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W
EEKLY
E
CONOMIC
&
 
F
INANCIAL
C
OMMENTARY
 
May 8, 2009
U.S. Review Global Review
Nonfarm Employment Change
Change in Employment, In Thousands-800-600-400-20002004006002000200120022003200420052006200720082009-800-600-400-2000200400600Nonfarm Employment Change: Apr @ -539,000
 
Canadian Employment
Month-over-Month Change in Employment, In Thousands-150-125-100-75-50-25025507510012520002002200420062008-150-125-100-75-50-250255075100125Change in Employment: Apr @ 35.9K6-Month Moving Average: Apr @ -53.5K
 
Canadian Turnaround So Soon?
Market watchers were stunned bynews this week that the Canadianeconomy added 35.9K jobs in April.This would be equivalent to a gainof over 350K jobs in the U.S. Doesthis better-than-expected jobs reportmean that the Canadian economywill be among the first economies tostage a lasting recovery?While Canada may indeed be one ofthe first developed nations to findits footing, this jump in payrolls isnot likely a sign of a lastingturnaround. As Han Solo said toLuke Skywalker, “Come on buddy,we’re not out of this yet.” Frommonth to month, there can be somestatistical “noise” in employmentnumbers. As the chart to the leftshows, it is not uncommon toexperience a month of job losses ina period of expansion. So theopposite shouldn’t be surprising. Inorder to filter out the noise, it isuseful to look at a six monthmoving average to get a better sense
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Recent Special Commentary
How Much Trouble Remains?
The economic news continues tomove in the right direction,although most reports remainmerely be ‘less bad’ rather thangood. The morning’s nonfarmemployment figures are a primeexample. Nonfarm payrolls fell539,000 in April, which was lessthan the 600,000 consensus estimate.Despite the smaller than expecteddecline, there are still plenty ofreasons to be concerned. Previousemployment losses were slightlyworse than first reported. Inaddition, April’s payroll figureswere bolstered by a rise of 72,000 ingovernment employment, most ofwhich reflects hiring for the 2010Census. Moreover, April’s smallerloss still translates into an annualloss of nearly 6.5 million jobs.There were a few glimmers of hope.The employment diffusion indexrose nearly eight points to 28.2percent. The average workweekwas also unchanged and the factoryworkweek inched up a tenth of anhour to 39.6 hours. Total hoursworked declined 0.6 percent inApril and are down at a 8.4 percentannual rate over the past threemonths, which is not quite as severeas in the first quarter.
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DateTitleAuthors
May-04Financial Green Shoots Today Induce Policy ContradictionsSilviaApril-30Is What’s Good for GM Still Good for the Country?VitnerApril-29North Carolina - Momentum Slows in the Tar Heel StateSilvia, York & WhelanApril-28Economic Effects of the Swine Flue - Mexico and BeyondBryson
 
U.S. Forecast
ActualForecastActualForecast200820092005200620072008200920101Q2Q3Q4Q1Q2Q3Q4Q
Real Gross Domestic Product
1
0.92.8-0.5-6.3-5.8-0.9-1.70.32.92.82.01.1-2.90.9Personal Consumption0.91.2-3.8-4.31.30.30.71.23.03.02.80.2-0.71.2Inflation Indicators
2
"Core" PCE Deflator2.22.32.31.91.71.41.00.92.12.32.22.21.30.9Consumer Price Index4.24.35.21.5-0.2-1.5-2.9-0.53.43.22.93.8-1.31.2Industrial Production
1
0.2-4.6-9.0-12.7-19.6-7.6-2.50.43.32.31.5-2.2-10.61.7Corporate Profits Before Taxes
2
-1.5-8.3-9.2-21.5-32.0-30.0-26.0-14.017.615.2-1.6-10.1-26.14.5Trade Weighted Dollar Index
3
70.371.076.179.482.585.087.689.986.081.573.379.489.987.1Unemployment Rate4.95.46.16.98.19.19.710.15.14.64.65.89.210.6Housing Starts
4
1.051.030.880.660.520.480.510.552.071.811.340.900.510.74Quarter-End Interest RatesFederal Funds Target Rate2.252.002.000.250.250.250.250.254.255.254.250.250.250.5010 Year Note3.453.993.852.252.712.802.902.904.394.714.042.252.903.60
Data As of: April 8, 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
Initial Claims for Unemployment
Seasonally Adjusted, In Thousands250300350400450500550600650700868890929496980002040608250300350400450500550600650700 Year-over-Year Percent Change: May-2 @ 61.6%Initial Claims: May-2 @ 601.0 Thousand4-Week Moving Average: May-2 @ 623.5 Thousand52-Week Moving Average: May-2 @ 511.0 Thousand
 
