by Calculated Risk on 2/03/2011 08:19:00 PM

From the NY Times: White House, Egypt Discusses Plan for Mubarak’s Exit

The Obama administration is discussing with Egyptian officials a proposal for President Hosni Mubarak to resign immediately, turning over power to a transitional government headed by Vice President Omar Suleiman with the support of the Egyptian military, administration officials and Arab diplomats said Thursday.

Here is the al Jazeera English site, and the live blog for Feb 4th (currently unavailable).

by Calculated Risk on 2/03/2011 06:15:00 PM

With the key European meeting tomorrow, here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of Feb 1st):

Click on graph for larger image in new window.

From the Atlanta Fed:

While there has been some improvement since the start of the year, most peripheral European bond spreads (over German bonds) continue to be elevated, particularly those of Greece, Ireland, and Portugal.

Since the start of the year, the 10-year Greece-to-German bond spread has narrowed by 183 basis points (bps), through February 1. Similarly, the spread for Ireland is 41 bps lower, 54 bps lower for Spain, and down 42 bps for Italy.

Portugal’s spread, however, is essentially unchanged over the period.

The bond yields are up slightly today. The Portugal 10 year is at 6.99%, the Ireland 10-year bond yield is at 8.86%, and the Greece 10-year bond yield has fallen to 10.9%.

From MarketWatch: Merkel: EU to discuss competitiveness on Friday

"We're going to start the talks, and then between now and the March summit, we will firm up the details," [German Chancellor Angela Merkel] said ... The meeting is expected to see plans to expand the [EFSF], with Germany pushing for efforts to boost competitiveness and fiscal discipline

by Calculated Risk on 2/03/2011 02:36:00 PM

The numbers are grim: almost 15 million Americans are unemployed, another 9 million are working part time for economic reasons, and about 4 million more have left the labor force since the start of the recession (we can see this in the dramatic drop in the labor force participation rate). Of those unemployed, 6.4 million have been unemployed for six months or more.

And the situation is also bleak for many of those who have jobs. A recent report showed most of the employment growth has been in low-to-mid wage industries (more skewed than in previous recoveries). And real earnings for most Americans have been under pressure for some time.

Against that backdrop, the recent spate of good employment news might seem almost insignificant, but it is a start.

Tomorrow the BLS will release the January Employment Situation Summary at 8:30 AM ET. The consensus is for an increase of 150,000 payroll jobs in January, and for the unemployment rate to increase slightly to 9.5% (from 9.4% in December).

That would be an improvement – the U.S. economy only added about 95,000 jobs per month in 2010 - however 150,000 additional payroll jobs is still pretty small compared to the number of unemployed. And that is barely enough to keep up with the growth of the working age population.

So while news reports might suggest “improvement”, many of the unemployed and marginally employed will not see it, at least not yet, and probably not for some time.

Here is a look at a few of the recent employment related reports:

• ADP reported Private Employment increased by 187,000 in January, and has averaged 217,000 over the last two months.

• Weekly initial unemployment claims were down significantly over the last few months. The graph is here. The average over the last 5 weeks was 425,000 initial claims per week, down sharply from the October the average of 456,000.

• The ISM indexes showed significantly stronger employment growth. The ISM manufacturing manufacturing Employment Index registered 61.7 in January, 2.8 percentage points higher than the 58.9 percent reported in December. The ISM Non-manufacturing employment index showed faster expansion in December at 54.5%, up from 52.6% in December. (graph is here)

• All of the Regional Fed manufacturing surveys reported employment expansion.

Also Madeline Schnapp, Director, Macroeconomic Research at TrimTabs Investment Research sent me the following note:

Our withholding tax model for jobs was crippled this past month by the withholding tax changes (2% payroll tax deduction). We did come up with a "guestimate" for January job growth of 175,000 to 215,000 new jobs using data from the last week of January (poor substitute) and all of the other jobs related indicators we track. Those indicators are very bullish. In sum, from a qualitative (not quantitative) viewpoint, we expect the job growth reported by the BLS to surprise on the upside.

In addition to the above indicators, Ms. Schnapp noted:

• The TrimTabs Online Job Postings Index rose 4.5% in January, the biggest gain since October 2010.

• Commercial and industrial loan growth accelerated to 1.0% in the past month. Stronger commercial and industrial loan growth often accompanies a pickup in job growth.

