Economic Notes:

• Global Business Confidence
• Global business sentiment ended 2007 weak and fragile. It fell sharply with last summer's subprime financial shock and has never recovered. U.S. businesses are particularly on edge; American confidence is consistent with a contracting economy. Expectations regarding the first half of 2008 are especially bleak, falling to a record low last week on a four-week moving average basis. Businesses have also become notably cautious with respect to their inventories and office space needs. Hiring and fixed investment are soft, but holding up better. Pricing pressures have risen with oil prices near $100 per barrel, but remain very subdued compared to the pressures that prevailed during previous oil price spurts.

• Global Semiconductor Billings
• Global semiconductor sales rose by 0.7% in November to $23.1 billion on a three-month moving average basis. As such, sales remain 2.3% higher than in November 2006. Excluding the Americas, sales rose in all regions of the world during the month.

• ISM Index
• Manufacturing activity contracted in December with the ISM index falling 3.1 points to 47.7. This marks the sixth consecutive decline in the index; the last time this occurred was between 2000 and 2001. Also, the latest decline puts the ISM below its expansionary threshold of 50 for the first time since January. With business confidence fragile and uncertainty surrounding the economic outlook growing, it is clear that manufacturers are letting final demand set the pace of production. Today's report provides additional support for further Fed easing.

• ISM Non-Mfg Index
• The non-manufacturing business activity index moderately decreased in December, falling to 53.9%. Nevertheless, this number was above both consensus expectations and the Moody's Economy.com forecast.

• Factory Orders (M3)
• New orders for manufactured goods rose 1.5% in November, triple the consensus expectation for a 0.5% increase. New orders for October were revised up to show a 0.7% gain from the originally published 0.5% increase. Shipments rose 1.5% as well following a 1.2% increase in October. Unfilled orders rose 1% over the month and inventories posted an 0.8% gain. The I/S ratio fell to 1.22 months down from 1.23 in October.

• Monster Employment Index
• The Monster Employment Index fell by 14 points in December, clocking in at 169 compared to 183 in November. December's index reading represents just over 1% growth from a year ago. The details of the report indicated broad weakening as most industries either declined or did not report an increase from November.

• Initial Jobless Claims
• Initial jobless claims dropped 21,000 to 336,000 for the week ending December 29, against expectations for them to remain relatively flat. This is likely due to calendar effects, and not necessarily a downshift in the pace of layoffs.

• Job Cuts - Challenger Report
• Despite the weakening economy, job cuts are not rising. In December, employers announced only 44,416 cuts, down from 73,140 in November. The December total was also 19% below the figure for December 2006. For all of 2007, 768,264 jobs were eliminated, 8.5% fewer than in 2006 and the lowest total since 2000. Job cuts associated with the housing market have been limited to financial services and announcements abated in November and December.

• Employment Situation
• The labor market turned sour in December. Payroll employment increased by only 18,000 in December, well below expectations. Moreover, the unemployment rate increased by 30 basis points to 5.0%. Construction and manufacturing payrolls fell sharply as did retail employment.

• Construction Spending (C30)
• Construction spending increased 0.1% in November, above analysts' projections. Private construction declined by 0.7%, hurt by a 2.5% decline in residential construction. However, public construction increased 2.5%.

• Case-Shiller Home Price Indices
• The plunge in house prices is accelerating and widening across regions. For the third quarter of this year, the Case-Shiller repeat-purchase house price index is down on a year-ago basis by 4.5%, easily the most severe drop in the 30-plus year history of the index. Conditions in the Pacific West and Mountain states are deteriorating the most, but prices are either depreciating or weakening across the board. Prices are falling faster for homes in the bottom third of the market. The condo market is following trends in the single-family market, although some metro area markets are holding up surprisingly well.

• Existing Home Sales
• The November National Association of Realtors report had some good news for the housing market. Existing home sales in November rose 0.4% from October, to 5 million annualized units. The median existing house price was down 3.3% in November from one year ago, compared to a 5.1% year-over-year decline in October. Inventories declined; in November they were 10.3 months of sales, compared to 10.7 months in October.

• MBA Mortgage Applications Survey
• Mortgage demand decreased 11.6% in the week ending December 28. Purchase applications decreased 8.5% and refinance applications decreased 15.4%. Another week of declining activity suggests improving conditions in the nation's housing market are still not in sight.

• Chain Store Sales
• Chain store sales slipped 0.2% in the week ending December 29 and year-over-year growth fell to 2.3%, as comparisons were again difficult. Despite the weak figures, the ICSC reported strong last minute holiday shopping.

• Oil and Gas Inventories
• Crude oil inventories fell by 4.0 million barrels for the week ending December 28 according to the Energy Information Administration, below expectations of a 1.7 million barrel decline. Distillate supplies unexpectedly rose by 0.6 million barrels compared with analysts' expectations of a 0.6 million barrel decline. Gasoline inventories increased by 1.9 million barrels, above expectations of a 1.3 million barrel build. Refinery operating capacity was 89.4% last week, up 1.3% from the prior week.

• Weekly Natural Gas Storage Report
• Working gas in underground storage fell by 87 Bcf during the week ending December 28. This is a far smaller draw than was expected; forecasts ranged from -96 to -120 Bcf. Today's report will have a bearish effect on prices.

Source: Economy.com 2007