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US Non-Farm Payroll Data – January 2013

February 4, 2013 in U.S.

 

Total non-farm employment in the U.S.A during the month of January was better by 157,000 jobs, as reported by the Bureau of Labor Statistics.

Significantly, most of that growth was contributed by private employers (+166,000) whereas government employment (-9,000) fell. (See the above charts for the trend).

The Bureau also revised the NFP change in the months of November and December by 86,000 and 41,000 respectively. The positive job number change in these months therefore now stands at +247,000 and +196,000; in comparison, the January change of +157,000 points to a slowdown in job creation.

Along with the tepid GDP growth figure released recently, this makes for worrisome reading.

It is also a given that debt ceiling concerns and commitments made during the fiscal cliff horse-trading will result in further slowdown in governmental job creation. But will the private sector be able to compensate this?

It might be worthwhile to look at the composition of the job growth in January.

 

Sectors that contributed to job growth

We note that the following sectors were the chief contributors to the addition of 157,000 jobs in the last month:

  • Retail Trade +32,600
  • Construction +28,000
  • Education & Health +25,000
  • Services +25,000

The addition of 32,600 jobs in the Retail Trade segment was contributed mainly by Automobile Dealers (as fallout of the strong trend in auto sales), Food and Beverage stores and Clothing and Accessories stores.

The Construction sector saw better hiring by the Specialty Trade Sectors (+26,000) during the month. This logically follows better conditions in the housing market.

The ambulatory health care services (comprising chiefly physicians’ offices and outpatient care centers) were the main creators of jobs in the Healthcare industry.

The job losers

The major losers were Transportation (-14,200) and Government (-9,000).

Job losses in Transportation were chiefly due to restructuring among airlines and layoffs amongst Couriers after strong hiring in the holiday season.

Losses in Government jobs are a part of a downward trend in public employment since the financial crisis, and may exacerbate done the line as further budgetary restrictions take force.

Conclusion

Though the last three months have seen a slowdown in the rate of jobs creation, we note that economically significant sectors such as retail trade, healthcare and construction continue to add jobs. An improvement in the fortunes of the manufacturing sector could boost jobs growth, and finally make a dent in the unemployment rate which continues to hover around 8%.

 

US GDP – 4th Quarter 2012

January 30, 2013 in U.S.

Markets were taken aback by a shock contraction in the U.S. GDP during the fourth quarter of 2012. Gross Domestic Product (GDP) fell by 0.1% year-on-year against the consensus expectation of a growth of 1.1%.

Economists were concerned that the result represented the weakest rate of growth in the GDP since 2009, even though it was driven primarily by a huge cut-back on defence expenditure, inventory de-growth and the result of the Superstorm Sandy.

On a bright note, consumer spending rose by 2.2% and business investment bounced back within the context of slower inflation. Homebuilding grew 15.3%.

All taken, economists view the report as a matter of concern, but are encouraged that the basic fundamentals of the economy are on track to produce a pipeline of growth during 2013.

 

Meeting of the US Fed – 30 Jan 2013

January 30, 2013 in U.S.

As expected, the first FOMC meeting in 2013 kept up its commitment to the current program of quantitative easing and left interest rates unchanged at 0.25%.

The Committee’s review of economic data released since the previous meeting concluded that economic activity lost some momentum and the unemployment rate remained elevated even though there was improvement in household and business spending as well as the housing market. Inflation expectations over the long term “remained stable.”

The committee’s outlook for the future was clouded by perceived “downside risks to the economic outlook” even though the global financial markets appeared to be breathing easier now.  Inflation would likely remain below the key guidepost rate of 2% over the medium term.

The Committee decided that it would continue purchasing additional agency mortgage-backed securities worth $40 billion every month and longer-term Treasury securities of $45 billion per month.  This would help advance towards the economic objectives of maximum employment, price stability and a stronger economic recovery.

On interest rates, the Committee, as usual, decided to maintain the status quo low rates of 0-0.25% and would continue to do so as long as inflation remained above 6.5%, and inflation in the medium term (one or two years ahead) is projected no higher than 2.5% within the context of benign long term inflation.

The decisions were backed by all the members except Esther L George who remained concerned that long-term inflation could increase and that economic and financial imbalances could result from the high level of monetary stimulus.