• The Federal Reserve’s Senior Loan Officer Opinion Survey reported that demand for business loans picked up in Q4 2010, and demand for commercial and industrial loans was the strongest since 2006.

• The Federal Reserve’s “Beige Book” reported that labor markets improved in most districts. Temporary staffing firms in six of 12 districts gave positive reports. Eight of 12 districts reported that their business contacts planned to hold hiring steady or increase hiring in 2011.

• Personal consumption expenditures rose 4.4% in Q4 2010, the largest increase since Q1 2006. Meanwhile, final sales increased 7.1%, the strongest growth since 1984.

We are a long way from blue skies, but maybe we are seeing a lighter shade of gray.

A few notes:
1) The BLS will release the annual benchmark revision tomorrow. Last October the BLS released the preliminary annual benchmark revision of minus 366,000 payroll jobs as of March 2010. Usually the preliminary estimate is pretty close to the final benchmark estimate.
2) Some people are concerned about the impact of the January snow storms on the employment report. If there is a significant impact, the BLS will mention it in the release.
3) My forecast is for something close to 200 thousand private sector jobs on average per month this year.

by Calculated Risk on 2/03/2011 12:30:00 PM

Bernanke says the economy is improving, but QE2 will remain ...

From Fed Chairman Ben Bernanke: The Economic Outlook and Macroeconomic Policies

[W]e have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. ... [A]lthough economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate from the Congress to foster maximum employment and price stability. Under such conditions, the Federal Reserve would typically ease monetary policy by reducing the target for its short-term policy interest rate, the federal funds rate. However, the target range for the funds rate has been near zero since December 2008, and the Federal Reserve has indicated that economic conditions are likely to warrant an exceptionally low target rate for an extended period. As a result, for the past two years we have been using alternative tools to provide additional monetary accommodation.

Unemployment is too high. Inflation (core measures) still too low. So QE2 will continue ...

And on inflation:

On the inflation front, we have recently seen significant increases in some highly visible prices, notably for gasoline. Indeed, prices of many commodities have risen lately, largely as a result of the very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply. Nevertheless, overall inflation remains quite low: Over the 12 months ending in December, prices for all the goods and services purchased by households increased by only 1.2 percent, down from 2.4 percent over the prior 12 months. To assess underlying trends in inflation, economists also follow several alternative measures of inflation; one such measure is so-called core inflation, which excludes the more volatile food and energy components and therefore can be a better predictor of where overall inflation is headed. Core inflation was only 0.7 percent in 2010, compared with around 2-1/2 percent in 2007, the year before the recession began. Wage growth has slowed as well, with average hourly earnings increasing only 1.8 percent last year. These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy.

by Calculated Risk on 2/03/2011 10:00:00 AM

The January ISM Non-manufacturing index was at 59.4%, up from 57.1% in December. The employment index showed faster expansion in December at 54.5%, up from 52.6% in December. Note: Above 50 indicates expansion, below 50 contraction.

Click on graph for larger image in graph gallery.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

From the Institute for Supply Management: January 2011 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in January for the 14th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI (Non-Manufacturing Index) registered 59.4 percent in January, 2.3 percentage points higher than the seasonally adjusted 57.1 percent registered in December (the seasonal adjustment did not change the reading that was originally reported), and indicating continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 1.7 percentage points to 64.6 percent, reflecting growth for the 18th consecutive month and at a faster rate than in December. The New Orders Index increased 3.5 percentage points to 64.9 percent, and the Employment Index increased 1.9 percentage points to 54.5 percent, indicating growth in employment for the fifth consecutive month and at a faster rate. The Prices Index increased 2.6 percentage points to 72.1 percent, indicating that prices increased at a faster rate in January. According to the NMI, 13 non-manufacturing industries reported growth in January. Respondents' comments are mostly positive about business conditions; however, they still remain cautious about the sustainability."
emphasis added

This was a solid report and above expectations of 57.0%.

by Calculated Risk on 2/03/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Jan. 29, the advance figure for seasonally adjusted initial claims was 415,000, a decrease of 42,000 from the previous week's revised figure of 457,000. The 4-week moving average was 430,500, an increase of 1,000 from the previous week's revised average of 429,500.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims for the last 10 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week by 1,000 to 430,500.

This was slightly lower than consensus expectations. The decline in the four week average over the last few months has been good news.