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US: Payrolls confirm recession fears

Mon, Oct 6 2008, 07:54 GMT
by KBC Market Research Desk

KBC Bank

The payrolls report showed a drop of 159 000 in employment in September, while the consensus was seeking for a more modest decline of 105 000. The August figure was slightly upwardly revised from -84 000 to -73 000 and the July outcome was downwardly revised from -60 000 to -67 000. Overall, employment was 52 000 below expectations. The unemployment rate stayed unchanged at 6.1%. Looking at the details, private payrolls plunged 168 000, while government payrolls added 9 000. The service providing sector deteriorated sharply (-82 000 from -16 000), but also goodsproducing (-77 000 from -57 000) sector worsened. Healthcare and mining were the only sectors continuing to add workers, but growth in healthcare and education declined from 59 000 in August to 25 000 in September. Temporary help agency payrolls improved from -35 000 to -24 000, but remain very weak. Average weekly hours worked, which is traditionally falling in recessions, reached its lowest level since series began in 1964, while average hourly earnings were 0.2% M/M up. The Labour Department commented that it was unlikely that hurricane Ike had substantial effects on the payrolls. This is the ninth consecutive month of job losses and together with the manufacturing ISM it raises fears that the US economy is in recession.

September non-manufacturing ISM came out in line with the expectations at 50.2, after 50.6 in August. Business activity (52.1 from 51.6), new orders (50.8 from 49.7) and new export orders (50.5 from 44.5), which are important sub-indices, showed an improvement, while employment (44.2 from 45.4), backlog of orders (46.5 from 49.0) and inventories deteriorated. Prices paid slowed from 72.9 to 70.0. This outcome is sharply in contrast with the plunge in manufacturing ISM seen earlier this week and might be an outlier.

EMU: Retail sales surprise on the upside

In August, euro zone retail sales surprised on the upside rising 0.3% M/M, while the July figure was upwardly revised from -0.4% M/M to 0.1% M/M. On a yearly basis, sales were falling 1.8% Y/Y. Retail sales are a pointer of household consumption and with both July and August sales showing an increase, this raises hopes that household consumption might show a rise in the third quarter of 2008.

Other: Also services PMI plunged to record low

In the UK, September services PMI disappointed coming out at 46.0, while the consensus expected a figure of 48.0. Looking at the details, all sub-indices showed deterioration. New business (45.2 from 47.1), outstanding business (42.1 from 44.1) and business expectations (58.2 from 61.0) worsened significantly, while employment declined slightly. Prices charged and input prices came out lower. With both manufacturing and services PMI dropping in September to its lowest level since series began, an early rate cut in the UK is very likely.

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Published on  Mon, Oct 6 2008, 07:58 GMT