United States

Two major statistics, the ISM Manufacturing Index and the Non Farm Payroll report painted a much grimmer picture of immediate US economic prospects than had been foreseen a week ago. Particularly worrying was the 0.3% jump in the unemployment rate to 5.0%. In October 2006 and again in March 2007 the unemployment rate was 4.4%; it is now 0.6% higher. Since 1949 the unemployment rate has never risen by that much without the economy being in recession. Sudden large additions to the rate typically happen around recessions. The availability of jobs has been one of the secure supports for consumer spending as housing equity has fallen precipitously in many parts of the country.


The ECB kept on a brave face, even recruiting its newest member the Cypriot Central Bank to talk up the possibility of a rate increase to ward off second round inflation effects. But this is whistling in a graveyard. The Fed will cut again at the end of the month; the BOE will cut again this coming week or in February. The ECB will not and cannot buck that trend. Other central banks are not reducing rates because they want to make the ECB anti inflation job harder but because the economics of their own countries and the world warrant the easing. If England and the United States are sickening the EMU will not be immune; the ECB will be forced to cut rates, the only question is when?

Economic Releases December 31 – January 4

United States

Monday: Existing Home Sales rose 0.4% in November to 5.0 million units, besting the 4.96 million predicted and ahead of the revised October figure of 4.98 million (up 0.01 million). Existing Homes Sales is a seasonally adjusted number so the traditionally slower end of the year selling season is not a factor. The inventory of unsold homes dropped to 10.3 months from 10.8 in October which had been a 20 year high.

Wednesday: the Institute for Supply Manages Index for December came in well under prediction at 47.7. It was also below the 50.8 November figure. Most importantly it was beneath the 50 demarcation between contraction and expansion in manufacturing; 50.5 had been forecast. It is the lowest reading since April 2003 at the beginning of the Iraq war. 'New Orders' fell to 45.7 from 52.6 in November; 'Prices' rose to 68 from 67.5 and Employment' added 0.2 to 48.0. Though it is long since that manufacturing has been the mainstay of American GDP, the sector is used as a barometer for the rest of the economy. With the dollar low and US exports rising the manufacturing sector should be one of the healthiest in the economy. Is this apparent fall into contraction a statistical outlier or a early sign of recession? Construction spending in November was much more robust than expected at +0.1% against predictions of a fall of 0.4%; October was adjusted up to -0.4% from -0.8% and September to +0.3% from +0.2%. Private non residential and public construction gained in the month while private residential building fell 2.5%. It was the 21st straight monthly fall. Construction of single family homes dropped 5.0%.

Thursday: Factory Orders rose 1.5% in November almost tripling the forecast of +0.4%; October's figure was boosted to +0.7% from +0.5%. However, the increase was due to higher prices for energy products and did not evidence stronger overall activity.

Friday: Non Farm Payrolls added only 18,000 jobs in December, far less than the 70,000 consensus estimate. Adjustments added a net 10,000 to October and November's results. The unemployment rate jumped 0.3% to 5.0%, a two year high. The Non Manufacturing ISM Index scored 53.9 in December slightly off the November reading of 54.1. 'Employment' rose to 52.1 from 50.8. Over 70 percent of the US economy is generated by non manufacturing activity. The economy is thought to need 150,000 new jobs each month to prevent the unemployment rate from rising.


Wednesday: manufacturing PMI for December added 0.1 in the final issuance to 52.6; November was 52.8. M3 Money Supply expanded 12.3% in November and maintained the record high reached in October; growth of 12.1% had been forecast. Growth in loans to the private sector dipped slightly to11.0 in November; October had been 11.2%. The official ECB target for M3 expansion is 8% monthly but money supply has not met that target since July of 2006. It has been over 10% for one year, since January 2007.

Friday: Flash (1st issue) HICP for December was 3.1%, the same as in November and as forecast. It is the highest rate since May 2001 and has climbed rapidly since the summer. As recently as August the HICP rate was 1.7%. Services PMI for December was finalized at 53.1, 0.1 below the flash estimate.


Thursday: the nationwide unemployment rate in December dropped to 8.4% from 8.6% in November; 8.5% had been expected.

Friday: Services PMI for December was 51.2, well below the median consensus of 52.4 and the weakest since February 2005. This series peaked in August at 58.9 and has a long term average of 53.5.

United Kingdom

Wednesday: manufacturing PMI in December fell short of expectation at 52.9, 53.6 had been forecast. The November figure was revised down to 54.3 from 54.4.

Friday: Services PMI in December rose to 52.4, ahead of the forecast of 51.6 and also better than the November result of 51.9