United States

Last week’s Non Farm Payrolls shed jobs and the unemployment rate, recording information from the same month, also fell 0.1%. Can the economy be losing jobs and reducing the unemployment rate at the same time? One explanation for this seeming incongruity lies in the separate sampling and reporting measures of the two surveys. The NFP survey samples 160,000 business and government entities, one third of the available total. Revisions are common for two reasons: first because only 56% of the survey participants have normally responded by the date when first edition of the survey is issued, and second because jobs created by newly formed companies are not extrapolated from actual survey responses but only estimated. As updated information reaches the Federal Bureau of Labor Statistics the new figures are incorporated into the revised second and third versions of the NFP. The unemployment rate surveys a much smaller percentage of households, 60,000 out of an estimated 110 million, but the survey completion rate is over 90% so the accuracy of the initial data is much greater.

More bad news for the US economy, the ISM services report was wildly below expectation at 41.9, much worse than the December reading and the forecast for January This latest in a string of dismal US economic report sent the equity markets into a tailspin with the Dow off 370.03 by the end of the session. But the dollar traders largely ignored the report, losing only 40 points against the euro. It was a premonition for the balance of the week.


Mr. Trichet’s press conference answers and the text of the official bank statement were not very different than previous editions but the market heard what it was meant to hear. downside risks to growth have increased . Over the past several weeks traders have refused to take the euro higher even in the face of economic statistics profoundly damaging to the dollar. The market has shrugged off 1.25% in Fed rate reductions, negative NFP, negative Services ISM and rising unemployment claims. Clearly traders have wanted and waited to sell euros. The rationale, a pending ECB rate cut, is closer to enactment but it is not quite on horizon. It is not priced into the euro level yet. But the direction for the euro is well established traders are waiting for the first excuse.

Economic Releases February 4 - 8

United States

Monday: factory orders rose 2.3% in December slightly under the 2.7% gain predicted but almost double the 1.5% accretion in November.

Tuesday: the ISM Services number for January was shockingly bad, 41.9 on a median forecast of 53.0 and a December figure of 54.4. This was the weakest number on record but that is not quite a bad as it sounds since this series only began in 2001. The low during the 2001 recession was 47.9 and this is the first reading under 50 since 2003. Though this number has garnered more attention of late and represents the service sector which is 70% of the US economy, its predictive power for the future course of the economy is not as good as that of its older cousin the ISM Manufacturing Index. The number was released early at 8:55 am by the Institute for Supply Management rather than the normal 10:00 am because of fears that the number had been leaked. A spokesman for the Institute for Supply Management said there was no reason to doubt the weak January data because there had been no change in the sampling method.

Wednesday: Non Farm Productivity added 1.8% in the fourth quarter, well more than the +0.1% forecast, largely on a decline in hours worked. Productivity in the third quarter lost 0.3% on revision to +6.0%. Unit Labor Costs (ULC) in Q4 moved up 2.1%; the Q3 results slipped to -1.9% from-2.0%. In all of 2007 ULC rose 3.1% and productivity 1.6%. Labor costs have not been the main source of inflation which has been pushed higher by commodity prices, mostly for oil and food, so the moderate increase did not translate into quiet core inflation. ULC rise in 2007


Monday: the increase in Industrial PPI decelerated in December to +0.1% as expected, a marked improvement over September, October and November whose increases were +0.4%, +0.7% and +0.9% respectively. The year to year rate of 4.3% remains high as it incorporates the activity of prior months. Energy prices were subdued in December relative to previous months and prices were led by consumer goods. With CPI running at +3.2% in the latest month the ECB is not likely to gather much ease from these reductions. Novembers results were revised up to +0.9% from +0.8% and to +4.2% from +4.1% in the yearly.

Tuesday: retails sales dropped 0.1% in December leaving them at -2.0% for the year. A gain of 0.2% had been predicted with the yearly loss at -0.8%. The November decline became 0.7% from 0.5% on revision; the elapsed year gained 0.2% to -1.2%. The poor monthly totals led to the worst quarterly result since this data series began in 1995. Fourth quarter sales were 0.97% below those of the third which had risen 0.55% from the second quarter. Final services PMI for January was down to 50.6 well below the flash estimate of 52.0 and Decembers 53.1. It was the slowest result in four and a half years. France was the only major EMU economy above 50 in this survey. The euro fell sharply in response.


Wednesday: VMA Machinery Orders for December doubled the gain in November 14% versus 7%.

United Kingdom

Monday: CIPS construction PMI for January was 53.9, less than December’s 56.0 reading and the weakest since September 2006, but still characterized by the accompanying statement as remaining] at a level indicative of a solid increase in activity.

Tuesday: CIPS Services PMI Business Activity Index rose slightly in January to 52.5, ahead of the forecast of 52.0 and 0.1% higher than December. While this reads moderately strong at present the ‘future gauge’ section of the Index sank to 65.4, the lowest since October 2001. Services comprise 75% of the United Kingdom economy.

Wednesday: Nationwide Consumer Confidence in January fell to a record low of 81, 4 below the December result but the timeline on this series only extends to May 2004.