Index of Hours Worked
3-Month Annual Rate, 3-Month Moving Average-12%-10%-8%-6%-4%-2%0%2%4%6%8%939597990103050709
Good Proxy for GDP plus or minus Productivity
-12%-10%-8%-6%-4%-2%0%2%4%6%8%3-Month Annual Rate: Apr @ -8.4%
 
(Continued from Page 1)
Fewer Layoffs Appear to be in the Pipeline
There were plenty of encouraging signs this week, although fewcould be characterized as unambiguously good news. The bestnews is that layoffs appear to be subsiding. Weekly first-timeclaims for unemployment insurance declined by 34,000 in lateApril, marking the second consecutive weekly drop. The four-week moving average declined by 14,750 to 623,500, which marksthe fourth consecutive drop. The improvement in jobless claims isnow a little bit too definitive to dismiss, particularly since it isbacked up by a let up in reported job cuts as reported byChallenger, Gray & Christmas, as well as the BLS monthly series.In the past, four consecutive declines in the four-week movingaverage of first-time jobless claims has typically been a sign that therecession is ending. That is what happened at the tail end of thelast recession. That drop, however, was about twice as large inpercentage terms as what we are seeing today. Moreover, joblessclaims were significantly lower than they are today. A strongrecovery did not take hold until the four week moving averagemoved definitively below the 52-week moving average, which didnot occur until nearly two years after the 2001 recession ended.Fewer layoffs are a key precursor to an economic recovery butanother important key ingredient is stronger job growth, and thereare far fewer encouraging signs on that front. Nonfarmproductivity growth did improve during the first quarter, climbingat a 0.8 percent annual rate. The increase follows a 0.6 percentdecline in the fourth quarter. The rise in nonfarm productivitymeans that businesses are getting a better handle on how to alignemployment and hours worked with current and projected salesand output. Rising productivity growth means that future job cutswill not have to be as severe as they have been over the past fivemonths. An actual pick up in hiring, however, will likely takemuch longer to materialize, as businesses will first need to getmore output out of their existing workforce. Productivity usuallysoars in the early stages of a recovery, which bolsters profits andsets the stage for new hiring.Productivity in the factory sector continued to weaken, particularlyfor producers of durable goods. Output in the durable goodssector tumbled at a 31 percent annual rate, which was faster thanmanufacturers could reduce employment and hours worked. Theauto sector undoubtedly accounted for most of this drop andChrysler and GM are planning extended shutdowns over the nextfew weeks. How the economy handles these shutdowns will go along way toward determining when the recession actually ends.
Selected Current Data
2
Gross Domestic Product - CAGRQ1 - 2009-6.1%GDP Year-over-YearQ1 - 2009-2.6%Personal ConsumptionQ1 - 20092.2%Business Fixed InvestmentQ1 - 2009-37.9%Consumer Price IndexMarch - 2009-0.4%"Core" CPIMarch - 20091.8%"Core" PCE DeflatorMarch - 20091.8%Industrial ProductionMarch - 2009-12.8%UnemploymentApril - 20098.9%Federal Funds Target RateMay - 080.25%
 
