Monday miscellany
Simon Ward
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Amid the gloom in markets, it is worth noting that recent US economic news has been mostly encouraging, consistent with earlier monetary strength. In particular, retail sales recorded another solid gain in October while Philadelphia manufacturers were much more upbeat about order prospects in early November. Both suggest a further gain in the key ISM manufacturing new orders index in November.
The issue, of course, is whether financial and economic weakness spreading from Europe will abort an incipient upswing in US momentum. Historically, the US ISM new orders index has led the corresponding Eurozone purchasing managers’ survey measure rather than vice versa. Is this changing or will the Eurozone “flash” PMI for November released this week show some recovery from a very weak October reading?
The euro weakened last week but many commentators have been surprised at its resilience in the face of escalating sovereign debt woes. September Eurozone balance of payments released today help to explain the puzzle: foreign portfolio investors, unsurprisingly, withdrew funds from the region in the latest three months but this outflow was more than offset by a repatriation of foreign assets by Eurozone residents. This may reflect Eurozone financial institutions being forced to liquidate foreign investments and convert the proceeds into euros because of the seizure of domestic funding markets.
David Smith wrote bearishly about the UK labour market in his Sunday Times column, highlighting a 305,000 drop in the labour force survey (LFS) measure of employees in the latest three months. This fall, however, is partly payback for a similarly odd-looking rise of 161,000 in the prior six months – the exaggerated fluctuations may reflect a sampling error. Vacancies are a smoother measure of labour market demand and lead the LFS measure – they have been moving sideways recently, consistent with stagnant conditions rather than major weakness.
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