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US: Factory orders show the steepest drop in 8 years

Fri, Dec 5 2008, 10:43 GMT
by KBC Market Research Desk

KBC Bank

Factory orders dropped 5.1% M/M in October, while the consensus expected a decline of 4.5% M/M. The previous figure was downwardly revised from -2.5% M/M to 3.1% M/M. Excluding transportation, factory orders fell a more modest, but still steep 4.2% M/M. The details show broadly the same picture as the durables with very weak orders for transportation, primary metals, machinery and electrical equipment. These figures clearly indicate that companies are cutting back their investments. The I/S ratio climbed to 1.33 from 1.29 in September, the highest since the end of 2001 and suggesting that firms will need to build back inventories before raising production.

In the week ended November 29, initial claims showed an unexpected decline. Initial unemployment claims dropped from an upwardly revised 530 000 to 509 000, while the consensus was seeking for an outcome of 540 000. Continuing claims, which are reported with a one-week lag, rose 89 000 from 3 998 000 to 4 087 000. Although the initial claims showed a decline, there is no reason to change our forecast for the payrolls report as the stronger than expected figure might at least be partially due to distortions caused by the Thanksgiving Holiday and anyway the latest figure date from after the payrolls survey week.

EMU: Investments and net trade push GDP lower

The preliminary report of third quarter GDP showed a change in the yearly figure from 0.7% Y/Y to 0.6% Y/Y, while the quarter-on-quarter figure stayed unchanged at -0.2% Q/Q. Looking at the details, household consumption is flat (0.0% Q/Q from - 0.2% Q/Q), while investments drop 0.6% Q/Q (from -0.9% Q/Q) and government expenditure rises 0.8% Q/Q. Both exports (0.4% Q/Q from -0.1% Q/Q) and imports (1.7% Q/Q from -0.4% Q/Q) climb, but nex exports were a drag on growth.

Other: Swedish central bank cuts rates by a record 175bp

Sweden’s central bank cut its benchmark interest rate by 175 basis points to 2% in a meeting that was brought forward. The decision came as Sweden’s economic performance worsens rapidly. The Riksbank said : “The repo rate is expected to remain at this level over the coming year.” and added that the fact that the interest rate needs to be cut substantially is also due to monetary policy not having such a large impact recently as it normally does.

The Bank of England reduced its bank rate by 100 basis points to 2.00%, the lowest level since 1951. They commented that downturn has gathered pace and conditions in money and credit markets remain extremely difficult despite the actions taken. The Committee’s projection for inflation showed a substantial risk of undershooting the 2% inflation target in the medium term.

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Published on  Fri, Dec 5 2008, 10:49 GMT