigns
AT&T; Corp. President Betsy Bernard resigned and was replaced by former Pacific Bell executive William J. Hannigan.
The unexpected change in the No. 2 position puts two former PacBell executives -- Hannigan and David Dorman, AT&T;’s chairman and chief executive -- at the top of the country’s largest long-distance telephone company.
Bernard, 48, has long been “very upfront” about wanting to be in the top spot at a major firm, Dorman said. She had expected to do that as chief of AT&T;’s consumer long-distance business, which the company had planned to spin off. But that plan was scuttled as the telecom industry slumped.
Bernard said she looked forward “to finding the right leadership opportunity.” Her resignation comes as AT&T; battles to gain a foothold in local phone markets as regional Baby Bell companies pick off long-distance customers.
For a preview of this week’s business news, please see Monday’s Business section.
