Plus   Neg

Jobless Recovery Poses Threat To Sustainability


Economic reports released domestically as well as from other developed countries last week were negative, giving rise to fears that the fragile economic rebound may taper off. The most alarming report from the U.S. was the Conference Board's consumer confidence index, which tumbled to a 10-month low, while from across the Atlantic, the Ifo survey showed a deterioration in business confidence in Germany, Europe's largest economy. Additionally, Germany released its revised GDP report showing growth coming to a standstill in the fourth quarter.

In the U.S., a weak job market is weighing down on consumer confidence and spending. Although the unemployment rate has edged down in recent months, it is still at a 26-year high. The economy is continuing to lose jobs. Unless job and income growth picks up, it is very difficult to keep consumer mood buoyant and unless consumers are willing to spend, the rebound in the economic growth, which is heavily reliant on consumer spending, cannot become sustainable. However, the slowing the rate of job losses has given a flicker of hope that job growth may soon follow. Although February payrolls could see deterioration due to extraneous factors, March should see a reversal, as the effects of these extraneous factors wear off.

The U.S. housing reports released last week were mostly negative. The Commerce Department's new home sales report showed that new home sales declined to 309,000 in January from 348,000 in December, with sales dipping to a record low. New home inventories as measured by the months of supply rose to 9.1 months from 8 months in the previous month. In absolute terms, new home inventories increased to 234,000 from 233,000. The median price of a new home declined 2.4% year-over-year and fell 5.6% month-over-month to $203,500.

The existing home sales report released by the National Association of Realtors also showed a decline in sales to 5.05 million units in January compared to 5.44 million in December. Single-family home sales as well as condominium/co-ops sales fell. Inventories measured by months supply rose to 7.8 from 7.2 in the previous month, while in absolute terms, the number of existing homes available for sales fell to 3.265 million units, marking the lowest since March 2006. The median selling price was flat year-over-year at $164,700.

The Federal Housing Finance Agency's house price index fell 1.6% month-over-month in December compared to expectations for a 0.4% increase. At the same time, the S&P Case-Shiller's house price index declined 3.08% year-over-year in December, more or less in line with expectations. Out of the 20 cities, 7 saw year-over-year gains. On a monthly basis, the index showed a marginal 0.32% advance on a seasonally adjusted basis, rising for the seventh straight month.

Meanwhile, the Conference Board said its consumer confidence index fell 10 points to 46 in February, marking the lowest level since April 2009. The present situation index declined about 6 points to its lowest level since February 1983, while the expectations index fell 13.5 points to 63.8. Economists attributed the slide to the heavy snowstorms that hit many parts of the country and the equity market weakness.

The University of Michigan's consumer sentiment index was revised down 0.1 points to 73.6 in February compared to 74.4 in January. The current conditions index rose 0.7 points to 81.8, while the economic outlook index fell 1.6 points to 70.1.

However, on a positive note, the ISM-Chicago purchasing managers' index rose to 62.6 in February from 61.5 in January, with the index now at its highest level since April 2005. The new orders index declined 4.2 points to 62.2, while the backlog orders index rose 4.2 points to 58.5. However, the inventories index and the employment index moved down 6.3 points and about 7 points to 42.4 and 53, respectively.

Federal Reserve Chairman Ben Bernanke said in his testimony last week that growth in private sector final demand for goods and services, which is essential for a sustained recovery, is happening at a moderate pace. The Fed chief seems to concur with the view that inflation will remain subdued for some time. He clarified that the case for tightening monetary conditions is different from the winding down of the special liquidity schemes created during the crisis and the normalization of its lending to commercial banks through the discount window. His testimony more or less confirms views that the fed funds rate will remain unchanged for a long time.

After a week characterized by weakness on Main Street, market attention now shifts to the unfolding week with a couple of key economic reports that could give direction to the markets. Traders may stay focused on the monthly non-farm payroll employment report to be released on Friday, the results of the Institute for Supply Management's manufacturing and services surveys for February and the Beige Book.

The jobless claims report, the Bureau of Economic Analysis' personal income and outlays report for January, the ADP private sector employment report, the pending home sales index for January and the Fed speeches scheduled to be delivered during the week are also likely to be on the radar. Among the other reports due for the week are the construction spending report, factory goods orders report for January, the revised fourth quarter productivity & costs report and the Federal Reserve's consumer credit report for January. Announcements concerning a series of Treasury auctions of 3-year notes, 10-year notes and 30-year bonds may also draw some attention.

The government's non-farm payrolls data is likely to show distortions arising from the unusually bad weather and hiring related to decennial census. Going by the increase in jobless claims in recent weeks, positive payroll growth may not materialize in February. Additionally, harsh winter weather is also seen as posing downside risk.

The ISM's manufacturing index may see a small decline in February, but it should remain at levels that are consistent with very strong GDP growth. According to Capital Economics, larger export-oriented manufacturers are benefiting from restocking happening domestically and a stronger rebound in final demand abroad. At the same time, these manufacturers aren't impacted significantly by contraction in bank credit. Meanwhile, the non-manufacturing index could see an improvement, given the recent improvement in underlying retail sales growth.

Economists expect the Beige Book to continue to sound cautiously optimistic, although they expect weather to be reported as dampener on activity. BMO Capital Markets is of the view that the report may highlight the potential downside risk on the housing front, given the renewed downturn in the housing indicators.


The Bureau of Economic Analysis is due to release its personal income & outlays report for February. Economists estimate the report, which is due out at 8:30 AM ET, to show that personal income and personal spending climbed 0.4% each in the month.

Personal income increased by 0.4% in December following an upwardly revised 0.5% increase in November. Economists had expected income to increase by 0.3%compared to the 0.4% growth originally reported for the previous month.

