Morning Update

Job Losses Mount

The government reported more than a half million job losses for the second month in a row and the prior two months were revised downward. The unemployment rate rose to 7.2%, the highest since early 1993, but stocks are nearly unchanged since the Street had been bracing for even bigger losses after ADP reported on Wednesday that private sector jobs fell by nearly 700,000. In other news, Best Buy narrowed profit guidance, Apollo Group posted better-than-expected earnings, KB Home said its loss narrowed, and R.R. Donnelley warned. Treasuries are mixed and world markets are mostly lower.

As of 8:39 a.m. ET, the March S&P 500 Index Globex futures contract is 1 point above fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is at fair value. Crude oil is down $0.12 to $41.58 per barrel, and gold is up $3.90 at $858.40.

KB Home (KBH $15) reported 4Q revenues dropped 56% to $919 million and the homebuilder's loss narrowed from $9.99 per share a year ago to $3.96 per share. The homebuilder said the housing market and general economic conditions in 2009 are expected to remain difficult or possibly worsen as the timing of any meaningful recovery for the homebuilding industry remains uncertain. KB Home said it continues to pursue an aggressive agenda designed to maintain a strong financial position.

Citing the drop in natural gas and oil prices, Dow member Chevron (CVX $74) warned that 4Q profits will be "significantly lower" than 3Q. The integrated oil producer said prices in the first two months in the US fell about $50 per barrel to $61.70 per barrel.

R.R. Donnelley (RRD $15) is falling after cutting 2008 full-year profit guidance and issuing 4Q profit guidance below the Street's view. The printer of catalogs and magazines noted the "rate of economic change remains elevated." And given the uncertainty, the company said it does not expect to provide 2009 profit guidance at its February conference call.

Nonfarm payrolls fall

Nonfarm payrolls fell 524,000 in December, versus the Bloomberg estimate of a 525,000 decline. November was revised from -533,000 to -584,000, the worst reading 34 years, and October was revised from -320,000 to -423,000. The unemployment rate rose from an upwardly revised 6.8% to 7.2%, higher than the forecast of 7.0%. Average hourly earnings increased 0.3%, above the 0.2% forecast. Treasuries are mixed.

Sobering data in Europe

Traders are looking at the latest economic data in Europe and sifting through the US employment report as stocks in Europe are mixed. Industrial production in November fell much more than expected in France and the UK, while the sector registered a sizeable decline in Germany. The drop in output signaled the recession deepened near the end of 2008 and is likely to add to recent pressure on the European Central Bank to cut its key rate next week. European Central Bank governing council member Axel Weber indicated that 4Q in Germany may be weaker than expected and downward pressure could remain through much of 2009. He noted that Germany is dependent on exports and a recovery is unlikely unless global demand picks up. He did not comment on interest rates.

South Korea cuts rates

South Korea's central bank cut its key rate by 50 bp to a record low of 2.5% as expected as it attempts to revive a flagging economy that is being hurt by falling global demand. The president of the central bank said GDP may worsen more than expected amid the slump around the globe. The rate cut, which follows reductions in Taiwan and Indonesia earlier in the week, did little to support shares, with the benchmark Kospi Index closing down 2.1%.

Stocks in Japan fared a little better, falling a modest 0.5% ahead of the US jobs report. Automotive stocks came under pressure, while shipping and mining companies pushed ahead. After the close, Tokyo Electron(TOELF $34), the second-largest maker of chip equipment in the world, said 3Q orders plunged 81%. The global slump and excess capacity among its customers hurt orders.