Week in Review: Eurozone debt crisis, slow U.S. labor recovery rock global financial markets

U.S. economic news

Employers add fewer jobs than expected
The U.S. economy added fewer jobs than expected in November, and the unemployment rate unexpectedly increased. Nonfarm payrolls increased 39,000, less than expected, and the jobless rate rose to 9.8%, the highest since April. Hours worked and earnings stagnated. The numbers underline the continued weakness in the labor market, whose turnaround is seen as key to economic recovery. This week the law that extended unemployment benefits to as long as 99 weeks expired after Democratic and Republican senators blocked rival attempts to renew it. That means that extended jobless benefits affecting about two million people are set to expire at the end of the year.

Other data suggest recovery gathering momentum
Despite the discouraging signs from the labor market, other reports showed momentum this week. Retailers have reported robust November sales as consumers kept spending despite high unemployment. U.S. manufacturing expanded for the sixteenth month in a row in November, according to the Institute for Supply Management. Factory output grew as consumers and businesses spent more on autos, computers, and other goods. Also last month, consumer confidence rose, according to the Consumer Confidence Index^®. The measure rose to 54.1 in November from 49.9 in October, reaching its highest level in five months

Housing prices still falling
The Standard & Poor's/Case-Shiller index of home values showed that home prices are falling faster in the nation's largest cities than in the rest of the country. The home-price index fell 0.7% in September from August. Eighteen of the 20 cities recorded monthly price declines.

House agrees to extend tax cuts
The U.S. House of Representatives approved legislation this week that would extend the current tax rates on income up to $250,000. They also agreed to allow taxes on higher earnings to increase. However, the legislation is expected to fail in the Senate.

U.S. and global corporate news

S&P puts several Portuguese banks on credit watch
Standard & Poor's said it has put several Portuguese banks on credit watch with negative implications after it did the same with Portugal's long-term rating earlier in the week. The banks put on watch include Banco Santander, Santander Totta, Banco Comercial Portugues, Banco Espirito Santo, Banco BPI and the state-owned Caixa Geral de Depositos. S&P said it believes "that Portugal's macroeconomic challenges and difficult external financing conditions will put pressure on the bank's operating environment, potentially weakening their creditworthiness."

Toll Brothers swings to profit
The luxury home builder Toll Brothers swung to a profit for the second quarter in a row. The builder was helped by a tax benefit and fewer writedowns. At the same time revenues fell less than expected.

Global economic news

ECB extends liquidity measures
As the crisis in Ireland rocked global markets, the European Central Bank opted to extend its special liquidity measures, abandoning plans to wind down emergency support for banks and government debt markets. ECB President Jean-Claude Trichet said the ECB would continue to offer unlimited liquidity to banks for as long as necessary. He added that the bank would continue its special bond purchasing program to support the weakened eurozone debt markets.

Eurozone and U.K. economies show slow recovery
Meanwhile, reports this week showed that the eurozone economy slowed sharply in the third quarter as business investment ground to a halt. The slowing investment suggests companies are still too uncertain about the prospects of recovery to commit more capital. In the United Kingdom, weak confidence and jobs cuts weighed down the dominant services sector, which expanded at a marginally slower pace in November.

India posts 8.9% growth for quarter
India posted an 8.9% year-over-year increase for the quarter ended September 30 as the country's economic expansion continued.


Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual, or quarterly report. Full holdings are also available on the individual Fund Profile tab in the Products and Performance section of mfs.com.

Past performance is no guarantee of future results.
 
Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com

December 2010 Schnack Financial Newsletter

"Hi,

The opening paragraph of the report of the National Commission on Fiscal Responsibility and Reform reads as follows: Throughout our nation’s history, Americans have found the courage to do right by our children’s future. Deep down, every American knows we face a moment of truth once again. We cannot play games or put off hard choices any longer. Without regard to party, we have a patriotic duty to keep the promise of America to give our children and grandchildren a better life.

Every American should read it."
FULL REPORT


--Randy

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Week in Review: World markets wary as eurozone watch intensifies

U.S. economic news

Economy grows 2.5% in third quarter
U.S. gross domestic product (GDP), the value of all goods and services produced in the country, rose at an annual seasonally adjusted rate of 2.5% during the period July through September. The figure is significantly higher than the 2.0% expansion rate reported by the U.S. Department of Commerce in its initial report released on October 29. The government cited stronger exports and increased consumer spending as reasons for the improved GDP. Consumer spending rose 0.4% in October after a 0.3% gain in September.


