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W
EEKLY
E
CONOMIC
&
 
F
INANCIAL
C
OMMENTARY
 
February 06, 2009
U.S. Review Global Review
Nominal GDP
Compound Annual Growth Rate-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%200020022004200620082010-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%Nominal GDP - CAGR: Q4 @ -4.1%Nominal GDP - Yr/Yr Percent Change: Q4 @ 1.7%Forecast
 
Central Bank Policy Rates
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%20002001200220032004200520062007200820090.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%US Federal Reserve: Feb @ 0.25%Bank of England: Feb @ 1.00%ECB: Feb @ 2.00%Reserve Bank of Australia: Feb @ 3.25%
, o
 
Further Monetary Easing Abroad
A number of major central banksheld policy meetings this week andsome, but not all, cut rates further.The
Reserve Bank of Australia
 (RBA) kicked things off on Tuesdayby slashing its policy rate by100 bps, bringing the total amountof easing since September to 400bps (see chart at left). Commodityexports are important to theAustralian economy, and the deepglobal recession that is in train willsurely exert a slowing effect oneconomic activity down-under. TheRBA is cutting rates to cushion theblow to the domestic economy.Despite the deep global downturn,the Australian economy appears tobe holding up better than mostother major economies, at least sofar. For example, retail sales inAustralia shot up 3.8 percent inDecember from the previousmonth, bringing their year-over-year rise to a respectable5.6 percent. (In contrast, total retail
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Recent Special Commentary
Falling Revenues Fuel Layoffs
Employment losses have deepenedconsiderably in recent months andrevisions to previously publisheddata suggest that total job losses forthis recession will now top 6.5million. Nonfarm employmentplunged by 598,000 jobs in Januaryand the unemployment rate rose 0.4percentage points to 7.6 percent.Both numbers were slightly worsethan consensus estimates.The January employment data alsoincluded revisions to previouslypublished data going all the wayback to April 2007. The newfigures bring total job losses toslightly over 3.5 million sinceemployment peaked in December2007. The heaviest losses by farhave occurred during the past fivemonths, a period during whichnominal GDP has been negative.Nominal GDP reflects the volume ofgoods and services producedthroughout the economy and theprice at which they were sold. Inshort, nominal GDP is the revenueof the entire economy. With totalrevenue declining at its worst pacesince the late 1950s, manybusinesses and governments are insurvival mode and have no choicebut to cut jobs.
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DateTitleAuthors
February-05“Buy American” Legislation: An Economic PerspectiveBryson & QuinlanFebruary-04Economic Downturn Challenges State and Local Tax Revenue Vitner & KhanJanuary-28State Employment: December 2008Vitner, York & WhelanJanuary-27Employment: Digging Under the HeadlinesSilvia, York & Whelan
 
U.S. Forecast
ActualForecastActualForecast200820092005200620072008200920101Q2Q3Q4Q1Q2Q3Q4Q
Real Gross Domestic Product
1
0.92.8-0.5-5.3-4.0-1.9-0.50.92.92.82.01.2-2.31.0Personal Consumption0.91.2-3.8-4.0-1.20.00.61.13.03.02.80.3-1.31.2Inflation Indicators
2
"Core" PCE Deflator2.22.32.31.81.41.10.91.22.12.32.22.21.11.6Consumer Price Index4.24.35.31.80.3-0.6-1.51.83.43.22.93.90.02.5Industrial Production
1
0.4-3.4-8.9-9.2-9.8-4.2-2.00.43.32.21.7-1.6-6.60.9Corporate Profits Before Taxes
2
-1.5-8.3-9.2-17.5-25.0-24.0-20.0-14.017.615.2-1.6-9.1-21.05.2Trade Weighted Dollar Index
3
70.371.076.179.485.789.892.193.386.081.573.379.493.381.2Unemployment Rate4.95.36.06.87.58.18.79.05.14.64.65.88.39.4Housing Starts
4
1.051.030.880.670.560.600.640.662.071.811.340.900.610.80Quarter-End Interest RatesFederal Funds Target Rate2.252.002.000.250.250.250.250.254.255.254.250.250.251.0010 Year Note3.453.993.852.252.703.003.103.104.394.714.042.253.103.80
Data As of: January 14, 2009
1
Compound Annual Growth Rate Quarter-over-Quarter
3
Federal Reserve Major Currency Index, 1973=100 - Quarter End
2
Year-over-Year Percentage Change
4
Millions of Units
 
I
NSIDE
 
U.S. Review 2U.S. Outlook 3Global Review 4Global Outlook 5Point of View 6Market Data 7
 
U.S. Review Economics Group
U.S. Review
Nonfarm Employment Change
Change in Employment In Thousands-700-500-300-1001003005002000200120022003200420052006200720082009-700-500-300-100100300500Nonfarm Employment Change: Jan @ -598,000
 
New Orders Non-Defense Capital Goods Ex-Aircraft
Series are 3 Month Moving Averages-40%-20%0%20%40%9395979901030507-40%-20%0%20%40%3 Month Annual Rate: Dec @ -34.1% Year/Year Percent Change: Dec @ -7.9%
 
