TOP STORIES -- May 1-6
U.S. Job Growth Shows Unexpected Strength
U.S. payrolls swelled by 274,000 jobs last month, the government said in an unexpectedly strong report, which cheered investors and job seekers alike and eased fears that the economic slowdown of recent months would worsen.
Along with the April job total, which far exceeded the 170,000 forecast by economists, the Labor Department sharply revised upward the previous two months’ numbers, painting a far rosier picture of employment for the first quarter. The jobless rate remained at 5.2%.
Since the 2001 downturn, companies have been pushing workers to labor harder rather than expanding staff, and analysts say the April job report indicates that many employers may have realized they cannot wring any more productivity out of their current staff and must expand instead.
Even the most pessimistic economists were cheered by the report.
“We’ve been here before, and a good month does not a new trend make,” said Jared Bernstein with the liberal Economic Policy Institute. But, he added, the report was “good across the board.... You can’t help but hope the recovery is finally catching up with the labor market.”
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L.A. Investor Kerkorian Takes Big Stake in GM
Billionaire Los Angeles investor Kirk Kerkorian said he had taken a large stake in General Motors Corp. and wanted to buy more, a move viewed by Wall Street as a potential catalyst for a turnaround at the world’s biggest automaker.
GM, which has seen a steady erosion in its U.S. market share in recent years, reported a $1.1-billion first-quarter loss.
Kerkorian said he owned nearly 4% of GM shares and planned to spend $868 million to more than double that investment. His investment company, Tracinda Corp., characterized his GM stake as “definitely a passive investment.”
The automaker was in the news again a day later, when Standard & Poor’s Corp. cut its credit rating to “junk” status, along with that of Ford Motor Co. S&P; cited the loss in market share for the two biggest U.S. automakers and their dependence on slumping sport utility vehicle sales.
The downgrades, which mean S&P; considers the companies’ debt to be below investment grade in quality, were another blow to GM’s and Ford’s images on Wall Street. The automakers are the biggest companies to have their credit lowered to junk status, exceeding WorldCom Inc. in 2002.
A junk rating means GM and Ford could pay much higher interest costs to borrow money but does not indicate that the companies face a dire financial situation in the short term.
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Federal Reserve Raises Key Interest Rate to 3%
The Federal Reserve continued its slow-motion campaign against inflation, raising its key short-term interest rate by another quarter-point and signaling that it would not ease its effort to rein in rising prices even as it acknowledged that the economy was slowing.
As expected, the central bank raised the federal funds target rate to 3% -- its eighth increase since June.
The increase in the funds rate -- what banks charge each other on overnight loans -- led major banks to raise their prime lending rates to 6% from 5.75%.
In a statement, the Fed said it would continue to raise rates at a “measured” pace but also noted that “pressures on inflation” continued to rise. The Fed also acknowledged the economic slowdown in the first quarter.
Stocks zigzagged after the news, then rallied in the final minutes of trading after the Fed announced that it had inadvertently left out from its statement a sentence it had included in previous recent statements, that “longer-term inflation expectations remain well contained.”
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Verizon Comes Out Winner in Battle for MCI
Verizon Communications Inc. won a bitter three-month bidding war for long-distance carrier MCI Inc. after its rival abandoned the struggle.
Qwest Communications International Inc. pulled out after receiving word that MCI directors had turned down its final offer in favor of a newly sweetened bid from Verizon.
Although Qwest offered a higher price, $9.75 billion to Verizon’s $8.5 billion, MCI said Verizon’s financial strength and better fit with MCI operations made it the preferred buyer.
In a statement, Qwest said it was no longer worth pursuing MCI under a process that “seems to be permanently skewed against Qwest.”
Verizon, under pressure to respond to a $30-a-share offer by Qwest, raised its bid to $26 a share from $23.10.
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Boeing, Lockheed Join Forces to Build Rockets
Bitter rivals Boeing Co. and Lockheed Martin Corp., faced with a prolonged slump in rocket launches, surprised the aerospace industry by announcing a joint venture in military rockets.
The nation’s two largest defense contractors also agreed to dismiss legal claims against each other over the multibillion-dollar rocket business.
The unusual pact calls for Boeing’s Delta 4 and Lockheed’s Atlas 5 rockets to be produced under one roof, and the joint venture would become the primary provider of rocket launches for the Air Force and NASA.
The combination could result in a savings of $150 million to the U.S. government, Chicago-based Boeing and Bethesda, Md.-based Lockheed said. The joint venture will be headquartered in Denver.
Consolidating the operations is expected to cut an unknown number of jobs, Boeing said.
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Beverly Hilton Reaches Contract With Union
Claiming a strategic victory, officials of the hotel workers union said they had signed a labor contract with the Beverly Hilton expiring in 2006.
The union, Unite Here, is trying to line up contracts across the country to expire next year, opening the door to a national strike or other coordinated action. Hotels in Los Angeles have vigorously opposed the strategy, and negotiations have been stalemated for more than a year.
The deal makes the Beverly Hilton the first major chain hotel in the city to break with the industry position, although five smaller hotels have quietly made similar deals recently, notably the five-star Hotel Bel Air.
A union-sponsored boycott against eight hotels represented by the Employers Council is starting to cause serious pain, accounting for at least $10 million in verified lost business to the eight so far.
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Countrywide Settles Pay Lawsuit for $30 Million
Mortgage lender Countrywide Financial Corp. agreed to a $30-million settlement of a lawsuit alleging that the company failed to pay overtime to 400 employees at its Southern California call centers.
The deal was tentatively approved last month by Los Angeles County Superior Court Judge Victor Person.
Plaintiffs’ lawyers maintain that many workers, despite being given management titles, spend most of their day on nonmanagerial tasks.
In the settlement, Calabasas-based Countrywide agreed to reclassify call center employees as hourly workers eligible for overtime, instead of exempt salaried employees. It also agreed to cease docking staff for production errors.
The settlement, excluding attorney fees, amounts to an average of about $50,000 per worker.
Countrywide has steadfastly denied the workers’ allegations.
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Former SEC Official to Help Steer Fund Firm
The former chief of the Securities and Exchange Commission’s mutual fund oversight unit said he would take an executive post at the parent firm of Los Angeles-based American Funds, which is embroiled in legal battles with the SEC and other regulators.
Paul F. Roye, who left the SEC in March after six years as head of the investment management division, will be a senior vice president at Capital Research & Management, which manages the $670-billion American Funds mutual fund group. His duties will include ensuring that the funds are in compliance with federal and state laws.
Roye’s move to Capital Research comes as the SEC is in the final stages of determining whether to charge the company with wrongdoing for certain revenue-sharing arrangements with some brokerages that sell American Funds.
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Court Rejects Rules on Anti-Piracy Technology
An appeals court tossed out rules requiring anti-piracy technology in digital TV receivers and recorders, saying the Federal Communications Commission overstepped its authority.
The unanimous decision by three judges from the U.S. Court of Appeals for the District of Columbia Circuit was a blow to major studios and television networks. But it was welcomed by consumer groups and technology advocates who argued that the rule gave the government too much power over computers, software and other digital gear.
The studios and networks are expected to take their case next to Congress. But betting lawmakers’ attention may be a challenge, given other important piracy and communications topics bubbling up in Washington.
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For a preview of this week’s business news, please see Monday’s Business section.
