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John Davidson's
Economic Comments
Week Ending December 2nd
John W Davidson, CFA
December 4, 2011 |
The US Employment Report and the Purchasing Managers' Index for US Manufacturing signaled continued expansion in the US, but, outside the US, releases remained soft. A coordinated effort on the part of Central Banks gave the boost to the equity markets, which posted the biggest weekly gain in years. Furthermore, the actions by the Central Bankers lowered bond yields in Europe and eased CDS Credit spreads. Elsewhere Bond yields were higher. Commodity prices were higher and the US dollar was lower on the week.
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Perspective:
One would have hoped that with the withdrawal from the GOP race by Herman Cain that the side show would be over and the debate over the economic and international policy would take center stage. Just when you thought that it might be safe to listen and discuss ideas, the GOP asked the shameless self-promoter Donald Trump to moderate a Candidate debate. While I don't agree with many of Ron Paul's positions, I have to respect his decision not to participate. This contrasts with the the GOP "idea guy" who has made a public appointment to meet with Mr. "you're fired..." to seek his blessing. Despite bankruptcies, the Donald has earned great financial and personal-appearance success, but he wisely chose not to run as a candidate. Seeing how Herman Cain held up under that scrutiny, I don't blame him.
The data below shows that the US economy is improving. Winning the White House in 2012 is not a slam dunk for the GOP. It will take substance, intelligence, and leadership, not showmanship to win the election and move the country forward in the next term.
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Economic Releases:The US Employment report for November showed modest improvement in the Jobs situation. The headline Unemployment Rate dropped surprisingly from 9.0% to 8.6%, but a portion of that improvement can be attributed to a number of the unemployed giving up on their job-seeking. November Non-farm Payrolls (blue in the chart below) increased 120,000 while Private Payrolls (red in the chart below) increased 140,000, showing that the job growth came from the private sector. Both numbers were just below the consensus, but upward revisions of prior two months totaled 72,000, which allowed a positive tone to the overall report. Average Hourly Earnings fell -0.1% and the Average Workweek remained unchanged at 34.3 hours. The chart below shows a longer term perspective. It shows the degree of job destruction that occurred during the Great Recession as compared to the post-9/11 recession. It also shows that the current level of job creation is better than that which occurred in 2002-2004, but less that occurred in 2005-2006. 
Source: Federal Reserve Bank of St. Louis FRED database |
Other Economic Releases
In other US employment news, last week's Jobless Claims increased to 402,000, but the four-week average remained below 400K. US Home Sales rose to 307,000 in October from the downward revised 303,000 in September; Home Prices slipped -0.5% in October, but the YOY rate was positive. Pending Home Sales increased by 10.4%. US Consumer Confidence, as measured by the Conference Board, surged to 56.0, well beyond the range of expectations in November. In a coordinated effort the Central Banks of the European Union, Switzerland, Japan, the UK and the US agreed to a borrowing facility to provide liquidity to address the current financial crisis. Separately the Peoples Bank of China announced a 50 basis point cut in bank reserve ratios. These actions eased concerns about the European sovereign debt crisis and resulted in the significant equity price increases this week. The Purchasing Managers' Indices for Manufacturing for November were released this week. The demarcation between expansion and contraction is 50. The US Manufacturing expanded in November while most of the rest of the world contracted. The US Index (from the ISM) matched the 2 point upward revised October data at 52.7. The UK's Manufacturing index fell two ticks to 47.6 from its upward revised October number. China's Index dropped 3 points to 47.7. Germany's Index dropped over a point to 47.9. The EU's Index dropped less than a point to 46.4. The French Unemployment Rate ticked up to 9.2% in the 3rd quarter. French PPI increased a half percent. Germany's Unemployment Rate ticked down to 6.9% and its CPI was flat for the month of November. Retail Sales in Germany increased +0.7%. |
Equities Markets:
Equity markets rebounded sharply on news of coordinated Central Bank efforts to provide liquidity in the face of the European sovereign debt crisis. US stocks posted the best week since 2009; European Stocks posted the best week since 2008!
The US bond markets were mixed. European yields were significantly lower; elsewhere yields were stable to higher. Credit spreads and TIPS yields were lower, but Mortgage rates were flat on the week.
Currencies & Commodities:
The US dollar declined against the European and Canadian currencies, but gained against the Yen. Commodity prices rallied on the week. The Brent-WTI spread continued to narrow.
Data Source: Bloomberg App for I-phone
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Disclaimer:
The views discussed herein are exclusively those of John W. Davidson. These views are not meant as investment advice, and are subject to change. Information contained herein is derived from sources believed to be reliable, however, Mr. Davidson does not represent that the information is complete or accurate and therefore, should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information purposes only, and does not pertain to specific investment objectives, the financial situation or the particular needs of any specific person or investor who might receive this report. Investors should seek financial advice regarding the appropriateness of investing in any security or utilizing any investment strategy discussed or recommended in this report, and should understand that statements regarding future investment prospects may not be realized. No part of this report may be reproduced in any manner without the express written permission of Mr. John W. Davidson. Should you wish to be removed from this distribution please utilize the Safe Unsubscribe link below.
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 John W. Davidson, CFA jwdbond@gmail.com 207-701-1321 |
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