(Continued from Page 1)
 Widespread Job Losses Should Continue in Early 2009
 Job losses continue to be exceptionally broad based. Virtuallyevery major industry category shed jobs in January, a trend thathas become all too common. The heaviest job losses continue to bein the goods sector, where construction firms shed 111,000 jobs in January and factories cut 207,000 positions. Some of the largestcutbacks were in the motor vehicle sector, where extended plantshutdowns led to huge drops in employment and hours worked.Other areas with particularly large cutbacks in January includefabricated metals and industrial machinery. In all, durable goodsproducers slashed 157,000 jobs in January accounting for just overthree-fourths of the loss in manufacturing jobs.Cutbacks in the durable goods sector are likely to continue.Factory orders declined more than expected in December. Overallorders fell 3.9 percent, following declines of 6.5 percent inNovember and 6.0 percent in October. Orders for non-defensecapital goods excluding aircraft were down 6.3 percent inDecember and plunged at a 34.1 percent annual rate over the pastthree months. Shipments for this same key category fell at lessthan half that pace, declining at a 14.9 percent pace, indicating thatfurther production cutbacks will be needed to bring productionand inventories back in line with demand.There was very little cheer in this week’s other economic reports.Weekly first time unemployment claims rose by 35,000 to 626,000in late January, suggesting that February’s employment data willonce again post a hefty drop. Unemployment will also likely trendhigher from January’s 7.6 percent.Motor vehicle sales came in lower than expected, with cars andlight trucks selling at just a 9.6 million unit annual rate. That pacewas more than half a million units below the consensus estimateand marked the weakest pace for motor vehicle sales since 1982.The weakness in sales will make it even more difficult to clear outbloated inventories of domestic and imported vehicles, whichmeans declines in production and imports will likely extend for afew more months.The only good news this week is that nonfarm productivity rose ata 3.2 percent annual rate during the fourth quarter, as businessesslashed ‘hours worked’ at an even faster rate than output declined.While stronger productivity is a generally a good thing, much ofthe recent gain is likely coming out of necessity. Moreover, the flipside of this report is that businesses have been slashing jobs andhours worked. While these cutbacks are a necessary evil in acapitalist society, they are a very bitter pill to swallow.
Selected Current Data
2
Gross Domestic Product - CAGRQ4 - 2008-3.8%GDP Year-over-YearQ4 - 2008-0.2%Personal ConsumptionQ4 - 2008-3.5%Business Fixed InvestmentQ4 - 2008-19.1%Consumer Price IndexDecember - 20080.1%"Core" CPIDecember - 20081.8%"Core" PCE DeflatorDecember - 20081.7%Industrial ProductionDecember - 2008-7.8%UnemploymentJanuary - 20097.6%Federal Funds Target RateFeb - 060.25%
 
Productivity - Nonfarm Sector
-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%9596979899000102030405060708-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%Qtr/Qtr Annual Rate: Q4 @ 3.2% Year/Year Percent Change: Q4 @ 2.7%
 
 
U.S. Outlook Economics Group
International Trade Balance • Wednesday
The trade deficit narrowed considerably to $40.4 billion inNovember from $56.7 billion, dropping to a five-year low. Acollapse in the value of oil imports explains much of the decline.However, non-oil imports weakened sharply as well, reflectingweakness in the domestic economy. Meanwhile, foreign recessionsare causing exports to decline.It is clear that the combination of a global recession and the globalcredit crunch is causing worldwide trade to dry up. The tradedeficit should continue to improve due in part to the decline in oilprices. Crude oil prices came off roughly 18 percent in December.We expect the trade deficit to continue to narrow to $36.0 billion inDecember. The real trade balance, which is used to calculate realGDP, should also narrow.
Previous: -$40.4 B Wachovia: -$36.0 BConsensus: -$36.4 B
U.S. Exports and Imports
 Year-over-Year Percent Change, 3-Month Moving Average-20%-10%0%10%20%30%949596979899000102030405060708-20%-10%0%10%20%30%Exports: Nov @ 4.0%Imports: Nov @ -0.1%
 
Retail Sales • Thursday
Retail sales plunged 2.7 percent in December, the sixth consecutivedecline. Revisions were substantial with November falling 2.1percent. Core retail sales, which excludes gasoline stations,building materials and autos, fell 1.4 percent. The biggest drop wasin gasoline station sales, which fell 15.9 percent.We expect retail sales will decline 0.2 percent in January with motorvehicle sales continuing to pull down the headline number. Lightvehicle sales registered 9.6 million units in January, the lowest since1982. Same store sales continue to show consumers pulling back ondiscretionary items with department store sales down sharply.Retail sales excluding autos should increase 0.6 percent due in partto a slight uptick in prices at the pump.
Retail Sales Ex-Motor Vehicles & Gasoline Stations
3-Month Moving Averages-12.5%-10.0%-7.5%-5.0%-2.5%0.0%2.5%5.0%7.5%10.0%12.5%15.0%96979899000102030405060708-12.5%-10.0%-7.5%-5.0%-2.5%0.0%2.5%5.0%7.5%10.0%12.5%15.0%Sales, Year/Year Percent Change: Dec @ -1.1%3-Month Annual Rate: Dec @ -10.0%
 
Previous: -2.7% Wachovia: -0.2%Consensus: -0.4%
Business Inventories • Thursday
Business inventories declined for the third consecutive month inNovember providing further evidence of a tough fourth quarter forbusiness spending. The inventory-to-sales ratio continued to climbas sales fell faster than business owners could cut production.We expect business inventories to continue to decline in Decemberdue to the abruptness and depth of the current economic weaknesswhich caught many producers, wholesalers and retailers bysurprise. As a result, many had far too much raw material, work-in-process and finished product. Wholesalers and retailers alikewill look to curtail orders for new products, and manufacturers willhave to continue to cut back output. Unintentional inventoryincreases during a weak growth period pose a considerable risk toproduction activity. We expect production will fall through thenext three quarters.
Previous: -0.7%Consensus: -0.6%
Business Inventories
Total Inventory-to-Sales Ratio1.201.251.301.351.401.451.501.551.609294969800020406081.201.251.301.351.401.451.501.551.60Total Inventory to Sales Ratio: Nov @ 1.41
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