2008-01-04 US Economic Releases

2008-01-04 Unemployment Rate

Unemployment Rate (Dec)

Survey 4.8%
Actual 5.0%
Prior 4.7%
Revised n/a

It comes from the household survey – been volatile.


2008-01-04 Change in Nonfarm Payrolls

Change in Nonfarm Payrolls (Dec)

Survey 70K
Actual 18K
Prior 94K
Revised 115K

2008-01-04 Change in Manufacturing Payrolls

Change in Manufacturing Payrolls (Dec)

Survey -15K
Actual -31K
Prior -11K
Revised -13K

Payroll increases continue to decline modestly over time. The fed believes demographic changes will reduce the labor force participation rate, keeping unemployment relatively low and labor markets tight, even with fewer jobs.


2008-01-04 Average Hourly Earnings MoM

Average Hourly Earnings MoM

Survey 0.3%
Actual 0.4%
Prior 0.5%
Revised 0.4%

2008-01-04 Average Hourly Earnings YoY

Average Hourly Earnings YoY (Dec)

Survey 3.6%
Actual 3.7%
Prior 3.8%
Revised n/a

Remains firm, and productivity probably down, meaning unit labor costs rising some.


2008-01-04 Average Weekly Hours

Average Weekly Hours (Dec)

Survey 33.8
Actual 33.8
Prior 33.8
Revised n/a

2008-01-04 ISM Non-Manufacturing

ISM Non-Manufacturing (Dec)

Survey 53.6
Actual 53.9
Prior 54.1
Revised

Very firm and cross checks with th 93,000 increase in service sector jobs for December.

ISM Non-Manufacturing TABLE ISM Non-Manufacturing TABLE

ISM Non-Manufacturing TABLE

Note the strength in the price categories.


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Re: US Libor GC Spreads comment

(an interoffice email)

Good report, thanks!

On Jan 4, 2008 10:41 AM, Pat Doyle wrote:
>
>
>
> Pre- August 2007 GC US Treasury’s repo averaged Libor less 17 across the
> curve. In early August and again in early December the spread between GC
> and Libor hit it’s wides in excess of 150bps for 3m repo and 180bps for
> 1mos.
>
>
>
> Today’s Spreads:
>
> 1m = L -46.5
>
> 3m = L – 77
>
> 6m = L – 82
>
>
>
> This recent narrowing of the spread is primarily a result of the TAF
> program and CB intervention but may also be attributed to continuing
> writedowns of assets. There is plenty of cash in the short term markets and
> now some of this cash is going out the curve helping to narrow Libor
> spreads. The problem banks continue to have is that their balance sheet size
> and composition is adversely affecting their capital ratios. Banks and
> Dealers remain very cautious about adding risk assets to their balance
> sheets. Bids are defensive as dealers are demanding higher rents (return
> for risk) for balance sheet. Dislocations still exist, for example it may
> make no sense from a credit perspective but AAA CMBS on open repo trades at
> FF’s + 75, while IG Corp trades FF’s + 40, even NON IG Corps trade tighter
> than AAA CMBS. The more assets are either sold or otherwise liquidated off
> of the balance sheets and the more transparent the balance sheet
> compositions become, then the quicker the markets will stabilize
>
>
>
> GRAPH OF 1 MONTH LIBOR VS. 1 MONTH UST GC
>
>

Payrolls

(email)

On Jan 4, 2008 10:43 AM, Mike wrote:

> Warren, right now economic sectors in stock mkt are pricing in a severe
> recession-your call on no recession is extremely out of consensus now-I
> think that mkt has overdone the recession theme short term…

Agreed!

We may get to 0 or negative growth for a quarter or so, but probably not due to financial sector losses, ‘market functioning’ issues, or housing related issues.

More likely if it happens it will be a fall off in exports or something like that.

Also, the Fed can’t talk about it, but it knows it’s way behind the inflation curve due to fears of ‘market functioning.’ Their concern now turns to the ‘insurance premium’ they paid- food, fuel, $/import prices.

ISM service just came out- solid number.