E-commerce on the rise, accounts for 4.2% of total retail sales
The Commerce Department said e-commerce sales hit $41.5 billion in the third quarter, up 15.1% from the fourth quarter of 2007 at the beginning of the recession. Retail sales excluding Internet sales were down 4.6% for the same time period. According to projections from a number of leading economists, the nation's retailers are cautiously optimistic about a strong holiday shopping season, which traditionally kicks off today, Black Friday. As many as 138 million shoppers are expected to hit stores this weekend.


New and existing home sales fall in October
Sales of new homes unexpectedly fell in October, despite near record-low borrowing costs. New home purchases decreased 8.1% to a 283,000 annual rate, according to figures from the Commerce Department. One group of economists surveyed had projected an increase to a 312,000 home annual pace. The National Association of Realtors said that sales of previously owned homes dipped 2.2% to a 4.43 million annual rate in October from 4.53 million units in September. The drop was larger than was projected by economists, who said sales would decrease to a 4.48 million home pace. Reasons cited for the sales declines include foreclosure moratoriums and a lack of credit in the U.S. housing market.


Initial jobless claims fall sharply
The U.S. Department of Labor said that new unemployment claims fell by 34,000 to a seasonally adjusted 407,000 in the week ending November 20. The drop means that the number of Americans filing for new unemployment benefits was as its lowest level since June 2008. Wall Street analysts had projected a much smaller drop in new claims.

U.S. and global corporate news

Campbell Soup reported its sales slipped 1.4% in the fiscal first quarter ended October 31, 2010, while net income fell 8.2% to $279 million from $304 million a year ago. Heavy promotional spending in the quarter by the world's biggest soup maker failed to spur sales. Campbell's, one of the first large U.S. packaged food makers to focus heavily on reducing salt across its product line, believes it has addressed the sodium issue and is turning its attention to creating better-tasting soups and more varieties.

Cost cuts helped Hormel Foods post a profit of $121.1 million for the fiscal fourth quarter ended October 31, up 17% from $103.9 million one year ago. Hormel, the maker of Spam and Dinty Moore stews, set its earnings outlook for the upcoming year at $3.10 to $3.20 per share. These figures exceed the average analyst estimate of $3.05 per share.


Del Monte Foods agreed on Thursday to a $4 billion takeover by an investor group led by Kohlberg Kravis Roberts & Co. KKR, Vestar Capital Partners, and Centerview Partners bid $19 per share in cash for the maker of pet foods and canned vegetables. If the deal goes through, it would be one of the year's largest private-equity buyouts.

Global economic news

Ireland gets EU, IMF funds; European leaders disagree over eurozone bailout
Although Ireland has enough money to pay its debts until the middle of 2011, it requested a rescue package from the European Union and the International Monetary Fund amid concerns that the cost of bailing out its banks would overwhelm government finances. EU finance ministers accepted Ireland's request for a three-year package of loans totaling approximately 85 billion euros. Of the total, 35 billion euros will be allocated for bailing out ailing banks and 50 billion euros will help finance the Irish government. As part of the bailout, the government said it will cut spending by nearly 20% and raise income taxes to narrow the country's budget deficit to 3% of gross domestic product by the end of 2014.

The EU commission announced a proposal on Wednesday to double the size of Europe's 440 billion euros bailout fund for eurozone governments. The proposal was quickly dismissed by Germany. The heightened tension in the region comes as investors and world leaders fear the eurozone debt crisis could expand to Portugal and Spain.


Eurozone's private sector grows despite debt problems
Financial information services company Markit said that the preliminary composite purchasing managers' index for the eurozone rose to 55.4 in November from 53.8 in October. Growth in the region's private sector was boosted by strong expansion in France and Germany. The increase surpassed projections of economists, who forecast the composite measure would increase to 53.9.

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual, or quarterly report. Full holdings are also available on the individual Fund Profile tab in the Products and Performance section of mfs.com.

Past performance is no guarantee of future results.

Standard & Poor's 500 Stock Index measures the broad U.S. stock market.
Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com