 

US Non-Farm Payrolls Show Marginal Improvement

January 5, 2013 in U.S.

Job growth in the US signalled tepid growth with the December Non Farm Payrolls showing an addition of 155,000 non-farm jobs – just a whisker above the consensus estimate of 150,000, and slightly better than the figure of 146,000 reported in November.

The unemployment rate came in flat at 7.8%, the same as that in November (revised).

Sectors which showed notable growth in jobs added were Construction (+30,000), Manufacturing (+25,000) and Education/Health (+65,000). Retail trade (-11,300) and Government (-13,000) were the major losers.

Education/Health accounted for over 40% of the total NFP gains. The private sector employment gain was 168,000.

The influx of new job-seekers into the labour market neutralized the NFP gains and kept the unemployment rate flat.  The implications are that the economy has to do much better than currently in order to meaningfully reduce the unemployment rate.

FOMC Minutes Spark the Risk-Off

January 4, 2013 in U.S.

The minutes of the December FOMC meeting, released yesterday, spooked the markets and touched off a rally in the US Dollar. Aiding and abetting the move was a better-than-expected employment release from ADP that showed the US private sector added 215,000 jobs, comfortably beating the forecast of 150,000 jobs.

The FOMC minutes revealed that at least some members of the Committee have begun expressing their reservations on the continued bond purchases being implemented by the Fed in the form of monetary stimulus. Markets had taken as a given that the stimulus program was here to stay until the twin guideposts of inflation and employment signalled otherwise.

The rumblings in the FOMC called this assumption into question and instigated a flight to ‘risk-off’ assets that resulted in an appreciation in the US Dollar and pressure on the euro and aussie. FOMC members discussed the timing of an end to stimulus, with some even advocating an immediate end, while others thought the end of the year would be appropriate.

The Fiscal Cliff – A Stopgap Arrangement

January 3, 2013 in U.S.

Politicians in America effectively kicked the can down the road as they dithered, again, on arriving at a lasting solution to the country’s problems of an unsustainable budgetary deficit and debt.

The stop gap arrangement, which gives them another two months to bicker and posture, will see a rewind of the traumatic situation just witnessed, because that’s when the country will also hit its borrowing limit, as no meaningful spending cuts or revenue raising measures are happening as of now.

Literally at the eleventh hour, the Senate and the House passed legislation that did away with large tax hikes on most Americans except the wealthy, and prevented massive expense cutbacks such as in defence and welfare.  But Republicans, smarting from what is being called a victory for President Obama, are gearing up to extract their pound of flesh, mostly as expense cutbacks, when the debt ceiling comes up in two months.

That will be accompanied by the twin Damocles’ Swords of a US default and a credit downgrade.

Expect more histrionics and last minute deal-mongering in spite of President Obama’s urging “a little less drama,” though he appears to have the advantage after averting the fiscal cliff.

Countdown to the Fiscal Cliff – Dec 25, 2012

December 25, 2012 in U.S.

There are increasing signs that perhaps the U.S. will indeed go over the fiscal cliff.

As of now, there is no sign of a concrete proposal on the table that can be debated and negotiated. Congress is in recess while both President Obama and Speaker Boehner have proceeded out of town on vacation. Any action to hammer out a solution and to legally implement it must therefore be completed within the few days between Christmas and D-day, which is January 1. That looks difficult, though the politicians may yet get their act together.

A rising swell of opinion puts some of the blame at the door of President Obama, saying he has a secret agenda to let the fiscal cliff happen and thereby let Americans face the spectre of a huge rise in taxes. Thereafter, it may be politically more expedient to try to roll back some of those taxes, looking better opposite the Republicans, who could be handed the blame for the fiscal cliff.

These have been strenuously denied by the Democrats, though unfortunately, as things are shaping up, it appears that script is playing out.

As for the markets, there would probably be volatility and turmoil ahead as the reality sinks in. But they may bounce back, rubber-band like, once some clarity emerges after January 1.

Countdown to the Fiscal Cliff – Dec 21, 2012

December 21, 2012 in U.S.

