United States

The economic news was not nearly as bad as it seemed in the shadow of the Non Farm Payrolls.

Manufacturing ISM at 50.7 was well over expectations and when joined with the strong Durable Goods number of +5.2%, the economy still appears to be growing heading into 2008. The negative NFP result for January will probably be revised into positive territory next month, as was last Augusts’ -4,000 reading. The weekly jobless claims over the next few weeks will clarify whether the employment picture is really weakening to recessionary levels. The current four week average is well below recessionary totals, but the most recent week added 69,000 to 375,000 and that is considered to be on the threshold of recession if sustained. There is one interesting note from the January survey. Purchasing mangers were asked if the turmoil in the financial markets was affecting their firm’s ability to obtain financing, 92.6 said no there was no appreciable effect. In the echo chamber of Wall Street, the financial markets and the media a credit disaster is much feared and discussed but, at least so far, there is nothing to indicate that the economy on as a whole is suffering a credit shortage.


The M3 money supply, one of the ECB’s main inflation indicators, moderated to 11.5% in December, its first reading below 12.0% in three months. Economic sentiment and business climate indicators were much lower than forecasts but inflation was higher, unemployment steady and manufacturing PMI rose. There is nothing in these statistics to precipitate a reconsideration by the ECB of its rate policy. The economic situation will have to become a good deal more gloomy for the ECB to lose its public nerve.

Yet the judgment of the currency markets seems to be that sooner or later the ECB will have to abandon its inflation concerns. Thus the reluctance to take the euro through its old high against the dollar and the continuing skittishness in the yen crosses.


IG Metall the large German metalworkers union currently in negotiation with German industry has said that its members will strike by mid February if there is no settlement. The union is asking for an 8% wage increase on a twelve month contract for workers in Eastern and Western Germany. Oliver Hobel, the chief union negotiator disregarded ECB warning of a wage-price spiral if the union won it demands, I believe that one of the problems of the current economic situation is rather that the share of wages on the overall economic development has declined.

Finance Minister Peer Steinbrueck said that the expected the financial distress from the US subprime crisis would damage European economies. The hope that the turbulences will be restricted to the financial market sphere will sadly not be fulfilled, said Mr. Steinbrueck in a speech at the Frankfurt Stock Exchange on Monday. One has to assume a marked weakening of growth [in the US]. In Europe and Germany we will also feel it in the real economy.