Saturday 4 February 2006

Economic data in US and Europe point to higher interest rates

The latest US employment numbers confirm the previous day's that the labour market is getting tight. Reuters reports:

The U.S. unemployment rate fell to its lowest level in 4-1/2 years in January as employers hired 193,000 new workers, the government said on Friday in a report revising up job growth for the preceding five months.

The jobless rate dropped to 4.7 percent from 4.9 percent in December, the Labor Department said...

Average hourly earnings rose to $16.41 in January from $16.34 in December. In the 12 months through January, earnings have risen by 3.3 percent, the largest for any 12-month period in nearly three years, since February 2003...

The Labor Department revised up December job growth to 140,000 from 108,000 reported previously and said 354,000 jobs were created in November instead of 305,000.

The Reuters report also covered other data on the US economy.

The Commerce Department said factory orders rose 1.1 percent in December on strong demand for machinery and costly durable goods. But a service-sector index from the Institute for Supply Management eased to 56.8 in January from 61 in December, implying slower growth in businesses like restaurants and hotels.

A third piece of data, the University of Michigan's final January index of consumer sentiment, showed confidence flagged in January as high oil prices and a slowdown in overall economic activity in the final months of 2005 took a toll.

Overall, the data set off more fears of higher interest rates.

The prospect of stiffer borrowing costs drove stock prices down. The Dow Jones Industrial Average dropped 58.36 points to end at 10,793.62 and the high tech-laden Nasdaq composite index shed 18.99 points to close at 2,262.58.

But the bond market took the data calmly.

In late trading, the 30-year bond was up 1-1/32 points to yield 4.63 percent, down from 4.70 percent on Thursday.

Europe's economy is also showing signs of heating up, according to this Bloomberg report:

An index of purchasing managers in industries such as airlines and banks in the dozen nations sharing the euro rose to 57 from 56.8 in December, according to a report today by NTC Research Plc for Royal Bank of Scotland Group Plc...

In the euro region, demand for loans to businesses rose "remarkably" in the fourth quarter of 2005, the ECB reported in a survey of bank lending.

The net percentage of banks reporting growing demand for loans rose to 23 percent in the quarter from 17 percent in the third, the Frankfurt-based bank said. Loans for investment, inventories and working capital led the gains...

In the U.K., services expanded for a 34th month. An index of business activity measured 57, down from 57.9 in December, the Chartered Institute of Purchasing & Supply and the Royal Bank of Scotland said today...

Consumer prices rose 2.4 percent in January from a year earlier, the first acceleration in prices in four months, partly because of higher energy costs, a report said today. Crude oil rose more than 11 percent in the month and is up about 39 percent in the past year.

Volume of retail trade had also continued to grow in December.

In December 2005, compared to December 2004, the volume of retail trade grew by 0.8% in the euro-zone and by 2.3% in the EU25. Compared to November 2005, the retail sales index rose by 0.1% in the euro-zone and 0.4% in the EU25.

The data is getting hard to ignore. The Bloomberg report mentioned that on Thursday the European Central Bank left its benchmark interest rate unchanged at 2.25 percent, but that ECB President Jean Claude Trichet also said that bets on an interest-rate increase as soon as next month are "reasonable".

Presumably, the rest of Europe would not be too keen to follow in their UK brethren's footsteps as far as debt is concerned. From Reuters.

The number of people in England and Wales unable to pay their debts jumped an annual 57.1 percent in the fourth quarter of last year to 20,461, the highest quarterly total since comparable records began in 1960, government figures showed...

The number of mortgage repossession orders made in the fourth quarter in England and Wales surged 58 percent on the year, the data showed.

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