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US: Employment data mixed before payrolls

Fri, Sep 5 2008, 07:29 GMT
by KBC Market Research Desk

KBC Bank

The ADP employment report showed US employment falling by 33 000 in August, which is in line with the expectations. The details showed an improvement in the service providing sector (45 000) and small businesses (20 000), while the goodsproducing (-78 000) and within this sector the manufacturing (-56 000) sector deteriorated. Construction employment showed its twenty-first consecutive monthly decline (-25 000) and employment in financial activities fell 2 000. Assuming that government payrolls rise about 20 000 in August, the payrolls would report a fall of 15 000, while the consensus estimate is at -75 000. But recently, the correlation between the ADP report and payrolls loosened considerably and the ADP showed a consistently and significantly better result than the payrolls. Therefore, the ADP report doesn’t contradict apparently with the -75 000 expectation for the payrolls; it may even point to a slightly weaker outcome of the payrolls.

In the week ended August 30 initial claims rose by 15 000 from an upwardly revised 429 000 to 444 000, while an outcome of 420 000 was expected. Continuing claims, reported with a one-week leg, rose 6 000 from an upwardly revised 3 429 000 to 3 435 000, a new cycle high and levels that in the past were reached during recessions. There are doubts about the reliability of the initial claims figures over the past weeks, as the Federal extension of unemployment insurance benefits may have distorted the figures. However, it looks likely that also the underlying picture is deteriorating.

The ISM non-manufacturing survey came out slightly better than expected in August at 50.6 against 49.5 in July. The details show a mixed picture with an improvement in business activity (51.6 from 49.6), new orders (49.7 from 47.9) and supplier deliveries (55.5 from 53.5), while backlog of orders (49.0 from 52.0), employment (45.4 from 47.1) new export orders (44.5 from 47.5) and imports (46.0 from 49.0) deteriorated. Prices paid fell significantly from 80.8 to 72.9, indicating that the peak in inflation might be over. This outcome could indicate that after the manufacturing sector, also non-manufacturing shows signs of stabilization.

EMU:Factory orders decline the eighth month in a row

In Germany, Factory orders fell for the eight month a row by 1.7% M/M in July, following an upwardly revised -2.6% M/M in June. This is the longest period of declining factory orders ever and indicates that Europe’s largest economy is heading for a recession.

Other: Sweden hikes rates to fight inflation

The Riksbank, the central bank of Sweden, decided to raise its benchmark interest rate from 4.5% to 4.75%. Inflation expectations have dampened, but are still high and therefore it is necessary to increase rates to prevent the high inflation from becoming entrenched, said the Bank. They further mentioned that the rate is expected to remain at this level during the year before easing slightly in 2009. So, the Riksbank expects that the peak in rates has been reached. .

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Published on  Fri, Sep 5 2008, 07:35 GMT