Daily Economic Briefing: February 17, 2010

Daily Economic Briefing: February 17, 2010

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Page 1: Global data summary
• The FOMC minutes added color to Bernanke's exit-strategy testimony but did not break new ground. There was no material change to the economic forecast by the staff or the committee. Generally conditions had evolved in line with expectations, which is good news as everyone was expecting above-trend growth.

• Today’s January activity reports in the US were positive. Manufacturing output surged 1%m/m, with broadly-based gains in both consumer goods and business equipment, including hi-tech. It appears that IP is well-positioned to exceed our 5% growth forecast for this quarter, based on a mix of solid final demand growth and another positive contribution from inventories. The report on housing starts showed that although single-family starts rose somewhat in January, they have yet to break out of the range of the past six months. However, with permits up about 50,000 units (ar) in the past three months, more substantial increases in starts may lie just ahead.

• The recovery has gotten off to an anemic start in much of Western Europe, in contrast to the stronger than anticipated 2H09 GDP performance in the US and Japan. Eurostat has yet to release expenditure data for 4Q, but it seems highly likely that what kept the economy afloat last quarter was net trade, whereas domestic demand likely contracted. Today’s report on December foreign trade highlights the boost from net trade: exports rose nearly 23% annualized in 4Q, vs about a 9% increase in imports.

• This week’s business surveys will provide the first peek at global economic activity in February. The most important will be Friday’s Euro area flash PMI, which will help answer whether momentum is picking up in Europe. In today’s reports, the Reuters Tankan continued to recover in Japan, led by export-focused, large manufacturers.

• Our tracking of labor market data points to a broad stabilization in unemployment rates across the globe, with our global weighted-aggregate holding steady at 8.6% in the three months to December. Today’s UK data are a case in point. The UK unemployment rate recently has held steady at 7.8%. The more current (benefits) claimant count did rise in January, suggesting some deterioration last month; however, this may have been caused by adverse weather. What is interesting is that the UK labor market appears to have stabilized without any growth in GDP.

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Page 2: Unemployment leveling off


Unemployment rates appear to have peaked in most countries. Indeed, our global measure reached a high of 8.6% in October and then held this level in November and December. The pre-recession low was 5.4%, so this amounts to roughly 3%-point rise in a little over 18 months.
Against this backdrop of broad stabilization, data point to some important regional variations. The labor market recovery appears to be further advanced in the emerging economies, where unemployment rates are trending downward in much of Asia and Latin America. A similar pattern is seen in some developing countries, including Japan, Australia and Canada. However, the US is further back in line, with recent data hinting at a plateau that still needs to be confirmed in subsequent data. The clear laggard is Europe. Unemployment rates are still edging up in the Euro area and also in CEEMEA countries including Poland, Hungary and the Czech Republic.
The stabilization in global unemployment accords with developments in the broad economy. Global GDP rose at a near-trend pace of 2.9% in 3Q09, and then stepped up to an above-trend 3.7% pace in 4Q09. Although there are lags between GDP growth and the labor market, this pattern would have been expected to stabilize the unemployment rate toward year’s end.
What is surprising and disappointing is that global unemployment apparently stabilized without a corresponding return to employment growth. To be sure, a range of countries in our sample (which is limited to those countries that report monthly or quarterly data) is generating net new jobs, including Japan, Australia, Canada, Brazil, Russia and Taiwan. However, the US is not yet in this position, much less the majority of continental Europe. What this suggests is that labor supply has been falling in many cases, similar to what we observe in the US.

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ENDS

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