Additionally, personal spending edged up by 0.2% in December after an upwardly revised 0.7% increase in the previous month. While the increase in spending was slightly below economist estimates of 0.3% growth, the November growth was upwardly revised from the previously reported 0.5% growth.

The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET. Economists expect the index to show a reading of 57.8 for February.

In January, the manufacturing purchasing managers' index rose to 58.4 from 54.9 in November, with the latest month's reading the highest since August 2004. Thirteen of the eighteen industries showed growth. The new orders index rose 1.1 points and the index of order backlogs climbed 6 points to 56. The employment index continued to climb, rising 3 points to 53.3. Despite increasing 3.5 points, the inventories index remained below '50' at 46.5.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.5% decline in spending for January.

Construction spending fell 1.2% month-over-month, while the previous month's drop was revised downwards to a 1.2% decline from the 0.6% drop estimated initially. Private as well as public construction spending fell 1.2% each. In the private category, multi-family house construction spending fell 4.4%, offsetting a 0.6% increase in spending on single-family homes, while non-residential construction spending edged up 0.2%.


Individual automakers are scheduled to release their monthly U.S. sales results for February. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.

Boston Federal Reserve Bank President Eric Rosengren id due to speak at a conference on post-crisis capital markets in Philadelphia at 1 PM ET. An hour from then, Minneapolis Federal Reserve Bank President Narayana Kocherlakota is scheduled to speak to Allied Executives Business & Economic Outlook Symposium in Minneapolis.


The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 AM ET. The report is usually released two days prior to the Labor Department's employment report. The private sector is expected to have lost 10,000 jobs in February.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is likely to show a reading of 51 for February.

Activity in the services sector expanded at a slower than expected rate in January. The non-manufacturing index rose to 50.5 from 49.8 in the previous month, but came in below expectations for a reading of 51. The weakness was apparently due to soft construction and retail activity. The new orders index climbed 2.7 points to 54.7, marking the highest reading since October 2007, and the employment index was up 1 point to 44.6. However, the index of order backlogs fell 2.5 points to 45.5.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 26th at 10:30 AM ET.

The oil inventory report for the week ended February 19th showed a 3 million barrel increase in crude oil stockpiles to 337.5 million barrels. Crude oil inventories are now above the upper limit of the average range for this time of the year.

Gasoline stockpiles rose by 0.9 million barrels, remaining above the upper limit of the average range. On the other hand, distillate stockpiles fell by 0.6 million barrels, but remained above the upper boundary of the average range. Refinery capacity utilization averaged 79.4% over the four weeks ended February 19th compared to 78.8% last week.

The Federal Reserve is due to release its Beige Book, which is a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.


The Labor Department is due to release its customary jobless claims report for the week ended February 27th at 8:30 AM ET. Economists expect a decline in claims to 475,000.

In the week ended February 20th, initial jobless claims rose to 496,000 from the previous week's revised figure of 474,000. Economists had been expecting jobless claims to slip to 460,000 from the 473,000 originally reported for the previous week.

The U.S. Labor Department is also scheduled to release its final report on fourth quarter non-farm productivity and unit labor costs at 8:30 AM. Economists expect productivity growth to be maintained unrevised at 6.2%.

Preliminary estimates revealed that fourth quarter non-farm productivity rose at a 6.2% sequential rate in the fourth quarter. Economists had expected a 6.5% increase in non-farm productivity.

The productivity growth was helped by a 7.2% increase in output, partly offset by the 1% increase in hours worked. The hours worked increased for the first time since the second quarter of 2007. Meanwhile, unit labor costs fell 4.4%.

30-year bond

The Commerce Department is due to release its report on factory goods orders for January at 10 AM ET. Orders for manufactured goods are likely to have increased 1.2% in the month.

Durable goods orders, which make up the bulk of the factory goods orders, rose 3% month-over-month in January compared to the 1.7% growth expected by economists. The strength was mainly due to a sharp climb in non-defense aircraft orders. However, excluding transportation, durable goods orders fell by 0.6%, with machinery orders serving as a drag. Non-defense capital goods orders, excluding aircrafts, declined 2.9%.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to show a rise of 1.7% for January.

The pending home sales index rose 1% month-over-month in December following a 16.4% plunge in November. The indexes for the Northeast, Midwest and the South rose, but the index for the West declined.

3-year note
10-year note


The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 AM. The report sheds light on the number of paid employees working part time or full time in the nation's business and government establishments, the number of hours worked in the non-farm sector, the basic hourly rate for major industries and the number of unemployed as a percentage of the labor force. Economists estimate that the U.S. economy added 20,000 jobs in February and expect the unemployment rate to remain unchanged at 9.8%.

In January, the U.S. economy lost 20,000 jobs in January, with the recent month's job losses taking the total contraction in payroll employment since the recession started in December by 8.4 million. Economists estimated a gain of 15,000 jobs in January.

The change in total non-farm payroll employment for December was revised to -150,000 from the -85,000 estimated earlier. The Labor Department noted that job losses continued in the construction, transportation and warehousing sectors, while employment increased in temporary help services and retail trade. The unemployment rate based on the household survey fell to 9.7% in January from 10% in December, belying expectations for the rate to have remained unchanged from the December level. Average hourly earnings rose 0.3% in January to result in a 2.5% year-over-year increase.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for January is likely to show a decline of $3.8 billion.

In December, consumer credit outstanding fell 0.8% or $1.8 billion to $2.46 trillion. Non-revolving credit tied to auto loans rose 5.2%, helping to offset to some extend the 11.7% drop in revolving credit associated with credit card loans.

by RTTNews Staff Writer

For comments and feedback: editorial@rttnews.com

Follow RTT