Productivity Growth
Manufacturing-6%-4%-2%0%2%4%6%8%10%12%14%8890929496980002040608-6%-4%-2%0%2%4%6%8%10%12%14%Qtr/Qtr Annual Rate: Q1 @ -3.4% Year/Year Percent Change: Q1 @ -3.3%
 
 
U.S. Outlook Economics Group
Retail Sales • Wednesday
Retail sales fell 1.1 percent in March, after rising two consecutivemonths (on a revised basis) to begin the year. Declines during themonth were fairly broad based and the core series—ex-gas,building materials and auto dealers—was off 0.9 percent.However, over the first quarter the core measure still managed topost a gain. The Easter calendar shift to April will likely help boostsales further in April.Same store sales spiked in April with gains in discount and drugstores as consumers continue to seek bargains and fulfill somepent-up demand. Department and luxury stores continue to behardest hit as consumers stick to necessities. Additionally, pricesat the pump saw a slight increase from a month ago. However, weexpect motor vehicle sales to continue showing weakness. Thelikely bottoming in retail sales combined with the sharp reductionin business inventories are preconditions to the recovery.
Previous: -1.1% Wachovia: 1.1%Consensus: -0.1%
Retail Sales
Ex-Motor Vehicles, Building Materials & Gasoline Stores-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%9697989900010203040506070809-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0% Year-over-Year: Mar @ -0.2%3-Month Annualized Rate: Mar @ 2.2%
All Series are 3-Month Moving Averages
 
Consumer Price Index • Friday
The Consumer Price Index declined 0.1 percent in March, bringingthe year-to-year change to minus 0.4 percent. Excluding food andenergy, the core CPI rose 0.2 percent in March and remains up 1.8percent over the past year. An 11 percent jump in the price oftobacco products was responsible for over sixty percent of the risein the core CPI during March. This jump in tobacco prices was dueto an excise tax and is not expected stick which should erase someof the previous month’s gain.We expect headline consumer prices to decrease 0.1 percent withfood and beverage declining for the third consecutive month whilegasoline prices rose modestly. Core inflation, which excludes foodand energy, should rise 0.1 percent driven by an increase inowners’ equivalent rent. Many rental properties include utilities inthe monthly rent. As a result, falling energy prices cause themeasured rent used in the CPI calculations to increase.
U.S. "Core" Consumer Price Index
Both Series are 3-Month Moving Averages0%1%2%3%4%5%9294969800020406080%1%2%3%4%5%Core CPI 3-Month Annual Rate: Mar @ 1.5%Core CPI Year-over-Year Percent Change: Mar @ 1.7%
 
Previous: 0.2% Wachovia: -0.1%Consensus: 0.0%
Industrial Production • Friday
The U.S. manufacturing industry continued to suffer under thedouble weight of the worst domestic and global recession sinceWWII. Production dropped 1.5 percent, and manufacturing fell 1.7percent in March. The declines are now 12.8 and 15 percent overthe past year respectively. Capacity utilization continued to dropand reached another all-time low.We expect industrial production likely declined 0.7 percent inApril. However, the pace of the decline is slowing. The ChicagoPurchasing Managers’ Index and ISM manufacturing sawsubstantial increases in April. Headline ISM manufacturing indexrose to 40.1 with improvements in key orders, production andemployment components. We expect capacity utilization levels alsodeclined. Lower utilization will hurt corporate profits in comingquarters as manufacturers’ pricing power will be all but eliminated.
Previous: -1.5% Wachovia: -0.7%Consensus: -0.5%
Total Industrial Production Growth
Output Growth by Volume, not Revenue-25%-20%-15%-10%-5%0%5%10%15%878991939597990103050709-25%-20%-15%-10%-5%0%5%10%15%3-Month Annual Rate: Mar @ -20.0% Year-over-Year Change: Mar @ -11.8%
Both Series are 3-Month Moving Averages
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