The January labour market report suggests no improvement in activity at the start of the first quarter of 2009 following one of the worst quarters in history. In January, payrolls dropped by a net 597 000, the steepest fall in 34 years, but little changed from the disastrous results in both November and December. Including the revisions to the results of the previous two months, the loss in jobs exceeded expectations (- 540K) by about 120 000. The unemployment rate rose to 7.6% from 7.2%, also exceeding expectations (7.5%). The weakness was broad-based with only the government and education & Health sectors adding workers to their workforce. The manufacturing sector was extremely hard hit with a loss of 207 000 jobs, but also construction payrolls fell by a steep 111 000 units. The Service-providing sector shed 279 000 jobs of which 118 000 in the trade/transportation and utility sub-sector. Retailers cut a net 45 000 jobs which is less than in previous months, but we suspect that seasonal adjustment factors might have been a reason for the slightly less bad outcome than recently. Payrolls at Temporary Help Agencies, that lead overall payrolls, showed no sign of improvement either, shedding another 76 000 jobs. Aggregate hours worked, a gauge of activity, fell 0.7% M/M in January, suggesting that the contraction in Q1 growth may be little different from Q4 2008.
EMU: German industrial production collapses
Following on the heels of disastrous order intake in December, industrial production for that month was now reported as down 4.6% M/M and 12% Y/Y, the largest monthly drop since May1989. For the whole of Q4, production fell 6.8% Q/Q the largest quarterly contraction since 1962 (start series) and in line with the very bad Q4 growth figures.
The January ECB bank lending survey indicated that banks continued to their sharp tightening of credit conditions to both enterprises (64% vs. 65% in Q3) and households for both house purchase (41% vs. 36% in Q3) and consumer credit (42% vs. 30%) during the last quarter of 2008. Although the pace of tightening is expected to moderate in the first quarter, this shouldn’t offer too much comfort given the previous sharp tightening. At the same time, demand for loans to both enterprises (-40% vs. -26% in Q3) and to households for both house purchase (-63% vs. -64% in Q3) and consumer credit (-47% vs. -21% in Q3) is expected to continue its recent collapse and suggests that the substantial reduction in official interest rates has failed to boost lending growth.
Other: UK manuf. output weakest in over 30 years
December industrial production fell a steeper-than-expected 1.7% M/M and 9.4% Y/Y, while the cyclical manufacturing output lost even more, down 2.2% M/M and 10.2% Y/Y. This might lead to a downward revision of Q4 GDP figure.
December Producer prices surprised on the upside of expectations: input PPI rose by 1.5% M/M and 2.3% Y/Y, while output PPI edged up by 0.1% M/M and 3.5% Y/Y. Also core output PPI showed a surprisingly high 0.4% M/M and 4.1% Y/Y increase. We suspect that the weakness of sterling goes a long way in explaining the increase in PPI, beside a temporary increase in price crude oil. UK producers should be squeezed as they have to pay more for their inputs, but face falling demand making it unlikely they can pass through the rise in input costs.