Hard won concessions wrested from each other by Obama and Boehner faced a serious setback Thursday when Republicans cancelled a vote on Boehner’s Plan B legislation.

Boehner’s plan proposed to raise taxes on the rich, those earning over $1 million per annum. Though the bill was largely symbolic, as it would have passed in the Republican controlled House but would have failed in the Democrats led Senate, its abandonment lays bare the immense opposing pressures that stand in the way of a resolution.

A chastened Boehner acknowledged the bill did not have the required support from amongst his own members, and put the ball in Obama’s court, asking him to come up with suitable legislation to avoid the impending financial catastrophe.

Both Obama and Boehner ultimately need the support of their party members to resolve the deadlock. Republicans have traditionally opposed higher taxes and defence cuts. Democrats loathe cutbacks on welfare spending such as healthcare and Social Security pensions.

Yet the country’s massive fiscal deficit can be resolved only by taking these self-same bitter pills.

The news of the turmoil sent investors across the world scurrying to seek shelter in the dollar and yen.

Action now shifts to next week when the House and Senate will reconvene.

The US Current Account – Third Quarter 2012

December 19, 2012 in U.S.

The Bureau of Economic Analysis of the US Department of Commerce released data relating to the country’s current account for the third quarter of 2012, as a part of its report on International Transactions for the same period.

The US current account deficit is defined as “the combined balances on trade in goods and services, income, and net unilateral current transfers.”

During the reported quarter the current account deficit fell to $107.5 billion compared to $118.1 billion in the second quarter, according to a preliminary estimate.

The main factor responsible was the fall in the deficit relating to goods and services, which declined to $124.5 billion from $137.4 billion in the previous quarter. Of this change, the deficit on goods was down to $173.9 billion from $185.7 billion, while services surplus rose from $48.3 billion in the previous quarter to $49.4 billion in the reported quarter.

The surplus on income account fell to $50.8 billion from $52.1 billion in the last quarter.

Net unilateral current transfers rose from $32.7 billion to $33.8 million in this quarter.

Countdown to the Fiscal Cliff – Dec 18, 2012

December 18, 2012 in U.S.

According to a BBC report, House of Representatives Speaker John Boehner and US President Barack Obama met for about 45 minutes at the White House yesterday.

As efforts to resolve the crisis gather momentum, the meeting is an encouraging sign that the logjam may yet be broken. The meeting followed a previous one on Thursday and a telephonic conversation between them on Friday.

Though no details are available regarding what transpired at the meeting, according to White House Press Secretary Jay Carney, “we have seen since the election a change in tone and, in some cases, a change in position from different Republicans, including elected Republicans, on the issue of, first revenue, and then acknowledging that rates have to go up.”

Countdown to the Fiscal Cliff – Dec 17, 2012

December 17, 2012 in U.S.

According to latest news, Boehner and Obama are inching closer to a deal, with Boehner making some progressive proposals,  including one for raising the marginal tax rate on households earning over $1 million to 39.6%. This would be enforced for 10 years and raise $440 billion.

The proposal also envisages tax reform to plug loopholes and remove deductions – impact $500 billion.

Another $60 billion would be generated through a reduction in the CPI adjustment and tax bracket indexation.

The proposal therefore seeks to raise $1 trillion over 10 years.

But the catch: The higher taxes must be accompanied with nearly equivalent entitlement cuts, primarily in health care programs. This may be anathema to the Democrats.

Talks are going on and emails being exchanged between top aides of both sides and there appears to be a genuine move afoot to resolve the impasse.

US Inflation and Manufacturing Data

December 17, 2012 in U.S.

Weak inflation data in the US during the month of November created expectations of continued monetary easing and appeared to put the Fed’s decision to implement further asset purchases with effect from January in a favourable light.

According to the Department of Labor, the US Consumer Price Index (CPI), commonly used as an indicator of inflation, rose 1.8% year on year during the month of November, which was less than the 2.2% witnessed the month before. On a month-on-month basis, the CPI fell 0.3%. Significantly, this was the first decline after the month of May. The muted inflation was mostly due to the result of falling petrol prices.

Meanwhile American industry appeared to bounce back from the effects of Superstorm Sandy as industrial production rose 1.1% month-on-month during November compared to a 0.7% fall in October.