The Zacks Analyst Blog Highlights: Verizon, Safeway, Costco, Big Lots and Kroger

Sep 09, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 9, 2011 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Verizon (NYSE: VZ), Safeway (NYSE: SWY), Costco (Nasdaq: COST), Big Lots (NYSE: BIG) and Kroger (NYSE: KR).


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Here are highlights from Thursday's Analyst Blog:

Initial Jobless Claims Rise Again

Initial Claims for Unemployment Insurance rose by 22,000 last week to 414,000. This was worse than the expected level of 400,000. Last week's numbers were revised upwards by 3,000, so one could see it as an increase of 5,000.

Recently, initial jobless claims seemed stuck once again in a trading range above the 400,000 level, after a brief period lower than that earlier this year. The drop three weeks ago below 400,000 level was very good news, after 17th straight weeks above it. Alas, that was not destined to last, and it got revised away.

Being below 400,000, as we were in February and March, signaled the start of much more robust job growth, such as we saw in March and April. We seem to be flattening out just over the 400,000 level, which is not great, but it is an improvement over the 425,000 or so level we were in for most of those 17 weeks.

The climb back above the 400,000 telegraphed job weakness in May and June. While the April (+217K) job growth was a heck of a lot better than what we saw in May (+53K after revisions) or June (+20K), it was not really enough to make a serious dent in the vast army of the unemployed, and we saw the unemployment rate rise in both months. July was a bit better, with 85,000 jobs added.

August was a disaster, with zero jobs gained, though it was affected by a strike at Verizon (NYSE: VZ) that counted for a loss of about 45,000 jobs. Even adjusting the establishment numbers for that, it was still a weak report.

The unemployment rate, which comes from a separate survey, was unchanged at 9.1%, despite a tick up in the participation rate. The percentage of the population actually working increased according to the household survey, but from its lowest level since 1983. While the household survey is generally considered less reliable than the establishment survey, it is worth noting that it was much more upbeat, pointing to an increase of 331,000 jobs in August.

Track the 4-Week Moving Average

Since claims can be volatile from week to week, it is better to track the four-week moving average to get a better sense of the trend. It rose 3,750 to 414,750. As far as the domestic economy is concerned, robust job creation has been one of the last big parts of the puzzle to fall into place.

Now the big question is: can we get below the 400,000 level and stay there? There are a lot of pressures slowing the economy, with a more concretionary fiscal policy at all levels of government at the top of the list. The rise away from that level over the previous two weeks was disappointing, but not a cause for despair.

The economy is growing but very slowly, and while job growth in the first seven months of this year are almost double the job gains of the first half of 2010, it is not enough to put a dent in the huge army of the unemployed. The August employment report was worse than expected, and even weaker than the back-to-back disasters that were May and June.

We added a total of nothing, according to the establishment survey. The private sector total of 17,000 was offset by the loss of 17,000 jobs in the public sector (mostly State and Local government).

Even with the Verizon adjustment, 62,000 private sector jobs is not going to cut it. If the separate household survey number were what we were looking at, its gain of 331,000 would be much more like what we need on a sustained basis.

The unemployment rate was unchanged at 9.1%, and the employment rate, or the percentage of the population over age 16 actually working, rose to 58.2% from 58.1% in July. The improvement was welcome, but the July level was the lowest since 1983, and at that point the movement of women into the labor force was not yet complete. The consensus was looking for an increase of 111,000 private sector jobs, partially offset by the loss of 38,000 public sector, mostly local government jobs, for a net increase of 75,0000.

Extended Benefits = Economic Stimulus

Extended unemployment benefits are, dollar of dollar, one of the most effective forms of economic stimulus there is. It is a pretty good bet that the people losing their extended benefits have depleted their savings and run up all the debt they can in trying to make ends meet. The maximum unemployment benefit works out to be just $20,800 per year, or less than the poverty line for a family of four. The majority of people get benefits that are substantially lower than that. You think any of those people have been able to sock any of that away?

Without the unemployment benefit, people will have to either go on food stamps -- although the House under the Ryan Budget is trying to reduce those -- or will have to go to food banks, rather than Safeway (NYSE: SWY) to get their food. As it is, 39.6 million Americans are currently on food stamps -- about one in seven -- and that number is up 11.6% over the last year.

If the extended benefits stop at the end of the year it is going to result in still more people out of work, in addition to the increased hardship for those who lose the benefits. Come January, there will be 3.598 million more people who are not even getting that below-poverty level income unless benefits are extended again.

There is a concern that by cushioning the blow of unemployment, people might be more reluctant to take a marginal job opportunity, but a below-poverty-level income is not that much of a cushion. It might have some of that effect at the very low end of the job market -- people earning around minimum wage -- but not for the vast majority of jobs out there. I'm not sure it is good for the economy for highly skilled people to be taking jobs in other fields that have no use of those skills, and then be unavailable when those skills are needed again.

The people who get extended benefits tend to spend the money quickly on basic needs. This, in turn, keeps customers coming in the door at Costco (Nasdaq: COST) and Big Lots (NYSE: BIG). It means that, at the margin, some people are able to continue to pay their mortgages and thus helps keep the foreclosure crisis from getting even worse than it already is.

However, by the time they are well into extended benefits, they might also be spending food stamps as well as the unemployment check at Kroger's (NYSE: KR). These customers keep the people at Costco, Big Lots and Safeway, and of course their competitors, employed. It also keeps the people who make and transport those goods employed as well, although in that case much of the stimulus is lost overseas if the goods are imported.

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