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                    Daily Brief
    Economics and Financial Market Commentary
             March 7, 2008 12:26 pm
           Mick Riordan (x31289), Cristina Savescu (x80812),
Eung Ju Kim (x85804), Shane Streifel (x33867), Annette De Kleine (x34710)

You’ll find recent issues of this Daily and lots of other current analysis and high-frequency data at
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U.S. employment drops 63,000 in February—a 2nd consecutive decline. The
size of February’s job loss surprised most analysts, representing the sharpest
monthly decline in five years, and follows an upwardly revised drop of 22,000
jobs in January [see Daily chart at http://GEM]. At the same time, the
unemployment rate improved to 4.8%, as discouraged workers left active labor
market participation. The Fed also announced this morning that it would add as
much as $200 billion to the banking system over the next month to offset a credit
crisis that appears to be deepening. These news items set the markets off kilter,
with a scramble for Treasuries sending the yield on 10-year notes to 3.55%,
compared with 3.62% yesterday.
Payrolls at builders fell 39,000, an eighth consecutive month of scale-backs.
Manufacturing job losses amounted to the biggest decline since 2003 at 52,000
in the month. And retail payrolls fell 34,100, the largest drop in more-than 5
years. “All the lights are flashing red,� said Nariman Behravesh of Global Insight
in Lexington Mass. “We’re in a recession. I don’t think there is any doubt about it
at this point.�
Continuing major declines on global stock markets. European and Asian
stock markets tumbled again on Friday. This followed a plunge in U.S equities on
Thursday tied to a string of bad news in the housing-, mortgage and credit
markets which intensified fears about a looming U.S. recession. The S&P-500 fell
2.2% yesterday to its lowest level in 18 months, led by the financial sector. Yet
most U.S. equities picked-up in early Friday trading, on better-than-expected
earnings in the technology sector, and rumors of further interest rate cuts. These
appear to have overshadowed the biggest monthly drop in employment
(February) in nearly five years. Of note, the Fed said earlier it plans to boost the
amount of its credit auction this month to $100 billion from $60 billion, to address
a deepening liquidity crunch in financial markets.
Asian stocks closed lower again, posting biggest weekly losses since August, as
heightened worries about U.S. credit markets prompted investors to sell.
Financial stocks led the decline as gauges of credit risk across the region
climbed to records. The MSCI Asia-Pacific Index dipped 2.6%, carrying its
weekly drop to 5%. The A-P index has dropped 11% so far this year. Japan’s
Nikkei-225 index lost 3.3% to 12,782, its biggest drop since the week ended
August 17; while Hong Kong’ Hang-Seng index plummeted 3.6% to 22,501, while
other benchmarks in the region also retreated.
European shares retreated for the fourth day this week following the earlier in
Asia and overnight on Wall Street. The decline was led by banks. Dow Jones
Stoxx-600 index slipped 1% to 308.37 in afternoon trading, as national
benchmarks retreated in all 18 western European markets. The DJ index has lost
15% so far this year. London’s FTSE-100 index slid 1%; France’s CAC-40 index
declined 1% and Germany’s DAX index lost 1.2%.

Among emerging markets...in East Asia, Exports from Taiwan increased 18.5%
in February (y/y), exceeding expectations, linked to higher exports to China.
Export growth accelerated from 11.9% the previous month, as shipments to
China increased at the fastest pace in almost two years. Imports gained 25.9%,
up from 14.8% the previous month, causing the trade surplus to shrink to $1.7
billion from $2.2 billion a year ago. South Korea’s central bank kept its key
interest rate unchanged for a seventh consecutive month, on concerns about
high inflationary pressures and a slowing global economy. The seven-day
repurchase rate was left at 5%. Malaysia’s industrial production advanced 7% in
January (y/y) the fastest expansion in more than a year, and up from a revised
5.8% gain in December. Industry benefited from strong domestic demand and
high commodity prices, which countered the negative effects from softening U.S.
demand for semiconductors and other electronic goods.
In Central and Eastern Europe, the Czech Republic’s GDP growth posted a
record 6.5% in 2007, coming on the heels of a 6.4% gain in 2006, with growth
increasingly balanced. The main contributor to growth on the supply side was
manufacturing, up 11.1%, and contributing 3 percentage points to growth. On the
expenditure side, final consumption increased 4.2% while gross capital formation
was up 9.2%. Exports rose 14.5% while imports gained 13.7% adding 1.1
percentage points to overall GDP growth. Consumer price inflation in Estonia
picked up to 11.3% in February (y/y) the fastest since April 1998, as taxes on
fuel, alcohol and tobacco increased. Prices of food and non-alcoholic drinks
jumped an annual 17.1%, while housing costs and transport prices were up
15.2% and 14% respectively.
Hungary’s growth eased to the lowest in more-than 11 years during the fourth
quarter of 2007, advancing a mere 0.8% (saar), and down from 0.9% the
previous quarter. Private consumption continued to contract in the fourth quarter,
with exports forming the main pillar for growth. In Romania, industrial production
growth picked-up to 6.1% in January (y/y) from 2.6% in December, as a weaker
local currency boosted exports. Output of manufactured goods jumped 7.1% in
January, from 3.4% in December; energy expanded 10%, while output of mined
goods contracted 6.3%. Meanwhile retail sales growth decelerated to 16.6% in
January (y/y) from 20.1% in December, on account of slower growth in food,
alcohol- and tobacco sales.
In Latin America, Mexico’s consumer price inflation stood at 3.7% in February
(y/y) as CPI increased 0.3% in the month according to the central bank.
Meanwhile producer prices increased at more-than double that pace, gaining
0.7% (m/m), as business investment prices rose 2.3%. Peru’s trade surplus
declined to $213 million in January, the lowest level in almost three years, and
down from $994 million in December. Exports gained 35% (y/y) to $2.3 billion,
while imports jumped 52% to $2.1 billion, according to the national statistics
agency. Chile’s trade balance declined to $1.3 billion in February from $2.1 billion
the previous month, as exports fell 12.3% from January (y/y), while imports
inched up to $4.3 billion.
In Sub-Saharan Africa, Consumer price inflation in Mauritius advanced to 9% in
February (y/y), up from 8.9% the previous month, as food prices rose 2.6% in the
month, and hotel and restaurant costs were 2.7% higher.


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