Jobs continue to be front and center of economists’ and Americans’ minds alike as the Labor Department released a highly anticipated February employment report last week. The report was mixed. On the positive side, the 36,000 job losses during the month were less than the expected 68,000, helping the unemployment rate stay steady at 9.7 percent, rather than rise to an expected 9.8 percent. A 48,000 increase in temp jobs (including 15,000 for the 2010 Census) was a major reason for the better-than-expected reading; some of the luster was taken off January’s numbers as job losses were revised from 20,000 to 26,000.
While the headline numbers seem to be better than expected, delving deeper into the underlying situation, things are so “rosy.” Wednesday, the Labor Department released some underlying data showing the unevenness of the recovery. In January, only nine states saw unemployment decrease, including Michigan, whose 14.3 percent rate (down from 14.5 percent in December) is still the worst in the country. New York and New Jersey were among the other eight states, all of which saw unemployment fall by a tenth of a percentage point.
And while unemployment held steady, the number of underemployed workers unfortunately rose during the month of February. The underemployment rate, which includes part-time workers who’d prefer full-time work and those who would like to work but have given up looking, grew to 16.8 percent from 16.5 percent in January. While some may see things as stabilizing, it appears the job market is still in dire straits and will continue to weigh on consumer sentiment and more importantly, spending – the major contributor to our nation’s economic product.
As such, oil demand from the US (the world’s largest consumer) is yet to show meaningful signs of recovery. Despite that, crude has still staged a sharp rally over the last month and once again sits above $80 per barrel. With emerging markets’ demand still strong, some oil producers are taking notice and making arrangements to increase capacity. Petroleo Brasileiro (PBR), a member of Growth Portfolio, appears to be one of those companies and is ramping investments faster than expected. The state-controlled oil producer may invest $48 billion this year, more than 37 percent more than forecast. The company had originally called for $174.4 billion of investments in the five years ending 2013 – an average of roughly $35 billion a year. With oil prices already climbing with much of the world’s economies still mired in economic malaise, we expect them to move higher faster as developed markets demand returns and producing oil fields deplete easy-to-reach reserves. Petrobras boasts a bevy of deepwater fields that will become economically viable as prices move higher, making the Brazilian oil giant one of the better plays in the energy patch. Shares trade at less than 12 times expected 2010 earnings, presenting good value with impressive upside potential; we continue to rate the shares a buy.