Orders and employment strong, prices strong.

And in today’s employment number service sector jobs expanded faster than the rest fell, so q4 remains ok at 2% or so, and q1 still looks up.

I still see GDP muddling through (assuming exports hold up), and upward price pressures continuing indefinately as Saudis/Russians keep hiking.

Saudi production numbers due out for Dec any day. That’s the best indicator we have for whether demand is holding up at current prices.

warren
> Mike

Yes, a weak number for sure, though probably as expected by those originally looking for negative growth for the entire quarter.

And only a few months ago a negative employment number was revised to a strong up number.

And unemployment is also a lagging indicator, reflecting the weakness of several months ago.

Service sector added 93,000, other sectors lost, so employment continues its multi year shift.

And, however weak demand may have been, from the Fed’s point of view it was still strong enough to further drive up food/fuel/import prices.

3 mo libor down again and now about 75 bps lower than August in absolute terms, and spread to ff falling and way down from the wides, cp starting to expand, and most everything indicating market functioning returning and financial conditions easing..

The Fed views this as an ‘ease’ the same way it viewed the reverse as a ‘tightening’ when it cut 50.

Even write down announcements have subsided with less than 100 billion in write offs announced so far. In 1998, for example, $100 billion was lost the first day due to the Russian default, with no prospect of recoveries. That’s probably equiv to a 300b initial loss today.

Also heard this statement on CNBC: current oil prices mean $4 gasoline at the pump, and that will cut into consumer spending so the Fed has to cut rates to keep us out of recession.

That’s exactly what the Fed doesn’t want to happen- they call that monetizing a negative supply shock and turning a relative value story into an inflation story.

With the return of ‘market functioning’ the risks to growth change dramatically for the Fed.

They are now far less concerned about ‘the financial system shutting down’ and instead can now get back to their more familiar discussion of the long term relation between inflation and growth when making their decisions.

A fiscal package is being discussed to day by Bernanke, Paulson, and Bush. That would also reduce the odds of a Fed cut.

With their belief that fiscal is for the economy and monetary policy for inflation, the mainstream might prefer to see a fiscal response to support gdp rather than an inflation inducing rate cut to support growth.


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A blurb from a broker

(email)

>
> An impressive November Factory Orders report offered a respite from the
> recent round of weak economic data.

Yes, and maybe even nudge up Q4 forecasts (forecasting the past).

Also, if you look at the continuing claims graph since 1980, it is very low, especially when considering the growth in the labor force, and the latest rise isn’t yet at all meaningful.

> Another data point likely be viewed as
> an incremental positive by the Fed, was the first increase in Asset-Backed
> Commercial Paper outstanding in 20 weeks.

Yes, and the banks are now actively competing for that business. Markets are ‘functioning’ albeit at different rates than before.

> The ABCP market has been around
> for over 20 years. Between 2005 to 2007 it grew by 80% to $1.2 trillion as
> it became the primary funding tool for SIVs.

Yes. And before that, GDP managed to somehow grow, hitting 6%+ in the late 90s before the surplus took it all down.

There is now very good evidence -not that it was needed- that the financial sector adds little or nothing of value to the ‘real economy’ and instead acts as a massive ‘brain drain’ on the real economy.

> The market enabled SIVs to
> initiate hundreds of billions of dollars of leveraged spread trades. The
> SIVs borrowed short in the ABCP market and used the cash to finance
> purchases of mortgage backed securities, CDO’s and other credit instruments.
> Investors have made it clear to the ABCP market that they will no longer
> finance these carry trades. As a result, from August to December. The ABCP
> market shrunk by 37%. One of the concerns, the Fed has expressed has been
> that the legitimate participants in the ABCP market would be cut off from
> financing.

Right, hasn’t happened, and now, as you state, it is going the other way, and cheaper wholesale funding is again becoming available and again taking that lending away from the banks..

> This news could be the first to sign the ABCP market is
> returning to a sense of normalcy, which should be viewed as a minor positive
> and monitored for further improvement.

Agreed, thanks!


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