Those few, who still hesitated that the US economy was in recession, as it has not yet had two quarters of negative growth, will throw in the towel after the latest payrolls report. The October payrolls showed a pronounced weakening of labour market conditions. In October, 240 000 jobs disappeared (net), following sharply downwardly revised losses in the previous two months. In September 284 000 jobs were lost (earlier reported at – 159 000), while in August payrolls fell by 127 000 (from an earlier reported -73 000). The unemployment rate jumped to 6.5% from 6.1% in the previous two months, the highest level since the 7.7% registered in the aftermath of the 1990/91 recession. Other indications from the household survey like the pool of available workers and the part time workers surged to levels that surpassed those witnessed in the 2001 recession. The weakness was broad-based with the exception of the local government that added a net 21 000 and the non-cyclical health & education sector adding 36 000 jobs. In the cyclical manufacturing (-90 000 versus -56 000), construction (-49.000) and retail (-38 000 versus -28 000) job losses were very high, but also financials and the business and professional services (-45 000 versus - 39 000) and within this sector Temporary Help Agency payrolls (-34 000 versus -28 000) were hard hit. The diffusion index, that measures the breath of the decline fell to a miserably 37.6 from 38.1 in September, suggesting a broadening of de decline across companies.
Aggregate hours worked fell 0.3% M/M following a 0.6% M/M drop in September. It was the seventh consecutive monthly decline, payrolls even declined in every single month of 2008. Average Hourly earnings rose a modest 0.2% M/M following a similar gain in September. There was no single silver lining in the report and therefore the outlook is for many more job losses in the months and quarters to come. This means that household income is under pressure, leading to reduced consumer spending that will oblige firms to postpone investment, cut production and lay off more workers.
EMU: ECB bank lending survey signals fears for a credit crunch are not overdone
In October, the ECB bank lending survey pointed to a dramatic further net tightening of credit standards for loans to both enterprises (65% vs. 43%) and households, whether it is for house purchase (36% vs. 30%) or consumer credit (30% vs. 24%). At the same time, net demand for loans declined further and remained negative. Net demand for corporate loans declined 26% from -16% in the second quarter, while demand for house purchase loans plunged by 64% down from -56% and demand for consumer credit was unchanged at -21%. The survey was conducted from 23 September to 7 October 2008, just after the collapse of Lehman Brothers. As such, the freezing of the money and credit markets in the aftermath may not have been completely incorporated yet in the survey. This suggests that the current financing conditions may be even worse than indicated by the survey. Overall, the survey signals that the risk of a full-fledged credit crunch in the euro zone should not be underestimated, if it is not yet in train.
In Germany, industrial output fell by 3.6% M/M and 2.1% Y/Y in September, the sharpest monthly drop since the middle of the 90’s. All subcomponents contributed to the decline, which shows the breadth of the current economic crisis. The data appear to confirm that the German economy has contracted again in the third quarter following the negative growth figures in the second.
