United States

The housing market has ceased to provide anything but bad news so the February NAHB Housing Market Index and January Housing Starts, both slightly better than forecasts, gave no support for the USD. In fact the stability is probably illusory as building permits which give a better picture of future construction declined another 3.0%.


The European Trade Union Confederation (ETUC) is an organization of 82 national trade unions with 60 million members and a designated social partner that holds regular macro economic dialogues with the ECB, the EMU and the European Commission on economic matters. It has demanded substantially higher wages for its members. We want a pay raise we want it soon and we want it quickly, said John Monks the Secretary-General of the organization. In the past the unions have been warned by Jean Claude Trichet, the ECB President and other bank spokesman not to seek large wage increases that could spark a round of secondary inflation effects. But that charge was rejected by the ETUC, There has been wage moderation. We are running out of patience with what is going on, said Monks. The ECB has warned that the bank could raise rates preemptively if it thought the inflation threat warranted. Recent ECB rhetoric has been aimed directly at prospective union wage settlements. The ETUC in its turn has warned of strikes, Pay militancy has so far been limited. But this cannot continue in the face of rising prices. Is this the normal rhetorical posturing before wage negotiations or is it more indicative of the non-negotiable demands of each side? By historical standards European wage settlements have been restrained in recent years. With gas and food prices rising fast that moderation is under serious strain as union members demand higher wage increases from their leaders. Union membership and militancy is not an ebbing force on the continent. However, the French unions, long some of the most confrontational in Europe, lost their showdown with French President Nicholas Sarkozy last year. Compromise from all sides it the most likely result.

The EU Commission reduced their projection for GDP growth in 2008 to +1.8% from the +2.2% estimate in the November report. The study cited downside risks to growth. This study uses data from the five largest EMU countries, Germany, France, Spain, Italy and the Netherlands which together comprise 85% of Eurozone GDP. The ECB GDP estimates are due in two weeks, the last being for 1.5% to 2.5% GDP growth and 2-3% inflation in 2008. A downward revision in the GDP projections' is expected. The EU Commission information usually correlates well with the ECB.


January inflation was 7.1%, the highest in eleven years and a gain of more than 0.5% in one month. Though the Chinese government has raised interest rates, reserve requirements and permitted a faster appreciation of the yuan in response to previous inflation there is some disagreement whether all those policies will be repeated this time. The January CPI increase was again led by food costs. But the food supply suffered serious disruptions in January from severe winter weather. Food prices were forced higher by supply shortages not by rising demand and those supply restrictions have since eased. There is a plausible chance that the People's Bank of China (PBOC) will recognize the one time nature of January's hike in food prices and with a world economic slowdown looming choose to forego higher domestic interest rates. China's rulers have been very good at taking the long view of their economic choices, they will probably do so again. Bank reserve requirement are expected to rise again in 2008 despite 600 bps in increases in 2007.

Economic Releases February 18 - 22

United States

Tuesday: the National Association of Home Builders Housing Market Index rose 1 to 20 in February. This index has now been stable since July, falling only once in December to 18, but it is still less than half the reading of a year ago.

Tuesday: the Consumer Price Index (CPI) gained 0.4% in January, ahead of the +0.3% forecast but lower than the December reading of +0.4%. Core CPI added 0.3%, also 0.1% more than forecast; December had been +0.2%. The +4.3% elapsed yearly CPI figure was the highest since September 2005. The +2.5% core annual rate represents a steep climb from the 2.1% rate last September; in January and February CPI was +2.7%. Housing Starts rose 0.8% in January to 1.012 million units, a bit less than he forecast of 1.020 million. Single family home starts sank 5.2%, the 10th consecutive monthly decline and the lowest level in 17 years. Starts of multi family units rose. Building Permits contracted 3.0% January to 1.048 million, the eighth monthly decline in a row.

Thursday: jobless claims for the week of February 16th slipped 9,000 to 349,000, 345,000 had been predicted. The prior week was revised 10,000 higher to 358,000. The four week moving average has now reached 360,500 the highest since October 2005. At the start of the last recession in March 2001 this average was at 373,000 but the US economy and employment rolls have grown considerably since then and the equivalent level today is probably close to 400,000.


Tuesday: construction production dropped 0.6% in December, the fourth decline in the past six months; the elapsed year fell to -3.3%. In the fourth quarter production contracted -0.3%, in the third quarter it added 0.4% and in the second it lost 0.7%.

Thursday: the seasonally adjusted current account for the EMU 13 dropped sharply into deficit in December to -€10.3 billion from the €2.3 billion surplus in November which was adjusted up from +€0.7 billion.

Friday: industrial new orders plummeted in December falling 3.6% below November's level, leaving them only 2.1% above the base of a year ago. Although a correction had been expected after the strong October and very strong November (+11.4%) numbers, a more modest decline, -1.0% monthly to a yearly level of +8.7% had been forecast. The ‘flash' manufacturing PMI for February was as forecast at 52.3, 0.5 below January's result. The services PMI was ahead of predictions at 52.3, 50.3 had been anticipated; January was 50.6.


Wednesday: the Producer Price Index (PPI) rose 0.8% in January, four times the expected increase of 0.2%. The +3.3% rate for the year is the highest since December 2006 when it was +4.4%. In December the figures were -0.1% and +2.5% respectively.

United Kingdom

Monday: Rightmove House Prices rose 3.2% in February, 5.8% on the year. It was the first rise in prices since October of last year. In January prices shrank 0.8%; they rose +3.4% year to year.

Thursday: retail sales rose 0.8% in January far more than the median prediction of +0.1%. It was the steepest rise since February 2007 and with the yearly rate now at +5.6%, it appears the British consumer is not impressed by the housing and credit market turmoil.