The wheat and grain smokescreen
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Today's employment report is about as mixed as you can get. Payroll jobs are disappointingly anemic while the unemployment rate unexpectedly fell sharply. Overall payroll employment in January posted a minimal 36,000 increase, following a revised 121,000 gain in December and a 93,000 advance in November. The January boost fell short of analysts' estimate for a 140,000 gain. The November and December revisions were down net 4,000. The private sector barely did little better than overall as private nonfarm payrolls increased 50,000 in January, down from a 121,000 boost the prior month. The consensus expected a 150,000 gain.
For the latest month, private service-providing jobs rose 32,000 after a 146,000 increase in December. Good-producing jobs rebounded 18,000, following a 7,000 decrease in December. Manufacturing is showing a boost in momentum as jobs jumped 49,000 after a 14,000 gain the month before. Construction likely was damped by adverse weather, falling 32,000 in January, following a 17,000 decline the prior month. Mining edged up 1,000 in January. Government jobs fell 14,000, following an 18,000 drop in December.
Wage gains improved in the latest month. Average hourly earnings in January rose 0.4 percent, following a 0.1 percent uptick the prior month. The January figure topped the market median estimate for a 0.2 percent increase. Most likely, the rise in earnings was due to the jump in manufacturing employment-in a high wage sector. The average workweek for all workers posted at 34.2 hours, compared to analysts' forecast for 34.3 hours.
On a year-ago basis, overall payroll job growth rose to up 0.8 percent in January from up 0.7 percent in December.
Turning to the household survey, the unemployment rate fell to 9.0 percent from December's unexpectedly low 9.4 percent. The market median estimate was for 9.5 percent. The drop was largely due to a drop in the labor force but household employment rose moderately.
Today's report is baffling, given it contrasts so much with recent surveys showing gains in employment. Severe winter weather may have played a role in delaying hiring. The boost in manufacturing employment is encouraging and likely portends a general strengthening in demand for labor.
In January, 2.8 million persons were marginally attached to the labor force, up from 2.5 million a year earlier. (These data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)
World food prices hit record high
London (CNN) -- World food prices rose to an all-time high in January, according to the UN's Food and Agriculture Organization (FAO).
The FAO's Food Price Index measures the cost of a basket of basic food supplies -- sugar, cereals, dairy, oils and fats and meat -- across the globe.
The index rose by 3.4% in January -- the seventh monthly increase in a row -- to its highest level since records began in 1990.
The cost of sugar, cereals, dairy and oils and fats all went up last month, while meat prices remained steady.
FAO economist Abdolreza Abbassian said high prices were likely to persist in the months to come.
Rising commodities costs are one of the major factors behind a growing wave of civil unrest across the Middle East and North Africa.
"High food prices are of major concern especially for low-income food deficit countries that may face problems financing food imports, and for poor households which spend a large share of their income on food," said Abbassian.
Last week at the World Economic Forum in Davos, Switzerland, economist Nouriel Roubini warned that rapidly rising food prices posed a serious threat to global stability.
"What has happened in Tunisia and is happening right now in Egypt, but also the riots in Morocco, Algeria, Pakistan, are related not only to high unemployment rates and to income and wealth inequality, but also to the very sharp rise in food and commodity prices," he told CNN.
A weather-related pile up of claims in the South unwound in the January 29 week which saw initial claims fall a very steep 42,000 to 415,000 (prior week revised 3,000 higher to 457,000). Alabama, Georgia, North Carolina and South Carolina posted some the biggest declines after the four states posted big increases in the prior week due to snow effects. Distortions always put the emphasis on the four-week average which, unfortunately, is signaling trouble for tomorrow's monthly employment report. The four-week average is up 1,000 to 430,500 to show a roughly 15,000 rise from a month ago.
Other data show dip back for continuing claims, down 84,000 to 3.925 million in the January 22 week, with the unemployment rate for insured workers down one tenth to 3.1 percent. Total workers receiving claims fell a little more than 112,000 to 9.29 million in lagging data for the January 15 week.
This week's very severe weather is certain to distort next week's claims data. But next week's report will be, by comparison, no more than a curiosity compared to tomorrow's release of the January employment report. Markets showed no significant reaction to today's results.
