TOP STORIES -- Jan. 9-14
Stocks Buffeted by Oil Prices, Earnings
A jump in crude oil prices, largely mediocre earnings and a mix of economic data roiled the stock market last week, as investors held off on any major investments until a better view of the economy could be discerned.
On Friday, however, the markets staged a modest rally after the Labor Department reported a larger-than-expected drop in wholesale prices, staving off fears of inflation.
For the week, the Dow Jones industrial average fell 0.4%, the Standard & Poor’s 500 index was down 0.1% and the Nasdaq lost 0.03%.
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Number of Employed in State Drops by 25,000
The number of people holding jobs in California fell by 25,000 last month, a sharp and unexpected divergence from national as well as local employment trends, the state reported.
Economists downplayed the significance of the plunge, which was the biggest in nearly two years. Some said it was at such variance with the state’s generally healthy economy that the figure would be eventually revised upward, and others described it as a blip that didn’t portend a slump.
The state unemployment rate was unchanged from November’s revised 5.8%. That’s down significantly from 6.5% a year earlier but above the national rate of 5.4%.
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Gov.’s Budget Plan Skips Transportation Again
For the second year in a row, Gov. Arnold Schwarzenegger has proposed a state budget that includes no money for new highway or mass transit projects.
The spending plan Schwarzenegger unveiled for the fiscal year that begins July 1 would maintain the freeze on transportation projects that began a year and a half ago under his predecessor, Gray Davis.
Under the plan, which requires legislative approval, more than $1.31 billion in gasoline sales taxes ticketed for transportation needs would be used for deficit reduction and funding for schools, prisons and scores of other programs.
All in all, the corporate community has few gripes about Schwarzenegger’s budget, and many executives have praised the governor for not raising taxes. But transportation spending -- or the lack thereof -- has become a definite irritant for state business leaders.
Around L.A., Schwarzenegger’s proposed budget could derail attempts to unplug several troublesome bottlenecks.
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Storm Cuts Railroad’s Capacity by a Third
Union Pacific Corp. said track damage from floods and washouts caused by punishing storms in California and Nevada might cut the number of trains serving Los Angeles by as much as a third for an “extended period.”
The nation’s largest railroad is making arrangements for rerouting some of the 90 trains that typically operate in the region each day, a spokeswoman said.
Union Pacific is bringing in contractors as well as workers from other regions to repair tracks and signals.
The railroad has no estimate of the financial effect of the Southern California flooding, the spokeswoman said. Union Pacific said the timing for restoring service on blocked routes depended on weather and the progress of repairs.
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Oracle to Lay Off 5,000 as Takeover Takes Hold
A week after acquiring PeopleSoft, business software maker Oracle Corp. announced that it would lay off 5,000 employees -- most of whom probably work for its former rival, analysts said. Though details of who would be cut and when were not announced, rumors swirled through the industry.
By some accounts, Oracle Chief Executive Larry Ellison’s famously cutthroat management style will be on full display: Pink slips may be delivered by express mail to employees at home over the weekend.
The widely expected purge by the Redwood City, Calif.-based company comes as the battered Silicon Valley job market just begins to recover from the crash of 2000.
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Boeing to Shut Down Commercial Jet Plant
Boeing Co. said it would close the last commercial airplane production line in Southern California because of slow sales of its 717 passenger jet.
The shuttering of the sprawling Long Beach plant next year will have only a modest economic effect, because most of the 800 union workers will be transferred to jobs at a nearby Boeing factory that makes the C-17 military transport plane. But the plant’s closing will mark the symbolic end of a chapter in the area’s aerospace manufacturing history.
Separately, the U.S. and Europe averted a multibillion- dollar trade war -- for now -- by agreeing not to seek formal action from the World Trade Organization over claims of unfair government subsidies to Boeing and rival aircraft maker Airbus.
Instead, trade representatives said they would hold three months of talks.
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State Farm Insurance Settles Overtime Suit
State Farm Insurance Cos. agreed to pay $135 million to settle a lawsuit alleging that it failed to pay overtime to 2,600 claims adjusters in California.
The settlement, approved by a Los Angeles County Superior Court judge, is the latest multimillion-dollar payout in a wave of white-collar overtime lawsuits in California, where the laws governing this area are stricter than in other states.
Lawyers for the adjusters said the average award for each plaintiff would be $34,000, although those who worked for the company for eight years would receive an average of $64,000.
The State Farm adjusters, who filed their suit in 2000, said they worked an average of six to seven hours of overtime a week, including weekends, without premium pay.
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Flying J Agrees to Buy Shell Oil Refinery
Shell Oil Co. said it would sell its Bakersfield refinery to one of the largest truck-stop chains in the U.S., giving a surprise reprieve to California motorists.
The deal with Ogden, Utah-based Flying J Inc. came weeks before the facility’s planned March 31 closure. It could spare supply-strapped California the loss of 2% of its gasoline supply and 6% of its diesel.
Terms of the sale to closely held Flying J’s refining subsidiary, Big West Oil, weren’t disclosed. But sources familiar with the transaction said Shell, which had planned to spend $200 million to clean up and dismantle the facility, would receive $130 million for the 73-year-old refinery.
Hopes for a sale had been dashed last month when Shell said it had broken off negotiations with its leading suitor, New York investment firm Kelso & Co. Flying J was among a short list of earlier bidders.
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IPod Sales Send Apple Profit Off the Charts
The popularity of iPod digital music players helped Apple Computer Inc. blow past Wall Street’s expectations when it reported that quarterly profit more than quadrupled.
Although strong holiday demand for iPods led Apple’s performance, the company said sales of its iMac desktop computers nearly doubled, lending credibility to its strategy of leveraging iPod to lure customers to its other products.
Cupertino, Calif.-based Apple reported a profit for its first quarter of $295 million, or 70 cents a share, well ahead of the consensus estimate of 49 cents by financial analysts surveyed by Thomson First Call. Revenue for the quarter that ended Dec. 25 was $3.5 billion.
That compared with profit of $63 million, or 17 cents, on revenue of $2 billion a year earlier.
Just before its earnings announcement, Apple unveiled a $99 iPod and a $499 version of the Macintosh computer that will compete more directly against PC giants Dell Inc. and Hewlett-Packard Co.
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Edward Jones Discloses Payments by Fund Firms
Los Angeles-based American Funds and six other mutual fund firms paid a total of $82.4 million to brokerage Edward Jones & Co. for selling their products through the first 11 months of last year, records showed.
The unusual disclosure was demanded by the Securities and Exchange Commission and other federal regulators, who said the St. Louis brokerage failed to tell customers that the funds on its “preferred list” paid millions of dollars to be there.
In addition to American Funds, a unit of Capital Group Cos., the preferred families are Federated Investors Inc.; Goldman Sachs Group Inc.; Hartford Financial Services Group Inc.; Lord Abbett & Co.; Putnam Investments, a unit of Marsh & McLennan Cos.; and Van Kampen Investments Inc., owned by Morgan Stanley.
The incentive payments are legal. But the SEC said Edward Jones violated securities law by failing to inform investors that it was being paid “undisclosed compensation” for recommending the mutual funds, creating potential conflicts of interest.
The brokerage agreed in December to disclose the arrangements and pay $75 million in penalties and restitution, which will be returned to customers.
Edward Jones is also the target of a civil securities fraud suit by California Atty. Gen. Bill Lockyer over the incentive payments. The brokerage has vowed to “vigorously defend itself” against the suit.
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For a preview of this week’s business news, please see Monday’s Business section.