Businesses are still keeping a rein on labor costs, resulting in productivity gains. Nonfarm business productivity rose an annualized 2.6 percent in the fourth quarter after gaining 2.4 percent in the prior quarter. The consensus had forecast a 2.0 percent advance. This gain in productivity reflects increases of 4.5 percent annualized in output in the nonfarm business sector and 1.8 percent in hours worked. Unit labor costs edged down an annualized 0.6 percent in the fourth quarter, following a dip of 0.1 percent in the third quarter. The market median forecast was for no change in labor costs.
Year-ago productivity numbers are weighed down by weakness in output in mid-2010 and the dropping of robust numbers in late 2009/early 2010 in the calculation. Year-on-year, productivity was up 1.7 percent in the fourth quarter-down from 2.6 percent in the third quarter. Year-ago unit labor costs lost ground with an annualized minus 0.2 percent from minus 1.1 percent in the prior period.
The economy continues to improve in terms of output as businesses through the fourth quarter made the most of the workers already on payrolls. At some point, however, businesses will have to boost hours and hiring to grow.
Flat is the best description for the housing sector right now. Mortgage applications did surge in the January 28 week but the comparison, the Mortgage Bankers Association notes, is against a shortened holiday week. MBA's look at the two weeks together shows purchase applications flat and refinance applications down 5%. Mortgage rates are steady and still historically low, at 4.81 percent for 30-year loans.
Challenger reports the fewest layoff announcements, 38,519, for any January since its series began in 1993. Challenger also counts hiring intentions which are strong at 29,492 and led by retail's 10,925. The latter compares with only 600 in January last year. This report points to strength for Friday's jobs report. ADP's estimate for private payrolls will be posted at 8:15 a.m. ET.
ADP's count of U.S. private payrolls slowed in January to plus 187,000 from a downwardly revised 247,000 in December (297,000 first reported). ADP missed badly in December, forecasting strength in what turned out to be weak results. Markets are showing no significant reaction to today's report.
Interest on national debt: 'Skyrocketing' costs ahead
NEW YORK (CNNMoney) -- Interest payments on the national debt could total $5.5 trillion over the next decade, or about 79% of the new debt estimated to accrue between 2012 and 2021.
And that's the optimistic scenario.
"Interest payments on the debt are poised to skyrocket over the next decade," the nonpartisan Congressional Budget Office wrote in its most recent budget outlook report.
The CBO -- and everyone else for that matter -- assumes that interest rates will rise. Just how quickly is the question. The CBO assumes a gradual rise, and projects that the 10-year Treasury rate won't hit 5% before 2015, up from an average of 3.2% today.
Iceland Shows Ireland Did ‘Wrong Things’ Saving Banks
“Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks,” says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.”
Ireland guaranteed all the liabilities of its banks when they ran into trouble and has been injecting capital -- 46 billion euros ($64 billion) so far -- to prop them up. That brought the country to the brink of ruin, forcing it to accept a rescue package from the European Union in December.
Both income and spending continued to advance at the consumer level in December. Not surprisingly, headline inflation was hotter while the core rate remained subdued. Personal income in December rose 0.4 percent, following a 0.5 percent gain in November. Analysts projected a 0.4 percent increase. However, the wages & salaries component was soft, rising 0.1 percent after increasing 0.6 percent in November.
Consumer spending for the latest month was boosted by auto sales and higher gasoline prices. Personal consumption expenditures posted a sizeable 0.7 percent gain, following a 0.3 percent increase in November. For the latest month, strength was led by nondurables, up 1.5 percent (including gasoline), with durables gaining 0.7 percent. Services advanced 0.4 percent for the month. But spending was strong even after discounting price effects. Real spending jumped 0.4 percent in December after a 0.2 percent rise the month before.
Year on year, personal income for December came in at up 3.9 percent, compared to 3.8 percent in November. PCEs growth slipped to 3.8 percent from 4.1 percent in November.
On the inflation front, the PCE price index jumped 0.3 percent, following a 0.1 percent uptick in November. The core rate came in unchanged after edging up 0.1 percent in November. On a year-ago basis, headline PCE prices are up 1.2 percent, compared to 1.1 percent in November. Core inflation eased to 0.7 percent year-on-year versus 0.8 percent in November.
On average, consumers are seeing moderately healthy income gains support strong gains in spending. The latest report shows the consumer very much supporting recovery.